<PAGE> 1
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 1-13298
ZEIGLER COAL HOLDING COMPANY
(Exact name of registrant as specified in its Charter)
DELAWARE 36-3344449
(State of incorporation) (I.R.S. Employer Identification No.)
<TABLE>
<CAPTION>
<S> <C> <C>
50 JEROME LANE 62208 (618) 394-2400
FAIRVIEW HEIGHTS, ILLINOIS (Zip Code) (Registrant's telephone number,
(Address of principal executive offices) including area code)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [ X ] Yes [ ] No
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 ]
On March 13, 1998, the aggregate market value of the shares of voting
stock of the Registrant held by non-affiliates was approximately $296 million.
As of March 13, 1998, 28,199,711 shares of the Registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed
pursuant to Regulation 14A for the 1998 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Report.
<PAGE> 2
ZEIGLER COAL HOLDING COMPANY
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
1 Business ............................................. 1
2 Properties ........................................... 15
3 Legal proceedings .................................... 15
4 Submission of matters to a vote of security holders .. 15
PART II
5 Market for registrant's common stock and related
shareholder matters ................................. 18
6 Selected financial data .............................. 19
7 Management's discussion and analysis of financial
condition and results of operations ................. 21
8 Financial statements and supplementary data .......... 27
9 Changes in and disagreements with accountants on
accounting and financial disclosure ................. 51
PART III
10 Directors and executive officers of the registrant .... 52
11 Executive compensation ................................ 52
12 Security ownership of certain beneficial owners and
management ........................................... 52
13 Certain relationships and related transactions ........ 52
PART IV
14 Exhibits, financial statement schedules and reports
on Form 8-K .......................................... 53
Signatures.................................................. 59
i
<PAGE> 3
PART I
ITEM 1. BUSINESS
Zeigler Coal Holding Company ("Zeigler" or the "Company"), through its
subsidiaries, is one of the largest coal producers in the United States. The
Company currently operates, through its subsidiaries, seven active underground
and surface coal mining complexes located in five states, two east coast
transloading terminals, a power marketing business, and other energy-related
businesses.
Coal operations accounted for 75% of the Company's total revenues and 125%
of operating earnings in 1997. The Company produces primarily steam coal, with
sales to electric utilities accounting for approximately 90% of its 1997
revenues from coal sales. In 1997, approximately 89% of the Company's revenues
from coal sales resulted from long-term supply contracts, most of which call
for prices that exceed the price at which such coal could be sold in the spot
market. At December 31, 1997, the Company owned or held through leases
approximately 1.2 billion tons of economically recoverable coal reserves,
including .9 billion tons of low-sulfur and compliance coal.
HISTORY
In January 1985, the Company purchased Zeigler Coal Company from Houston
Natural Gas Corporation. At that time, Zeigler Coal Company's mines and
principal reserves were located in southern and central Illinois. In July
1990, the Company acquired all of the common stock of Old Ben Coal Company from
BP America Inc. At the time of the acquisition, Old Ben Coal Company had mines
and reserves in Illinois, Indiana and West Virginia. In November 1992, Zeigler
Coal Company was merged into Old Ben Coal Company. Also in November 1992, the
Company acquired all of the stock of Shell Mining Company. At the time of the
acquisition, Shell Mining Company controlled mines and reserves in 10 states,
two transloading terminals located on the east coast, Encoal Corporation, and
other coal-related assets.
In 1996, the Company established EnerZ Corporation, the Company's energy
trading and marketing subsidiary, which received approval from the Federal
Energy Regulatory Commission ("FERC") in the fourth quarter of 1996 for status
as a wholesale power marketer, and initiated trading activities in the first
quarter of 1997. Another subsidiary, Zenergy, Inc., owns a 30% interest in
Louisiana Generating LLC, which has made an offer to purchase out of bankruptcy
the non-nuclear assets of Cajun Electric Power Cooperative, Inc. of Baton
Rouge, Louisiana.
On December 3, 1997, the Company announced that it was retaining an
investment banking firm to explore various strategic alternatives to maximize
value for shareholders, including the possible sale of the entire Company. In
connection therewith, the Board of Directors adopted a change-in-control
severance plan and retention bonus plan for all salaried employees as well as
special incentives for certain key employees. The Company has since retained
the investment banking firm Credit Suisse First Boston and prepared materials
for interested parties.
1
<PAGE> 4
COAL OPERATIONS
The Company views each of its mining complexes as a separate resource, with
distinct coal qualities, reserve lives, transportation alternatives, and
production and cost characteristics. While spot market sales may justify
continued operations of a particular mine, the Company generally seeks long-term
coal supply contracts for each mine's output. Due to the Clean Air Act
Amendments of 1990 (Clean Air Act), the Company expects to expand the sale of
its low-sulfur coal resources and to focus its higher-sulfur coal sales effort
on those utilities which have installed scrubbers or have other capabilities to
meet their compliance objectives with such coal. The Company intends to develop
its reserves and open mines as satisfactory long-term commitments for the coal
are obtained.
The Company's active coal operations include the following:
Bluegrass Coal Development Company - Bluegrass includes Evergreen Mining
Company in West Virginia, Pike County Coal Corporation in Kentucky, R. & F.
Coal Company in Ohio, and Turris Coal Company in Illinois.
Mountaineer Coal Development Company - Mountaineer consists of Marrowbone
Development Company in West Virginia.
Old Ben Coal Company - Old Ben consists of Old Ben Mine #11 in Illinois.
Triton Coal Company - Triton includes the Buckskin Mine and the North
Rochelle Mine (under development) in Wyoming.
Sales and Marketing
Franklin Coal Sales Company ("Franklin") provides sales and marketing
support to all Zeigler companies. Sales activities are organized for the
different coal groups, with a sales team responsible for all accounts within
each group. The sales teams are responsible for submitting bids,
negotiating sales terms and conditions, and for providing other services as
customers require. Franklin provides a limited range of services to other
Zeigler companies, including coal purchasing for blending and market research.
Franklin forecasts future demand for various coal types and works with
employees of the operating companies to determine the optimal production of
coal. Franklin also assists in the negotiation and maintenance of coal sales
contracts, helps customers in securing transportation agreements, and monitors
compliance with contract terms and delivery schedules.
Competition and Pricing
Zeigler competes with other large producers and hundreds of small
producers in the U.S. and abroad. The principal customers for Zeigler coal
production are electric utilities, with coal qualities, price, location,
transportation costs, and reliability being the most important factors upon
which the Company competes with other coal producers. Most of Zeigler's
production is sold under long-term coal supply contracts which are the result
of competitive bidding and extensive negotiations.
The markets in which Zeigler sells its coal are affected by numerous
factors beyond Zeigler's control. Continued demand for Zeigler's coal and the
prices that Zeigler will be able to obtain will depend primarily on coal
consumption patterns of the domestic electric utility industry which in turn
are affected by the demand for electricity, environmental and other
governmental regulations and orders, technological developments, and the
availability and price of competing coal and alternative fuel supply sources
such as natural gas or oil.
2
<PAGE> 5
Transportation is an important factor in coal marketing because a
significant portion of a customer's delivered cost of coal is attributable to
transportation. Generally, transportation costs from the mine to the place of
use (e.g., the customer's power plant) are incurred directly by the customer.
The availability and cost of transportation affects the marketability of coal.
In 1997, approximately 82% of Zeigler's sales tonnage left the mine site
by rail with the balance by truck. Transportation by inland waterway barges,
at a lower cost than by railroad, is available to many of Zeigler's mines in
the Midwest and West Virginia, and approximately 24% of the Company's coal
shipments are moved by barge at some point during shipping. Most of the
Company's mines are served by a single railroad, although some mines are served
by multiple railroads. The Staggers Rail Act of 1980 limited the Interstate
Commerce Commission's regulation of the railroad industry and increased the
freedom of railroads to set their own rates and enter into transportation
contracts. The practices of and rates set by the railroad servicing a mine may
affect, either adversely or favorably, Zeigler's marketing efforts with respect
to coal produced from that mine.
North Rochelle Development
The Company announced in February 1996 the full-scale development of
Triton Coal Company's North Rochelle mine in the southern Powder River Basin.
Since that time, Triton has been primarily engaged in moving dragline
overburden removal equipment to the site, production of diligence tonnage,
permitting, and engineering and construction work. At this time, Triton
estimates full production at North Rochelle to begin in the first quarter of
1999. The estimated total cost to develop North Rochelle is approximately
$100.0 million.
Long-term Coal Supply Contracts
Zeigler's subsidiaries have entered into various long-term coal supply
contracts with its electric utility customers. Customers enter into long-term
contracts for coal principally to secure a reliable source of supply at a
predictable price. Zeigler enters into such contracts to provide the stable
sources of revenues required to support the large expenditures needed to open,
expand or maintain a mine to service the contract. The Company's major
long-term contracts have remaining terms ranging from one to 18 years. The
loss of certain long-term contracts could have a material adverse effect on
Zeigler's operations and business. The following table sets forth information
regarding the Company's long-term coal supply contracts which, at December 31,
1997, had remaining terms of one or more years.
3
<PAGE> 6
<TABLE>
<CAPTION> Actual
Expiration 1997
Date of Tonnage
Contract (1) (In millions)
---------------- -------------
<S> <C> <C>
Western Fuels Association, Inc. - Cajun Electric Power
Cooperative, Inc. ................................................. 2016 (2) 5.8
Western Fuels Association, Inc. - Basin Electric Power Cooperative .. 2000 3.2
Carolina Power & Light Company - Marrowbone ......................... 2006 2.7
West Texas Utilities - Buckskin ..................................... 1999 2.7
Georgia Power Company - Marrowbone .................................. 2008 1.5
Carolina Power & Light Company - Wolf Creek ......................... 2004 1.5
Columbus Southern Power Company ..................................... 1999 1.3
Springfield City Water, Light & Power ............................... 2011 1.2
Tampa Electric Company .............................................. 2004 1.0
Georgia Power Company - Pike County ................................. 2010 1.0
Muscatine Power & Water ............................................. 2002 0.6
Duke Power Company .................................................. 2003 0.5
South Carolina Public Service Authority ............................. 2000 0.5
Northern Indiana Public Service ..................................... 1998 0.5
Ohio Edison Company - Evergreen/Marrowbone .......................... 2000 0.4
Cardinal Operating Co. - Evergreen .................................. 2006 0.4
Lodestar Energy - Pike County ....................................... 2001 0.4
Carolina Power & Light Company - Pike County ........................ 2004 0.4
AE Staley ........................................................... 1998 0.3
Electric Fuels Corporation .......................................... 2002 0.2
ADM - CCP ........................................................... 1998 0.2
Anker Energy - Evergreen ............................................ 1999 0.1
Western Farmers Electric Cooperative ................................ 2011 (3) -
Oklahoma Gas and Electric Company ................................... 2011 (4) -
Carolina Power & Light Company - Marrowbone.......................... 2006 (5) -
</TABLE>
(1) Reflects stated term of contract and does not assume the exercise by the
Company of unilateral options to extend. The contract reopeners and
other provisions of certain contracts may make the specified term of a
long-term contract less meaningful.
(2) Earliest estimated expiration date. Actual date will vary with life of
the units used by the customer. See Item 8., "Financial Statements and
Supplementary Data," Note 16, below.
(3) The contract contains a 15 year first-right-of-refusal extension
provision in favor of Triton. In an effort to assist its customer in
meeting its Phase II (Clean Air Act) requirements, Zeigler converted the
extension provision into a firm contract for North Rochelle coal,
contingent on opening the North Rochelle mine. The contract provides the
flexibility for deliveries from Buckskin, under certain circumstances, if
North Rochelle is not yet in commercial production by 1999. The Company
estimates that full production at North Rochelle will begin in the first
quarter of 1999.
(4) Shipments will commence upon the opening of the North Rochelle mine for
1.0 million tons per year for the first year (1999) and 4.0 million tons
per year thereafter until 2011.
(5) Shipments will commence in 1998 for a total of 6.1 million tons over the
contract period.
The terms of long-term coal supply contracts are the result of both
bidding procedures and extensive negotiations with the customer. As a result,
the terms of such contracts vary significantly in many respects, including
price adjustment features, price reopener terms, coal qualities, quantity,
flexibility and adjustments, Zeigler's ability to provide coal from various
sources, environmental restraints, force majeure provisions, termination
provisions, extension options and assignability.
4
<PAGE> 7
A majority of Zeigler's long-term coal supply contracts contain price
reopener provisions under which the contract price can be periodically adjusted
upward or downward based on changes in the market price of coal since the
contract was executed or the last application of a price reopener provision.
The price reopener provision may specify an index or other market pricing
mechanism on which a new contract price is to be based. Frequently, bid
solicitations are sent by the customer to other suppliers to use in
establishing a new price or for the purpose of establishing a
first-right-of-refusal. In some cases, the parties may seek an arbitration or
other dispute resolution mechanism if the parties do not agree. In other
cases, the contract may provide for termination if the parties do not agree.
Some price reopener provisions contain limitations on the amount of price
change that can result from application of the provision.
Contract prices under long-term coal supply agreements frequently vary
from the price at which a customer is able to acquire and take delivery of coal
of similar quality in the spot market. The delivered cost to the customer in
the spot market will depend on the quality of the available coal, the
competitive climate in the market from which deliveries can economically be
made, the availability and cost of transportation to the customer's facility
and other factors. All such factors vary from time to time.
Some of these contracts contain hardship or gross inequities clauses.
From time to time, customers have asserted the right to use these clauses as
price reopener clauses in an attempt to reduce the prices under long-term
contracts. The Company has rejected these assertions, but there can be no
assurance that customers will not assert such clauses in the future in an
attempt to obtain favorable price concessions. In most cases, market
conditions do not constitute gross inequities or hardship.
Zeigler's long-term coal supply contracts specify qualities for the coal
to be delivered relating to the coal's BTU, sulfur and moisture content,
grindability, and other factors. Generally, coal quality specifications are
based on the reserves from which the coal is intended to be mined, and the
contract may specify the reserves from which the coal is to be mined.
Zeigler's long-term coal supply contracts contain force majeure provisions
allowing suspension of performance by Zeigler or the customer to the extent
necessary during the duration of certain events beyond the control of the
affected party, including labor disputes, natural disasters, casualties,
government impositions, transportation disruptions, and similar events.
Certain contracts may terminate upon continuation of an event of force majeure
for an extended period of time (generally six months or more). Deficiencies in
deliveries of coal which are caused by force majeure may or may not be made up,
depending upon the specific language of the contract or needs of the parties.
From time to time during the term of the various long-term contracts,
Zeigler is involved in disputes relating to, among other things, coal quality,
pricing and quantity. While customer disputes, if unresolved, could result in
termination or cancellation of the contract involved, Zeigler's experience has
been that curative and/or dispute resolution measures decrease the likelihood
of termination or cancellation. In addition, Zeigler's development of
long-term business relationships with many of its customers has generally
permitted it to resolve business disputes in a mutually acceptable manner.
Nonetheless, Zeigler has from time to time been involved in arbitration and
other legal proceedings regarding its long-term contracts and there can be no
assurance that existing and future disputes can be resolved in a mutually
satisfactory manner. The Company believes that in recent years the potential
deregulation of electric utilities and reduced spot market prices for coal have
caused some customers to become more aggressive in seeking to reduce, modify,
or terminate their obligations under their long-term contracts.
5
<PAGE> 8
The operating profit margins realized by Zeigler under its long-term coal
supply contracts depend on a variety of factors, vary from contract to
contract, and will fluctuate during the contract term, depending on contract
provisions, Zeigler's production cost, and other factors. Termination or
suspension of deliveries under a high-priced contract could have an adverse
effect on earnings and operating cash flow disproportionate to the percentage
of production represented by the tonnage delivered under such contract.
From time to time the Company discusses possible modifications to
long-term contracts with its customers, with a view toward responding to
concerns (including price and quality issues) raised by its customers while
preserving or enhancing the value of the contract to the Company. In 1996, the
Company worked closely with several significant customers to reduce contract
risk, increase contract tonnage, and give Zeigler the flexibility to better
operate its mines in a cost effective manner as well as help customers meet
their own needs. Elements of a contract that can be renegotiated include
sourcing and geographic flexibility, quality flexibility, increased volume, and
multi-tier pricing. The Carolina Power & Light Company ("CP&L") contracts
described below were renegotiated in 1996 to accomplish one or more of those
elements.
The following discussion contains a brief description of long-term
contracts relating to customers that accounted for more than 10% of Zeigler's
consolidated 1997 revenues from coal sales. Each of these contracts calls for
coal prices that exceed the current spot price for coal sold in their
respective markets. The six contracts, four long-term contracts with CP&L and
two long-term contracts with Georgia Power Company, collectively accounted for
approximately 45% of revenues from coal sales and more than 83% of the
Company's operating income in 1997.
Carolina Power & Light Company - CP&L has four long-term contracts to
purchase coal from subsidiaries of the Company during 1998. One contract
provides for 2.8 million tons annually from the Marrowbone mining complex
through 2006. The second contract, also from Marrowbone, provides for a
total of 6.1 million tons over the contract period which commences in 1998
and expires 2006. Both contracts have fixed price increases each year. The
third agreement, which expires in December 2004, provides for the
purchase of 1.5 million tons of coal annually with fixed quarterly tonnage
increases. Currently, coal required to fulfill this contract is being
purchased from outside suppliers. A fourth contract calls for 0.5 million
tons annually from Pike County or other CSX sources expiring in 2004.
This contract price is adjusted by a published index. During 1997 and
1996, sales to CP&L under these contracts accounted for approximately 29%
and 18%, respectively, of Zeigler's consolidated revenues from coal sales.
Georgia Power Company - Georgia Power Company has two long-term contracts
with subsidiaries of the Company. One contract requires the purchase of
1.5 million tons annually from Marrowbone. This agreement expires in
December 2008 with an option to extend for five years with the mutual
consent of both parties. The price adjusts to reflect changes in industry
labor costs, quarterly changes in indices, and any changes in governmental
impositions resulting from new or amended laws, rules and regulations
levied upon the production, preparation or sale of coal. The contract has
a partial price reopener in July 1999 and every five years thereafter.
Georgia Power also has a long-term contract, which expires in December
2010, to purchase 1.0 million tons annually from Pike County. The price
adjusts to reflect changes in industry labor costs and quarterly indices
and may be reopened every five years. The next reopener will be January
2001. During 1997 and 1996, sales to Georgia Power under these contracts
and short-term arrangements accounted for approximately 16% and 14%,
respectively, of Zeigler's consolidated revenues from coal sales.
6
<PAGE> 9
Coal Reserves and Other Properties
The Company controls coal reserves in 10 states which contain substantial
amounts of coal of varying qualities. Reserve estimates are prepared by the
Company's engineers and geologists and reviewed periodically to reflect data
received and developments affecting the reserves. Accordingly, reserve
estimates will change from time to time reflecting mining activities, analysis
of new engineering and geological data, changes in reserve holdings,
modification of mining plans, or mining methods and other factors.
The following table summarizes the Company's coal reserves as of December
31, 1997. Information in the table, including the classification of reserves as
"Economic," is based on estimates by Company personnel. As used in the table,
the following terms are defined as follows: "Assigned reserves" refers to
reserves legally recoverable generally through existing facilities using
current mining technology; "Economic" means that the reserve is recoverable
using current mining technology at costs estimated to be similar to those
incurred by currently operating mines producing similar quality coal;
"Unassigned reserves" refers to reserves legally recoverable using current
mining technology but which would require substantial capital investment for
facilities to enable recovery of the coal. In addition to the reserves
reflected in the table, the Company owns or holds through leases approximately
870.3 million tons of coal deposits which are minable using current mining
technology but the costs of mining such coal may cause recovery to not be
commercially viable under current economic conditions or require further
investigation and evaluation to determine whether recovery is commercially
viable.
<TABLE>
<CAPTION>
Underground Reserves Measured Indicated
(UG) or (tons in (tons in (tons in Sulfur
Mine Surface (S) millions) millions) (1) millions) (2) (%) (3) Btu/lb.
- ----------------------------- ---------- --------- ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSIGNED ECONOMIC RESERVES:
Mountaineer Coal Development Co.
Marrowbone(4) UG&S 25.4 23.6 1.8 0.7 12,100
Wolf Creek UG 11.7 9.7 2.0 1.7 13,275
Old Ben Coal Company
Old Ben Mine #11 UG 18.3 18.3 - 2.3 11,100
Bluegrass Coal Development Co.
Evergreen S 31.3 31.3 - 1.0 12,350
Pike County UG&S 37.3 37.3 - 1.2 12,500
R. & F. S 31.6 31.6 - 3.8 11,800
Turris UG 71.3 71.3 - 3.0 10,400
Triton Coal Company
Buckskin S 466.4 300.7 165.7 0.5 8,350
North Rochelle S 329.0 293.7 35.3 0.2 8,850
------- ----- -----
Total assigned economic reserves 1,022.3 817.5 204.8
UNASSIGNED ECONOMIC RESERVES 170.4 123.1 47.3
------- ----- -----
TOTAL ECONOMIC RESERVES 1,192.7 940.6 252.1
======= ===== =====
</TABLE>
7
<PAGE> 10
(1) "Measured" reserves are those with the highest degree of geologic
assurance. Coal quantities are computed from bed thickness measurements
in core holes, mine workings, and bed outcrops of prospect trenches. The
measurement sites are so closely spaced that coal bed continuity, geometry
and minability are well established. Generally, coal that lies within
1/4 mile of a reliable point of coal thickness measurement is considered
in the measured class.
(2) "Indicated" reserves are those with a moderate degree of geologic
assurance. The assurance, although lower than for proven reserves, is
high enough to assume continuity between points of measurement. Coal that
lies between 1/4 and 3/4 mile from a point of coal thickness measurement
is considered in the indicated class.
(3) The percentage of sulfur content is not necessarily indicative of the
suitability of the coal for consumption in compliance with applicable air
quality laws. Such suitability is dependent upon a number of other
factors, including other coal characteristics (such as BTU content), the
emission control technology used or to be used at the power station, and
specific emission limitations applicable to that station. Current
estimates of coal reserves owned or leased by the Company that would be
considered "compliance" (coal which, when burned, emits less than 1.2
pounds of sulfur dioxide per million BTU) coal are 0.9 billion tons. In
addition, the Company estimates that it has 0.3 billion tons of reserves
which, when burned, would emit less than 2.0 pounds of sulfur dioxide per
million BTU.
(4) 54.8 million tons of reserves previously shown as assigned at Marrowbone
have been reclassified as unassigned to reflect the legal ownership of
those reserves.
Of the total 1,192.7 million tons of economic reserves shown above,
approximately 15.0% are owned by Zeigler or its subsidiaries, approximately
18.3% are leased from private parties, and approximately 66.7% are leased from
the federal government. Of the remaining 870.3 million tons of
non-economically recoverable coal deposits, approximately 66.4% are owned by
Zeigler or its subsidiaries, approximately 32.1% are leased from private
parties, and approximately 1.5% are leased from state governments.
The private leases generally have terms of between 10 and 20 years,
although they generally allow Zeigler the right to renew the lease for a stated
period or to maintain the lease in force until the exhaustion
of minable and merchantable coal. These leases provide for royalties to be
paid to the lessor either as a fixed amount per ton or as a percentage of the
sales price. Many leases also require payment of a lease bonus or minimum
royalties, payable either at the time of the execution of the lease or in
periodic installments. In most cases, the minimum royalty payments are applied
to reduce future production royalties. The loss of certain leases could
adversely affect Zeigler's ability to develop the related mine.
Zeigler holds four federal coal leases which are administered by the
United States Department of the Interior pursuant to the Federal Coal Leasing
Amendments Act of 1976. These leases cover the Company's principal reserves in
Wyoming. Each of these leases continues for an indefinite term provided there
is diligent development of the lease and continued operation of the related
mine or mines. The Bureau of Land Management ("BLM") has asserted the right to
adjust the terms and conditions of these leases, including rents and royalties,
after the first 20 years of their life and at 10-year intervals thereafter.
Annual rents under the Company's BLM leases are now generally $3 per acre.
Production royalties on BLM leases are 12.5 percent of the gross proceeds of
coal mined and sold.
8
<PAGE> 11
Consistent with industry practices, the Company conducts limited
investigations of title to its coal properties prior to leasing. The title of
the lessors or grantors and the boundaries of the Company's leased properties
are not completely verified until such time as the Company prepares to mine
such reserves. If defects in title or boundaries of undeveloped reserves arise
in the future, the Company's control of and right to mine such reserves could
be adversely affected.
NONCOAL OPERATIONS
The Company's noncoal operations primarily consist of EnerZ, the Encoal
clean coal demonstration plant, Zeigler Environmental Services Company, two
east coast transloading terminals, and Zenergy, Inc.
EnerZ Corporation, located in New York, New York, is the Company's energy
trading and marketing subsidiary. The Company's eight professional staff
members participate in the wholesale electric power market, and in both bulk
wholesale and retail gas marketing. Approximately 80% of the 1997 revenues
were generated from electricity transactions with the remainder attributable to
natural gas trading.
Encoal Corporation owns a pilot plant at the Buckskin Mine in Wyoming
which was constructed in cooperation with the Department of Energy ("DOE") as
part of the Clean Coal Technology Program, a DOE program designed to develop
new technologies for producing and using clean coal. The demonstration plant
was idled in September 1997.
Zeigler Environmental Services Company, located in Fairview Heights,
Illinois, is the Company's construction management and reclamation services
subsidiary.
Pier IX, located on 66 acres in Newport News, Virginia, is served by the
CSX railroad and deals primarily with coal and cement. Pier IX has an annual
throughput capacity of 12.0 million tons per year.
Shipyard River Coal Terminal, in Charleston, South Carolina, is located on
50 acres of land at the mouth of the Port of Charleston. The terminal accesses
both rail and water transportation and handles liquid, granular, and bulk
materials including coal, fertilizers, aggregates, asphalt and other industrial
minerals. Shipyard has an annual throughput capacity of 2.5 million tons per
year and is served by the CSX and Norfolk Southern railroads.
Zenergy, Inc., owns a 30% interest in Louisiana Generating LLC
("Generating"), which has made an offer of $1.2 billion to purchase out of
bankruptcy the non-nuclear assets (the "Cajun Assets") of Cajun Electric Power
Cooperative, Inc. of Baton Rouge, Louisiana. This proposal was named the lead
proposal by Cajun's court-appointed bankruptcy trustee. The trustee filed a
plan of reorganization that incorporates Generating's proposal, including a
definitive purchase agreement (the "Purchase Agreement") containing bankruptcy
court-approved buyer protection provisions.
Cajun's non-nuclear assets include 1,463 megawatts of coal burning
capacity and 220 megawatts of gas-burning capacity, along with related
operating facilities such as a load control center. Cajun supplies about 80%
of the power to the rural Louisiana markets and is currently operating at about
60% capacity. Cajun filed for bankruptcy protection in December 1994.
9
<PAGE> 12
The consummation of Generating's acquisition of the Cajun Assets is
subject to a number of conditions, including, without limitation, the entering
of a final and non-appealable order by the United States Bankruptcy Court for
the Middle District of Louisiana (the "Bankruptcy Court") confirming the
trustee's plan of reorganization that incorporates the terms and conditions of
the Purchase Agreement, the receipt of all regulatory approvals, and other
conditions customary for transactions such as the acquisition of the Cajun
Assets. Two other competing reorganization plans for Cajun have been filed
with the Bankruptcy Court. Because of the uncertainty as to whether or when
the Bankruptcy Court will confirm the trustee's plan of reorganization
(especially in light of the competing reorganization plans and competitive
bidding nature of the bankruptcy proceeding) and as to whether all of the
conditions to consummating the acquisition of the Cajun Assets can be
satisfied, there can be no assurance that Generating's acquisition of the Cajun
Assets will be consummated upon the current terms and provisions of the
Purchase Agreement or any other terms. On March 18, 1998, Generating submitted
its final proposal for the acquisition of the Cajun Assets for a purchase price
of approximately $1.2 billion. Generating's purchase price exceeds both of the
other competing bids for the acquisition of the Cajun Assets. After March 18,
1998, none of the proposals for the acquisition of the Cajun Assets may be
altered. The current Bankruptcy Court confirmation hearing schedule calls for
final briefs to be submitted by May 26, 1998, and for a decision to be rendered
shortly thereafter.
Under the existing agreement regarding Cajun, Zenergy, Inc., Southern
Energy-Cajun, Inc., and NRG Energy, Inc., respectively, own 30%, 40%, and 30%
of the ownership interests in Generating, and would each contribute their pro
rata share of the capital required by Generating to consummate the acquisition
of, and operate, the Cajun Assets. The Company currently estimates that, if
Generating is successful in its bid to acquire the Cajun Assets, Zenergy's
capital investment in Generating will be approximately $80 million. The
Company is in the process of developing financing alternatives to fund its
investment in Generating, but presently does not have any commitments with
respect to funding such investment.
Corporate Headquarters - The Company owns a 44,000 square-foot, two-story
office building in Fairview Heights, Illinois, which serves as Zeigler Coal
Holding Company's executive offices and headquarters for several of the
Company's noncoal subsidiaries. Administrative offices for Mountaineer Coal
Development Company, Bluegrass Coal Development Company, and Triton Coal
Company are held under leases in Charleston, West Virginia; Lexington,
Kentucky; and Gillette, Wyoming, respectively.
EMPLOYEE AND LABOR RELATIONS
As of December 31, 1997, Zeigler and its subsidiaries employed a total of
2,022 persons, of which approximately 651 were represented by the UMWA and
covered by the terms and conditions of the National Bituminous Coal Wage
Agreement ("NBCWA"). The current NBCWA expires on December 31, 2002.
Current UMWA Contract
Old Ben Coal Company is a member of the Bituminous Coal operators
Association ("BCOA") which recently entered into a new five year collective
bargaining agreement with the United Mine Workers of America ("UMWA") effective
January 1, 1998. The new agreement provides for wage and pension increases for
employees but also provides for greater flexibility in scheduling work. There
are no reopener provisions for the new agreement.
Although Marrowbone Development Company is not a member of the BCOA, it
recently agreed to become bound by the terms and conditions of the 1998
BCOA/UMWA agreement.
Apart from work stoppages which may occur upon termination of a collective
bargaining agreement, Zeigler Companies may from time to time be subject to
certain unauthorized work stoppages or wildcat strikes. Typically, these
events are isolated, short in duration and localized.
10
<PAGE> 13
Coal Industry Retiree Health Benefit Act of 1992
The Coal Industry Retiree Health Benefit Act of 1992 (the "Health Benefits
Act") was enacted in October 1992 to provide for the funding of health benefits
for retirees who were UMWA retirees. The essential feature of the Health
Benefits Act is to remove the UMWA health benefit plans from the collective
bargaining process and eliminate the per-hour-worked method of funding the UMWA
health benefit plans. The Health Benefits Act establishes a trust fund to
which "signatory operators," including Old Ben Coal Company, operators who are
signatory to the current NBCWA or prior NBCWAs, and "related persons," are
obligated to pay annual premiums for assigned beneficiaries, together with a
pro rata share for certain beneficiaries ("unassigned beneficiaries") who never
worked for such employers, in amounts to be determined by the Secretary of
Health and Human Services on the basis set forth in the Health Benefits Act.
The expense under this legislation, which is recognized as contributions are
made, amounted to $3.4 million in 1997. Based upon independent actuarial
estimates, Zeigler believes the amount of its obligation under the legislation
to be approximately $21.6 million as of December 31, 1997, using a 7.25%
discount rate.
REGULATION
The possibility exists that new legislation and/or regulations may be
adopted which may have a significant impact on Zeigler's mining operations
and/or its customers' ability to use coal and may require the Company or its
customers to change their operations significantly or incur substantial costs.
Numerous governmental permits or approvals are required for mining
operations. Zeigler believes all permits currently required to conduct its
present mining operations have been obtained. The Company may be required to
prepare and present to federal, state or local authorities data pertaining to
the effect or impact that any proposed exploration for or production of coal
may have upon the environment. All requirements imposed by any such authority
may be costly and time-consuming and may delay commencement or continuation of
exploration or production operations. Future legislation and administrative
regulations may emphasize the protection of the environment and, as a
consequence, the activities of the Company may be more closely regulated. Such
legislation and regulations, as well as future interpretations of existing
laws, may require substantial increases in equipment and operating costs to the
Company and delays, interruptions or a termination of operations, the extent of
which cannot be predicted.
The Company's independent operating subsidiaries endeavor to conduct
mining operations in compliance with all applicable federal, state and local
laws and regulations. However, because of extensive and comprehensive
regulatory requirements, violations during mining operations are not unusual in
the industry and, notwithstanding compliance efforts, the Company does not
believe such violations can be completely eliminated. None of the violations
to date or the monetary penalties assessed upon the Company's subsidiaries have
been material to the Company.
While it is not possible to quantify the costs of compliance with all
applicable federal and state laws, those costs have been and are expected to
continue to be significant. It is estimated that Zeigler made capital
expenditures for environmental control facilities in the amount of
approximately $.6 million in 1997. These costs are in addition to $11.2 million
of reclamation expenditures. Compliance with these laws has substantially
increased the cost of coal mining, but is, in general, a cost common to all
domestic coal producers.
11
<PAGE> 14
Most of the states in which the Company operates have state programs for
mine safety and health regulation and enforcement. In combination, federal and
state safety and health regulations in the coal mining industry is perhaps the
most comprehensive and pervasive system for protection of employee safety and
health affecting any segment of the industry. The most minute aspects of mine
operations, particularly underground mine operations, are subject to extensive
regulation. This regulation has a significant effect on the Company's
operating costs. However, the Company's competitors in all of the areas in
which it operates are subject to the same degree of regulation.
The coal mining industry is subject to regulation by federal, state, and
local authorities on matters such as employee health and safety, permitting and
licensing requirements, air quality standards, water pollution, plant and
wildlife protection, the reclamation and restoration of mining properties after
mining is completed, the discharge of materials into the environment, surface
subsidence from underground mining, and the effects of mining on groundwater
quality and availability. In addition, the utility industry is subject to
extensive regulations regarding the environmental impact of its power
generation activities which could affect demand for coal. The following
summarizes the more significant regulations impacting the industry.
Clean Air Act Amendments of 1990 - One of the largest challenges the
industry has faced is the implementation of the Clean Air Act Amendments
of 1990 (the "Amendments"). Phase I was effective January 1, 1995 and
called for a reduction in SO(2) emissions to 2.5 pounds per mmBTU, for
certain power plants, multiplied by each plant's annual average fuel
consumption between 1985 and 1987. Phase II, effective January 1, 2000
requires further reduction of SO(2) emissions to 1.2 pounds per mmBTU for
nearly all power plants. The Amendments require coal users to either
purchase lower-sulfur products, invest in scrubbers, or purchase emission
allowances in order to comply. The effectiveness of these standards will
cause an increase in demand for "compliance" coal (coal that emits less
than 1.2 pounds of SO(2) per mmBTU) with a corresponding decrease in demand
for higher-sulfur coal. Coal producers have reacted to this trend by
shifting their investments away from the high-sulfur regions in the
Midwest towards the lower-sulfur regions such as Appalachia and the
southern Powder River Basin. The majority of utilities have been using a
combination of lower-sulfur coal and emission allowances to meet the
requirements of Phase I of the Amendments, since the installation of
scrubbers is both expensive and time consuming. So far, it has generally
not been necessary for utilities to drastically change their operations to
meet the requirements of Phase I. It is difficult to predict how
utilities will meet the challenges of the Phase II requirements, and the
resulting effect on coal demand. The Amendments also require existing
major sources of nitrogen oxides in moderate or higher ozone
non-attainment areas to install reasonably available control technology
("RACT") for nitrogen oxides, which are precursors of ozone. The area
from northern Virginia through Maine has been designated as an ozone
transport region ("OTR"). Installation of RACT was required by May 1995
for major sources throughout the OTR and other areas designated as being
in a moderate or higher state of non-attainment of national ambient air
standards for ozone. Such sources generally include coal-fired power
plants. A regional commission established for the OTR, the Ozone
Transport Commission ("OTC"), has been formed to make recommendations to
the EPA for additional control measures. Both installation of RACT and any
control measures beyond RACT that the OTC, other states, and the EPA may
require could make it more costly to operate coal-fired power plants and,
depending on the requirements of individual state attainment plans and the
development of revised new source performance standards, could make coal a
less attractive fuel alternative in the planning and building of power
plants in the future.
12
<PAGE> 15
Comprehensive Environmental Response, Compensation and Liability Act -
The federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") and similar state laws affect coal mining operations by
imposing clean-up requirements for threatened or actual releases of hazardous
substances that may endanger public health or welfare or the environment.
Under CERCLA, joint and several liability may be imposed on waste generators,
site owners and operators and others regardless of fault or the legality of
the original disposal activity. Waste substances generated by coal mining and
processing are generally not regarded as hazardous substances for purposes of
CERCLA.
Clean Water Act - The federal Clean Water Act imposes restrictions on
effluent discharge into waters. Regular monitoring, as well as compliance
with reporting requirements and performance standards, are preconditions for
the issuance and renewal of permits governing the discharge of pollutants
into waters.
Resource Conservation Recovery Act - The federal Resource Conservation
Recovery Act ("RCRA") imposes requirements for the treatment, storage and
disposal of hazardous wastes. Although many mining wastes are excluded from
the regulatory definition of hazardous waste, and coal mining operations
covered by SMCRA (defined below) permits are exempted from regulation under
RCRA by statute, the EPA is studying the possibility of expanding regulation
of mining wastes under RCRA.
Surface Mining Control and Reclamation Act - The federal Surface Mining
Control and Reclamation Act of 1977 ("SMCRA") establishes mining and
reclamation standards for all aspects of surface mining as well as many
aspects of deep mining. SMCRA and similar state statutes, among other
things, require that mined property be restored in accordance with specified
standards pursuant to an approved reclamation plan. In addition, the
Abandoned Mine Lands Act ("AML"), which is part of SMCRA, imposes a tax on
all current mining operations, the proceeds of which are used to restore
mines closed before 1977. The current tax is 35 cents per ton on
surface-mined coal and 15 cents per ton on underground-mined coal.
SMCRA also requires that comprehensive environmental protection and
reclamation standards be met during the course of and upon completion of
mining activities. For example, SMCRA requires coal companies to restore a
surface mine to approximate original contour as contemporaneously as
practicable with surface coal mining operations. The mine operator must
submit a bond or otherwise secure the performance of these reclamation
obligations. Permits for surface mining operations must be obtained from
the federal Office of Surface Mining Reclamation and Enforcement or, where
state regulatory agencies have adopted federally approved state programs
under SMCRA, the appropriate state regulatory authority.
Under SMCRA, responsibility for unabated violations, unpaid civil penalties
and unpaid reclamation fees of independent contract mine operators can be
imputed to other companies which are deemed, according to the regulations,
to have "owned" or "controlled" the contract mine operator. Sanctions
against the "owner" or "controller" are quite severe and can include being
blocked from receiving new permits and revocation of any permits that have
been issued since the time of the violations or, in the case of civil
penalties and reclamation fees, since the time such amounts became due.
13
<PAGE> 16
Mine Health and Safety Acts - Stringent safety and health standards have
been imposed by federal legislation since 1969 when the federal Coal Mine
Health and Safety Act of 1969 (the "1969 Act") was adopted. The 1969 Act
resulted in increased operating costs and reduced productivity. The Federal
Mine Safety and Health Act of 1977 (the "1977 Act") significantly expanded
the enforcement of health and safety standards. The 1977 Act imposes safety
and health standards on all mining operations. Regulations are comprehensive
and affect numerous aspects of mining operations, including training of mine
personnel, mining procedures, blasting, the equipment used in mining
operations and other matters. The Mine Safety and Health Administration
("MSHA") monitors compliance with these federal laws and regulations. In
addition, as part of the 1969 Act and the 1977 Act, the Black Lung Benefits
Act of 1969 and Black Lung Benefits Reform Act of 1977 require payments of
benefits by all businesses conducting current mining operations to coal
miners with pneumoconiosis (black lung) as described below.
Federal Coal Leasing Amendments Act - Mining operations on federal lands in
the West are also affected by regulations of the U.S. Department of the
Interior. The Federal Coal Leasing Amendments Act of 1976 (the "1976 Act")
amended the Mineral Lands Leasing Act of 1920 which authorized the leasing
of federal lands for coal mining. The 1976 Act increased the royalties
payable to the United States Government for federal coal leases and required
diligent development and continuous operations of leased reserves within a
specified period of time.
Black Lung Benefits - In order to compensate miners who were last employed
as miners prior to 1970, the Black Lung Benefits Revenue Act of 1977 and the
Black Lung Benefits Reform Act of 1977, as amended by the Black Lung
Benefits Revenue Act of 1981 and the Black Lung Benefits Amendments of 1981
(the "1981 Acts"), levied a tax on production of $1.10 per ton for
deep-mined coal and $0.55 per ton for surface-mined coal, but not to exceed
4.4% of the sales price. In addition, the 1981 Acts provide that certain
claims for which coal operators had previously been responsible will be
obligations of the government trust funded by the tax. The Revenue Act of
1987 extended the termination date of the tax from January 1, 1996 to the
earlier of January 1, 2014, or the date on which the government trust
becomes solvent. Most companies have set aside reserves for workers last
employed as miners after 1969.
EnerZ Corporation is subject to FERC regulation as a wholesale power
marketer and is required to file its rate schedule and quarterly transaction
reports with the FERC. The Company's other non-mining businesses are also
subject to federal, state and/or local regulation.
14
<PAGE> 17
ITEM 2. PROPERTIES
The information required by this item concerning the Company's properties
is included under Item 1., "Business" above. Such information is incorporated
herein by reference.
ITEM 3. LEGAL PROCEEDINGS
The information required by this item concerning the Company's legal
proceedings is included in Note 16 to the Company's consolidated financial
statements under Item 8., "Financial Statements and Supplementary Data." Such
information is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and certain key employees of Zeigler, their ages as
of December 31, 1997, and positions held during the last five years are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Chand B. Vyas .............. 53 President, Chief Executive Officer and Director
Michael V. Altrudo ......... 49 President of Franklin Coal Sales Company
Francis L. Barkofske ....... 58 Senior Vice President & Chief Financial Officer
Michael D. Bauersachs ...... 33 President of Phoenix Land Company
W. Douglas Blackburn, Jr. .. 47 Senior Vice President, Operations
Sharad M. Desai ............ 49 Treasurer
Paul D. Femmer ............. 45 Controller
Bruce W. Kranz ............. 49 Vice President, Zeigler Environmental Services
Company
Coy K. Lane ................ 37 President of Bluegrass Coal Development
Company
James W. Mahler ............ 49 President of Americoal Development Company
Robert L. McPeak ........... 45 President, Zeigler Property Development Company
Brent L. Motchan ........... 48 Vice President, General Counsel and Secretary
Tayeb B. Tahir ............. 43 President of EnerZ Corporation
Alan D. Williams ........... 51 President of Zenergy, Inc.
John C. Willson ............ 48 President of Triton Coal Company
David M. Young ............. 47 President of Mountaineer Coal Development Company
</TABLE>
Chand B. Vyas - Mr. Vyas has been President since 1991 and Chief Executive
Officer since January 1, 1995. Prior to his election as Chief Executive
Officer, Mr. Vyas held the following positions with the Company: 1991-1994
Chief Operating Officer; 1989-1991 Executive Vice President; February 1989 to
November 1989 Senior Vice President - Finance and Administration; 1985-1989
Vice President and Chief Financial Officer. Mr. Vyas joined Zeigler Coal
Company in 1982 as a Director and Vice President, Finance. He is a past
director of the Center for Energy and Economic Development, the National Coal
Association and the National Mining Association.
15
<PAGE> 18
Michael V. Altrudo - Mr. Altrudo has been President of Franklin Coal Sales
Company, the Company's marketing and sales subsidiary since November 1995.
From November 1992 to October 1995, he was Executive Vice President of Sales
for Franklin Coal Sales Company. He was Vice President of Sales for
Franklin Coal Sales Company from April 1992 to October 1992. From February
1988 to March 1992, he was Vice President of Domestic Coal & Coke Sales with
Drummond Coal Sales Company.
Francis L. Barkofske - Mr. Barkofske has been Senior Vice President and
Chief Financial Officer since October 1997. From September 1996 to October
1997 he was Vice President, Administration; from November 1995 to August 1996,
he was Vice President, Corporate Affairs; from October 1994 to October 1995, he
was Vice President, External Affairs; and from July 1992 to October 1994, he
was Vice President, Government Relations. From October 1990 to July 1992, Mr.
Barkofske was a partner and Chairman of the Natural Resources Practice area of
the law firm of Thompson & Mitchell. Prior thereto, he was Senior Vice
President, Legal & Public Affairs and Secretary of Peabody Holding Company,
Inc.
Michael D. Bauersachs - Mr. Bauersachs has been President of Phoenix Land
Company since May 1996. From January 1996 to April 1996, he was General
Manager of Land and Development and from August 1994 to December 1995, he was
Manager of Property Development for Phoenix Land Company. Prior to joining the
Company, Mr. Bauersachs was Vice President of Real Estate for Ark Land Company,
a subsidiary of Arch Mineral Corporation. From 1993 and prior thereto, he held
various real estate positions within Ark Land Company.
W. Douglas Blackburn, Jr. - Mr. Blackburn has been Senior Vice President,
Operations since November 1994. Mr. Blackburn joined the Company on June 20,
1994 as the President of Old Ben Coal Company. Prior thereto, he served as a
consultant to the coal industry from 1992 to 1994 and as Senior Vice President
of Operations at Mapco Coal, a coal mining company, from 1990 to 1992.
Sharad M. Desai - Mr. Desai has been Treasurer of the Company since
January 1993. He previously held various positions in the financial and
accounting areas at Zeigler since joining the Company at its inception.
Paul D. Femmer - Mr. Femmer has been Controller of the Company since March
1994. From May 1990 to March 1994 he was Controller of Sigma Chemical Company.
Prior thereto, he was a Senior Manager with Price Waterhouse, LLP.
Bruce W. Kranz - Mr. Kranz has been Vice President of Zeigler
Environmental Services Company since December 1996. From 1992 until joining
Zeigler Environmental Services Company, Mr. Kranz was a Branch Manager and
Principal-in-Charge for the Cleveland, Ohio office of Metcalf & Eddy, Inc., a
professional services consulting company.
Coy K. Lane - Mr. Lane has been President of Bluegrass Coal Development
Company since November 1995. From March 1995 to October 1995, he was President
of Old Ben Coal Company. In October 1994, he joined Zeigler Coal Holding
Company as General Manager of the Indiana Operations of Old Ben Coal Company
until February 1995. From January 1994 to September 1994, he was General
Manager of the Ashland Division of Pittston Coal Group for Addington, Inc.
operations. From April 1993 to December 1993, he was Manager of Operations
Development for Addington, Inc. From May 1990 to March 1993, he was Assistant
Vice President of Operations for Pen Coal Corporation.
James W. Mahler - Mr. Mahler has been President of Americoal Development
Company, the Company's non-mining and business development subsidiary, since
1992. Prior thereto, he was Vice President, Administration for Zeigler, a
position he held from 1990 to 1992. From 1988 to 1990, Mr. Mahler was
Controller of BP Coal (U.S.A.) Inc.
16
<PAGE> 19
Robert L. McPeak - Mr. McPeak has been President of Zeigler Property
Development Company since May 1997. Prior thereto he was Manager of Material
Service of the Company, a position he held from 1986 to 1997.
Brent L. Motchan - Mr. Motchan has been Vice President, General Counsel
and Secretary of the Company since 1985. From 1977 to 1985, he was the
Assistant General Counsel and Director of Real Estate for Arch Mineral
Corporation, a coal mining company.
Tayeb B. Tahir - Mr. Tahir has been President of EnerZ Corporation since
September 1996. From 1994 to August 1996, he was with PIRA Energy Group in New
York where he was Director, International Global Gas Group. Prior to 1994, he
served various positions with Consolidated Edison Company.
Alan D. Williams - Mr. Williams has been President of Zenergy, Inc. since
August 1997. From March 1997 to July 1997 he was Vice President Business
Development & Marketing of the Company. From February 1996 to March 1997, he
was Manager of Business Development of the Company and from April 1993 to
January 1996, he was Senior Vice President of Marketing for Franklin Coal
Sales, the Company's marketing subsidiary. Prior thereto, he was President of
Triton Coal Company.
John C. Willson - Mr. Willson has been President of Triton Coal Company
since January 1996. From March 1995 to December 1995, he was Vice President of
SMC Western Operations. From 1989 to 1994, Mr. Willson was President of the
Eastern Division of Costain Coal, Inc.
David M. Young - Since November 1995, Mr. Young has been President of
Mountaineer Coal Development Company. Prior thereto, he was President of
Marrowbone Development Company and Wolf Creek Collieries Company. From
November 1992 to June 1994, Mr. Young was President of Old Ben Coal Company.
He was Vice President of the Company's Illinois Division of mining operations
from September 1991 to November 1992. Mr. Young was employed in various
capacities by Old Ben Coal Company's West Virginia Division prior to September
1991.
17
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
Zeigler's common stock, $.01 par value, is listed and traded on the New
York Stock Exchange. The table below presents its high and low market prices,
and dividends declared per common share for the three years ended December 31,
1997.
Market Price
------------
Quarter Ended: High Low Dividends
---- --- ---------
1997
Fourth ....... $24 $15 1/4 $.075
Third ........ 27 1/4 22 7/8 .075
Second ....... 27 7/8 23 .075
First ........ 27 1/2 21 1/4 .075
1996
Fourth ....... $22 1/4 $17 1/4 $.075
Third ........ 17 3/4 12 3/4 .075
Second ....... 17 3/4 14 1/2 .05
First ........ 14 3/4 12 1/4 .05
1995
Fourth ....... $14 1/4 $10 5/8 $ .05
Third ........ 13 1/4 11 5/8 .05
Second ....... 12 1/4 9 3/4 .05
First ........ 12 1/8 10 .05
Long-term debt agreements as of December 31, 1997 include certain
dividend-restrictive covenants. Under the $200 million revolving credit
agreement, the most restrictive covenant limits dividends to an amount in
aggregate of no more than $40 million (which is exclusive of dividends declared
and paid prior to January 15, 1996).
The Company intends to continue paying regular cash dividends. However,
future dividends will be at the sole discretion of the Board of Directors and
will depend upon Zeigler's level of earnings, financial position, capital
expenditures and debt service requirements, restrictions in debt covenants and
other factors that the Board of Directors may deem relevant.
As of March 13, 1998, there were 344 shareholders of record of the
Company's common stock and approximately 10,000 shareholders for whom
securities firms acted as nominees.
18
<PAGE> 21
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY FINANCIAL AND OPERATING DATA
The information in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7., and the Company's consolidated financial statements
under Item 8.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ----- ----- ----
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Total revenues ...................................... $800.8 $731.6 $783.1 $870.9 $873.0
Costs and expenses:
Cost of coal sales ................................. 503.9 613.1 686.2 738.8 776.8
Selling, general and administrative expenses ........ 16.0 21.3 20.7 20.2 13.5
Other costs and expenses ............................ 203.1 22.5 18.5 22.7 28.6
Gain on curtailment of postretirement benefits (1) .. - (16.3) - - -
Reduction in accrued pneumoconiosis benefits (2) .... (8.2) - (23.3) - -
Provision for asset impairments and accelerated
mine closings (3) .................................. - - 114.7 - 55.7
Other income:
Proceeds from contract settlement ................. - - (45.5) - -
------- ------ ------ ------ ------
Operating earnings (loss) ........................... 86.0 91.0 11.8 89.2 (1.6)
Net interest expense ................................ 17.0 21.7 27.5 42.1 52.2
Income taxes (benefit) .............................. 10.4 11.3 (4.5) 13.6 (19.5)
------- ------ ------ ------ ------
Net earnings (loss) before extraordinary items and
cumulative effects of changes in accounting ........ 58.6 58.0 (11.2) 33.5 (34.3)
Extraordinary item - Loss on early retirement of
debt, net of taxes (4) ............................. - - - 8.4 -
Cumulative effects of changes in accounting (5) ..... - - - - (111.9)
------- ------- ------ ------- ------
Net earnings (loss) ................................. $ 58.6 $ 58.0 ($11.2) $ 25.1 ($146.2)
======= ======= ====== ====== ======
Net earnings (loss) per share:
Basic .............................................. $ 2.07 $ 2.04 ($ .40) $ 1.01 ($ 6.29)
======= ======= ======= ====== =======
Diluted ............................................ $ 2.05 $ 2.04 ($ .40) $ 1.01 ($ 6.29)
======= ======= ======= ====== =======
Weighted average shares outstanding:
Basic .............................................. 28.3 28.4 28.4 24.9 23.2
Diluted ............................................ 28.6 28.5 28.4 24.9 23.2
CONSOLIDATED BALANCE SHEET DATA (AT YEAR-END):
Working capital ..................................... $ 22.2 $ 84.9 $ 29.8 $ 67.6 $ 29.9
Total assets ........................................ 1,094.0 1,050.6 1,025.2 1,165.5 1,231.2
Total long-term debt (6) ............................ 275.8 344.8 344.8 450.1 551.8
Other long-term liabilities (7) ..................... 391.8 427.2 481.4 471.0 468.4
Total shareholders' equity .......................... 177.7 132.6 81.5 98.4 6.1
OTHER DATA:
Net cash provided by operating activities ........... $ 79.8 $131.9 $160.3 $ 91.1 $130.4
Net cash used in investing activities ............... 70.7 30.5 51.8 41.7 33.0
Net cash used in financing activities ............... 14.1 6.1 111.0 96.8 92.8
Additions to property, plant and equipment .......... 74.4 31.4 56.3 45.6 36.5
Payment of dividends ................................ 8.5 6.4 5.7 - -
EBITDA (8) .......................................... 135.7 151.1 171.8 158.5 129.7
EBITDA/net interest expense ......................... 8.0 7.0 6.2 3.8 2.5
Total long-term debt/EBITDA ......................... 2.0 2.3 2.0 2.8 4.3
Tons produced (9) ................................... 30.9 31.4 35.1 38.5 35.7
Tons sold(10) ....................................... 33.1 34.6 36.9 40.0 38.8
</TABLE>
19
<PAGE> 22
(1) Reflects a pretax reduction to the accrual for the Statement of Financial
Accounting Standards ("SFAS") No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions ("SFAS No. 106") obligation
as a result of certain Midwestern employees' re-employment or
termination prior to vesting.
(2) Reflects a pretax reduction to the accrual for the pneumoconiosis (black
lung) claims liability which was based on a revised actuarial estimate as
a result of the Company's favorable claims experience.
(3) Reflects acceleration of the accruals related to mine closing costs and
pretax writedowns in certain asset carrying values, primarily in
connection with the idling, closing, and projected closing of certain
mines earlier than previously forecast.
(4) Reflects payment of a yield maintenance premium ($2.9 million, net of
$1.0 million income tax benefit) and write-off of deferred financing costs
($5.5 million, net of $1.8 million income tax benefit) related to the
prepayment of debt.
(5) Reflects the cumulative effects to January 1, 1993 of changes in
accounting principles for SFAS No. 106, ($95.1 million, net of $60.8
million income tax benefit), and SFAS No. 109, Accounting for Income
Taxes ("SFAS No. 109") ($16.8 million).
(6) Excludes current maturities of long-term debt.
(7) Includes accrued postretirement benefit obligations, accrued
pneumoconiosis benefits, accrued mine closing costs and other long-term
liabilities (other than debt and deferred income taxes).
(8) EBITDA is defined as earnings (loss) before interest, income taxes,
depreciation, depletion and amortization. EBITDA excludes the cumulative
effects of accounting changes related to SFAS No. 106 and SFAS No. 109,
provision for asset impairments and accelerated mine closings, and
reduction in accrued pneumoconiosis (black lung) benefits. The Company
believes EBITDA provides cash flow from operations as determined by
generally accepted accounting principles, and EBITDA is not necessarily an
indication of whether cash will be sufficient to fund cash requirements.
(9) Reflects tons mined by the Company. Tons produced are included in
inventory prior to shipment.
(10) Includes tons mined by the Company plus tons bought by the Company in the
open market and resold.
20
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net earnings for the year ended December 31, 1997 were $58.6 million
($2.05 per diluted share) compared to net earnings of $58.0 million ($2.04 per
diluted share) in 1996 and a net loss of $11.2 million ($.40 per diluted share)
in 1995.
1997 net earnings benefited significantly from the following items, after
taxes: (1) a $9.0 million positive change in customer claims expense
representing reversal in 1997 of a $4.5 million contingent claims liability
accrued in 1996, (2) reduced 1997 estimates of Old Ben reclamation liabilities
totaling $8.2 million, (3) a $6.2 million actuarially-based reduction in the
accrued liability for black lung benefits, (4) an unusually large $6.2 million
increase in accrued workers' compensation expense in 1996, and (5) a $3.9
million reduction in net interest expense. These factors were substantially
offset by the following items, after taxes: (1) a $16.4 million reduction in net
earnings attributable to the 1996 closings of Old Ben Mine #24 and Old Ben Mine
#26, (2) a $12.2 million nonrecurring gain in 1996 on curtailment of
postretirement benefits, (3) a $6.8 million net earnings decrease related to
the December 1996 expiration of Buckskin's contract with Western Farmers
Electric Cooperative("WFEC"), (4) a $5.6 million net loss at EnerZ Corporation,
and (5) a $4.2 million increase in the net loss at the Company's technology
unit.
The increase in 1996 net earnings compared to 1995 net earnings primarily
reflects nonrecurring provisions in 1995 for asset impairments and accelerated
mine closings of $86.0 million, lower mining costs and higher productivity of
$18.8 million, and the $12.2 million curtailment gain on postretirement
benefits. These increases were partially offset by nonrecurring 1995 proceeds
from a contract settlement of $34.1 million, a reduction in the pneumoconiosis
benefit obligation of $17.5 million, and lower sales volume and sales prices
mainly related to the 1996 mine closings of $11.3 million.
REVENUES
Coal sales - Coal sales declined $95.0 million in 1997 compared to 1996,
primarily reflecting the 1996 closures of Old Ben Mine # 24 and Old Ben Mine
#26 ($80.2 million), the 1996 closure of Old Ben Mine #20 ($30.5 million), and
the 1996 expiration of Buckskin's WFEC contract ($20.4 million), partially
offset by the reactivation of Old Ben Mine #11 ($14.3 million) and other small
sales increases. The $56.5 million decline in 1996 coal sales compared to 1995
was largely due to the three mine closures described above and the 1995 closure
of Old Ben Mine #1 ($42.7 million), and price reductions on two major long-term
coal supply contracts ($13.6 million).
Energy trading revenues - EnerZ Corporation's energy trading and marketing
activities commenced in January 1997. Approximately 80% of EnerZ's 1997
revenues were generated from electricity transactions with the remainder
attributable to natural gas trading.
Other revenues - Other revenues include throughput fees at the Company's
two east coast transloading terminals; farm, timber, coal trucking, and ash
disposal income; royalty and rental income from land and mineral interests; and
gains from sales of surplus properties. The 1997 revenue decline was mainly
due to lower revenue from third-party coal leases and timber sales. The 1996
other revenue increase was primarily the result of additional sales of surplus
coal properties.
21
<PAGE> 24
COSTS AND EXPENSES
Cost of coal sales - The decrease in cost of sales from 1996 to 1997
primarily reflects the impact of the 1996 mine closings, and reductions in
certain recorded liabilities. During 1997, the Company reduced accrued mine
closing costs by approximately $23.4 million, including decreases in the
Old Ben reclamation obligations and contingent claims liabilities referred to
above. In addition, actuarially-based liability reductions included $3.2
million for postemployment benefits and $2.4 million for postretirement
benefits. Various other estimated liabilities were reevaluated and reduced in
total by $4.5 million. The decrease in cost of coal sales from 1995 to 1996
principally reflects significantly reduced sales from the closed mines, and
cost savings from idling Wolf Creek Collieries Mine #4 and outsourcing coal
formerly supplied by the idled mine.
Energy trading costs - The increase in 1997 energy trading costs reflects
EnerZ's first year of operations.
Other costs and expenses - These amounts are directly associated with
"other revenues" described above. The increase in 1997 as compared to 1996
costs is largely due to higher costs for operating the Encoal plant after the
1996 expiration of Department of Energy co-funding. The increase from 1995 to
1996 was mainly attributable to the timing of federal government cost-sharing
receipts at the Encoal plant.
Selling, general and administrative expenses - Lower 1997 expenses were
mainly the result of lower stock appreciation unit and compensation-related
charges and the timing of other expenses. Higher 1996 expenses were largely
due to expanded business development activities.
Gain on curtailment of postretirement benefits - The 1996 curtailment gain
represents a reduction in the Company's recorded obligation to provide retiree
medical benefits to certain former Midwestern mining employees as a result of
their re-employment or termination prior to vesting.
Reduction in accrued pneumoconiosis benefits - The 1997 and 1995 liability
decreases were based on updated actuarial estimates that recognized positive
trends in claims experience.
Provision for asset impairments and accelerated mine closings - In July
1995, Old Ben closed Mine #1, which resulted in a $32.3 million charge to
earnings. In October 1995, the Company idled the high-cost Wolf Creek Mine #4
and took a related $33.3 million charge to earnings. In December 1995, the
Company recorded impairment losses totaling $49.1 million upon idling Old Ben
Mine #11 and developing plans to close Old Ben Mine #24 and Old Ben Mine #26.
OTHER
Proceeds from contract settlement - The Company received cash payments
totaling $45.5 million in 1995 in connection with the settlement of litigation
concerning a contract with Southern Indiana Gas and Electric Company.
Net interest expense - Lower expense in 1997 primarily reflects higher
interest income earned due to larger cash investments and capitalized interest
on the development of the North Rochelle Mine. Lower 1996 expense primarily
resulted from lower average borrowings.
Income taxes (benefit) - Slightly lower pretax income and a lower tax rate
were responsible for the decrease in income taxes from 1996 to 1997. Higher
pretax income was responsible for the increase in income taxes from 1995 to
1996. The Company's effective tax rate was 15.0% in 1997 versus 16.3% in 1996
and 28.6% in 1995. The 1997 and 1996 rate improvements were mainly due to the
benefits of tax loss carryforwards.
22
<PAGE> 25
The valuation allowance on deferred tax assets decreased $10.5 million
from 1996 to 1997. This valuation allowance primarily relates to alternative
minimum tax ("AMT") credit carryforwards. Although management believes that it
is unlikely to realize all of its AMT credit carryforward under existing law
and company structure, AMT credit carryforward is recognized to reduce the
deferred tax liability from the amount of regular tax on temporary differences
to the amount of tentative minimum tax on AMT temporary differences.
FINANCIAL CONDITION
As of December 31, 1997, cash and equivalents totaled $103.3 million, down
from $108.3 million at December 31, 1996. Cash generated from operating
activities was $79.8 million in 1997, compared to $131.9 million in 1996, and
$114.8 million in 1995 (excluding proceeds from 1995 contract settlement).
Working capital was $22.2 million and $84.9 million at December 31, 1997
and 1996, respectively. Accounts receivable and accounts payable have
increased $38.0 million and $42.6 million, respectively, in 1997 due to energy
trading activities at EnerZ Corporation. Current maturities of long-term debt
represent the cash paid in January 1998 related to the early extinguishment of
the senior secured notes. The noncash reduction in mine closing-related
liabilities contributed to the $12.7 million reduction in other accrued
expenses.
Investing activities consumed $70.7 million in cash during 1997, compared
to $30.5 million in 1996 and $51.8 million in 1995. In addition to $21.8
million in expenditures related to the development of the North Rochelle mine,
the Company continued to invest in property, plant and equipment needed to
support business growth and improve productivity. The Company expects to spend
approximately $105.0 million for capital additions during 1998, including
approximately $61.0 million for continued development of the North Rochelle
mine. The Company anticipates that, if Louisiana Generating LLC is successful
in its bid to purchase the non-nuclear assets of Cajun Electric Power
Cooperative, Inc., the Company's investment in Louisiana Generating LLC will be
approximately $80.0 million.
The Company used $14.1 million in cash for financing activities in 1997,
up from $6.1 million in 1996 but down from $111.0 million in 1995. The major
applications of cash in 1997 were dividend payments and purchase of treasury
stock. The major application of cash in 1996 was the payment of dividends.
Financing applications of cash in 1995 included debt repayments and, to a
lesser extent, dividends.
The ratio of outstanding debt to total capital was 1.94 to 1.00 at
December 31, 1997 compared to 2.60 to 1.00 at December 31, 1996 and 4.23 to
1.00 at December 31, 1995. The 1997 and 1996 ratio improvements reflect 1997
and 1996 earnings.
Other sources of liquidity include a $200.0 million revolving credit
facility, of which $13.9 million was available as of December 31, 1997.
On January 5, 1998, Zeigler prepaid $198.3 million of the 8.61% Senior
Secured Notes to the Noteholders, using $68.3 million of cash and
borrowing $130.0 million under a new Credit Agreement's revolving credit
facility (see below). A related yield maintenance premium of $7.6 million was
also paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8.8 million
($6.6 million net of taxes) in the first quarter of 1998, consisting of the
yield maintenance premium and the write-off of deferred financing costs related
to the early extinguishment of debt.
23
<PAGE> 26
In April 1997, the Company executed a new Credit Agreement (the "New
Credit Agreement") with certain financial institutions, which provides for
senior unsecured revolving credit and letter of credit facilities aggregating
$700.0 million. Interest on the revolving credit facility is paid in arrears
based on rates which fluctuate based on the prime rate or a certain Interbank
Offer Rate, as the Company may elect. Amounts outstanding under the New Credit
Agreement are not secured. The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance. The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default. The New Credit Agreement, which replaces the Amended and
Restated Credit Agreement dated October 19, 1994, became effective on January
5, 1998, in conjunction with the payment of the Company's outstanding 8.61%
Senior Secured Notes.
The Company believes that it has the financial resources and borrowing
capacity needed to meet business requirements in the foreseeable future.
OUTLOOK
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act
of 1995 - The following Outlook and other items of this Report on Form 10-K
contain forward-looking statements that are subject to risks and uncertainties
inherent in the Company's business. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth herein and elsewhere in
documents filed with the Securities and Exchange Commission, including, without
limitation, the Company's Forms 10-K and 10-Q. Forward-looking statements made
by the Company are used to describe business operations that fall into four
areas of operation. Those operations are subject to factors that can
negatively or positively affect the Company's results as follows:
- - Coal: The Company's coal operations can be negatively or positively
impacted by factors including, but not limited to, weather; unexpected
maintenance problems; variations in coal seam thickness, amount of
overburden, rock and other natural materials; disruption of transportation
services; labor problems; disputes and/or interruption of deliveries under
coal contracts due to circumstances affecting the customer; regulatory
uncertainties; legal proceedings; and other conditions.
- - Liquids from Coal (LFC) Technology: The Company's technology operations,
specifically the LFC clean coal technology, can be negatively or
positively impacted by factors including, without limitation, the unproved
commercial viability of the technology being developed; permitting and
other regulatory uncertainties; the ability to obtain financing on
acceptable terms; competition in the marketplace and uncertain demand for
the output produced by the LFC process; engineering and construction
risks; and other conditions.
- - Power: The Company's operations in this area can be negatively or
positively impacted by factors including, but not limited to, whether the
Company's joint proposal to acquire out of bankruptcy the non-nuclear
assets of Cajun Electric Power Cooperative, Inc. is confirmed by the
bankruptcy court and approved by the relevant regulatory authorities;
regulatory changes that limit or slow the advance of deregulation in the
utility marketplace; competition in the wholesale power market;
interruptions and uncertainties relating to fuel supply and
transportation; and other conditions.
24
<PAGE> 27
- - Asset Management: The Company's operations in the area of asset
management can be negatively or positively impacted by factors including,
but not limited to, weather; unexpected maintenance problems; permitting
and other regulatory uncertainties; legal proceedings; and other
conditions.
Possible Sale of Company - On December 3, 1997, the Company announced
that it was retaining an investment banking firm to explore various strategic
alternatives to maximize value for shareholders, including the possible sale of
the entire Company. In connection therewith, the Board of Directors adopted a
change-in-control severance plan and retention bonus plan for all salaried
employees as well as special incentives for certain key employees. The Company
has since retained the investment banking firm Credit Suisse First Boston and
prepared materials for interested parties. The following estimates for 1998
may be affected by the possible sale of the Company or other strategic
alternatives.
Estimates for 1998 - The Company's five largest customers are expected to
account for approximately 46% of total 1998 revenues, down from 52% in 1997.
Management has targeted further productivity gains in the coal segment. The
Company's estimated effective tax rate for 1998 is approximately 20%. The
Company expects that capital expenditures, excluding major acquisitions, will
increase to approximately $105 million in 1998. In addition to planned
expenditures, incremental strategic investments will be considered on a
case-by-case basis. Depreciation, depletion and amortization expense is
expected to range between $65 and $70 million for the year.
Year 2000 Compliance - The inability of computers, software and other
equipment utilizing microprocessors to recognize and properly process data
fields containing a 2 digit year is commonly referred to as the Year 2000
compliance issue. Such systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions in the U.S. and
internationally. The potential costs and uncertainties associated with the
Year 2000 issue will depend on a number of factors, including software,
hardware and the nature of the industry in which a company operates.
Additionally, companies must coordinate with other entities with which they
electronically interact, such as customers, creditors and borrowers.
The Company has identified all significant applications that will require
modification to ensure Year 2000 compliance. The modification of all
internally developed applications is substantially complete. The Company
expects to complete testing of the majority of all significant external
applications by early 1999.
In addition, the Company is in the process of communicating with others
with whom it does significant business to determine their Year 2000 compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues. However, there can no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have material adverse effect on the
Company.
The total cost to the Company of these Year 2000 compliance activities has
not been, and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
Company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ from those plans.
25
<PAGE> 28
LFC Technology - In 1997, upon completion of planned development, the
Company idled Encoal Corporation's clean coal demonstration plant in Wyoming.
In 1998, marketing of the LFC technology, both domestically and
internationally, will continue as well as the evaluation of options regarding
Encoal. The net book value of Encoal Corporation's assets and the Company's
related investment in clean coal technology was $6.7 million as of December 31,
1997.
Inflation - Inflation may have a significant effect on the Company's
revenues and expenses. Most of the Company's long-term contracts provide for
the adjustment over time of certain components of revenue either through
indices, formulas or direct pass-through of costs. These long-term contract
provisions help mitigate some of the effects of increasing costs. Due to the
capital-intensive nature of the Company's activities, inflation may also have a
significant impact on the development or acquisition of mining operations, the
future cost of final mine reclamation and the satisfaction of other long-term
liabilities, such as health care or pneumoconiosis (black lung) benefits.
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Data
Page
----
Independent Auditors' Report ........................................ 28
Financial Statements:
Consolidated Statements of Operations, Years Ended December 31,
1997, 1996 and 1995 .......................................... 29
Consolidated Balance Sheets, December 31, 1997 and 1996 ....... 30
Consolidated Statements of Cash Flows, Years Ended December 31,
1997, 1996 and 1995 .......................................... 32
Consolidated Statements of Shareholders' Equity,
Years Ended December 31, 1997, 1996 and 1995 ................. 33
Notes to Consolidated Financial Statements .................... 34
27
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
To Zeigler Coal Holding Company:
We have audited the accompanying consolidated balance sheets of Zeigler
Coal Holding Company and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31, 1997.
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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
February 5, 1998
28
<PAGE> 31
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Coal sales (Notes 13 and 16) ............................. $603,553 $698,523 $ 754,975
Energy trading revenues .................................. 166,474 - -
Other revenues ........................................... 30,729 33,101 28,128
-------- -------- ---------
Total revenues ............................................. 800,756 731,624 783,103
-------- -------- ---------
COSTS AND EXPENSES:
Cost of coal sales ....................................... 503,946 613,166 686,232
Energy trading costs ..................................... 173,230 - -
Selling, general and administrative expenses ............. 16,017 21,271 20,740
Other costs and expenses ................................. 29,823 22,514 18,487
Gain on curtailment of postretirement benefits (Note 7) .. - (16,295) -
Reduction in accrued pneumoconiosis benefits (Note 8) .... (8,244) - (23,299)
Provision for asset impairments and accelerated
mine closings (Note 10) ............................... - - 114,662
-------- -------- ---------
Total costs and expenses .............................. 714,772 640,656 816,822
-------- -------- ---------
OTHER INCOME:
Proceeds from contract settlement ........................ - - 45,500
-------- -------- ---------
OPERATING EARNINGS ......................................... 85,984 90,968 11,781
NET INTEREST EXPENSE ....................................... 16,997 21,704 27,478
-------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES ........................ 68,987 69,264 (15,697)
INCOME TAXES (BENEFIT) (Note 3) ............................ 10,348 11,300 (4,484)
-------- -------- ---------
NET EARNINGS (LOSS) ........................................ $ 58,639 $ 57,964 ($11,213)
======== ======== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic .................................................... 28,261 28,362 28,356
Diluted .................................................. 28,646 28,483 28,356
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic .................................................... $2.07 $2.04 ($0.40)
===== ===== =======
Diluted .................................................. $2.05 $2.04 ($0.40)
===== ===== =======
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and equivalents .......................................... $ 103,254 $ 108,321
Receivables:
Trade accounts receivable (net of allowances of $1,891
and $2,840) ................................................ 89,086 51,122
Other receivables ........................................... 3,677 3,974
---------- ----------
Total receivables, net ................................... 92,763 55,096
---------- ----------
Inventories:
Coal finished goods ......................................... 9,287 12,525
Coal work in process ........................................ 12,932 8,744
Mine supplies ............................................... 18,937 20,093
---------- ----------
Total inventories ........................................ 41,156 41,362
Deferred income taxes (Note 3) ................................ 9,583 9,747
Other current assets .......................................... 3,541 3,426
---------- ----------
Total current assets ..................................... 250,297 217,952
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land and mineral rights ..................................... 632,781 627,369
Prepaid royalties ........................................... 20,173 21,705
Plant and equipment ......................................... 540,566 493,962
---------- ----------
Total at cost ............................................ 1,193,520 1,143,036
Less - Accumulated depreciation, depletion and amortization . (365,314) (324,166)
---------- ----------
Property, plant and equipment, net ....................... 828,206 818,870
---------- ----------
OTHER ASSETS:
Prepaid pension expense (Note 6) ............................ 4,836 7,056
Deferred financing costs, net ............................... 2,329 1,835
Other long-term assets ...................................... 8,289 4,912
---------- ----------
Total other assets ....................................... 15,454 13,803
---------- ----------
TOTAL ASSETS ................................................. $1,093,957 $1,050,625
========== ==========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4) ....................... $ 68,342 $ -
Accounts payable - trade ............................................ 81,523 38,895
Other taxes payable ................................................. 22,527 22,057
Accrued payroll and related benefits ................................ 20,103 23,807
Other accrued expenses (Note 6) ..................................... 35,598 48,263
----------- -----------
Total current liabilities ...................................... 228,093 133,022
LONG-TERM DEBT (Notes 4 and 5) ........................................ 275,800 344,770
ACCRUED POSTRETIREMENT BENEFIT OBLIGATIONS (Note 7) ................... 253,700 245,385
ACCRUED PNEUMOCONIOSIS BENEFITS (Note 8) .............................. 36,156 46,256
ACCRUED MINE CLOSING COSTS (Note 10) .................................. 55,957 75,663
DEFERRED INCOME TAXES (Note 3) ........................................ 20,527 13,033
OTHER LONG-TERM LIABILITIES:
Accrued workers' compensation ........................................ 29,459 36,617
Accrued postemployment benefits ...................................... 14,619 18,095
Other ................................................................ 1,906 5,178
----------- -----------
Total other long-term liabilities .............................. 45,984 59,890
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 15 and 16) ....................... - -
----------- -----------
Total liabilities .............................................. 916,217 918,019
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock (Note 12) ........................................... - -
Common stock - $0.01 par value per share - 50,000 shares authorized;
28,441 shares issued and 28,197 shares outstanding as of
December 31, 1997 and 28,377 issued and outstanding as of
December 31, 1996 ................................................. 284 284
Capital in excess of par value ...................................... 73,120 72,191
Retained earnings (Note 4) .......................................... 110,284 60,131
----------- -----------
183,688 132,606
Less cost of common stock in treasury - 244 shares at December 31,
1997, and no shares at December 31, 1996 .......................... (5,948) -
----------- -----------
Total shareholders' equity ..................................... 177,740 132,606
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 1,093,957 $ 1,050,625
=========== ===========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 34
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ----- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) .............................................. $ 58,639 $ 57,964 ($11,213)
--------- -------- ---------
Adjustments for differences between net earnings (loss) and cash
flows from operating activities:
Depreciation, depletion and other amortization ................. 57,912 60,134 68,576
Amortization of deferred financing costs ....................... 790 838 838
Postretirement benefits ........................................ 8,315 (10,454) 3,318
Gain on sales of property, plant and equipment ................. (5,066) (5,062) (1,462)
Prepaid pension costs .......................................... 2,220 2,499 2,943
Pneumoconiosis benefits ........................................ (10,100) (3,168) (23,754)
Postemployment benefits ........................................ (3,476) 811 3,485
Workers' compensation .......................................... (7,158) 5,851 8,905
Mine closing costs ............................................. (17,810) (6,539) (9,654)
Provision for asset impairments and accelerated mine closings .. - - 114,662
Stock appreciation units ....................................... (4,195) (10,172) 2,492
Deferred income taxes .......................................... 7,658 13,885 (16,984)
Other noncash items ............................................ (5,143) (4,892) (1,489)
Changes in working capital components:
(Increase) decrease in receivables ........................... (37,717) 16,660 15,502
Decrease in inventories ...................................... 71 8,584 7,809
(Increase) decrease in other current assets .................. (117) (441) 2,353
Increase (decrease) in accounts payable - trade .............. 42,628 (7,292) (7,365)
Increase (decrease) in accrued expenses and other current
liabilities ................................................. (7,690) 12,668 1,323
--------- -------- ---------
(Increase) decrease in working capital ..................... (2,825) 30,179 19,622
--------- -------- ---------
Total adjustments to net earnings (loss) ....................... 21,122 73,910 171,498
--------- -------- ---------
Net cash provided by operating activities ....................... 79,761 131,874 160,285
--------- -------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment ...................... (74,426) (31,427) (56,334)
Cash paid for sale of Indiana assets ............................ (4,000) (7,000) -
Proceeds from sales of property, plant and equipment ............ 7,745 7,890 4,545
--------- -------- ---------
Net cash used in investing activities ........................... (70,681) (30,537) (51,789)
--------- -------- ---------
FINANCING ACTIVITIES:
Proceeds from debt refinancing .................................. 145,800 - -
Net repayments of long-term debt ................................ (146,428) - (105,288)
Proceeds from common stock issued under stock option plan ....... 929 247 -
Payment of dividends ............................................ (8,484) (6,382) (5,672)
Purchase of treasury stock ...................................... (5,998) - -
Sale of treasury stock .......................................... 34 - -
--------- -------- ---------
Net cash used in financing activities ......................... (14,147) (6,135) (110,960)
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .................. (5,067) 95,202 (2,464)
CASH AND EQUIVALENTS, BEGINNING ................................. 108,321 13,119 15,583
--------- -------- ---------
CASH AND EQUIVALENTS, ENDING .................................... $103,254 $108,321 $13,119
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during period for:
Interest, net of amount capitalized ........................ $16,085 $ 22,804 $27,372
Income taxes, net of refunds ................................ 5,231 (2,997) 10,549
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 35
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Total
Capital in Share-
Common Excess of Retained Treasury holders'
Stock Par Value Earnings Stock Equity
------ ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.................................................... $ 283 $ 71,945 $ 26,143 $ - $ 98,371
Net loss ................................................................ - - (11,213) - (11,213)
Cash dividends declared ($.20 per share) ................................ - - (5,672) - (5,672)
----- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1995 ................................................. 283 71,945 9,258 - 81,486
Issuance of 22 shares of common stock under stock option plan (Note 9) ... 1 246 - - 247
Net income ............................................................... - - 57,964 - 57,964
Cash dividends declared ($.25 per share) ................................. - - (7,091) - (7,091)
----- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1996 ................................................. 284 72,191 60,131 - 132,606
Issuance of 66 shares of common stock under stock option plan (Note 9) .. - 929 - - 929
Purchase of 246 shares of common stock .................................. - - - (5,998) (5,998)
Issuance of 2 shares of treasury stock at less than cost ................ - - (16) 50 34
Net income .............................................................. - - 58,639 - 58,639
Cash dividends declared ($.30 per share) ................................ - - (8,470) - (8,470)
----- -------- -------- ------- ---------
BALANCE, DECEMBER 31, 1997 ................................................. $ 284 $ 73,120 $110,284 ($5,948) $ 177,740
===== ======== ======== ======= =========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 36
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in thousands, except share and per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Zeigler Coal Holding Company and Subsidiaries (Zeigler
or the "Company"), all of which are wholly-owned. All material intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
balance sheet date, and the reported amounts of revenues and expenses during
the year. Actual results could differ from those estimates.
Cash and Equivalents - Cash and equivalents include cash on deposit and
highly liquid investments with a maturity of three months or less.
Inventories - Coal inventory is valued using the average cost method and
is stated at the lower of cost or market. Coal inventory costs include labor,
equipment costs and operating overhead. Coal work in process includes
partially uncovered coal and unprocessed coal. Mine supply inventory is valued
using the average cost method and is stated at the lower of cost or market.
Property, Plant and Equipment - Additions and betterments are capitalized
at cost. Maintenance and repair costs are expensed as incurred. Depreciation
of plant and equipment is computed principally by the straight-line method over
the expected useful lives of the assets.
Mine development costs and the net amount of associated interest cost are
capitalized. Exploration costs are expensed as incurred. Depletion of mineral
rights and capitalized mine development costs is provided on the basis of
tonnage mined in relation to total estimated recoverable tonnage.
Zeigler pays royalties to certain landowners and holders of mineral
interests for the rights to perform certain mining activities. Amounts
advanced to landowners, which are recoupable against future production, are
capitalized; as the coal is mined, these prepayments are offset against earned
royalties and included in the cost of coal sales.
Deferred Financing Costs - The costs of issuing and restructuring
long-term debt are capitalized and amortized using the effective interest
method over the term of the related debt.
Income Taxes - Zeigler accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under SFAS No. 109, deferred taxes are established for the
temporary differences between the financial reporting basis and the tax basis
of Zeigler's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
34
<PAGE> 37
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Postretirement Benefits Other Than Pensions - As prescribed by SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
Zeigler accrues, based on annual independent actuarial valuations, for
the expected costs of providing postretirement benefits other than pensions,
primarily medical benefits, during an employee's actual working career until
vested.
Pneumoconiosis Benefits - Certain Zeigler subsidiaries are liable under
the Federal Black Lung Benefits Act of 1972, as amended, to pay pneumoconiosis
(black lung) benefits to eligible employees, former employees and their
dependents for claims filed after June 30, 1973. These subsidiaries are also
liable under certain state statutes for black lung claims. Zeigler acts as
self-insurer for most federal and state black lung benefits. The remaining
portion of black lung claims are covered by state insurance funds into which
Zeigler pays premiums.
The accrual for self-insured pneumoconiosis benefits is adjusted to equal
the present value of future claim payments, determined as of the beginning of
the year, based on outside actuarial valuations performed annually.
Postemployment Benefits - Zeigler provides certain postemployment
benefits, primarily long-term disability and medical benefits, to former and
inactive employees and their dependents during the time period following
employment but before retirement. The Company accrues the discounted present
value of expected future benefits, determined as of the beginning of the year,
based on annual outside actuarial valuations.
Reclamation and Mine Closing Costs - Zeigler provides for the estimated
costs of future mine closings over the expected lives of active mines. Those
costs relate to sealing portals at deep mines and to reclaiming the final pit
and support acreage at surface mines. Other costs common to both types of
mining are related to removing or covering refuse piles and slurry (or
settling) ponds and dismantling preparation plants and other facilities. The
regular provision for future mine closing costs is calculated under the
units-of-production method based on a per ton charge determined by dividing
estimated unrecorded closing costs by estimated remaining recoverable tons.
These estimates are updated annually and the accrual rate is adjusted on a
prospective basis accordingly. The cost of restoring land and water resources
affected by normal ongoing surface mining operations is expensed as incurred.
Asset Impairments and Accelerated Mine Closing Accruals - In certain
situations, expected mine lives are shortened because of changes to planned
operations. When that occurs, and it is determined that the mine's underlying
costs are not recoverable in the future, reclamation and mine closing
obligations are accelerated and the mine closing accrual is increased
accordingly. Also, to the extent that it is determined that asset carrying
values will not be recoverable during a shorter mine life, a provision for such
impairment is recognized. The Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of in
1995. SFAS No. 121 expanded the Company's criteria for loss recognition, and
provides methods for both determining when an impairment has occurred and for
measuring the amount of the impairment. SFAS No. 121 requires that projected
future cash flows from use and disposition of all the Company's assets be
compared with the carrying amounts of those assets. When the sum of projected
cash flows is less than the carrying amount, impairment losses are recognized.
Revenue Recognition - Coal sales are recognized at contract prices at the
time title transfers to the customer. Coal sales are reduced and an allowance
is established for pricing disputes. Revenue at the import/export terminals is
recognized at the time of throughput.
Energy Trading Revenues and Costs - Energy trading revenues and costs
represent revenues and costs derived from the trading of power and gas forward
and future contracts and options. These forward and future contracts and
options are marked-to-market with gains and losses recognized currently.
Revenue and cost on forward and future contracts is recognized on settlement
date.
35
<PAGE> 38
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Other Revenues, Costs and Expenses - Other revenues represent amounts
primarily related to the terminals, coal leases to third parties, farming,
timber, gains on sales of surplus assets, and oil and gas royalties. Costs and
expenses related to other revenues and those related to Zeigler's clean coal
plant are included in other costs and expenses.
Stock-Based Compensation - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based Compensation,
which required adoption in 1996. The new standard defines a fair value method
of accounting for stock options and similar equity instruments. Pursuant to
the new standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies
are also permitted to continue to account for such transactions under
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued
to Employees, but are required to disclose in a note to the financial
statements pro forma net income and earnings per share as if the Company had
applied the new method of accounting. The accounting requirements of the new
method are effective for all employee awards granted after the beginning of the
fiscal year of adoption. The Company has elected to continue to account for
such transactions under APB No. 25.
Net Earnings Per Common Share - The Company adopted SFAS No. 128,
Earnings Per Share, beginning with the Company's fourth quarter of 1997. All
prior period net earnings per common share data have been restated to conform
to the provisions of this statement. Basic net earnings per common share is
computed using the weighted average number of shares outstanding. Diluted net
earnings per common share is computed using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding options to purchase common stock. Incremental shares of 385,000
and 121,000 in 1997 and 1996, respectively, were used in the calculation of
diluted earnings per common share. Options to purchase 334,000 and 809,000
shares of common stock in 1997 and 1996, respectively, were not included in the
computation of diluted earnings per common share because the option exercise
price was greater than the average market price of the common stock. All
options to purchase common stock were excluded in the 1995 computation of
diluted earnings per common share since the options were antidilutive.
Reclassifications - Certain amounts in the 1996 and 1995 financial
statements and notes have been reclassified to conform with the 1997
presentation.
2. DESCRIPTION OF BUSINESS
Zeigler is engaged principally in the mining of coal for sale primarily to
electric utilities in the United States. In addition, during 1997, the Company
began power and gas trading through its new energy trading and marketing
subsidiary, EnerZ Corporation.
3. INCOME TAXES
Income tax expense (benefit) is comprised of the following:
Year Ended December 31,
-----------------------
1997 1996 1995
------- -------- --------
Current:
Federal .............. $ 2,228 ($2,179) $ 10,521
State ................ 462 (408) 1,979
Deferred:
Federal .............. 6,701 12,151 (14,862)
State ................ 957 1,736 (2,122)
------- -------- --------
Total ............ $10,348 $ 11,300 ($4,484)
======= ======== ========
36
<PAGE> 39
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate of 35% to earnings before income
taxes due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed tax at federal statutory rate ....................... $24,145 $24,246 ($5,494)
State tax - net of federal benefits .......................... 2,242 2,162 (4,758)
Percentage depletion ......................................... (8,893) (8,164) (10,469)
Change in valuation allowance ................................ (10,542) (8,889) 14,113
Other - net .................................................. 3,396 1,945 2,124
-------- -------- -------
Income tax expense (benefit) provided ........................ $10,348 $11,300 ($4,484)
======== ======== ======
</TABLE>
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities related to:
Property and equipment .............................................. $143,366 $127,798
Land and mineral rights ............................................. 32,659 31,666
Other ............................................................... 8,772 11,592
--------- --------
Total deferred tax liability ...................................... 184,797 171,056
--------- --------
Deferred tax assets related to:
Accrued mine closing costs .......................................... 22,383 23,730
Accrued pneumoconiosis benefits ..................................... 14,462 18,344
Accrued workers' compensation costs ................................. 11,784 14,647
Accrued postretirement benefits ..................................... 101,480 98,154
Other ............................................................... 20,727 21,812
Alternative minimum tax credit carryforwards ........................ 33,811 32,419
--------- --------
Total deferred tax asset before valuation allowance ............... 204,647 209,106
Less - Valuation allowance ........................................ (30,794) (41,336)
--------- --------
Total deferred tax asset .......................................... 173,853 167,770
--------- --------
Net deferred tax liability ............................................ ($10,944) ($3,286)
========= ========
Shown as:
Current deferred tax asset ........................................ $ 9,583 $9,747
Noncurrent deferred tax liability ................................. (20,527) (13,033)
</TABLE>
Zeigler also has an AMT credit carryforward of $33,811 and $32,419 at
December 31, 1997 and 1996, respectively, available to be used in future
periods. Although management believes that it is unlikely to realize all of
its AMT credit carryforward under existing law and company structure, AMT
credit carryforward is recognized to reduce the deferred tax liability from the
amount of regular tax on temporary differences to the amount of tentative
minimum tax on AMT temporary differences.
37
<PAGE> 40
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
8.61% senior secured notes ................................................ $198,342 $198,970
Industrial revenue bonds .................................................. 145,800 145,800
-------- --------
Total ............................................................. 344,142 344,770
Less current maturities ................................................... 68,342 -
-------- --------
Long-term debt ..................................... $275,800 $344,770
======== ========
</TABLE>
8.61% Senior Secured Notes - The 8.61% Senior Secured Notes are payable to
a group of insurance companies and other financial institutions under Note
Purchase Agreements dated as of November 16, 1992. Interest on the notes is
payable semiannually. Annual principal payments begin on November 15, 1998 at
the rate of 20% of the original outstanding amount of $400,000. The notes
require Zeigler to offer to make mandatory prepayments in the event Zeigler
generates excess cash flow, as defined in the Note Purchase Agreements, or
makes asset sales above specified levels. The amount of excess cash flow that
must be offered as a prepayment to the Noteholders is based upon the percentage
of debt due to the Noteholders divided by the total indebtedness to both the
Noteholders and the lenders under the Credit Agreement described in the fourth
following paragraph. The Noteholders were offered a prepayment of $25,050 in
1997 based on free cash flow, as defined, for 1996, of which $628 of the
prepayments were accepted by the Noteholders.
The notes are collateralized by a first mortgage on substantially all of
Zeigler's assets. The collateral is shared pari passu with the lenders
involved with the Credit Agreement. The notes may be prepaid at Zeigler's
discretion; however, the Noteholders are entitled to receive a prepayment
premium that protects the yield to the Noteholders over the remainder of the
term of notes. In effect, this yield maintenance premium is the net present
value of the reduced yield to the Noteholders over the remaining scheduled term
of the Notes based upon an assumed reinvestment rate of 50 basis points (0.5%)
over the then available yield for U.S. Treasury securities with a maturity
equal to that of the Senior Secured Notes. No yield maintenance premium is
payable on mandatory prepayments out of excess cash flow.
On January 5, 1998, Zeigler prepaid $198,342 to the Noteholders, using
$68,342 of cash and borrowing $130,000 under a new Credit Agreement's revolving
credit facility (see below). A related yield maintenance premium of $7,604
was also paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8,849 ($6,637 net
of taxes) in the first quarter of 1998, consisting of the yield maintenance
premium and the write-off of deferred financing costs related to the early
extinguishment of debt.
Industrial Revenue Bonds - In August 1997, the Company completed the
refunding of its industrial revenue bonds. The industrial revenue bonds are
floating rate obligations issued by the Peninsula Ports Authority of Virginia
($115,000) and Charleston County, South Carolina ($30,800). Both obligations
are backed by letters of credit issued under the Company's revolving credit
facility. These refundings served to extend the maturities of the industrial
revenue bonds and to release Shell Oil Company from its guarantees of the
underlying obligations. The principal of the obligation by the Peninsula Ports
Authority of Virginia is due in one lump-sum payment on May 1, 2022, and the
principal of the obligation by Charleston County, South Carolina is due in one
lump-sum payment on August 1, 2028. Interest on these obligations is payable
monthly. The weighted average interest rate for these borrowings was 3.66% and
3.38% as of December 31, 1997 and 1996, respectively.
38
<PAGE> 41
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Credit Agreement - On October 19, 1994, Zeigler amended and restated its
Credit Agreement dated November 16, 1992, as previously amended and restated on
March 15, 1994. The Credit Agreement provides for a $200,000 revolving credit
facility, with a three year term, and can be used for both loans and letters of
credit. As of December 31, 1997, Zeigler had used $186,107 out of the total
$200,000 revolving credit facility for outstanding letters of credit. The
provisions of the Credit Agreement require a commitment fee to be paid on the
unused portion of the revolving credit facility. Interest is paid based on
floating rates which fluctuate based on the prime rate, or the London Interbank
Offer Rate (LIBOR) plus various increments. The interest rate was 6.42% at
December 31, 1997. The Credit Agreement is collateralized by a first mortgage
on substantially all of Zeigler's assets. The collateral is shared pari passu
with the holders of the Senior Secured Notes.
In April 1997, the Company executed a new Credit Agreement (the "New
Credit Agreement") with certain financial institutions, which provides for
senior unsecured revolving credit and letter of credit facilities aggregating
$700,000. Interest on the revolving credit facility is paid in arrears based
on rates which fluctuate based on the prime rate or a certain Interbank Offer
Rate, as the Company may elect. Amounts outstanding under the New Credit
Agreement are not secured. The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance. The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default. The New Credit Agreement, which replaces the
Amended and Restated Credit Agreement dated October 19, 1994, became effective
on January 5, 1998, in conjunction with the payment of the Company's
outstanding Senior Secured Notes.
Maturities - At December 31, 1997, aggregate scheduled maturities of all
long-term debt for each year through 2002 are as follows:
1998 ................... $ 68,342
1999 ................... -
2000 ................... -
2001 ................... -
2002 ................... -
Thereafter.............. 275,800
--------
Total .................. $344,142
========
5. FINANCIAL INSTRUMENTS
The fair value of Zeigler's long-term debt has been calculated based on
quoted market prices for similar issues or current rates offered to Zeigler for
debt of the remaining maturities. Long-term debt has an estimated fair value
of $351,746 and $349,451 compared to the carrying amount of $344,142 and
$344,770 at December 31, 1997 and 1996, respectively. The carrying amount of
all other financial instruments, including cash and equivalents, accounts
receivable and accounts payable approximates fair value due to the short-term
nature of these instruments.
Through its energy trading subsidiary, the Company began entering into
power and gas forward contracts and options for trading purposes in 1997.
These forward contracts and options were marked-to-market with any gains and
losses recognized currently. At December 31, 1997, open net contract and
option positions were not material and did not represent significant credit
related exposure.
39
<PAGE> 42
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. PENSION AND SAVINGS PLANS
Salaried Pension Plan - Zeigler has a non-contributory pension plan
covering substantially all employees other than those who are members of the
United Mine Workers of America ("UMWA"). The plan is a cash balance retirement
plan which provides benefits based upon the employee's length of credited
service and compensation during each year of employment. Zeigler's funding
policy is to make, as a minimum contribution, the equivalent of the minimum
payment required by the Employee Retirement Income Security Act of 1974. The
Company contributed $123 in 1997 to the pension plan. There were no minimum
contributions required in 1996 and 1995.
The pension cost components for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost (for benefits earned during the
year)......................................................... $ 3,186 $ 3,543 $ 3,566
Interest cost on projected benefit
obligations................................................... 7,285 7,321 7,636
Actual return on plan assets.................................... (11,709) (14,043) (20,889)
Net amortization and deferral................................... 3,581 5,678 12,630
-------- -------- --------
Total....................................................... $ 2,343 $ 2,499 $ 2,943
======== ======== ========
</TABLE>
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Plan assets at fair value ......................................................... $108,081 $105,897
-------- --------
Actuarial present value of plan benefits:
Vested ........................................................................ 89,679 84,305
Nonvested ..................................................................... 3,932 3,390
-------- --------
Accumulated benefit obligation ................................................ 93,611 87,695
Additional obligation for future salary increases ............................. 6,497 7,190
-------- --------
Projected benefit obligation ............................................. 100,108 94,885
-------- --------
Excess of plan assets over projected
benefit obligation ............................................................ 7,973 11,012
Unrecognized net transition asset .................................................. (480) (548)
Unrecognized prior service cost .................................................... 242 264
Unrecognized net gain .............................................................. (2,899) (3,672)
-------- --------
Prepaid pension expense ............................................................ $ 4,836 $ 7,056
======== ========
</TABLE>
The unrecognized net transition asset, representing the excess of the fair
value of plan assets over the projected benefit obligation at the date of
adoption, is being amortized over the average expected future service periods
of employees.
40
<PAGE> 43
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Assumptions used in developing the projected benefit obligation as of
December 31, are as follows:
1997 1996
------ ------
Discount rate ................................... 7.25% 7.75%
Rate of compensation increase ................... 4.00% 4.00%
Rate of return on plan assets ................... 9.50% 9.50%
Plan assets consist principally of common stocks and U.S. government and
corporate obligations.
UMWA Pension Plan - Old Ben Coal Company ("Old Ben"), a wholly-owned
subsidiary, and Marrowbone Development Company, a division of Mountaineer Coal
Development Company, an indirect subsidiary, are required under their
respective contracts with the UMWA to pay amounts based on hours worked to the
UMWA Pension Plan and Trust, a multi-employer pension plan covering all
employees who are members of the UMWA. The accompanying consolidated
statements of operations include $1,578, $2,102, and $2,778, of expense in
1997, 1996, and 1995, respectively, applicable to the plan. The National
Bituminous Coal Wage Agreement of 1998 ("NBCWA") authorizes the Bituminous Coal
Operators Association to increase the rate of contributions from employers to
assure payment of benefits. The union contract requires all currently
participating employers to guarantee benefits jointly, but not severally, with
all other currently participating employers. It is not practical to determine
each subsidiaries' allocable share of the plan's net assets and accumulated
benefits.
401(k) Plans - Zeigler and certain subsidiaries sponsor savings and
long-term investment plans for substantially all employees other than employees
covered by the contract with the UMWA. One of the plans will match 50% of the
voluntary contributions up to a maximum contribution of 3% of a participant's
salary with an additional matching contribution subject to certain performance
criteria. The expense under these plans was $1,276, $1,391, and $1,036, in
1997, 1996 and 1995, respectively.
Stock Appreciation Units - Zeigler has a long-term incentive plan which
entitles certain officers and key employees to receive a cash award for an
amount equal to the excess of the fair market value of Zeigler's common stock
on the date the unit matures over the base price at the date of grant of the
award. The plan permits an aggregate of 1,635,200 such stock appreciation
units of which 73,600 and 284,320 were outstanding at December 31, 1997 and
1996, respectively. The vesting period ranges from three to five years. During
1997, 210,080 stock appreciation units matured. Costs and expenses include
approximately $141, $2,917, and $3,178, of charges in connection with this plan
for 1997, 1996 and 1995, respectively. Outstanding stock appreciation units
with maturities less than one year are included as a component of other accrued
expenses.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
UMWA Combined Benefit Fund - Zeigler provides healthcare benefits to
eligible retirees and their dependents. Retirees who were members of the UMWA
and who retired on or before December 31, 1975 received these benefits from
multi-employer benefit plans. Old Ben contributed to these funds based on the
number of its retirees in one of the funds and based on hours worked by current
UMWA members for the other fund. Current and projected operating deficits of
these trusts led to the passage of the Coal Industry Retiree Health Benefit Act
of 1992 (the "Act"). The Act established a new multi-employer benefit trust
that will provide healthcare and life insurance benefits to all beneficiaries
of the earlier trusts who were receiving benefits as of July 20, 1992. The Act
provides for the assignment of beneficiaries to their former employers and any
unassigned beneficiaries to employers based on a formula. The expense under
these plans, which is recognized as contributions are made, amounted to $3,431,
$2,968, and $3,527, in 1997, 1996 and 1995, respectively. Based upon an
independent actuarial valuation, Zeigler estimates the amount of its obligation
under the new plan to be approximately $21,637 as of December 31, 1997.
41
<PAGE> 44
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Zeigler Benefit Plans - Net postretirement healthcare cost for the year
ended December 31, includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost ................................................. $ 4,270 $ 4,562 $ 5,027
Interest cost ................................................ 18,436 17,123 17,842
Amortization of prior service cost............................ (1,176) (4,608) (9,208)
Amortization of unrecognized gain............................. (126) (573) (327)
------- ------- -------
Net periodic postretirement benefit cost .................. $21,404 $16,504 $13,334
======= ======= =======
</TABLE>
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ........................................................................ $146,388 $135,044
Fully eligible active employees ................................................. 61,974 53,477
Other active employees .......................................................... 61,899 52,760
-------- --------
Total ........................................................................ 270,261 241,281
Unrecognized net (loss) gain ....................................................... (17,379) 4,909
Unrecognized prior service cost (benefit) .......................................... 818 (805)
-------- --------
Accumulated postretirement benefit obligation ...................................... $253,700 $245,385
======== ========
</TABLE>
In 1996, as a result of the re-employment or termination prior to vesting
of certain Midwestern employees, the Company recorded a $16,295 gain related to
the curtailment of its postretirement benefit plan.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.25% and 7.5% at December 31, 1997 and January 1, 1997,
respectively. The assumed healthcare cost trend rates used in determining the
net expense for 1997 are shown in the following table. Healthcare cost trends
were assumed to decline from 1997 levels to an ultimate ongoing level over five
years as follows:
<TABLE>
<CAPTION>
1997 Ultimate
Rate Rate
---- --------
<S> <C> <C>
Pre-65 ........................ 8.0% 5.0%
Post-65 ....................... 6.5% 5.0%
Medicare offset ............... 6.0% 5.0%
</TABLE>
The expense and liability estimates can fluctuate by significant amounts
based upon the assumptions used by the actuaries. If the healthcare cost trend
rates were increased by one percent in each year, the accumulated postretirement
benefit obligation would be 14 percent higher as of December 31, 1997. The
effect of this change on the 1997 expense accrual would be an increase of 14
percent.
42
<PAGE> 45
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. PNEUMOCONIOSIS BENEFITS
The actuarially determined liability for pneumoconiosis (black lung)
benefits is based on a 6% discount rate and various other assumptions including
incidence of claims, benefit escalation, terminations and life expectancy. The
annual black lung expense is comprised of the net change in the beginning
accrual balance, a charge for interest on the unfunded accrual balance plus the
premiums paid to the state insurance funds. The January 1, 1997 and January 1,
1995 actuarial studies reduced the estimated pneumoconiosis liability by $8,244
and $23,299, respectively, as compared to the previous study. The lower
estimates resulted primarily from favorable claims experience and reduced
projected future claims.
The cost of black lung benefits charged to operations for Zeigler and its
subsidiaries, excluding the changes in estimated liability mentioned above, was
$2,280, $157, and $2,967 in 1997, 1996 and 1995, respectively.
9. STOCK OPTION PLAN
In February 1994, Zeigler's Board of Directors and shareholders adopted a
Stock Option Plan (the "Option Plan"). A total of 2,560,000 shares of Common
Stock are reserved for issuance upon exercise of options granted under the
Option Plan. The Option Plan is administered by the Compensation Committee of
the Board of Directors which determines the terms of the options granted
including the exercise price, number of shares subject to the option and
exercisability.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan. The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been
recognized for the stock option plan.
The following summarizes the stock option transactions under the Option
Plan for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Option Prices Exercise Price
--------- -------------- ----------------
Options outstanding at
<S> <C> <C> <C>
December 31, 1994 ............................. 1,096,800 $11.13 to 16.05 $14.27
Granted ..................................... 19,000 10.75 to 12.88 12.54
Canceled .................................... (29,800) 11.13 to 16.05 15.22
---------
Options outstanding at
December 31, 1995 ............................. 1,086,000 10.75 to 16.05 14.22
Granted ..................................... 688,000 14.00 to 20.00 15.86
Exercised ................................... (21,530) 11.13 to 16.05 11.42
Canceled .................................... (153,320) 11.13 to 16.05 14.50
---------
Options outstanding at
December 31, 1996 ............................. 1,599,150 10.75 to 20.00 14.93
Granted ..................................... 434,000 23.38 to 26.25 25.52
Exercised ................................... (65,710) 10.75 to 16.05 14.68
Canceled .................................... (210,280) 10.75 to 26.25 20.19
---------
Options outstanding at
December 31, 1997 ............................ 1,757,160 11.13 to 26.25 16.93
=========
</TABLE>
43
<PAGE> 46
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The outstanding stock options at December 31, 1997, 1996 and 1995 have a
weighted average remaining contractual life of 7.64, 8.28, and 8.51 years,
respectively. The number of stock option shares exercisable at December 31,
1997, 1996, and 1995 were 717,464, 362,710, and 213,400, respectively.
Generally, stock options are granted at prices which are equal to the
market value of the stock on the date of grant, have a maximum term of ten
years, and vest in equal annual increments over five years. The weighted
average fair value at date of grant for options granted during 1997, 1996, and
1995 was $10.66, $5.76, and $3.96 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
<TABLE>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Expected life (years) 7 7 7
Risk-free interest rate 5.52% 6.26% 6.18%
Volatility 34.98% 29.90% 29.90%
Dividend yield 1.18% 1.94% 2.52%
</TABLE>
As previously discussed, the Company accounts for the Option Plan in
accordance with APB No. 25 under which no compensation expense has been
recognized for stock option awards. Had compensation cost for the Company's
stock option plan been determined on the fair value at the grant date for
awards for the three year period ended December 31, 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings (loss) and earnings
(loss) per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) - as reported ..... $58,639 $57,964 ($11,213)
Net earnings (loss) - pro forma ....... 57,590 57,611 (11,217)
Earnings (loss) per share - as reported
Basic ................................ $ 2.07 $ 2.04 ($.40)
Diluted .............................. 2.05 2.04 (.40)
Earnings (loss) per share - pro forma
Basic ................................ $ 2.04 $ 2.03 ($.40)
Diluted .............................. 2.01 2.02 (.40)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
44
<PAGE> 47
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. ASSET IMPAIRMENTS AND ACCELERATED MINE CLOSING COSTS
The following summarizes the components of asset impairments and
accelerated mine closing costs:
<TABLE>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Regular accruals for future mine closings ........ $6,403 $6,875 $ 9,440
====== ====== ========
Impairments and accelerated accruals:
Write-down of assets ............................. $ - $ - $ 84,513
End of mine closing and reclamation liabilities .. - - 28,024
Other liabilities ................................ - - 2,125
------ ------ --------
Total impairments and accelerated accruals ....... $ - $ - $114,662
====== ====== ========
</TABLE>
In July 1995, the Company closed Old Ben Mine #1 in Indiana after
termination of its supply contract with Southern Indiana Gas and Electric
Company. Accordingly, the carrying value of the mine and other related assets
that supported the contract were reduced to their estimated net realizable
values, which resulted in asset write-downs of $15,762. In addition, a
provision for accelerated mine closing costs of $16,500 was recorded, based on
the amount of estimated closing costs that would have been expensed during the
full term of the contract.
In the fourth quarter of 1995, the Company recorded asset impairments and
accelerated accruals totaling $82,400 in connection with the idling, closing
and projected closing of certain mines. Of that amount, $49,100 relates to Old
Ben's operations in southern Illinois. Old Ben idled one mine in Randolph
County, Illinois on December 31, 1995, and made plans to close two other
mines in Franklin County, Illinois later in 1996, mainly due to a sharp
reduction in demand for the Illinois Basin's high-sulfur coal. Management did
not expect the high-sulfur market to improve significantly in the foreseeable
future. The remaining $33,300 fourth quarter charge was associated with the
indefinite idling of Wolf Creek's underground mine in eastern Kentucky on
October 1, 1995. That amount consists of asset write-downs totaling $26,000
and increased reclamation liabilities of $7,300. Operations were suspended at
the mine chiefly due to the new sourcing flexibility negotiated in the amended
contract with Carolina Power & Light Company which allows the Company to supply
the contract with coal purchased from lower-cost producers. The ongoing high
costs at the Wolf Creek mine were mainly attributable to unfavorable geology
and declining productivity.
11. SALE OF INDIANA ASSETS
On February 12, 1996, the Company closed the sale of the majority of its
assets in Indiana to Kindill Mining, Inc. ("Kindill"). These assets had a
combined book value of $13,400 and included Old Ben Mine #1 and Old Ben Mine
#2, along with various other coal properties and interests. The Company
also agreed to make cash payments to Kindill of $7,000 in 1996 and $4,000 in
1997. In exchange, Kindill assumed the associated reclamation liabilities,
estimated at approximately $23,400. This sale was completed on April 30, 1996,
after Kindill secured the required mining permits. The sale of these assets did
not have a material effect on current income.
45
<PAGE> 48
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. PREFERRED STOCK
Zeigler is authorized to issue 1,000,000 shares of preferred stock, $0.01
par value, with such issuance to be in one or more classes or series. The
Board of Directors is authorized to determine the designations, preferences,
qualifications, limitations and restrictions of any class or series with
respect to, among other things, the rate and nature of dividends, the price and
terms, the amount payable in the event of liquidation, the terms and conditions
for conversion or exchange into any other class or series of the stock or other
securities and voting rights.
13. SIGNIFICANT CUSTOMERS
Coal sales include transactions involving both produced and purchased
coal. Two customers accounted for 29% and 16% of coal sales in 1997, 18% and
14% of coal sales in 1996, and 18% and 13% of coal sales in 1995.
14. RELATED PARTY TRANSACTIONS
Shell Oil Company, a former indirect shareholder, provides guarantees for
certain letters of credit and surety bonds of Zeigler. Zeigler reimburses
Shell for its costs in providing these guarantees.
15. COMMITMENTS AND CONTINGENCIES (Also see Note 16 - Legal Proceedings)
Zeigler and its subsidiaries have operating lease commitments expiring at
various dates, primarily for equipment. Minimum rental obligations under these
leases at December 31, 1997 are summarized by fiscal year as follows:
<TABLE>
<S> <C>
1998................. $5,095
1999................. 1,172
2000................. 623
2001................. 284
2002................. 20
Thereafter........... -
------
Total ............... $7,194
======
</TABLE>
Rental expense relating to operating leases amounted to $7,626, $7,834,
and $9,733 in 1997, 1996 and 1995, respectively. As of December 31, 1997,
Zeigler and its subsidiaries had $192,571 of surety bonds issued by an
insurance company to secure self-insured workers' compensation and
pneumoconiosis claims, reclamation and other performance commitments. Of that
amount, $23,061 was backed by guarantees of Shell (see Note 14). Letters of
credit of $246,161 were outstanding at December 31, 1997, of which amount
$60,053 was also guaranteed by Shell.
In 1997, upon completion of planned development, the Company idled Encoal
Corporation's clean coal demonstration plant in Wyoming. In 1998, marketing of
the LFC technology, both domestically and internationally will continue as well
as the evaluation of options regarding Encoal. The net book value of Encoal
Corporation's assets and the Company's related investment in clean coal
technology was $6.7 million as of December 31, 1997.
16. LEGAL PROCEEDINGS
Cajun Electric Power Cooperative - On December 21, 1994, Cajun Electric
Power Cooperative Inc. ("Cajun") filed with the U.S. Bankruptcy Court for the
Middle District of Louisiana (the "Bankruptcy Court") for voluntary
reorganization under Chapter 11 of the U.S. Bankruptcy Code. Triton Coal
Company ("Triton") has a requirements contract (the "Triton Contract") with
Cajun through Western Fuels Association, Inc., with a term extending through
the life of Big Cajun Plant No. 2. During 1997, Triton shipped 5.8 million
tons of coal to Cajun (representing 3.0% of the Company's total consolidated
revenues), while 1996 shipments to Cajun totaled 5.0 million tons. To date
during the bankruptcy, Triton has continued to ship coal to Cajun and Cajun has
continued to pay for such coal. The price for coal sold under the Triton
Contract is at or near the market price for this coal. The Triton Contract
provides for a price reopener effective January 1, 1998. The parties were
unable to reach agreement on the price to be effective January 1, 1998 and are
attempting to resolve that matter through the procedure set forth in the Triton
Contract.
46
<PAGE> 49
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
An Appellate Court affirmed a District Court's ruling that a
court-appointed trustee will manage Cajun's affairs during the bankruptcy. At
this time, it appears likely that the trustee will reject the Triton Contract.
In the event that the contract is rejected, it may be necessary for Triton to
find other markets for this coal, possibly including sales to the new operator
of Cajun's coal fired units.
Louisiana Generating LLC (an affiliate of the Company, Southern Energy,
Inc. and NRG Energy, Inc.) has executed an Amended and Restated Asset Purchase
and Reorganization Agreement to purchase substantially all of Cajun's
non-nuclear assets. This Agreement is incorporated in the trustee's plan of
reorganization, which is subject to Bankruptcy Court approval (including
evaluation of competing plans of reorganization) and a number of other
conditions. As a result of Louisiana Generating's entering into this
Agreement, Western Fuels Association, Inc. has formally requested certain
assurances regarding Triton's performance under the Triton Contract and
informed the Company that it reserves the right to assert certain claims
against Triton if the trustee rejects the Triton Contract.
Entergy-Gulf States Utilities, Inc. - Entergy-Gulf States, Inc. ("GSU")
owns 42% of Unit 3 at the Big Cajun II coal-fired power station. Pursuant to
the Triton Contract, Triton supplies the coal requirements of all three units
at Big Cajun II. Two of the three plans for reorganization of Cajun pending
before the Bankruptcy Court call for the rejection of the Triton Contract.
Triton and Western Fuels Association, Inc. maintain that Unit 3 is a joint
venture between GSU and Cajun, that joint ventures are partnerships under
Louisiana law and that, as Cajun's partner and as a direct beneficiary of the
coal provided by Triton, GSU is liable for some or all of their damages in the
event that the Triton Contract is rejected. On January 13, 1997, GSU requested
a judgment from the Bankruptcy Court declaring that Cajun is the sole principal
under the Triton Contract and that GSU has no liability to Western Fuels
Association, Inc. or Triton in the event the Triton Contract is rejected. In
February 1997, Western Fuels Association, Inc. and Triton filed a counterclaim
asking for a declaration from the Bankruptcy Court that GSU is liable to them
for damages if the Triton Contract is rejected. On September 3, 1997, the
Bankruptcy Court granted GSU a summary judgment. Western Fuels Association,
Inc. and Triton have appealed this judgment.
On August 21, 1997, GSU filed additional claims against the Company,
Triton and Western Fuels Association, Inc. In these claims, GSU alleged that
these parties violated the Sherman Antitrust Act and Louisiana Fair Trade
Statutes in the course of settlement discussions between the parties. The
Company believes that these allegations have no merit and a Motion to Dismiss
these claims is pending.
If the Triton Contract is rejected by the Bankruptcy Court, Triton will
suffer damages for breach of contract, for which its only remedies will be a
claim against GSU (as described above) and/or a claim in Cajun's bankruptcy
proceeding as a creditor of Cajun, and Triton will have to find other markets
for this coal, possibly including sales to the new operator of Cajun's
coal-fired units. Triton is currently in negotiations with alternative
customers for this coal. Triton has executed an agreement with Louisiana
Generating pursuant to which Triton will supply coal to Big Cajun II in the
event Cajun's court-appointed trustee's plan of reorganization is confirmed by
the Bankruptcy Court and Louisiana Generating completes the purchase of Cajun's
non-nuclear assets. Triton, Western Fuels Association, Inc., and the Trustee
have also executed an agreement which provides that if Louisiana Generating is
successful in purchasing the Cajun assets and the Triton Contract is rejected,
Triton will release any and all claims in Cajun's bankruptcy and will receive
approximately $4,000.
47
<PAGE> 50
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Janet Saad-Cook et al. v. Zeigler Coal Holding Company and R. & F. Coal
Company - In March, 1995, plaintiff filed a lawsuit against the Company and its
subsidiary, R. & F. Coal Company. The complaint includes several causes of
action based on alleged actions of the defendant companies involving fraud,
deceit, misrepresentation, and tortuous breach of contract with respect to two
coal mining leases made among the plaintiffs and R. & F. Coal Company. The
plaintiffs' complaint has since been amended to add Bluegrass Coal Development
Company as a named defendant, to eliminate the allegations that the defendants'
behavior violated the U.S. Racketeer Influenced and Corrupt Organizations Act
and to include additional causes of action involving trespass and breach of
lease. The defendant companies have denied the allegations in the complaint,
believe they have meritorious defenses to plaintiffs' claims, and intend to
defend vigorously against the claims. The Company believes that Shell Oil
Company is obligated to indemnify the Company against any loss (over certain
minimum amounts) that the Company may incur as a result of plaintiffs' claims
in the litigation and has given Shell notice thereof in accordance with the
terms of the purchase agreement under which the Company acquired Shell Mining
companies. The Company believes that ultimate resolution of the claims in the
lawsuit will have no material adverse effect on the Company's consolidated
results of operations or financial position.
Other - Various lawsuits and claims, including those involving ordinary
routine matters incidental to its business, to which the Company and its
subsidiaries are a party, are pending, or have been asserted, against the
Company. Although the outcome of these matters cannot be predicted with
certainty, management believes that their disposition will not have materially
adverse effects on the Company's consolidated results of operations or
financial position.
48
<PAGE> 51
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, beginning with the Company's fourth quarter
of 1997. The Company has two reportable segments: coal and energy. The coal
segment is engaged in the mining of coal for utilities in the United States.
The energy segment is principally responsible for the trading and marketing of
electricity and natural gas within the U.S. These reportable segments are
separately managed strategic business units that offer different products and
services, and whose performance is evaluated based on earnings from operations
before interest and taxes, not including nonrecurring gains and losses. The
accounting policies of the segments are the same as those described in Note 1.
There were no sales or transfers between segments in 1997, 1996, or 1995. The
"Other" category below consists of five operating segments that did not meet
the quantitative thresholds for determining reporting segments. These segments
consist primarily of amounts related to two import/export terminals, a clean
coal plant in Wyoming, the Company's environmental subsidiary, coal leases to
third parties, farming, timber, gains on sales of surplus assets, oil and gas
royalties, and selling, general and administrative costs.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Coal $603,553 $698,523 $754,975
Energy 166,474 - -
Other 30,729 33,101 28,128
-------- -------- --------
Total $800,756 $731,624 $783,103
Operating Earnings:
Coal $ 99,607 $ 85,357 $ 68,743
Energy (6,756) - -
Other (15,111) (10,684) (11,099)
Nonrecurring gains/(losses) 8,244 16,295 (45,863)
-------- -------- --------
Total $ 85,984 $ 90,968 $ 11,781
Depreciation, Depletion, and Amortization:
Coal $ 53,259 $ 55,649 $ 64,382
Energy 35 - -
Other 4,618 4,485 4,194
-------- -------- --------
Total $ 57,912 $ 60,134 $ 68,576
Capital Expenditures:
Coal $ 65,768 $ 24,671 $ 46,496
Energy 398 - -
Other 8,260 6,756 9,838
-------- -------- --------
Total $ 74,426 $ 31,427 $ 56,334
Assets:
Coal $890,030 $885,724 $901,916
Energy 34,583 10,000 -
Other 169,344 154,901 123,325
-------- -------- --------
Total $1,093,957 $1,050,625 $1,025,241
</TABLE>
18. POSSIBLE SALE OF COMPANY
On December 3, 1997, the Company announced that it was retaining an
investment banking firm to explore various strategic alternatives to maximize
value for shareholders, including the possible sale of the entire Company. In
connection therewith, the Board of Directors adopted a change-in-control
severance plan and retention bonus plan for all salaried employees as well as
special incentives for certain key employees. The Company has since retained
the investment banking firm Credit Suisse First Boston and prepared materials
for interested parties.
49
<PAGE> 52
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data for 1997 and 1996 is summarized below (in
thousands, except for per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
1997:
Total revenues .................... $164,652 $183,403 $238,205 $214,496
Operating earnings ................ 19,981 22,503 25,573 17,927
Net earnings ...................... 13,014 14,743 17,629 13,253
Net earnings per common share (1):
Basic ............................ .46 .52 .63 .47
Diluted .......................... .45 .51 .62 .47
1996:
Total revenues .................... $181,018 $182,701 $193,222 $174,683
Operating earnings ................ 17,962 21,162 25,965 25,879
Net earnings ...................... 10,113 12,674 16,991 18,186
Net earnings per common share (1):
Basic ............................ .36 .45 .60 .64
Diluted .......................... .36 .44 .59 .63
</TABLE>
(1) The sum of the quarterly earnings per share does not equal earnings per
share for the year because the per share amounts are calculated
independently for each quarter and for the year using the weighted average
number of common shares and common share equivalents outstanding during
each period.
50
<PAGE> 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with independent auditors
on accounting and financial disclosure during the two most recent fiscal years.
51
<PAGE> 54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the Directors of the Company required by this item
is incorporated by reference to the Company's definitive Proxy Statement for
the 1998 Annual Meeting of Shareholders, to be filed not later than April 30,
1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders, to be filed not later than April 30, 1998.
52
<PAGE> 55
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page
----
<S> <C>
(a) Documents filed as part of this Report:
(1) The following financial statements are included in Part II, Item 8:
Independent Auditors' Report .............................................. 28
Financial Statements:
Consolidated Statements of Operations, Years Ended December 31,
1997, 1996 and 1995 .................................................... 29
Consolidated Balance Sheets, December 31, 1997 and 1996 .................. 30
Consolidated Statements of Cash Flows, Years Ended December 31,
1997, 1996 and 1995 .................................................... 32
Consolidated Statements of Shareholders' Equity, Years Ended December 31,
1997, 1996 and 1995 .................................................... 33
Notes to Consolidated Financial Statements ............................... 34
(2) The following consolidated financial statement schedule is included in Item
14 at the page indicated:
Independent Auditors' Report ............................................... 57
Schedule II - Valuation and Qualifying Accounts, Years Ended
December 31, 1997, 1996 and 1995 ........................................... 58
All other schedules are omitted as not applicable or not required, or the
required information is shown in the Consolidated Financial Statements or
Notes thereto.
(3) Exhibits filed as part of this Report are as follows:
</TABLE>
Number Description
- ------ -----------
[S] [C]
3.1 Restated Certificate of Incorporation of Zeigler Coal Holding Company,
as amended**
3.2 By-Laws of Zeigler Coal Holding Company+
4.1 Form of certificate representing the shares of Common Stock**
4.2 Amended and Restated Credit Agreement, dated as of October 19, 1994,
among Zeigler Coal Holding Company, certain subsidiary borrowers,
certain financial institutions, Bank of America NT&SA and the First
National Bank of Chicago, as arrangers, LC issuer and administrative
agent***
<PAGE> 56
Number Description
- ----- -----------
4.3 Note Purchase Agreements, dated November 16, 1992,
between Zeigler Coal Holding Company and the various purchasers
named therein**
4.4 Collateral Agency and Intercreditor Agreement, dated
November 16, 1992, among Zeigler Coal Holding Company, State
Street Bank and Trust Company of Connecticut, National
Association, the Lenders, the Purchasers, the Administrative Agent
and the LC Issuer, as defined therein**
4.6 Restated Agreement of Sale, dated as of December 1, 1982,
between Charleston County, South Carolina and Massey Coal
Terminal, S.C. Corporation with attached copies of the documents
delivered in connection herewith**
4.8 Registration Agreement, dated as of January 31, 1985 and
amended as of November 11, 1992, between the Management Group,
Casati, Kinman, DSC, Heise IR, Shell and the Company, as defined
therein**
4.9 Credit Agreement dated as of April 24,1997 by and among
Zeigler Coal Holding Company; certain financial institutions; Bank
of America National Trust and Savings Association and the First
National Bank of Chicago, as Co-Documentation Agents; the First
National Bank of Chicago, as Syndication Agent; and Bank of
America National Trust and Savings Association, as Administrative
Agent. ******
4.10 Trust Indenture, dated as of August 1, 1997, between
Peninsula Ports Authority of Virginia and PNC Bank, N. A.
4.11 Financing Agreement, dated as of August 1, 1997, between
Peninsula Ports Authority of Virginia and the Company.
10.2 Employment Agreement, dated February 24, 1993, between
Zeigler Coal Holding Company and Chand B. Vyas**
10.4 Stock Purchase Agreement, dated September 8, 1992, among
Zeigler Coal Holding Company, Shell Oil Company and Shell Energy
Company, as amended**
10.5 Indemnification Agreement, dated November 23, 1992, among
Shell Oil Company, Zeigler Coal Holding Company and subsidiaries of
Zeigler Coal Holding Company listed on the signature page thereto**
10.6 1994 Stock Option Plan**
10.7 1990 Stock Appreciation Plan and amendments thereto**
10.9 Agreement for Sale and Purchase of Coal, dated as of January
1, 1971, by and between Carolina Power & Light Company, Wolf Creek
Collieries, Kermit Coal Company and Massey Coal Sales Company,
Incorporated, as amended*
10.10 Agreement, dated March 31, 1977, among A.T. Massey Coal
Company, Inc. and Marrowbone Development Company and Georgia
Power Company, as amended*
10.11 Coal Purchase and Sales Agreement, dated October 30, 1987, by and
between Georgia Power Company and Shell Mining Company, as amended*
54
<PAGE> 57
Number Description
- ------ -----------
10.14 Coal Lease, dated November 1, 1967, between the United
States of America, through the Bureau of Land Management and
Farmers Union Central Exchange, Incorporated Buckskin Mine site
(Triton Coal Company)*
10.15 Coal Lease, dated August 23, 1982 and effective as of
September 1, 1982, between the United States of America, through
the Bureau of Land Management and Shell Oil Company re Spring Draw
site (Triton Coal Company)**
10.16 Coal Lease, dated December 1, 1967, between the United
States of America, through the Bureau of Land Management and Humble
Oil & Refining Company (readjusted in the name of Exxon Coal USA,
Inc.) re conveyance of partial lease to Shell Mining Company
(Triton Coal Company)**
10.17 Coal Lease, dated December 1, 1966, between the United
States, through the Bureau of Land Management of America and Sentry
Royalty Company (readjusted in the name of Shell Mining Company) re
North Rochelle site**
10.18 Fourth Amendment dated as of April 1, 1995 to the Agreement
for Sale and Purchase of Coal, dated as of January 1, 1985, between
Carolina Power & Light Company, Wolf Creek Collieries Company,
Kermit Coal Company and Massey Coal Sales Company, Incorporated, as
amended.****
10.19 Amended and Restated Agreement for Sale and Purchase of Coal
dated as of July 1, 1996, by and between Carolina Power & Light
Company, as buyer, and Mountaineer Coal Development Company, d/b/a
Marrowbone Development Company, and Bluegrass Coal Development
Company, as sellers. *****
10.20 Special Bonus and Severance Pay Plan
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney
* Previously filed with Registration Statement No. 33-80646 and is
incorporated herein by reference. Contains material for which
confidential treatment has been granted pursuant to Rule 406 under the
Securities Act.
** Previously filed with Registration Statement No. 33-80646 and is
incorporated herein by reference.
*** Previously filed with Form 10-K dated March 30, 1995 and is incorporated
herein by reference.
**** Previously filed with Form 10-Q dated November 17, 1995 and is
incorporated herein by reference.
***** Previously filed with Form 8-K dated July 22, 1996 and is incorporated
herein by reference. Contains material for which confidential
treatment has been granted pursuant to Rule 24b-2 under the Securities
Exchange Act.
****** Previously filed with Form 10-Q dated November 10, 1997.
+ Previously filed.
55
<PAGE> 58
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the quarterly period ended
December 31, 1997.
56
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To Zeigler Coal Holding Company:
We have audited the consolidated financial statements of Zeigler Coal
Holding Company and Subsidiaries as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997, and have issued our
report thereon dated February 5, 1998; such report is included elsewhere in
this Annual Report on Form 10-K. Our audits also included the consolidated
financial statement schedule listed in Item 14(a)(2) of this report. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
February 5, 1998
57
<PAGE> 60
SCHEDULE II
ZEIGLER COAL HOLDING COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses(1) Deductions Charges of Period
----------- ---------- ----------- ---------- ------- ---------
(A) (B) (C) (D) (E) (F)
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts .............. $ 1,267 $ 389 $ 355 $ - $1,301
Allowance for pricing disputes ............... 1,573 663 1,646 - 590
------- ------ ------- ---- ------
Total allowances for accounts receivable ... $ 2,840 $1,052 $ 2,001 $ - $1,891
======= ====== ======= ==== ======
Reserve for mine supply inventory
obsolescence ................................ $ 3,395 $3,426 $ 1,789 $ - $5,032
1996
Allowance for doubtful accounts .............. $ 1,010 $ 306 $ 49 $ - $1,267
Allowance for pricing disputes ............... 1,601 407 435 - 1,573
------- ------ ------- ---- ------
Total allowances for accounts receivable ... $ 2,611 $ 713 $ 484 $ - $2,840
======= ====== ======= ==== ======
Reserve for mine supply inventory
obsolescence ................................ $ 2,692 $1,396 $ 693 $ - $3,395
1995
Allowance for doubtful accounts .............. $ 1,250 $ 100 $ 340 $ - $1,010
Allowance for pricing disputes ............... 12,177 3,529 14,105 - 1,601
------- ------ ------- ---- ------
Total allowances for accounts receivable ... $13,427 $3,629 $14,445 $ - $2,611
======= ====== ======= ==== ======
Reserve for mine supply inventory
obsolescence ................................ $ 3,294 $ 735 $ 1,337 $ - $2,692
</TABLE>
Notes:
(1) Additions to the allowance for pricing disputes are charged against coal
sales in accordance with the revenue recognition policy.
58
<PAGE> 61
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, in the City of
Fairview Heights, State of Illinois on March 24, 1998.
ZEIGLER COAL HOLDING COMPANY
(Registrant)
By: /s/ Brent L. Motchan
-----------------------------
Name: Brent L. Motchan
Title: Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 24, 1998.
<TABLE>
<CAPTION>
Signature Capacity
--------- ---------
<S> <C>
* Chairman of the Board and Director
- -----------------------------------
Michael K. Reilly
*
- ----------------------------------- Chief Executive Officer, President and
Chand B. Vyas Director (Principal Executive Officer)
/s/ Francis L. Barkofske Senior Vice President & Chief Financial
- ----------------------------------- Officer (Principal Financial Officer)
Francis L. Barkofske
/s/ Paul D. Femmer Controller (Principal Accounting Officer)
- -----------------------------------
Paul D. Femmer
*
- ----------------------------------- Director
Roland E. Casati
*
- ----------------------------------- Director
Robert W. Ericson
*
- ----------------------------------- Director
John F. Manley
*By: /s/ Brent L. Motchan Attorney-in-Fact
-------------------------------
Brent L. Motchan
</TABLE>
Original powers of attorney authorizing Brent L. Motchan to sign this
Annual Report on Form 10-K and amendments thereto on behalf of the above-named
persons have been filed with the Securities and Exchange Commission as Exhibit
24.1 to this Report.
59
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ ---------------------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Zeigler Coal Holding
Company, as amended**
3.2 By-Laws of Zeigler Coal Holding Company+
4.1 Form of certificate representing the shares of Common Stock**
4.2 Amended and Restated Credit Agreement, dated as of
October 19, 1994, among Zeigler Coal Holding Company, certain
subsidiary borrowers, certain financial institutions, Bank of
America NT&SA and the First National Bank of Chicago, as
arrangers, LC issuer and administrative agent***
4.3 Note Purchase Agreements, dated November 16, 1992,
between Zeigler Coal Holding Company and the various purchasers
named therein**
4.4 Collateral Agency and Intercreditor Agreement, dated
November 16, 1992 among Zeigler Coal Holding Company, State Street
Bank and Trust Company of Connecticut, National Association, the
Lenders, the Purchasers, the Administrative Agent and the LC
Issuer, as defined therein**
4.6 Restated Agreement of Sale, dated as of December 1, 1982,
between Charleston County, South Carolina and Massey Coal
Terminal, S.C. Corporation with attached copies of the documents
delivered in connection herewith**
4.8 Registration Agreement, dated as of January 31, 1985 and
amended as of November 11, 1992, between the Management Group,
Casati, Kinman, DSC, Heise IR, Shell and the Company, as defined
therein**
4.9 Credit Agreement dated as of April 24,1997 by and among
Zeigler Coal Holding Company; certain financial institutions;
Bank of America National Trust and Savings Association and the
First National Bank of Chicago, as Co-Documentation Agents; the
First National Bank of Chicago, as Syndication Agent; and Bank of
America National Trust and Savings Association, as Administrative
Agent. ******
4.10 Trust Indenture, dated as of August 1, 1997, between
Peninsula Ports Authority of Virginia and PNC Bank, N. A.
4.11 Financing Agreement, dated as of August 1, 1997,
between Peninsula Ports Authority of Virginia and the Company.
10.2 Employment Agreement, dated February 24, 1993, between
Zeigler Coal Holding Company and Chand B. Vyas**
10.4 Stock Purchase Agreement, dated September 8, 1992, among
Zeigler Coal Holding Company, Shell Oil Company and Shell Energy
Company, as amended**
10.5 Indemnification Agreement, dated November 23, 1992, among
Shell Oil Company, Zeigler Coal Holding Company and subsidiaries of
Zeigler Coal Holding Company listed on the signature page thereto**
10.6 1994 Stock Option Plan**
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Number Description
------ -----------------------------------------------------
<S> <C>
10.7 1990 Stock Appreciation Plan and amendments thereto**
10.9 Agreement for Sale and Purchase of Coal, dated as of
January 1, 1971, by and between Carolina Power & Light Company,
Wolf Creek Collieries, Kermit Coal Company and Massey Coal Sales
Company, Incorporated, as amended*
10.10 Agreement, dated March 31, 1977, among A.T. Massey Coal
Company, Inc. and Marrowbone Development Company and Georgia Power
Company, as amended*
10.11 Coal Purchase and Sales Agreement, dated October 30,
1987, by and between Georgia Power Company and Shell Mining
Company, as amended*
10.14 Coal Lease, dated November 1, 1967, between the United
States of America, through the Bureau of Land Management and
Farmers Union Central Exchange, Incorporated re Buckskin Mine site
(Triton Coal Company)*
10.15 Coal Lease, dated August 23, 1982 and effective as of
September 1, 1982, between the United States of America, through
the Bureau of Land Management and Shell Oil Company re Spring Draw
site (Triton Coal Company)**
10.16 Coal Lease, dated December 1, 1967, between the United
States of America, through the Bureau of Land Management and
Humble Oil & Refining Company (readjusted in the name of Exxon
Coal USA, Inc.) re conveyance of partial lease to Shell Mining
Company (Triton Coal Company)**
10.17 Coal Lease, dated December 1, 1966, between the United
States, through the Bureau of Land Management of America and
Sentry Royalty Company (readjusted in the name of Shell Mining
Company) re North Rochelle site**
10.18 Fourth Amendment dated as of April 1, 1995 to the
Agreement for Sale and Purchase of Coal, dated as of January 1,
1985, between Carolina Power & Light Company, Wolf Creek
Collieries Company, Kermit Coal Company and Massey Coal Sales
Company, Incorporated, as amended.****
10.19 Amended and Restated Agreement for Sale and Purchase of
Coal dated as of July 1, 1996, by and between Carolina Power &
Light Company, as buyer, and Mountaineer Coal Development Company,
d/b/a Marrowbone Development Company, and Bluegrass Coal
Development Company, as sellers. *****
10.20 Special Bonus and Severance Pay Plan
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney
</TABLE>
<PAGE> 64
* Previously filed with Registration Statement No. 33-80646 and is
incorporated herein by reference. Contains material for which
confidential treatment has been granted pursuant to Rule 406 under
the Securities Act.
** Previously filed with Registration Statement No. 33-80646 and is
incorporated herein by reference.
*** Previously filed with Form 10-K dated March 30, 1995 and is
incorporated herein by reference
**** Previously filed with Form 10-Q dated November 17, 1995 and is
incorporated herein by reference.
***** Previously filed with Form 8-K dated July 22, 1996 and is incorporated
herein by reference. Contains material for which confidential treatment
has been granted pursuant to Rule 24b-2 under the Securities Exchange
Act.
****** Previously filed with Form 10-Q dated November 10, 1997.
+ Previously filed.
<PAGE> 1
EXHIBIT 4.10
--------------------------------------------
$115,000,000
PENINSULA PORTS AUTHORITY OF VIRGINIA
PORT FACILITY REFUNDING REVENUE BONDS
(ZEIGLER COAL PROJECT)
SERIES 1997
--------------------------------------------
TRUST INDENTURE
between
PENINSULA PORTS AUTHORITY OF VIRGINIA
As Issuer
and
PNC BANK, N.A.
As Trustee
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Definitions.............................................................................. 3
ARTICLE II
THE BONDS
Section 2.01. Issuance of Bonds........................................................ 13
Section 2.02. Form and Denominations of Bonds; Bonds as Special,
Limited Obligation of Issuer............................................. 13
Section 2.03. Execution................................................................ 13
Section 2.04. Authentication........................................................... 14
Section 2.05. Registration, Transfer and Exchange...................................... 14
Section 2.06. Mutilated, Destroyed, Lost or Stolen Bonds............................... 14
Section 2.07. Payments of Principal, Redemption Price and Interest;
Persons Entitled Thereto................................................. 15
Section 2.08. Temporary Bonds.......................................................... 16
Section 2.09. Cancellation and Disposition of Surrendered Bonds........................ 17
Section 2.10. Acts of Registered Owners; Evidence of Ownership......................... 17
Section 2.11. Book Entry System........................................................ 17
Section 2.12. Payments to Cede & Co.; Payments to Beneficial Owners.................... 18
ARTICLE III
INTEREST RATES ON BONDS
Section 3.01. Interest Rate............................................................ 18
Section 3.02. Determination of Interest Rates.......................................... 19
Section 3.03. Conversions Between Rate Periods......................................... 22
ARTICLE IV
TENDER AND PURCHASE OF BONDS
Section 4.01. Optional Tenders for Purchase............................................ 23
Section 4.02. Mandatory Tenders for Purchase........................................... 24
Section 4.03. Remarketing and Purchase................................................. 25
Section 4.04. Inadequate Funds for Tenders............................................. 28
Section 4.05. Tenders by Investment Companies.......................................... 28
Section 4.06. Bond Purchase Fund....................................................... 28
ARTICLE V
DEPOSIT OF BOND PROCEEDS
Section 5.01. Deposit of Proceeds of Bonds............................................. 29
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI
DEBT SERVICE FUND AND REBATE FUND
Section 6.01. Establishment of Certain Funds and Accounts.....................................30
Section 6.02. Debt Service Fund...............................................................30
Section 6.03. Return of Monies from Non-Delivery of Bonds.....................................31
Section 6.04. Rebate Fund; Covenants Regarding Rebate.........................................31
Section 6.05. Intentionally Omitted...........................................................33
Section 6.06. Moneys to be Held for All Registered Owners, With Certain Exceptions............33
Section 6.07. Additional Accounts and Subaccounts.............................................33
ARTICLE VII
LETTER OF CREDIT
Section 7.01. Extension or Replacement in Anticipation of Expiration..........................33
Section 7.02. Other Replacement...............................................................34
Section 7.03. Notice to Holders...............................................................35
Section 7.04. Reduction.......................................................................35
Section 7.05. Other Credit Enhancement; No Credit Enhancement.................................35
ARTICLE VIII
INVESTMENTS
Section 8.01. Investment of Funds.............................................................35
Section 8.02. Covenants Regarding Tax Exemption...............................................36
ARTICLE IX
REDEMPTION OF BONDS
Section 9.01. Bonds Subject to Redemption.....................................................38
Section 9.02. Selection of Bonds for Redemption...............................................40
Section 9.03. Notice of Redemption............................................................40
Section 9.04. Effect of Redemption............................................................42
Section 9.05. Optional Redemption only at Direction of Company................................42
ARTICLE X
COVENANTS OF ISSUER
Section 10.01. Payment of Principal and Interest on Bonds......................................42
Section 10.02. Issuer to Use Best Efforts to Require Company to Make Payments..................42
Section 10.03. Take Further Action.............................................................42
Section 10.04. No Disposition of Pledged Revenues..............................................43
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.05. Faithful Performance; Due Authorization.........................................43
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
Section 11.01. Events of Default Defined.......................................................43
Section 11.02. Acceleration and Annulment Thereof..............................................44
Section 11.03. Legal Proceedings by Trustee....................................................45
Section 11.04. Discontinuance of Proceedings by Trustee........................................45
Section 11.05. Registered Owners May Direct Proceedings........................................45
Section 11.06. Limitations on Actions by Registered Owners.....................................46
Section 11.07. Trustee May Enforce Rights Without Possession of Bonds..........................46
Section 11.08. Remedies Not Exclusive..........................................................46
Section 11.09. Delays and Omissions Not to Impair Rights.......................................46
Section 11.10. Application of Moneys in Event of Default.......................................46
Section 11.11. Trustee's Right to Receiver.....................................................47
Section 11.12. Trustee and Registered Owners Entitled to All Remedies..........................47
Section 11.13. Waiver of Past Defaults.........................................................47
ARTICLE XII
THE TRUSTEE
Section 12.01. Certain Duties and Responsibilities of Trustee..................................47
Section 12.02. Notice if Default Occurs or Notice of Taxability Occurs.........................49
Section 12.03. Certain Rights of Trustee.......................................................49
Section 12.04. Not Responsible for Recitals or Issuance of Bonds, etc..........................51
Section 12.05. May Hold Bonds..................................................................51
Section 12.06. Money Held in Trust.............................................................52
Section 12.07. Corporate Trustee Required; Eligibility.........................................52
Section 12.08. Resignation and Removal of Trustee; Appointment of Successor....................52
Section 12.09. Acceptance of Appointment by Successor Trustee..................................53
Section 12.10. Merger, Conversion, Consolidation or Succession to Business.....................53
Section 12.11. Fees, Charges and Expenses of Trustee...........................................54
Section 12.12. No Obligation to Review Reports.................................................54
ARTICLE XIII
THE PAYING AGENT
Section 13.01. The Paying Agent................................................................54
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XIV
THE REMARKETING AGENT
Section 14.01. The Remarketing Agent...........................................................54
Section 14.02. Qualifications of Remarketing Agent.............................................55
ARTICLE XV
AMENDMENTS AND SUPPLEMENTS
Section 15.01. Amendments and Supplements Without Registered Owners' Consent...................55
Section 15.02. Amendments With Registered Owners' Consent......................................56
Section 15.03. Amendments to Agreement.........................................................56
Section 15.04. Amendment of Letter of Credit...................................................57
Section 15.05. Other Matters Relating to Amendments and Supplements............................57
Section 15.06. Consent of Bank.................................................................57
ARTICLE XVI
DEFEASANCE
Section 16.01. Defeasance......................................................................57
Section 16.02. Deposit of Funds for Payment of Bonds...........................................58
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01. Limitations on Recourse; Immunity of Certain Persons............................59
Section 17.02. No Rights Conferred on Others...................................................59
Section 17.03. Illegal, etc. Provisions Disregarded............................................59
Section 17.04. Substitute Publication of Notice................................................60
Section 17.05. Mailed Notice...................................................................60
Section 17.06. Governing Law...................................................................61
Section 17.07. Successors and Assigns..........................................................61
Section 17.08. Action by Company...............................................................61
Section 17.09. Headings and Subheadings for Convenience Only...................................61
Section 17.10. Counterparts....................................................................61
Execution.......................................................................62
EXHIBIT A.......................................................................................A-1
EXHIBIT B.......................................................................................B-1
</TABLE>
-iv-
<PAGE> 6
TRUST INDENTURE
THIS TRUST INDENTURE is entered into as of August 1, 1997, by and between
the PENINSULA PORTS AUTHORITY OF VIRGINIA, a public body corporate and a
political subdivision of the Commonwealth of Virginia (the "Issuer"), and PNC
BANK, N.A., a national banking association, having a principal corporate trust
office in Pittsburgh, Pennsylvania, and being qualified to accept and
administer the trusts hereby created (the "Trustee").
W I T N E S S E T H :
WHEREAS, Chapter 46 of the Acts of Assembly of 1952 of the Commonwealth of
Virginia, as amended (the "Act"), authorizes the Issuer to issue revenue bonds
and refunding revenue bonds;
WHEREAS, the Issuer has previously issued its revenue bonds (in 1981) and
its refunding revenue bonds (in 1982 and 1987) to assist Massey Coal Terminal
Corporation ("Massey") and its successor Shell Coal Terminal Company ("Shell"),
in the financing and refinancing of the Plant (hereinafter defined);
WHEREAS, a Financing Agreement, dated as of August 1, 1997 (the
"Agreement"), relating to the Bonds (hereinafter defined) and the refinancing
of the Plant has been executed between the Issuer and Zeigler Coal Holding
Company, a corporation organized and existing under and by virtue of the laws
of the State of Delaware, and the successor to Massey and Shell (the
"Company");
WHEREAS, the Issuer duly adopted resolutions at public meetings duly
called and held on July 16, 1997 and August 14, 1997, at which meetings a
quorum was present and acting throughout (together, including any amendment or
supplement to such resolutions as authorized therein, the "Bond Resolution");
WHEREAS, the Bond Resolution authorized the issuance of the Issuer's Port
Facility Refunding Revenue Bonds (Zeigler Coal Project) Series 1997 in the
aggregate principal amount of $115,000,000 (the "Bonds");
WHEREAS, the Bonds, and the interest thereon, are and shall be payable
from and secured by a first and superior lien on and pledge of the payments
designated as "Debt Service Payments" to be made by the Company pursuant to the
Agreement in amounts sufficient to provide for the payment of the principal of,
premium, if any, and interest on the Bonds, when due, and the fees and expenses
of the Trustee and any paying agent for the Bonds, all as required by the Bond
Resolution;
WHEREAS, the Company has caused to be delivered to the Trustee an
irrevocable letter of credit issued by Bank of America National Trust and
Savings Association (the "Bank") in an amount equal to the principal amount of
the Bonds plus an amount equal to 45 days' interest on the Bonds computed at an
assumed maximum rate of 10% per annum and expiring on October 19, 1997;
WHEREAS, certified copies of the Bond Resolution have been duly filed with
the Trustee;
WHEREAS, the Trustee has agreed to accept the trusts herein created upon
the terms herein set forth; and
<PAGE> 7
WHEREAS, all things necessary to make the Bonds, when issued as provided
in this Indenture, the legal, valid and binding special, limited obligations of
the Issuer according to the import thereof, and to constitute this Indenture a
valid assignment of the amounts pledged to the payment of the principal of,
premium, if any, and interest on the Bonds have been done and performed, and
the creation, execution and delivery of this Indenture and the execution and
issuance of the Bonds, subject to the terms hereof, in all respects have been
duly authorized;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Issuer in consideration of the premises, the acceptance by the
Trustee of the trusts hereby created, the mutual covenants herein contained and
the purchase and acceptance of the Bonds by the Owners thereof, and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
intending to be legally bound and in order to secure the payment of the
principal of, and interest and premium, if any, and Purchase Price of the Bonds
according to their tenor and effect, and the performance and observance by the
Issuer of all the covenants and conditions herein and therein contained (a) has
executed and delivered this Indenture and (b) has agreed to sell, assign,
transfer, set over and pledge, and by these presents does hereby sell, assign,
transfer, set over and pledge unto the Trustee, and to its successors in trust
and its assigns forever, to the extent provided in this Indenture, all of the
right, title and interest of the Issuer in and to (i) the Agreement (except for
the Purchase Price Payments, the Administrative Expenses and the
indemnification rights and Issuer expense reimbursement rights contained in the
Agreement), and (ii) the Pledged Revenues consisting of (a) the Debt Service
Payments, (b) amounts (other than amounts required to be deposited in the
Rebate Fund) on deposit in the Debt Service Fund and the Project Fund as
hereinafter in this Indenture provided and (c) any money paid to the Trustee
under the Letter of Credit; provided, however, that nothing in the Bonds or in
this Indenture shall be construed as pledging the general credit or taxing
power of the Issuer, the Commonwealth of Virginia or any political corporation,
subdivision or agency of the Commonwealth of Virginia, nor shall this Indenture
or the Bonds give rise to a pecuniary liability of the Issuer;
TO HAVE AND TO HOLD the same and any other revenues, property, contracts
or contract rights, chattel paper, instruments, general intangibles or other
rights, and the proceeds thereof, which may by delivery, assignment or
otherwise be subject to the lien and security interest created by this
Indenture;
IN TRUST, NEVERTHELESS, upon the terms and trusts herein set forth for the
equal and ratable benefit and security of those who shall hold or own the Bonds
issued hereunder, or any of them, without preference of any one Bond over any
other Bond by reason of priority in the time of the issue or negotiation
thereof or by reason of the date or maturity thereof, or for any other reason
whatsoever, except as otherwise provided herein.
IT IS HEREBY COVENANTED, declared and agreed by and between the parties
hereto, that all Bonds are to be issued, authenticated and delivered and that
all property subject or to become subject hereto, including the Pledged
Revenues, is to be held and applied upon and subject to the further covenants,
conditions, uses and trusts hereinafter set forth; and the Issuer, for itself
and its successors, does hereby covenant and agree to and with the Trustee and
its successors in trust, for the benefit of those who shall hold the Bonds, or
any of them, as follows:
2
<PAGE> 8
ARTICLE I
DEFINITIONS
The following terms have the meanings set forth in the recitals hereto:
Act Company
Bond Resolution Issuer
Bonds Trustee
"Administrative Expenses" means fees and expenses of the Trustee and the
Issuer.
"Affiliate" means any Person directly or indirectly controlling,
controlled by or under common control with the Company as certified to the
Trustee and the Remarketing Agent by the Company, and "control," when used with
respect to any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise. In addition, the term
"Affiliate" shall also include (i) any general partner of the Company and (ii)
any Person who has guaranteed the payment of the Company's obligations under
the Agreement or the Reimbursement Agreement.
"Agreement" means the Financing Agreement dated as of August 1, 1997,
between the Issuer and the Company as the same may be amended from time to time
to the extent permitted hereby.
"Alternate Letter of Credit" means an irrevocable letter of credit
authorizing drawings thereunder by the Trustee, issued by a national banking
association, a bank, a trust company or other financial institution as the
Bank, and satisfying the requirements of Article VII.
"Authorized Company Representative" means any person or persons at the
time designated to act on behalf of the Company by a written certificate,
signed on behalf of the Company by any one of its officers or authorized
representatives and furnished to the Trustee, containing the specimen signature
of each such person.
"Bank" means, initially, Bank of America National Trust and Savings
Association, a national banking association, as issuer of the Letter of Credit,
and its successors and assigns in that capacity and, in the event an Alternate
Letter of Credit is outstanding, the issuer of the Alternate Letter of Credit.
"Bankruptcy Code" means Title 11 of the United States Code, as amended, or
any successor statutory provisions.
"Bond Counsel" means nationally recognized bond counsel selected by the
Company and acceptable to the Issuer and the Trustee.
"Bond Documents" means the Financing Documents and all other agreements,
certificates, documents and instruments delivered in connection with any of the
Financing Documents.
3
<PAGE> 9
"Bond Obligations" means (a) the Debt Service due and payable and to
become due and payable and any other amounts which may be owed by the Company
to, or on behalf of, the Issuer or the Trustee under the Bond Documents, (b)
Purchase Price Payments and (c) the Rebate Amount.
"Bond Purchase Fund" means the special fund of that name created pursuant
to Section 4.06 hereof.
"Bond Year" means the period as defined in Section 1.148-1(b) of the
Regulations or the applicable definition contained in any successor provisions
thereto.
"Business Day" means a day on which the New York Stock Exchange is not
closed and on which banks located in the Commonwealth of Virginia, the City of
New York, New York or the city in which the principal office of the Trustee or
the office of Bank at which drawing documents are required to be presented
under the Letter of Credit is located are not required or authorized to close.
"Calculation Date" means the date as of which the calculation of the
Rebate Amount is made, which date shall be the last day of each Bond Year and
the date upon which the last Bond is actually paid and retired.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Zeigler Coal Holding Company, a corporation organized and
existing under the laws of the State of Delaware, and its permitted successors
and assigns.
"Company Bonds" means any Bonds ownership of which is registered in the
name of the Company or any Affiliate, other than Pledged Bonds.
"Company Debt Service Account" means the special account of that name
within the Debt Service Fund established pursuant to Section 6.01 hereof.
"Company Purchase Account" means the special account of that name within
the Bond Purchase Fund established pursuant to Section 4.06 hereof.
"Conversion Date" means the day on which a particular type of interest
rate becomes effective for the Bonds which is not immediately preceded by a day
on which the Bonds accrued interest at the same type of rate (and, when used
with respect to any Term Rate Period, a date which is not preceded by a Term
Rate Period of the same duration). Each Conversion Date shall be an Interest
Payment Date for the Rate Period from which the Bonds are converted.
"Daily Rate" means the interest rate to be determined for the Bonds on
each Business Day pursuant to Section 3.02(c) hereof.
"Daily Rate Conversion Date" means the day on which the Bonds accrue
interest at a Daily Rate pursuant to Section 3.03 which is immediately preceded
by a day on which the Bonds did not accrue interest at a Daily Rate.
"Daily Rate Period" means each period during which the Bonds accrue
interest at a particular Daily Rate.
4
<PAGE> 10
"Debt Service" means the principal of and premium, if any, and interest on
the Bonds.
"Debt Service Fund" means the special fund of that name created pursuant
to Section 6.01 hereof.
"Debt Service Payments" means the payments required to be made by the
Company to amortize the Bonds, as provided for in this Indenture and in the
Agreement, including the principal of, premium, if any, and interest on the
Bonds when due (whether at stated maturity, upon redemption prior to stated
maturity, or upon acceleration of stated maturity). Debt Service Payments do
not include Purchase Price Payments.
"Delivery" or "deliver," when used with respect to Bonds held in the
book-entry system pursuant to Section 2.11 hereof, means the making of or the
irrevocable authorization to make appropriate entries on the books of DTC or
any Participant.
"Determination of Taxability" means a Final Determination by the Internal
Revenue Service or by a court of competent jurisdiction in the United States
that, or an opinion of Bond Counsel to the effect that, as a result of failure
by the Company to observe or perform any covenant, condition or agreement on
its part to be observed or performed under the Agreement or as a result of the
inaccuracy of any representation made by the Company under the Agreement, the
interest payable on any Bond is includable in the gross income of the
Registered Owner or a beneficial owner of such Bond (other than a Registered
Owner or beneficial owner who is a substantial user or related person within
the meaning of Section 147(a) of the Code).
"DTC" means The Depository Trust Company, New York, New York.
"Electronic" notice means notice through a time sharing terminal.
"Event of Bankruptcy" means the filing of a petition in bankruptcy or the
commencement of a proceeding under the Bankruptcy Code or any other applicable
law concerning insolvency, reorganization or bankruptcy by or against the
Company as debtor other than any involuntary proceeding which has been finally
dismissed without entry of an order for relief or similar order and without
effect on any amounts held in the Debt Service Fund, the Project Fund or the
Bond Purchase Fund and as to which all appeal periods have expired.
"Event of Default" means any of the events described in Section 11.01
hereof.
"Excess Earnings Amount" shall have the meaning given to such term in
Section 6.04 hereof.
"Expiration Date" means the stated expiration date of the Letter of
Credit, as such date may be extended from time to time by the Bank.
"Extraordinary Optional Redemption" means any redemption of Bonds made
pursuant to Section 9.01(c) hereof.
"Favorable Opinion of Bond Counsel" shall mean an opinion of Bond Counsel
addressed to the Issuer, the Trustee and the Company to the effect that: (i)
the action proposed to be taken is authorized or permitted by the laws of the
State and this Indenture and complies with their respective terms; and (ii)
such action will not adversely affect (A) the exclusion from gross income of
the interest on the Bonds for purposes of federal
5
<PAGE> 11
income taxation, and (B) any applicable exemption from taxation under the laws
of the State related to the Bonds or interest thereon.
"Final Determination" means, with respect to a private letter ruling or a
technical advice memorandum of the Internal Revenue Service, written notice
thereof in a proceeding in which the Company had an opportunity to participate
and otherwise means written notice of a determination from which no further
right of appeal exists or from which no appeal is timely filed with any court
of competent jurisdiction in the United States in a proceeding to which the
Company was a party or in which the Company had the opportunity to participate.
"Financing Documents" means this Indenture, the Agreement and the Bonds.
"Flexible Rate" means, when used with respect to any particular Bond, the
interest rate determined for each Flexible Rate Period applicable thereto
pursuant to Section 3.02(b) hereof.
"Flexible Rate Conversion Date" means each day on which the Bonds accrue
interest at Flexible Rates which is immediately preceded by a day on which the
Bonds did not accrue interest at Flexible Rates.
"Flexible Rate Period" means each period during which a Bond accrues
interest at a Flexible Rate.
"Fund" means any of the funds established with the Trustee under this
Indenture.
"Government Obligations" means direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the
United States of America.
"Gross Proceeds" means (i) the net amount (after payment of all expenses
of issuing the Bonds) received by the Issuer as a result of the sale of the
Bonds, (ii) amounts received at any time, such as dividends and interest,
resulting from the investment of any proceeds of the Bonds in Nonpurpose
Investments and amounts received as interest or otherwise received with
respect to the Agreement, (iii) transferred proceeds as defined in Section 148
of the Code, (iv) amounts held in the Debt Service Fund, or any similar fund, to
the extent that it is reasonably expected that such fund will be used to pay
Debt Service, (v) amounts invested in a reasonably required reserve or
replacement fund (as defined in Section 148 of the Code), (vi) securities or
obligations pledged as security for payment of Debt Service by the Company (or a
"related person" as such term is defined in Section 147(a) of the Code) or the
Issuer, (vii) other amounts used to pay Debt Service, and (viii) other amounts
received as a result of investing any of the foregoing; provided, however, that
if the aggregate gross earnings (including investment income on the earnings) on
amounts held in one or more bona fide debt service funds (as such term is
defined in the Regulations) do not exceed $100,000 in a Bond Year, such gross
earnings will not be treated as Gross Proceeds.
"Income Amount" means, in the case of any Bond Year as of which the Excess
Earnings Amount is positive, that amount of income which is attributable to the
lesser of (a) the Excess Earnings Amount as of the Calculation Date for that
Bond Year, or (b) the amount by which the Excess Earnings Amount as of the
Calculation Date in question exceeds the Excess Earnings Amount as of the
Calculation Date for the preceding Bond Year, but only to the extent that such
income is earned from the close of the Bond Year in question to the date of
transfer of amounts to the Excess Earnings Account required by Section 6.04
hereof.
"Indemnified Parties" means the Indemnified Parties as defined in the
Agreement.
6
<PAGE> 12
"Indenture" means this Indenture as amended or supplemented at the time in
question.
"Interest Payment Date" means (a) when used with respect to any particular
Bond accruing interest at a Flexible Rate, the day after the last day of each
Flexible Rate Period applicable thereto; (b) when used with respect to Bonds
accruing interest at Daily or Weekly Rates, the first Business Day of each
calendar month following a month in which interest at such rate has accrued;
and (c) when used with respect to Bonds accruing interest at a Term Rate, the
first day of the sixth calendar month following the month in which the Term
Rate Conversion Date occurs and the first day of each sixth month thereafter to
which interest at such rate has accrued, except that the last Interest Payment
Date for any Term Rate Period which is followed by a Flexible, Daily or Weekly
Rate Period shall be the first Business Day of the sixth month following the
preceding Interest Payment Date; provided that in the event of a conversion
from a Term Rate Period on a date on which the Bonds are subject to redemption
pursuant to Section 9.01(a) hereof, such date shall be an Interest Payment Date
"Interest Period" or "Interest Rate Period" means the period from and
including any Interest Payment Date to and including the day immediately
preceding the next following Interest Payment Date.
"Interest Rate" means a Flexible, Daily, Weekly or Term Rate.
"Investment Company" means any investment company registered under the
Investment Company Act of 1940, as amended.
"Investment Securities" means and includes any of the following securities
on which neither the Company nor any of its subsidiaries is the obligor: (a)
direct obligations of, or obligations guaranteed by, the United States of
America, and any bonds or other obligations of the Federal National Mortgage
Association (including Participation Certificates), Government National
Mortgage Association, Federal Farm Credit Banks, Federal Intermediate Credit
Banks, Federal Banks for Cooperatives, Federal Land Banks, Federal Home
Loan Mortgage Corporation and Federal Home Loan Banks; (b) any obligation
secured by a pooling of one or more of the foregoing; (c) obligations of a
state, a territory, or a possession of the United States, or any political
subdivision of any of the foregoing, or of the District of Columbia as
described in Section 103(a) of the Code which are rated by two nationally
recognized rating agencies in any of their three highest rating categories or
any obligation secured by a pooling of one or more of such obligations; (d)
banker's acceptances, Eurodollar deposits, certificates of deposit or interest
accruing demand deposits of banks or trust companies (including the Trustee)
organized under the laws of the United States or Canada or any state or
province thereof, or domestic branches of foreign banks, having a capital and
surplus of $25,000,000 or more; (e) other corporate securities rated A or
better (or in the case of commercial paper, A-1 or better) by Standard & Poor's
Ratings Group or rated equivalently by Moody's Investors Service, Inc. or by
another nationally recognized rating service; and (f) repurchase agreements,
the maturity of which are less than thirty (30) days, entered into (i) with a
bank or trust company rated P-1 by Moody's and rated A-1 by S&P, organized
under the laws of any state of the United States or with a national banking
association, insurance company, or government bond dealer reporting to, trading
with, and recognized as a primary dealer by the Federal Reserve Bank of New
York and which is a member of the Security Investors Protection Corporation or
(ii) with a dealer which is rated P-1 by Moody's and rated A-1 by S&P; provided
that such repurchase agreement must be continuously and fully secured by
obligations of the type described in (a) or (c) above which have a fair market
value, exclusive of accrued interest, at least equal to the amount invested in
the repurchase agreement and which are held by the Trustee or its agent or, in
the case of uncertificated securities, are registered in the name of the
Trustee as pledgee; and (g) money market funds invested solely in the
obligations described in (a) through (f) above.
7
<PAGE> 13
"Issue Date" means for each Bond the actual date of first authentication
and delivery of that Bond.
"Issuer Representative" means the Chairman or Vice-Chairman or such other
officer or commissioner of the Issuer as shall be appointed by the Issuer. In
each case, a specimen signature of such individual shall be given to the
Trustee, certified by the Secretary of the Issuer.
"Letter of Credit" means the irrevocable letter of credit issued by the
Bank to the Trustee on the date of execution and delivery of this Indenture and
any Alternate Letter of Credit delivered pursuant to Article VII hereof.
"Letter of Credit Debt Service Account" means the special account of that
name within the Debt Service Fund established pursuant to Section 6.01 hereof.
"Letter of Credit Purchase Account" means the special account of that name
within the Bond Purchase Fund established pursuant to Section 4.06 hereof.
"Letter of Representations" means the letter agreement between DTC, the
Trustee, Paying Agent, the Bond Registrar and Remarketing Agent entered into in
connection with DTC's book-entry system; or the Blanket Issuer Letter of
Representations dated August 1, 1997, from the Issuer to DTC.
"Nonpurpose Investment" means any obligation acquired with Gross Proceeds,
within the meaning of Section 148(b)(2) of the Code.
"Optional Redemption" means any redemption of Bonds made pursuant to
Section 9.01(a) hereof.
"Outstanding" when used with reference to Bonds means all Bonds
authenticated and delivered under this Indenture as of the time in question,
except:
(a) All Bonds theretofore cancelled or required to be cancelled
under Section 2.09 hereof;
(b) On or after any purchase date for Bonds pursuant to Article IV
hereof, all Bonds (or portions of Bonds) which are tendered or deemed to
have been tendered for purchase on such date, provided that funds
sufficient for such purchase are on deposit with the Trustee or any Paying
Agent;
(c) Bonds for the payment or redemption of which provision has been
made in accordance with Section 9.04 or Article XVI hereof; provided that,
if such Bonds are being redeemed, the required notice of redemption shall
have been given or irrevocable instructions therefor shall have been given
to the Trustee; and
(d) Bonds in substitution for which other Bonds have been
authenticated and delivered pursuant to Article II hereof.
In determining whether the Registered Owners of a requisite aggregate
principal amount of Bonds Outstanding have concurred in any request, demand,
authorization, direction, notice, consent or waiver under the provisions
hereof, Bonds which are held by or on behalf of the Company (unless all of the
Outstanding Bonds are then owned by or on behalf of the Company) or an
"Affiliate" of the Company and Bonds which are held by or on behalf of the Bank
(unless all of the Outstanding Bonds are then held by or on behalf of the
8
<PAGE> 14
Bank) shall be disregarded for the purpose of any such determination and deemed
not to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Bonds which the Trustee knows to be so owned
shall be so disregarded. Notwithstanding the foregoing, Bonds so owned which
have been pledged in good faith shall not be disregarded as aforesaid and shall
be deemed Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Bonds and that the
pledgee is not the Company or an Affiliate of the Company. Bonds held by the
Remarketing Agent shall not be deemed to be held on behalf of the Company for
the purpose of this paragraph unless held by the Remarketing Agent as agent for
the Company.
"Owner" when all Bonds are held by a securities depository, means the
beneficial owner of the Bond in question determined under the rules of that
securities depository; otherwise "Owner" means "Registered Owner."
"Participant" means (i) any person for which, from time to time, DTC
effectuates book-entry transfers and pledges of securities pursuant to the
book-entry system referred to in Section 2.11 hereof or (ii) any securities
broker or dealer, bank, trust company or other person that clears through or
maintains a custodial relationship with a person referred to in (i).
"Paying Agent" means PNC Bank, N.A., as paying agent, or any successor
paying agent, appointed pursuant to Article XIII hereof. The principal office
of the Paying Agent shall be the business address designated in writing to the
Issuer and the Remarketing Agent as its principal office for its duties as
Paying Agent hereunder.
"Person" means an individual, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization, a
governmental body or a political subdivision, a municipal corporation, a public
corporation or any other group or organization of individuals.
"Plant" means the coal transshipment facility of the Company located at
Pier 9, Harbor Access Road, Newport News, Virginia, together with any
additions, modifications and substitutions to such facility. The Company
acquired the Plant in connection with its acquisition of all of the issued and
outstanding stock of Shell in 1992. Previously, in 1981, 1982 and 1987, the
Issuer issued its revenue and refunding revenue bonds to finance and refinance
the Plant for the benefit of its prior owner-operators, Massey and Shell.
"Pledged Bonds" shall have the meaning assigned to such term in Section
4.03(b)(v) hereof.
"Pledged Revenues" means and includes all payments by or on behalf of the
Company, including specifically the Debt Service Payments and all monies
received under the Agreement to be paid into the Debt Service Fund and any
money paid to the Trustee under the Letter of Credit, including the income
thereon and the investment thereof, if any. Pledged Revenues do not include
(i) payments with respect to the indemnification or reimbursement of certain
expenses of the Issuer, the Trustee and the Remarketing Agent under Sections
4.2(b), (c) and (d), 4.3, 6.2, 7.5 and 10.8 of the Agreement or under any other
guaranty or indemnification agreement, (ii) any monies required to be deposited
in the Rebate Fund or (iii) Purchase Price Payments and other monies required
to be deposited in the Bond Purchase Fund.
9
<PAGE> 15
"Project" means the refunding of the 1987 Bonds providing financing for
the Plant and all replacements, improvements, extensions, substitutions,
restoration or additions made to the aforesaid facilities pursuant to the
Agreement.
"PSA Municipal Index" means the Public Securities Association Municipal
Index as of the most recent date for which such index was published or such
other weekly, high-grade index comprised of seven-day, tax-exempt variable rate
demand notes produced by Municipal Market Data, Inc., or its successor, or as
otherwise designated by the Public Securities Association; provided, however,
that, if such index is no longer produced by Municipal Market Data, Inc. or its
successor, then "PSA Municipal Index" shall mean such other reasonably
comparable index selected by the Company.
"Purchase Price" for any Bond shall equal 100% of the principal amount of
such Bond plus accrued interest, if any, plus in the case of a Bond subject to
mandatory tender for purchase pursuant to Section 4.02 (a) or (b) hereof on a
date when such Bond is also subject to optional redemption at a premium, an
amount equal to the premium that would be payable on such Bond if redeemed on
such date.
"Purchase Price Payments" means the payments to be made by the Company
pursuant to the Agreement to pay the Purchase Price of Bonds.
"Rate Period" means the period during which a particular rate of interest
determined for the Bonds is to remain in effect pursuant to Article III hereof.
"Rating Service" means Moody's Investors Service, if the Bonds are rated
by such at the time, and Standard & Poor's Ratings Group, if the Bonds are
rated by such at the time, and their successors and assigns, or if either shall
be dissolved or no longer assigning credit ratings to long term debt, then any
other nationally recognized entity assigning credit ratings to long term debt
designated by the Issuer and satisfactory to the Trustee.
"Rebate Amount" means, as of any Calculation Date, (a) the Excess Earnings
Amount less (b) the amount previously paid to the United States of America as
part of the Rebate Amount.
"Rebate Fund" means the special fund of that name created pursuant to
Section 6.01 hereof.
"Registered Owner" means the Person in whose name any Bond is registered
pursuant to Article II hereof.
"Regular Record Date" means the close of business on either (a) the day
(whether or not a Business Day) immediately preceding an Interest Payment Date
in the case of Bonds accruing interest at Flexible, Daily or Weekly Rates or
(b) the 15th day (whether or not a Business Day) of the calendar month
immediately preceding the Interest Payment Date in the case of Bonds accruing
interest at Term Rates.
"Regulations" means the applicable proposed, temporary or final Income Tax
Regulations promulgated under the Code, as such regulations may be amended or
supplemented from time to time.
"Reimbursement Agreement" or "Credit Agreement" means, collectively, the
Credit Agreements dated as of October 19, 1994 and April 24, 1997,
respectively, between the Company, the Bank and certain other
10
<PAGE> 16
parties relating, among other matters, to the Letter of Credit and the Bonds, as
amended, supplemented or replaced from time to time.
"Remarketing Account" means the special account of that name within the
Bond Purchase Fund established pursuant to Section 4.06 hereof.
"Remarketing Agent" means Goldman, Sachs & Co., or any successor
Remarketing Agent appointed pursuant to Article XIV hereof.
"Remarketing Agreement" means any remarketing agreement executed by the
Company and the Remarketing Agent pursuant to Article XIII hereof.
"Securities Depository" means any "clearing agency" registered under
Section 17A of the Securities Exchange Act of 1934, as amended.
"Special Mandatory Redemption" means any redemption of Bonds made pursuant
to Section 9.01(b) hereof.
"Special Record Date" means the date and time established by the Trustee
for determination of which Registered Owners shall be entitled to receive
overdue interest on the Bonds pursuant to Section 2.07(b)(iii) hereof.
"State" means the Commonwealth of Virginia.
"Supplemental Indenture" or "indenture supplemental hereto" means any
indenture amending or supplementing this Indenture which may be entered into in
accordance with the provisions of this Indenture.
"Term Rate" means the interest rate to be determined for the Bonds for a
term of one or more years pursuant to Section 3.02(e) hereof.
"Term Rate Conversion Date" means each day on which the Bonds accrue
interest at a Term Rate pursuant to Section 3.03 hereof which is immediately
preceded by a day on which the Bonds did not accrue interest at a Term Rate or
accrued interest at a Term Rate for a Term Rate Period of different duration.
"Term Rate Period" means each period during which the Bonds accrue
interest at a particular Term Rate.
"Trustee" means PNC Bank, N.A., as trustee, or any successor trustee,
appointed pursuant to Article XI hereof. The principal office of the Trustee
shall be the business address designated in writing to the Issuer and the
Remarketing Agent as its principal office for its duties as Trustee hereunder.
"Underwriting Agreement" means the Underwriting Agreement among the
Issuer, the Company and Goldman, Sachs & Co. in its capacity as the underwriter
of the Bonds.
"Weekly Rate" means the interest rate to be determined for the Bonds on a
weekly basis pursuant to Section 3.02(d) hereof.
11
<PAGE> 17
"Weekly Rate Conversion Date" means each day on which the Bonds accrue
interest at a Weekly Rate pursuant to Section 3.03 hereof which is immediately
preceded by a day on which the Bonds did not accrue interest at a Weekly Rate.
"Weekly Rate Period" means the period during which the Bonds accrue
interest at a particular Weekly Rate.
"Yield" means yield as determined in accordance with Section 148(h) of the
Code.
"1987 Bonds" shall mean the $115,000,000 Peninsula Ports Authority of
Virginia Unit Priced Demand Adjustable Port Facility Refunding Revenue Bonds
(Shell Coal and Terminal Company Project) 1987 Series.
The words "hereof," "herein," "hereto," "hereby," and "hereunder" (except
in the form of Bond) refer to the entire Indenture. All words and terms
importing the singular number shall, where the context requires, import the
plural number and vice versa, and all words and terms used in this Indenture
and not defined herein shall, if defined in the Agreement, have the meaning set
forth therein.
12
<PAGE> 18
ARTICLE II
THE BONDS
Section 2.01. Issuance of Bonds. Upon the execution and delivery hereof,
the Issuer shall execute the Bonds in the principal amount of $115,000,000 and
deliver the Bonds to the Trustee for authentication. At the direction of the
Issuer, the Trustee shall deliver the Bonds to the purchasers thereof
identified in such direction upon receipt by the Trustee of the amount due the
Issuer for the initial delivery of the Bonds as set forth in such direction.
Section 2.02. Form and Denominations of Bonds; Bonds as Special, Limited
Obligation of Issuer.
(a) Form and Authorized Denominations. All Bonds shall be issued
as fully registered bonds dated as of the Issue Date and shall mature on
May 1, 2022. The Bonds shall be in substantially the form attached hereto
as Exhibit A. In authenticating the Bonds, the Trustee may add the actual
date of its authentication of Bonds. All Bonds accruing interest at Daily
or Weekly Rates shall be issued in denominations of $100,000 or whole
multiples thereof. All Bonds accruing interest at Flexible Rates shall be
issued in denominations of $100,000 and integral multiples of $1,000 in
excess thereof. All Bonds accruing interest at a Term Rate shall be in
denominations of $5,000 or whole multiples thereof. Bonds shall be
numbered consecutively upward from R-1.
(b) Bonds as Limited Obligations of Issuer. The Bonds shall be
special, limited obligations of the Issuer and shall be payable by the
Issuer solely out of the Pledged Revenues and the other sources derived by
the Issuer under the Agreement, together with the security therefor, and
pledged hereunder in the Granting Clauses hereof. The Bonds shall never be
payable out of any funds of the Issuer.
(c) NEITHER THE COMMONWEALTH OF VIRGINIA NOR ANY POLITICAL
SUBDIVISION THEREOF, INCLUDING THE ISSUER, SHALL BE OBLIGATED TO PAY THE
PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER COSTS
INCIDENT THERETO EXCEPT FROM THE REVENUES, RECEIPTS AND PAYMENTS PLEDGED
THEREFOR BY THE ISSUER. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER
OF THE COMMONWEALTH OF VIRGINIA OR ANY POLITICAL SUBDIVISION THEREOF,
INCLUDING THE ISSUER, IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR
PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO.
THE BONDS SHALL NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. THE ISSUER HAS
NO TAXING POWER.
Section 2.03. Execution. The Bonds shall be executed by the manual or
facsimile signature of the Chairman or Vice Chairman of the Issuer, and its
seal thereon (which may be in facsimile) shall be attested by the manual or
facsimile signature of its Secretary-Treasurer or Assistant
Secretary-Treasurer. The validity of any Bond so executed shall not be
affected by the fact that one or more of the officers whose signatures appear
on such Bond have ceased to hold office at the time of issuance or
authentication or at any time thereafter.
13
<PAGE> 19
Section 2.04. Authentication. No Bonds shall be valid for any purpose
hereunder until the certificate of authentication printed thereon is duly
executed by the manual signature of an authorized signatory of the Trustee.
Such authentication shall be proof that the Registered Owner is entitled to the
benefit of the trusts hereby created.
Section 2.05. Registration, Transfer and Exchange.
(a) The ownership of each Bond shall be recorded in the
registration books of the Issuer, which books shall be kept by the Trustee,
acting as bond registrar, at its principal office, and shall contain such
information as is necessary for the proper discharge of the duties of the
Trustee hereunder.
(b) Bonds may be transferred or exchanged as follows:
(i) Any Bond may be transferred if duly endorsed for such
transfer or accompanied by an instrument of transfer in form
satisfactory to the Trustee, duly executed by the Registered Owner
or his attorney duly authorized in writing and delivered by such
Registered Owner or his duly appointed attorney to the Trustee,
whereupon the Trustee shall authenticate and deliver to the
transferee a new Bond or Bonds and in the same denominations as the
Bond delivered for transfer or in different authorized
denominations equal in the aggregate to the principal amount of the
delivered Bond and accruing interest at the same Interest Rate
Mode.
(ii) Any Bond or Bonds may be exchanged for one or more
Bonds and in the same aggregate principal amount and accruing
interest at the same Interest Rate Mode, but in a different
authorized denomination or denominations if duly endorsed or
accompanied by an instrument of transfer in form satisfactory to
the Trustee, duly executed by the Registered Owner or his attorney
duly authorized in writing. Each Bond so to be exchanged shall be
delivered by the Registered Owner thereof or his duly appointed
attorney to the Trustee, whereupon a new Bond or Bonds shall be
authenticated and delivered to the Registered Owner.
(iii) In the case of any Bond properly delivered for partial
redemption, the Trustee shall authenticate and deliver a new Bond
in exchange therefor, such new Bond to be in a denomination equal
to the unredeemed principal amount of the delivered Bond.
Except as provided in subparagraph (iii) above or in Article IV hereof,
the Trustee shall not be required to effect any transfer or exchange during the
15 days immediately preceding the date of mailing of any notice of redemption
or at any time following the mailing of any such notice in the case of Bonds
selected for such redemption. No charge shall be imposed upon Registered
Owners in connection with any transfer or exchange, except for taxes or
governmental charges related thereto. No transfers or exchanges shall be valid
for any purposes hereunder except as provided above and in Article IV hereof.
Section 2.06. Mutilated, Destroyed, Lost or Stolen Bonds.
(a) If any Bond is mutilated, lost, stolen or destroyed, the
Registered Owner thereof shall be entitled to the issuance of a
substitute Bond provided that:
14
<PAGE> 20
(i) in all cases, the Registered Owner may be required by the
Issuer, the Company or the Trustee to provide indemnity to the Issuer,
the Company and the Trustee in a form acceptable to the Issuer and the
Trustee against any and all claims arising out of or otherwise related
to the issuance of substitute Bonds pursuant to this Section;
(ii) in the case of a mutilated Bond the Registered Owner shall
deliver the Bond to the Trustee for cancellation; and
(iii) in the case of a lost, stolen or destroyed Bond, the Registered
Owner shall provide evidence, satisfactory to the Trustee, of the
ownership and the loss, theft or destruction of the affected Bond.
Upon compliance with the foregoing, a new Bond of like tenor and
denomination, executed by the Issuer, shall be authenticated by the Trustee and
delivered to the Registered Owner, all at the expense of the Registered Owner to
whom the substitute Bond is delivered. Notwithstanding the foregoing, the
Trustee shall not be required to authenticate and deliver any substitute for a
Bond which has been called for redemption or which has matured or is about to
mature and, in any such case, the principal or redemption price then due and
accrued interest thereon or becoming due shall be paid by the Trustee in
accordance with the terms of the mutilated, lost, stolen or destroyed Bond
without substitution therefor.
(b) Every substituted Bond issued pursuant to this Section 2.06 shall
constitute an additional contractual obligation of the Issuer, whether or not
the Bond alleged to have been destroyed, lost or stolen shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Bonds duly issued
hereunder.
(c) All Bonds shall be held and owned upon the express condition that
the foregoing provisions are exclusive with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Bonds, and shall preclude any
and all other rights or remedies, unless expressly inconsistent with any law or
statute existing or hereafter enacted with respect to the replacement or payment
of negotiable instruments, investments or other securities without their
delivery.
Section 2.07. Payments of Principal, Redemption Price and Interest; Persons
Entitled Thereto.
(a) The principal or redemption price of each Bond shall be payable upon
delivery of such Bond to the Trustee at its principal office. During Flexible,
Daily or Weekly Rate Periods, the principal or redemption price of the Bonds
shall be payable by wire transfer of immediately available funds. During Term
Rate Periods the principal or redemption price of the Bonds shall be payable by
check in clearinghouse funds, provided that any Registered Owner of $1,000,000
or more in aggregate principal amount of the Bonds may, upon written request
given to the Trustee at least five Business Days prior to the maturity or
redemption date designating an account in a domestic bank, be paid by wire
transfer of immediately available funds. Such payments shall be made to the
Registered Owner of the Bond so delivered, as shown on the registration books
maintained by the Trustee on the date of payment.
(b) Subject to the further provisions of Article III hereof, each Bond
shall accrue interest and be payable as to interest as follows:
15
<PAGE> 21
(i) Each Bond shall accrue interest (at the applicable
rate determined pursuant to Article III hereof) (A) from the date
of authentication, if authenticated on an Interest Payment Date to
which interest has been paid or duly provided for, or (B) from the
last preceding Interest Payment Date to which interest has been
paid in full or duly provided for (or the Issue Date if no interest
thereon has been paid or duly provided for) in all other cases.
(ii) Subject to the provisions of subparagraph (iii)
below, the interest due on any Bond on any Interest Payment Date
shall be paid to the Registered Owner of such Bond as shown on the
registration books kept by the Trustee as of the Regular Record
Date. The amount of interest so payable on any Interest Payment
Date shall be computed (A) on the basis of a 365- or 366-day year
for the number of days actually elapsed during Daily Rate Periods,
(B) on the basis of a 365- or 366-day year for the number of days
actually elapsed based on the calendar year in which the Flexible
or Weekly Rate Period commences, during Weekly or Flexible Rate
Periods, and (C) on the basis of a 360-day year of twelve 30-day
months during Term Rate Periods.
(iii) If the available funds under this Indenture are
insufficient on any Interest Payment Date to pay the interest then
due, the Regular Record Date shall no longer be applicable with
respect to the Bonds. If funds for the payment of such overdue
interest thereafter become available, the Trustee shall immediately
establish a special interest payment date for the payment of the
overdue interest and a Special Record Date (which shall be a
Business Day) for determining the Registered Owners entitled to
such payments. Notice of such Special Record Date shall be mailed
by the Trustee to each Registered Owner promptly after the
determination of such Special Record Date, but not more than 30
days prior to the special interest payment date. The overdue
interest shall be paid on the special interest payment date to the
Registered Owners, as shown on the registration books kept by the
Trustee as of the close of business on the Special Record Date.
(iv) All payments of interest on the Bonds shall be
paid to the Registered Owner entitled thereto (i) by check mailed
to such Registered Owner or (ii) in immediately available funds by
wire transfer to a bank within the continental United States or
deposited to a designated account if such account is maintained
with the Trustee as directed by the Registered Owner in writing or
as otherwise directed in writing by the Registered Owner five
Business Days prior to the time of payment with respect to Bonds
accruing interest at a Flexible Rate or two Business Days prior to
the Interest Payment Date with respect to Bonds accruing interest
at Daily or Weekly Rates.
(v) Interest accrued during any Flexible Rate Period
or due at the maturity or redemption of the Bonds shall be paid
only upon presentation and surrender of Bonds.
Section 2.08. Temporary Bonds. The Issuer may issue, in lieu of
definitive Bonds, one or more temporary printed or typewritten Bonds in
authorized denominations, of substantially the tenor recited above. At the
request of the Issuer, the Trustee shall authenticate definitive Bonds, which
may be typewritten or printed, in exchange for and upon surrender of an equal
principal amount of temporary Bonds. Until so exchanged, temporary Bonds shall
have the same rights, remedies and security hereunder as definitive Bonds.
Temporary Bonds shall be numbered consecutively upward from TR-1.
16
<PAGE> 22
Section 2.09. Cancellation and Disposition of Surrendered Bonds. The
Trustee shall cancel (a) all Bonds surrendered for transfer or exchange, for
payment at maturity or for redemption, and (b) all Bonds purchased at the
direction of the Company and surrendered to the Trustee for cancellation, and
the Trustee shall dispose of such Bonds in accordance with the Trustee's
document retention policies. The Trustee shall deliver to the Issuer a
certificate of cancellation or disposition in respect of all Bonds cancelled or
disposed of in accordance with this Section.
Section 2.10. Acts of Registered Owners; Evidence of Ownership. Any
action to be taken by Registered Owners may be evidenced by one or more
concurrent written instruments of similar tenor signed or executed by such
Registered Owners in person or by an agent appointed in writing. The fact and
date of the execution by any Person of any such instrument may be proved by
acknowledgment before a notary public or other officer empowered to take
acknowledgments or by an affidavit of a witness to such execution or by any
other method satisfactory to the Trustee. Any action by the Registered Owner
of any Bond shall bind all future Registered Owners of the same Bond or of any
Bond issued upon the exchange or registration of transfer thereof in respect of
anything done or suffered by the Issuer or the Trustee in pursuance thereof.
Section 2.11. Book Entry System.
(a) DTC will act as securities depository (the "Securities Depository")
for the Bonds. The Bonds shall be initially issued in the form of a single
fully registered Bond registered in the name of Cede & Co., as nominee for DTC.
So long as Cede & Co. is the Registered Owner of the Bonds, as nominee of DTC,
references herein to Registered Owners, Bondholders or holders of the Bonds
shall mean Cede & Co. and shall not mean the beneficial owners of the Bonds.
(b) The interest of each of the beneficial owners of the Bonds will be
recorded through the records of a DTC Participant. Transfers of beneficial
ownership interests in the Bonds which are registered in the name of Cede & Co.
will be accompanied by book entries made by DTC and, in turn, by the DTC
Participants who act on behalf of the beneficial owners of the Bonds.
(c) With respect to Bonds registered in the name of Cede & Co. as nominee
of DTC, the Issuer, the Bond Registrar and the Trustee shall have no
responsibility or obligation to any DTC Participant or to any person on behalf
of whom such a DTC Participant holds an interest in the Bonds, except as
provided in this Indenture. Without limiting the immediately preceding
sentence, the Issuer and the Trustee shall have no responsibility or obligation
with respect to (i) the accuracy of the records of the DTC, Cede & Co. or any
DTC Participant with respect to any ownership interest in the Bonds, (ii) the
delivery to any DTC Participant or any other person, other than a Registered
Owner, as shown on the Registration Books, of any notice with respect to the
Bonds, including any notice of redemption, or (iii) the payment to any DTC
Participant or any other person, other than a Registered Owner, as shown in the
Registration Books of any amount with respect to principal of, premium, if any,
Purchase Price or interest on, the Bonds.
(d) Notwithstanding any other provisions of this Indenture to the
contrary, the Issuer, the Bond Registrar and the Trustee shall be entitled to
treat and consider the person in whose name each Bond is registered in the
Registration Books as the absolute owner of such Bond for the purpose of
payment of principal, premium, if any, Purchase Price, and interest with
respect to such Bond, for the purpose of giving notices of redemption and other
matters with respect to such Bond, for the purpose of registering transfers
with respect to such Bond, and for all other purposes whatsoever. The Trustee
shall pay all principal of, premium, if any, Purchase Price, and interest on
the Bonds only to or upon the order of the respective Registered Owners,
17
<PAGE> 23
as shown in the Registration Books as provided in this Indenture, or their
respective attorneys duly authorized in writing, and all such payments shall be
valid and effective to fully satisfy and discharge the Issuer's obligations with
respect to payment of principal of, premium, if any, Purchase Price, and
interest on, the Bonds to the extent of the sum or sums so paid.
(e) No person other than a Registered Owner, as shown in the Registration
Books, shall receive a Bond certificate evidencing the obligation of the Issuer
to make payments of principal, premium, if any, and interest, pursuant to this
Indenture.
(f) Any provision of this Indenture permitting or requiring the delivery
of Bonds shall, while the book-entry system is in effect, be satisfied by the
notation on the books of DTC or a DTC Participant, if applicable, of the
transfer of the beneficial owner's interest in such Bond.
(g) So long as the book-entry system is in effect, the Trustee and the
Bond Registrar shall comply with the terms of the Letter of Representations.
(h) DTC may determine to discontinue providing its service with respect to
the Bonds at any time by giving written notice and all relevant information on
the beneficial owners of the Bonds to the Issuer, the Company and the Trustee
and discharging its responsibilities with respect thereto under applicable law.
If there is no successor Securities Depository appointed by the Issuer, the
Trustee shall authenticate and deliver Bonds to the beneficial owners thereof.
The Issuer may determine not to continue participation in the system of book
entry transfers through DTC (or a successor Securities Depository) at any time
by giving reasonable written notice to DTC (or a successor Securities
Depository) and the Trustee. In such event, the Issuer shall execute and
deliver to the Trustee, and the Trustee shall authenticate and deliver the
Bonds to the beneficial owners thereof.
Section 2.12. Payments to Cede & Co.; Payments to Beneficial Owners.
(a) Notwithstanding any other provision of this Indenture to the contrary,
so long as any Bond is registered in the name of Cede & Co., as nominee of DTC,
all payments with respect to principal of, premium, if any, Purchase Price, and
interest on, such Bond and all notices with respect to such Bond shall be made
and given, respectively, pursuant to DTC's rules and procedures.
(b) Payments by the DTC Participants to beneficial owners will be governed
by standing instructions and customary practices, as is now the case with
municipal securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such DTC
Participant and not of DTC, the Trustee or the Issuer, subject to any statutory
and regulatory requirements as may be in effect from time to time.
ARTICLE III
INTEREST RATES ON BONDS
Section 3.01. Interest Rate. All Bonds shall accrue interest at Daily
Rates on the date of original issuance and thereafter at Daily Rates unless and
until the Rate Period for the Bonds is converted to a different Rate Period
pursuant to Section 3.03. Notwithstanding anything to the contrary in this
Article, in no event
18
<PAGE> 24
shall the cumulative amount of interest paid or payable on the Bonds exceed the
"net interest cost" which will produce a "net effective interest rate" equal to
the maximum rate permitted by Virginia law.
Section 3.02. Determination of Interest Rates.
(a) Determination by Remarketing Agent.
(i) The Interest Rate shall be determined by the
Remarketing Agent as the rate of interest which, in the judgment of
the Remarketing Agent, would cause the Bonds to have a market value
as of the date of determination equal to the principal amount
thereof, taking into account prevailing market conditions; provided
that so long as a Letter of Credit is in place, the interest rate
borne by the Bonds shall not exceed the maximum interest rate with
respect to the Bonds specified in the Letter of Credit. With
respect to Flexible Rates, the Remarketing Agent shall determine
the Flexible Rate and the Flexible Rate Period for each Bond at
such rate and for such period as it deems advisable in order to
minimize the net interest cost on the Bonds, taking into account
prevailing market conditions.
(ii) In the event the Remarketing Agent fails for any
reason to determine or notify the Trustee of the Interest Rate for
any Interest Rate Period:
(A) The Interest Rate then in effect for Bonds
that accrue interest at Daily Rates will remain in effect
from day to day until the Trustee is notified of a new
Daily Rate determined by the Remarketing Agent.
(B) The Interest Rate then in effect for Bonds
that accrue interest at Weekly Rates will remain in
effect from week to week until the Trustee is notified of
a new Weekly Rate determined by the Remarketing Agent.
(C) The Interest Rate for any Bond that accrues
interest at Flexible Rates and for which a Flexible Rate
and Flexible Rate Period is not determined shall be equal
to the PSA Municipal Index and the Interest Rate Period
for such Bond shall extend through the day preceding the
next Business Day, until the Trustee is notified of a new
Flexible Rate and Flexible Rate Period determined for
such Bond by the Remarketing Agent.
(D) The Interest Rate then in effect for Bonds
that accrue interest at the Term Rate will be
automatically converted to Flexible Rates with Flexible
Rate Periods beginning on each Business Day and extending
through the day preceding the next Business Day until the
Trustee is notified of a new Flexible Rate and Flexible
Rate Period determined for such Bond by the Remarketing
Agent.
(iii) All determinations of Interest Rates pursuant to
this Section shall be conclusive and binding upon the Issuer, the
Company, the Trustee and the Owners of the Bonds to which such
rates are applicable.
19
<PAGE> 25
(iv) The Interest Rate in effect for Bonds during any
Interest Rate Period shall be available to Owners between 1:00 p.m.
and 5:00 p.m., New York City time on any Business Day, from the
Remarketing Agent or the Trustee at their principal offices.
(b) Flexible Rates. (i) The Flexible Rate Period for each Bond
shall be of such duration, not exceeding 270 days, as may be offered by the
Remarketing Agent and specified by the purchaser; provided that if a Letter of
Credit is then in effect and such Letter of Credit provides less than 275 days'
interest coverage, such period shall not be longer than a period equal to the
maximum number of days' interest coverage provided by such Letter of Credit
minus 5 days or the Trustee shall not authenticate any Bond for a Flexible Rate
Period at a Flexible Rate providing an amount of interest which, when added to
the aggregate interest to accrue on all outstanding Flexible Rate Bonds, would
exceed the maximum amount available under the Letter of Credit for the payment
of interest minus an amount equal to 5 days' maximum interest coverage on all
Flexible Rate Bonds. Any Bond may accrue interest at a Flexible Rate for a
Flexible Rate Period different from any other Bond. Each Flexible Rate Period
shall commence on a Business Day and end on a day immediately preceding a
Business Day. The Remarketing Agent shall offer and accept purchase commitments
for the Bonds for such Flexible Rate Periods and at such Flexible Rates as it
deems to be advisable in order to minimize the net interest cost on the Bonds
taking into account prevailing market conditions; provided, however, that the
foregoing shall not prohibit the Remarketing Agent from accepting purchase
commitments for longer Flexible Rate Periods (and at higher Flexible Rates) than
are otherwise available at the time of any remarketing if the Remarketing Agent
determines that, taking into account prevailing market conditions, a lower net
interest cost on the Bonds can be achieved over the longer Flexible Rate
Period. Notwithstanding the foregoing, no Flexible Rate Period may be
established which exceeds 270 days (or such lower number as is permitted above)
or, if the Remarketing Agent has given or received notice of any conversion to
a Daily, Weekly or Term Rate Period, the remaining number of days prior to the
Conversion Date, and if a Letter of Credit is then in effect, no Flexible Rate
Period may be established which extends beyond the remaining term of such
Letter of Credit minus 5 days.
(ii) Each Flexible Rate and Flexible Rate Period
shall be determined not later than 1:00 p.m., New York City time,
on the First Business Day of the Flexible Rate Period to which it
relates and provided to the Trustee by the Remarketing Agent by
telephonic or Electronic notice by 1:00 p.m., New York City time,
on that same day. The Trustee will deliver certificates for such
Bonds to the Remarketing Agent not later than 2:15 p.m. New York
City time on such Business Day against receipt therefor.
(c) Daily Rates. A Daily Rate shall be established for each
Daily Rate Period as follows:
(i) Daily Rate Periods shall commence on a Daily Rate
Conversion Date which shall be a Business Day and thereafter, prior
to the next Conversion Date, on each Business Day thereafter until
the Rate Period for the Bonds is converted to another Rate Period
and shall extend to, but not include, the next succeeding Business
Day.
(ii) The Daily Rate for each Daily Rate Period shall be
effective from and including the commencement date thereof and
shall remain in effect to, but not including, the next succeeding
Business Day. Each such Daily Rate shall be determined not later
than 10:30 a.m., New York City time, on the first Business Day of
the Daily Rate Period to which it
20
<PAGE> 26
relates and provided to the Trustee by the Remarketing Agent by
telephonic or Electronic notice by 1:00 p.m., New York City time,
on that same day; provided that no notice need be given if the
Daily Rate then in effect is to be the Daily Rate for the next
Daily Rate Period.
(d) Weekly Rates. A Weekly Rate shall be determined for each
Weekly Rate Period as follows:
(i) Weekly Rate Periods shall commence on a Wednesday and
end on Tuesday of the following week and each Weekly Rate Period
shall be followed by another Weekly Rate Period until the Rate
Period of the Bonds is converted to another Rate Period; provided
that (A) in the case of a conversion to a Weekly Rate Period from a
different Rate Period, the Weekly Rate Period shall commence on the
Weekly Rate Conversion Date and shall end on Tuesday of the
following week; and (B) in the case of a conversion from a Weekly
Rate Period to a different Rate Period, the last Weekly Rate Period
prior to conversion shall end on the last day immediately preceding
the Conversion Date to the new Rate Period.
(ii) The Weekly Rate for each Weekly Rate Period shall be
effective from and including the commencement date of such period
and shall remain in effect through and including the last day
thereof. Each such Weekly Rate shall be determined by the
Remarketing Agent no later than 10:00 a.m., New York City time, on
the commencement date of the Weekly Rate Period to which it relates
and provided to the Trustee by the Remarketing Agent by written,
telephonic or Electronic notice by 12:00 Noon, New York City time,
on such Business Day.
(e) Term Rates. A Term Rate shall be determined for each Term
Rate Period as follows:
(i) Term Rate Periods shall (A) commence on a Term Rate
Conversion Date and subsequently on the first day of a calendar
month which is an integral multiple of twelve (12) calendar months
thereafter and (B) end on the day preceding either the commencement
date of the following Term Rate Period or the Conversion Date on
which a different Rate Period shall become effective or the
maturity date of the Bonds; provided that if a Letter of Credit is
then in effect, no Term Rate Period shall extend beyond the
remaining term of such Letter of Credit minus 5 days. Each Term
Rate Period shall be followed by another Term Rate Period of the
same duration until the Rate Period of the Bonds is converted to
another Rate Period or a Term Rate Period of a different duration
or until maturity.
(ii) The Term Rate for each Term Rate Period shall be
effective from and including the commencement date of such period
and remain in effect through and including the last day thereof.
Each such Term Rate shall be determined not later than 12:00 noon,
New York City time, on the Business Day immediately preceding the
commencement date of such period and provided to the Trustee and
the Bank by the Remarketing Agent by written, telephonic or
Electronic notice by the close of business on such Business Day.
21
<PAGE> 27
Section 3.03. Conversions Between Rate Periods. The Company may elect to
convert the Bonds from one Rate Period to another as follows:
(a) Conversion Dates.
(i) If the conversion is from Flexible Rate Periods, the Conversion
Date must be a date on which interest is payable on all Bonds accruing
interest at Flexible Rates.
(ii) If the conversion is from a Daily or Weekly Rate Period, the
Conversion Date must be an Interest Payment Date on which interest is
payable for the Daily or Weekly Rate Period from which the conversion is
made.
(iii) If the conversion is from a Term Rate Period, the Conversion
Date may be any date on which the Bonds are also subject to optional
redemption pursuant to Section 9.01(a) hereof.
(b) Notices by Company. The Company shall give notice of any proposed
conversion to the Trustee, the Bank and the Remarketing Agent not fewer than 25
days before the proposed conversion from a Flexible, Daily or Weekly Rate
Period and not fewer than 45 days before the proposed conversion from a Term
Rate Period.
(c) Notices by Trustee. The Trustee shall give notice by first class
mail, of proposed conversion to the Registered Owners of bonds accruing
interest at Flexible, Daily or Weekly Rates not less than 15 days before the
proposed Conversion Date and to Registered Owners of Bonds accruing interest at
a Term Rate not less than 30 days before the proposed Conversion Date. Such
notice shall state:
(i) the proposed Conversion Date;
(ii) that the Bonds will be subject to mandatory tender for
purchase on the Conversion Date (except in the case of conversions
between Daily and Weekly Rate Periods);
(iii) the conditions, if any, to the conversion pursuant to
subsection (d) below; and
(iv) if the Bonds are in certificated form, information with
respect to required delivery of Bond certificates and payment of the
Purchase Price.
(d) Conditions to Conversion. No conversion of Interest Rate Periods
will become effective unless:
(i) if the conversion is from Flexible Rate Periods, the Trustee has
received, prior to the date on which notice of conversion is required to be
given to Registered Owners, written confirmation from the Remarketing Agent
that it has not established and will not establish any Flexible Rate
Periods extending beyond the day before the Conversion Date;
(ii) if the conversion is from Flexible, Daily or Weekly Rate Periods
to a Term Rate Period, or from a Term Rate Period to a Flexible, Daily or
Weekly Rate Period, the Trustee has been provided, no later than one day
before the Conversion Date, with a Favorable Opinion of Bond Counsel with
respect to the conversion; and
22
<PAGE> 28
(iii) if a Letter of Credit will be held by the Trustee after the
Conversion Date, such Letter of Credit (A) will cover the principal of and
interest (computed on the basis of a 365-day year, in the case of
conversion to a Flexible, Daily or Weekly Rate Period, and on the basis of
a 360-day year consisting of twelve 30-day months, in the case of
conversion to a Term Rate Period) which will accrue on the Outstanding
Bonds for the maximum permitted period between Interest Payment Dates for
the proposed Interest Rate Period plus 5 days, and (B) in the case of
conversion to a Term Rate Period, (i) extends for a period which shall not
end on a date that is earlier than five days after the first date on which
the Bonds can be called for optional redemption, and (ii) covers the
premium, if any, which would be included in the Purchase Price upon
mandatory purchase of the Bonds pursuant to Section 4.02(c) hereof if such
Letter of Credit were not extended beyond the Expiration Date set forth
therein.
(iv) if a Letter of Credit is then in effect and the Purchase Price
determined under Section 4.02(c) hereof payable on the Conversion Date
includes any premium, the Trustee has received, prior to the date on which
notice of conversion is required to be given to Registered Owners, written
confirmation from the Bank that it can draw under the Letter of Credit on
the proposed Conversion Date in an aggregate amount sufficient to cover
such premium due upon mandatory purchase of the Bonds pursuant to Section
4.02(c) hereof.
ARTICLE IV
TENDER AND PURCHASE OF BONDS
Section 4.01. Optional Tenders for Purchase.
(a) Purchase Dates. The Owners or Registered Owners of Bonds accruing
interest at Daily, Weekly or Term Rates may elect to have their Bonds (or
portions thereof in amounts equal to the lowest denomination then authorized
pursuant to Section 2.02 hereof or whole multiples of such lowest denomination)
purchased at the Purchase Price on the following purchase dates:
(i) Bonds accruing interest at Daily Rates may be tendered for
purchase at a Purchase Price payable in immediately available funds on any
Business Day prior to conversion from a Daily Rate Period to a different
Rate Period, upon personal, Electronic or telephonic notice of tender given
to the Trustee, directly or through the Owner's DTC Participant, not later
than 11:00 a.m., New York City time, on the purchase date.
(ii) Bonds accruing interest at Weekly Rates may be tendered for
purchase at a Purchase Price payable in immediately available funds on any
Business Day prior to conversion from a Weekly Rate Period to a different
Rate Period upon written or Electronic notice of tender to the Trustee,
directly or through the Owner's DTC Participant, not later than 5:00 p.m.,
New York City time, on a Business Day not fewer than seven days prior to
the purchase date.
(iii) Bonds accruing interest at a Term Rate may be tendered for
purchase on the commencement date of the succeeding Rate Period for such
Bonds at a Purchase Price payable in clearinghouse funds upon written or
Electronic notice of tender to the Trustee, directly or through the
23
<PAGE> 29
Owner's DTC Participant, not later than 5:00 p.m., New York City time, on a
Business Day which is not fewer than seven days prior to the purchase date.
(b) Notice of Tender. Each notice of tender:
(i) shall, in the case of a written notice, be delivered to the
Trustee at its principal office and be in form satisfactory to the Trustee;
(ii) shall state, whether delivered personally, in writing,
Electronically or by telephone (A) the principal amount of the Bond to
which the notice relates, (B) that the Owner or Registered Owner
irrevocably demands purchase of such Bond or a specified portion thereof in
an amount equal to the lowest denomination then authorized pursuant to
Section 2.02 hereof or a whole multiple of such lowest denomination, (C)
the date on which such Bond or portion is to be purchased, (D) and payment
instructions with respect to the Purchase Price; and
(iii) shall automatically constitute, whether delivered personally, in
writing, Electronically or by telephone (A) an irrevocable offer to sell
the Bond (or portion thereof) to which the notice relates on the purchase
date at a Purchase Price equal to the principal amount of such Bond (or
portion thereof) plus, with respect to Bonds accruing interest at a Daily
Rate or a Weekly Rate, any interest thereon accrued and unpaid as of the
purchase date, (B) an irrevocable authorization and instruction to the
Trustee to effect transfer of such Bond (or portion thereof) upon payment
of the Purchase Price to the Trustee on the purchase date, (C) an
irrevocable authorization and instruction to the Trustee to effect the
exchange of the Bond to be purchased in whole or in part for other Bonds in
an equal aggregate principal amount so as to facilitate the sale of such
Bond (or portion thereof to be purchased), and (D) an acknowledgment that
such Owner or Registered Owner will have no further rights with respect to
such Bond (or portion thereof) upon payment of the Purchase Price thereof
to the Trustee on the purchase date, except for the right of such Owner or
Registered Owner to receive such Purchase Price upon delivery of such Bond
to the Trustee and that after the purchase date such Owner or Registered
Owner will hold any undelivered certificate as agent for the Trustee. The
determination of the Trustee as to whether a notice of tender has been
properly delivered pursuant to the foregoing shall be conclusive and
binding upon the Owner or Registered Owner.
(c) Bonds to be Remarketed. Not later than 11:00 a.m., New York City
time, on the Business Day immediately following the date of receipt of any
notice of tender (or immediately upon such receipt, in the case of Bonds
accruing interest at Daily Rates), the Trustee shall notify, by telephone,
promptly confirmed in writing, the Company and the Remarketing Agent of the
principal amount of Bonds (or portions thereof) to be purchased and the date of
purchase.
Section 4.02. Mandatory Tenders for Purchase.
(a) Flexible Rate Bonds. Each Bond accruing interest at a Flexible
Rate shall be subject to mandatory tender for purchase on the day after the last
day of each Flexible Rate Period applicable to such Bond, at a Purchase Price
equal to 100% of the principal amount thereof, plus interest accrued during such
Flexible Rate Period. The Registered Owner of any Bond accruing interest at a
Flexible Rate and tendered for purchase as provided in this Section 4.02(a)
shall provide the Trustee with payment instructions for the Purchase Price of
its Bond on or before tender thereof to the Trustee.
24
<PAGE> 30
(b) Conversions between Interest Rate Periods. Bonds to be converted from
one Interest Rate Period to a different Interest Rate Period (except
conversions from the Daily Rate to the Weekly Rate or from the Weekly Rate to
the Daily Rate) or from a Term Rate Period to a Term Rate Period of different
duration, are subject to mandatory tender for purchase on the Conversion Date
at a Purchase Price equal to the principal amount thereof plus accrued
interest; provided that the Purchase Price for Bonds converted from a Term Rate
Period on a date when such Bonds are also subject to optional redemption at a
premium shall include an amount equal to the premium that would be payable if
such Bonds were redeemed on such date.
(c) Prior to Expiration of Letter of Credit. The Bonds are subject to
mandatory tender for purchase on the Interest Payment Date next preceding the
Expiration Date of the Letter of Credit unless at least 45 days (or such
shorter period as shall be acceptable to the Trustee) prior to such Interest
Payment Date the Trustee has received notice that the Letter of Credit has been
or will be extended or an Alternate Letter of Credit will be provided pursuant
to Section 7.01, at a Purchase Price equal to the principal amount thereof plus
accrued interest plus the premium, if any, which would be payable if the Bonds
were redeemed on the mandatory tender date. The Trustee shall give notice of
such mandatory tender for purchase to the Registered Owners of Bonds by first
class mail, not less than 15 days before the mandatory tender date. If the
Bonds are in certificated form, such notice shall include information with
respect to required delivery of Bond certificates and payment of the Purchase
Price.
Section 4.03. Remarketing and Purchase.
(a) Remarketing of Tendered Bonds. Unless otherwise instructed by the
Company, the Remarketing Agent shall offer for sale and use its best efforts to
find purchasers for all Bonds or portions thereof for which notice of tender
has been received pursuant to Section 4.01(c) or which are subject to mandatory
tender. While the Bonds are in book-entry only form, the Remarketing Agent
will make payment of the Purchase Price for tendered Bonds in accordance with
the procedures established by DTC. If the book-entry only system is not in
effect, the terms of any sale by the Remarketing Agent shall provide for the
payment of the Purchase Price for tendered Bonds by the Remarketing Agent to
the Trustee (i) in immediately available funds at or before 3:00 p.m., New York
City time, on the purchase date, in the case of Bonds accruing interest at
Flexible Rates, (ii) in immediately available funds at or before 4:00 p.m., New
York City time, on the purchase date, in the case of Bonds accruing interest at
Daily Rates or Weekly Rates, and (iii) in clearinghouse funds at or before
12:00 noon, New York City time, on the purchase date, in the case of Bonds
accruing interest at Term Rates. The Remarketing Agent shall not sell any Bond
as to which a notice of conversion from one type of Rate Period to another has
been given by the Trustee unless the Remarketing Agent has advised the Person
to whom the sale is made of the conversion.
(b) Purchase of Tendered Bonds.
(i) Notice. At or before 3:00 p.m., New York City time, on the
Business Day immediately preceding the date fixed for purchase of tendered
Bonds (or 12:45 p.m., New York City time, on the purchase date in the case
of Bonds accruing interest at Daily or Flexible Rates), the Remarketing
Agent shall give notice by telephone, telegram, telecopy, telex,
Electronically or by other similar communication to the Trustee of the
principal amount of tendered Bonds which were remarketed and the amounts
that will be transferred pursuant to Section 4.03(a). Not later than 4:00
p.m. (or 1:00 p.m., in the case of Bonds accruing interest at Daily or
Flexible Rates), New York City time, on the date of receipt of such notice
the Trustee shall give notice by telephone, telegram, telecopy,
Electronically or by other similar communication to the Bank and the
Company, specifying
25
<PAGE> 31
the principal amount of tendered Bonds as to which the Remarketing Agent has not
found a purchaser at that time. At or before 3:00 p.m., New York City time, on
the Business Day prior to the purchase date to the extent known to the
Remarketing Agent, but in any event, no later than 11:00 a.m. (or 1:00 p.m., in
the case of Bonds accruing interest at Daily, Weekly or Flexible Rates), New
York City time, on the date fixed for purchase, (or two Business Days prior to
the date fixed for purchase in the event tendered Bonds accrue interest at Term
Rates), the Remarketing Agent shall give notice to the Trustee by telephone
(promptly confirmed in writing or Electronically) of the names, addresses and
taxpayer identification numbers of the purchasers, the denominations of Bonds to
be delivered to each purchaser and, if available, payment instructions for
regularly scheduled interest payments, or of any changes in any such information
previously communicated.
(ii) Sources of Payments; Drawings on Letter of Credit. The Remarketing
Agent shall cause to be paid to the Trustee on the date fixed for purchase of
tendered Bonds, all amounts representing proceeds of the remarketing of such
Bonds, such payments to be made in the manner and at the time specified in
subsection 4.03(a) above. If such amounts will not be sufficient to pay the
principal amount thereof plus the accrued and unpaid interest thereon (if any)
to the purchase date, the Trustee shall by 1:15 p.m., New York City time, on the
purchase date draw under the Letter of Credit, if any, then held by the Trustee
in accordance with its terms in a manner so as to furnish immediately available
funds by 3:00 p.m., New York City time on such purchase date, in an amount
sufficient, together with the remarketing proceeds available for such purchase,
to enable the Trustee to pay the purchase price of Bonds to be purchased on such
purchase date. If no Letter of Credit is then held by the Trustee, the Company
shall deliver or cause to be delivered to the Trustee (A) immediately available
funds in an amount equal to such deficiency prior to 2:30 p.m., New York City
time, on the date set for purchase of tendered Bonds accruing interest at Daily
Rates and Weekly Rates (3:00 p.m., New York City time, in the case of Flexible
Rate Bonds), and (B) clearinghouse funds in an amount equal to such deficiency
prior to 12:15 p.m., New York City time, on the date set for purchase of
tendered Bonds accruing interest at Term Rates (the obligation of the Company to
deliver such moneys not being conditioned on receipt by the Company of the
foregoing notice from the Trustee). All monies received by the Trustee as
remarketing proceeds or from drawings on the Letter of Credit and additional
amounts, if any, received from the Company shall be deposited by the Trustee in
the appropriate account of the Bond Purchase Fund to be used solely for the
payment of the Purchase Price of tendered Bonds and shall not be commingled with
other funds held by the Trustee.
(iii) Payments by the Trustee. At or before 3:00 p.m., New York City
time, on the date set for purchase of tendered Bonds and upon receipt by the
Trustee of 100% of the aggregate Purchase Price of the tendered Bonds, the
Trustee shall pay or receipt the Purchase Price of such Bonds to the Registered
Owners thereof. Such payments shall be made in immediately available funds (or
by wire transfer), unless the Bonds to be purchased accrue interest at Term
Rates, in which event such payments shall be made in clearinghouse funds. The
Trustee shall apply in order (A) monies paid to it by the Remarketing Agent as
proceeds of the remarketing of such Bonds by the Remarketing Agent (which monies
shall not include any monies of the Issuer, the Company or any guarantors
thereof), (B) proceeds of a drawing of the Letter of Credit, and (C) other
monies made available by the Company. If sufficient funds are not available for
the purchase of all tendered Bonds, no purchases shall be consummated, all as
further set forth in Section 4.04 hereof.
26
<PAGE> 32
(iv) Registration and Delivery of Tendered or Purchased Bonds. On the
date of purchase, the Trustee shall register and deliver (or hold) or cancel all
Bonds purchased on any purchase date as follows: (A) Bonds purchased or
remarketed by the Remarketing Agent shall be registered and made available to
the Remarketing Agent by 2:15 p.m., New York City time, in accordance with the
instructions of the Remarketing Agent; (B) Bonds purchased with proceeds of a
drawing on the Letter of Credit shall be held as Pledged Bonds in accordance
with subparagraph (v) below; and (C) Bonds purchased with amounts provided by
the Company shall be registered in the name of the Company and shall be held in
trust by the Trustee on behalf of the Company and shall not be released from
such trust unless the Trustee shall have received written instructions from the
Company. Notwithstanding anything herein to the contrary, so long as the Bonds
are held under the book-entry only system in accordance with Section 2.11
hereof, Bonds will not be delivered as set forth above; rather, transfers of
beneficial ownership of the Bonds to the person indicated above will be effected
on the registration books of DTC pursuant to its rules and procedures.
(v) Pledged Bonds. Bonds purchased with proceeds of a drawing on the
Letter of Credit pursuant to this Section shall constitute "Pledged Bonds" and
shall be held by the Trustee as agent for the Bank as pledgee of the Company
pursuant to the Reimbursement Agreement (and shall be shown as such on the
registration books maintained by the Trustee) unless and until (1) the Trustee
has written confirmation from the Bank to the extent contemplated by the terms
of the Letter of Credit that the Letter of Credit has been reinstated with
respect to such drawing and (2) the Bank has notified the Trustee by telephone
(thereafter promptly confirmed in writing) that such Bonds have been released
from the pledge pursuant to the Reimbursement Agreement and are no longer
Pledged Bonds. Pending reinstatement of the Letter of Credit and release of
such pledge as aforesaid, the Bank shall be entitled to receive all payments of
principal of and interest on Pledged Bonds as pledgee of the Company and such
Bonds shall not be transferable or deliverable to any party (including the
Company) except the Bank pursuant to the Reimbursement Agreement. The
Remarketing Agent shall, at the request of the Bank, continue to use its best
efforts to arrange for the sale of any Pledged Bonds, subject to full
reinstatement of the Letter of Credit with respect to the drawings with which
such Bonds were purchased, at a price equal to the principal amount thereof plus
accrued interest.
Notwithstanding anything to the contrary in this subsection, if and for
so long as the Bonds are to be registered in accordance with Section 2.11
hereof, the registration requirements under this subsection (v) shall be deemed
satisfied if Pledged Bonds are (1) registered in the name of the Securities
Depository or its nominee in accordance with Section 2.11 hereof, (2) credited
on the books of the Securities Depository to the account of the Trustee (or its
nominee) and (3) further credited on the books of the Trustee (or such nominee)
to the account of the Bank (or its designee).
(vi) Resale of Bonds Purchased by the Company. In the event that any
Bonds are registered to the Company pursuant to subparagraph (iv) above to the
extent requested by the Company, the Remarketing Agent shall offer for sale and
use its best efforts to sell such Bonds at a price equal to the principal amount
thereof plus accrued interest.
(vii) Delivery of Tendered Bonds; Effect of Failure to Surrender Bonds.
All Bonds to be purchased on any date shall be required to be delivered to the
principal office of the Trustee at or before (A) 1:00 p.m., New York City time,
on the purchase date in the case of Bonds accruing interest at Flexible or Daily
Rates; (B) 12:00 noon, New York City time, on the purchase date in the case of
Bonds accruing interest at Weekly Rates; or (C) 5:00 p.m., New York City time,
on the second
27
<PAGE> 33
Business Day prior to the purchase date in the case of Bonds accruing
interest at Term Rates, except for Bonds delivered by or on behalf of an
Investment Company in accordance with Section 4.05 hereof which may be
delivered by 3:00 p.m., New York City time, on the purchase date. If the
Owner of any Bond (or portion thereof) in certificated form that is subject
to optional or mandatory purchase pursuant to this Article fails to deliver
such Bond to the Trustee for purchase on the purchase date, and if the
Trustee is in receipt of the Purchase Price therefor, such Bond (or portion
thereof) shall nevertheless be deemed purchased on the day fixed for
purchase thereof and ownership of such Bond (or portion thereof) shall be
transferred to the purchaser thereof as provided in subsection (e)(iv)
above. Any Owner who fails to deliver such Bond for purchase shall have no
further rights thereunder except the right to receive the Purchase Price
thereof upon presentation and surrender of said Bond to the Trustee. The
Trustee shall, as to any tendered Bonds which have not been delivered to it
(i) promptly notify the Remarketing Agent of such nondelivery and (ii)
place a stop transfer against an appropriate amount of Bonds registered in
the name of such Registered Owner(s) on the bond registration books. The
Trustee shall place such stop(s) commencing with the lowest serial number
Bond registered in the name of such Registered Owner(s) until stop
transfers have been placed against an appropriate amount of Bonds until the
appropriate tendered Bonds are delivered to the Trustee. Upon such
delivery, the Trustee shall make any necessary adjustments to the bond
registration books.
Section 4.04. Inadequate Funds for Tenders. If the funds available for
purchases of Bonds pursuant to this Article IV are inadequate for the purchase
of all Bonds tendered on any purchase date, the Trustee shall, after any
applicable grace period: (a) return all tendered Bonds to the Registered
Owners thereof; (b) return all moneys received for the purchase of such Bonds
to the Persons providing such monies; and (c) notify the Issuer and the
Remarketing Agent of the return of such Bonds and moneys and the failure to make
payment for tendered Bonds.
Section 4.05. Tenders by Investment Companies. The Owner of any Bond
issued hereunder that is an Investment Company, or is holding Bonds on behalf
of an Investment Company, may, at its option, notify the Remarketing Agent and
the Trustee of such fact in writing and in such notice irrevocably elect to
have its Bond(s) purchased on the next date on which such Bond(s) may be
purchased pursuant to Section 4.01 hereof. Any notice delivered by an
Investment Company with respect to its Bond(s) shall contain the information
required under Section 4.01(b) hereof and shall be irrevocable with the same
effect described in Section 4.01(b)(iii).
Section 4.06. Bond Purchase Fund. There is hereby created with the
Trustee a segregated trust fund to be designated the "Bond Purchase Fund". The
Bond Purchase Fund shall consist of three sub-accounts to be designated
respectively the "Remarketing Account", the "Letter of Credit Purchase Account"
and the "Company Purchase Account".
The Trustee shall deposit or cause to be deposited into the Remarketing
Account, when and as received, all moneys delivered to the Trustee as and for
the Purchase Price of remarketed Bonds by or on behalf of the Remarketing
Agent. The Trustee shall disburse moneys from the Remarketing Account to pay
the Purchase Price of Bonds properly tendered for purchase upon surrender of
such Bonds.
The Trustee shall deposit or cause to be deposited into the Letter of
Credit Purchase Account, when and as received, all proceeds from a drawing on
the Letter of Credit pursuant to Section 4.03(b). The Trustee shall disburse
moneys from the Letter of Credit Purchase Account to pay the Purchase Price of
Bonds properly
28
<PAGE> 34
tendered for purchase upon surrender of such Bonds; provided that such proceeds
shall not be applied to purchase Pledged Bonds or Company Bonds.
The Trustee shall deposit or cause to be deposited into the Company
Purchase Account, when and as received, all moneys delivered to the Trustee by
or for the account of the Company pursuant to the Agreement. The Trustee shall
disburse moneys from the Company Purchase Account to pay the Purchase Price of
Bonds properly tendered for purchase by or on behalf of the Company upon
surrender of such Bonds or to reimburse the Bank for drawing under the Letter
of Credit for such purpose.
The funds held by the Trustee in the Bond Purchase Fund shall not be
considered Pledged Revenues as that term is defined herein and shall not
constitute part of the trust estate which is subject to the lien of this
Indenture. The moneys in the Bond Purchase Fund shall be used solely to pay
the Purchase Price of Bonds as aforesaid (or to reimburse the Bank for drawings
under the Letter of Credit for such purpose) and may not be used for any other
purposes. It shall be the duty of the Trustee to hold the moneys in the Bond
Purchase Fund, without liability for interest thereon, for the benefit of the
Registered Owners of Bonds which have been properly tendered for purchase or
deemed tendered on the purchase date, and if sufficient funds to pay the
Purchase Price for such tendered Bonds shall be held by the Trustee in the Bond
Purchase Fund for the benefit of the Registered Owners thereof, each such
Registered Owner shall thereafter be restricted exclusively to the Bond
Purchase Fund for any claim of whatever nature on such Registered Owner's part
under this Indenture or on, or with respect to, such tendered Bond. The
provisions of Section 6.03 hereof shall govern any funds held in the Bond
Purchase Fund for such Registered Owners of the Bonds which remain unclaimed
for a period of two years after the applicable purchase date.
ARTICLE V
DEPOSIT OF BOND PROCEEDS
Section 5.01. Deposit of Proceeds of Bonds. The initial proceeds of the
Bonds and the other amounts delivered to the Trustee pursuant to Section 2.01
hereof shall be deposited by the Trustee as follows:
(a) in the Debt Service Fund, established pursuant to Section 6.01
hereof, a sum equal to the accrued interest, if any, paid by the initial
purchasers of the Bonds, and
(b) in a separate escrow account established outside of this
Indenture with PNC Bank, N.A. in accordance with the escrow agreement dated
the Issue Date (the "Escrow Agreement") between PNC Bank, N.A. and the
Company, the balance of the proceeds received from the initial purchasers
of the Bonds (such proceeds to be used in connection with the redemption of
the 1987 Bonds on or before November 13, 1997).
29
<PAGE> 35
ARTICLE VI
DEBT SERVICE FUND AND REBATE FUND
Section 6.01. Establishment of Certain Funds and Accounts. The Issuer
hereby establishes with the Trustee the Debt Service Fund, within which there
is hereby established a Company Debt Service Account and a Letter of Credit
Debt Service Account and the Rebate Fund.
Section 6.02. Debt Service Fund. The Trustee shall maintain the Debt
Service Fund as follows:
(a) The Trustee shall deposit into the Company Debt Service
Account all amounts received by the Trustee or for the account of the
Company pursuant to Section 5.01(a) hereof and all Debt Service Payments
received pursuant to the Agreement.
(b) The Trustee shall deposit into the Letter of Credit Debt
Service Account all moneys received by the Trustee from drawings under the
Letter of Credit to pay principal of, premium, if any, on and interest on
the Bonds.
(c) Moneys in the Letter of Credit Debt Service Account shall be
applied to the payment when due of principal of, premium, if any, on and
interest on the Bonds (other than Pledged Bonds or Company Bonds).
(d) Moneys in the Company Debt Service Account shall be applied
to the following in the order of priority indicated:
(1) the reimbursement of the Bank when due for moneys drawn
under the Letter of Credit and deposited in the Letter of Credit
Debt Service Account for payment of principal of, premium, if any,
on and interest on the Bonds;
(2) when insufficient moneys have been received under the
Letter of Credit for application pursuant to Subsection 6.02(c),
the payment when due of principal of, premium, if any, on and
interest on the Bonds, other than Company Bonds or Pledged Bonds;
(3) the payment when due of principal of, premium, if any,
on and interest on Pledged Bonds; and
(4) the payment when due of principal of, premium, if any,
on and interest on Company Bonds, provided that if the Trustee
shall have received written notice from the Bank that any amounts
are due and owing to the Bank under the Reimbursement Agreement,
such payments shall be made to the Bank for the account of the
Company.
(e) By 12:00 noon on the Business day immediately preceding each
Interest Payment Date, each redemption date and the maturity date of the
Bonds, the Trustee shall present the requisite draft and certificate for a
drawing on the letter of Credit so as to comply with the provisions of the
Letter of Credit for payment to be made in sufficient time for the Trustee
to receive the proceeds of such drawing at or before 10:00 a.m. on such
Interest Payment Date, redemption date or maturity date, as the case may
be, to pay principal of, premium, if any, on and interest on the Bonds due
on such
30
<PAGE> 36
date. In addition, the Trustee shall draw on the Letter of Credit pursuant
to its terms in accordance with and in order to satisfy the requirements of
Section 11.02(b). By 5:00 p.m. on each date it presents the requisite
documents for a drawing on the Letter of Credit, the Trustee shall give
notice to the Company by telephone, promptly confirmed in writing, of the
amount so drawn. The Trustee shall promptly notify the Company by oral or
telephonic communication confirmed in writing if the Bank fails to transfer
funds in accordance with the Letter of Credit upon the presentment of the
requisite draft and certificate. In calculating the amount to be drawn on
the Letter of Credit for the payment of principal of and interest on the
Bonds, whether on an Interest Payment Date, at maturity or upon redemption
or acceleration, the Trustee shall not take into account the potential
receipt of funds from the Company under the Agreement on such Interest
Payment Date, or the existence of any other moneys in the Bond Fund, but
shall draw on the Letter of Credit for the full amount of principal and
interest coming due on the Bonds.
Section 6.03. Return of Monies from Non-Delivery of Bonds. In the event
any Bond shall not be delivered for payment when the principal thereof becomes
due, either at maturity, at the date fixed for redemption thereof, or
otherwise, and is not thereafter delivered for payment, or if interest thereon
is unclaimed, any funds which shall be held for such purpose by the Trustee and
which remain unclaimed by the Registered Owner of the Bond for a period of two
years after such due date thereof, shall, upon request in writing by the
Company, and subject to applicable unclaimed property or similar laws of the
State, be paid to the Company for the benefit of the Registered Owner thereof
free of any trust or lien and thereafter the Registered Owner of such Bond
shall look only to the Company for payment without any interest thereon, and
the Trustee shall not have any further responsibility with respect to such
moneys. In addition, if at any time after there are no longer any Bonds
Outstanding the Trustee determines that the amounts on deposit in the Funds and
accounts created under this Indenture are in excess of the amounts necessary to
pay the Bond Obligations, the Trustee shall pay such excess to the Bank, to the
extent of any amount certified by the Bank as due from the Company under the
Reimbursement Agreement, and then to the Company as an overpayment of the Debt
Service Payments free of any trust or lien.
Section 6.04. Rebate Fund; Covenants Regarding Rebate.
(a) Upon written notice from the Company, the Trustee shall establish a
Rebate Fund in accordance with the provisions of this Section 6.04. Such Fund
shall be for the sole benefit of the United States of America and shall not be
subject to the claim of any other Person, including without limitation the
Registered Owners. The Rebate Fund is established for the purpose of complying
with Section 148 of the Code and the Regulations promulgated pursuant thereto.
The money deposited in the Rebate Fund, together with all investments thereof
and investment income therefrom, shall be held in trust and applied solely as
provided in this Section. The Rebate Fund is not a portion of the Trust Estate
and is not subject to the lien of this Indenture.
(b) At the close of each Bond Year, the Company, or its agent, shall
compute the amount of "Excess Earnings," if any, for the period beginning on
the Issue Date and ending at the close of such Bond Year, transmit a copy of
such computation to the Trustee, and pay to the Trustee for deposit to the
Rebate Fund an amount equal to the difference, if any, between the amount then
in the Rebate Fund and the "Excess Earnings" so computed. If, at the close of
any Bond Year, the amount in the Rebate Fund exceeds the amount that would be
required to be paid to the United States of America under paragraph (d) below
if the Bonds had been paid in full, such excess may be transferred from the
Rebate Fund and paid to the Company to be used for such purposes for which, or
to be redeposited to such fund from which, such amounts were originally
intended.
31
<PAGE> 37
(c) In general, "Excess Earnings" for any period of time means the sum of
(i) the excess of --
(A) the aggregate amount earned during such period of
time on all Nonpurpose Investments (including gains on the
disposition of such obligations) in which Gross Proceeds of the
Bonds are invested (other than amounts attributable to an excess
described in this subparagraph (c)(i)), over
(B) the amount that would have been earned during such
period of time if the Yield on such Nonpurpose Investments (other
than amounts attributable to an excess described in this
subparagraph (c)(i)) had been equal to the Yield on the Bonds,
plus
(ii) any income during such period of time attributable to the
excess described in subparagraph (c)(i) above.
(d) The Trustee shall pay to the United States of America at least once
every five years an amount, as determined by the Company and provided in
writing to the Trustee, that ensures that at least 90 percent of the Excess
Earnings from the Issue Date to the close of the period for which the payment
is being made will have been paid. The Trustee shall pay to the United States
of America not later than 60 days after the Bonds have been paid in full 100
percent of the amount, as determined by the Company and provided in writing to
the Trustee, then required to be paid under Section 148(f) of the Code as a
result of Excess Earnings. The Company shall provide to the Trustee any
completed Internal Revenue Service form that must accompany each payment to the
United States of America.
(e) The amounts to be computed, paid, deposited or disbursed under this
section shall be determined by the Company acting on behalf of the Issuer
within ten days after each successive anniversary date of the Issue Date of
each issue or series of Bonds. By such date, the Company shall also notify, in
writing, the Trustee and the Issuer of the determinations the Company has made
and the payment to be made pursuant to the provisions of this section. Upon
written request of any Registered Owner of Bonds, the Company shall furnish to
such Registered Owner of Bonds a certificate (supported by reasonable
documentation, which may include calculation by Bond Counsel or by some other
service organization) showing compliance with this section and other applicable
provisions of Section 148 of the Code.
(f) Notwithstanding anything contained herein to the contrary, the
provisions of this section shall not apply to the Trustee, the Issuer or the
Company if (i) within 180 days from the Issue Date, all Gross Proceeds are
expended to finance the Project or (ii) the proceeds of the Bonds including any
investment earnings thereon, have been applied in a manner which, in the
written opinion of Bond Counsel delivered to the Trustee, will not adversely
affect the tax-exempt status of interest on the Bonds.
(g) The Trustee shall maintain a record of the periodic determinations by
the Company of the tentative Rebate Amount for a period beginning on the first
anniversary date of the Issue Date and ending on the date six years after the
final retirement of the Bonds. Such records provided by the Company shall
state each such anniversary date and summarize the manner in which the
tentative Rebate Amount, if any, was determined. This provision shall not be
applicable if the Gross Proceeds are expended within 180 days of the Issue Date
of the applicable series or issue of Bonds.
32
<PAGE> 38
(h) If the Trustee shall declare the principal of the Bonds and the
interest accrued thereon immediately due and payable as the result of an Event
of Default specified in this Indenture, or if the Bonds are optionally or
mandatorily prepaid or redeemed prior to maturity as a whole in accordance with
their terms, any amount remaining in any of the funds shall be transferred to
the Rebate Fund to the extent that the amount therein is less than the
tentative Rebate Amount computed by the Company as of the date of such
acceleration or redemption, and the balance of such amount shall be used
immediately by the Trustee for the purpose of paying principal of, premium, if
any, and interest on the Bonds when due. In furtherance of such intention, the
Issuer hereby authorizes and directs its officers and commissioners to execute
any documents, certificates or reports required by the Code and to make such
elections, on behalf of the Issuer, which may be permitted by the Code and
which are requested by either the Company or the Trustee, as are consistent
with the purpose for the issuance of the Bonds.
(i) If the Company fails to provide any of the information,
certifications, calculations or moneys to the Trustee as required in this
Section 6.04, neither the Trustee nor the Issuer shall have any obligation to,
and shall not, make any calculation required hereunder.
Section 6.05. Intentionally Omitted.
Section 6.06. Moneys to be Held for All Registered Owners, With Certain
Exceptions. Until applied as herein provided, moneys and investments held in
all Funds and accounts established hereunder (other than funds held in the Bond
Purchase Fund and the Rebate Fund) shall be held in trust for the benefit of
the Registered Owners of all Outstanding Bonds, except that on and after the
date on which the interest on or principal or redemption price of any
particular Bond or Bonds is due and payable from the Debt Service Fund, the
unexpended balance of the amount deposited or reserved in such Fund for the
making of such payments shall, to the extent necessary therefor, be held for
the benefit of the Registered Owner or Registered Owners entitled thereto.
Section 6.07. Additional Accounts and Subaccounts. At the written request
of the Company, the Trustee shall establish and maintain additional accounts
within the Funds or subaccounts within the accounts established hereunder as
the Company may reasonably request; provided that (a) in each case, the written
request of the Company shall set forth in reasonable detail the sources of
deposits into and disbursements from the account or subaccount to be
established, (b) in each case, the sources of deposits into and disbursements
from the account or subaccount to be established shall be limited to the
sources of deposits permitted or required under this Indenture to be made into
and the disbursements permitted or required to be made from the fund or account
within which it is to be established, and (c) each additional account or
subaccount established hereunder shall be held in trust for the benefit of the
Registered Owners of all Outstanding Bonds, except as provided in Section 6.06
hereof.
ARTICLE VII
LETTER OF CREDIT
Section 7.01. Extension or Replacement in Anticipation of Expiration. At
least 45 days (or such shorter period as shall be acceptable to the Trustee)
prior to the Interest Payment Date next preceding the Expiration Date of the
current Letter of Credit, the Company may provide for the delivery to the
Trustee of (1) an amendment to the Letter of Credit which extends the
Expiration Date to a date that is not earlier than
33
<PAGE> 39
one year from its then current Expiration Date (provided, however, that
notwithstanding anything herein to the contrary, the Letter of Credit initially
delivered under this Indenture may be extended, in the manner otherwise provided
for herein, for successive periods of not less than 90 days) or (2) an Alternate
Letter of Credit issued by a national banking association, a bank, a trust
company or other financial institution or credit provider, which shall have
terms which are the same in all material respects (except Expiration Date and
except any changes pursuant to this Indenture with respect to interest or
premium coverage in connection with a concurrent interest rate reset or
conversion) as the current Letter of Credit and which shall have an Expiration
Date that is not earlier than one year from the Expiration Date of the Letter of
Credit then in effect. The institution issuing the Alternate Letter of Credit
must be such as to maintain a rating on the Bonds equal to or higher than the
then current rating on the Bonds given by the Rating Service, and the Trustee
shall have received, on or before the date of delivery of the Alternate Letter
of Credit, written notice from the Rating Service that the issuance of the
Alternate Letter of Credit and substitution thereof for the then current Letter
of Credit will result in a rating on the Bonds equal to or higher than the then
current rating on the Bonds. The Trustee shall not accept an Alternate Letter
of Credit under this Section unless there shall have been delivered to the
Trustee (1) a written notice from the Rating Service as provided in the
immediately preceding sentence, (2) an opinion of counsel to the Bank
satisfactory to the Trustee with respect to the validity, binding effect and
enforceability of such Alternate Letter of Credit and (3) an opinion of Bond
Counsel to the effect that such action will not adversely affect the exclusion
from gross income of interest on the Bonds for federal income tax purposes. If
the Letter of Credit is so extended or if an Alternate Letter of Credit
complying with the requirements of this Section is so provided, the mandatory
tender for purchase pursuant to clause (c) of Section 4.02, shall not occur.
Unless all of the conditions of this Section which are required to be met 45
days (or such shorter period as shall be acceptable to the Trustee) preceding
the Interest Payment Date next preceding the Expiration Date of the Letter of
Credit have been satisfied, the Trustee shall take all action necessary to call
the Bonds for mandatory tender for purchase pursuant to clause (c) of Section
4.02 on the Interest Payment Date next preceding such Expiration Date; provided
that if the Company shall have notified the Trustee in writing that it expects
to meet all the conditions for the delivery of an amendment extending the
existing Letter of Credit, or the delivery of an Alternate Letter of Credit from
a bank identified in such notice, meeting all of the requirements of this
Section on or before the Interest Payment Date next preceding the Expiration
Date of the existing Letter of Credit, then the notice of mandatory tender for
purchase pursuant to the clause (c) of Section 4.02 shall state that it is
subject to rescission, and the Trustee shall rescind such notice, if such
conditions are so met (in which case such mandatory purchase shall not occur).
The provisions of this Section with respect to the substitution of an Alternate
Letter of Credit in the event that the Expiration Date of the Letter of Credit
is not extended shall apply equally to the substitution of another Alternate
Letter of Credit in the event that the Expiration Date of an existing Alternate
Letter of Credit is not extended.
Section 7.02. Other Replacement. The delivery of an Alternate Letter of
Credit in anticipation of the expiration of current Letter of Credit shall be
governed by Section 7.01. Otherwise, if at any time, when the Bonds are
subject to optional purchase pursuant to Section 4.01, the Company shall
provide for the delivery to the Trustee of (1) an Alternative Letter of Credit
which shall have terms which are the same in all material respects (except as
to Expiration Date and except any changes pursuant to this Indenture with
respect to interest or premium coverage in connection with a concurrent
interest rate reset or conversion) as the current Letter of Credit, which shall
have an Expiration Date that is not less than one year from the date of its
delivery and not sooner than the Expiration Date of the current Letter of
Credit then in effect and which shall be issued by a national banking
association, a bank, a trust company or other financial institution or credit
provider, (2) an opinion of counsel to the Bank satisfactory to the Trustee
with respect to the validity, binding effect and enforceability of such
Alternate Letter of Credit, and (3) an opinion of Bond Counsel to the effect
that such action will not adversely affect the exclusion from gross income of
interest on the Bonds for federal income
34
<PAGE> 40
tax purposes, and if the requirements set forth in this Section are met, then
the Trustee shall accept such Alternate Letter of Credit and promptly surrender
for cancellation the previously held Letter of Credit to the issuer thereof in
accordance with the terms of such Letter of Credit. The institution issuing the
Alternate Letter of Credit must be such as to maintain a rating on the Bonds
equal to or higher than the then current rating on the Bonds given by the Rating
Service. The replacement of the Letter of Credit by the Alternate Letter of
Credit must not, by itself, adversely affect the current rating or ratings on
the Bonds, and the absence of such an adverse effect shall be evidenced in
writing by the Rating Service to the Trustee at or prior to such replacement.
Section 7.03. Notice to Holders. The Trustee shall give notice to the
Registered Owners, in the name of the Issuer, of the proposed replacement of
the current Letter of Credit with an Alternate Letter of Credit, by first class
mail, postage prepaid, not less than 30 days prior to the interest Payment Date
next preceding the proposed replacement date.
Section 7.04. Reduction. In each case that Bonds are redeemed or deemed
to have been paid pursuant to Article XVI, the Trustee shall take such action
as may be permitted under the Letter of Credit to reduce the amount available
thereunder to an amount equal to the principal amount of the outstanding Bonds,
plus interest for the maximum period between Interest Payment Dates plus 15
days; provided that such action by the Trustee shall not be required if the
Letter of Credit so reduces automatically pursuant to its terms. Upon
reduction of the amount available under the Letter of Credit pursuant to the
terms of the Letter of Credit and this Section as a result of redemption of
Bonds, the Bank shall have the right, at its option, to require the Trustee to
promptly surrender the outstanding Letter of Credit to the Bank and to accept
in substitution therefor a substitute Letter of Credit in the same form, dated
the date of such substitution, for an amount equal to the amount available
under the Letter of Credit as so reduced, but otherwise having terms identical
to the then outstanding Letter of Credit.
Section 7.05. Other Credit Enhancement; No Credit Enhancement. After a
mandatory purchase of the Bonds pursuant to clause (c) of Section 4.02, nothing
in this Article VII shall limit the Company's right to provide other credit
enhancement (such as a letter of credit not meeting the requirement of this
Article VII or bond insurance) or no credit enhancement as security for the
Bonds; provided that any such credit enhancement shall have administrative
provisions reasonably satisfactory to the Trustee and the Company shall have
furnished to the Trustee with respect thereto an opinion of Bond Counsel to the
effect such action will not adversely effect the exclusion from gross income of
interest on the Bonds for federal income tax purposes.
ARTICLE VIII
INVESTMENTS
Section 8.01. Investment of Funds. (a) Pending disbursement of the
amounts on deposit in any Fund, the Trustee is hereby directed to invest and
reinvest such amounts (other than amounts held pursuant to Section 6.03 and
amounts held in the Bond Purchase Fund or in the Letter of Credit Debt Service
Account, which shall be held uninvested) in Investment Securities promptly upon
receipt of, and, subject to the limitations set forth in this Article, in
accordance with, the written instructions of the Company executed by an
Authorized Company Representative, which instructions shall specify particular
investments and shall certify that such investments constitute Investment
Securities. All such investments shall be credited to the Fund from which the
money used to acquire such investments shall have come, and all income and
profits on
35
<PAGE> 41
such investments shall be credited to, and all losses thereon shall be charged
against, such Fund. As amounts invested are needed for disbursement from any
Fund, the Trustee on receipt of written instruction from the Company shall cause
a sufficient amount of the investments credited to that Fund to be redeemed or
sold and converted into cash to the credit of that Fund. The Trustee shall not
be liable or responsible for any loss resulting from any such investment or
reinvestment as herein authorized or for its inability, after reasonable effort
and within a reasonable time, to make such investment or reinvestment; except
that the Trustee shall be liable for any loss resulting from its willful or
negligent failure, within a reasonable time after receiving the direction from
the Company to make any investment or reinvestment in the manner provided for
herein at the Company's direction.
(b) Any investment made in accordance with this Indenture may (i) be
executed by the Trustee or the Issuer with or through the Trustee or its
affiliates, and (ii) be made in securities of any entity for which the Trustee
or any of its affiliates serves as distributor, advisor or other service
provider. If the Company does not give directions as to investment of money
held by the Trustee, or if an Event of Default has occurred and is continuing
hereunder, the Trustee shall make such investments in Investment Securities as
are permitted under applicable law and as it deems advisable. The Trustee
shall be permitted to charge to the Company its standard fees and all expenses
in connection with any services performed in accordance with this Section 8.01.
(c) The Company by its execution of the Agreement covenants to restrict
the investment of money in the Funds created under this Indenture in such
manner and to such extent, if any, as may be necessary, after taking into
account reasonable expectations at the time the Bonds are delivered to their
original purchasers, so that the Bonds will not constitute arbitrage bonds
under Section 148 of the Code and the Regulations, and the Trustee hereby
agrees to comply with the Company's written instructions executed by an
Authorized Company Representative with respect to the investment of money in
the Funds created under this Indenture. It is expressly provided that, because
investments hereunder are to be made by the Trustee pursuant to instructions of
the Company, the Trustee shall have no liability with respect thereto if, as a
result of an investment made pursuant to such instructions, the Bonds become
"arbitrage bonds" within the meaning of Section 148 of the Code.
Section 8.02. Covenants Regarding Tax Exemption. The Issuer covenants to
refrain from taking any action which would adversely affect, and to take such
action as is reasonable and available and within its control to ensure, the
treatment of the Bonds as obligations described in Section 103 of the Code (or
Section 1312 of the Tax Reform Act of 1986), the interest on which is not
includable in the "gross income" of the holder (other than the income of a
"substantial user" of the Project or a "related person" within the meaning of
Section 147(a) of the Code) for purposes of federal income taxation. In
particular, but not by way of limitation thereof, the Issuer, based solely upon
representations and covenants of the Company, covenants as follows:
(a) to refrain from taking any action that would result in the
Bonds being "federally guaranteed" within the meaning of Section 149(b) of
the Code;
(b) to refrain from using any portion of the proceeds of the
Bonds, directly or indirectly, to acquire investment property or to replace
funds which were used, directly or indirectly, to acquire investment
property (as defined in Section 148(b)(2) of the Code) which produces a
yield over the term of the Bonds that is materially higher (as defined in
the Regulations) than the yield on the Bonds, other than investment
property acquired with --
36
<PAGE> 42
(1) proceeds of the Bonds invested for a reasonable temporary
period of three years of less, or until such proceeds are needed
for the purpose for which the Bonds are issued,
(2) amounts invested in a bona fide debt service fund, within
the meaning of Section 1.103-13(b)(12) of the Treasury Regulations,
and
(3) amounts deposited in any reasonably required reserve or
replacement fund to the extent such amounts do not exceed ten
percent of the proceeds of the Bonds and to the extent that at no
time during any Bond Year will the aggregate amount so invested
exceed 150 percent of debt service on the Bonds for such year;
(c) to otherwise restrict the use of proceeds of the Bonds or
amounts treated as proceeds of the Bonds, as may be necessary, to satisfy
the requirements of Section 148 of the Code (relating to arbitrage);
(d) to use no more than two percent of the proceeds from the sale
of the Bonds for the payment of Costs of Issuance; and
(e) to use no portion of the proceeds of the Bonds to provide any
airplane, skybox or other private luxury box, health club facility,
facility to be used for gambling, or store the principal business of which
is the sale of alcoholic beverages for consumption off premises.
It is the understanding of the Issuer and the Trustee that the covenants
contained herein are intended to assure compliance with the Code and any
regulations or rulings promulgated by the U.S. Department of the Treasury
pursuant thereto. In the event that regulations or rulings are hereafter
promulgated which modify or expand provisions of the Code, as applicable to the
Bonds, the Issuer will not be required to comply with any covenant contained
herein to the extent that such modification or expansion, in the opinion of
Bond Counsel, will cause noncompliance with such covenant to not adversely
affect the exemption from federal income taxation of interest on the Bonds
under the Code. In the event that regulations or rulings are hereafter
promulgated which impose additional requirements which are applicable to the
Bonds, the Issuer agrees to comply with the additional requirements to the
extent necessary, in the opinion of Bond Counsel, to preserve the exemption
from federal income taxation of interest on the Bonds under Section 103 of the
Code.
It is expressly provided that, because investments hereunder are to be
made by the Trustee pursuant to instructions of the Company, the Issuer shall
have no liability with respect thereto if, as a result of an investment made
pursuant to such instructions, the Bonds become "arbitrage bonds" within the
meaning of Section 148 of the Code. Furthermore, it is expressly provided
that, because the Company will instruct the Trustee as to the disposition of
the gross proceeds of the Bonds and moneys in the Project Fund and the Rebate
Fund, neither the Trustee nor the Issuer shall have any liability with respect
thereto if, as a result of dispositions made pursuant to such instructions, or
not made due to a lack of such instructions, there is a breach of the Issuer's
covenants contained herein.
37
<PAGE> 43
ARTICLE IX
REDEMPTION OF BONDS
Section 9.01. Bonds Subject to Redemption. The Bonds shall be subject to
redemption prior to maturity as set forth below:
(a) Optional Redemption. The Bonds shall be subject to optional
redemption, in whole or in part, and if in part at the lowest authorized
denomination or any whole multiple thereof, at the direction of the
Company, from funds available for such purpose in the Debt Service Fund, as
follows:
(i) If the Bonds accrue interest at Flexible, Daily or
Weekly Rates, the Bonds shall be subject to Optional Redemption on
any Interest Payment Date at an Optional Redemption price equal to
100% of the principal amount thereof, together with accrued
interest to the redemption date.
(ii) If the Bonds accrue interest at a Term Rate, the Bonds
shall be subject to Optional Redemption (i) at any time on and
after the dates and at the Optional Redemption prices set forth
below, together with accrued interest, if any, to the redemption
date and (ii) on the day after the end of each Term Rate Period at
the redemption price of 100% of the principal amount thereof,
together with accrued interest, if any, to the redemption date:
<TABLE>
<CAPTION>
Commencement of Redemption
Length of Term Rate Period Period Redemption Price
- -------------------------------- -------------------------- -------------------------------
<S> <C> <C>
Greater than or equal to Tenth anniversary of the 102%, declining by 0.5% on
commencement of Term Rate each succeeding anniversary of
Period the first day of the redemption
period until reaching 100% and
thereafter at 100%
Less than 15 years and greater
than or equal to 5 years Eighth anniversary of the 101.5%, declining by 0.5% on each
commencement of Term Rate succeeding anniversary of the first
Period day of the redemption period until
reaching 100% and thereafter at 100%
Less than 10 years and greater
than or equal to 5 years Fifth anniversary of the 101%, declining by 0.5% on each
commencement of Term Rate succeeding anniversary of the first
Period day of the redemption period until
reaching 100% and thereafter at 100%
Less than 5 years Bonds not subject to
optional redemption
until commencement
</TABLE>
38
<PAGE> 44
The optional redemption dates and redemption prices set forth above may be
changed by a supplemental indenture approved by the Company and the Issuer and
filed with the Trustee, provided that any such supplemental indenture shall be
accompanied by a Favorable Opinion of Bond Counsel.
If a Letter of Credit is then in effect and the redemption price includes
any premium, the right of the Company to direct an optional redemption is
subject to the condition that the Trustee has received, prior to the date on
which notice of redemption is required to be given to Registered Owners,
written confirmation from the Bank that it can draw under the Letter of Credit
on the proposed redemption date in an aggregate amount sufficient to cover the
principal of and premium and interest due on the redemption date.
(b) Special Mandatory Redemption.
The Bonds shall be subject to special mandatory redemption prior
to maturity on a date selected by the Company not later than 180 days after
the occurrence of a Determination of Taxability at a redemption price equal
to 100% of the principal amount thereof, plus accrued interest to the
redemption date. Any such special mandatory redemption shall be in whole
unless it is finally determined as evidenced by an opinion of Bond Counsel
delivered to and addressed to the Trustee that the interest on an amount
less than all the Bonds (which amount shall be set forth in such opinion)
is so includable in the gross income of Owners, in which case only such
amount need be redeemed.
If the Trustee receives written notice from any Owner or
Registered Owner stating that (i) the Owner or Registered Owner has been
notified in writing by the Internal Revenue Service that it proposes to
include the interest on any Bond in the gross income of such Owner or
Registered Owner for the reasons stated in the definition of "Determination
of Taxability" set forth herein or any other proceeding has been instituted
against such Owner or Registered Owner which may lead to a Final
Determination as described in the aforesaid definition, and (ii) such Owner
or Registered Owner will afford the Company the opportunity to contest the
same, either directly or in the name of the Owner or Registered Owner, and
until a conclusion of any appellate review, if sought, then the Trustee
shall promptly give notice thereof to the Company and the Issuer and to the
Owner or Registered Owners of Bonds then Outstanding. If a Final
Determination thereafter occurs, the Trustee shall make demand for
prepayment of the unpaid Debt Service Payments or necessary portions
thereof from the Company and give notice of the special mandatory
redemption of the appropriate amount of Bonds on the date selected by the
Company within the required period of 180 days. In taking any action or
making any determination under this Section 9.01(b), the Trustee may rely
on an opinion of counsel.
(c) Extraordinary Optional Redemption.
The Bonds will be subject to extraordinary optional redemption by
the Issuer, at the direction of the Company, in whole or in part, at a
redemption price of 100% of the principal amount thereof plus accrued
interest to the redemption date on any date within one year of the
occurrence of any of the following events:
(a) The Plant shall have been damaged or destroyed to such
extent that, in the opinion of the Company, (i) normal operations
at the Plant are prevented or are likely to be prevented for a
period of four consecutive months, or (ii) the restoration of the
Plant is not economically feasible.
39
<PAGE> 45
(b) Title to, or the temporary use of, all or substantial
all of the Plant shall have been under the exercise of the power
of eminent domain by any governmental authority or person, firm or
corporation acting under governmental authority which, in the
opinion of the Company, is likely to result in normal operations
at the Plant being prevented for a period of four consecutive
months.
(c) Changes, which the Company cannot reasonably control
or overcome, in the economic availability of materials, supplies,
labor, equipment and other properties and things necessary for the
efficient operation of the Plant shall have occurred, or
technological or other changes shall have occurred which, in the
opinion of the Company, render uneconomic the continued design,
acquisition, construction, installation or operation of the Plant.
(d) Any court or administrative body shall enter a
judgment, order or decree requiring cessation of all or any
substantial part of operations at the Plant, to such an extent
that, in the opinion of the Company, normal operations at the
Plant are likely to be prevented for a period of four consecutive
months.
(e) As a result of any changes in the Virginia
Constitution or the Constitution of the United States of America
or as a result of legislation or administrative action (whether
state or federal) or by final decree, judgment or order of any
court or administrative body (whether state or federal) entered
after the contest thereof by the Company in good faith, the
Agreement shall have become void or unenforceable or impossible of
performance in accordance with the intent and purposes of the
parties, or shall have been declared to be unlawful, or
unreasonable burdens or excessive liabilities shall have been
imposed on the Issuer or the Company, including without limitation
federal, state or other ad valorem, property, income or other
taxes not being imposed on the date of the Agreement.
Section 9.02. Selection of Bonds for Redemption. In the event that fewer
than all Bonds subject to redemption are to be redeemed, Bonds shall be
selected for redemption in the following manner provided that the Bonds that
remain outstanding shall be in authorized denominations:
(a) In the case of any Optional, Extraordinary Optional or Special
Mandatory Redemption, Bonds shall be selected for redemption (i) by DTC,
in accordance with its rules and procedures, so long as DTC or its nominee
is the sole Registered Owner of the Bonds, or (ii) by the Trustee by lot,
first, from Bonds subject to such redemption (other than Bonds owned of
record by the Company), and, second, from Bonds subject to such redemption
owned of record by the Company.
(b) In the case of Bonds of varying denominations, the Trustee
shall treat each Bond as representing that number of Bonds which is
obtained by dividing the face amount thereof by the smallest authorized
denomination.
Section 9.03. Notice of Redemption. (a) The Company shall deliver notice
to the Trustee and the Bank of its intention to prepay the Debt Service
Payments and cause the Bonds to be called for Optional Redemption or
Extraordinary Optional Redemption at least 25 days prior to the proposed
redemption date of Daily Rate and Weekly Rate Bonds, and at least 45 days prior
to the proposed redemption date of Flexible Rate and Term Rate Bonds. The
Trustee shall cause notice of any redemption of Bonds hereunder, which notice
shall be prepared by the Company, to be mailed by first class mail, postage
prepaid (except when DTC is the
40
<PAGE> 46
Registered Owner of all of the Bonds and except for persons or entities owning
or providing evidence of ownership satisfactory to the Trustee of a legal or
beneficial ownership in at least $1,000,000 of principal amount of Bonds who so
request, in which cases, by certified mail, return receipt requested), to the
Registered Owners of all Bonds to be redeemed at the registered addresses
appearing in the registration books kept for such purpose pursuant to Article
II hereof. Each such notice shall (i) be mailed at least 15 days prior to the
redemption date for Daily, Weekly and Flexible Rate Bonds and at least 30 days
prior to the redemption date for Term Rate Bonds, (ii) identify the Bonds to be
redeemed if less than all Bonds are to be redeemed (specifying the CUSIP
numbers, if any, assigned to the Bonds), (iii) specify the redemption date and
the redemption price, and (iv) state that on the redemption date the Bonds
called for redemption will be payable at the principal office of the Trustee,
that from that date interest will cease to accrue and that no representation is
made as to the accuracy or correctness of the CUSIP numbers printed therein or
on the Bonds; provided, however, that so long as DTC or its nominee is the sole
Registered Owner of the Bonds under the Book-Entry Only System, redemption
notices will be sent to Cede & Co. Any failure on the part of DTC, or a DTC
Participant to give such notice to the Owner or any defect therein shall not
affect the sufficiency or validity of any proceedings for the redemption of the
Bonds. No defect affecting any Bond, whether in the notice of redemption or
mailing thereof (including any failure to mail such notice), shall affect the
validity of the redemption proceedings for any other Bonds.
(b) Conditional Notice. If at the time of mailing of notice of an
Optional Redemption there shall not have been deposited with the Trustee moneys
sufficient to redeem all the Bonds called for redemption, such notice may state
that it is conditional, that is, subject to the deposit with the Trustee on or
prior to the redemption date of moneys sufficient to pay the redemption price
of the Bonds to be redeemed plus interest accrued thereon to the date of
redemption, and such notice shall be of no effect unless such moneys are so
deposited.
(c) Additional Notice of Redemption. In addition to the redemption
notice required above, if there is more than one Registered Owner of the Bonds,
further notice (the "Additional Notice") shall be given by the Trustee as set
out below. No defect in the Additional Notice nor any failure to give all or
any portion of the Additional Notice shall in any manner defeat the
effectiveness of a call for redemption if notice is given as prescribed in
paragraph (a) above.
(1) Each Additional Notice shall contain the information
required in paragraph (a) above for an official notice of redemption plus
(i) the date of the Bonds as originally issued; (ii) the interest rate
determination method for, or the rate of interest borne by each Bond being
redeemed; (iii) the maturity date of each Bond being redeemed; and (iv)
any other descriptive information needed to identify accurately the Bonds
being redeemed.
(2) Each Additional Notice shall be published one time in a
financial newspaper or journal which regularly carries notices of
redemption of other obligations similar to the Bonds, such publication to
be made at least 30 days (15 days in the case of Bonds accruing interest
at Daily, Weekly or Flexible Rates) prior to the date fixed for
redemption.
(3) Each Additional Notice shall be sent at least 30 days (15
days in the case of Bonds accruing interest at Daily, Weekly or Flexible
Rates) before the redemption date by registered or certified mail or
overnight delivery service to the following registered securities
depositories: Depository Trust Company of New York, New York, Midwest
Securities Trust Company of Chicago, Illinois and Philadelphia Depository
Trust Company of Philadelphia, Pennsylvania and to such other
41
<PAGE> 47
registered securities depositories as may be specified by the Company to
the Trustee in writing and to one or more national information services
that disseminate notices of redemption of obligations such as the Bonds as
shall be specified by the Company to the Trustee in writing.
(4) The Trustee's agreement to give the notices specified in this
subsection (c) is made as a matter of courtesy and accommodation only and
the Trustee shall incur no liability to any Person for its failure to give
such notices.
(d) CUSIP Identification. Upon the payment of the redemption price of
the Bonds being redeemed, each check or other transfer of funds issued for such
purpose shall bear the CUSIP number identifying, by issue and maturity, the
Bonds being redeemed with the proceeds of such check or other transfer,
provided that neither the Issuer, the Company, nor the Trustee shall be deemed
to have made any representation as to the correctness of such CUSIP number.
Section 9.04. Effect of Redemption. If payment of the redemption price of
the Bonds has been duly provided for on the redemption date, then interest on
the Bonds called for redemption will cease to accrue on such date, and the
Registered Owners will have no rights with respect to such Bonds nor will they
be entitled to the benefits of the Indenture except to receive payment of the
redemption price thereof and unpaid interest accrued to the date fixed for
redemption.
Section 9.05. Optional Redemption only at Direction of Company. Optional
redemption of the Bonds by the Issuer pursuant to Sections 9.01(a) and (c)
shall only be made at the direction and in the sole discretion of the Company,
and the Issuer shall take no action with respect to Sections 9.01(a) or (c)
without the prior written direction of the Company.
ARTICLE X
COVENANTS OF ISSUER
Section 10.01. Payment of Principal and Interest on Bonds. The Issuer
shall promptly pay the interest on and the principal of every Bond issued
hereunder according to the terms thereof, together with interest on defaulted
principal and interest (to the extent permitted by law) from the date such
payment was due, but only out of the Pledged Revenues and only in the manner
set forth in Article II hereof.
Section 10.02. Issuer to Use Best Efforts to Require Company to Make
Payments. So long as any of the Bonds are Outstanding, the Issuer, when
requested to do so by the Trustee and after having been properly indemnified to
its satisfaction, shall use its best efforts to require the Company to pay all
of the payments and other costs and charges payable by the Company under the
Agreement.
Section 10.03. Take Further Action. The Issuer covenants that it shall
from time to time execute and deliver such further instruments and take such
further action as may be requested of the Issuer by the Trustee or the Company,
if such request is reasonable and is required to carry out the purpose of this
Indenture; provided, however, that no such instruments or actions shall cause
the Issuer to incur any cost, expense or liability, or pledge the credit of the
Issuer.
42
<PAGE> 48
Section 10.04. No Disposition of Pledged Revenues. Except as otherwise
permitted in this Indenture or the Agreement, the Issuer shall not pledge,
assign or otherwise dispose of or encumber any of the Pledged Revenues.
Section 10.05. Faithful Performance; Due Authorization. The Issuer
covenants that it will faithfully perform at all times any and all covenants,
undertakings, stipulations and provisions required to be performed by it and
contained in this Indenture, in any and every Bond executed and delivered
hereunder and in all of its proceedings pertaining hereto. The Issuer
covenants that it is duly authorized under the laws of the State, including
particularly and without limitation the Act, to issue the Bonds authorized
hereby and to execute this Indenture, to assign the Agreement and amounts
payable under the Agreement and to assign the payments and amounts hereby
assigned in the manner and to the extent herein set forth; that all action on
its part for the issuance of the Bonds and the execution and delivery of this
Indenture has been duly and effectively taken.
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
Section 11.01. Events of Default Defined.
(a) Each of the following shall be an Event of Default hereunder:
(i) payment of any installment of interest, principal, premium,
if any or Purchase Price on the Bonds is not made when the same becomes
due and payable; or
(ii) an Event of Bankruptcy shall occur, provided that, in the
event of a filing of an involuntary case in bankruptcy under the United
States Bankruptcy Code or the commencement of a proceeding under any other
applicable law concerning bankruptcy, insolvency or reorganization against
the Company such petition or proceeding shall remain undismissed or
unstayed for a period of 90 days; or
(iii) failure by the Company to observe or perform any covenant,
condition or agreement on its part to be observed or performed under the
Indenture or the Agreement, other than as referred to in (i) above, for a
period of 30 days after written notice, specifying such failure,
requesting that it be remedied and stating that such notice is a "Notice
of Default" hereunder, is given to the Company by the Trustee or to the
Company and the Trustee by the Issuer; provided, however, that if the
default is such that it cannot be remedied within such period, it shall
not constitute an Event of Default if the default, in the judgment of the
Trustee in reliance upon advice of counsel, is correctable without
material adverse effect on the Bonds and if corrective action is
instituted by the Company within such period and is being diligently
pursued until the default is remedied; or
(iv) failure by the Issuer to observe or perform any covenant,
condition or agreement on its part to be observed or performed under the
Indenture, other than as referred to in (i) above, for a period of 30 days
after written notice, specifying such failure, requesting that it be
remedied and stating that such notice is a "Notice of Default" hereunder,
is given by the Trustee; provided, however, that such period shall be
extended if corrective action is instituted within such period and is
being diligently pursued until the default is remedied; or
43
<PAGE> 49
(v) receipt by the Trustee of a written notice from the Bank
stating that an Event of Default has occurred under the Reimbursement
Agreement and directing the Trustee to declare the principal of the
outstanding Bonds immediately due and payable; or
(vi) receipt by the Trustee of a written notice from the Bank,
prior to the eighth Business Day following payment of a drawing under the
Letter of Credit for interest on Bonds which remain outstanding after the
application of the proceeds of such drawing, stating that the Letter of
Credit will not be reinstated with respect to such interest.
(b) The Trustee shall immediately notify the Issuer, the Remarketing
Agent, and the Company of the occurrence of any Event of Default.
(c) Force Majeure. The provisions of Section 11.01(a)(iii) and (iv)
hereof are subject to the following limitations: if by reason of acts of God;
strikes, lockouts or other industrial disturbances; acts of public enemies;
orders of any kind of the Government of the United States or of the State or
any department, agency, political subdivision, court or official of any of
them, or any civil or military authority; insurrections; riots; epidemics;
landslides; lightning; earthquakes; volcanoes; fires; hurricanes; tornadoes;
storms; floods; washouts; droughts; arrests; restraint of government and
people; civil disturbances; explosions; breakage or accident to machinery;
partial or entire failure of utilities; or any cause or event not reasonably
within the control of the Company, the Company is unable in whole or in part to
carry out any one or more of its agreements or obligations contained in the
Agreement other than its payment obligations and its agreements to comply with
arbitrage and other tax covenants, the Company shall not be deemed in default
by reason of not carrying out said agreement or agreements or performing said
obligation or obligations during the continuance of such inability so long as
the Company shall make reasonable effort to remedy with all reasonable dispatch
the cause or causes preventing it from carrying out its agreements; provided,
that the settlement of strikes, lockouts and other industrial disturbances
shall be entirely within the discretion of the Company, and the Company shall
not be required to make settlement of strikes, lockouts and other disturbances
by acceding to the demands of the opposing party or parties when such course is
in the judgment of the Company unfavorable to the Company.
Section 11.02. Acceleration and Annulment Thereof.
(a) If any Event of Default has occurred and is continuing the Trustee
(with the written consent of the Bank if the Bank has not dishonored a drawing
on the Letter of Credit) may and, at the written direction of the Bank or the
Registered Owners of 25% or more in principal amount of the Bonds then
Outstanding, or with respect to an Event of Default under subsection
11.01(a)(i), (v) or (vi) hereof, shall, by notice in writing to the Issuer, the
Bank and the Company, declare the principal of all Bonds then Outstanding to be
immediately due and payable, and upon such declaration the said principal,
together with interest accrued thereon, shall become due and payable
immediately at the place of payment provided therein, anything in this
Indenture or in the Bonds to the contrary notwithstanding; provided, however,
that no such declaration shall be made if the Company cures such Event of
Default prior to the date of the declaration.
(b) Upon any such declaration hereunder, the Trustee shall immediately,
on the date of such declaration, draw upon the Letter of Credit to the full
extent permitted by the terms thereof (such drawing to include amounts in
respect of interest accruing on the Bonds through the date payment of such
drawing by the Bank is due). Upon receipt by the Trustee of payment of the
full amount drawn on the Letter of Credit and provided sufficient moneys are
available in the Debt Service Fund to pay pursuant to Section 6.02 all sums
44
<PAGE> 50
due on the Bonds, (i) interest on the Bonds shall cease to accrue and (ii)
the Bank shall succeed to and be subrogated to the right, title and interest of
the Trustee and the Registered Owners in and to the Agreement, all funds held
under this Indenture (except any funds held in the Debt Service Fund or the
Bond Purchase Fund which are identified for the payment of the Bonds or of the
purchase price of undelivered Bonds and any funds held in the Rebate Fund) and
any other security held for the payment of the Bonds, all of which, upon
payment of any fees and expenses due and payable to the Trustee pursuant to the
Agreement or this Indenture, shall be assigned by the Trustee to the Bank.
(c) If after the principal of the Bonds has been so declared to be due and
payable and before a judgment or decree for payment of the money due has been
obtained by the Trustee all arrears of interest upon the Bonds, together with
interest on unpaid principal and interest (to the extent permitted by law) at
the Late Payment Rate, are paid or caused to be paid, and the reasonable
charges of the Trustee and the Registered Owners, including reasonable
attorney's fees, are paid or caused to be paid, and all Events of Default,
other than the non-payment of principal due solely by such declaration, have
been cured or waived as provided in Section 11.13, then, and in every such
case, the Trustee shall at the direction of the Registered Owners of a majority
in principal amount of the Bonds then Outstanding annul such declaration and
its consequences and such annulment shall be binding upon the Trustee and upon
all Registered Owners of Bonds issued hereunder; provided that there shall be
no annulment of any declaration resulting from (1) any Event of Default
specified in Subsection 11.01 (v) or (vi) unless the Trustee has received the
prior written consent of the Bank and written notice from the Bank that the
Letter of Credit has been fully reinstated or (2) any Event of Default which
has resulted in a drawing under the Letter of Credit unless the Trustee has
received written notice from the Bank that the Letter of Credit has been fully
reinstated. No such annulment shall extend to or affect any subsequent default
or impair any right or remedy consequent thereon.
Section 11.03. Legal Proceedings by Trustee. If any Event of Default has
occurred and is continuing, the Trustee in its discretion may, and upon the
written request of the Registered Owners of 25% or more in principal amount of
the Bonds then Outstanding and receipt of indemnity from the Registered Owners
to its satisfaction shall, in its own name;
(a) By mandamus, or other suit, action or proceeding at law or in equity,
enforce all rights of the Registered Owners, including the right to require the
Issuer or the Company to carry out any agreements with, or for the benefit of,
the Registered Owners and to perform its duties under the Agreement or the Act;
(b) Bring suit upon the Bonds; and
(c) By action or suit in equity enjoin any acts or things which may be
unlawful or in violation of the rights of the Registered Owners.
Section 11.04. Discontinuance of Proceedings by Trustee. If any
proceeding taken by the Trustee on account of any default is discontinued or is
determined adversely to the Trustee, the Issuer, the Trustee, the Company and
the Registered Owners shall be restored to their former positions and rights
hereunder as though no such proceeding had been taken.
Section 11.05. Registered Owners May Direct Proceedings. The Registered
Owners of a majority in principal amount of the Bonds then Outstanding
hereunder shall have the right to direct the method and place of conducting all
remedial proceedings by the Trustee hereunder, provided that (i) such
directions shall not be otherwise than in accordance with law or the provisions
of this Indenture, (ii) the Trustee shall have the
45
<PAGE> 51
right to decline to follow any such direction which in the opinion of the
Trustee would be unjustly prejudicial to Registered Owners not parties to such
direction or which could involve the Trustee in personal liability, and (iii)
if a Letter of Credit is in effect and no default has occurred and is
continuing thereunder, then the Bank shall have the right to give such
direction in lieu of such Registered Owners.
Section 11.06. Limitations on Actions by Registered Owners. No Registered
Owners shall have any right to pursue any remedy hereunder unless (a) the
Trustee shall have been given written notice of an Event of Default by the
Registered Owners of at least 25% in principal amount of the Bonds then
Outstanding, (b) the Registered Owners of at least 25% in principal amount of
the Bonds then Outstanding shall have requested the Trustee, in writing, to
exercise the powers hereinabove granted or to pursue such remedy in its or
their name or names, (c) the Trustee shall have been offered indemnity
satisfactory to it against costs, expenses and liabilities, and (d) the Trustee
shall have failed to comply with such request within 60 days after receipt of
such notice, request and offer of indemnity.
Section 11.07. Trustee May Enforce Rights Without Possession of Bonds.
All rights under this Indenture and the Bonds may be enforced by the Trustee
without the possession of any Bonds or the production thereof at the trial or
other proceedings relative thereto, and any proceeding instituted by the
Trustee shall be brought in its name for the ratable benefit of the Registered
Owners of the Bonds.
Section 11.08. Remedies Not Exclusive. Except as limited under Section
17.01 of this Indenture, no remedy herein conferred is intended to be exclusive
of any other remedy or remedies, and each remedy is in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute.
Section 11.09. Delays and Omissions Not to Impair Rights. No delay or
omission in respect of exercising any right or power accruing upon any default
shall impair such right or power or be a waiver of such default, and every
remedy given by this Article may be exercised from time to time and as often as
may be deemed expedient.
Section 11.10. Application of Moneys in Event of Default. If any Event of
Default has occurred and is continuing, any moneys on deposit in any Fund or
account established hereunder (except the Bond Purchase Fund and the Rebate
Fund) and any monies received by the Trustee under this Article X, shall,
subject to the provisions of Section 6.04(h) hereof, be applied in the
following order; provided, however, that all moneys received by the Trustee
pursuant to any drawing made upon the Letter of Credit pursuant to Section
11.02(b) shall be applied by the Trustee to and only to the payment of
principal of interest on the Bonds (other than Pledged Bonds and Bonds owned of
record by the Company):
FIRST: To the payment of the costs of the Trustee, including
counsel fees, and any disbursements of the Trustee with interest thereon,
and its reasonable compensation and any indemnities owing to it;
SECOND: To the payment of all interest then due on Outstanding
Bonds or, if the amount available for the payment of interest is
insufficient for such purpose, to the payment of interest ratably in
accordance with the amount due in respect of each Bond (other than Bonds
owned of record by the Company);
THIRD: To the payment of the outstanding principal amount of all
Bonds or, if the amount available for the payment of principal is
insufficient for such purpose, to the payment of principal
46
<PAGE> 52
ratably in accordance with the amount due in respect of each Bond (other
than Bonds owned of record by the Company); and
FOURTH: The surplus, if any, shall to the extent of any
unreimbursed drawing under the Letter of Credit, or other obligations
owing to the Bank under the Reimbursement Agreement, be paid to the Bank,
and any remaining amounts be paid to the Company or the person lawfully
entitled to receive the same or as a court of competent jurisdiction may
direct.
Funds on deposit in the Bond Purchase Fund shall be applied in accordance with
Section 4.06 hereof.
Section 11.11. Trustee's Right to Receiver. The Trustee shall be entitled
as a matter of right to the appointment of a receiver; and the Trustee, the
Registered Owners and any receiver so appointed shall have such rights and
powers and be subject to such limitations and restrictions as are permitted by
law.
Section 11.12. Trustee and Registered Owners Entitled to All Remedies. It
is the purpose of this Article to make available to the Trustee and Registered
Owners all lawful remedies; but should any remedy herein granted be held
unlawful, the Trustee and the Registered Owners shall nevertheless be entitled
to every other remedy provided by law. It is further intended that, insofar as
lawfully possible, the provisions of this Article shall apply to and be binding
upon any trustee or receiver who may be appointed hereunder.
Section 11.13. Waiver of Past Defaults. The Registered Owners of not less
than a majority in principal amount of the Outstanding Bonds may, with the
written consent of the Bank, on behalf of the Registered Owners of all the
Bonds waive any past default hereunder and its consequences, except a default
(1) in the payment of the principal of, premium, if any, or
interest on, or the Purchase Price of, any Bond, or
(2) in respect of a covenant or provision hereof which under
Article XV cannot be modified or amended without the consent of the
Registered Owner of each Outstanding Bond.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
ARTICLE XII
THE TRUSTEE
Section 12.01. Certain Duties and Responsibilities of Trustee.
(a) The Trustee accepts the trusts hereby created and agrees to
perform the duties herein required of it upon the terms and conditions
hereof and hereby acknowledges receipt of an executed copy of the
Agreement and agrees to perform the duties therein required of it upon the
terms and conditions thereof. The Trustee shall have the right, power and
authority, at all times, to do all things not inconsistent with the
express provisions of this Indenture which it may deem necessary or
advisable in order to: (i) enforce the provisions of this Indenture, (ii)
take any action with respect to
47
<PAGE> 53
any Event of Default, (iii) institute, appear in or defend any suit or other
proceeding with respect to an Event of Default, or (iv) protect the interests
of the Registered Owners of any Outstanding Bonds. The Trustee shall be
responsible only for performing those duties of the Trustee specifically
provided for herein and no implied duties or liabilities shall be read into
this Indenture against the Trustee. In addition to the duties set forth above
the Trustee shall:
(i) hold all sums delivered to it by the Company for the payment of
principal, premium, if any, and interest on the Bonds in trust for the
benefit of the Registered Owners until such sums shall be paid to such
Registered Owners or otherwise disposed of as herein provided;
(ii) except as otherwise permitted hereby, hold all Bonds tendered to
it hereunder in trust for the benefit of the respective Registered Owners
until monies representing the purchase price of such Bonds shall have been
delivered to or for the account of or to the order of such Registered
Owners;
(iii) hold all monies delivered to it hereunder for the purchase of
Bonds in trust for the benefit of the Person or entity which shall have so
delivered such monies until the Bonds purchased with such monies shall
have been delivered to or for the account of such Person or until
otherwise disposed of as provided herein; and
(iv) keep such books and records with respect to the Bonds as shall
be consistent with prudent industry practice (including specifically the
Bond registration books) at its principal office and make such books and
records available for inspection by the parties hereto, the Company and
the Remarketing Agent at all reasonable times.
(b) The permissive rights of the Trustee to do things enumerated in this
Indenture shall not be construed as a duty and, except as provided in the next
succeeding sentence in respect of the period during the continuance of an Event
of Default, the Trustee shall not be liable for any action reasonably taken or
omitted to be taken by it in good faith and reasonably believed by it to be
within the discretion or power conferred upon it hereby, or be responsible
other than for its own negligence or willful misconduct. In case an Event of
Default has occurred and is continuing of which the Trustee has been notified
as provided in Section 12.03(h) or of which it is deemed to have notice
pursuant to such Section, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise under the
circumstances in the conduct of his own affairs.
(c) The Trustee shall not be required to give any bond or surety in
respect of the execution of its rights and duties under this Indenture.
(d) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(i) this subsection shall not be construed to limit the effect of
subsection (a) or (b) of this Section;
48
<PAGE> 54
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by its officers, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with any direction of the Registered Owners of a
majority in aggregate principal amount of the Outstanding Bonds
permitted to be given by them under this Indenture; and
(iv) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity, satisfactory to
the Trustee, against such risk or liability is not assured to
it.
(e) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section.
Section 12.02. Notice if Default Occurs or Notice of Taxability Occurs.
Within 45 days after the occurrence of any default hereunder of which the
Trustee has been notified as provided in Section 12.03(h) or of which it is
deemed to have notice pursuant to such Section, the Trustee shall give to the
parties to the Financing Documents, the Remarketing Agent, the Bank and the
Registered Owners notice of such default hereunder known to the Trustee, unless
such default shall have been cured or waived; provided, however, that, in the
case of a default of the character described in Section 11.01(a)(iii) or (iv),
the Trustee shall be protected in withholding such notice if and so long as the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Registered Owners; and provided, further, that in the case of
any default of the character described in Section 11.01(a)(iii) or (iv) no such
notice to Registered Owners shall be given until at least 30 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default. The Trustee shall also give to the parties to the Financing
Documents, the Bank and the Registered Owners notice of receipt by it of any
notification from the Internal Revenue Service that the interest on the Bonds
is, or may be, subject to federal income taxation.
Section 12.03. Certain Rights of Trustee. Except as otherwise
provided in Section 12.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, telephone call, facsimile transmission,
opinion, report, notice, request, direction, consent, order, bond,
debenture or other paper or document believed by it to be genuine and
to have been signed, made or presented by the proper party or parties
and may accept and rely upon the same as conclusive evidence of the
truth and accuracy of the statements and opinions contained therein;
(b) any request or direction of the Issuer, the Bank or the
Company mentioned herein shall be sufficiently evidenced by a
writing signed by an Issuer Representative, an authorized officer of
the Bank or Authorized Company Representative, as the case may be, and
any resolution of the
49
<PAGE> 55
Issuer may be sufficiently evidenced by a copy of such resolution
certified by an officer or commissioner of the Issuer;
(c) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon a
certificate of an Issuer Representative or Authorized Company
Representative;
(d) the Trustee may consult with counsel and the written advice
of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Registered Owners pursuant to this Indenture,
unless such Registered Owners shall have offered to the Trustee
security or indemnity acceptable to the Trustee against the costs,
expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled, upon reasonable notice and during
regular business hours, and subject further to the Issuer's and the
Company's safety and confidentiality requirements, to examine the
books, records and premises of the Issuer or the Company personally or
by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or
indirectly or by or through agents or attorneys and the Trustee shall
not be responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be required to take notice or be
deemed to have notice of any default hereunder or under any
Financing Document unless the Trustee shall be specifically notified
of such default in writing by the Issuer, the Company, the Bank or by
any Owner of the Outstanding Bonds, and in the absence of such notice
the Trustee may conclusively assume that there is no default;
provided, however, that the Trustee shall be required to take and be
deemed to have notice of its failure to receive the monies necessary
to make payments when due of Debt Service and Purchase Price Payments;
(i) except for information provided by the Trustee concerning
the Trustee, the Trustee shall have no responsibility with respect to
any information in any offering memorandum or other disclosure
material distributed with respect to the Bonds, and the Trustee shall
have no responsibility for compliance with securities laws in
connection with issuance and sale of the Bonds;
(j) in the event the Trustee shall receive inconsistent or
conflicting requests and indemnity from two or more groups of
Registered Owners, each representing less than a majority of
50
<PAGE> 56
the aggregate principal amount of the Bonds then outstanding, the Trustee,
in its sole discretion, may determine what action, if any, shall be taken;
(k) except as otherwise expressly provided by the provisions of
this Indenture, the Trustee shall not be obligated and may not be required
to give or furnish any notice, demand, report, request, reply, statement,
advice or opinion to the Registered Owner of any Bond or to the Company or
any other Person, and the Trustee shall not incur any liability for its
failure or refusal to give or furnish same unless obligated or required to
do so by express provisions hereof;
(l) in acting or omitting to act pursuant to the provisions of
the Agreement, the Trustee shall be entitled to all of the rights and
immunities accorded to it under this Indenture, including but not limited
to those set out in this Article XI; and
(m) the Trustee shall not be required to give any bond or
surety with respect to the performance of its duties or the exercise of
its powers under this Indenture.
Section 12.04. Not Responsible for Recitals or Issuance of Bonds, etc..
The recitals contained herein or in the Bonds, except the certificate of
authorization signed on behalf of the Trustee, shall be taken as the statements
of the Issuer, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or any Financing Document, except that the Trustee represents that
said Indenture has been duly authorized, executed and delivered by the Trustee
and represents, based on advice of counsel, that the Indenture constitutes a
legal, valid and binding obligation of the Trustee in accordance with the terms
hereof, except as its enforceability may be subject to (i) the exercise of
judicial discretion in accordance with general equitable principles; and (ii)
applicable liquidation, conservatorship, receivership, bankruptcy, insolvency,
reorganization, moratorium, rearrangement and other laws applicable to national
banks or for the relief of debtors generally heretofore or hereafter enacted
to the extent that the same may be constitutionally applied. Further, the
Trustee makes no representations as to the validity or sufficiency of the
Bonds. The Trustee shall not be accountable for the use or application by the
Issuer or the Company of Bonds or, upon disbursement from the Funds created
herein, the proceeds thereof.
The Trustee shall have no responsibility with respect to compliance by the
Issuer or the Company with (i) Section 148 of the Code or (ii) any covenant
contained in this Indenture or the Agreement regarding the yields on
investments, other than to comply with the specific provisions of this
Indenture and the Agreement and with specific written directions of the Company
or the Issuer as may be provided for in this Indenture or in the Agreement.
Notwithstanding anything elsewhere in this Indenture contained, the Trustee
shall have the right, but shall not be required, to demand, in respect of the
authentication of any Bonds, the withdrawal of any cash, the release of any
property, or any action whatsoever within the purview of this Indenture or the
Agreement, any showings, certificates, opinions, appraisals or other
information, or corporate action or evidence thereof, in addition to that by
the terms hereof or thereof required as a condition of such action which is
deemed desirable by the Trustee for the purpose of establishing the right of
the Issuer or the Company to the authentication of any Bonds, the withdrawal of
any cash, or the taking of any other action by the Trustee.
Section 12.05. May Hold Bonds. The Trustee or any other agent of the
Issuer or the Company, in its individual or any other capacity, may become the
owner of Bonds and may otherwise deal with the Issuer or the Company with the
same rights it would have if it were not Trustee or such other agent.
51
<PAGE> 57
Section 12.06. Money Held in Trust. Except as provided in Section 6.07
hereof, all money held in the Debt Service Fund under any provision of this
Indenture shall be held in trust for the benefit of the Registered Owners but,
except as provided in Article XV of this Indenture, need not be segregated from
other funds held in trust under this Indenture by the Trustee, but shall be
segregated at all times from all funds of the Issuer or the Trustee not held by
the Trustee under this Indenture. The Trustee shall be under no liability for
interest on any money received by it hereunder except as otherwise provided in
this Indenture.
Section 12.07. Corporate Trustee Required; Eligibility. There shall at
all times be a Trustee hereunder which shall be a corporation organized and
doing business under the laws of the United States of America or of any state
that is either a trust company or a bank, authorized under such laws to
exercise trust powers, having a combined capital, surplus and undivided profits
of at least $150,000,000, subject to supervision or examination by federal or
state authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purpose of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
Section 12.08. Resignation and Removal of Trustee; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no appointment of
a successor Trustee pursuant to this Article shall become effective until
the acceptance of appointment by the successor Trustee under Section
12.09 of this Indenture.
(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer, the Company, the Bank and the Remarketing Agent.
If an instrument of acceptance by a successor Trustee shall not have been
delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by the Registered
Owners of a majority in aggregate principal amount of the Outstanding
Bonds, by a written request for removal delivered to the Issuer, the
Company, the Bank and the Remarketing Agent.
(d) If at any time:
(i) the Trustee shall cease to be eligible under Section 12.07
of this Indenture or under applicable law and shall fail to resign
after written request therefor by any party to a Financing
Document or by a Registered Owner who has been a bona fide
Registered Owner for at least six months, or
(ii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
52
<PAGE> 58
then, in any such case, (x) the Company or the Issuer may remove the
Trustee, or (y) any Registered Owner who has been a bona fide Registered
Owner for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any
cause, the Issuer, with the prior consent of the Company, shall promptly
appoint a successor Trustee. If, within one year after the occurrence of
such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by the Registered Owners
of a majority in aggregate principal amount of the Outstanding Bonds and
notice of acceptance of such appointment is delivered to the parties to
the Financing Documents, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor
Trustee and supersede the successor Trustee appointed by the Issuer. If
no successor Trustee shall have been so appointed by the Issuer or the
Registered Owners and accepted appointment in the manner hereinafter
provided, any Registered Owner who has been a bona fide Registered Owner
for at least six months may, on behalf of himself and all other Registered
Owners similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by
causing to be mailed, at the expense of the Company, written notice of
such event to the Registered Owners and to the parties to the Financing
Documents and the Remarketing Agent. Each notice shall include the name
of the successor Trustee and the address of its principal office.
Section 12.09. Acceptance of Appointment by Successor Trustee. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Issuer, the Company, the Remarketing Agent and the retiring Trustee, an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Issuer or the successor Trustee, such retiring Trustee shall, upon payment
of its charges and expenses, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee, and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder. Upon request
of any such successor Trustee, the Issuer shall execute any and all instruments
for more fully and certainly vesting in and confirming to such successor
Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
Section 12.10. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Trustee shall be a party, or
any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
53
<PAGE> 59
Section 12.11. Fees, Charges and Expenses of Trustee. Pursuant to the
provisions of the Agreement, the Trustee shall be entitled to be paid by the
Company reasonable compensation for its services rendered hereunder and to
reimbursement for its actual out-of-pocket expenses (including reasonable fees
and expenses of its counsel and agents) necessarily incurred in connection
therewith. The Company may, without creating a default hereunder, contest in
good faith the necessity for and the reasonableness of any such services and
expenses after making payment therefor. As security for the performance of the
obligations of the Company to the Trustee under the Agreement, the Trustee
shall have a lien prior to the Bonds upon all property and funds held or
collected by the Trustee as such, except (other than as provided in Section
11.10 hereof) funds received from a drawing under the Letter of Credit or funds
held in trust for the payment of principal of, premium, if any, or interest on
or the Purchase Price of Bonds.
Pursuant to the terms of the Agreement, the Company shall (i) pay the
Trustee reasonable compensation for its services hereunder, and also all its
reasonable expenses and disbursements, including reasonable compensation for
all attorneys and agents engaged by it, and (ii) indemnify the Trustee,
including its officers, directors, employees and agents, against any and all
liabilities which the Trustee or its agents may incur (including reasonable
attorneys fees and expenses) in the exercise and performance of its powers and
duties hereunder, except with respect to the willful misconduct or negligence
of the Trustee.
Nothing in this Section shall be deemed to excuse the Trustee from its
obligation to perform its duties in accordance with Section 6.02 and Section
11.02 of this Indenture.
Section 12.12. No Obligation to Review Reports. The Trustee shall not
have any obligation to review any financial statement or report provided to the
Trustee by the Company or the Issuer pursuant to this Indenture or the
Financing Agreement. Notwithstanding any provision of this Indenture to the
contrary, the Trustee shall not be deemed to have notice of any item contained
in any such report or Event of Default which may be disclosed therein in any
manner. The Trustee's sole responsibility with respect to such reports shall
be to act as the depository for such reports for the Registered Owners and to
make such reports available for review by the Registered Owners in accordance
with this Indenture.
ARTICLE XIII
THE PAYING AGENT
Section 13.01. The Paying Agent. So long as the Bonds are Outstanding,
the Trustee shall serve as Paying Agent for the Bonds.
ARTICLE XIV
THE REMARKETING AGENT
Section 14.01. The Remarketing Agent. The Issuer shall, at the direction
of the Company, appoint the Remarketing Agent for the Bonds, subject to the
conditions set forth in Section 14.02 hereof. The Remarketing Agent shall
designate its principal office to the Trustee and signify its acceptance of the
duties and obligations imposed upon it hereunder by a written instrument of
acceptance delivered to the Issuer and the Trustee under which the Remarketing
Agent will agree to:
54
<PAGE> 60
(a) determine the Interest Rates and, with respect to Flexible Rates,
Flexible Rate Periods, and give notice of such rates and periods in
accordance with Article III hereof;
(b) keep such books and records with respect to its duties as
remarketing agent as shall be consistent with prudent industry practice;
(c) use its best efforts to remarket Bonds in accordance with this
Indenture; and
(d) hold all moneys delivered to it hereunder for the purchase of
Bonds for the benefit of the person or entity which shall have so
delivered such monies until the Bonds purchased with such monies shall
have been delivered to or for the account of such person or entity.
Section 14.02. Qualifications of Remarketing Agent. The Remarketing Agent
shall have a capitalization of at least $100,000,000 and be authorized by law
to perform all the duties imposed upon it by this Indenture. The Remarketing
Agent may at any time resign and be discharged of the duties and obligations
created by this Indenture by giving at least ten days' notice to the Issuer,
the Company, the Banks and the Trustee. The Remarketing Agent may be removed
at any time at the direction of the Company, by an instrument filed with the
Remarketing Agent, the Issuer and the Trustee.
In the event of the resignation or removal of the Remarketing Agent, the
Remarketing Agent shall pay over, assign and deliver any moneys and Bonds held
by it in such capacity to its successor or, if there is no successor, to the
Trustee.
In the event that the Issuer shall fail to appoint a Remarketing Agent
hereunder, or in the event that the Remarketing Agent shall resign or be
removed, or be dissolved, or if the property or affairs of the Remarketing
Agent shall be taken under the control of any state or federal court or
administrative body because of bankruptcy or insolvency or for any other
reason, and the Issuer shall not have appointed a successor Remarketing Agent,
the Trustee, notwithstanding the provisions of the first paragraph of this
Section 14.02, shall ipso facto be deemed to be the Remarketing Agent for all
purposes of this Indenture until the appointment by the Issuer with the consent
of the Company of the Remarketing Agent or successor Remarketing Agent, as the
case may be; provided, however, that the Trustee, in its capacity as
Remarketing Agent, shall not be required to sell Bonds or determine the
Interest Rate on the Bonds or to perform the duties set forth in Section 3.02
hereof.
ARTICLE XV
AMENDMENTS AND SUPPLEMENTS
Section 15.01. Amendments and Supplements Without Registered Owners'
Consent. This Indenture may be amended or supplemented from time to time,
without the consent of the Registered Owners by a Supplemental Indenture
authorized by a certified resolution of the Issuer filed with the Trustee, for
one or more of the following purposes:
(a) to add additional covenants of the Issuer or to surrender any
right or power herein conferred upon the Issuer; or
55
<PAGE> 61
(b) to cure any ambiguity or to cure, correct or supplement any
defective (whether because of any inconsistency with any other provision
hereof or otherwise) provision of this Indenture in such manner as shall
not be inconsistent with this Indenture or to make any other provisions
with respect to matters or questions arising under this Indenture,
provided such action shall not impair the security hereof or adversely
affect the interests of the Registered Owners; or
(c) to provide or modify procedures permitting Registered Owners to
utilize an uncertificated system of registration for Bonds; or
(d) to modify, alter, amend, supplement or restate the Indenture in
any and all respects necessary, desirable or appropriate in connection
with the delivery to the Trustee of a letter of credit, liquidity
facility, standby bond purchase agreement or other security arrangement
obtained or provided by the Company; or
(e) to modify the provisions for optional redemption at the
commencement of a Term Rate; or
(f) to modify, alter, amend, supplement or restate the Indenture in
any and all respects necessary, desirable or appropriate in order to
satisfy the requirements of any rating agency which may from time to time
provide a rating on the Bonds, or in order to obtain or retain such rating
on the Bonds as is deemed necessary by the Company and the Remarketing
Agent; or
(g) to provide for an Alternate Letter of Credit or any other credit
enhancement permitted by the terms of this Indenture.
Section 15.02. Amendments With Registered Owners' Consent. This Indenture
may be amended from time to time by a Supplemental Indenture approved by the
Registered Owners of a majority in aggregate principal amount of the Bonds then
Outstanding; provided, that (a) no amendment shall be made which affects the
rights of some but less than all of the Registered Owners of the Outstanding
Bonds without the consent of the Registered Owners of a majority in aggregate
principal amount of the Bonds so affected, and (b) except as expressly
authorized hereunder, no amendment which alters the interest rates on any
Bonds, the maturity date, Interest Payment Dates, purchase upon tender or
redemption provisions of any Bonds, of this Article XV or which adversely
affects the security provisions hereunder may be made without the consent of
the Registered Owners of all Outstanding Bonds affected thereby.
Section 15.03. Amendments to Agreement. The Agreement may be amended by
written agreement of the Issuer and the Company, provided that no amendment may
be made which would adversely affect the rights of the Registered Owners
without the consent of the Registered Owners of a majority in aggregate
principal amount of the Bonds then Outstanding; provided further, that no such
amendment may be made which would adversely affect the rights of the Registered
Owners of some but less than all Outstanding Bonds without the consent of the
Registered Owners of a majority in aggregate principal amount of the Bonds so
affected; and no amendment may be made which would (i) decrease the amounts
payable under the Agreement; (ii) change the date of payment or prepayment
provisions under the Agreement; or (iii) change the amendment provisions of the
Agreement, in each case without the consent of all of the Registered Owners of
the Bonds adversely affected thereby, and provided further that the Agreement
may be amended by written agreement of the Issuer and the Company without the
consent of the Trustee in order to make conforming
56
<PAGE> 62
changes with respect to amendments made to this Indenture pursuant to Section
15.01(e), and provided further, that no amendment may be made to Section 6.2 of
the Agreement without the Trustee's consent.
Section 15.04. Amendment of Letter of Credit. The Trustee shall notify
the Registered Owners of a proposed amendment of the Letter of Credit which
would adversely affect the interests of the Registered Owners and may consent
thereto with the consent of the owners of at least a majority in aggregate
principal amount of the Bonds then Outstanding which would be affected by the
action proposed to be taken; provided, that the Trustee shall not, without the
unanimous consent of the owners of all Bonds then Outstanding, consent to any
amendment which would (i) decrease the amount payable under the Letter of
Credit or (ii) reduce the term of the Letter of Credit. Before the Trustee
shall consent to any amendment to the Letter of Credit, there shall have been
delivered to the Trustee an opinion of Bond Counsel that such amendment will
not adversely affect the exclusion from gross income of the interest on the
Bonds for federal income tax purposes and that such amendment is authorized by
the Indenture.
Section 15.05. Other Matters Relating to Amendments and Supplements. The
Trustee shall not be obligated to enter into or consent to any Supplemental
Indenture or any amendment to the Agreement or the Letter of Credit which
affects the rights, duties, liabilities and immunities of the Trustee under
this Indenture or otherwise. Before the Issuer and the Trustee shall enter
into any Supplemental Indenture or before the Trustee shall consent to any
amendment to the Agreement or the Letter of Credit pursuant to this Article XV,
there shall have been delivered to the Trustee and the Issuer a Favorable
Opinion of Bond Counsel, including an opinion that such Supplemental Indenture
or amendment will, upon the execution and delivery thereof, be valid and
binding upon the Issuer, the Company or the Bank, as the case may be, in
accordance with its terms. Upon the execution and delivery of any
Supplemental Indenture pursuant to the provisions of this Article XV, this
Indenture shall be, and be deemed to be, modified and amended in accordance
therewith, and the respective rights, duties and obligations under this
Indenture of the Issuer, the Trustee and all Registered Owners of the Bonds
then Outstanding shall thereafter be determined, exercised and enforced under
this Indenture subject in all respects to such modifications and amendments.
In addition, no amendment or supplement to the Indenture shall become effective
until signed by the Chairman of the Issuer or such other officer or
commissioner designated by the Issuer and until the Trustee has received the
written approval of such instrument from the Authorized Company Representative.
Section 15.06. Consent of Bank. Notwithstanding anything herein
contained, so long as a Letter of Credit is held by the Trustee, no supplement
or amendment shall be made to the Indenture or the Agreement without the prior
written consent of the Bank.
ARTICLE XVI
DEFEASANCE
Section 16.01. Defeasance. When interest on, and principal or redemption
price (as the case may be) of, and Purchase Price (if any) of all Bonds issued
hereunder have been paid, or there shall have been deposited with the Trustee
an amount, evidenced by moneys or non-callable Government Obligations the
principal of and interest on which, when due, will provide, sufficient moneys
to fully pay the Bonds at the earlier of the maturity date or date fixed for
redemption thereof or to any date upon which the Bonds could or must be
tendered for purchase, as well as all other sums payable hereunder by the
Issuer, the right, title and interest of the Trustee under the Indenture shall
thereupon cease and the Trustee, on demand of the Issuer at
57
<PAGE> 63
the request of the Company, shall release the lien of this Indenture and shall
execute such documents to evidence such release as may be reasonably required
by the Issuer and, after paying any remaining amounts owed to the Issuer (as
evidenced by a certificate of an Issuer Representative), the Trustee shall turn
over to the Bank such amount, if any, as is certified in writing by the Bank to
the Trustee to be owed to the Bank pursuant to the Reimbursement Agreement, and
then to the Company, the Issuer or such other person or body as may be entitled
to receive the same (as evidenced by a certificate of an Authorized Company
Representative) all balances remaining in any funds hereunder. Notwithstanding
anything to the contrary contained herein, any defeasance and discharge
hereunder shall not be deemed to release the Trustee from its obligations
hereunder to register and transfer Bonds or to act as paying agent for the
Bonds until the date all the Bonds are scheduled to be paid. In addition, such
defeasance shall not terminate the obligations of the Issuer under Section
8.02, the Company and the Trustee under Section 6.04, the Issuer, the Company
and the Trustee under Section 9.01(b) or the immunities and protections of the
Trustee hereunder.
Section 16.02. Deposit of Funds for Payment of Bonds.
(a) If there is deposited with the Trustee moneys or Government
Obligations sufficient to pay the principal or redemption price of any
particular Bond or Bonds becoming due, either at maturity or by call for
redemption or otherwise (including a mandatory or optional tender for
purchase), together with all interest accruing thereon to the due date,
interest on the Bond or Bonds shall cease to accrue on such due date and
all liability of the Issuer with respect to such Bond or Bonds shall
likewise cease, except as provided in subsection (b) below; provided that
the Trustee shall have received an opinion of Bond Counsel to the effect
that such deposit will not adversely affect the exclusion from gross
income of the interest on any of the Bonds or cause any of the Bonds to be
classified as "arbitrage bonds" within the meaning of the Code; and
provided, further, that if a Letter of Credit is then held by the Trustee,
such payment and any payment of the purchase price of Bonds pursuant to
Section 4.01 or 4.02, as applicable, shall be made only from proceeds of a
drawing under the Letter of Credit deposited directly into the Letter of
Credit Debt Service Account or the Letter of Credit Purchase Account,
as applicable, or the Company shall have caused to be delivered to the
Trustee and the Rating Service an opinion of nationally recognized counsel
experienced in bankruptcy matters to the effect that any such payment and
the payment of the purchase price of any Bonds pursuant to Section 4.01 or
4.02 will not be considered an avoidable "preferential transfer" by the
Company or the Issuer under Section 547 of the United States Bankruptcy
Code in the event of a bankruptcy case under the United States Bankruptcy
Code by the Issuer or by or against the Company or any Affiliate, as
debtor. Thereafter such Bond or Bonds shall be deemed not to be
Outstanding hereunder and the Registered Owner or Registered Owners of
such Bond or Bonds shall be restricted exclusively to the funds so
deposited for any claim of whatsoever nature with respect to such Bond or
Bonds, and the Trustee shall hold such funds in trust for such Registered
Owner or Registered Owners.
(b) Moneys deposited with the Trustee pursuant to Section 16.01 or
16.02(a) hereof may be invested in Government Obligations maturing as
provided in Section 16.01 or Section 16.02(a), and any such moneys and any
moneys derived from any Government Obligations deposited under this
Article XVI which remain unclaimed two years after the date payment
thereof becomes due shall, upon written request of the Company, if the
Company is not at the time to the knowledge of the Trustee (evidenced to
the Trustee as provided in Section 12.03(h)) in default with respect to
any covenant contained in the Financing Documents, be paid to the Company;
and the Registered Owners of the Bonds for which the deposit was made
shall thereafter be limited to a claim against the
58
<PAGE> 64
Company; provided, however, that the Trustee, before making payment to the
Company, may, at the expense of the Company, cause a notice to be
published stating that the moneys remaining unclaimed will be returned to
the Company after a specified date, such notice to be published in a
newspaper or newspapers published at least once a day, six days a week,
and generally circulated in the City of New York, New York. All payments
made hereunder shall be subject to all applicable unclaimed property or
similar laws of the State. Unclaimed moneys held under this Section shall
not be invested.
(c) Following the deposit of moneys as provided in this Section
and Section 16.01 the current Interest Rate Period may not be converted to
another Interest Rate Period and the Remarketing Agent shall not remarket
any Bonds tendered for purchase.
(d) Deposits made with the Trustee in accordance with this
Section and Section 16.01 during any Daily Rate Period or Weekly Rate
Period shall be accompanied by written evidence from each Rating Service
then rating the Bonds that such deposit will not result in a withdrawal or
reduction of the rating on the Bonds.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01. Limitations on Recourse; Immunity of Certain Persons. No
recourse shall be had for any claim based on this Indenture or the Bonds
against any past, present or future Indemnified Party, either directly or
through the Issuer or any successor body, under any constitutional provision,
statute or rule of law or by the enforcement of any assessment or penalty or
otherwise, all such liability and all such claims being hereby expressly waived
and released as a condition of, and as consideration for, the execution of this
Indenture and the issuance of the Bonds. The Bonds are payable solely from the
revenues pledged hereunder, those sources derived from the Company other moneys
held by the Trustee hereunder for such purpose. The Issuer shall be
conclusively deemed to have complied with all of its covenants and other
obligations hereunder, including but not limited to those set forth in
Articles V, VI and X hereof, by virtue of the covenants of the Company
contained in the Agreement (excepting only any approvals or consents permitted
or required to be given by the Issuer hereunder, and any exceptions to the
performance by the Company of the Issuer's covenants and other obligations
hereunder, as may be contained in the Agreement). However, nothing contained
in the Agreement shall prevent the Issuer from time to time, in its discretion,
from performing any such covenants or other obligations. The Issuer shall have
no liability for any failure to fulfill, or breach by the Company of, the
Company's obligations under the Bonds, this Indenture, the Agreement, or
otherwise, including without limitation the Company's obligation to fulfill the
Issuer's covenants and other obligations under this Indenture.
Section 17.02. No Rights Conferred on Others. Nothing herein contained
shall confer any right upon any person other than the parties hereto and the
Registered Owners of the Bonds.
Section 17.03. Illegal, etc. Provisions Disregarded. If any term or
provision of this Indenture or the Bonds or the application thereof for any
reason or circumstances shall to any extent be held invalid or unenforceable,
the remaining provisions or the application of such term or provision to
persons and situations other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision
hereof and thereof shall be valid and enforced to the fullest extent permitted
by law.
59
<PAGE> 65
Section 17.04. Substitute Publication of Notice. If for any reason it
shall be impossible to make publication of any notice required hereby in a
newspaper or newspapers, then such publication in lieu thereof as shall be made
with the approval of the Trustee shall constitute a sufficient publication of
such notice.
Section 17.05. Mailed Notice. Except as otherwise expressly provided
herein, all notices required or authorized to be given to the Company, the
Issuer, the Trustee and the Remarketing Agent, pursuant to this Indenture shall
be in writing and shall be deemed given when delivered or mailed by registered
mail, postage prepaid to the following address:
(a) to the Company, to:
Zeigler Coal Holding Company
50 Jerome Lane
Fairview Heights, Illinois 62208
Attention: Treasurer
(b) to the Issuer, to:
Peninsula Ports Authority of Virginia
12350 Jefferson Avenue, Suite 230
Newport News, Virginia 23602
Attention: Chairman
(c) to the Trustee, to:
PNC Bank, N.A.
Corporate Trust Administration
One Oliver Plaza, 27th Floor
210 Sixth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mark A. Rullo, Vice President
(d) to the Remarketing Agent, to:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Municipal Note Trading Desk
or to such other addresses as may from time to time be furnished to the
parties, effective upon the receipt of notice thereof given as set forth above.
60
<PAGE> 66
Section 17.06. Governing Law. This Indenture shall be governed, in all
respects including validity, interpretation and effect by, and shall be
enforceable in accordance with, the laws of the United States of America and of
the State, provided that the immunities and standards of care of the Trustee in
the administration of its trusts and duties hereunder shall be governed by the
laws of the jurisdiction in which its principal office is located.
Section 17.07. Successors and Assigns. All the covenants, promises and
agreements in this Indenture contained by or on behalf of the Issuer or by or
on behalf of the Trustee shall bind and inure to the benefit of their
respective successors and assigns, whether so expressed or not.
Section 17.08. Action by Company. Any requirement imposed by this
Indenture or the Agreement on the Issuer may, if not performed by the Issuer,
be performed by the Company and such performance by the Company shall
constitute compliance with the requirements of this Indenture or the Agreement
as if performed by the Issuer.
Section 17.09. Headings and Subheadings for Convenience Only. The table
of contents and descriptive headings and subheadings in this Indenture are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Section 17.10. Counterparts. This Indenture may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original; but such counterparts shall together constitute but one and the same
instrument.
61
<PAGE> 67
IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed by
its duly authorized Chairman and its seal to be hereunto affixed and attested
by its Secretary-Treasurer and the Trustee has caused this Indenture to be
executed by one of its authorized officers, all as of the day and year first
above written.
PENINSULA PORTS AUTHORITY OF VIRGINIA
By: /s/ Michael J. Carter
-------------------------------------
Chairman
ATTEST:
By:/s/ G. Mark Ailsworth
-------------------------------
Secretary-Treasurer
(SEAL)
PNC BANK, N.A.
By: /s/ Mark A. Rullo
-------------------------------------
Authorized Officer
62
<PAGE> 68
EXHIBIT A
Form of Bond
(FACE OF BOND)
THIS BOND IS SUBJECT TO MANDATORY TENDER
FOR PURCHASE AT THE TIME AND IN THE
MANNER HEREINAFTER DESCRIBED, AND MUST
BE SO TENDERED OR WILL BE DEEMED TO
HAVE BEEN SO TENDERED UNDER CERTAIN
CIRCUMSTANCES AS DESCRIBED HEREIN.
No. R-1 $115,000,000
UNITED STATES OF AMERICA
COMMONWEALTH OF VIRGINIA
PENINSULA PORTS AUTHORITY OF VIRGINIA
PORT FACILITY REFUNDING REVENUE BOND
(ZEIGLER COAL PROJECT)
SERIES 1997
MATURITY DATE ISSUE DATE CUSIP
May 1, 2022 August 20, 1997 707168DB3
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT ONE HUNDRED FIFTEEN MILLION DOLLARS
<TABLE>
<S> <C> <C> <C>
Last Day of Flexible Rate Period* Interest Rate*
--------- --------
Number of Days in Period* Interest Due at End
--------- of Period* --------
Type of Rate Period if
other than Flexible Daily
--------
</TABLE>
- ---------------------------
*Complete only for Bonds accruing Interest at Flexible Rates
A-1
<PAGE> 69
The Peninsula Ports Authority of Virginia (the "Issuer"), a public body
corporate and a political subdivision under the laws of the Commonwealth of
Virginia, promises to pay to the registered owner named above, or registered
assigns, but solely from the sources hereinafter mentioned, on the Maturity
Date specified above, unless this Bond shall have been previously called for
redemption in whole or in part and payment of the redemption price shall have
been duly made or provided for, the Principal Amount shown above and to pay
interest thereon, but solely from the sources hereinafter referred to, at the
rate determined as herein provided from the most recent Interest Payment Date
(as hereinafter defined) to which interest has been paid or duly provided for,
or from the date of authentication hereof if such date is on an Interest
Payment Date to which interest has been paid or duly provided for, or from the
Issue Date specified above if no interest has been paid or duly provided for,
such payments of interest to be made on each Interest Payment Date until the
principal or redemption price hereof has been paid or duly provided for as
aforesaid. The principal or redemption price of and interest on this Bond may
be paid in any coin or currency of the United States of America which, at the
time of payment, is legal tender for the payment of public or private debts.
The principal or redemption price of this Bond (or of a portion of this Bond,
in the case of a partial redemption) is payable to the registered owner hereof
in immediately available funds or next day funds, depending on the applicable
Interest Rate Period (as defined below) and the instructions of the registered
owner upon presentation and surrender hereof at the principal office of PNC
Bank, N.A. or its successor, as Trustee (the "Trustee"), under the Trust
Indenture dated as of August 1, 1997 (the "Indenture") securing the Series of
Bonds of which this Bond is one. Interest shall be paid to the registered
owner hereof whose name appears on the registration books kept by the Trustee
as of the close of business on the applicable regular or special record date by
check mailed to such registered owner, provided that interest for any Flexible,
Daily or Weekly Rate Period (as described herein) shall be paid in immediately
available funds by wire transfer to a bank within the continental United States
or by deposit to the account of the registered owner hereof if such account is
maintained by the Trustee as specified by the Remarketing Agent (as defined
below) or as otherwise directed by the registered owner hereof five Business
Days prior to the time of payment with respect to Bonds accruing interest at a
Flexible Rate or two Business Days prior to the Interest Payment Date with
respect to Bonds accruing interest at Daily or Weekly Rates; provided further
that interest accrued during any Flexible Rate Period and at the maturity of
this Bond shall be paid only upon delivery of this Bond. The regular record
date for any Interest Payment Date shall be the close of business on the day
immediately preceding the Interest Payment Date, except that, while this Bond
accrues interest at the Term Rates (as described herein), the regular record
date shall be the close of business on the 15th day of the calendar month
immediately preceding such Interest Payment Date. If sufficient funds for the
payment of interest becoming due on any Interest Payment Date are not on
deposit with the Trustee on such date, the Trustee may establish a special
interest payment date on which such overdue interest shall be paid and a
special record date relating thereto. This Bond is registered as to both
principal and interest on the registration books kept with the Trustee and may
be transferred or exchanged, subject to the further conditions specified in the
Indenture, only upon surrender hereof at the principal office of the Trustee.
This Bond is payable solely from the sources hereinafter mentioned.
This Bond shall be purchased on demand of the registered owner hereof, as
hereinafter described.
The Bonds are special, limited obligations of the Issuer, payable by the
Issuer solely out of the revenues derived from or in connection with the
Agreement (hereinafter defined), including all sums deposited from time to time
pursuant to the Agreement in the Debt Service Fund established under the
Indenture, and in certain events out of amounts secured through the exercise of
the remedies provided in the Agreement and the Indenture upon occurrence of an
event of default under the Agreement and the Indenture. NEITHER THE
COMMONWEALTH OF VIRGINIA NOR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE
ISSUER, SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, OR
A-2
<PAGE> 70
INTEREST ON THE BONDS OR OTHER COSTS INCIDENT THERETO EXCEPT FROM THE REVENUES,
RECEIPTS AND PAYMENTS PLEDGED THEREFOR BY THE ISSUER. NEITHER THE FAITH AND
CREDIT NOR THE TAXING POWER OF THE COMMONWEALTH OF VIRGINIA OR ANY POLITICAL
SUBDIVISION THEREOF, INCLUDING THE ISSUER, IS PLEDGED TO THE PAYMENT OF THE
PRINCIPAL OF OR PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER COSTS
INCIDENT THERETO.
NO RECOURSE UNDER THIS BOND SHALL BE HAD AGAINST ANY PAST, PRESENT OR
FUTURE OFFICER OR COMMISSIONER OF THE ISSUER. THE BONDS SHALL NEVER BE PAID IN
WHOLE OR IN PART OUT OF ANY FUNDS RAISED OR TO BE RAISED BY TAXATION OR OUT OF
ANY OTHER REVENUES OR ASSETS OF THE ISSUER, THE COMMONWEALTH OF VIRGINIA OR ANY
POLITICAL SUBDIVISION THEREOF, EXCEPT THOSE REVENUES ASSIGNED BY THE INDENTURE.
Except as otherwise provided in the Indenture, this Bond shall not be
entitled to any right or benefit under the Indenture, or be valid or become
obligatory for any purpose, until this Bond shall have been authenticated by
execution by the Trustee of the certificate of authentication inscribed hereon.
THE TERMS AND PROVISIONS OF THIS BOND ARE CONTINUED ON THE REVERSE SIDE
HEREOF AND FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH AT
THIS PLACE.
IT IS HEREBY CERTIFIED, RECITED AND REPRESENTED that the issuance of this
Bond and the Bonds is duly authorized by law; that all acts, conditions and
things required to exist and necessary to be done or performed precedent to and
in the issuance of this Bond and the Bonds to render the same lawful, valid and
binding have been properly done and performed and have happened in regular and
due time, form and manner as required by law; that all acts, conditions and
things necessary to be done or performed by the Issuer or to have happened
precedent to and in the execution and delivery of the Indenture and the
Agreement have been done and performed and have happened in regular and due
form as required by law; that due provision has been made for the payment of
the principal of and premium, if any, and interest on this Bond and the Bonds
by irrevocably assigning the described revenues as provided in the Indenture;
that payment in full for the Bonds has been received; and that the issuance of
the Bonds does not contravene or violate any constitutional or statutory
limitation.
A-3
<PAGE> 71
IN WITNESS WHEREOF, the Issuer has caused this Bond to be executed with
the manual or facsimile signature of its Chairman and its official seal to be
impressed, lithographed or imprinted hereon, and attested with the manual or
facsimile signature of its Secretary-Treasurer.
Dated:
PENINSULA PORTS AUTHORITY OF VIRGINIA
(SEAL) By:__________________________________
Chairman
ATTEST:
_____________________________
Secretary-Treasurer
A-4
<PAGE> 72
FORM OF AUTHENTICATION CERTIFICATE
AUTHENTICATION CERTIFICATE
This Bond is one of the Port Facility Refunding Revenue Bonds (Zeigler
Coal Project) Series 1997 of the Peninsula Ports Authority of Virginia
described in the within-mentioned Indenture.
PNC BANK, N.A.
By:______________________________________
Authorized Signatory
Date of Authentication:__________________
(TEXT OF REVERSE SIDE OF BOND)
This Bond is one of an authorized series of Bonds of the Issuer in the
aggregate principal amount of $115,000,000, designated as Peninsula Ports
Authority of Virginia Port Facility Refunding Revenue Bonds (Zeigler Coal
Project) Series 1997 (the "Bonds") authorized by duly adopted resolutions of
the Issuer, and issued under and secured by the Indenture in full conformity
with the Constitution and laws of the Commonwealth of Virginia. The Bonds are
issued for the purpose of providing funds for refinancing the costs of
acquisition, construction and improvement of certain port facilities (the
"Project") for the transshipment of coal located at Pier 9, Harbor Access
Road, Newport News, Virginia (the "Plant") of Zeigler Coal Holding Company (the
"Company"). Pursuant to the Financing Agreement (the "Agreement") dated as of
August 1, 1997 between the Issuer and the Company, the Company has agreed to
make Debt Service Payments, to the Trustee, on behalf of the Issuer, in amounts
and at the times sufficient to pay the principal of, premium, if any, and
interest on the Bonds. The Company has also agreed to pay the Purchase Price
of all Bonds tendered or deemed tendered for purchase pursuant to the terms of
the Indenture.
The Company has caused to be issued and delivered to the Trustee by Bank
of America National Trust and Savings Association, an irrevocable letter of
credit pursuant to which the Trustee is authorized, subject to the terms and
conditions thereof, to draw up to (a) an amount equal to the principal amount
of the Bonds (i) to enable the Trustee to pay the principal amount of the Bonds
when due at maturity or upon redemption or acceleration and (ii) to enable the
Trustee to pay the portion of the purchase price of Bonds tendered to it and
not remarketed corresponding to the principal amount of such Bonds, plus (b) an
amount equal to 45 days accrued interest on the outstanding Bonds at a maximum
rate of 10%, (i) to enable the Trustee to pay interest on the Bonds when due
and (ii) to enable the Trustee to pay the portion of the purchase price of
Bonds tendered to it and not remarketed corresponding to the accrued interest
on such Bonds. Such irrevocable letter of credit or any alternate letter of
credit delivered to the Trustee in accordance with the terms of the Indenture
is herein called the "Letter of Credit". As used herein, the term "Bank" shall
mean Bank of America National Trust and Savings Association as issuer of the
Letter of Credit or the bank issuing any Alternate Letter of Credit. The
Letter of Credit expires on October 19, 1997, unless terminated earlier
pursuant to its terms or extended. Subject to the provisions of the Indenture,
the Company may, but is not required to, cause the Letter of Credit to be
extended or replaced with an Alternate Letter of Credit having substantially the
same terms. The Bank is under no obligation to extend the Letter of Credit.
Unless the Letter of Credit is extended or
A-5
<PAGE> 73
replaced in accordance with the terms of the Indenture, this Bond will become
subject to mandatory tender for purchase, as described below. The Letter of
Credit is being issued pursuant to a Reimbursement Agreement (as the same may be
amended or replaced, the "Reimbursement Agreement") between the Bank and the
Company. The Company is obligated, among other things, to reimburse the Bank
for all drawings under the Letter of Credit.
Reference is made to: (a) the Indenture, the Agreement and the Letter of
Credit for provisions concerning the rights of the registered owners and the
rights and obligations of the Issuer, the Company, the Bank and the Trustee;
and (b) the Remarketing Agreement pursuant to which Goldman, Sachs & Co. is
serving as remarketing agent for the purposes set forth in the Indenture (such
agent or its successors being herein referred to as the "Remarketing Agent").
The acceptance of the terms and conditions of the foregoing documents
(including amplifications and qualifications of the provisions hereof), each of
which is on file at the principal corporate trust office of the Trustee, is an
explicit and material part of the consideration of the Issuer's issuance
hereof, and each registered owner hereof by acceptance of this Bond accepts and
assents to all such terms and conditions as if fully set forth herein.
Capitalized terms used in this Bond which are not defined herein but which
are defined in the Indenture shall have the respective meanings set forth in
the Indenture.
INTEREST ON BONDS
The Bonds shall initially accrue interest at the Daily Rate herein
described, and will be subject to conversion as herein provided. The rate of
interest applicable to any Rate Period shall be determined in accordance with
the applicable provisions of the Indenture. All computations of interest shall
be based on 365- or 366-day years for the actual number of days elapsed; except
for interest at Term Rates, which shall be computed on the basis of 360-day
years of twelve 30-day months, and interest at Flexible and Weekly Rates, which
shall be computed on the basis of a 365- or 366-day year, as appropriate, for
the actual number of days elapsed, based on the year in which such rate period
commences. Notwithstanding any provision of this Bond or the Indenture to the
contrary, in no event shall the cumulative amount of interest paid or payable
on this Bond (including interest calculated as provided herein, together with
all other amounts that constitute interest on this Bond under the laws of the
State which are contracted for, charged, reserved, taken or received pursuant
to the Bond Documents) through any date of payment of interest or through the
date of payment of this Bond (whether at maturity, by acceleration or upon
earlier redemption) exceed the "net interest cost" which will produce a "net
effective interest rate" equal to the maximum rate permitted by Virginia law.
"Rate Period" shall mean, when used with respect to any particular rate of
interest determined as hereinafter provided, the period from and including the
effective date of such rate to (but not including) the effective date of the
rate of interest next determined as hereinafter provided.
The Bonds may accrue interest at Interest Rates effective for periods
(each an "Interest Rate Period") selected by the Company, or, under the
circumstances set out in the Indenture, by the Remarketing Agent from time to
time. The Interest Rates for the Bonds, which will be determined by the
Remarketing Agent, are as follows:
A-6
<PAGE> 74
Flexible Rate.
While the Bonds accrue interest at Flexible Rates, the interest rate for
each particular Bond will be determined by the Remarketing Agent and will
remain in effect from and including the commencement date of the Flexible Rate
Period selected for that Bond by the Remarketing Agent to, but not including,
the last date thereof. While the Bonds are in the Flexible Rate mode, Bonds
may have successive Flexible Rate Periods of any duration up to 270 days each
(or such lower maximum number as is then permitted under the Indenture) and any
Bond may accrue interest at a rate and for a period different from any other
Bond.
Daily Rate.
While the Bonds accrue interest at a Daily Rate, the interest rate
established for the Bonds will be effective from day to day until changed by
the Remarketing Agent.
Weekly Rate.
While the Bonds accrue interest at a Weekly Rate, the rate of interest on
the Bonds will be determined weekly by the Remarketing Agent to be effective
for a seven day period commencing on Wednesday of the week of such
determination. (The length of the period, the day of commencement and the last
day of the period may vary in the event of a conversion to or from a Weekly
Rate.)
Term Rate.
While the Bonds accrue interest at a Term Rate, the interest rate will be
determined by the Remarketing Agent to remain in effect for a term of one year
or any whole multiple of one year selected by the Company.
The interest rate mode established will remain in effect until changed by
the Issuer and the Company, in accordance with the Indenture. During each
Interest Rate Period, the rate of interest on the Bonds shall be that rate
which, in the judgment of the Remarketing Agent, would cause the Bonds to have
a market value as of the date of determination equal to the principal amount
thereof, taking into account prevailing market conditions, and with respect to
Flexible Rates, the Remarketing Agent shall determine the Flexible Rate and the
Flexible Rate Period for each Bond at such rate and for such period as it deems
advisable in order to minimize the net interest cost on the Bonds, taking into
account prevailing market conditions.
Bonds which accrue interest at Flexible Rates will be issued in the
denominations of $100,000 and any integral multiples of $1,000 in excess
thereof. Bonds which accrue interest at a Daily or Weekly Rate will be issued
in denominations of $100,000 and whole multiples thereof. Bonds which accrue
interest at a Term Rate will be issued in the denomination of $5,000 and whole
multiples thereof.
OPTIONAL TENDERS
While this Bond accrues interest at a Daily, Weekly or Term Rate, the
registered owner of this Bond has the right to tender this Bond for purchase at
the principal amount hereof plus accrued interest as follows: (i) during a
Daily Rate Period on any Business Day upon personal, electronic or telephone
notice to the Trustee prior to 11:00 a.m., New York City time, on such Business
Day, (ii) during a Weekly Rate Period on any
A-7
<PAGE> 75
Business Day upon written or electronic notice to the Trustee on or prior to
5:00 p.m., New York City time, on any Business Day at least seven days prior to
the Business Day on which this Bond is tendered for purchase or (iii) during a
Term Rate Period on the first day of the next succeeding Rate Period upon
written or electronic notice to the Trustee on or prior to 5:00 p.m., New York
City time, on any Business Day at least seven days prior to such day.
MANDATORY TENDERS
While this Bond accrues interest at a Flexible Rate, this Bond is subject
to mandatory tender on the day after the last day of each Flexible Rate Period
applicable to this Bond. While this Bond accrues interest at Daily, Weekly or
Term Rates, this Bond is subject to mandatory tender on the effective date of a
change from one interest rate mode to a different interest rate mode (except
for changes between a Daily Rate and Weekly Rate) or of a change from a Term
Rate Period to a Term Rate Period of different duration. This Bond is subject
to mandatory tender on the Interest Payment Date next preceding the Expiration
Date of the Letter of Credit unless the Trustee has received notice that the
Letter of Credit has been or will be extended or replaced with an Alternate
Letter of Credit as provided in the Indenture.
Interest on any Bond which is not tendered on the mandatory tender date,
but for which there has been irrevocably deposited with the Trustee an amount
sufficient to pay the purchase price thereof, shall cease to accrue interest on
the mandatory tender date, and the registered owner of such Bond shall not be
entitled to any payment other than the purchase price for such Bond, and such
Bond shall no longer be outstanding and entitled to the benefits of the
Indenture, except for the payment of the purchase price of such Bond from
monies held by the Trustee for such payment. On the mandatory tender date the
Trustee shall authenticate and deliver substitute Bonds in lieu of such
untendered Bonds.
WRITTEN NOTICE OF RATE MODE CHANGE
The Trustee shall give notice, by first class mail, to the registered
owners of all Bonds of the proposed conversion from one interest rate mode to
another interest rate mode at least 15 days before the proposed conversion date
while the Bonds accrue interest at Flexible, Daily or Weekly Rates at least 30
days before the proposed conversion date while the Bonds accrue interest at a
Term Rate.
INTEREST PAYMENT DATES
While this Bond accrues interest at a Flexible Rate, interest is payable
on the day after the last day of each Flexible Rate Period. While this Bond
accrues interest at Daily or Weekly Rates, interest is payable on the first
Business Day of each month. During any Term Rate Period, interest is payable
semiannually on the first day of the sixth month after the commencement of such
Term Rate Period and the first day of each sixth month thereafter provided that
the last Interest Payment Date for any Term Rate Period which is followed by a
Flexible, Daily or Weekly Rate Period shall be the first Business Day of the
sixth month following the preceding Interest Payment Date.
A-8
<PAGE> 76
OPTIONAL REDEMPTION
During any Flexible, Daily or Weekly Rate Period, this Bond is subject to
Optional Redemption on any Interest Payment Date at an Optional Redemption
price equal to 100% of the principal amount hereof, together with accrued
interest. While this Bond accrues interest at a Term Rate, this Bond is
subject to Optional Redemption (i) at any time on and after the dates and at
the redemption prices as set forth below together with accrued interest, if
any, to the redemption date and (ii) on the day after the end of each Term Rate
Period at the redemption price of 100% of the principal amount thereof,
together with accrued interest, if any, to the redemption date:
<TABLE>
<CAPTION>
Commencement of Redemption
Length of Term Rate Period Period Redemption Price
- -------------------------- ---------------------------- -------------------------------
<S> <C> <C>
Greater than or equal to Tenth anniversary of 102%, declining by 0.5% on
15 years commencement of Term each succeeding anniversary of
Rate Period the first day of the redemption
period until reaching 100% and
thereafter at 100%
Less than 15 years and Eighth anniversary of the
greater than or equal to commencement of Term Rate 101.5%, declining by 0.5% on each
10 years Period succeeding anniversary of the first
day of the redemption period until
reaching 100% and thereafter at 100%
Less than 10 years and Fifth anniversary of the 101%, declining by 0.5% on each
greater than or equal to commencement of Term Rate succeeding anniversary of the first
5 years Period day of the redemption period until
reaching 100% and thereafter at
100%
Less than 5 years Bonds not subject to optional
redemption until commencement
of next Term Rate Period
</TABLE>
The optional redemption dates and redemption prices set forth above may be
changed, by a supplemental indenture approved by the Company and filed with the
Trustee, provided that any such supplemental indenture shall be accompanied by
a Favorable Opinion of Bond Counsel.
SPECIAL MANDATORY REDEMPTION
This Bond is subject to special mandatory redemption prior to maturity not
later than 180 days after the occurrence of a Determination of Taxability (as
defined in the Indenture) at a redemption price of 100% of the principal amount
hereof, plus accrued interest to the redemption date. The manner of redeeming
Bonds is described in detail in the Indenture.
A-9
<PAGE> 77
EXTRAORDINARY OPTIONAL REDEMPTION
The Bonds will be subject to extraordinary optional redemption by the
Issuer, at the direction of the Company, in whole or in part at the
commencement date of any Interest Rate Period], as described below, at a
redemption price of 100% of the principal amount thereof, plus accrued interest
to the redemption date, if one or more of the following events shall have
occurred within the preceding year:
(a) The Project or the Plant shall have been damaged or destroyed to
such extent that, in the opinion of the Company, (i) normal operations at
the Project or the Plant are prevented or are likely to be prevented for a
period of four consecutive months, or (ii) the restoration of the Project
or the Plant is not economically feasible.
(b) Title to, or the temporary use of, all or substantially all of
the Project or the Plant shall have been taken under the exercise of the
power of eminent domain by any governmental authority, or person, firm or
corporation acting under governmental authority which, in the opinion of
the Company, is likely to result in normal operations at the Project or the
Plant being prevented for a period of four consecutive months.
(c) Changes, which the Company cannot reasonably control or overcome,
in the economic availability of materials, supplies, labor, equipment and
other properties and things necessary for the efficient operation of the
Project or the Plant shall have occurred, or technological or other changes
shall have occurred which, in the opinion of the Company, render uneconomic
the continued design, acquisition, construction, installation or operation
of the Project or the Plant.
(d) Any court or administrative body shall enter a judgment, order
or decree requiring cessation of all or any substantial part of operations
at the Project or the Plant, to such an extent that, in the opinion of the
Company, normal operations at the Project or the Plant are likely to be
prevented for a period of four consecutive months.
(e) As a result of any changes in the Virginia Constitution or the
Constitution of the United States of America or as a result of legislation
or administrative action (whether state or federal) or by final decree,
judgment or order of any court or administrative body (whether state or
federal) entered after the contest thereof by the Company in good faith,
the Agreement shall have become void or unenforceable or impossible of
performance in accordance with the intent and purposes of the parties, or
shall have been declared to be unlawful, or unreasonable burdens or
excessive liabilities shall have been imposed on the Issuer or the Company,
including without limitation federal, state or other ad valorem, property,
income or other taxes not being imposed on the date of the Agreement.
DEFAULT ACCELERATION
In case an Event of Default, as defined in the Indenture, shall have
occurred, the principal of all Bonds then outstanding under the Indenture may
become due and payable prior to their scheduled maturity date.
A-10
<PAGE> 78
GENERAL PROVISIONS
The Bonds are and will be equally and ratably secured, to the extent
provided by the Indenture, by the pledge thereunder of the Debt Service
Payments and other amounts payable by the Company to the Issuer under the
Agreement. The Issuer has also pledged and assigned to the Trustee as security
for the Bonds all other rights and interests of the Issuer under the Agreement
(other than its rights to indemnification and payment of certain administrative
expenses and certain other rights).
No registered owner shall have any right to pursue any remedy under the
Indenture unless (a) the Trustee shall have been given written notice of an
Event of Default by the Registered Owners of at least 25% in principal amount
of the Bonds then outstanding, (b) the registered owners of at least 25% in
principal amount of the Bonds then outstanding shall have requested the
Trustee, in writing, to exercise the powers granted under the Indenture or to
pursue such remedy in its or their name or names, (c) the Trustee shall have
been offered indemnity satisfactory to it against costs, expenses and
liabilities, and (d) the Trustee shall have failed to comply with such request
within 60 days after receipt of such notice, request and offer of indemnity.
* * * * * * * * * * * * * * * * * *
(END OF TEXT OF REVERSE SIDE OF BOND)
A-11
<PAGE> 79
FORM OF ASSIGNMENT:
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________________________________________________________
Please insert Social Security or
Taxpayer Identification Number of Transferee
____________________________
/___________________________/
________________________________________________________________________________
(Please print or typewrite name and address, including zip code of Transferee)
________________________________________________________________________________
the within Bond and all rights thereunder, and hereby irrevocably constitutes
and appoints
________________________________________________________________________________
attorney to register the transfer of the within Bond on the books kept for
registration thereof, with full power of substitution in the premises.
Dated: ______________
Signature Guaranteed:
_______________________________ ________________________________
NOTICE: Signature(s) must NOTICE: The signature above
be guaranteed by a member must correspond with the name
or participant of a of the Registered Owner as it
signature guarantee program. appears upon the front of this
particular, without alteration
or enlargement or any change
whatsoever.
B-1
<PAGE> 1
EXHIBIT 4.11
-------------------------------------------
FINANCING AGREEMENT
between
PENINSULA PORTS AUTHORITY OF VIRGINIA
and
ZEIGLER COAL HOLDING COMPANY
Dated as of August 1, 1997
Relating To
Peninsula Ports Authority of Virginia
Port Facility Refunding Revenue Bonds
(Zeigler Coal Project), Series 1997
-------------------------------------------
-------------------------------------------
The interest of Peninsula Ports Authority of Virginia in this Financing
Agreement has been assigned (except for the amounts payable under Sections
4.2(b), 4.2(c), 4.2(e), 4.3, 6.2, 7.5 and 10.9 hereof) pursuant to the
Trust Indenture dated as of the date hereof from Peninsula Ports Authority
of Virginia, to PNC Bank, N.A., as trustee, and is subject to the security
interest in favor of said trustee.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...............................................................1
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
Section 2.1. Representations, Covenants, and Warranties of Issuer......................4
Section 2.2. Representations, Covenants, and Warranties of Company.....................4
ARTICLE III ISSUANCE OF THE BONDS
Section 3.1. Agreement To Issue Bonds; Application of Bond Proceeds....................5
Section 3.2. The Plant.................................................................5
Section 3.3. Limitations of the Issuer's Liability.....................................6
ARTICLE IV
LOAN OF PROCEEDS; DEBT SERVICE PAYMENTS;
NATURE OF OBLIGATIONS
Section 4.1. Loan of Proceeds to Company...............................................6
Section 4.2. Amounts Payable...........................................................6
Section 4.3. Purchase Price Payments...................................................7
Section 4.4. Obligations of Company Hereunder Unconditional............................7
Section 4.5. Investment of Debt Service Fund Moneys....................................8
Section 4.6. Issuer to Grant Security Interest to Trustee..............................8
Section 4.7. Letter of Credit..........................................................8
ARTICLE V SPECIAL
COVENANTS
Section 5.1. Further Assurances and Corrective Instruments.............................9
Section 5.2. Issuer Representative and Authorized Company Representative...............9
Section 5.3. Maintenance of Corporate Existence........................................9
Section 5.4. Permits or Licenses.......................................................9
Section 5.5. Arbitrage and Other Tax Covenants.........................................9
</TABLE>
i
<PAGE> 3
ARTICLE VI
ASSIGNMENT AND INDEMNIFICATION
<TABLE>
<S> <C>
Section 6.1. Assignment...............................................................10
Section 6.2. Release and Indemnity of Issuer and Trustee..............................10
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default Defined................................................11
Section 7.2. Remedies on Default......................................................12
Section 7.3. No Remedy Exclusive......................................................13
Section 7.4. Annulment of Acceleration................................................13
Section 7.5. Agreement to Pay Attorneys' Fees and Expenses............................13
Section 7.6. No Additional Waiver Implied by One Waiver...............................13
ARTICLE VIII
OPTIONS: PREPAYMENT OF DEBT SERVICE PAYMENTS
Section 8.1. Option to Terminate at Any Time Upon Defeasance of the Bonds............13
Section 8.2. Option to Prepay Debt Service Payments Upon the Occurrence of
Certain Events.........................................................14
Section 8.3. Option to Prepay Debt Service Payments..................................14
Section 8.4. Procedure for Prepayment................................................14
Section 8.5. Relative Position of Options and Indenture..............................14
ARTICLE IX
OBLIGATION TO PREPAY DEBT SERVICE PAYMENTS
UPON OCCURRENCE OF CERTAIN EVENTS
Section 9.1. Obligation to Prepay Upon Special Mandatory Redemption of Bonds Under
Section 9.01(b) of the Indenture.......................................14
ARTICLE X
MISCELLANEOUS
Section 10.1. Term of Agreement.......................................................15
Section 10.2. Notices.................................................................15
Section 10.3. Confidential Information................................................16
Section 10.4. Waiver of Rights........................................................16
Section 10.5. Limitation of Warranty..................................................16
Section 10.6. Confirming Instruments..................................................16
Section 10.7. Binding Effect..........................................................16
Section 10.8. Performance by Issuer...................................................16
Section 10.9. No Recourse to Issuer; Obligations of Issuer Limited....................16
Section 10.10. References to Bonds Ineffective After Bonds Paid........................16
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 10.11. Severability....................................................... 17
Section 10.12. Amounts Remaining in Debt Service Fund............................. 17
Section 10.13. Amendments, Changes, and Modifications............................. 17
Section 10.14. Execution in Counterparts.......................................... 17
Section 10.15. Applicable Law; Jurisdiction....................................... 17
Section 10.16. Captions........................................................... 17
</TABLE>
iii
<PAGE> 5
FINANCING AGREEMENT
THIS FINANCING AGREEMENT, dated as of August 1, 1997, between PENINSULA
PORTS AUTHORITY OF VIRGINIA, a public body corporate and a political
subdivision of the Commonwealth of Virginia (the "Issuer"), and ZEIGLER COAL
HOLDING COMPANY, a corporation organized and existing under the laws of the
State of Delaware (the "Company").
W I T N E S S E T H :
WHEREAS, the Issuer is authorized and empowered by the provisions of
Chapter 46 of the Acts of Assembly of 1952 of the Commonwealth of Virginia, as
amended (the "Act"), to issue revenue bonds and refunding revenue bonds for the
purposes described therein; and
WHEREAS, the Issuer has previously issued its revenue bonds (in 1981) and
its refunding revenue bonds (in 1982 and 1987) to assist Massey Coal Terminal
Corporation ("Massey") and its successor Shell Coal Terminal Company ("Shell"),
in the financing and refinancing of the Plant (hereinafter defined); and
WHEREAS, the Issuer has duly adopted its Bond Resolution (the "Bond
Resolution"), on July 16, 1997, pursuant to which, and in order to implement
the public purposes enumerated in the Act, the Issuer intends to issue its Port
Facility Refunding Revenue Bonds (Zeigler Coal Project) Series 1997 (the
"Bonds") and to lend the proceeds thereof to the Company in order to provide
moneys to refund the 1987 Bonds (hereinafter defined); and
WHEREAS, in reliance thereon, the Company has continued the use of its
coal transshipment facility located at Pier 9, Harbor Access Road, Newport
News, Virginia in anticipation of the issuance of the Bonds for the benefit of
the Company and the use of the bond proceeds to refund the Issuer's
$115,000,000 Peninsula Ports Authority of Virginia, Unit Priced Demand
Adjustable Port Facility Refunding Revenue Bonds (Shell Coal and Terminal
Company Project), 1987 Series (the "1987 Bonds"), which were issued to refund
certain revenue bonds previously issued by the Issuer in order to assist in
defraying the costs of the Plant (hereinafter defined); and
WHEREAS, the Issuer proposes to issue and sell the Bonds in the aggregate
principal amount of $115,000,000 and to lend the proceeds therefrom in
accordance with the terms hereof;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby
and in consideration of the premises hereof, DO HEREBY AGREE as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. Unless otherwise defined herein, all the words
and phrases defined in Article I of the Indenture shall have the same meanings
in this Financing Agreement. In addition, the following words and phrases
shall have the following meanings:
<PAGE> 6
"Act" means Chapter 46 of the Acts of Assembly of 1952 of the Commonwealth
of Virginia, as amended.
"Agreement" means this Financing Agreement, dated as of August 1, 1997,
between the Issuer and the Company, and any and all modifications, alterations,
amendments, and supplements thereto.
"Authorized Company Representative" means any person or persons at the
time designated to act on behalf of the Company by a written certificate,
signed on behalf of the Company by its President, any of its Vice-Presidents,
its Secretary, Treasurer or any Assistant Secretary or Assistant Treasurer and
furnished to the Trustee, containing the specimen signature of each such
person.
"Bond" or "Bonds" means any or all of the Peninsula Ports Authority of
Virginia, Port Facility Refunding Revenue Bonds (Zeigler Coal Project), Series
1997, issued and secured under the terms of the Indenture.
"Bond Counsel" means nationally recognized bond counsel selected by the
Company and acceptable to the Issuer and the Trustee.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Zeigler Coal Holding Company, a Delaware corporation, and
its permitted successors and assigns.
"Costs of Issuance" means all costs incurred in connection with the
issuance of the Bonds, including, but not limited to, the administrative, legal
and related fees and expenses of the Issuer and its counsel, the initial fee
and expenses of the Trustee, legal fees and expenses of Bond Counsel, counsel
to the underwriter and counsel to the Trustee, underwriter's spread and
expenses, consultant fees and expenses in connection with the Project, printing
costs and the initial fee of the Securities Depository.
"Debt Service Fund" means the Debt Service Fund created by Section 6.01 of
the Indenture.
"Debt Service Payments" means the payments required to be made by the
Company to amortize the Bonds, as provided for in the Indenture and in Section
4.2(a) hereof.
"Event of Default" means, with respect to any Event of Default under this
Agreement, any occurrence or event specified and defined by Section 7.1 hereof.
"Final Official Statement" means the Final Official Statement dated August
20, 1997, relating to the Bonds.
"Indenture" means the Trust Indenture, dated as of August 1, 1997, between
the Issuer and the Trustee, and any and all modifications, alterations,
amendments and supplements thereto.
"Issue Date" means August 20, 1997.
"Issuer" means Peninsula Ports Authority of Virginia, a public body
corporate and a political subdivision of the Commonwealth of Virginia.
2
<PAGE> 7
"Issuer Representative" means the person or persons at the time designated
to act on behalf of the Issuer by written certificate furnished to the Company
and the Trustee containing the specimen signatures of such person or persons
and signed on behalf of the Issuer by its Chairman. Such certificate may
designate an alternate or alternates.
"Plant" means the coal transshipment facility of the Company located at
Pier 9, Harbor Access Road, Newport News, Virginia, together with any
additions, modifications and substitutions to such facility. The corporation
owning the Plant was acquired by the Company as a result of the Company's
acquisition of all of the issued and outstanding stock of Shell in 1992.
Previously, in 1981, 1982 and 1987 the Issuer issued its revenue and refunding
revenue bonds to finance and refinance the Plant for the benefit of its prior
owner-operators, Massey and Shell.
"Preliminary Official Statement" means the Preliminary Official Statement
dated August 13, 1997, which was prepared for use in offering the Bonds for
sale.
"Registered Owner" means the person in whose name any Bond is registered
pursuant to Article II of the Indenture. The Company may be a Registered
Owner.
"Regulations" means the applicable proposed, temporary or final Income Tax
Regulations promulgated under the Code, as such regulations may be amended or
supplemented from time to time.
"Remarketing Agreement" means (i) initially the Remarketing Agreement of
even date herewith between the Remarketing Agent and the Company, and any and
all modifications, alterations, amendments, and supplements thereto, and (ii)
any agreement between the Company and any successor remarketing agent appointed
pursuant to the Indenture.
"State" means the Commonwealth of Virginia.
"Tax Agreement" means the Tax Compliance Agreement dated August 20, 1997,
among the Issuer, the Trustee and the Company, as amended from time to time in
accordance with the provisions thereof.
"Tax Certificate" means the Non-Arbitrage Certificate delivered on the
Issue Date in connection with the issuance of Bonds, with respect to certain
facts concerning the Plant which are within the knowledge of the Company, upon
which Bond Counsel will rely in order to render its opinion that interest on
the Bonds is excludable from gross income for federal income tax purposes under
applicable provisions of the Code to the extent stated in such opinion.
"Term of Agreement" means the term of this Agreement as specified in
Section 10.1 hereof.
"Trustee" means PNC Bank, N.A., a national banking association organized
and existing under the laws of the Commonwealth of Pennsylvania, as trustee, or
any successor trustee, appointed pursuant to Article XII of the Indenture.
"Underwriting Agreement" means the Underwriting Agreement dated August 20,
1997, by and among the Issuer, the Company and Goldman, Sachs & Co.
"1987 Bonds" shall mean the $115,000,000 Peninsula Ports Authority of
Virginia Unit Priced Demand Adjustable Port Facility Refunding Revenue Bonds
(Shell Coal and Terminal Company Project) 1987 Series.
3
<PAGE> 8
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES
Section 2.1. Representations, Covenants, and Warranties of Issuer. The
Issuer makes the following representations, covenants, and warranties as the
basis for the undertakings on the part of the Company contained herein:
(a) The Issuer is a public body corporate and a political subdivision of
the State.
(b) The Issuer has the power to enter into this Agreement and the Indenture
and to perform and observe the agreements and covenants on its part contained
herein and in the Indenture including, without limitation, the power to issue
and sell the Bonds as contemplated herein and in the Indenture, and by proper
corporate action has duly authorized the execution and delivery hereof and
thereof.
(c) The execution and delivery of this Agreement and the Indenture by the
Issuer does not, and consummation of the transactions contemplated hereby and
thereby and fulfillment of the terms hereof and thereof by the Issuer will not,
result in a material breach of any of the terms or provisions of, or constitute
a default under, any material indenture, mortgage, deed of trust, or other
agreement or instrument to which the Issuer is now a party or by which it is
now bound.
(d) The Issuer agrees to the issuance of the Bonds as set forth in the
Indenture.
(e) The Issuer covenants that it will not assign the amounts derived from
this Agreement other than to secure payment of the Bonds.
Section 2.2. Representations, Covenants, and Warranties of Company.
The Company represents, covenants, and warrants as follows:
(a) The Company is a corporation duly incorporated and in good standing in
the State of Delaware, is not in violation of any provision of its certificate
of incorporation or its bylaws, has full corporate power to enter into this
Agreement and has duly authorized the execution and delivery of this Agreement
by proper corporate action.
(b) The Plant is owned and operated by Mountaineer Coal Development Company
(d/b/a Pier IX Terminal Company), a wholly-owned subsidiary of the Company,
which subsidiary is duly incorporated in the State of West Virginia and is duly
authorized to do business and is in good standing in the State.
(c) Neither the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby nor the fulfillment of or compliance
with the terms and conditions of this Agreement conflicts with or results in a
breach of any material terms, conditions, or provisions of any material
restriction or any material agreement or instrument to which the Company is now
a party or by which the Company is bound, or constitutes a default under any of
the foregoing, or results in the creation or imposition of any material lien,
charge, or encumbrance whatsoever upon any of the property or assets of the
Company under the terms of any instrument or agreement.
(d) There is no litigation or proceeding pending, or to the best of the
knowledge of the Company threatened, against the Company or any other person
materially adversely affecting in any manner whatsoever
4
<PAGE> 9
the right of the Company to execute this Agreement or the ability of the
Company to make the payments required hereunder or to otherwise comply with the
Company's obligations contained herein.
(e) The proceeds from the sale of the Bonds will be used only for payment
of refunding the 1987 Bonds and will not be used to provide working capital
for the Company or any "related person" within the meaning of Section 147(a) of
the Code.
(f) The Company will not take or permit to be taken any action which would
directly or indirectly cause interest on any of the Bonds to be included in
gross income for federal income tax purposes (other than Bonds held by a
"substantial user" of the Plant or a "related person" as such terms are used in
Section 147(a) of the Code).
(g) The Bonds will not be "federally guaranteed" as defined in Section
149(b) of the Code.
(h) The statements, information, descriptions, estimates, and assumptions
of the Company contained in the Tax Certificate and its General Certificate
(delivered in connection with Bonds on the Closing Date) are true and correct
in all material respects, and are based upon the best information available to
the Company.
(i) The Company will comply with its obligations as provided in the
Indenture.
(j) In the event the Company intends to permit any other entity to use,
occupy, possess or own any portion of the Plant (a "Project User"), then on or
before the later of the Issue Date or the date when such Project User begins
use, occupancy, possession or acquires an ownership interest in the Plant, the
Company shall cause to be delivered to the Issuer and the Trustee a certificate
in substantially the form of the Tax Certificate, with such modifications,
additions or deletions as may be approved by Bond Counsel, duly executed on
behalf of such Project User.
(k) So long as any of the Bonds remain Outstanding, the Company shall cause
the Plant to be operated in compliance with the Act.
ARTICLE III
ISSUANCE OF THE BONDS
Section 3.1. Agreement To Issue Bonds; Application of Bond Proceeds. In
order to provide funds to refund the 1987 Bonds, the Issuer, concurrently with
the execution and delivery of this Agreement, will issue and deliver the Bonds
to the original purchaser or purchasers thereof. Simultaneously, the Issuer
shall direct the Trustee to deposit the accrued interest, if any, paid by the
original purchasers thereof in the Debt Service Fund and deposit the balance
thereof in accordance with the Escrow Agreement dated as of August 20, 1997
(the "Escrow Agreement") between the Trustee, as escrow agent, and the Company
for the payment of the principal of the 1987 Bonds upon redemption on November
13, 1997 and for no other purposes.
Section 3.2. The Plant.
(a) The Company hereby agrees to do all things necessary to comply with
the Tax Agreement.
5
<PAGE> 10
(b) The Company agrees to cause the Plant to be insured against loss in
accordance with customary industry practices.
Section 3.3. Limitations of the Issuer's Liability. Anything contained in
this Agreement to the contrary notwithstanding, any obligation the Issuer may
incur for the payment of money in connection with the Bonds or the redemption
of the 1987 Bonds shall not constitute a debt or general obligation of the
Issuer but shall be deemed a special, limited obligation and shall be payable
solely from the revenues and receipts derived by it from the loan of the
proceeds of the sale of the Bonds and any amounts received by it under this
Agreement, including payments received from the Company or pursuant to the
Letter of Credit. No provision in this Agreement or any obligation herein
imposed upon the Issuer, or the breach thereof, shall constitute or give rise
to or impose upon the Issuer a pecuniary liability or a charge upon its general
credit. No officer, commissioner, agent or employee of the Issuer shall be
personally liable on this Agreement.
ARTICLE IV
LOAN OF PROCEEDS; DEBT SERVICE PAYMENTS;
NATURE OF OBLIGATIONS
Section 4.1. Loan of Proceeds to Company. The Issuer agrees, upon the
terms and conditions contained in this Agreement, to make the proceeds
received by the Issuer from the sale of the Bonds available to the Company as a
loan. The loan shall be disbursed by the Issuer by deposit of the proceeds of
the Bonds with the Trustee for deposit in accordance with the Escrow Agreement
described in Section 6.01 of the Indenture.
Section 4.2. Amounts Payable.
(a) As and for repayment of the loan to the Company by the Issuer pursuant
to Section 4.1 hereof, the Company shall pay to the Trustee for the account of
the Issuer as a Debt Service Payment an amount equal to the aggregate principal
amount of the Bonds from time to time Outstanding and, as interest on its
obligation to pay such amount, an amount equal to interest on the Bonds and, in
the event of any redemption of the Bonds prior to the maturity thereof, the
premium, if any, due in respect thereof. The Debt Service Payments shall be
paid in installments due no later than 10:00 a.m. on the dates, in immediately
available funds in the amounts, and in the manner provided in the Indenture to
enable the Trustee, on behalf of the Issuer, to cause amounts to be deposited
in the Debt Service Fund to equal the amount required for the timely payment of
the principal of and premium, if any, and interest on the Bonds as the same
shall become due and payable, whether at maturity, upon redemption, by
acceleration, or otherwise; provided, however, that the obligation of the
Company to make any such payment hereunder shall be reduced by the amount of
any available moneys held by the Trustee in the Debt Service Fund for such
purpose.
(b) The Company shall also pay to or on behalf of the Issuer the fees and
reasonable expenses of the Issuer (including reasonable fees and expenses of
counsel) which have been disclosed to it on the Issue Date related to the
issuance and sale of the Bonds and such other costs, reimbursements, fees and
expenses for which it may be liable under Section 10.8 hereof in connection
with the Issuer's performance of its duties and obligations under this
Agreement, the Indenture and the other Bond Documents, within 30 days after
receipt of a written request from the Issuer for such payment.
6
<PAGE> 11
(c) The Company shall also pay the reasonable fees and expenses (including
reasonable fees and expenses of counsel) of the Trustee under the Indenture and
other Financing Documents (including this Agreement), such reasonable fees and
expenses to be paid directly to the Trustee for its account as and when such
reasonable fees and expenses become due and payable, and any reasonable expense
in connection with any redemption of the Bonds; provided, however, that so long
as no Event of Default exists hereunder, the Company shall not be responsible
for payment of any fees or expenses, including fees and expenses of counsel
(except for the Trustee's annual fee), unless the Company has been specifically
informed of the nature and amount of such fees and expenses and has given
written authorization therefor; provided, however, that no such authorization
shall be required if the Trustee determines, owing to extraordinary
circumstances, that such prior authorization is inconsistent with the
performance of its fiduciary duties hereunder. The Company may, without
creating a default hereunder or under the Indenture, contest in good faith the
necessity for and the reasonableness of any such services and expenses before
making payment therefor.
(d) In addition to all other costs and expenses due hereunder, the Company
shall pay all reasonable costs and expenses of enforcement of the terms and
provisions hereof and of the Indenture including, without limitation, those
referred to in Section 7.5 hereof and Sections 11.02, 11.03, and 12.11 of the
Indenture.
(e) The Company shall also compute the amount of arbitrage rebate at the
times and in the manner required by the Tax Agreement and shall pay amounts
equal to any rebatable arbitrage to the United States at the times and in the
amounts required by the Tax Agreement.
Section 4.3. Purchase Price Payments. The Company hereby agrees to pay the
amounts required under Section 4.03(b)(ii) of the Indenture at the times stated
therein to provide for the payment of the Purchase Price of the Bonds to the
extent that funds are not available from the proceeds of any remarketing or
from a drawing under the Letter of Credit.
Section 4.4. Obligations of Company Hereunder Unconditional. The
obligations of the Company to make the payments required in Sections 4.2, 4.3
and the other sections hereof and to perform and observe the other agreements
contained in Sections 2.2, 5.4 and 5.6, hereof, and in Article IX hereof, shall
be absolute and unconditional and shall not be subject to any defense or any
right of setoff, counterclaim, or recoupment arising out of any breach by the
Issuer or the Trustee of any obligation to the Company, whether hereunder or
otherwise, or out of any indebtedness or liability at any time owing to the
Company by the Issuer or the Trustee. Until such time as the principal of,
premium, if any, and interest on the Bonds shall have been fully paid or
provision for the payment thereof shall have been made in accordance with the
Indenture, the Company (i) will not suspend or discontinue any payments
provided for in Section 4.2(a) hereof, (ii) will perform and observe all other
agreements contained in this Agreement, and (iii) will not terminate the Term
of Agreement for any cause including, without limiting the generality of the
foregoing, the occurrence of any acts or circumstances that may constitute
failure of consideration, eviction, or constructive eviction, destruction of or
damage to all or a portion of the Plant, the taking by eminent domain of title
to or temporary use of any or all of the Plant, commercial frustration of
purpose, any change in the tax or other laws of or any action by the United
States of America or of the State or any political subdivision of either
thereof or any failure of the Issuer or the Trustee to perform and observe any
agreement, whether express or implied, or any duty, liability, or obligation
arising out of or connected with this Agreement, except to the extent permitted
by this Agreement.
7
<PAGE> 12
Nothing contained in this Section shall be construed to release the Issuer
or Trustee from the performance of any of the agreements on their part
contained herein or in the Indenture, and in the event the Issuer or the
Trustee should fail to perform any such agreement on its part, the Company may
institute such action against the Issuer or the Trustee as the Company may deem
necessary to compel performance so long as such action does not abrogate the
obligations of the Company contained in the first sentence of this Section.
The Company may, however, at the Company's own expense and in the Company's own
name or in the name of the Issuer, prosecute or defend any action or proceeding
or take any other action involving third persons which the Company deems
reasonably necessary in order to secure or protect the Company or the Company's
right of possession, occupancy and use of the Project and in such event the
Issuer hereby agrees to cooperate fully with the Company and to take all action
necessary to effect the substitution of the Company for the Issuer in any such
action or proceeding if the Company shall so request.
Section 4.5. Investment of Debt Service Fund Moneys. Any moneys held as a
part of the Debt Service Fund or any other fund shall be invested or reinvested
by the Trustee, to the extent permitted by law, at the request of and as
directed in writing by an Authorized Company Representative, in Investment
Securities in accordance with the provisions of Section 8.01 of the Indenture.
Section 4.6. Issuer to Grant Security Interest to Trustee. The parties
hereto agree that pursuant to the Indenture, the Issuer shall assign to the
Trustee for the benefit of the Registered Owners in order to secure payment of
the Bonds all of the Issuer's right, title, and interest in this Agreement
except the Issuer's rights under Sections 4.2(b), 6.2, 7.5 and 10.9 hereof, the
Trustee's rights to the payments under Section 4.2(c) hereof, the rights of the
United States government to the payments under Section 4.2(e) hereof into the
Rebate Fund and except as otherwise qualified in the Granting Clauses of the
Indenture. Nothing herein or in the Indenture shall be deemed to create a
mortgage, lien or a security interest in any part of the Project.
Section 4.7. Letter of Credit. The Company shall secure the payment of
amounts due under Section 4.2 and 4.3 by delivery to the Trustee on the date of
initial authentication and delivery of the Bonds of a Letter of Credit in favor
of the Trustee and for the benefit of the holders of the Bonds (other than
Company Bonds and Pledged Bonds). The Company shall cause a Letter of Credit
to be continuously maintained as required by the Indenture. The Company shall
be entitled to provide an Alternate Letter of Credit under certain
circumstances as provided in the Indenture.
ARTICLE V
SPECIAL COVENANTS
Section 5.1. Further Assurances and Corrective Instruments. The Issuer and
the Company agree that they will, from time to time, execute, acknowledge, and
deliver, or cause to be executed, acknowledged, and delivered, such supplements
hereto and such further instruments as may reasonably be required for carrying
out the expressed intention of this Agreement.
Section 5.2. Issuer Representative and Authorized Company Representative.
Whenever under the provisions of this Agreement the approval of the Issuer or
the Company is required, or the Issuer or the Company is required to take some
action at the request of the other, such approval or such request shall be
given for the Issuer by the Issuer Representative and for the Company by
Authorized Company Representative and the Trustee and any party hereto shall be
authorized to act on any such approval or
8
<PAGE> 13
request.
Section 5.3. Maintenance of Corporate Existence. The Company agrees that
during the Term of this Agreement it will maintain its corporate existence,
will not dissolve or otherwise dispose of all or substantially all of its
assets and, unless the Company shall be the surviving entity, will not
consolidate with or merge into another legal entity or permit one or more other
legal entities to consolidate with or merge into it, provided that the Company
may, without violating the agreement contained in this Section 5.3, consolidate
with or merge into another legal entity, or permit one or more legal entities
to consolidate with or merge into it, or sell or otherwise transfer to another
legal entity all or substantially all of its assets as an entirety and
thereafter dissolve, provided that (i) the surviving, resulting, or transferee
legal entity, as the case may be, shall be a legal entity organized and
existing under the laws of one of the states of the United States of America or
the District of Columbia and shall assume in writing all of the obligations of
the Company under this Agreement and (ii) the Letter of Credit shall continue
to be in effect or an Alternate Letter of Credit shall be delivered to the
Trustee, in which event the Trustee shall release the Company in writing,
concurrently with and contingent with and contingent upon such assumption, from
all liability hereunder.
Section 5.4. Permits or Licenses. In the event that it may be necessary
for the proper performance of this Agreement on the part of the Company or
the Issuer that any application or applications for any permit or license to do
or to perform certain things be made to any governmental or other agency by the
Company or the Issuer, the Company and the Issuer each shall, upon the request
of either, execute such application or applications.
Section 5.5. Arbitrage and Other Tax Covenants.
(a) The Issuer covenants for the benefit of the Owners of the Bonds and the
Company that: (i) the proceeds of the Bonds, any moneys derived, directly or
indirectly, from the use or investment thereof, and any other moneys on deposit
in any fund or account maintained in respect of the Bonds (whether such moneys
were derived from the proceeds of the sale of the Bonds or from other sources)
will not be used in a manner that would cause the Bonds to be treated as
"arbitrage bonds" within the meaning of Section 148 of the Code; and (ii) it
will refrain from taking any action which would adversely affect, and will take
such action as is reasonable and available and in its control to assure, the
treatment of the Bonds as obligations described in Section 103 of the Code the
interest on which is not includable in the "gross income" of the Owners (other
than the income of a "substantial user" of the Plant or a "related person"
within the meaning of Section 147(a) of the Code) for purposes of federal
income taxation.
(b) The Company covenants for the benefit of the Owners of the Bonds and
the Issuer that: (i) the proceeds of the Bonds, any moneys derived, directly or
indirectly, from the use or investment thereof, and any other moneys on deposit
in any fund or account maintained in respect of the Bonds (whether such moneys
were derived from the proceeds of the sale of the Bonds or from other sources)
will not be used by the Company in a manner that would cause the Bonds to be
treated as "arbitrage bonds" within the meaning of Section 148 of the Code; and
(ii) the Company will refrain from taking any action which would adversely
affect, and will take such action as is reasonable and available and in its
control, to assure the treatment of the Bonds as obligations described in
Section 103 of the Code the interest on which is not includable in the "gross
income" of the Owners (other than the income of a "substantial user" of the
Project or a "related person" within the meaning of Section 147(a) of the Code)
for purposes of federal income taxation.
9
<PAGE> 14
ARTICLE VI
ASSIGNMENT AND INDEMNIFICATION
Section 6.1. Assignment.
(a) This Agreement may be assigned by the Company without the necessity of
obtaining the consent of either the Issuer or the Trustee, subject, however, to
each of the following conditions:
(i) In the event of any such assignment, the Company shall continue
to remain primarily liable for payment of the amounts specified
or referred to in Sections 4.2 and 4.3 hereof and for
performance and observance of the other agreements on its part
herein provided to be performed and observed to the same extent
as though no assignment had been made.
(ii) The Company shall, within 30 days after the delivery thereof,
furnish or cause to be furnished to the Issuer and the Trustee a
true and complete copy of each assignment or assumption of
obligation.
(b) Except for the assignment to the Trustee contained in the Indenture,
the Issuer will not assign this Agreement or any of its rights hereunder.
Section 6.2. Release and Indemnity of Issuer and Trustee. The Company
releases the Issuer and its officers, commissioners, agents and employees, and
the Trustee, its officers, directors, employees and agents (collectively all of
such persons being defined as the "Indemnified Parties") from, agrees that the
Indemnified Parties will not be liable for, and agrees that it will indemnify
and hold harmless the Indemnified Parties against and pay all reasonable
expenses of the Indemnified Parties (including attorneys fees and expenses
incurred, and, in the event an Indemnified Party is required to bring suit to
enforce its rights pursuant to this Section 6.2, the costs and expenses of such
suit if finally resolved in favor of such Indemnified Party) relating to,
claims made against any such Indemnified Party in, or resulting from,
(i) with respect to the Issuer, the offer and sale of the Bonds or
the Issuer's capacity as a party to this Agreement and the
Indenture, for loss or damage to property or death or
injury to any person, arising during the Term of Agreement or
the term of the Indenture that may be occasioned by any cause
(other than gross negligence or willful misconduct of the
Issuer) pertaining to the construction or use by the Company of
the Plant, and any liabilities or losses resulting from
violations by the Company of conditions, agreements, and
requirements of law affecting the Plant or the ownership,
occupancy, or use thereof; or
(ii) with respect to the Trustee, the Trustee's capacity as a party
to the Indenture or the other Financing Documents for loss or
damage to property or death or injury to any person, arising
during the term of this Agreement or the Indenture that may be
occasioned by any cause (other than negligence or willful
misconduct of the Trustee) pertaining to the construction or use
by the Company of the Plant, and any liabilities or losses
resulting from violations by the Company of conditions,
agreements, and requirements of law affecting the Plant or the
ownership,
10
<PAGE> 15
occupancy, or use thereof, and any losses or liabilities
resulting from any violation of the Financing Documents by the
Company or the Trustee's execution of and performance under the
Financing Documents not resulting from the Trustee's negligence
or willful misconduct.
The release and indemnification provisions of the preceding sentence do not
apply to any claim made against any Indemnified Party in or resulting from any
action or failure to take action in any other capacity or, with respect to the
Issuer, for any claim arising from any untrue statement or omission or alleged
untrue statement or omission based upon information under the heading "The
Issuer" contained in the Preliminary Official Statement or the Final Official
Statement.
In case any action shall be brought against an Indemnified Party in
respect of which indemnity may be sought against the Company, such Indemnified
Party will promptly notify the Company in writing and the Company will assume
the defense thereof, including the employment of counsel, acceptable to the
Indemnified Party, and the payment of all for any settlement of any such
action without its consent but, if any such action is settled with the consent
of the Company or if there be final judgment for the plaintiff in any such
action, the Company agrees to indemnify and hold harmless each Indemnified
Party from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the resignation or removal of the Trustee under the
Indenture, the Company shall continue to be responsible hereunder with respect
to any liability or claim arising from facts that occurred prior to such
resignation or removal.
As a condition of the indemnification provided hereunder, each Indemnified
Party will reimburse the Company for payments made by the Company pursuant to
this Section 6.2 to the extent any of the proceeds, net of all expenses of
collection, actually received by such Indemnified Party from any insurance with
respect to the loss sustained.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default Defined. The following shall be "events of
default" under this Agreement, and the term "event of default" or "default"
shall mean, whenever it is used in this Agreement, any one or more of the
following events:
(a) Failure by the Company to pay the amounts required to be paid under
Section 4.2(a) and 4.3 of this Agreement not later than the due date therefor;
(b) Failure by the Company to observe and perform any covenant, condition
or agreement in this Agreement, or the Tax Agreement, or the other Financing
Documents on the part of the Company to be observed or performed, other than as
referred to in paragraph (a) above, for a period of 90 days after receipt by
the Company of any written notice, specifying such failure and requesting that
it be remedied, given to the Company by the Issuer or the Trustee, unless the
Issuer and the Trustee shall agree in writing to an extension of such time
prior to its expiration, or in the case of any such default which cannot with
due diligence be cured within such 90 day period, if the Company shall fail to
proceed promptly to cure the same and thereafter prosecute the curing of such
default with due diligence, it being intended in connection with such a default
not susceptible of being cured with due diligence within 90 days that the time
within
11
<PAGE> 16
which the Company may cure the same shall be extended for such period as may be
necessary to complete the curing of the same with all due diligence;
(c) The occurrence of an Event of Default under the Indenture; or
(d) The dissolution or liquidation of the Company other than as provided
for in Section 5.4 of this Agreement, or the filing by the Company of a
voluntary petition in bankruptcy, or assignment by the company for the benefit
of its creditors, or the entry by the Company into an agreement of composition
to its creditors, or the acquiescence in writing by the Company to any petition
filed against it in an involuntary case under federal bankruptcy law or any
similar law now or hereafter in effect, or the filing against the Company of a
petition in an involuntary case under federal bankruptcy law or any similar law
now or hereafter in effect that is not dismissed within 90 days after the
filing thereof.
The provisions of paragraph (b) above are subject to the following
limitations: If because of any force majeure the Company is unable in whole or
in part to carry out the agreements of the Company on its part herein
contained, other than the obligations on the part of the Company contained in
Article IV and Sections 5.4, 6.2 and 7.5 hereof, the Company shall not be
deemed in default during the continuance of such inability. The term "force
majeure" as used herein shall mean, without limitation, the following: Acts of
God; strikes, lockouts or other industrial disturbances; acts of public
enemies; orders of any kind of the government of the United States or of the
State or any of their departments, agencies or officials, or any civil or
military authority; insurrections; riots; epidemics; landslides; earthquakes;
fire; hurricanes; storms; floods; washouts; droughts; tornadoes; arrests;
restraint of government and people; civil or military disturbances; explosions;
breakage or accident to machinery, transmission pipes or canals; partial or
entire failure of utilities; or any other case or event not reasonably within
the control of the Company, it being agreed that the settlement of strikes,
lockouts and other industrial disturbances shall be entirely within the
discretion of the Company, and the Company shall not be required to make
settlement of strikes, lockouts and other industrial disturbances by acceding
to the demands of the opposing party or parties with such course is in the
judgment of the Company, unfavorable to the Company.
Section 7.2. Remedies on Default. Whenever any Event of Default referred
to in Section 7.1 hereof shall have happened and be continuing, the
Trustee may take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due, or to
enforce performance and observance of any obligation, agreement, or covenant of
the Company under this Agreement subject only to the limitations set forth in
the last paragraph of Section 7.1.
If the maturity of the Bonds is accelerated pursuant to Section 11.02 of
the Indenture, then payments due hereunder will be accelerated automatically.
Any amounts collected pursuant to action taken under this Section 7.2 to
which the Registered Owners are entitled shall be paid into the Debt Service
Fund and applied in accordance with the provisions of the Indenture.
Section 7.3. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Issuer or the Trustee is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Agreement or now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any Event of Default
shall impair any such right or power or shall be construed to be a waiver
thereof, but any such right or power may be exercised from time to time and as
often as may be
12
<PAGE> 17
deemed expedient. In order to entitle the Issuer to exercise any remedy
reserved to it in this Article, it shall not be necessary to give any notice,
other than such notice as may be required in this Article. Such rights
and remedies as are given the Issuer hereunder shall also extend to the
Trustee, and the Trustee, subject to Section 6.2 hereof and the provisions of
the Indenture, shall be entitled to the benefit of all covenants and agreements
herein contained.
Section 7.4. Annulment of Acceleration. If, in compliance with the
requirements of Section 11.02 of the Indenture, the Trustee shall annul an
acceleration declared due to any Event of Default under the Indenture such
annulment shall be deemed to also automatically rescind any acceleration of all
payments required under Section 7.2. In case of any such annulment, or in case
any proceeding taken by the Trustee on account of any such Event of Default
shall have been discontinued or abandoned or determined adversely, then and in
every such case the Issuer, the Company and the Trustee shall be restored to
their former positions and rights hereunder, but no such annulment shall extend
to any subsequent or other Event of Default or impair any right consequent
thereon.
Section 7.5. Agreement to Pay Attorneys' Fees and Expenses. In the event
the Company should default under any of the provisions of this Agreement, and
the Issuer or the Trustee should employ attorneys or incur other expenses for
the collection of payments required hereunder or the enforcement of performance
or observance of any obligation or agreement on the part of the Company herein
contained, the Company agrees that it will on demand therefor pay to or on
behalf of the Issuer or the Trustee, as the case may be, the reasonable fees
and expenses of such attorneys and such other reasonable expenses so incurred
by the Issuer or the Trustee, as the case may be. Any such payments due to the
Issuer under this paragraph shall also be deemed to be payments due under
Section 4.2(b) hereof.
Section 7.6. No Additional Waiver Implied by One Waiver. In the event any
agreement contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
ARTICLE VIII
OPTIONS: PREPAYMENT OF DEBT SERVICE PAYMENTS
Section 8.1. Option to Terminate at Any Time Upon Defeasance of the Bonds.
The Company shall have, and is hereby granted, the option to terminate the Term
of Agreement at any time prior to full payment of the Bonds (or provision for
payment thereof having been made in accordance with the provisions of the
indenture): (i) by paying to the Trustee an amount which, when added to the
amount on deposit in the Debt Service Fund, will be sufficient to pay, retire,
and redeem all the Outstanding Bonds in accordance with the provisions of
Section 16.01 of the Indenture (including, without limiting the generality of
the foregoing, principal of and interest to maturity or applicable redemption
date, as the case may be, and premium, if any, on the Bonds and all expenses of
redemption, the Trustee's fees and expenses, and any further sums owing under
this Agreement), and, in case of redemption, by making arrangements
satisfactory to the Trustee for the giving of the required notice of
redemption, and (ii) by giving the Issuer notice in writing of such
termination, and such termination shall forthwith become effective.
Section 8.2. Option to Prepay Debt Service Payments Upon the Occurrence of
Certain Events. Upon the occurrence of any event described in Section 9.01(c)
of the Indenture, the Company shall have, and is hereby granted, the option and
right to terminate the Term of Agreement and prepay all of the
13
<PAGE> 18
amounts payable hereunder prior to the full payment of the Bonds on or before
any date of redemption of Bonds pursuant to Section 9.01(c) of the Indenture.
The Trustee, on behalf of the Issuer, shall apply any prepayment received under
this Section to the redemption of the Bonds pursuant to Section 9.01(c) of the
Indenture.
Section 8.3. Option to Prepay Debt Service Payments. The Company shall
have, and is hereby granted, the option and right to terminate the Term of
Agreement and prepay all or a portion of the amounts payable hereunder at the
redemption price of the Bonds to which such prepaid amounts apply if the Bonds
are to be called for redemption pursuant to Section 9.01(a) of the Indenture,
and the Trustee, on behalf of the Issuer, shall apply prepayments received
under this Section to such redemption.
Section 8.4. Procedure for Prepayment. To exercise the option to prepay
set forth in Sections 8.1, 8.2 or 8.3 hereof, the Company shall give
written notice to the Issuer and, if any of the Bonds shall then be unpaid, to
the Trustee and shall specify therein the date of prepaying the Debt Service
Payments, which date shall not be less than 45 days (or such shorter period
acceptable to the Trustee) prior to the proposed redemption date of the Bonds
and shall make arrangements satisfactory to the Trustee for the giving of the
required notice of redemption under the Indenture. The prepayment amount
payable by the Company in the event of its payment pursuant to this Article
shall be an amount of money which, when added to the amount then on deposit and
available in the Debt Service Fund, will be sufficient to retire and redeem, as
the case may be, allow the portion to be redeemed of the Outstanding Bonds on
the earliest practicable redemption date after notice as provided in the
Indenture, including, without limitation, the principal amount thereof, all
interest to accrue to said redemption date and the applicable redemption
premium, if any.
Section 8.5. Relative Position of Options and Indenture. The options
granted to the Company in this Article shall be and remain prior and superior
to the Indenture and may be exercised whether or not the Company is in default
under this Agreement.
ARTICLE IX
OBLIGATION TO PREPAY DEBT SERVICE PAYMENTS
UPON OCCURRENCE OF CERTAIN EVENTS
Section 9.1. Obligation to Prepay Upon Special Mandatory Redemption of
Bonds Under Section 9.01(b) of the Indenture. The Company agrees to pay to
the Trustee, for the account of the Issuer, as a prepayment of amounts payable
hereunder, an amount which will be sufficient to redeem the Bonds in the amount
required to be redeemed in the event that the Bonds are subject to Special
Mandatory Redemption under Section 9.01(b) of the Indenture. All amounts
payable under this Section 9.1 shall become due and payable not later than 2:30
P.M. on the date fixed for such Special Mandatory Redemption.
ARTICLE X
MISCELLANEOUS
Section 10.1. Term of Agreement. This Agreement shall remain in full force
and effect from the date hereof until such time as all of the Bonds and the
fees and charges of the Issuer and the Trustee shall have been fully paid or
provisions made for such payments, whichever is later; provided that this
14
<PAGE> 19
Agreement may be terminated prior to such date if the Company shall exercise
its option to prepay the amounts payable hereunder pursuant to this Agreement.
Notwithstanding anything to the contrary herein, the obligations of the Company
set forth in Sections 4.2, 4.3, 6.2 and 7.5 shall survive the termination of
this Agreement.
Section 10.2. Notices. All notices, certificates or other communications
hereunder shall be sufficiently given and shall be deemed given when delivered
or mailed by registered mail, postage prepaid, addressed as follows:
If to the Issuer:
Peninsula Ports Authority of Virginia
12350 Jefferson Avenue, Suite 230
Newport News, Virginia 23602
Attention: Chairman
If to the Company:
Zeigler Coal Holding Company
50 Jerome Lane
Fairview Heights, Illinois 62208
Attention: Treasurer
If to the Trustee:
PNC Bank, N.A.
Corporate Trust Administration
One Oliver Plaza, 27th Floor
210 Sixth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Vice President
A duplicate copy of each notice, certificate, or other communication given
hereunder by the Issuer or the Company shall also be given to the Trustee. The
Issuer, the Company and the Trustee may, by written notice given hereunder,
designate any further or different addresses to which subsequent notices,
certificates, or other communications shall be sent. Each party will use its
best efforts to keep the other parties hereto informed of their current telefax
numbers as such numbers change from time to time.
Section 10.3. Confidential Information. Nothing contained in this
Agreement will require the Company to disclose or permit the Issuer, the
Trustee or others to acquire any access to any trade secrets of the Company or
any other confidential processes, techniques, or information.
Section 10.4. Waiver of Rights. Failure by the Issuer, the Company or the
Trustee to insist upon the strict performance of any of the representations in
this Agreement or to exercise any rights or remedies upon default will not be
considered a waiver or relinquishment of the right to insist upon and to
enforce by any appropriate legal remedy a strict compliance by the defaulting
party with all of the representations and agreements binding on it, or of the
right to exercise any such rights or remedies if such default be continued or
repeated.
15
<PAGE> 20
Section 10.5. Limitation of Warranty. The Issuer makes no warranties
except those warranties or representations expressly made by the Issuer in
this Agreement or other documents related to the issuance of the Bonds.
Section 10.6. Confirming Instruments. The parties hereto recognize and
agree that the lien of the Indenture does not extend to the Plant. The
Issuer will execute and deliver and will cause and direct the Trustee to
execute and deliver any instrument necessary or appropriate to confirm that the
lien of the Indenture does not extend to the Plant.
Section 10.7. Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon the Issuer and the Company, and shall inure to the
benefit of the Trustee and their respective successors and assigns, subject,
however, to the limitations contained in Sections 6.2 and 7.3 hereof.
Section 10.8. Performance by Issuer. The Issuer will not be obligated to
take any action or execute any instrument pursuant to any provision hereof or
under the Indenture or other Bond Documents until it has been requested to do
so by the Company or the Trustee and at the Issuer's option will have received
from the Company or the Trustee assurance satisfactory to the Issuer that the
Issuer will be reimbursed for its reasonable fees and expenses (including fees
and expenses of counsel), previously approved by the Company in writing,
incurred or to be incurred in connection with taking such action or executing
such instrument or that funds for such purpose will have been deposited with
the Trustee. Payments due to the Issuer hereunder shall be deemed to be
payments of Amounts Payable under Section 4.2(b) hereof.
Section 10.9. No Recourse to Issuer; Obligations of Issuer Limited. The
Issuer will not be obligated to pay for the Bonds except from Pledged Revenues
provided by the Company. The issuance of the Bonds will not directly or
indirectly or contingently obligate the Issuer, the State or any political
subdivision thereof, including the City of Newport News, Virginia, to levy or
pledge any form of taxation whatever or to make any appropriation for their
payment. Neither the Issuer nor any official, commissioner, officer, employee
or agent of the Issuer nor any person executing the Bonds will be liable
personally for the Bonds or be subject to any personal liability or
accountability by reason of the issuance of the Bonds.
Section 10.10. References to Bonds Ineffective After Bonds Paid. Upon
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Indenture) and all fees and charges of
the Trustee, all references in this Agreement to the Bonds and the Trustee
shall be ineffective, and the Trustee shall thereafter have no rights
hereunder, saving and excepting those that shall have theretofore vested or
would affect the tax-exempt status of the Bonds.
Section 10.11. Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.
Section 10.12. Amounts Remaining in Debt Service Fund. It is agreed by the
parties hereto that any amounts remaining in the Debt Service Fund upon
expiration or earlier termination of the Term of Agreement, as provided in this
Agreement and the Indenture, after payment in full of the Bonds (or provision
for payment thereof having been made in accordance with the provisions of the
Indenture) and the fees and expenses of the Trustee, in accordance with the
Indenture, shall belong to and be paid to the
16
<PAGE> 21
Company by the Trustee as the return of an overpayment of the amounts payable
hereunder.
Section 10.13. Amendments, Changes, and Modifications. Subsequent to the
issuance of Bonds and prior to their payment in full (or provision for the
payment thereof having been made in accordance with the provisions of the
Indenture), and except as otherwise expressly herein or in the Indenture
provided, this Agreement may not be effectively amended, changed, modified,
altered or terminated without the written consent of the Trustee and the Issuer
in accordance with the provisions of the Indenture.
Section 10.14. Execution in Counterparts. This Agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.
Section 10.15. Applicable Law; Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE AND
THE COURTS OF THE STATE SHALL HAVE JURISDICTION OF ANY ACTION FOR THE
ENFORCEMENT OF THE TERMS AND PROVISIONS HEREOF.
Section 10.16. Captions. The captions and headings in this Agreement are
for convenience only and in no way define, limit, or describe the scope or
intent of any provisions or Sections of this Agreement.
17
<PAGE> 22
IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed in
its corporate name by its Chairman and with its official seal hereunto affixed
and attested by its duly authorized Secretary-Treasurer. The Company has
caused this Agreement to be executed in its corporate name by a duly authorized
officer. All of the above occurred as of the date first above written.
PENINSULA PORTS AUTHORITY OF VIRGINIA
(SEAL)
By: /s/ Michael J. Carter
--------------------------------------
Chairman
ATTEST:
/s/ G. Mark Ailsworth Date: August 20, 1997
- ------------------------------------
Secretary-Treasurer
[Signatures Continued on Next Page]
18
<PAGE> 23
[Signatures of Financing Agreement Continued]
ZEIGLER COAL HOLDING COMPANY
By: /s/ Sharad M. Desai
---------------------------------------
Treasurer
Date: August 20, 1997
------------------------
19
<PAGE> 1
EXHIBIT 10.20
ZEIGLER COAL HOLDING COMPANY
SPECIAL BONUS AND SEVERANCE PAY PLAN
Section 1
General Purpose
The Board of Directors of Zeigler Coal Holding Company ("Zeigler")
believes that it is in the best interests of Zeigler and its Subsidiaries to
provide additional security to certain employees of the Company (the "Covered
Employees") and thereby induce such individuals to continue in their employment
and enhance their ability to perform effectively and without undue distraction
should Zeigler become subject to a Change of Control (as hereinafter defined).
Accordingly, Zeigler hereby establishes the plan hereinafter set forth (the
"Plan") which provides for (i) the payment of a special Bonuses as provided in
Section 4 of this Plan in the event a Change of Control occurs prior to
December 31, 1998, (ii) the payment of special severance benefits as provided
in Section 5 of this Plan in the event a Covered Employee's employment is
terminated within a twelve month period after a Change of Control, either by
the Company without Cause or by the Covered Employee for Good Reason, and (iii)
the vesting of all outstanding stock options held by those Covered Employees
employed on the effective date of a Change of Control.
Section 2
Definitions
As used in this Plan, the following terms have the meaning set forth
below:
2.1 "Base Salary" shall mean a Covered Employee's annual base salary in
effect immediately prior to the Change of Control.
2.2 "Board of Directors" means the Board of Directors of Zeigler as from
time to time constituted.
<PAGE> 2
2.3 "Cause" shall mean the (i) gross negligence of willful misconduct by
the Covered Employee in the performance of his or her duties which has a
material adverse effect on the Company's operations, properties, or business
relationships or (ii) Covered Employee's conviction of a felony or of
misappropriation of funds of the Company.
2.4 "Change of Control" shall mean:
(i) the acquisition by any person or group of beneficial
ownership, directly or indirectly, of securities of Zeigler
representing more than eighty percent (80%) of the combined
voting power of Zeigler's then outstanding securities; provided
in any event that a reorganization or reincorporation shall not
be considered a "Change of Control" as long as the persons
holding the right to exercise actual control of Zeigler are
substantially the same immediately after the reorganization or
reincorporation as before the reorganization or reincorporation;
or
(ii) the sale or other disposition of substantially all of the
assets of the Company (including shares of subsidiaries or
affiliates).
The terms "Beneficial ownership," "person" and "group" shall have the
meanings provided in or pursuant to Sections 13 and 14 of the Securities
Exchange Act of 1934, as amended.
2.5 "Company" shall mean Zeigler and its Subsidiaries.
2.6 "Covered Employee" has the meaning stated in Section 3.
2.7 "Disability" shall have the same meaning as set forth in the Company's
long-term disability plan in effect immediately prior to the Change of Control.
2.8 "Effective Date" of this Plan is December 1, 1997.
2.9 "Subsidiary" shall mean a corporation or other entity at least fifty
percent (50%) of whose stock or voting interests is owned, directly or
indirectly, by Zeigler immediately prior to a Change of Control (including each
corporation listed as a subsidiary in the most recent
- 2 -
<PAGE> 3
Report on Form 10-K filed by Zeigler with the Securities and Exchange
Commission which is then a subsidiary). All such corporations shall be
referred to collectively as Subsidiaries.
2.10 "Termination of Employment" shall mean the termination of a Covered
Employee's employment relationship with the Company for any reason other than
(i) death or "disability" of such Covered Employee,
(ii) termination for "Cause,"
(iii) voluntary termination by the Covered Employee other than
a "Termination for Good Reason," or
(iv) termination as part of the sale of the Company if the
Purchaser offers employment to the Covered Employee on the
same terms and conditions as in effect immediately prior
thereto.
2.11 "Termination for Good Reason" shall mean the termination of
employment by a Covered Employee due to the occurrence of one or more of the
following events which takes effect during the twelve month period following
the date of the Change of Control, without the express written consent of the
Covered Employee:
(i) a reduction by the Company in the Covered Employee's Base
Salary or in the formula under any Bonus Plan applicable to
such Covered Employee as in effect prior to the Change of
Control (but not a reduction in bonus based on application of
such formula or any reduction in any bonus which is
discretionary as to amount);
(ii) a material reduction or other adverse change in the
responsibilities, duties or working conditions of the Covered
Employee, including any requirement that the Covered Employee
relocate his or her work location by more than 25 miles from
the location on the effective date of the Change of
Control; or
(iii) the failure of Zeigler to obtain the assumption of this Plan
by any successor as contemplated in Section 7.4.
2.12 "Weekly Base Salary" shall mean the Covered Employee's Base Salary
divided by 52.
- 3 -
<PAGE> 4
2.13 "Years of Service" shall mean the Covered Employee's period of
employment with the Company (and all predecessor companies, including, without
limitation, Zeigler Coal Company, Old Ben Coal Company, and Shell Mining
Company ), computed in completed years and months. For this purpose, the rules
for determining Years of Service under the Mining Companies Employees Pension
Plan shall be incorporated herein.
2.14 "Zeigler" means Zeigler Coal Holding Company, a Delaware corporation
and its successors and assigns.
Section 3
Categories of Covered Employees
3.1 For purposes of this Plan, the term "Covered Employee" shall mean all
salaried employees of the Company. Under no circumstance, however, shall
Covered Employees include any employee whose terms and conditions of employment
is governed by a collective bargaining agreement or whose compensation is
determined on an hourly basis.
3.2 The Covered Employees shall be divided into one of the following
categories for purposes of determining the Benefits to which such Covered
Employee would be entitled under this Plan in the event a Change of Control
occurs:
Category A. Category A shall consist of those Covered Employees who
are listed as senior executives on Schedule A to this Plan, with such
additions or deletions from such Schedule A as shall be approved by the
Board of Directors at any time prior to the effective date of a Change of
Control;
Category B. Category B shall consist of those Covered Employees who
are listed as Key Executives on Schedule B to this Plan, with such
additions or deletions from Schedule B as shall be approved by the Board
of Directors at any time prior to the effective date of a Change of
Control;
- 4 -
<PAGE> 5
Category C. Category C shall consist of those Covered Employees
who are listed as executives and managers on Schedule C to this Plan, with
such additions and deletions from Schedule C as shall be approved by the
Board of Directors at any time prior to the effective date of a Change of
Control; and
Category D. Category D shall consist of all Covered Employees who
are not included in Categories A, B or C.
Section 4
Retention Bonus Payable to Covered Employees
4.1 A Covered Employee shall be entitled to the Retention Bonus
determined in accordance with Section 4.2 hereof if:
(i) a Change of Control occurs on or before December 31, 1998;
and
(ii) the Covered Employee is employed with the Company
(or successor thereto) as of the effective date
of the Change of Control.
4.2 The Retention Bonus payable to the Covered Employee under the
circumstances set forth in Section 4.1 shall be determined as follows:
(i) For each Covered Employee in Category A, the Retention Bonus
shall equal two-thirds of the sum of (1) his or her Base
Salary plus (2) his or her highest target bonus in effect for
such calendar year (whether or not such target bonus was
earned or likely to be earned) in which the Change of
Control occurs. For example, a Covered Employee with a
$200,000 Base Salary and a $120,000 target bonus would be
entitled to receive a Retention Bonus of $213,333.
(ii) For each Covered Employee in Category B, the Retention Bonus
shall equal the one-third of the sum of (1) his or her Base
Salary plus (2) his or her highest target bonus in effect
for such calendar year (whether or not such target bonus was
earned or likely to be earned) in which the Change of
Control occurs. For example, a Covered Employee with a
$150,000 Base Salary and a $50,000 target bonus would be
entitled to receive a Retention Bonus of $66,666.
- 5 -
<PAGE> 6
(iii) For each Covered Employee in Category C and D, the
Retention Bonus shall equal his or her Base Salary divided
by twelve (12); provided, the employee shall not be
entitled to any Retention Bonus unless he or she has been
employed by the Company for at least six months as of the
effective date of the Change in Control.
4.3 The Retention Bonus payable hereunder shall be paid no later than
the thirtieth (30th) day following the effective date of the Change of Control
to those Covered Employees entitled to such payment hereunder and shall be paid
in a lump sum, net of applicable withholding taxes.
4.4 Upon the Change of Control, all outstanding stock options that
have been issued under the Zeigler stock option plan and are held by a Covered
Employee who is employed on effective date of the Change of Control shall
become fully vested. The Covered Employee will be permitted to exercise the
stock options in accordance with the terms and conditions set forth in the
Stock Option Plan that pertains thereto.
Section 5
Severance Benefits Payable to Covered Employees
5.1 In the event a Change of Control occurs on or prior to
December 31, 1998, a Covered Employee who is employed by the Company on the
date of the Change of Control shall be entitled to the severance benefits as
set forth in Section 5.2 hereof if the Covered Employee incurs a Termination of
Employment within the twelve month period following the Change of Control.
Notwithstanding the foregoing, the Covered Employee shall not be entitled to
severance benefits hereunder in the event such termination is a termination for
cause.
5.2 A Covered Employee who has become entitled to severance benefits
pursuant to Section 5.1 shall receive the following benefits:
(a) Such Covered Employee Shall receive a cash payment in an amount
determined as follows depending on the Category to which the Covered
Employee is
- 6 -
<PAGE> 7
assigned on the effective date of the Change of Control, less the amount,
if any, of the Retention Bonus paid to such Covered Employee pursuant
hereto:
(i) For each Covered Employee in Category A, the
severance payment shall equal two times the sum of (1)
his or her Base Salary plus (2) his or her highest
target bonus in effect for such calendar year (whether
or not such target bonus was earned or likely to be
earned). For example, a Covered Employee with a
$200,000 Base Salary and a $120,000 target bonus would
be entitled to receive a severance payment of $640,000.
(ii) For each Covered Employee in Category B, the severance
payment shall equal the sum of (1) his or her Base
Salary plus (2) his or her highest target bonus in
effect for such calendar year (whether or not such
target bonus was earned or likely to be earned). For
example, a Covered Employee with a $150,000 Base Salary
and a $50,000 target bonus would be entitled to receive
a severance payment of $200,000.
(iii) For each Covered Employee in Category C, the severance
payment shall equal an amount determined by multiplying
his or her Weekly Base Salary by the factor of three
(3) multiplied by his or her Years of Service;
provided that, in no event shall such payment be more
than his or her Base Salary or less than his or her
Weekly Base Salary multiplied by twelve (12).
(iv) For each Covered Employee in Category D, the severance
payment shall equal an amount determined by multiplying
his or her Weekly Base Salary by the factor of three
(3) multiplied by his of her Years of Service; provided
that, in no event shall such payment be more than his
or her Base Salary and, provided further, a Category
D Covered Employee shall not be entitled to any
severance payment unless he or she has been employed by
the Company for at least six months as of the effective
date of the Change in Control.
(b) Such Covered Employee shall continue to be covered under the
Company's health and dental insurance plan and life insurance plan as in
effect immediately prior to his or her Termination of Employment for a
period of twelve months immediately following his or her Termination of
Employment. Such coverage shall be provided on the same terms and
conditions applicable to active employees (as the same may be amended
from time to time and subject to any legal limitations) in effect for
such
- 7 -
<PAGE> 8
Covered Employee on the day before the Termination of Employment;
provided, however, that such coverage shall be counted toward the period
of continuation of coverage under the group health plan continuation
coverage provision of ERISA and the Code; provided further, that such
coverage shall end immediately upon the Covered Employee becoming
eligible for coverage under any employer health plan as a result of
subsequent employment.
5.3 The Company shall pay the severance payment provided in this
Section 5 to the Covered Employee entitled thereto in cash no later than 30
days after the Termination of Employment. Such payment shall be made in a lump
sum, net of applicable withholding taxes and any other severance payment as
provided in Section 7.2 of this Plan.
Section 6
Duration and Amendment
6.1 This Plan shall become effective on December 1, 1997 and shall
terminate on December 31, 1998 unless, prior thereto, a Change of Control shall
have occurred, in which case all rights granted hereunder shall be vested, and
the Plan shall continue in effect and shall apply to any termination of
employment that occurs within 12 months after the effective date of the Change
of Control.
6.2 This Plan may be terminated or amended in any respect at any
time by resolution adopted by the Board of Directors provided that no such
termination or amendment shall adversely affect the rights hereunder of any
Covered Employee if a Change of Control occurs within ninety days following the
effective date of the adoption of such resolution and provided further that no
termination or amendment of the Plan shall become effective during the period
of twelve months following a Change of Control. Subject to the provisions in
the preceding sentence, any termination or amendment of this Plan shall be
effective on the effective date of the resolution terminating or amending the
Plan (or any later date specified in such resolution) and may terminate,
reduce, restrict or condition the rights of any person hereunder. In no event
shall the termination of a Covered Employee be construed as a termination or
amendment of the Plan.
- 8 -
<PAGE> 9
Section 7
General Provisions
7.1 No employee whose employment is terminated prior to a Change of
Control and no Covered Employee whose employment is terminated more than twelve
months after a Change of Control shall be entitled to any severance benefits
under this Plan. No provision of this Plan shall be interpreted or construed:
(i) to entitle any Covered Employee or other person to
employment by the Company or to any notice of
termination of employment by the Company,
(ii) to limit or restrict in any manner the right
of the Company to terminate any Covered
Employee's or other person's employment, or
(iii) to change in any manner the conditions, terms,
responsibilities or duties of employment of any Covered
Employee or other person; provided that each Covered Employee
who is subject to a Terminantion of Employment within the
twelve-month period following a Change of Control shall be
entitled to receive the severance benefits as provided in
this Plan.
7.2 This Plan shall not limit in any respect the right of the Company to
enter into any contract or other arrangement for the making of severance or
other payments to any employee, whether or not relating to a Change of Control,
or for the making of any other payment in the event of a Change of Control.
The amount of severance payment which a Covered Employee is entitled to receive
hereunder shall be reduced by the amount of any other severance payments made
to such person under any contract or otherwise, which are made no later than 30
days following the Termination of Employment of such employee.
7.3 All matters regarding this Plan and its application (including the
construction or interpretation of any provision hereof) shall be determined by
the Board of Directors or, following a Change of Control, by a majority of the
individuals (excluding any who are unable to act) who were directors of Zeigler
immediately preceding such Change of Control (whether or not any such
individuals remain a director at the time of such determination). Any
such determination shall be binding upon and enforceable by Zeigler, all
Covered Employees and all other persons.
- 9 -
<PAGE> 10
7.4 This Plan shall be binding upon Zeigler and each Covered Employee
and their respective successors, assigns, heirs and representatives. Zeigler
shall cause any person which acquires in any manner (including by merger)
substantially all of Zeigler's assets or which merges with Zeigler to assume
all provisions of this Plan with respect to all Covered Employees employed in
connection with the assets being acquired. Such assumption shall be by written
instrument in form and substance satisfactory to a majority of the directors of
Zeigler in office immediately prior to such acquisition of assets. Such
assumption shall not relieve Zeigler of its obligations under this Plan.
7.5 The validity, interpretation, construction and performance of this
Plan shall be governed by the laws of the State of Illinois.
7.6 For the purpose of this Plan, notices and all other communications
provided for in this Plan shall be in writing and shall be deemed to have been
duly given when delivered or mailed by certified or registered mail, return
receipt requested, postage prepaid, addressed:
(a) if to an Employee, to his latest address as reflected on the
company's employment records, with a copy to him at his place of
employment, if known, and
(b) if to the Company or Zeigler, to:
Corporate Secretary
Zeigler Coal Holding
50 Jerome Lane
Fairview Heights, IL 62208
- 10 -
<PAGE> 11
WHEREFORE, Zeigler Coal Holding Company has caused this plan to be
executed as of this first day of December, 1997 by the members of the Special
Committee of the Board of Directors established in connection with the approval
of this Plan.
ZEIGLER COAL HOLDING COMPANY
By: /s/ John F. Manley
---------------------------------
John F. Manley
By: /s/ Michael K. Reilly
---------------------------------
Michael K. Reilly
Members of the Special Committee of the
Board of Directors
- 11 -
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
---- ----------------------
Zeigler Coal Holding Company Delaware
Phoenix Land Company Delaware
Americoal Development Company Delaware
Fairview Land Company Delaware
Franklin Coal Sales Company Delaware
Franklin Coal International, Inc. Virgin Islands
Old Ben Coal Company Delaware
Bluegrass Coal Development Company Delaware
Turris Coal Company Delaware
Triton Coal Company Delaware
R. & F. Coal Company Ohio
Bellaire Trucking Company Delaware
Encoal Corporation Delaware
Evergreen Mining Company West Virginia
East Kentucky Energy Corporation Kentucky
Kermit Coal Company West Virginia
Heritage Mining Company Delaware
Mountaineer Coal Development Company * West Virginia
Shipyard River Coal Terminal Company ** South Carolina
Zenergy, Inc. Delaware
EnerZ Corporation Delaware
Zeigler International, Inc. Caymen Islands
Zeigler Environmental Services Company Delaware
Zeigler Property Development Company Delaware
Premium Coal Development Company Delaware
* Does business under the following names: Marrowbone Development Company,
Wolf Creek Collieries Company and Pier IX Terminal Company.
** Does business under the following names: Pike County Coal Corporation,
Shipyard River Terminal Company, Clark Elkhorn Coal Company, Utility Coals
Company, Knott County Mining Company, and Matrix Coal Company.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-80646 of Zeigler Coal Holding Company and Subsidiaries on Form S-8 of our
reports dated February 5, 1998 appearing in this Annual Report on Form 10-K of
Zeigler Coal Holding Company and Subsidiaries for the year ended December 31,
1997.
DELOITTE & TOUCHE LLP
St. Louis, Missouri
March 24, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Brent L. Motchan his true and lawful
attorney-in-fact, with full power of substitution and revocation, for him and
in his name, place and stead, in any and all capacities (including his capacity
as an officer of Zeigler Coal Holding Company), to sign the Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, and all amendments
thereto, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto such attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power of Attorney has been signed on March 24, 1998 by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ Michael K. Reilly Chairman of the Board and Director
------------------------------
Michael K. Reilly
/s/ Chand B. Vyas Chief Executive Officer, President and
------------------------------ Director (Principal Executive Officer)
Chand B. Vyas
/s/ Roland E. Casati Director
------------------------------
Roland E. Casati
/s/ Robert W. Ericson Director
------------------------------
Robert W. Ericson
/s/ John F. Manley Director
------------------------------
John F. Manley
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from consolidated
balance sheets and statements of operations as of December 31, 1997 and for the
year then ended, and is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 103254
<SECURITIES> 0
<RECEIVABLES> 89086
<ALLOWANCES> 1891
<INVENTORY> 41156
<CURRENT-ASSETS> 250297
<PP&E> 1193520
<DEPRECIATION> 365314
<TOTAL-ASSETS> 1093957
<CURRENT-LIABILITIES> 228093
<BONDS> 275800
0
0
<COMMON> 284
<OTHER-SE> 177456
<TOTAL-LIABILITY-AND-EQUITY> 1093957
<SALES> 800756
<TOTAL-REVENUES> 800756
<CGS> 714772
<TOTAL-COSTS> 714772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16997
<INCOME-PRETAX> 68987
<INCOME-TAX> 10348
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58639
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF MARCH 31, 1996, JUNE 30, 1996
AND SEPTEMBER 30, 1996, AND FOR THE THREE, SIX AND NINE MONTH PERIODS,
RESPECTIVELY THEN ENDED, AND AS OF DECEMBER 31, 1996, AND FOR THE TWELVE MONTH
PERIOD THEN ENDED. THIS SHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 17570 25850 88704 108321
<SECURITIES> 0 0 0 0
<RECEIVABLES> 75198 74784 57237 55096
<ALLOWANCES> 2710 2637 2583 2840
<INVENTORY> 53313 48453 41713 41326
<CURRENT-ASSETS> 169568 163415 204662 217952
<PP&E> 1167670 1131340 1136605 1143036
<DEPRECIATION> 317162 298366 313179 324166
<TOTAL-ASSETS> 1037650 1010419 1041174 1050625
<CURRENT-LIABILITIES> 134478 116759 137048 133022
<BONDS> 344770 344770 344770 344770
0 0 0 0
0 0 0 0
<COMMON> 283 284 284 284
<OTHER-SE> 89921 101212 116086 132322
<TOTAL-LIABILITY-AND-EQUITY> 1037650 1010419 1041174 1050625
<SALES> 172922 347043 533705 698523
<TOTAL-REVENUES> 180983 363719 556941 731624
<CGS> 137839 294559 462487 597100
<TOTAL-COSTS> 141972 304956 460414 619614
<OTHER-EXPENSES> 21049 19639 31438 22495
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 5777 11652 17186 21042
<INCOME-PRETAX> 12185 27472 47943 69264
<INCOME-TAX> 2072 4685 8165 11300
<INCOME-CONTINUING> 10113 22787 39778 57964
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 10113 22787 39778 57964
<EPS-PRIMARY> .36 .80 1.40 2.04
<EPS-DILUTED> .36 .80 1.40 2.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS AS OF MARCH 31, 1997, JUNE 30, 1997,
AND SEPTEMBER 30, 1997, AND FOR THE THREE, SIX AND NINE MONTH PERIODS,
RESPECTIVELY, THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 117,348 96,750 118,544
<SECURITIES> 0 0 0
<RECEIVABLES> 59,843 71,610 73,977
<ALLOWANCES> 2,862 1,666 2,123
<INVENTORY> 41,325 46,099 41,958
<CURRENT-ASSETS> 232,700 230,144 398,316
<PP&E> 1,145,345 1,154,554 1,176,625
<DEPRECIATION> 333,329 345,515 357,913
<TOTAL-ASSETS> 1,057,738 1,051,856 1,230,345
<CURRENT-LIABILITIES> 134,691 131,723 301,938
<BONDS> 344,770 344,142 344,142
284 284 284
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 143,575 150,355 166,147
<TOTAL-LIABILITY-AND-EQUITY> 1,057,738 1,051,856 1,230,345
<SALES> 152,152 293,843 445,334
<TOTAL-REVENUES> 164,652 348,055 586,260
<CGS> 128,231 240,533 360,869
<TOTAL-COSTS> 139,399 250,692 372,331
<OTHER-EXPENSES> 5,272 54,879 145,872
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,111 8,637 12,712
<INCOME-PRETAX> 15,870 33,847 55,345
<INCOME-TAX> 2,856 6,090 9,959
<INCOME-CONTINUING> 13,014 27,757 45,386
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 13,014 27,757 45,386
<EPS-PRIMARY> .46 .98 1.60
<EPS-DILUTED> .45 .96 1.58
</TABLE>
