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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
ZEIGLER COAL HOLDING COMPANY
(NAME OF SUBJECT COMPANY)
ZEIGLER COAL HOLDING COMPANY
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
989286 10 9
(CUSIP NUMBER OF CLASS OF SECURITIES)
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BRENT L. MOTCHAN
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ZEIGLER COAL HOLDING COMPANY
50 JEROME LANE
FAIRVIEW HEIGHTS, ILLINOIS 62208
(618) 394-2400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
WITH COPIES TO:
GLEN E. HESS, P.C.
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NY 10022
(212) 446-4800
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Zeigler Coal Holding Company, a Delaware
corporation (the "COMPANY" or "ZEIGLER"). The address of the principal executive
offices of the Company is 50 Jerome Lane, Fairview Heights, Illinois 62208. This
Solicitation/Recommendation Statement on Schedule 14D-9 (this "STATEMENT" or
this "SCHEDULE 14D-9") relates to the Company's common stock, $.01 par value
(the "Shares").
ITEM 2. TENDER OFFER OF BIDDER
This statement relates to a tender offer by Zeigler Acquisition Corporation
("PURCHASER"), a Delaware corporation and a wholly owned subsidiary of AEI
Resources, Inc., a Delaware corporation ("PARENT"), as set forth in a Tender
Offer Statement on Schedule 14D-1, dated August 5, 1998 (the "SCHEDULE 14D-1"),
to purchase all outstanding Shares at a price of $21.25 per share, net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated August 5, 1998 (the "OFFER TO PURCHASE"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "OFFER").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 3, 1998 (the "MERGER AGREEMENT"), by and among Parent, Purchaser
and the Company. The Offer is subject to certain conditions. The Merger
Agreement provides that, if the Offer is consummated pursuant to its terms,
Purchaser will be merged with and into the Company (the "MERGER"), and the
Company will continue as the surviving corporation (the "SURVIVING
CORPORATION"). A copy of the Merger Agreement is filed as EXHIBIT 1 hereto and
incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Purchaser and Parent are located at 1500 North Big Run Road, Ashland, Kentucky
41102.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b) Except as described herein or on pages 5 and 6 of the Company's proxy
statement dated April 2, 1998 (the "1998 PROXY STATEMENT") relating to the
Company's 1998 Annual Meeting of Stockholders, which are filed as EXHIBIT 2 to
this Statement and are incorporated herein by reference, to the knowledge of the
Company, as of the date hereof, there are no material contracts, agreements,
arrangements or understandings, or any actual or potential conflicts of
interest, between the Company or its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) Purchaser, Parent or their
respective executive officers, directors or affiliates. Certain information
pursuant to Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1
thereunder is contained in the Information Statement attached as Annex I hereto.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase is
incorporated herein by reference. The Offer to Purchase has been filed with the
Securities and Exchange Commission (the "COMMISSION") as an exhibit to the
Schedule 14D-1, a copy of which Schedule 14D-1 is enclosed with this Schedule
14D-9. The Merger Agreement is also incorporated herein by reference. The Merger
Agreement and the summary thereof should be read in its entirety for a more
complete description of the terms and provisions of the Merger Agreement. The
following is a summary of certain portions of the Merger Agreement which relate
to arrangements among the Company, Purchaser, Parent and the Company's executive
officers and directors and is qualified in its entirety by reference to the
Merger
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Agreement. For the purposes of this Item 3(b), capitalized terms used and not
otherwise defined herein have the meanings given to such terms in the Merger
Agreement.
THE OFFER
The Merger Agreement requires that no later than two business days after the
public announcement of the terms of this Agreement, (i) Parent and Purchaser
file Purchaser's Tender Offer Statement on Schedule 14D-1 with the Commission
and commence the Offer in accordance with the requirements of Regulations 14D
and 14E promulgated under the Exchange Act and (ii) the Company file with the
Commission the Company's Solicitation/Recommendation Statement on Schedule 14D-9
with respect to the Offer, which will be mailed to the holders of Shares and
contains the recommendation of the Company's Board of Directors that holders of
Shares accept the Offer. Parent, Purchaser and the Company have each agreed to
use its reasonable best efforts to cause all the Offer Conditions to be
fulfilled and to avoid the occurrence of any event or to cure any event that may
prevent the Offer Conditions from being fulfilled.
The obligation of Purchaser to accept for payment and pay for any Shares
tendered pursuant to the Offer is subject only to the conditions to the Offer
set forth in Section 13 (the "OFFER CONDITIONS"). Without the prior written
consent of the Company, Purchaser may not decrease the Offer Price or change the
form of consideration payable in the Offer, decrease the number of Shares
Purchaser seeks to purchase in the Offer, change the Offer Conditions, impose
additional conditions to the Offer, or amend any other term of the Offer in any
manner adverse to the holders of Shares. Purchaser may waive any condition to
the Offer other than the Minimum Condition without the consent of the Company.
Subject to the satisfaction of all the Offer Conditions as of any Expiration
Date, Purchaser will accept for payment and pay for all Shares validly tendered
and not withdrawn pursuant to the Offer as soon as practicable after such
Expiration Date. Parent must make reasonable provision for payment of the Offer
proceeds to be made by wire transfer of immediately available funds to any
person tendering Shares representing more than 1% of the outstanding Shares.
BOARD REPRESENTATION
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer and
from time to time thereafter, Purchaser will be entitled to designate at least a
number of directors on the Company's Board of Directors equal to the product of
(i) the total number of directors on the Company's Board of Directors and (ii)
Purchaser's percentage ownership of the outstanding Shares of the Company. The
Company will either increase the size of the Company's Board of Directors or
secure the resignation of the necessary number of directors to enable
Purchaser's designees to be elected to the Company's Board of Directors, and
will cause such designees to be elected to the Company's Board of Directors.
COMPANY STOCK OPTIONS
The Merger Agreement provides that promptly after the commencement of the
Offer, the Company must offer to cancel any and all of the outstanding options
to purchase Shares and each outstanding stock appreciation right (each such
option to purchase one share and each such unit representing one share being
referred to as an "OPTION") granted under the Company's Incentive Stock Option
Plan and the Company's Stock Appreciation Rights Plan (together, the "OPTION
PLAN") for cash consideration as follows. Each holder of a vested Option (after
giving consideration to any acceleration of vesting provided in the Option Plan
or the Company's Special Bonus and Severance Plan (the "SBS PLAN")) will be
offered the right to have 100% of his or her Options canceled by the Company in
consideration of a payment by the Company for each Option in an amount equal to
the excess of the Offer Price over the applicable exercise price of such Option
(the "OPTION CONSIDERATION"). Cancellation of and payment of the consideration
for the Options will be conditioned upon the purchase of Shares by the Purchaser
pursuant to the Offer. If the Purchaser purchases Shares pursuant to the Offer,
the Options will be
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canceled and the consideration therefor will be paid as promptly as possible
following the purchase of Shares by the Purchaser upon expiration of the Offer.
The Merger Agreement also provides that at the Effective Time, each then
outstanding Option will be converted automatically into the right to receive the
Option Consideration, but only to the extent then vested and exercisable, taking
into account any acceleration of vesting provided for in the Option Plan or the
SBS Plan. The Option Consideration will be paid upon delivery of any then
outstanding Options by or on behalf of the Option holder.
THE MERGER
The Merger Agreement provides that at the Effective Time (as defined below)
and upon the terms and subject to the conditions of the Merger Agreement and
Delaware law, Purchaser will merge with and into the Company, the separate
corporate existence of Purchaser will cease, and the Company will continue as
the surviving corporation, succeeding to and assuming all the rights and
obligations of Purchaser in accordance with Delaware law.
As soon as practicable after the satisfaction or waiver of the conditions to
the Merger, the parties will file a certificate of ownership and merger with the
Secretary of State of the State of Delaware and will make all other filings or
recordings required under Delaware law. The Merger will become effective upon
the filing of the certificate of ownership and merger or such later time
specified in such certificate (the "EFFECTIVE TIME").
At the Effective Time, (i) each Share not purchased by Purchaser in the
Offer (other than Shares held by stockholders who properly exercise appraisal
rights under Delaware law and Shares owned by the Company or one of its
subsidiaries or by Parent or Purchaser or one of its subsidiaries) will be
converted by operation of law into the right to receive the Merger Consideration
in cash, payable to the holder, without interest, upon surrender of the
certificate formerly representing such Common Share, (ii) each Share owned by
the Company or one of its subsidiaries or by Parent or Purchaser or one of its
subsidiaries will be canceled without payment, and (iii) each share of the
common stock of the Purchaser outstanding immediately before the Effective Time
will be converted into one share of common stock of the Company, as the
surviving corporation of the Merger.
Shares outstanding immediately prior to the Effective Time and held by a
holder who has not voted in favor of the Merger or consented thereto in writing
will have the right to demand appraisal for such Shares in accordance with
Delaware law unless such holder fails to perfect or withdraws or otherwise loses
his or her right to appraisal and payment under Delaware law. If, after the
Effective Time, any such holder fails to perfect or withdraws or loses his right
to appraisal, the holder's Shares will be treated as if they had been converted
as of the Effective Time into the right to receive the Merger Consideration
without interest.
Promptly after the Effective Time, the surviving corporation will mail each
record holder as of the Effective Time a letter of transmittal and instructions
for effecting the surrender of certificates that represented Shares prior to the
Effective Time for the Merger Consideration. Upon surrender of the
certificate(s) representing a holder's Shares, together with a completed and
validly executed letter of transmittal, such holder will be entitled to receive
the Merger Consideration in respect thereof. Until so surrendered or exchanged,
each certificate will represent only the right to receive the Merger
Consideration.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the Company, including representations by the Company as to: (i)
organization, qualification and similar corporate matters of the Company and its
subsidiaries, (ii) capitalization of the Company and its subsidiaries, (iii) the
authorization, execution, delivery, performance and enforceability of the Merger
Agreement, (iv) the non-contravention of the Merger Agreement and related
transactions with any provision of the Company's certificate of incorporation or
bylaws, material contract, order, law or regulation to which the
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Company or its subsidiaries is a party or by which it is bound or obligated, (v)
the filing of required Commission reports and the absence of untrue statements
of material facts or omissions of material facts in such reports, (vi) the
absence of changes or events which have had a material adverse effect on the
Company, (vii) the absence of any untrue statement of a material fact or
omission of any material fact required to be stated in any recommendation
statement of the Company's Board of Directors or document related to the Offer,
(viii) material transactions outside the ordinary course of the Company's
business consistent with past practice, (ix) real property ownership and the
possession and enforceability of real property leases, (x) ownership of personal
property and operating condition of machinery and equipment, (xi) claims and
litigation, (xii) the filing of tax returns and the payment of taxes, (xiii)
possession and validity of mining permits necessary to carry on the Company's
business as presently conducted, (xiv) compliance with laws, rules, statutes,
orders, ordinances or regulations, and material notes, bonds, mortgages,
indentures, contracts, agreements, leases, licenses, permits, franchise or other
instruments or obligations of the Company or any of its subsidiaries, (xv) the
absence of environmental claims and compliance with all environmental, mining
and safety laws and regulations, (xvi) possession of necessary rights and
licenses in intellectual property, (xvii) contracts, agreements, indentures,
leases, mortgages, licenses, plans, arrangements, understandings, commitments
and other instruments (the "Significant Agreements"), (xviii) employee benefit
matters, (xix) required consents and approvals of governmental or regulatory
authorities, (xx) possession of insurance policies, (xxi) the absence of
payments to any intermediary other than listed intermediaries of any finder's,
professional or other fee or commission, (xxii) labor matters, (xxiii) continued
eligibility of the Company and its subsidiaries to receive mining permits,
(xxiv) transactions between the Company, its affiliates and related parties, and
(xxv) the inapplicability of state takeover statutes. Many of the
representations and warranties are qualified by materiality requirements.
The Merger Agreement contains various customary representations and
warranties of Parent and Purchaser, including representations by Parent and
Purchaser as to: (i) organization, qualification and similar corporate matters
of Parent and Purchaser, (ii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement, (iii) the
non-contravention of the Merger Agreement and related transactions with any
provision of the certificate of incorporation or by-laws of Parent or Purchaser,
material contract, order, law or regulation to which Parent or Purchaser is a
party or by which it is bound or obligated, (iv) required consents and approvals
of governmental or regulatory authorities, (v) the absence of untrue statements
of material facts or omissions of material facts in any documents related to the
Offer and in information provided to the Company in connection with the Schedule
14D-1 and proxy statement, (vi) Purchaser's receipt and the continued
effectiveness of the Commitment Letter from UBS AG to provide the funds
necessary to satisfy Purchaser's obligations under the Merger Agreement, (vii)
the solvency of the Company after the Effective Time of the Merger, and (viii)
the beneficial ownership of Shares by Parent or Purchaser immediately prior to
execution of the Merger Agreement.
COVENANTS
CONDUCT OF BUSINESS OF THE COMPANY. During the term of the Merger Agreement
until the purchase of Shares by Purchaser, the Company and its subsidiaries will
each conduct its operations in the ordinary course of business consistent with
past practice, and the Company and its subsidiaries will each use all reasonable
efforts to preserve its business organization, to keep available the services of
its present officers and key employees and to preserve the goodwill of those
having business relationships with it.
Accordingly, prior to the purchase of Shares by Purchaser, neither the
Company nor any of its subsidiaries may, without the prior written consent of
Parent, which consent will not be unreasonably withheld or delayed, engage or
agree to engage in an enumerated list of transactions. The types of transactions
requiring Parent's prior approval, subject to certain threshhold amounts or
levels in certain
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cases, include actions by the Company or its subsidiaries to: (i) amend its
Certificate of Incorporation or by-laws or comparable organizational documents;
(ii) authorize for issuance, issue, reissue, pledge, sell, any stock of any
class or any other securities, except for issuances of capital stock of the
subsidiaries to the Company or a wholly owned subsidiary of the Company and the
issuance of Shares pursuant to the exercise of Options outstanding as of the
date of the Merger Agreement; (iii) declare, set aside or pay any dividend or
other distribution in respect of any class or series of its capital stock other
than between any of the Company and any of its wholly owned subsidiaries; (iv)
split, combine, subdivide, reclassify or redeem, purchase or otherwise acquire,
or propose to redeem, purchase or otherwise acquire, any Shares or any other
capital stock of the Company; (v) make any loans, advances or capital
contributions to, or investments in, any other person in excess of $500,000,
except for loans, advances, capital contributions or investments between any
subsidiary of the Company and the Company or another wholly owned subsidiary of
the Company; (vi) fail to (a) maintain the real property in a manner consistent
with past practice, subject to certain specified exceptions, (b) pay when due
all taxes, water and sewer rents, assessments and insurance premiums affecting
the real property and (c) timely comply with the terms and provisions of all
leases, contracts and agreements relating to or affecting the real property and
the use and operation thereof, other than such failures that would not have a
material adverse effect on the Company; (vii) enter into, establish, adopt,
amend or renew any material employment, consulting, severance or similar
agreements or arrangements with any director, officer or employee; grant any
salary or wage increase or establish, adopt, amend, or increase benefits under,
any pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, welfare benefit contract, plan or
arrangement; (viii) enter into any material labor or collective bargaining
agreement, memorandum of understanding, grievance settlement or any other
agreement or commitment to or relating to any labor union other than in the
ordinary course of business consistent with past practice; (ix) take other
specified actions outside the ordinary course of business consistent with past
practice; (x) consummate its investment in Louisiana Generating LLC, or waive,
modify or terminate in any manner adverse to the Company its rights under the
joint development agreement, among the Company, Southern Electric International,
Inc. and NRG Energy Inc., in connection with Cajun Electric Power Cooperative,
Inc. (the "JOINT DEVELOPMENT AGREEMENT"); (xi) waive, modify, amend or terminate
any confidentiality, standstill or other similar agreement to which the Company
or any of its subsidiaries is a party; or (xii) agree to take any action which
would violate the foregoing covenants.
ACCESS TO INFORMATION. The Company will give Parent and Purchaser and their
representatives reasonable access to all necessary information. Parent and
Purchaser have agreed to be bound by a Confidentiality Agreement dated March 6,
1998.
REASONABLE EFFORTS; NOTICE OF CERTAIN DEVELOPMENTS. Each of the parties
will use its reasonable efforts to take all actions and do all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by the Offer and the Merger Agreement. Each of the parties will
promptly inform the other party of any event or circumstance that is discovered
at any time before the Effective Time that should be set forth in an amendment
to the Schedule 14D-1 or Schedule 14D-9.
PUBLIC ANNOUNCEMENTS. Parent and Purchaser, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by the Merger Agreement except as required by
applicable law or by any rule or regulation of the NYSE.
INDEMNIFICATION. For a period not less than six years from the Effective
Time, (i) all existing rights of directors and officers to indemnification as
provided in the respective charters or by-laws of the Company and its
subsidiaries or in an agreement with the Company will remain in full force, and
(ii) in accordance with such rights, Parent will indemnify and hold harmless the
directors and officers of the Company and its subsidiaries from and against any
action, proceeding or investigation arising out of
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events occurring prior to, and including, the Effective Time and will pay all
reasonable expenses (including legal and the cost of any investigation and
preparation) incurred in connection therewith.
Parent will cause the Company to maintain in effect for six years after the
Effective Time, for the benefit of all current and former directors and officers
of the Company the coverage provided by the current directors' and officers'
liability insurance policies maintained by the Company; provided, however, that
(i) the Company will not be required to incur any annual premium in excess of
300% of the last annual premium paid prior to the date of the Merger Agreement
for all current directors' and officers' liability insurance policies maintained
by the Company and if the Company is unable to obtain the required insurance it
shall obtain as much comparable insurance as possible for an annual premium
equal to this maximum amount and (ii) the Company may substitute policies that
are not less advantageous.
NOTIFICATION OF CERTAIN MATTERS. The Company will give prompt notice to
Parent, and Parent will give prompt notice to the Company, as the case may be,
of (i) the occurrence or non-occurrence of any event which would be reasonably
likely to demonstrate that any representation or warranty contained in the
Merger Agreement was or is untrue or inaccurate or reasonably likely to cause
any material covenant, condition or agreement not to be satisfied in all
material respects and (ii) any failure of the Company, Parent or Purchaser, as
the case may be, to comply with or satisfy any covenant, condition or agreement
under the Merger Agreement in any material respect.
NO SOLICITATION. The Merger Agreement requires the Company immediately to
cease any existing activities, discussions and negotiations with any third
parties with respect to any inquiry, proposal or offer for any recapitalization,
merger, consolidation or other business combination involving the Company, or
acquisition of any capital stock (other than upon exercise of the Options which
are outstanding as of the date of the Merger Agreement) or any portion of the
assets (except for certain specified assets and acquisitions of assets in the
ordinary course of business consistent with past practice) of the Company and
its subsidiaries, or any combination of the foregoing (a "COMPETING
TRANSACTION"). The Company will not, directly or indirectly, through any
officer, director, employee, representative or agent or any of its subsidiaries,
(i) solicit, initiate, encourage, facilitate, furnish or disclose non-public
information in furtherance of a Competing Transaction or negotiate with any
person for the purpose of facilitating any Competing Transaction provided that
prior to the purchase of the Shares by the Purchaser pursuant to the Offer, the
Company may furnish information to, and negotiate or otherwise engage in
discussions with, any party who makes a bona fide proposal regarding a Competing
Transaction which was not solicited by the Company after the date of the Merger
Agreement and which does not violate any standstill agreement if the Board of
Directors after consultation with its counsel determines in good faith that
failing to consider and cooperate with such other party regarding such Competing
Transaction would constitute a breach of the fiduciary duties of the Board to
the Company's stockholders under applicable law, and, provided further, that in
no event does the term "Competing Transaction" include a sale or other
disposition of any non-coal assets.
The Company must immediately advise Parent in writing of the receipt,
directly or indirectly, of any inquiries, discussions, negotiations, or
proposals relating to a Competing Transaction, which becomes known to the
Company's Board of Directors during the term of the Merger Agreement. The
Company must keep Parent fully apprised of the status and terms of any proposal
relating to a Competing Transaction on a current basis.
If, prior to the purchase of Shares by the Purchaser pursuant to the Offer,
the Company's Board of Directors after consultation with its financial and legal
advisors determines in good faith that any written proposal from a third party
for a Competing Transaction received after the date of the Merger Agreement that
was not solicited by the Company or any of its subsidiaries in violation of the
Merger Agreement is more favorable to the stockholders of the Company from a
financial point of view than the transactions contemplated by the Merger
Agreement and is in the best interest of the stockholders of the Company,
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the Company may terminate the Merger Agreement at any time prior to the purchase
of Shares by Purchaser and enter into a letter of intent,
agreement-in-principle, acquisition agreement or other similar agreement with
respect to such Competing Transaction provided that, (i) the Company provides
written notice of such termination to Parent at least three full business days
prior to the effectiveness of such termination, (ii) the Company delivers to
Parent within five business days following such termination cash in an amount
equal to Parent's costs as estimated by Parent in good faith prior to the date
of such delivery but in no event to exceed $10,000,000 and the Termination Fee
described below, and (iii) the Company and the other party to the Competing
Transaction deliver a written acknowledgment that the Company and such other
party have irrevocably waived any right to contest any payments as provided
above.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of the Company, Parent and Purchaser to consummate the
Merger are subject to the satisfaction or, if appropriate, waiver of the
following conditions:
PURCHASE OF SHARES. The Purchaser shall have accepted for payment and paid
for Shares pursuant to the Offer in accordance with the terms of the Merger
Agreement, provided that the condition shall be deemed satisfied as to Parent
and Purchaser if Purchaser fails to accept for payment or pay for Shares
pursuant to the Offer in violation of the terms of the Offer. All conditions to
the Offer, which are set forth in Annex I to the Merger Agreement, are
summarized in Section 13.
NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order or preliminary or
permanent injunction shall be entered in any action or proceeding before any
court, and no statute, rule, regulation, legislation, or order shall be enacted,
entered, enforced, amended or issued by any United States legislative body,
court, government or governmental, administrative or regulatory authority or
agency (other than the waiting period provisions of the HSR Act) which shall
remain in effect and which shall have the effect of (x) making illegal or
restraining or prohibiting the making of the Offer, the acceptance for payment
of, or payment for, the Shares by Parent, Purchaser or any other affiliate of
Parent, or the consummation of the Offer or the Merger or (y) imposing
limitations on the ability of Purchaser effectively to acquire or hold or
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote the Shares on all matters properly presented to the
shareholders of the Company; provided, that Parent, to the extent provided in
the Merger Agreement, shall, if necessary to prevent the taking of such action,
or the enactment, enforcement, amendment, issuance or application of any
statute, rule, regulation, legislation, judgment, order or injunction, offer to
accept an order to divest such of the Company's or Parent's assets and
businesses as may be necessary to forestall such injunction or order and to hold
separate such assets and business pending such divestiture; (ii) no proceeding
brought by an administrative agency or commission or other domestic governmental
entity seeking any of the foregoing shall be pending; and (iii) no action or
proceeding shall be commenced following the date of the Merger Agreement and be
pending before any court which, if adversely determined, could reasonably be
expected to have a material adverse effect on the Company.
TERMINATION; AMENDMENTS; WAIVER
TERMINATION. The Merger Agreement provides that at any time prior to the
Effective Time the Merger Agreement may be terminated and the Merger may be
abandoned: (i) by the mutual written consent of Parent and the Company; (ii) by
the Company if the Purchaser fails to commence the Offer in accordance with the
Merger Agreement or fails to purchase validly tendered Shares in violation of
the terms of the Offer or the Merger Agreement; (iii) by Parent or Company if
the Offer is terminated or withdrawn without any Shares being purchased,
provided that neither Parent nor the Company may terminate the Merger Agreement
if such party materially breached the Merger Agreement, or in the case of
Parent, if it or the Purchaser materially violated the terms of the Offer; (iv)
by Parent or the Company to the extent that performance is prohibited, enjoined
or otherwise materially restrained by any final, non-appealable
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judgment, provided the party seeking to terminate the Merger Agreement has used
its reasonable efforts to remove such judgment; (v) by Parent or the Company if
(a) the Financing Condition shall be impossible to satisfy by the end of the
twentieth business day following commencement of the Offer, or (b) any of the
conditions to the Offer shall be impossible to satisfy by the end of the
thirtieth business day following commencement of the Offer unless such
circumstance results from the failure of the terminating party to perform its
obligations under the Merger Agreement, provided that the Company may not
terminate the Merger Agreement if Parent is willing to waive the relevant
condition (other than the Minimum Condition, which cannot be waived without the
consent of the Company); (vi) by Parent if, prior to the purchase of Shares by
Purchaser, the Company's Board of Directors withdraws or modifies in a manner
adverse to Parent, or refrains from making the Board Recommendation, or publicly
discloses its intention to change such recommendation, or fails to reaffirm the
Board Recommendation within five days of receipt from Parent or the Purchaser of
a request to so reaffirm the Board Recommendation; (vii) by the Company prior to
the purchase of Shares pursuant to the Offer, if the Board after consultation
with its financial and legal advisors determines in good faith that any written
proposal from a third party for a Competing Transaction received after the date
of the Merger Agreement that was not solicited by the Company or any of its
Subsidiaries or affiliates in violation of the Merger Agreement is more
favorable to the stockholders of the Company from a financial point of view than
the transactions contemplated by the Merger Agreement and is in the best
interest of the stockholders of the Company; (viii) by the Company in the event
of any breach of the covenants and/or representations and warranties of Parent
and Purchaser contained in the Merger Agreement which has a material adverse
effect on the consummation of the transactions contemplated by the Merger
Agreement; or (ix) by Parent, if any Stockholder who holds more than five
percent of the Shares breaches any of his, her or its obligations under his, her
or its Support Agreement, as defined below.
EFFECT OF TERMINATION; FEES AND EXPENSES. Purchaser must terminate the
Offer as soon as practicable following the termination of the Merger Agreement
for any reason. If the Merger Agreement is terminated as a result of (i) the
Company's Board of Directors withdrawing its recommendation or (ii) the
Company's Board of Directors entering into a Competing Transaction, the Company
will repay Parent in cash an amount equal to the aggregate amount of reasonable
documented expenses not to exceed $10,000,000 and a termination fee of
$18,000,000.
AMENDMENT. The Merger Agreement may be amended by the Company, Parent and
Purchaser in a writing signed on behalf of each of the parties; however, after
the purchase of Shares pursuant to the Offer, no amendment may be made to
decrease the Merger Consideration or which materially adversely affects the
rights of the shareholders without approval of such shareholders.
EXTENSION; WAIVER. Subject to approval by the Company's Board of Directors
in the manner described above under "Board Representation," at any time prior to
the Effective Time, the Company, on the one hand, and Parent and Purchaser, on
the other hand, may in writing (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the representations and warranties of the other party or (iii) waive compliance
by the other party with any of the agreements or conditions contained in the
Merger Agreement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board has unanimously
determined that the Offer and the Merger are fair to and in the best interests
of the Company and its stockholders, has approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and
recommends that all holders of Shares accept the Offer and tender their Shares
pursuant to the Offer and approve and adopt the Merger Agreement and the Merger.
9
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(b) BACKGROUND; REASONS FOR THE RECOMMENDATION. The Company's Board of
Directors has regularly discussed the Company's performance, consolidation in
the coal industry and various coal properties that were for sale, operational
issues affecting the Company, the level of the Company's stock price and other
factors. As a result of these discussions, the Board at a meeting on December 1,
1997, authorized Messrs. Manley and Reilly, acting as a special committee of the
Board (the "Special Committee"), to interview investment banking firms to assist
the Company in exploring various alternatives to maximize shareholder value,
including a possible sale of the Company. Shortly thereafter, the Company issued
a press release announcing such action. At a meeting on December 18, 1997, the
Board authorized the retention of Credit Suisse First Boston Corporation
("CSFB"), and such firm was retained to act as financial advisor to assist the
Company in this regard.
At such Board meeting, representatives of CSFB reviewed with the Board
various potential alternatives that the Company could consider in order to
maximize shareholder value, including the sale of certain assets of the Company
and the sale of the entire Company. Following discussion of these alternatives,
the Board instructed CSFB to initiate a process for exploring a sale of the
Company or certain of its assets and to prepare an offering memorandum for that
purpose. During January and early February 1998, a confidential offering
memorandum (the "MEMORANDUM") was prepared describing the Company's coal
operations and properties and including historical and projected financial data
regarding the Company. Beginning on February 5, 1998, the Memorandum was sent to
69 prospective purchasers. The prospective purchasers were selected by the
Special Committee and the Company's management, after discussion with CSFB, as
parties that might be interested in the acquisition of the Company or principal
coal properties of the Company, and included companies in the coal and energy
industries as well as financial buyers. At the beginning of March, preliminary
bids were received from seven prospective purchasers who expressed an interest
in acquiring the entire Company and from other prospective purchasers who
indicated various levels of interest in certain assets of the Company. Following
the receipt of preliminary bids, representatives of Addington Enterprises, Inc.
("AEI") and another prospective investor (the "PROSPECTIVE INVESTOR"), two of
the prospective purchasers who had received copies of the Memorandum, requested
and were permitted to act jointly in connection with a possible acquisition of
the Company. Based on the preliminary bids, five prospective purchasers
(including the two who determined to proceed jointly) attended presentations by
management regarding the Company's historical and projected operations and four
prospective purchasers (including three who had attended the management
presentations) visited certain coal mines and other properties of the Company.
Following the preliminary indications of interest the Special Committee
requested its advisors to further evaluate the alternative of selling the
Company's assets to several purchasers.
On April 7, 1998 certain of the prospective purchasers were provided with
copies of a form of acquisition agreement prepared by the Company's counsel
pursuant to which the buyer would acquire the Company in a two step transaction
involving a cash tender offer followed by a merger. Recipients were advised to
indicate any changes to the form of acquisition agreement as part of any final
bid they might make to acquire the Company. Final bids were received on May 22,
1998. Following analysis and discussion of the bids among the Special Committee
and the other directors of the Company and the Company's legal and financial
advisors, the Board authorized negotiations with respect to the joint bid
submitted by Parent, a newly formed holding company for the natural resource
operations conducted by AEI, and the Prospective Investor (the "Joint Venture")
which had bid to purchase the Company in a cash merger transaction for $21.25
per Share. Following discussions between representatives of CSFB and the Joint
Venture which clarified certain aspects of the Joint Venture's bid, the Company
and the Joint Venture entered into an agreement to negotiate for sale of the
Company exclusively with the Joint Venture until June 25, 1998. Such
negotiations occurred between representatives of the Joint Venture and the
Company's legal and financial advisors on behalf of the Company through July 7,
1998, at which time representatives of the Prospective Investor advised Mr.
Manley that the Prospective Investor had been unable to reach agreement with
Parent concerning the terms and structure of the Joint Venture and that
accordingly the Prospective Investor would not be involved in an acquisition of
the Company.
10
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On July 10, 1998, representatives of Parent informed the Company's financial
advisor that Parent was interested in acquiring the Company without the
participation of the Prospective Investor and with financing to be arranged by
Warburg Dillon Read LLC ("WDR"). After discussion with and instruction from Mr.
Manley (who had reviewed the matter with other directors), representatives of
CSFB advised representatives of Parent and WDR of the circumstances under which
a proposal to purchase the Company would be considered, including the
requirement that adequate financing be available so that a tender offer for any
and all of the Company's Shares could close the week of August 31. During the
week of July 27, Parent obtained financing commitments from USB AG, Stamford
Branch, necessary to fund the acquisition of the Company, including a bridge
loan commitment and a bank loan commitment sufficient to close a tender offer
for the Company's common stock, subject to various conditions, during the week
of August 31, 1998. The Company's representatives had provided a form of
acquisition agreement to the representatives of Parent on July 20, 1998, which
agreement was negotiated between representatives of Parent and the Company
during the week of July 27. By July 31, the principal terms of the acquisition
were agreed upon and set forth in a draft merger agreement. Prior to the meeting
of the Board that was held on August 3, the draft Merger Agreement, financing
commitments and a copy of CSFB's financial presentation were sent to each
director of the Company. On August 3, the Board of Directors of the Company met
to consider the sale of the Company contemplated by the Merger Agreement. At the
meeting, the Board reviewed and discussed with management and the Company's
legal and financial advisors the proposed Merger Agreement, the financing
commitments, the process leading up to the transaction contemplated by the
Merger Agreement and other matters. CSFB rendered to the Board its opinion to
the effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the $21.25 per Share cash consideration to be received
by holders of Shares (other than Parent and its affiliates) pursuant to the
Offer and the Merger was fair to such holders from a financial point of view.
Following discussion, the Board of Directors approved the Merger Agreement and
resolved to recommend acceptance of the Offer to the Company's stockholders.
Each of the directors also agreed to tender his Shares in the Offer and each of
the directors, other than Mr. Ericson, executed an agreement with the Company
setting forth his obligation to tender such Shares.
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that all holders tender their Shares pursuant to the Offer, the
Board considered a number of factors, including the following:
(i) the Board's familiarity with, and information provided by the Company's
management as to, the business, financial condition, results of operations,
current business strategy and future prospects of the Company, material
developments affecting the coal and energy industries, the nature of the markets
in the coal industry and the Company's position in such markets, the historical
and current market prices for the Common Stock and the costs, uncertainties and
risks of seeking to grow through acquisition of substantial coal properties;
(ii) a consideration of strategic and other alternatives to the sale of the
Company, including the sale of certain assets of the Company, the development of
proposals with other parties and continuing to maintain the Company as a public
corporation and not engaging in any extraordinary transaction, and the
information provided by CSFB as to such alternatives;
(iii) the terms of the Merger Agreement, including the financing condition
and the other conditions to the Offer, the terms of the financing commitments
issued by WDR and the business reputation of WDR;
(iv) that the $21.25 per Share price contemplated by the Merger Agreement
represented a significant premium to the trading prices of the Shares prior to
the announcement of the process to seek strategic alternatives, and, later,
prior to announcement of the Tender Offer, and represented the highest cash
price any potential acquiror of the entire Company was willing to offer on
acceptable terms;
11
<PAGE>
(v) the process undertaken on behalf of the Company, which included
discussions with potential acquirors, as a result of which the Board had what it
believed to be an accurate sense of the values that could be achieved in a third
party transaction;
(vi) the opinion of CSFB dated August 3, 1998 to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
$21.25 per Share cash consideration to be received by holders of the Shares
(other than Parent and its affiliates) in the Offer and the Merger was fair,
from a financial point of view, to such holders. The full text of CSFB's written
opinion dated August 3, 1998, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by CSFB, is attached hereto
as Exhibit 3 and is incorporated herein by reference. CSFB'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CASH CONSIDERATION
TO BE RECEIVED IN THE OFFER AND THE MERGER BY HOLDERS OF SHARES (OTHER THAN
PARENT AND ITS AFFILIATES) AND IS NOT INTENDED TO CONSTITUTE, AND DOES NOT
CONSTITUTE, A RECOMMENDATION OF CSFB AS TO WHETHER ANY STOCKHOLDER SHOULD TENDER
SHARES PURSUANT TO THE OFFER. HOLDERS OF SHARES ARE URGED TO READ SUCH OPINION
CAREFULLY IN ITS ENTIRETY;
(vii) that the Merger Agreement permits the Company to furnish nonpublic
information to, and to participate in negotiations with, any third party that
has submitted an unsolicited written acquisition proposal to the Company, if the
Board determines in good faith that taking such action is necessary in the
exercise of its fiduciary obligations under applicable law and the Merger
Agreement permits the Company's Board to terminate the Merger Agreement in
certain circumstances in the exercise of its fiduciary duties;
(viii) the termination provisions of the Merger Agreement, which under
certain circumstances could obligate the Company to pay termination fees to
Parent and, subject to limitation, to reimburse Parent for its actual expenses
incurred in connection with the transaction, and the Board's belief that such
fees and expense reimbursement provisions are acceptable in view of the short
duration of the Tender Offer, the length of time since the public announcement
that the Company was exploring strategic opportunities to maximize shareholder
value, including a possible sale of the Company, and the process conducted on
behalf of the Company leading to the approval of the Merger Agreement;
(ix) the desirability of providing liquidity to holders of substantial
amounts of the Shares; and
(x) strategic considerations, such as the Company's competitive position and
the rapid changes, including consolidation, currently occurring in the coal
industry.
The foregoing discussion addresses the material information and factors
considered by the Board in its consideration of the Offer. In view of the
variety of factors, the amount of information considered and the relationships
between the various factors the Board did not find it practicable to provide
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The determination to
recommend that stockholders accept the Offer was made after consideration of all
of the factors taken as a whole. In addition, individual members of the Board
may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained CSFB as its financial advisor in connection with
the Offer and the Merger. Pursuant to the terms of CSFB's engagement, the
Company has agreed to pay CSFB for its services an aggregate financial advisory
fee equal to 0.7% of the total consideration (including net debt assumed)
payable in connection with the Offer and the Merger. The Company also has agreed
to reimburse CSFB for reasonable out-of-pocket expenses, including the fees of
legal counsel and any other advisor retained by CSFB, and to indemnify CSFB and
certain related parties against certain liabilities, including liabilities under
the federal securities laws, arising out of CSFB's engagement. CSFB has in the
past provided financial services to the Company unrelated to the Offer and the
Merger, for
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which services CSFB has received compensation. In the ordinary course of
business, CSFB and its affiliates may actively trade or hold the securities of
the Company for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any person to make solicitations or recommendations
to stockholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the knowledge of the Company, no transactions in Shares have been
effected within the past 60 days by the Company or any executive officer,
director, affiliate or subsidiary of the Company, other than routine
contributions to the Ziegler Stock Fund under the Company's 401(k) plan. See
Item 8 below, which sets forth certain information as to certain related
matters.
(b) To the knowledge of the Company, its executive officers, directors,
affiliates and subsidiaries presently intend to tender, pursuant to the Offer,
all Shares which are held of record or are beneficially owned by such persons.
Each of the directors has agreed to tender his Shares in the tender offer and
each of the directors, other than Mr. Ericson, has executed an agreement with
the Company setting forth his obligation to tender such Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The following information is in addition to the information set forth in
Item 4.
CERTIFICATE OF INCORPORATION. The Company's Restated Certificate of
Incorporation, as amended (the "CERTIFICATE OF INCORPORATION"), contains certain
provisions that may delay, defer or prevent a takeover of the Company. The
Company's Board of Directors has the authority to issue up to 1,000,000 shares
of preferred stock (the "PREFERRED STOCK") and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of these
shares, without further vote or action by the stockholders. The purpose of
authorizing the Board of Directors to determine such rights and preferences is
to eliminate delays associated with a stockholder vote on specific issuances.
The Board of Directors may issue Preferred Stock with voting, conversion and
exchange rights which would adversely affect the voting power of the holders of
Common Stock, and which could, among other things, have the effect of delaying,
deferring or preventing a change in control of the Company.
One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
the Company's management. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company. In the
Merger Agreement, the Company has agreed not to issue any such additional
shares.
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The Company is subject to the "business combination" section of the Delaware
General Corporation Law. In general, such statute prohibits a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless (i) the business combination or the transaction in which
the person becomes an interested stockholder is approved by the Board of
Directors prior to the date the interested stockholder obtained such status,
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (iii) on or subsequent to
such date the "business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" includes mergers, asset
sales and other transactions resulting in financial benefit to a stockholder. An
"interested stockholder" is a person who owns 15% or more of a corporation's
voting stock or is an affiliate or associate of the corporation and was the
owner of 15% or more of its voting stock at any time within the three year
period prior to the transaction. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
The foregoing summary of the Certificate of Incorporation is qualified in
its entirety by reference to the Certificate of Incorporation, a copy of which
is filed as Exhibit 4 to this Statement and is incorporated herein by reference.
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MATERIAL TO BE FILED AS EXHIBITS
The following Exhibits are filed herewith:
Exhibit 1--Agreement and Plan of Merger, dated as of August 3, 1998, by and
among Parent, Purchaser and the Company (filed herewith).
Exhibit 2--Pages 5 and 6 of Proxy Statement, dated April 2, 1998, relating to
the Company's 1998 Annual Meeting of Stockholders (filed herewith).
Exhibit 3*--Opinion of Credit Suisse First Boston Corporation, dated August 3,
1998 (filed herewith).
Exhibit 4--Restated Certificate of Incorporation of the Company, as amended
(filed as an exhibit to the Company's Registration Statement No. 33-80646, and
incorporated herein by reference).
Exhibit 5--Employment Agreement, dated February 24, 1993, between the Company
and Chand B. Vyas (filed as an exhibit to the Company's Form 10-K dated March
30, 1995, and incorporated herein by reference).
Exhibit 6--Special Bonus and Severance Pay Plan (filed as an exhibit to the
Company's Form 10-K dated March 24, 1998 and incorporated herein by reference).
Exhibit 7--Press Release, dated August 3, 1998 (filed herewith).
Exhibit 8*--Letter to Stockholders of the Company, dated August 5, 1998 (filed
herewith).
- --------------
* Included in the materials sent to stockholders.
15
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
<TABLE>
<S> <C> <C>
ZEIGLER COAL HOLDING COMPANY
By: /s/ BRENT L. MOTCHAN
-----------------------------------------
Brent L. Motchan
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
</TABLE>
Dated: August 5, 1998
<PAGE>
ANNEX I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 5, 1998 as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Zeigler Coal Holding Company (the "Company") to the holders
of record of shares of Common Stock, $.01 par value, of the Company (the
"Shares" or "Common Stock"). You are receiving this Information Statement in
connection with the possible election of persons designated by Parent (as
defined below) to a majority of the seats on the Board of Directors of the
Company (the "Board of Directors").
On August 3, 1998, the Company, AEI Resources, Inc., a Delaware corporation
("Parent"), and Zeigler Acquisition Corporation ("Purchaser"), a Delaware
corporation and a wholly owned subsidiary of Parent, entered into an Agreement
and Plan of Merger (the "Merger Agreement") and, in accordance with the terms
and subject to the conditions therein, (i) Parent and Purchaser commenced a
tender offer (the "Offer") for any and all outstanding Shares at a price of
$21.25 per Share, net to the seller in cash, without interest thereon (the
"Purchase Price"), and (ii) at the Effective Time (as such term is defined in
the Merger Agreement), Purchaser will be merged with and into the Company (the
"Merger"). As a result of the Offer and the Merger, the Company will become a
wholly owned subsidiary of Parent.
The Merger Agreement provides that, promptly upon the purchase of Shares by
Parent or Purchaser pursuant to the Offer, Purchaser will be entitled to
designate at least a number of directors on the Company's Board of Directors
equal to the product of (i) the total number of directors on the Company's Board
of Directors and (ii) Purchaser's percentage ownership of the outstanding Shares
of the Company. The Company will either increase the size of the Company's Board
of Directors or secure the resignation of the necessary number of directors to
enable Purchaser's designees to be elected to the Company's Board of Directors,
and will cause such designees to be elected to the Company's Board of Directors.
The Company expects that all of the current members of the Board of Directors
will resign effective upon the purchase of Shares by Parent or Purchaser
pursuant to the Offer. The Purchaser intends to designate five individuals for
election to the Board of Directors, who would constitute all of the Company's
directors upon the consummation of the Merger and the resignation of all of the
Company's current directors. This Information Statement is required by Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14f-1 thereunder.
The following information is given as of the date of the Schedule 14D-9,
August 5, 1998, unless indicated otherwise. You are urged to read this
Information Statement carefully. You are not, however, required to take any
action. Capitalized terms used herein and not otherwise defined herein shall
have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
August 5, 1998. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on Tuesday, September 1, 1998, unless extended.
The information contained in this Information Statement concerning Parent
and Purchaser has been furnished to the Company by the Parent, and the Company
assumes no responsibility for the accuracy or completeness of such information.
CERTAIN INFORMATION WITH RESPECT TO THE COMPANY
VOTING RIGHTS AND PROCEDURES
The Common Stock is the only issued and outstanding class of stock. At the
close of business on July 28, 1998, the Company had issued and outstanding
28,222,671 shares of Common Stock. Each Share entitles the holder thereof to one
vote on each matter submitted to a vote of stockholders.
<PAGE>
BOARD OF DIRECTORS
INFORMATION ABOUT DIRECTORS
MICHAEL K. REILLY. Age 65. Mr. Reilly has been Chairman of the Board since
1985, and from 1985 until December 31, 1994, was Chief Executive Officer of the
Company. Mr. Reilly was President of the Company from its organization in 1983
until 1991. Mr. Reilly was President of Zeigler Coal Company from 1980 until its
acquisition by the Company in 1985. Mr. Reilly is also a past chairman of the
Bituminous Coal Operators Association ("BCOA"), past chairman of the Illinois
Coal Association, a past director and past chairman of the National Coal
Association, a past director of the National Mining Association and is currently
a director of Newmont Mining Corporation and Newmont Gold Company.
CHAND B. VYAS. Age 53. Mr. Vyas has been President and Chief Executive
Officer of the Company since January 1, 1995. Prior to his election as President
and Chief Executive Officer, Mr. Vyas held the following positions with the
Company: 1991-1994 President and Chief Operating Officer; 1989-1991 Executive
Vice President; February 1989 to November 1989 Senior Vice President--Finance
and Administration; 1985-1988 Vice President and Chief Financial Officer.
ROLAND E. CASATI. Age 67. Mr. Casati has been a real estate developer and
has also been active in venture capital investments for more than the last five
years.
ROBERT W. ERICSON. Age 49. Mr. Ericson has been a Partner of the law firm of
Winston & Strawn since 1983.
JOHN F. MANLEY. Age 47. Mr. Manley has been President of Chicago City
Capital Group and the General Partner for the Kinman Limited Partnership, a
private investment partnership, for more than the last five years.
COMMITTEES OF THE BOARD
The Company has established standing Audit and Compensation Committees.
The Audit Committee reviews and makes recommendations to the Board of
Directors regarding internal accounting and financial controls and accounting
principles, auditing practices, the engagement of independent public accountants
and the scope of the audit to be undertaken by such accountants. The members of
the Audit Committee in 1997 were Messrs. Reilly and Ericson. The Audit Committee
held two meetings in 1997.
The Compensation Committee has the authority of the Board of Directors with
respect to the compensation, benefit and employment policies and arrangements
for all officers of the Company. The Committee also administers the Company's
Stock Appreciation Plan and its Stock Option Plan and has authority to grant
options to eligible employees of the Company and of its subsidiaries. The
members of the Compensation Committee in 1997 were Messrs. Manley and Casati.
The Compensation Committee held two meetings in 1997.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company receive a quarterly retainer
of $5,000 for their service as directors and receive a fee of $2,000 for each
Board meeting and each meeting of the Audit Committee or Compensation Committee
they attend. The Directors who are also employees of the Company do not receive
any additional compensation for serving on the Board of Directors or attending
board or committee meetings.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and certain key employees of the Company, 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 Trinton 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.
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.
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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.
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.
4
<PAGE>
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of January 31, 1998, (unless
otherwise noted) with respect to beneficial ownership of the Company's Common
Stock by any person who is known to the Company to be the beneficial owner of
more than 5% of the outstanding shares, each director, each nominee for
director, the five named executive officers and all directors and executive
officers as a group. Unless otherwise indicated, each beneficial owner possesses
sole voting and investment power with respect to the shares listed in this
table.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE
- ------------------------------------------------------------ ------------------ -----------
<S> <C> <C>
Kinman Limited Partnership(1)............................... 5,801,738 20.6%
Neuberger & Berman, LLC(2).................................. 1,480,700 5.3%
Michael K. Reilly(3)........................................ 1,254,350 4.4%
Chand B. Vyas(4)(7)......................................... 1,036,307 3.6%
Roland E. Casati(5)......................................... 2,176,000 7.7%
Robert W. Ericson........................................... 2,000 *
John F. Manley(6)........................................... 5,801,738 20.6%
W.D. Blackburn, Jr.(7)...................................... 82,611 *
John C. Willson(7).......................................... 23,288 *
Coy K. Lane(7).............................................. 22,585 *
David M. Young(7)........................................... 43,776 *
All directors and executive officers as a group
(20 persons)(3)(4)(5)(6)(7)............................... 10,932,556 38.0%
</TABLE>
- ------------------------
* Represents less than 1%
(1) The address of the Kinman Limited Partnership ("Kinman") is c/o Chicago City
Capital Group, Suite 9300, Sears Tower, Chicago, Illinois 60606. Mr. Manley,
a director of the Company, is the sole general partner of, and as such
effectively controls Kinman.
(2) The source of this information is the Schedule 13G of Neuberger & Berman,
LLC dated February 9, 1998 filed with the Securities and Exchange
Commission. The address of Neuberger & Berman, LLC is 605 Third Avenue, New
York, New York 10158. Neuberger & Berman, LLC reported that it had shared
power of disposition with respect to 1,480,700 shares, shared power to vote
1,175,200 shares and sole power to vote 162,400 shares.
(3) Includes 391,100 shares held by MKR Investments L.P., a family partnership.
Does not include shares of Common Stock owned by Mr. Reilly's children and
trusts for the benefit of Mr. Reilly's grandchildren as to which Mr. Reilly
disclaims beneficial ownership.
(4) Includes 639,920 shares held through a trust for Mr. Vyas and 150,400 shares
owned by trusts for Mr. Vyas' children for which Mr. Vyas acts as trustee.
Mr. Vyas disclaims beneficial ownership of the shares owned by trusts for
his children.
5
<PAGE>
(5) The address of Mr. Casati is 2700 River Road, Des Plaines, Illinois 60018.
(6) Reflects 5,801,738 shares held of record by Kinman. Mr. Manley is the sole
general partner of Kinman and, as such, may be deemed to own beneficially
shares owned by Kinman. The address of Mr. Manley is c/o Chicago City
Capital Group, Suite 9300, Sears Tower, Chicago, Illinois 60606.
(7) Includes shares which may be acquired upon exercise of options granted under
the Company's Stock Option Plan which were exercisable within 60 days of the
mailing date of this Proxy Statement, as follows: Mr. Vyas--242,880 shares;
Mr. Blackburn--62,800 shares; Mr. Willson--14,000 shares; Mr. Lane--14,400
shares; Mr. Young--31,200 shares; and all directors and executive officers
as a group--577,600 shares.
COMPLIANCE WITH THE SECURITIES EXCHANGE ACT
The Company's executive officers and directors are required under the
Securities Exchange Act of 1934 to file reports of ownership and changes of
ownership of common stock of the Company with the Securities and Exchange
Commission and the New York Stock Exchange. Copies of these reports must also be
furnished to the Company.
Based solely on a review of the copies of reports furnished to the Company
and written representations that no other reports were required, the Company
believes that during 1997 all executive officers and directors complied with all
applicable filing requirements.
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation during
the last three fiscal years paid or granted by the Company or its subsidiaries
to, or accrued for, the Chief Executive Officer and the four highest paid
executive officers of the Company and its subsidiaries during 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ----------------------------------
NAME AND PRINCIPAL OTHER ANNUAL AWARD LTIP
POSITION DURING 1997 YEAR SALARY($) BONUS($) COMPENSATION OPTIONS/SAUS(#) PAYOUTS($)
- ----------------------- --------- ----------- ----------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Chand B. Vyas-- 1997 487,500 -- 10,750 100,000 --
President and Chief 1996 425,000 600,000 10,500 100,000 --
Executive Officer 1995 425,000 250,000 10,500 -- --
W.D. Blackburn, Jr.-- 1997 198,750 -- 3,950 30,000 --
Senior Vice President 1996 189,583 188,650 3,950 40,000 --
Operations 1995 175,000 65,000 17,678 -- --
John C. Willson-- 1997 164,167 25,000 4,500 10,000 --
President Triton Coal 1996 158,333 120,000 47,113 15,000 --
Company(1) 1995 125,000 37,500 3,000 16,000 --
Coy K. Lane-- 1997 143,333 36,250 4,300 10,000 --
President Bluegrass 1996 133,333 101,250 27,645 25,000 --
Coal Development 1995 122,759 35,000 2,602 -- --
Company
David M. Young-- 1997 164,231 15,000 5,830 10,000 --
President Mountaineer 1996 166,211 120,000 37,099 10,000 --
Coal Development 1995 160,000 30,000 4,231 -- --
Company
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION DURING 1997 COMPENSATION($)
- ----------------------- -----------------------
<S> <C>
Chand B. Vyas-- --
President and Chief --
Executive Officer --
W.D. Blackburn, Jr.-- --
Senior Vice President --
Operations --
John C. Willson-- --
President Triton Coal --
Company(1) --
Coy K. Lane-- --
President Bluegrass --
Coal Development --
Company
David M. Young-- --
President Mountaineer --
Coal Development --
Company
</TABLE>
- ------------------------
(1) Mr. Willson's employment commenced in March 1995.
EMPLOYMENT AGREEMENTS
Mr. Vyas has an employment agreement with the Company, dated as of February
24, 1993, as amended, which provides for his employment by the Company as
President and, if so elected, Chief
6
<PAGE>
Executive Officer at an annual salary and bonus to be determined by the Board of
Directors. Mr. Vyas' employment may be terminated by him or the Company on 30
days' notice. If he is terminated for other than cause, or he terminates his
employment as a result of an unacceptable change in his duties, a change of
control of Zeigler or other "Good Reason" (as defined therein), Mr. Vyas would
be entitled to severance payments for three years following termination in an
amount equal to three times his Average Compensation as well as certain other
benefits related to his supplemental retirement payments and acceleration of
vesting of his stock options. In the event of Mr. Vyas' death, his estate is
entitled to receive two times his Average Compensation. The employment agreement
provides that upon retirement, Mr. Vyas would be entitled to supplemental
retirement payments equal to the excess, if any, of (i) the amount he would
receive under the Company's pension plan (described below) if effect were not
given to limitations imposed by the Internal Revenue Code and if his
compensation included his bonuses over (ii) the annual amount payable to Mr.
Vyas under such pension plan plus annual social security benefits payable to
him. The estimated annual supplemental retirement payment payable to Mr. Vyas
upon his normal retirement date was $315,000 as of December 31, 1997. Mr. Vyas'
employment agreement also provides that he will not compete with the Company
during the employment term and for a period of one year following termination.
CHANGE IN CONTROL ARRANGEMENTS
SPECIAL BONUS AND SEVERANCE PAY PLAN. In December, 1997, Zeigler announced
that it was reviewing strategic alternatives to increase stockholder value,
including a possible sale of the Company. In connection therewith Zeigler
adopted a special bonus and severance pay plan which provides that certain of
Zeigler's executives and other non-union personnel would receive specified
retention payments if a sale of Zeigler or other change of control (as defined
in the plan) occurred prior to December 31, 1998 and severance payments if the
employment of such person were terminated in certain circumstances during the
twelve months following such sale or other change of control. The plan also
provides that any unvested stock options will vest upon a sale of the Company or
other change in control. Any severance payment otherwise due an executive under
this plan would be reduced by severance amounts payable under his or her
employment contract. The amounts of such payments vary based on the
classification of the covered employee and his or her compensation level and
tenure with the Company. The amounts payable to Messrs. Blackburn, Willson, Lane
and Young under the plan, as of April 2, 1998 are: $220,000.00, $164,983.50,
$143,550.00 and $164,983.50 respectively, in the event of change in control and
$440,000.00, $330,016.50, $291,450.00 and $330,016.50, in the event such
individual becomes entitled to severance payments (after reduction of the amount
paid upon a change in control). In addition, if a sale of the Company occurs
during 1998 each of the named individuals would be entitled to receive a special
bonus of $150,000 and possibly other payments determined in the discretion of
Messrs. Manley and Reilly. Change in control arrangements applicable to Mr. Vyas
are discussed in "Employment Agreements" above.
STOCK APPRECIATION AND STOCK OPTION PLANS
STOCK APPRECIATION PLAN. Certain key employees of the Company and its
subsidiaries have been granted stock appreciation units ("SAUs") under the
Company's Stock Appreciation Plan (the "Stock Appreciation Plan"). Each
participant in the Stock Appreciation Plan is entitled to receive a cash payment
at "maturity" for each SAU which has become vested based upon the increase in
fair value (as defined) of a share of the Company's Common Stock from the
effective date of the award of the SAU. Vested SAUs mature on the earliest of
the termination of the participant's employment with the Company, the sixth
anniversary of the date of grant, the sale of the Company or the written
election of the participant. The Stock Appreciation Plan is administered by the
Compensation Committee of the Board of Directors. There were 73,600 SAUs
outstanding as of December 31, 1997, all of which are fully vested and mature in
1998. Under the Stock Appreciation Plan, "fair value" is based on the "market
price" of the Company's Common Stock.
7
<PAGE>
STOCK OPTION PLAN. In 1994 the Company's Board of Directors and stockholders
adopted its Stock Option Plan (the "Option Plan"). A total of 2,560,000 shares
of Common Stock were reserved for issuance upon exercise of options granted
under the Option Plan. The purpose of the Option Plan is to attract and retrain
qualified personnel and to provide additional incentive to executive and other
key employees of the Company and its subsidiaries. The Option Plan is
administered by the Compensation Committee (the "Committee") which determines
the terms of the options granted under the Option Plan, including the exercise
price, number of shares subject to the option and exercisability. Generally,
options may be transferred by the optionees by will or the laws of descent or
distribution or to such transferees and on such terms and conditions as the
Committee approves. Each option may be exercised, during the lifetime of the
optionee, only by the optionee. The exercise price of all options granted under
the Option Plan must equal at least the fair market value of the Common Stock of
the Company on the date of grant.
Unless the Committee specifies otherwise in the option grant, options
granted will vest and become exercisable with respect to 20% of the Common Stock
issuable upon exercise thereof on each anniversary of the grant date, and the
reminder shall vest on the fifth anniversary of the grant date. At the
discretion of the Committee, options may be made exercisable in one or more
installments upon (i) occurrence of certain events, (ii) passage of time, (iii)
fulfillment of certain conditions, or (iv) achievement of corporate performance
goals. In the event of the Sale of the Company (as defined therein), the
Committee may provide, in its discretion, that (i) outstanding options shall
become immediately exercisable and shall terminate if not exercised as of the
date of the Sale of the Company or any other designated date, or (ii) that such
options shall only provide the right to receive the excess of the consideration
per share of Common Stock offered in such Sale of the Company over the exercise
price of such options.
OPTION/SAU GRANTS, EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth, for the named executive officers, the number
and value of options granted during 1997.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED GRANT DATE
UNDERLYING OPTIONS TO EMPLOYEE IN EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE ($)
- ---------------------------- --------------------- ----------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Chand B. Vyas............... 100,000 23.0% $ 23.38 3/21/07 963,895(1)
W.D. Blackburn, Jr.......... 30,000 6.9% $ 26.25 2/25/07 330,150(2)
John C. Willson............. 10,000 2.3% $ 26.25 2/25/07 110,050(2)
Coy K. Lane................. 10,000 2.3% $ 26.25 2/25/07 110,050(2)
David M. Young.............. 10,000 2.3% $ 26.25 2/25/07 110,050(2)
</TABLE>
- ------------------------
(1) The present value of options at date of grant was estimated using the
Black-Scholes model with the following assumptions: 1) expected life of 7
years; 2) risk-free interest rate of 5.52%; 3) volatility of 34.98%; and 4)
dividend yield of 1.28%.
(2) The present value of options at date of grant was estimated using the
Black-Scholes model with the following assumptions: 1) expected life of 7
years; 2) risk-free interest rate of 5.2%; 3) volatility of 34.98%; and 4)
dividend yield of 1.14%.
None of the named executive officers was granted any SAUs during 1997.
8
<PAGE>
The following table sets forth, for the named executive officers, the number
and value of exercised options and SAUs during 1997 and the number and value of
unexercised options and SAUs as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SAUS AT OPTIONS/SAUS AT
FY-END(#) FY-END($)(1)
----------------------------- -----------------------------
SHARES ACQUIRED VALUE REALIZED VESTED OR UNVESTED OR VESTED OR UNVESTED OR
NAME ON EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Chand B. Vyas....... Options -- -- 202,880 250,720 389,857 400,639
SAUs -- -- -- -- -- --
W.D. Blackburn, Options -- -- 48,800 83,600 104,094 154,557
Jr................ SAUs -- -- -- -- -- --
John C. Willson..... Options -- -- 9,400 31,600 28,942 60,761
SAUs -- -- -- -- -- --
C.K. Lane........... Options -- -- 9,400 28,400 40,142 60,959
SAUs -- -- -- -- -- --
David M. Young...... Options -- -- 27,200 26,800 40,804 40,518
SAUs 32,000 748,689 16,000 -- 188,370 --
</TABLE>
- ------------------------
(1) Based on the closing price on the New York Stock Exchange on December 31,
1997 of $16.31 per share.
RETIREMENT PLANS
All non-union employees of Zeigler Coal Holding Company and its subsidiaries
are eligible to participate in the Mining Companies Pension Plan, a defined
benefit pension plan intended to qualify under Section 401(a) of the Code (the
"pension plan"). The pension plan is a cash balance plan whereby each
participant's benefit is determined based upon the assumed cash balance credits
and earnings which are credited to the participant's nominal account. The cash
balance credits range from 5% to 6.5% of the participant's annual compensation.
Each account is credited with assumed earnings equal to the 5-year Treasury note
rate, subject to a 5% minimum and a 12% maximum rate. The normal retirement age
under pension plan is age 60. Certain participants under this plan may be
entitled to a minimum benefit under the pension plan equal to the amount which
would have been provided under a prior defined benefit formula.
Compensation under the pension plan generaly refers to the base salary (up
to $150,000 for 1997 as limited by the Code) for services rendered to the
Company and its subsidiaries including pre-tax deferrals, but excluding items
such as bonuses, the value of stock awards and employer contributions to
retirement plans at December 31, 1997. As of December 31, 1997, the estimated
annual benefit (assuming a 7.5% return on each participant's nominal account)
payable to Messrs. Vyas, Blackburn, Willson, Lane and Young upon their normal
retirement date was $53,657, $27,438, $19,860, $65,680, and $37,155,
respectively. As of December 31, 1997, Messrs, Vyas, Blackburn, Willson, Lane
and Young had approximately 16, 3, 2, 3, and 13 years of credited service,
respectively, under the pension plan. Benefits are computed on a straight life
annuity basis and payable under several actuarially determined alternatives.
All non-union employees of Zeigler Coal Holding Company are also eligible to
participate in either the Zeigler Salaried Employees Savings Plan or the Mining
Companies Pay Deferral Plan, defined contribution 401(k) plans intended to
qualify under Section 401(a) of the Code (the "savings plan"). Participants may
contribute to the savings plan on a pre-tax basis. The Company matches a portion
of the amount contributed under the Zeigler Salaried Employees Savings Plan. The
Company's matching contribution equals $.50 for each dollar contributed (not to
exceed 3% of compensation), plus an additional match (not to exceed another 3%
of compensation) if the Company meets certain performance criteria. The
compensation which may be considered for this purpose is limited by the Code to
9
<PAGE>
$150,000 in 1997. There is generally no Company matching under the Mining
Companies Pay Deferral Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997, the Company made a short-term loan for personal purposes to
Paul D. Femmer, Controller of the Company. This loan, the largest aggregate
amount outstanding of which was approximately $85,000 (including accrued
interest), bore interest at the rate of 10% per annum and was paid in full prior
to December 31, 1997.
The Company intends to enter into an agreement with Paul Femmer and Chand
Vyas relating to the termination of Femmer's employment and other matters
arising out of business and employment relationships between Femmer, Vyas and
the Company and certain claims made by Femmer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of Zeigler's Board of Directors has
responsibility for establishing the compensation (including employee benefits
not generally available to salaried employees) of the Company's principal
executive officers and other higher paid personnel. The Compensation Committee
also serves as the committee established under Zeigler's Stock Option Plan with
authority to fix the terms of, and grant options under, such plan. The
Compensation Committee is comprised solely of non-employee directors.
In general, the Compensation Committee strives to meet the following
objectives in making compensation decisions for executive personnel: (1) provide
overall compensation that enables the Company to attract and retain highly
qualified personnel; (2) to authorize compensation that is fair to Zeigler
employees, fair to Zeigler shareholders, and fair comparing the different
organizational levels; and (3) to design compensation that creates both
substantial incentives as well as alignment with short and long term shareholder
interests.
In general, the Committee does not intend to approve compensation to the
Company's executive officers in excess of $1,000,000, unless such compensation
meets the performance based standards set forth in Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended, or the Committee determines that such
compensation is otherwise appropriate in the specific instance. The Committee
consults with tax advisors as necessary to avoid any unintended results.
There are currently three principal components of senior executive
compensation: (i) base salaries, (ii) annual cash bonuses and (iii) stock
options. Salaries are determined primarily on the basis of industry standards as
applied to each executive's background, responsibilities and overall performance
with the Company and are adjusted every 12 to 24 months. In general, the
Committee's policy has been to have the incentive based components of
compensation (i.e., bonuses and stock related plans) constitute a higher
proportion of an executive's overall compensation. In its review, the Committee
takes into account high growth goals for the Company balanced by the
complexities of transitioning from a pure coal mining company. The Committee has
also reviewed the compensation plans of high growth companies in a number of
industries. Details of this review include the dollar amounts of salaries and
bonuses, the relationship of stock options and bonuses to salaries, company
size, total shareholder return and shares outstanding; the alignment of
compensation between organization levels; and the breadth of incentive plans.
Annual bonuses are considered to represent the short-term incentive portion
of executive compensation and are based on actual financial performance as
compared to the Company's financial plan as well as the assessment of the
executive's overall performance during the year. Financial performance is
measured principally by operating income cash flow of the Company and total
return to shareholders (based primarily on the value of the Company's shares).
In the case of officers responsible for a
10
<PAGE>
particular business unit, the performance of that unit is a principal measure.
Targeted bonus amounts are set for each executive officer. With respect to 1997,
the Committee determined, based on the significant negative shareholder returns
during 1997, that neither Mr. Vyas nor Mr. Blackburn would receive a bonus. For
the other named executive offiers the Committee approved bonuses ranging from 9%
to 25% of their base salaries.
Long-term incentives for executives are provided by Zeigler's Stock Option
Plan. Stock option grants under the Stock Option Plan are intended to provide
rewards which are earned by executives over a substantial period of employment
and which reflect growth in the value of stockholder equity and align the
interests of key personnel with those of stockholders. The policy of the
Compensation Committee is to consider option grants for executives annually and
has been to provide option vesting in annual increments over a number of years.
In making individual grants, the Committee also considers the amount and terms
of prior option grants to each individual. The Committee granted options for
100,000 shares to Mr. Vyas in 1997.
Finally, in 1997, the Compensation Committee participated in the development
of the Special Bonus and Severance Pay Plan described elsewhere in this
Information Statement.
By the Compensation Committee:
John F. Manley (Chairman)
Roland E. Casati
11
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested on
September 30, 1994 (the first day of public trading of the Common Stock) through
December 30, 1997 in (i) the Common Stock of the Company, (ii) the S&P 400
Mid-Cap Index, and (iii) a market weighted peer company index of Ashland Coal,
Inc. (now known as Arch Coal, Inc.), Cyprus Amax Minerals Co. and Pittston
Minerals Group (the "Peer Companies").
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
ZIEGLER COAL HOLDING COMPANY, S&P 400 MID-CAP INDEX AND PEER COMPANIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ZEIGLER COAL PEER COMPANIES (1) S&P 400 MID-CAP
<S> <C> <C> <C>
9/30/94 100 100 100
12/31/94 76.13 86.85 100.49
12/29/95 91.41 83.83 135.24
12/31/96 142.99 81.58 166.35
12/31/97 110.56 58.3 217.95
</TABLE>
<TABLE>
<CAPTION>
PEER S&P 400
DATE ZEIGLER COAL COMPANIES(1) MID-CAP
- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
9/30/94 100.00 100.00 100.00
12/31/94 76.13 86.85 100.49
12/29/95 91.41 83.83 135.24
12/31/96 142.99 81.58 166.35
12/31/97 110.56 58.30 217.95
</TABLE>
(1) The Peer Companies index no longer reflects the trading activities of
Addington Resources, Inc. (the stock of which is no longer traded because of
the acquisition of such company as of December 20, 1996 by Republic
Industries, Inc., a diversified company operating in several industries
other than coal mining) nor the trading activities of Westmoreland Coal
Company (trading in the stock of which was halted by the New York Stock
Exchange on December 23, 1996). In 1997, Ashland Coal, Inc. was merged with
Arch Mineral Corporation, with the surviving corporation now known as Arch
Coal, Inc.
CERTAIN INFORMATION WITH RESPECT TO PARENT
PARENT DESIGNEES
Set forth below are the names, ages, present principal occupations, five
year employment history and other directorships held in public companies of the
persons designated by Parent for appointment or election to the Board of
Directors (the "Parent Designees"). Such information has been provided by Parent
to the Company. The address of each Parent Designee is 1500 North Big Run Road,
Ashland, Kentucky 41102 and each such person is a citizen of the United States.
12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Larry Addington........................... Mr. Addington has been a director of Parent since its organization
and has substantial experience in the operation of coal mining
ventures. His first mining company, Addington Brothers Mining
Company, began mining coal in eastern Kentucky in 1972 and was sold
to Ashland Oil in 1976. In 1978, Larry Addington formed Pyramid,
which mined coal in western Kentucky and was sold to First
Mississippi in 1981. In 1984, Larry Addington formed Addington
Resources, Inc. which became a public company in 1987, and which
primarily conducted coal mining and integrated solid waste disposal
operations. Larry Addington is the brother of Robert and Stephen
Addington, who are directors of Parent and Purchaser.
Robert Addington.......................... Mr. Addington, Senior Vice President--Eastern Operations and a
director of Parent, has been involved in the coal mining business
since 1970. With Larry Addington and Bruce Addington, he founded
Addington Brothers Mining, which was sold to Ashland Oil in 1976. He
served as an officer and director of Addington Resources from 1986
until 1995.
Stephen Addington......................... Mr. Addington, a director of Parent, was the Regional Manager of
southern Ohio and northeastern Kentucky surface coal mines for a
subsidiary of Addington Resources from 1990 until 1992. From 1992
until 1995, he was the Vice President of Operations for Addington
Environmental, Inc., and presently is a Division Manager of Tennessee
Mining an a consultant to Kindill Mining , Inc.
Stonie Barker............................. Mr. Barker, a director, has been involved in the coal mining business
since 1951. He has served as President, Chief Executive Officer and
Chairman of the Board of Island Creek Coal Company, Executive Vice
President of Occidental Petroleum Corporation, and is currently
President of the Executive Energy Company, and a director of Kaiser
Steel Corporation.
Robert Anderson, Jr....................... Mr. Anderson, a director since August 1998, has over 45 years of
experience in the coal industry. He has been Chairman of the Board of
Directors of Centennial Resources, which mines and markets coal,
since 1995. From 1976 until 1995, Mr. Anderson served in various
senior executive capacities, including as President and Vice Chairman
of the Board, with ANDALEX Resources, Inc., which mines and markets
coal.
</TABLE>
13
<PAGE>
SECURITY OWNERSHIP OF PARENT DESIGNEES
The Company has been advised by Parent that no Parent Designee directly or
beneficially owns shares of Common Stock of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Based solely on the information provided by Parent, there have been no
transactions or series of transactions, since January 1, 1997, to which the
Company or any of its Subsidiaries was or is to be a party in which the amount
involved exceeds $60,000 and in which any of the Parent Designees had or will
have a direct or indirect material interest, nor has any Parent Designee been
indebted to the Company or its subsidiaries in an amount in excess of $60,000 or
been involved in a material business relationship with the Company or its
subsidiaries.
14
<PAGE>
Exhibit 99.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
AEI RESOURCES, INC.,
ZEIGLER ACQUISITION CORPORATION
and
ZEIGLER COAL HOLDING COMPANY
August 3, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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ARTICLE I THE OFFER..............................................................................2
SECTION 1.01 The Offer..............................................................................2
SECTION 1.02 Company Actions........................................................................3
SECTION 1.03 Directors..............................................................................4
SECTION 1.04 Stock Options..........................................................................5
ARTICLE II THE MERGER.............................................................................5
SECTION 2.01 The Merger.............................................................................5
SECTION 2.02 Closing Effective Time.................................................................5
SECTION 2.03 Effects of the Merger..................................................................6
SECTION 2.04 Additional Actions.....................................................................6
SECTION 2.05 Conversion of Common Shares............................................................6
SECTION 2.06 Conversion of Purchaser Common Stock...................................................7
SECTION 2.07 Company Option Plans...................................................................7
SECTION 2.08 Merger Without Meeting of Stockholders.................................................7
ARTICLE III DISSENTING SHARES; PAYMENT FOR SHARES..................................................7
SECTION 3.01 Dissenting Shares......................................................................7
SECTION 3.02 Payment for Common Shares..............................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................9
SECTION 4.01 Organization and Qualification; Subsidiaries...........................................9
SECTION 4.02 Charter and By-Laws...................................................................10
SECTION 4.03 Capitalization........................................................................10
SECTION 4.04 Authority Relative to this ...........................................................11
SECTION 4.05 No Conflict; Required Filings and Consents............................................11
SECTION 4.06 SEC Reports and Financial Statements..................................................12
SECTION 4.07 Information...........................................................................13
SECTION 4.08 Absence of Certain Developments.......................................................13
SECTION 4.09 Real Property.........................................................................15
SECTION 4.10 Personal Property.....................................................................17
SECTION 4.11 Tax Matters...........................................................................17
SECTION 4.12 Contracts and Commitments.............................................................18
SECTION 4.13 Intellectual Property.................................................................19
SECTION 4.14 Licenses and Permits..................................................................19
SECTION 4.15 Litigation............................................................................20
SECTION 4.16 Governmental Consents, etc............................................................20
SECTION 4.17 Employee Benefit Plans................................................................20
SECTION 4.18 Insurance.............................................................................22
SECTION 4.19 Compliance with Laws..................................................................22
SECTION 4.20 Environmental, Mining and Safety Matters..............................................23
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SECTION 4.21 Affiliated Transactions...............................................................24
SECTION 4.22 Brokers...............................................................................24
SECTION 4.23 Labor Relations.......................................................................24
SECTION 4.24 Permit Blocking.......................................................................25
SECTION 4.25 Section 6 of the Joint Development Agreement..........................................25
SECTION 4.26 Takeover Provisions Inapplicable......................................................25
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER............................25
SECTION 5.01 Organization and Qualification.......................................26
SECTION 5.02 Authority Relative to this Agreement.................................26
SECTION 5.03 No Conflict; Required Filings and Consents...........................26
SECTION 5.04 Information..........................................................27
SECTION 5.05 Financing............................................................27
SECTION 5.06 Parent and Purchaser Not an Interested Stockholder...................27
SECTION 5.07 No Knowledge of Misrepresentations or Omissions......................27
SECTION 5.08 Solvency.............................................................27
SECTION 5.09 Disclaimer Regarding Estimates and Projections.......................28
ARTICLE VI COVENANTS.............................................................................28
SECTION 6.01 Conduct of Business of the Company....................................................28
SECTION 6.02 Access to Information.................................................................30
SECTION 6.03 Reasonable Efforts Notice of Certain Developments.....................................31
SECTION 6.04 Consents..............................................................................31
SECTION 6.05 Public Announcements..................................................................33
SECTION 6.06 Employee Benefit Arrangements.........................................................33
SECTION 6.07 Indemnification.......................................................................34
SECTION 6.08 Notification of Certain Matters.......................................................34
SECTION 6.09 No Solicitation; Termination Right....................................................35
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER..............................................37
SECTION 7.01 Conditions............................................................................37
ARTICLE VIII TERMINATION; AMENDMENTS; WAIVER.......................................................37
SECTION 8.01 Termination...........................................................................37
SECTION 8.02 Effect of Termination; Fees and Expenses..............................................38
SECTION 8.03 Amendment.............................................................................39
SECTION 8.04 Extension; Waiver.....................................................................39
ARTICLE IX MISCELLANEOUS.........................................................................39
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SECTION 9.01 Non-Survival of Representations and Warranties........................................39
SECTION 9.02 Entire Agreement; Assignment..........................................................39
SECTION 9.03 Validity..............................................................................40
SECTION 9.04 Notices...............................................................................40
SECTION 9.05 Governing Law.........................................................................41
SECTION 9.06 Descriptive Headings..................................................................41
SECTION 9.07 Counterpart...........................................................................41
SECTION 9.08 Parties in Interest...................................................................41
SECTION 9.09 Specific Performance..................................................................41
ARTICLE X
DEFINITIONS...........................................................................42
SECTION 10.01 Certain Definitions...................................................................42
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 3,
1998 by and among AEI Resources, Inc., a Delaware corporation ("Parent"),
Zeigler Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent (the "Purchaser"), and Zeigler Coal Holding Company, a
Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, the Purchaser
and the Company have approved the acquisition of the Company by Parent on the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the parties hereto desire that the Purchaser commence a tender
offer (the "Offer") to purchase all of the shares of Common Stock, par value
$.01 per share, of the Company (the "Common Shares") in accordance with the
terms of this Agreement; and
WHEREAS, the Board of Directors of the Company (the "Board") has
approved the terms of the Offer, which will provide that, among other things,
the price to be paid thereunder for each outstanding Common Share will be not
less than $21.25 net to the seller of each such share (such price, as it may
hereafter be increased, the "Offer Price"), and is recommending that the
Company's stockholders accept the Offer; and
WHEREAS, the respective Boards of Directors of Parent, the Purchaser
and the Company have approved the merger of the Purchaser with and into the
Company, as set forth below (the "Merger"), in accordance with the General
Corporation Law of the State of Delaware (the "GCL") and upon the terms and
subject to the conditions set forth in this Agreement, whereby each issued and
outstanding Common Share not owned directly or indirectly by Parent or the
Company will be converted into the right to receive $21.25 per Common Share, in
cash (the "Merger Consideration"); and
WHEREAS, Parent, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
acquisition of the Company by Parent pursuant to the Offer and the Merger and
also to prescribe various conditions to the Offer and the Merger; and
WHEREAS, certain capitalized terms used in this Agreement have the
meaning as set forth or referred to in Article X hereof.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Parent,
the Purchaser and the Company agree as follows:
<PAGE>
ARTICLE I
THE OFFER
SECTION 1.01 The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with its terms and none of the events set forth in Paragraphs (a)
through (f) of Annex I hereto shall have occurred or be existing, no later than
two (2) business days after the public announcement of the terms of this
Agreement, the Purchaser shall commence the Offer, in accordance with the
requirements of Regulations 14D and 14E promulgated under the Exchange Act, and
any applicable State securities laws, to purchase all of the issued and
outstanding Common Shares for the Offer Price net to the seller thereof in cash,
provided, however, that the Purchaser shall use its best efforts to commence the
Offer as soon as practicable after the public announcement of the terms of this
Agreement, but in no event later than two business days after such public
announcement. The Offer shall expire and terminate on the twentieth (20th)
business day from the commencement of the Offer (the "Expiration Date");
provided, however, that the Purchaser shall have the right to extend the
Expiration Date up to ten (10) additional business days in order to satisfy any
of the conditions set forth in Annex I hereto other than the Offer Financing
Condition, provided that the failure of such conditions to be satisfied is not
due to a breach of this Agreement by Parent or Purchaser. Provided that this
Agreement shall not have been terminated in accordance with its terms and none
of the events set forth in Paragraphs (a) through (f) of Annex I hereto shall
have occurred or be existing, no later than (2) two business days after the
public announcement of the terms of this Agreement, the Purchaser shall file
with the Securities and Exchange Commission (the "SEC") the Purchaser's Tender
Offer Statement on Schedule 14D-1 (together with any supplements or amendments
thereto, the "Offer Documents"), which shall contain (as an exhibit) the
Purchaser's offer to purchase the Common Shares (the "Offer to Purchase") which
shall be mailed to the holders of Common Shares with respect to the Offer, which
shall contain the conditions set forth in Annex I hereto and no others; it being
understood that the Offer shall be on the terms and subject to the conditions
that are agreed to by the parties hereto and no others and that the Purchaser
shall use its best efforts to file the Tender Offer Statement on Schedule 14D-1
as soon as practicable, but in no event later than two business days after such
public announcement. The obligation of Purchaser to accept for payment or pay
for any Common Shares tendered pursuant to the Offer will be subject only to the
satisfaction of the conditions set forth in Annex I hereto. Without the prior
written consent of the Company, the Purchaser shall not decrease the price per
Common Share or change the form of consideration payable in the Offer, decrease
the number of Common Shares sought to be purchased in the Offer, change the
conditions set forth in Annex I, waive the Minimum Condition (as defined in
Annex I), impose additional conditions to the Offer or amend any other term of
the Offer in any manner adverse to the holders of Common Shares; provided that
the Purchaser expressly reserves the right to waive any condition to the Offer
(other than the Minimum Condition) without the consent of the Company. Subject
to the terms of the Offer and this Agreement and the satisfaction of all the
conditions of the Offer set forth in Annex I hereto as of any expiration date,
Purchaser will accept for payment and pay for all Common Shares
<PAGE>
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after such Expiration Date (the time of such purchase being referred to herein
as the "Offer Purchase Closing"). Purchaser shall make reasonable provision for
the payment of Offer proceeds to be made by wire transfer of immediately
available funds to any person tendering Common Shares representing more than 1%
of the Company's outstanding Common Shares. Subject to Section 8.01, if any of
the conditions set forth in Annex I hereto are not satisfied or, to the extent
permitted by this Agreement, waived by the Purchaser as of the Expiration Date
(or any subsequently scheduled expiration date), Purchaser will extend the Offer
from time to time, in each case, for the shortest time period that it reasonably
believes is necessary for the consummation of the Offer. Each of the parties
hereto shall use its reasonable best efforts to cause all conditions precedent
set forth in Annex I to be fulfilled and avoid the occurrence of any event or to
cure any event which may prevent such conditions precedent set forth in Annex I
from being fulfilled.
(b) The Offer Documents will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Parent
or the Purchaser with respect to information supplied by the Company in writing
for inclusion in the Offer Documents. Each of Parent and the Purchaser, on the
one hand, and the Company, on the other hand, agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the extent
that it shall have become false or misleading in any material respect and the
Purchaser further agrees to take all steps necessary to cause the Offer
Documents as so corrected to be filed with the SEC and to be disseminated to
stockholders of the Company, in each case, as and to the extent required by
applicable federal securities laws.
SECTION 1.02 Company Actions.
(a) The Company shall promptly (and in any event within two (2)
business days after the public announcement of the terms of this Agreement) file
with the SEC and mail to the holders of Common Shares the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the
Offer (together with any amendments or supplements thereto, the "Schedule
14D-9"). The Schedule 14D-9 will set forth, and the Company hereby represents,
that the Board, at a meeting duly called and held, has (i) determined that the
Offer and the Merger are fair to and in the best interests of the Company and
its stockholders, (ii) approved the Offer and the Merger in accordance with
Section 203 of the GCL, and (iii) resolved to recommend and continues to
recommend acceptance of the Offer and approval and adoption of the Merger and
this Agreement by the Company's stockholders (if such approval is required by
applicable law) (such recommendation to the Company's stockholders being
referred to as the "Board Recommendation"); provided, however, that such
recommendation and approval may be
<PAGE>
withdrawn, modified or amended as provided in Section 6.09. The Company further
represents that Credit Suisse First Boston Corporation ("CSFB") has delivered to
the Board its written opinion to the effect that, as of the date of this
Agreement, the cash consideration to be received for the Common Shares pursuant
to the Offer and the Merger is fair to the holders of the Common Shares (other
than Parent and its affiliates) from a financial point of view.
(b) Each of the Company, on the one hand, and Parent and the Purchaser,
on the other hand, agree promptly to correct any information provided by either
of them for use in the Schedule 14D-9 if and to the extent that it shall have
become false or misleading, and the Company further agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC
and to be disseminated to the holders of the Common Shares, in each case, as and
to the extent required by applicable federal securities law.
(c) In connection with the Offer, the Company will use reasonable best
efforts to cause to be furnished to Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date and shall
furnish Purchaser with such additional information and assistance (including,
without limitation, updated lists of stockholders, mailing labels and lists of
securities positions) as Purchaser or its agents may reasonably request in
communicating the Offer to the record and beneficial holders of Shares. Subject
to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Merger, Purchaser and its affiliates and associates shall hold
in confidence the information contained in any such labels, listings and files,
will use such information only in connection with the Offer and the Merger, and,
if this Agreement shall be terminated, will deliver to the Company all copies of
such information then in their possession.
SECTION 1.03 Directors.
(a) Subject to compliance with applicable law, promptly upon the
payment by the Purchaser for Common Shares pursuant to the Offer, and from time
to time thereafter, Parent shall be entitled to designate at least such number
of directors, rounded up to the next whole number, on the Board as is equal to
the product of the total number of directors on the Board (determined after
giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Common Shares beneficially owned by
Parent or its affiliates bears to the total number of Common Shares then
outstanding, and the Company shall, upon request of Parent, promptly take all
actions necessary to cause Parent's designees to be so elected, including, if
necessary, seeking the resignations of one or more existing directors.
(b) The Company's obligations to appoint Parent's designees to the
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
thereunder. The Company shall promptly take all actions required pursuant to
such Section and Rule in order to fulfill its obligations under this Section
1.03 and shall include in the Schedule 14D-9 such information with respect to
the Company and its officers and directors as is required under such Section and
Rule in order to fulfill its obligations under this Section 1.03. Parent will
supply any information with respect to itself and its officers, directors and
affiliates required by such Section and Rule to
<PAGE>
the Company.
(c) Following the election or appointment of Parent's designees
pursuant to this Section 1.03 and prior to the Effective Time, any amendment or
termination of this Agreement by the Company, the Company shall not extend the
time for the performance of any of the obligations or other acts of Parent or
the Purchaser or waive any of the Company's rights hereunder, or take any other
action if such amendment, termination, extension, waiver or action would have an
adverse effect on the minority stockholders of the Company.
SECTION 1.04 Stock Options. Promptly following the commencement of the
Offers the Company shall offer to cancel any or all of the outstanding options
to purchase Common Shares and each outstanding stock appreciation unit (each
such option to purchase one share and each such unit representing one share
being referred to as an "Option") granted under the Company's Incentive Stock
Option Plan and the Company's Stock Appreciation Rights Plan (collectively the
"Option Plan") for cash consideration as set forth herein. Each holder of an
Option which is vested (after giving consideration to any acceleration of
vesting provided in the Option Plan or the Company's Special Bonus and Severance
Plan (the "SBS Plan")) shall be offered the right to have 100% of his or her
Options canceled by the Company in consideration of a payment by the Company to
such holder for each Option in an amount equal to the excess of the Offer Price
over the applicable exercise price of such Option. Cancellation of the Options
and payment of the consideration therefor shall be conditioned upon the purchase
of Common Shares by the Purchaser pursuant to the Offer. If such condition is
met, the cancellation of Options and payment of the consideration therefor in
accordance with this section shall be made as promptly as possible following the
Offer Purchase Closing.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the satisfaction
or waiver of the conditions of this Agreement, and in accordance with the
applicable provisions of this Agreement and the GCL, at the Effective Time (as
defined in Section 2.02) the Purchaser shall be merged with and into the
Company. Following the Merger, the separate corporate existence of the Purchaser
shall cease and the Company shall continue as the surviving corporation and
shall succeed to and assume all the rights and obligations of Purchaser in
accordance with the GCL. In its capacity as the surviving corporation of the
Merger, the Company is sometimes referred to herein as the "Surviving
Corporation."
SECTION 2.02 Closing Effective Time. The closing of the Merger (the
"Closing") will take place as promptly as practicable following the satisfaction
or waiver of the conditions set forth in Section 7.01 of this Agreement (the
"Closing Date"), at the offices of Brown, Todd & Heyburn PLLC, Lexington, KY.
Immediately following the Closing, the parties hereto shall cause the Merger to
become effective by filing a Certificate of Merger or, if
<PAGE>
permitted, a Certificate of Ownership and Merger, with the Secretary of State of
the State of Delaware, in accordance with the relevant provisions of the GCL
(the time of such filing being the "Effective Time") and shall make all other
filings or recordings required under the GCL.
SECTION 2.03 Effects of the Merger.
(a) The Merger shall have the effects set forth in the GCL.
(b) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter amended in
accordance with the provisions thereof and hereof and applicable law.
(c) Subject to the provisions of Section 6.07 of this Agreement, the
By-Laws of the Purchaser in effect at the Effective Time shall be the By-Laws of
the Surviving Corporation until amended in accordance with the provisions
thereof and applicable law.
(d) Subject to applicable law, the directors of the Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
(e) The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation and shall
hold office until their respective successors are duly elected and qualified,
or their earlier death, resignation or removal.
SECTION 2.04 Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances in law or any other acts are necessary or
desirable to (a) vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its rights, title or interest in, to or under any of the
rights, properties or assets of the Company or its Subsidiaries, or (b)
otherwise carry out the provisions of this Agreement, the Company and its
officers and directors shall be deemed to have granted the Surviving Corporation
an irrevocable power of attorney to execute and deliver all such deeds,
assignments or assurances in law and to take all acts necessary, proper or
desirable to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to carry out the
provisions of this Agreement, and the officers and directors of the Surviving
Corporation are authorized in the name of the Company or otherwise to take any
and all such action.
SECTION 2.05 Conversion of Common Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
(I) each Common Share issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares (as defined in Section 3.01) and Shares held
by the Company, Parent, Purchaser and their respective Subsidiaries) shall be
converted into the right to receive the Merger Consideration in cash, payable to
the holder thereof, without interest thereon, upon surrender of the certificate
<PAGE>
formerly representing such Common Share, and (ii) each Common Share owned by the
Company or one of its Subsidiaries or by Parent or Purchaser or one of its
Subsidiaries shall be canceled without payment and without surrender of the
certificate formerly representing such Common Shares.
SECTION 2.06 Conversion of Purchaser Common Stock. At the Effective
Time, each share of common stock, par value $.01 per share, of the Purchaser
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and become one validly issued, fully paid and non-assessable
share of common stock, par value $.01 per share, of the Surviving Corporation.
SECTION 2.07 Company Option Plans. At the Effective Time, by virtue of
the Merger and without any action on the parts of the holders thereof, each then
outstanding Option shall be converted into the right to receive an amount
determined by multiplying (i) the excess, if any, of the Offer Price over the
applicable exercise price of such Option by (ii) the number of Common Shares
such holder could have purchased if such holder had exercised such Option
immediately prior to the Effective Time, but only to the extent then vested and
exercisable, provided that the determination of the exercisability of Options
shall take into account the acceleration of vesting provided for in the Option
Plan or the SBS Plan. The Surviving Corporation will pay any amount required to
be paid pursuant to this Section 2.07 upon exercise or delivery of any then
outstanding Options to the Surviving Corporation by or on behalf of the holder
thereof.
SECTION 2.08 Merger Without Meeting of Stockholders. The Purchaser and
Parent agree to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after the acceptance for payment of and
payment for Common Shares by the Purchaser pursuant to the Offer without a
meeting of stockholders of the Company, in accordance with Section 253 of the
GCL.
ARTICLE III
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 3.01 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Common Shares outstanding immediately prior to the
Effective Time and held by a holder who has demanded appraisal for such Shares
in accordance with Section 262 of the GCL, if such Section 262 provides for
appraisal rights for such shares in the Merger ("Dissenting Shares"), shall not
be converted into the right to receive the Merger Consideration as provided in
Section 2.05, unless and until such holder fails to perfect or withdraws or
otherwise loses his right to appraisal and payment under the GCL. If, after the
Effective Time, any such holder fails to perfect or withdraws or loses his right
to appraisal, such Dissenting
<PAGE>
Shares shall thereupon be treated as if they had been converted as of the
Effective Time into the right to receive the Merger Consideration, if any, to
which such holder is entitled, without interest or dividends thereon. The
Company shall give Parent prompt notice of any demands received by the Company
for appraisal of Common Shares and Parent shall have the right to participate in
all negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands.
SECTION 3.02 Payment for Common Shares.
(a) From and after the Effective Time, The Bank of New York, or such
other bank or trust company as shall be mutually acceptable to Parent and the
Company, shall act as paying agent (the "Paying Agent") in effecting the payment
of the Merger Consideration in respect of certificates (the "Certificates")
that, prior to the Effective Time, represented Common Shares entitled to payment
of the Merger Consideration pursuant to Section 2.05. At the Effective Time,
Parent or the Purchaser shall deposit, or cause to be deposited, in trust with
the Paying Agent the aggregate Merger Consideration to which holders of Common
Shares shall be entitled at the Effective Time pursuant to Section 2.05.
(b) Promptly after the Effective Time, the Paying Agent shall mail to
each record holder of Certificates that immediately prior to the Effective Time
represented Common Shares (other than Certificates representing Dissenting
Shares and Certificates representing Common Shares held by Parent, the
Purchaser, or the Company) a form of letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent
and instructions for use in surrendering such certificates and receiving the
Merger Consideration in respect thereof. Upon the surrender of each such
Certificate, the Paying Agent shall, in consideration for the shares represented
by such Certificates, pay the holder of such Certificate the Merger
Consideration multiplied by the number of Common Shares formerly represented by
such Certificate, in consideration therefor, and such Certificate shall
forthwith be canceled. Until so surrendered, each such Certificate (other than
Certificates representing Dissenting Shares and Certificates representing Common
Shares held by Parent, the Purchaser, or the Company) shall represent solely the
right to receive the aggregate Merger Consideration relating thereto. No
interest or dividends shall be paid or accrued on the Merger Consideration. If
the Merger Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the Certificate formerly representing
Common Shares surrendered therefor is registered, it shall be a condition to
such right to receive such Merger Consideration that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person surrendering such Common Shares shall pay to the
Paying Agent any transfer or other taxes required by reason of the payment of
the Merger Consideration to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable. Promptly after the
Effective Time, the Paying Agent shall mail to each record holder of
Certificates that immediately prior to the Effective Time represented Dissenting
Shares a notice of appraisal rights.
<PAGE>
(c) Promptly following the date which is 180 days after the Effective
Time, the Paying Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Paying Agent's duties shall terminate.
Thereafter, holders of Common Shares who have not theretofore complied with this
Section 3.02 shall look only to the Surviving Corporation for payment of the
Merger Consideration in respect thereof (subject to applicable abandoned
property, escheat and similar laws), in each case, without interest or dividends
thereon.
(d) None of Parent, the Purchaser, the Surviving Corporation or the
Paying Agent shall be liable to any person in respect of any Common Shares (or
dividends or distributions with respect thereto) or cash deposited by Parent or
the Purchaser with the Paying Agent that is delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date on which any cash
would otherwise escheat to or become the property of any Governmental Entity),
any such cash in respect of such Certificate shall, to the extent permitted by
applicable law become the property of Parent, free and clear of all claims or
interest of any person previously entitled thereto.
(e) Parent, the Purchaser and the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable or issuable
pursuant to this Agreement to any holder of Common Shares such amounts as
Parent, the Purchaser or the Paying Agent are required to deduct and withhold
with respect to such payment or issuance under the Code, or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holders of Common Shares in respect of which such
deduction and withholding was made.
(f) All cash issued upon surrender of Certificates in accordance with
the terms hereof shall be deemed to have been issued in full satisfaction of all
rights pertaining to such Common Shares formerly represented thereby. After the
Effective Time, there shall be no transfers on the stock transfer books of the
Surviving Corporation of any Common Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates formerly
representing Common Shares are presented to the Surviving Corporation or the
Paying Agent, they shall be surrendered and canceled in return for the payment
of the aggregate Merger Consideration relating thereto, as provided in this
Article III, subject to applicable law in the case of Dissenting Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser that
except as set forth in the Disclosure Schedules (as hereinafter defined) as of
the date hereof (or such other later date as is specified):
SECTION 4.01 Organization and Qualification; Subsidiaries. (a) The
<PAGE>
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Set forth on the Subsidiary Schedule is
a list of every corporation, limited liability company, partnership or other
business organization or entity of which the Company owns, either directly or
through its Subsidiaries, (a) more than 50% of (i) the total combined voting
power of all classes of voting securities of such entity, (ii) the total
combined equity interests therein, or (iii) the capital or profit interests
therein, in the case of a partnership; or (b) otherwise has the power to vote or
direct the voting of sufficient securities to elect a majority of the board of
directors or similar governing body of such entity (the "Subsidiaries"). Each of
the Subsidiaries listed on the Subsidiary Schedule is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. The Company and each of the Subsidiaries has
the requisite corporate power to own, operate or lease its properties and to
carry on its business as it is now being conducted, and is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction in which
the nature of its business or the properties owned, operated or leased by it
makes such qualification, licensing or good standing necessary, except where the
failure to have such power, or the failure to be so qualified, licensed or in
good standing, would not have a Material Adverse Effect on the Company. The term
"Material Adverse Effect on the Company," as used in this Agreement, means any
development, condition or circumstance having an effect on the assets, business,
operations, or financial condition of the Company or any of its Subsidiaries
that is materially adverse to the Company and its Subsidiaries taken as a whole
other than any development, condition or circumstance resulting from general
economic conditions or relating generally to the coal or electric power
industries.
SECTION 4.02 Charter and By-Laws. The Company has heretofore made
available to Parent and the Purchaser a complete and correct copy of the charter
and the by-laws or comparable organizational documents, each as amended to the
date hereof, of the Company and each of the Subsidiaries.
SECTION 4.03 Capitalization. The authorized capital stock of the
Company consists of 50,000,000 Common Shares and 1,000,000 shares of Preferred
Stock, no par value. As of the close of business on July 28, 1998, 28,222,671
Common Shares were issued and outstanding, and 244,000 Common Shares were in the
Company's treasury, and no shares of Preferred Stock were issued and
outstanding. The Company has no shares reserved for issuance, except that, as of
July 28, 1998, there were 1,666,760 Common Shares reserved for issuance pursuant
to outstanding Options under the Option Plan, all of which were granted prior to
March 31, 1998. The Options Schedule sets forth the name of each holder of an
outstanding Option under the Option Plan, and with respect to each Option held
by any such holder, the grant date, exercise price and number of Common Shares
for which such Option is exercisable. As of the date hereof, the Company has no
options to purchase Common Shares outstanding other than those granted and
outstanding under the Option Plan. Since December 31, 1997, the Company has not
issued any shares of capital stock except pursuant to the exercise of Options
outstanding as of such date. All of the outstanding Common Shares are, and all
Common Shares which may be issued pursuant to the exercise of outstanding
Options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and nonassessable. There
<PAGE>
are no bonds, debentures, notes or other indebtedness having general voting
rights (or convertible into securities having such rights) of the Company or any
of its Subsidiaries issued and outstanding. Except as set forth on the Options
Schedule and except as contemplated by this Agreement, or between the Company
and one or more of its direct or indirect wholly-owned subsidiaries, there are
no existing options, warrants, calls, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company or any of the Subsidiaries, obligating the Company
or any of the Subsidiaries to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock of, or other equity interest in
or voting security of, the Company or any of the Subsidiaries or securities
convertible into or exchangeable for such shares or equity interests or voting
securities and neither the Company nor any of the Subsidiaries is obligated to
grant or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment. Except as contemplated by this Agreement
or between the Company and one or more of its direct or indirect wholly-owned
subsidiaries, there are no outstanding contractual obligations of the Company or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any Common
Shares or the capital stock of the Company or any of the Subsidiaries. Each of
the outstanding shares of capital stock of each of the Company's Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable, and such shares
of the Company's Subsidiaries as are owned by the Company or by a subsidiary of
the Company are owned in each case free and clear of any Lien (as hereinafter
defined). Other than as set forth on the Contracts Schedule, the Company has not
agreed to register any securities under the Securities Act or under any state
securities law or granted registration rights to any person or entity.
SECTION 4.04 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly and validly authorized and
approved by the Board and no other corporate proceedings on the part of the
Company or on the part of the stockholders of the Company are necessary to
authorize or approve this Agreement or to consummate the transactions
contemplated hereby except as required by Delaware law. This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due and
valid authorization, execution and delivery of this Agreement by Parent and the
Purchaser, this Agreement constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
that such enforceability (I) may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity.
SECTION 4.05 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement by the
Company, the consummation by the Company of the Merger, compliance by the
Company with any of the provisions hereof or consummation of the Merger or any
other transaction contemplated hereby will (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company or
<PAGE>
the comparable organizational documents of any Subsidiary, (ii) conflict with or
violate any statute, ordinance, rule, regulation, Order, judgment or decree
applicable to the Company or its Subsidiaries, or by which any of them or any of
their respective properties or assets may be bound, or (iii) result in a
violation or breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
any loss of any material benefit, or the creation of any Lien on any of the
property or assets of the Company or any of its Subsidiaries (any of the
foregoing referred to in clause (ii) or this clause (iii) being a "Violation")
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective properties may be bound or affected,
except, in the cases of clauses (ii) and (iii) for any such Violations which
would not individually or in the aggregate have a Material Adverse Effect on the
Company.
(b) None of the execution and delivery of this Agreement by the
Company, the consummation by the Company of the Merger or any other transaction
contemplated hereby or compliance by the Company and its Subsidiaries with any
of the provisions hereof will require any consent, waiver, approval,
authorization or permit of, or registration or filing with or notification to
(any of the foregoing being a "Consent") any government or subdivision thereof,
domestic, foreign or supranational or any administrative, governmental or
regulatory authority, agency, commission, tribunal or body, domestic, foreign or
supranational (a "Governmental Entity") or any third party, except for (I)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the filing of a certificate of
merger, or, if permitted, a certificate of ownership and merger, pursuant to the
GCL, (iii) compliance with the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and any requirements of any foreign or
supranational Antitrust Laws (as hereinafter defined), (iv) other Consents
identified in the Consents Schedule (including notices and Consents relating to
or in connection with mining, reclamation and environmental Permits), and (v)
other Consents the failure of which to obtain or make would not individually or
in the aggregate have a Material Adverse Effect on the Company.
SECTION 4.06 SEC Reports and Financial Statements.
(a) The Company has filed with the SEC all forms, reports, schedules,
registration statements and definitive proxy statements required to be filed by
the Company with the SEC since January 1, 1995 (the "SEC Reports"). As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Exchange Act or the Securities Act of 1933 and the rules and
regulations of the SEC promulgated thereunder applicable, as the case may be, to
such SEC Reports, and none of the SEC Reports contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(b) The consolidated balance sheets as of December 31, 1997, 1996, 1995
and
<PAGE>
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997
(including the related notes and schedules thereto) of the Company contained in
the Form 10-Ks for the years ended December 31, 1997, 1996 and 1995 included in
the SEC Reports and the consolidated balance sheet as of March 31, 1998 and the
related consolidated statements of income, stockholders' equity and cash flows
for the quarter ended March 31, 1998 contained in the Form 10-Q for the quarter
ended March 31, 1998 included in the SEC Reports present, and the consolidated
balance sheet as of June 30, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for the six months ended June 30,
1998 contained in the Form 10-Q for the quarter ended June 30, 1998 present,
fairly, in all material respects, the consolidated financial position and the
consolidated results of operations and cash flows of the Company and its
consolidated Subsidiaries as of the dates or for the periods presented therein
in conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved except as
otherwise noted therein, including the related notes. The audited balance sheet
as of December 31, 1997 is herein referred to as the "December Balance Sheet,"
the unaudited balance sheet as of March 31, 1998 is herein referred to as the
"March Balance Sheet," and the unaudited balance sheet as of June 30, 1998 is
herein referred to as the "June Balance Sheet." The amounts accrued or reserved
for in the December Balance Sheet, the March Balance Sheet and the June Balance
Sheet with respect to future costs associated with workers' compensation
liabilities, Reclamation Obligations (as hereinafter defined) and Black Lung
liabilities (as hereinafter defined) have been accrued or reserved for in
accordance with GAAP, consistently applied. The amounts reflected in the
December Balance Sheet, the March Balance Sheet and the June Balance Sheet with
respect to coal and mineral reserves have been included or will be included in
such financial statements in accordance with GAAP, consistently applied. The
Company has accrued its and its Subsidiaries' and affiliates' obligations for
retiree medical benefits in accordance with Statement of Financial Account
Standards No. 106.
(c) Since March 31, 1998, except as disclosed in the SEC Reports or the
Developments Schedule, there has not been any Material Adverse Effect on the
Company or any event, condition or development which the Company believes is
reasonably likely to result in a Material Adverse Effect on the Company.
(d) The Company and its Subsidiaries are not subject to any material
liabilities or obligations (absolute, accrued, contingent or otherwise) other
than (i) arising under contracts or circumstances reflected on or otherwise
referred to in the Disclosure Schedules (subject to Section 4.12(c)), (ii)
reflected in, reserved against or otherwise disclosed in the December Balance
Sheet, March Balance Sheet or June Balance Sheet, or (iii) incurred in the
ordinary course of business consistent with past practice.
SECTION 4.07 Information. None of the information supplied by the
Company in writing specifically for inclusion or incorporation by reference in
(i) the Offer Documents, (ii) the Schedule 14D-9, or, (iii) any other document
to be filed with the SEC or any
<PAGE>
other Governmental Entity in connection with the transactions contemplated by
this Agreement (the "Other Filings") will, at the respective times filed with
the SEC or other Government Entity, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Schedule 14D-9
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
SECTION 4.08 Absence of Certain Developments. Except as set forth on
the Developments Schedule and except as expressly contemplated by this
Agreement, since March 31, 1998, neither the Company nor any of its Subsidiaries
has engaged in any material transaction outside the ordinary course of business
consistent with past practice or:
(a) Incurred any indebtedness for borrowed money, except borrowings
from banks (or other financial institutions) necessary to meet ordinary course
working capital requirements and to finance capital expenditures in the ordinary
course of business consistent with past practice;
(b) Mortgaged, pledged or subjected to any Lien, any asset or related
group of assets having a net book value in excess of $500,000;
(c) Sold, leased, assigned or transferred any tangible asset or related
group of assets having a net book value in excess of $500,000 except for the
sale of inventory and obsolete or used machinery and equipment in the ordinary
course of business consistent with past practice;
(d) Sold, leased, assigned or transferred any interest in real estate
having a net book value in excess of $500,000;
(e) Sold, licensed, assigned or transferred any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets having a fair
market value in excess of $500,000 individually or in the aggregate;
(f) Waived or relinquished any right or claim or related group of
rights or claims except any such item which the Company believes has a fair
value of less than $500,000 individually or in the aggregate;
(g) (x) Issued or sold any of its Common Shares or other equity
securities or any warrants, options or other rights to acquire its Common Shares
or other securities of the Company, except for the issuance of Common Shares
upon exercise of Options outstanding as of March 31, 1998 or (y) purchased or
redeemed or agreed to purchase or redeem any Common Shares or other equity
securities;
(h) Made or entered into binding commitment for any capital
expenditures or related group of capital expenditures in excess of $1,000,000
other than such expenditures
<PAGE>
contemplated in the financial statements and plans provided to the Purchaser by
the Company;
(i) Modified or amended in any material manner or terminated or entered
into any Material Contract (as hereinafter defined);
(j) Granted any increase in the base compensation of, or made any other
material change in the employments terms for, any of its directors, officers,
and employees other than normal periodic increases or changes reflecting or
based upon changed responsibilities or duties made in the ordinary course of
business consistent with past practice or changes made pursuant to any
collective bargaining agreements or existing contracts;
(k) Adopted, modified, or terminated any bonus, profit-sharing,
incentive, severance or other plan or contract for the benefit of any of its
directors, officers, and employees, other than for changes which are required by
law or a collective bargaining agreement; or
(l) Declared or paid any dividend or other distribution with respect to
the Common Shares except regular quarterly dividends not in excess of $0.075 per
share.
SECTION 4.09 Real Property.
(a) The Owned Real Property Schedule includes all material real
property interests owned in fee by the Company or its Subsidiaries and
identifies those interests which constitute Active Operating Properties and
Reserves and/or Operating Facilities.
(b) The Company and its Subsidiaries shall promptly provide the
following information with regard to each material parcel or tract of owned real
property (exclusive of oil and gas properties): (i) an identification of the
deed or other instrument of conveyance; (ii) recording information (if
available, and if not, the state and county where the relevant parcel or tract
is located); (iii) the names of at least one grantor and one grantee thereunder;
and (iv) the approximate size of the relevant parcel or tract when acquired. The
Company and its Subsidiaries shall also promptly provide an accurate listing of
all owned real property within the currently existing five (5) year mining plan
of the Company and its Subsidiaries.
(c) The Leased Real Property Schedule includes all material real
property interests in which the Company has or its Subsidiaries have a leasehold
interest and identifies those leasehold interests which constitute Active
Operating Properties and Reserves and/or Operating Facilities.
(d) The Company and its Subsidiaries shall promptly provide the
following information with regard to each material parcel or tract of leased
real property (exclusive of oil and gas properties): (i) an identification of
the lease or sublease agreement and any and all amendments, modifications and
side letters; (ii) recording information (if available), and if not, the state
and county where the relevant parcel or tract is located; (iii) the names of at
least one
<PAGE>
lessor and one lessee (or sublessor or sublessee) thereunder; (iv) the
approximate size of the relevant parcel or tract leased thereunder when
acquired; and (v) the term thereof, including any extension options. The Company
and its Subsidiaries shall also promptly provide an accurate listing of all
leased real property within the currently existing five (5) year mining plan of
the Company and its Subsidiaries.
(e) Except as set forth on the Real Property Disclosure Schedule and
except Permitted Encumbrances which individually or in the aggregate do not
constitute a Material Adverse Effect on the Company, the Company and its
Subsidiaries hold (i) good and marketable Mining Title, as hereinafter defined,
to the Active Operating Properties and Reserves and to the Operating Facilities
and (ii) as to the Other Real Property, an interest of record or a leasehold
interest from a person or entity which the Company or its Subsidiaries
reasonably believe has an interest of record. As used in this subparagraph (e),
Mining Title means fee simple title to surface and/or coal or an undivided
interest in fee simple title thereto or a leasehold interest in all or an
undivided interest in surface and/or coal together with (i) for Active Operating
Properties and Reserves designated for surface mining no less than those
easements, licenses, privileges, rights, and appurtenances as are necessary to
mine, remove, and transport coal by surface mining methods; (ii) for Active
Operating Properties and Reserves designated for underground mining, no less
than those easements, licenses, privileges, rights, and appurtenances as are
necessary to mine, remove, and transport coal by underground mining methods; and
(iii) for Operating Facilities, no less than those easements, licenses,
privileges, rights, and appurtenances as are necessary to operate the Operating
Facilities in the manner presently operated.
(f) Except as disclosed in the Real Property Disclosure Schedule,
neither the Company nor its Subsidiaries have received any written notice
alleging that the Company or its Subsidiaries are in default under any material
lease. Except as disclosed on the Real Property Disclosure Schedule and except
as could not reasonably be expected to have a Material Adverse Effect on the
Company, neither the Company nor its Subsidiaries are in default under any lease
relating to Active Operating Properties and Reserves, Operating Facilities or
Other Real Property.
(g) Except for leases which would not have a Material Adverse Effect on
the Company if found to be invalid or unenforceable, each of the leases on the
Leased Real Property Schedule is, and will be on and immediately following the
Closing Date, valid and enforceable against the lessor or other parties thereto
in accordance with its terms. To the Knowledge of the Company there are no
unwritten modifications to such leases.
(h) To the Knowledge of the Company, except as set forth on the Real
Property Disclosure Schedule, neither the Company nor any of its Subsidiaries
have received any notice of claims that the Company or any Subsidiary has mined
any coal that did not belong to it, or mined any coal in such reckless or
imprudent fashion as to give rise to any material claims for loss, waste or
trespass.
(i) All existing maps, surveys, title insurance policies, title
insurance, abstracts and other evidence of title have been made available by the
Company and its
<PAGE>
Subsidiaries to the Purchaser.
(j) To the Knowledge of the Company, and other than set forth on the
Real Property Disclosure Schedule, no condemnation or eminent domain proceeding
against any part of such property is pending or threatened, and the Company and
its Subsidiaries have no knowledge that any such proceeding is contemplated.
(k) To the Knowledge of the Company, except as set forth on the Real
Property Disclosure Schedule, there are no adverse possession claims regarding
those real property interests which constitute Active Operating Properties and
Reserves and/or Operating Facilities.
(l) "Permitted Encumbrances" as used in this Agreement means: (i)
rights of cotenants, if any; (ii) rights and easements of owners of undivided
interests in the property where the Company or its Subsidiaries own less than
100% of the fee interest; (iii) rights and easements of owners of interests in
the surface where the Company or its Subsidiaries do not own or lease the
surface; (iv) rights and easements of owners and lessees, if any, of coal or
other minerals, including oil and gas, where the Company or its Subsidiaries do
not own coal or other minerals; (v) rights and easements of owners and lessees
of other coal seams and other minerals, including oil and gas, not owned or
leased by the Company or its Subsidiaries; (vi) all existing easements or rights
of way, whether of record or apparent on the premises, including, but not
limited to, roads, highways, pipelines, underground gas storage rights, railroad
and utility easements or rights-of-way, none of which could reasonably be
expected to have a Material Adverse Effect on the Company; (vii) real estate
taxes not yet due and payable; (viii) statutory liens for mechanics, materialmen
or laborers for work and labor delivered to or performed on the premises
securing obligations of the Company or its Subsidiaries or their contractors
incurred in the Ordinary Course of Business and in the aggregate do not exceed
$1,000,000; (ix) specific encumbrances and exceptions noted in a Disclosure
Schedule; (x) conditions, encumbrances, and covenants of record and other title
exceptions, defects and encumbrances which could not reasonably be expected to
have a Material Adverse Effect on the Company; (xi) terms, agreements,
provisions, conditions, and limitations contained in leases and rights of
lessors, their heirs, executors, administrators, successors, and assigns
(applies to leasehold estates); (xii) farm, grazing, hunting, recreational and
residential leases in which the Company or any Subsidiary is the lessor; (xiii)
royalty obligations to sellers or transferors of fee coal or lease properties;
(xiv) rights of others to subjacent or lateral support and absence of subsidence
rights; and (xv) rights of repurchase when mining and reclamation are completed.
SECTION 4.10 Personal Property. Except as would not have a Material
Adverse Effect on the Company:
(a) The Company and its Subsidiaries have good and marketable title to,
or a valid leasehold interest in, the personal property owned or used by them,
including the Leased Personal Property that is listed on the Personal Property
Lease Schedule (but excluding, to the extent applicable, any leased real
property), in each case, free and clear of all Liens.
<PAGE>
(b) The machinery and equipment owned or used by the Company and its
Subsidiaries have been maintained in accordance with industry practice, are in
generally good operating condition and adequate for carrying out the purposes
for which such personal property is employed, except for normal obsolescence and
wear and tear incurred in the ordinary course of business.
SECTION 4.11 Tax Matters. The Company and its Subsidiaries have filed
all income Tax Returns and other Tax Returns required to be filed by them,
excluding those Tax Returns the failure of which to file would not have a
Material Adverse Effect on the Company. All Tax Returns for the Company in
respect of all years not barred by the statute of limitations have heretofore
been made available by the Company to Purchaser and such returns are true,
correct, and complete in all material respects. Except as set forth on the Taxes
Schedule or the Litigation Schedule: (a) all Taxes shown thereon as owing by the
Company and the Subsidiaries on all such Tax Returns have been fully paid; (b)
to the Company's Knowledge, (i) the provision for taxes on the March Balance
Sheet and the June Balance Sheet are sufficient for all accrued and unpaid Taxes
as of the date thereof and (ii) all material Taxes which the Company or any of
its Subsidiaries is obligated to withhold from amounts owing to any employee,
creditor or third party have been fully paid or properly accrued; (c) there are
no material claims pending, or to the Company's Knowledge, threatened, for Taxes
against the Company or any Subsidiary with respect to any period ending as of or
prior to the date hereof; (d) neither the Company nor any Subsidiary has waived,
or agreed to the extension of, the statute of limitations with respect to any
Tax Return; (e) neither the Company nor any Subsidiary has any liability for
Taxes for any Person (other than the Company and its Subsidiaries) under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign income Tax law) as a transferee or successor by contract or otherwise;
and (f) the Company and its Subsidiaries have maintained their respective
records with respect to Taxes in a commercially reasonable manner.
SECTION 4.12 Contracts and Commitments.
(a) Except as set forth on the Contract Schedule, the Lease Schedules,
the Employee Benefits Schedule or the Development Schedule, neither the Company
nor any of its Subsidiaries is a party to any: (i) collective bargaining
agreement with any labor union; (ii) bonus, pension, profit sharing, retirement
or other form of deferred compensation plan which may provide compensation or
benefits of at least Two Hundred Thousand Dollars ($200,000.00) or which when
aggregated with all such other plans not included on the schedules may provide
compensation or benefits of at least One Million Dollars ($1,000,000.00); (iii)
stock purchase, stock option, stock appreciation or similar plan; (iv) contract
for the employment of any officer, individual employee or other person on a
full-time or consulting basis involving an annual compensation commitment by the
Company or a Subsidiary in excess of $200,000; (v) agreement or indenture
relating to the borrowing of money in excess of $1,000,000 or to mortgaging,
pledging or otherwise placing a Lien (other than a Permitted Lien) on any
portion of the Company's assets, other than assets that, individually or in the
aggregate, would not be material to the operations of the Company and, its
Subsidiaries in the ordinary course of business consistent with past practice;
(vi) guaranty of any obligation for borrowed money in excess of
<PAGE>
$1,000,000; (vii) lease or agreement under which it is lessee of, or holds or
operates any personal property owned by any other party, for which the annual
rental exceeds $250,000, (viii) contract or group of related contracts with the
same party for the supply of coal to any Person in an amount of more than
$3,000,000 or providing for deliveries extending beyond December 31, 1998; (ix)
contract or group of related contracts with the same party for the purchase of
inventories, supplies or services, under which the undelivered balance of such
inventories, supplies or services has a selling price in excess of $1,000,000
(other than contracts to purchase coal in the ordinary course of business in an
amount less than $3,000,000); (x) contract or group of related contracts with
the same party for the sale of products or services (other than coal sales or
supply contracts under which the undelivered balance of such products or
services has a sales price in excess of $1,000,000; (xi) tariff agreements and
other transportation contracts for the shipment of coal which provides for
transportation costs of, or reasonably projected to be, more than $250,000 per
year; (xii) contract which prohibits or materially limits the Company or a
Subsidiary in any material respect from freely engaging in business in the
United States or anywhere else in the world; or (xiii) any other contract or
commitment (A) involving the payment by or to the Company or any of its
Subsidiaries of $1,000,000 or more (whether in cash or other assets) in any 12
month period or $5,000,000 or more (whether in cash or other assets) in the
aggregate over the life of the contract or (B) the termination of which or loss
of the benefits thereunder would have a Material Adverse Effect on the Company.
"Material Contract" means any contract, agreement or other arrangement of a type
referred to in any of clauses (i) through (xiii) of this Section 4.12(a).
(b) Purchaser either has been supplied with, or has been given access
to, a true and correct copy of all written contracts which are referred to on
the Contracts Schedule and the Lease Schedules, together with all material
amendments, arbitration decisions and grievance settlements related to
collective bargaining agreements and contracts with any labor union, waivers or
other changes thereto.
(c) Each contract listed on the Contracts Schedule or the Lease
Schedule is legal, valid, binding, enforceable and in full force and effect, and
will continue to be legal, valid, binding, enforceable and in full force and
effect following consummation of the transactions contemplated hereby, except as
would not individually or in the aggregate, have a Material Adverse Effect on
the Company. To the Company's Knowledge, neither the Company nor its
Subsidiaries are in default, breach or violation (or would be in default, breach
or violation with notice or lapse of time, or both) under any contract listed on
the Contracts Schedule or the Lease Schedules, except for such defaults which
individually or in the aggregate, would not have a Material Adverse Effect on
the Company and except that Leased Real Property shall be excluded from this
representation.
SECTION 4.13 Intellectual Property. Set forth on the attached
Intellectual Property Schedule are all of the material patents, trademarks,
copyrights and service marks (and any registrations or applications therefor)
and all material trade names and corporate names used
<PAGE>
in the conduct of the business of the Company and its Subsidiaries as now
conducted (collectively, the "Intellectual Property"). Except as set forth on
the Intellectual Property Schedule, the Company and its Subsidiaries own or have
sufficient rights to use the Intellectual Property to conduct their current
operations. Except as set forth on the Intellectual Property Schedule, neither
the Company nor any Subsidiary has received any written notices of material
infringement or misappropriation from any third party with respect to the
Intellectual Property, and to the Company's Knowledge, neither the Company nor
any Subsidiary has infringed nor is it currently infringing the intellectual
property of any other Person, except where such infringement would not
individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.14 Licenses and Permits. Except as would not have a Material
Adverse Effect on the Company, the Company and its Subsidiaries possess all
necessary mining permits, leases, mining rights, mining licenses, re-mining
agreements and similar authorizations and approvals (collectively, the "Mining
Permits"), including those listed on the Mining Permits Schedule, and other
licenses, permits, certifications and other governmental or regulatory
authorizations and approvals, including those listed on the Other Permits
Schedule (collectively, "Permits"), necessary to enable the Company and its
Subsidiaries to carry on their mining business as presently conducted, and all
such permits are valid, and in full force and effect and there exists no default
thereunder. Except as set forth on the Mining Permits Schedule, to the Company's
Knowledge, the Company and its Subsidiaries have obtained all material Mining
Permits necessary for the Company and its Subsidiaries to conduct the mining
operations proposed to be conducted under the Company's current five-year mining
plan (the "Mining Plan") within the twelve month period commencing on the date
of this Agreement. Except as set forth on the Mining Permits Schedule, to the
Company's Knowledge, the Company and its Subsidiaries have initiated the process
to obtain all material Mining Permits necessary for the Company and its
Subsidiaries to conduct the mining operations proposed to be conducted under the
Mining Plan within the twelve month period following the twelve month period
commencing on the date of this Agreement. Except as set forth on the Mining
Permits Schedule, to the Company's Knowledge, with respect to any material
Mining Permits which can reasonably be expected to take more than two years to
obtain, the Company and its Subsidiaries have initiated the process so that such
Mining Permits may reasonably be expected to be issued not less than six months
prior to the applicable commencement date for the mining operations covered by
such Mining Permits. Except as disclosed on the Mining Permits Schedule, based
upon a good faith determination of Senior Managers of the Company's
Subsidiaries, Engineering and/or Permitting Departments, the time remaining
prior to the commencement of all mining operations under the Mining Plan is
sufficient to obtain any Mining Permits not yet obtained by the Company and its
Subsidiaries which are necessary to conduct the mining operations contemplated
in the Mining Plan not less than six months prior to the proposed commencement
of such mining operations under the Mining Plan. Except as set forth on the
Permits Schedule or the Litigation Schedule, to the Company's Knowledge, there
is no pending or threatened litigation or other proceeding under which any
material Mining Permit or other Permit could reasonably be expected to be
revoked, terminated or suspended.
SECTION 4.15 Litigation. Except as set forth on the attached Litigation
<PAGE>
Schedule, there are no actions, suits or proceedings pending or, to the
Company's Knowledge, threatened against the Company or any of its Subsidiaries
(or, in each case, in which the Company or its Subsidiaries is a party), at law
or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, except those which are not individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company.
Except as set forth on the attached Litigation Schedule, neither the Company nor
any of its Subsidiaries is subject to any outstanding judgment, injunction,
order or decree of any court or Government Entity to which this Company or its
Subsidiaries is a party which adversely affects the operations of the Company or
such Subsidiary.
SECTION 4.16 Governmental Consents, etc.. Except as set forth in
Section 4.05, on the Governmental Consents Schedule or in connection with the
Purchaser's financing of the transactions contemplated in this Agreement, no
consent, waiver, approval or authorization, order, permit or qualification of,
or declaration to or filing with, any governmental or regulatory authority is
required in connection with the execution, delivery or performance of this
Agreement by the Company or the consummation by the Company of any other
transaction contemplated hereby, the failure of which individually or in the
aggregate have a Material Adverse Effect on the Company.
SECTION 4.17 Employee Benefit Plans.
(a) Except as listed on the Employee Benefits Schedule or the Contracts
Schedule attached hereto, with respect to employees of the Company and its
Subsidiaries , (i) neither the Company nor any of its Subsidiaries maintains or
contributes to any qualified defined contribution retirement plan, or qualified
defined benefit pension plan (either being referred to as a "Pension Plan") and
(ii) the Company does not maintain or contribute to any welfare benefit plans
(as that term is defined in Section 3(1) of ERISA) (the "Welfare Plans"). The
Pension Plans and the Welfare Plans are collectively referred to as the "Plans."
Each of the Pension Plans (other than the Multiemployer Plans) has received a
favorable determination letter from the Internal Revenue Service that such Plan
is a "qualified plan" under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), the related trusts are exempt from tax under Section
501(a) of the Code, and the Company is not aware of any facts or circumstances
that would jeopardize the qualification of such Pension Plan. The Plans (other
than any Multiemployer Plans) comply in form and in operation in all material
respects with the requirements of the Code and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and any other laws, rules and
regulations applicable thereto.
(b) With respect to the Plans (other than the Multiemployer Plans), (i)
all required contributions have been made or properly accrued, (ii) there are no
actions, suits or claims pending, other than routine claims for benefits, and
(iii) there have been no "prohibited transactions" (as that term is defined in
Section 406 of ERISA or Section 4975 of the Code).
(c) The Company has furnished to Purchaser true and complete copies of
(i) the Plans and summary plan descriptions, (ii) the most recent determination
letter received
<PAGE>
from the Internal Revenue Service regarding the Plans (other than the
Multiemployer Plans) and (iii) the latest financial statements for the Plans
(other than the Multiemployer Plans) and latest available actuarial reports.
(d) Neither the Company nor any Subsidiary, nor, to the Company's
Knowledge, any of its directors, officers, employees or any other "fiduciary,"
as such term is defined in Section 3 of ERISA, has committed any material breach
of fiduciary responsibility imposed by ERISA or any other applicable law with
respect to the Plans which would subject Parent or Purchaser or any of their
respective directors, officers or employees to any material liability under
ERISA or any applicable law.
(e) The Company has not incurred any material liability for any tax or
civil penalty imposed by Section 4975 of the Code or Section 502 of ERISA.
(f) Except as listed on the Employee Benefits Schedule attached hereto,
(i) no Plan is a Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA)
("Multiemployer Plan") or a plan that has two or more contributing sponsors at
least two of whom are not under common control, within the meaning of Section
4063 of ERISA (a "Multiple Employer Plan"), and (ii) none of the Company and its
Subsidiaries nor any ERISA Affiliates has incurred any withdrawal liability that
has not been satisfied in full, nor been advised by a Multiemployer Plan that
any withdrawal liability or potential liability, as a result of a complete or
partial withdrawal from such Multiemployer Plan, as those terms are defined in
Part 1 of Subtitle E of Title IV of ERISA, has been incurred. With respect to
each Plan that is a Multiemployer Plan, except as set forth in the Employee
Benefits Schedule: (1) none of the Company and its Subsidiaries, nor any of the
respective ERISA Affiliates, has received any written notification, nor does the
Company have Knowledge that any such Plan is in reorganization, has been
terminated or is insolvent, or (2) reasonably expected to be in reorganization,
to be insolvent, or to be terminated, and (3) the Company and its Subsidiaries
and their respective ERISA Affiliates have made all required contributions to
such Plans substantially when due.
(g) The Company has not incurred any liability (i) under Title IV of
ERISA, (ii) under section 302 of ERISA, (iii) under sections 412 and 4971 of the
Code, (iv) as a result of a failure to comply with the continuation coverage
requirements of section 601 et seq. of ERISA and section 4980B of the Code, (v)
under Section 701, et seq. of ERISA, or (vi) under corresponding or similar
provisions of foreign laws or regulations that would be a liability of the
Company following the Effective Time, other than such liabilities under the
Plans, or where such liability would not individually or in the aggregate have a
Material Adverse Effect on the Company. No Plan subject to Title IV of ERISA nor
any related trusts have been terminated or is or has been the subject of
termination proceedings pursuant to Title IV of ERISA. Neither the Company nor
any ERISA Affiliate of the Company has engaged in any transaction described in
Section 4069 or Sections 4204 or 4212(c) of ERISA.
<PAGE>
(h) Except as disclosed in the Employee Benefits Schedule or the SEC
Reports, the Company has no liability for life, health, medical or other welfare
benefits to former employees or beneficiaries or dependents thereof, except for
health continuation coverage as required by Section 4980B of the Code or Parts 6
and 7 of Title I of ERISA.
(i) Except as disclosed in the Employee Benefits Schedule, the
Contracts Schedule and the Employee Arrangements Schedule, neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (either alone or in conjunction with any other event)
result in, cause the accelerated vesting or delivery of, or increase the amount
or value of, any payment or benefit to any employee, officer or director of the
Company or any of its Subsidiaries.
SECTION 4.18 Insurance. The attached Insurance Schedule lists the
material insurance policies maintained by the Company and its Subsidiaries and
their respective coverage and renewal dates. All of such insurance policies are
in full force and effect and the Company is not in material default with respect
to its obligations under any of such insurance policies. No notice of
cancellation or termination or rejection of any claim in excess of $1,000,000
has been received by the Company or its Subsidiaries with respect to any such
policy in the last year (or such shorter period as such entity has been in
existence or has been a Subsidiary of the Company). The Company and each of its
Subsidiaries has been covered during the past five years (or such shorter period
as such entity has been in existence or has been a Subsidiary of the Company) by
insurance in scope and amount customary and reasonable for the businesses in
which they have engaged during such period, and to the Company's Knowledge, all
contractors, lessees and licensees which performed services and/or engaged in
the production of coal on behalf of the Company have been covered by insurance
in scope and amount customary and reasonable for the business in which they have
engaged during such period.
SECTION 4.19 Compliance with Laws. Except as set forth on the Legal
Compliance Schedule, the Taxes Schedule, the Developments Schedule or the
Litigation Schedule, to the Company's Knowledge, the Company and each of its
Subsidiaries is in compliance with every statute, rule, restriction, law,
regulation, order, judgment or decree of any governmental entity applicable to
it or by which it is bound (other than Environmental and Safety Requirements and
any permit requirements or related regulations), including, without limitation,
the Fair Labor Standards Act or regulations under such act or other laws and
regulations relating to wages, hours, labor agreements, the payment of Social
Security and similar taxes, unemployment or workers' compensation including
Black Lung benefits and obligations and the West Virginia Wage Payment
Collections Payment Act and/or similar state laws and regulations, except for
such failures as would not have a Material Adverse Effect on the Company. Except
as set forth on the Legal Compliance Schedule, the Taxes Schedule or the
Developments Schedule, neither the Company nor any Subsidiary has received from
any governmental or regulatory authority any written notice alleging any
material violation of law or claiming any material liability of the Company or
any of its Subsidiaries as a result of any such alleged material violation.
SECTION 4.20 Environmental, Mining and Safety Matters. Except as set
<PAGE>
forth on the attached Environmental Compliance Schedule:
(a) The Company and its Subsidiaries are in compliance in all material
respects with all Environmental, Mining, and Safety Requirements (including
without limitation in cases where the Company or its Subsidiaries operate any
property or facility under a contractual arrangement but are not the named
permittee under relevant surface mining permits), and have filed all notices and
compliance reports required to be filed to maintain such compliance in all
material respects under any Environmental, Mining, and Safety requirements
(including without limitation, where material, notices and reports indicating
past or present treatment, storage or disposal, or reporting a spill or release
into the environmental, of any Hazardous Substances, Oils, Pollutants or
Contaminants), and (i) neither the Company nor any of its Subsidiaries has
received any written communication or other written notice from any Government
Entity (which has not been substantially resolved) alleging that the Company or
any of its Subsidiaries is not in compliance, in all material respects, with
Environmental, Mining, and Safety Requirements, (ii) to the Company's Knowledge
all contract mining activities performed on Real Property owned or leased by the
Company or any of its Subsidiaries are in compliance, in all material respects,
with all Environmental, Mining, and Safety Requirements, (iii) to the Company's
Knowledge, no material action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against or
otherwise given to the Company or any of its Subsidiaries alleging any failure
so to comply in all material respects, and, to the Company's Knowledge, no such
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand or notice has been threatened, and (iv) neither the Company nor any of
its Subsidiaries has any material contingent liabilities with respect to its
business under any Environmental, Mining, or Safety Requirements.
(b) (i) Neither the Company nor any of its Subsidiaries has received
notice to the effect that it is a potentially responsible party, or that any
Governmental Entity or other individual is seeking information in connection
with or advising it that it is responsible for, or potentially responsible for
costs under Environmental, Mining, and Safety Requirements, including, without
limitation, CERCLA, for cleanup of or investigatory, remedial, or other
corrective action related to Hazardous Substances, Oils, Pollutants or
Contaminants at any Real Property currently or previously owned or leased by the
Company or any of its Subsidiaries at any other location, (ii) no Real Property
owned or leased by the Company nor any of its Subsidiaries is listed on any
federal or state contaminated site list, including the national priority list
under CERCLA, the CERCLIS, or any state counterparts, and (iii) neither the
Company nor any of its Subsidiaries has knowledge of any release of Hazardous
Substances, Oils, Pollutants, or Contaminants in quantities requiring
investigation or cleanup at any of the Real Property owned or leased by the
Company or any of its Subsidiaries or at any location where, in any of the
foregoing cases (i)-(iii) the Company or any of its Subsidiaries could
reasonably be excepted to bear material liability.
(c) Each of the Company and its Subsidiaries has provided the Purchaser
(to the extent in the possession of the Company or its Subsidiaries) with all
material environmental audits, site assessments, or reports, all Environmental
Impact Statements, and all liability studies
<PAGE>
prepared within the past five years by or for the Company or any of its
Subsidiaries, or by any third party, including Government Entities or insurance
companies.
(d) For purposes of this Agreement, "Release" shall mean any emission,
spill, release, discharge or threatened release into or upon: (i) the air; (ii)
the soils or any improvements located thereon; (iii) the surface water or ground
water; or (iv) the sewer, septic system or waste treatment, storage or disposal
system.
SECTION 4.21 Affiliated Transactions. Except as set forth on the
Affiliated Transactions Schedule, the Employee Benefits Schedule, the
Developments Schedule or the contracts Schedule, no officer, director, or
principal stockholder of the Company or, to the Company's Knowledge, any
individual in such officer's or director's immediate family is a party to any
material agreement, contract, commitment or transaction with the Company or any
of its Subsidiaries or has any interest in any material real or personal
property used by the Company or any of its Subsidiaries other than arrangements
with employees that are available to similarly situated employees.
SECTION 4.22 Brokers. Except for the fees of CSFB pursuant to the
engagement letter listed on the Contracts Schedule, none of the Company, any of
its Subsidiaries, or any of their respective officers, directors or employees
has employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated by this Agreement.
SECTION 4.23 Labor Relations. Except as set forth in the Compliance
Schedule or the Litigation Schedule:
(a) The Company and its Subsidiaries are in compliance with applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, excluding Environmental and Safety Requirements,
except for such failures as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. The Company and its Subsidiaries are in
compliance with applicable collective bargaining agreements, and arbitration,
administrative and judicial decisions interpreting and/or affecting such
agreements, except for such failures as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) There is no unfair labor practice charge or complaint or any other
labor employment matter against or involving the Company or any Subsidiary
pending or threatened before the National Labor Relations Board or any court of
law as of the date of this Agreement. There is, and, except as disclosed on the
Compliance Schedule, since January 1, 1996 there has been, no labor organizing
activity, strike, dispute, lockout, slowdown or stoppage actually pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against the
Company or any of its Subsidiaries.
(c) There is, and except as disclosed on the Compliance Schedule, since
January 1, 1994 there has been, no certified collective bargaining
representative of the
<PAGE>
Company's or any of its Subsidiaries' employees, no demand made to the Company
or its Subsidiaries for recognition by any collective bargaining representative,
and no petition for an election filed with the National Labor Relations Board or
any other governmental authority or Person with respect to the Company's or any
of its Subsidiaries' employees.
(d) Except as set forth on the Litigation Schedule, there are no
charges, investigations administrative proceedings or formal complaints of
discrimination (including discrimination based upon sex, age, marital status,
race, color, religion, national origin, sexual preference, disability, handicap
or veteran status) pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened before the Equal Employment Opportunity Commission or
any federal, state or local agency or court against the Company or any
Subsidiary.
SECTION 4.24 Permit Blocking. Except as set forth in the Compliance
Schedule or Litigation Schedule, neither the Company nor any of its Subsidiaries
has been notified in writing by the Federal Office of Surface Mining or the
agency of any state administering the Surface Mining Control and Reclamation Act
of 1977, as amended ("SMCRA"), or any comparable state statute, that it is (i)
ineligible to receive additional surface mining permits that are material to its
business; or (ii) under investigation to determine whether its eligibility to
receive such permits should be revoked, i.e., "permit block," and, to the
Company's Knowledge, there is no basis therefor.
SECTION 4.25 Section 6 of the Joint Development Agreement. No
Acquisition Closing (as such term is defined in the Joint Development Agreement)
or other event has occurred, that prevents, prohibits or limits or otherwise
renders moot any rights of the Company and/or one or more of its Subsidiaries
pursuant to Section 6 of the Joint Development Agreement (including, without
limitation, the right thereunder to withdraw from the Project (as defined in the
Joint Development Agreement)).
SECTION 4.26 Takeover Provisions Inapplicable. Assuming the accuracy
and correctness of Section 5.06 hereof, as of the date hereof and at all times
on or prior to the Effective Time, Section 203 of the GCL is and shall be
inapplicable to the Merger and the transactions contemplated hereby.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as
follows:
SECTION 5.01 Organization and Qualification. Parent is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Parent and Purchaser each
have the requisite corporate power and authority to own,
<PAGE>
operate or lease its properties and to carry on its business as it is now being
conducted and to enter into this Agreement and to perform all of their
respective obligations hereunder.
SECTION 5.02 Authority Relative to this Agreement. The execution and
delivery of this Agreement by Parent and the Purchaser and the consummation by
Parent and the Purchaser of the transactions contemplated hereby have been duly
and validly authorized and approved by the Boards of Directors of Parent and the
Purchaser and by Parent as stockholder of the Purchaser and no other corporate
proceedings on the part of Parent or the Purchaser are necessary to authorize or
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and the
Purchaser and, assuming the due and valid authorization, execution and delivery
by the Company, each such agreement constitutes a valid and binding obligation
of each of Parent and the Purchaser enforceable against each of them in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
SECTION 5.03 No Conflict; Required Filings and Consents.
(a) None of the execution and delivery of this Agreement by Parent or
the Purchaser, the consummation by Parent or the Purchaser of the transactions
contemplated hereby or compliance by Parent or the Purchaser with any of the
provisions hereof will (i) conflict with or violate the organizational documents
of Parent or the Purchaser, (ii) conflict with or violate any statute,
ordinance, rule, regulation, order, judgment or decree applicable to Parent or
the Purchaser, or any of their Subsidiaries, or by which any of them or any of
their respective properties or assets may be bound or affected, or (iii) result
in a Violation pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or the Purchaser, or any of their Subsidiaries, is a party or by
which any of their respective properties or assets may be bound or affected,
except for any such actions which would not have a material adverse effect on
Parent or adversely affect the ability of Parent or the Purchaser to consummate
the transactions contemplated hereby.
(b) None of the execution and delivery of this Agreement by Parent and
the Purchaser, the consummation by Parent and the Purchaser of the transactions
contemplated hereby or compliance by Parent and the Purchaser with any of the
provisions hereof will require any Consent of any Government Entity or third
party, except for (i) compliance with any applicable requirements of the
Exchange Act, (ii) the filing of a certificate of merger, or, if permitted, a
certificate of ownership and merger, pursuant to the GCL, and (iii) compliance
with the Hart-Scot-Rodino Act and any requirements of any foreign or
supranational Antitrust Laws, and (iv) Consents the failure of which to obtain
or make would not have a material adverse effect on Parent or adversely affect
the ability of Parent or the Purchaser to consummate the transactions
contemplated hereby.
SECTION 5.04 Information. None of the information supplied or to be
supplied by Parent and the Purchaser in writing specifically for inclusion in
(a) the Schedule
<PAGE>
14D-1, (b) the Offer Documents or (c) the Other Filings will, at the respective
times filed with the SEC or such other Governmental Entity contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
SECTION 5.05 Financing. The Purchaser is a newly formed corporation
which has not conducted any business other than in connection with the
transactions contemplated by this Agreement. The Purchaser has received a
written commitment (the "Commitment Letters") to obtain, subject to the terms
and conditions therein, the funds necessary for the consummation of the
transactions contemplated hereby, including payment of the Offer Price and the
Merger Consideration with respect to all Common Shares and all payments with
respect to Options and all related costs and expenses. The Purchaser has
delivered true, correct and complete copies of the Commitment Letters to the
Company. The Purchaser has paid all commitment fees required to be paid and
taken all other actions required to cause such Commitment Letters to be
effective and to constitute the valid commitment of the issuer of such letter,
and each such commitment Letter is a valid and binding commitment of the
Purchaser and the issuer thereof. The Purchaser is not, as of the date hereof,
aware of any fact, occurrence or condition that makes any of the assumptions or
statements therein inaccurate in any material respect or that would cause the
commitments provided in the Commitment Letters to be terminated or ineffective
or any of the conditions contained therein not to be met.
SECTION 5.06 Parent and Purchaser Not an Interested Stockholder. As of
the date of this Agreement, neither Parent nor Purchaser nor any of their
affiliates is an "Interested Stockholder" as such term is defined in Section 203
of the GCL.
SECTION 5.07 No Knowledge of Misrepresentations or Omissions. Neither
Parent nor Purchaser has any actual knowledge that (i) the representations and
warranties of the Company in this Agreement are not true and correct in all
material respects or (ii) there are any material errors in, or material
omissions from, the Schedules to this Agreement which individually or in the
aggregate constitute a Material Adverse Effect on the Company.
SECTION 5.08 Solvency. Assuming the correctness of the representations
and warranties in Article IV hereof, the Company and its Subsidiaries will
immediately after the Offer Purchase Closing and immediately after the Effective
Time be solvent and capable of meeting their obligations as they become due,
have assets exceeding their liabilities and have a reasonable amount of capital
for the conduct of their business. Parent and Purchaser will procure the
solvency opinion that is required by the Commitment Letters and will provide
that such opinion is addressed to and delivered to the Board as well as to the
issuer of the Commitment Letters. Additionally, Parent and Purchaser will assure
that a draft of such solvency opinion is provided to the Board and counsel to
the Company for their review and comment not less than three days prior to the
formal delivery thereof.
SECTION 5.09 Disclaimer Regarding Estimates and Projections. In
connection with Parent or Purchaser's investigation of the Company and its
Subsidiaries, Parent
<PAGE>
or Purchaser has received certain Company projections, including projected
statements of income from operations of the Company and its Subsidiaries for the
fiscal year ending in December 1997 and for succeeding fiscal years and certain
business plan information for such fiscal year and succeeding fiscal years. The
Company makes no representation or warranty with respect to such estimates and
projections and other forecasts and plans (including the reasonableness of the
assumptions underlying such estimates and projections and forecasts). In
addition, except as set forth herein, the Company makes no representation or
warranty with respect to information relating to historical income from
operations set forth in the Information Memorandum, in any supplemental due
diligence information provided to Parent or Purchaser, in connection with
discussions or access to management of the Company and its Subsidiaries, or
otherwise, and Parent and Purchaser acknowledge and agree that it is not relying
on such information in any manner whatsoever. The disclosures in the Schedules
hereto are to be taken as relating to the representations and warranties of the
Company as a whole. The inclusion of information in the Schedules hereto shall
not be construed as an admission that such information is material to the
Company or its Subsidiaries. In addition, matters reflected in the Schedules are
not necessary limited to matters required by this Agreement to be reflected in
such Schedules. Such additional matters are set forth for information purposes
only and do not necessarily include other matters of a similar nature.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business of the Company. Except as provided in
Section 6.09 hereof or as otherwise contemplated by this Agreement or with the
written consent of Parent or as set forth in the Developments or Contracts
Schedule, during the period from the date of this Agreement to the Offer
Purchase Closing, the Company will, and will cause each of its Subsidiaries to,
conduct its operations only in the ordinary course of business consistent with
past practice and will use all reasonable efforts, and will cause each of its
Subsidiaries to use all reasonable efforts, to preserve intact the business
organization of the Company and each of its Subsidiaries, to keep available the
services of its and their present officers and key employees, and to preserve
the good will of those having business relationships with it. Without limiting
the generality of the foregoing, and except as provided in Section 6.09 hereof,
as otherwise contemplated by this Agreement with respect to the Non-Mining
Assets, or with the written consent of Parent or as set forth in the
Developments Schedule or Contracts Schedule, the Company will not, and will not
permit any of its Subsidiaries to, prior to the Effective Time:
(a) Adopt any amendment to its charter or by-laws or comparable
organizational documents;
(b) Except for issuances of capital stock of the Subsidiaries to the
Company or a wholly owned subsidiary of the Company, and other than the issuance
of Common Shares pursuant to the exercise of Options outstanding on the date
hereof, issue, reissue, pledge or sell, or authorize the issuance, reissuance,
pledge or sale of (i) additional Common Shares or other
<PAGE>
shares of capital stock of any class, or securities convertible into Common
Shares or other capital stock of any class, or any rights, warrants or options
to acquire any convertible securities or capital stock, or (ii) any other
securities in respect of, in lieu of, or in substitution for, Common Shares
outstanding on the date hereof;
(c) Declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in respect
of any class or series of its capital stock other than between any of the
Company and any of its wholly owned Subsidiaries.
(d) Split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem, purchase or otherwise acquire, any
Common Shares or any other capital stock;
(e) Make any loans, advances or capital contributions to, or
investments in, any other person in excess of $500,000, except for loans,
advances, capital contributions or investments between any Subsidiary of the
Company and the Company or another wholly owned subsidiary of the Company;
(f) Fail to (i) maintain (except for sales or other transactions not
constituting a breach of this Agreement) the Real Property in a manner
consistent with past practice, (ii) pay when due all Taxes, water and sewer
rents, assessments and insurance premiums affecting the Real Property, other
than those being contested in good faith for which appropriate reserves have
been established on the Company's or its Subsidiary's books and records, (iii)
timely comply with the terms and provisions of all Leases (including but not
limited to timely payment of all minimum and production royalties, other than
those being contested in good faith for which appropriate reserves have been
established on the Company's or its Subsidiary's books and records), contracts
and agreements relating to or affecting the Real Property and the use and
operation thereof, in each case, other than such failures that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company;
(g) Enter into, establish, adopt, amend or renew any material
employment, consulting, severance or similar agreements or arrangements with any
director, officer or employee; grant any salary or wage increase (other than in
the ordinary course of business consistent with past practice or as may be
required by law); or establish, adopt, amend, or increase benefits under, any
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, welfare benefit contract, plan or arrangement
(other than in the ordinary course of business consistent with past practice or
as may be required by law);
(h) Enter into any material labor or collective bargaining agreement,
memorandum of understanding, grievance settlement or any other agreement or
commitment to or relating to any labor union, except in the ordinary course of
business consistent with past
<PAGE>
practice;
(i) Take any action that, if taken after March 31, 1998 but prior to
the date hereof, would have caused the representations and warranties contained
in Section 4.08 to be untrue in any material respect;
(j) Consummate its investment in Louisiana Generating LLC, contemplated
by, or waive, modify or terminate in any manner adverse to the Company its
rights under Section 6 of, that certain Joint Development Agreement, dated
September 29, 1996, as amended, among the Company, Southern Electric
International, Inc. and NRG Energy Inc. (the "Joint Development Agreement"), in
connection with the transactions contemplated by that certain Asset Purchase and
Reorganization Agreement, dated as of July 30, 1996, with Ralph R. Mabey,
Trustee in Bankruptcy of Cajun Electric Power Cooperative, Inc. ("Cajun
Electric"), for the acquisition of substantially all of the non-nuclear assets
of Cajun Electric;
(k) Waive, modify, amend or terminate any confidentiality, standstill
or other similar agreement (each a "Standstill Agreement") to which the Company
or any of its Subsidiaries is a party and which was entered into in connection
with the sale process undertaken by the Company to identify a purchaser of the
Company that resulted in the execution of this Agreement; or
(l) Agree to take any of the foregoing actions prohibited under Section
6.01.
Notwithstanding the foregoing, nothing herein shall limit the Company's
ability to, nor require the Company to obtain the consent of Parent in order to,
sell, convey or otherwise dispose of any of the Non-Mining Assets referred to on
the Non-Mining Assets Schedule attached hereto at any time following the date
hereof in any transaction approved by the Board; provided that, with respect to
any sale of assets, such sale is not to an Affiliate of the Company, such assets
are sold in an arms-length transaction, and the Company provides at least three
business days prior written notice of such sale to Parent.
SECTION 6.02 Access to Information. From the date of this Agreement
until the Closing, the Company will, and will cause its Subsidiaries, and each
of their respective officers, directors, counsel, advisors and representatives
(collectively, the "Company Representatives") to, give Parent and the Purchaser
and their respective officers, employees, counsel, advisors and representatives
(collectively, the "Parent Representatives") full access (subject, however,
during the term of this Agreement and following any termination hereof, to
Parent and Purchaser keeping and causing their respective subsidiaries and
affiliates to keep such information confidential in a manner consistent with
existing confidentiality and similar non-disclosure obligations, including those
contained in the Confidentiality Agreement, and the preservation of attorney
client and work product privileges), during normal business hours, to the
offices and other facilities and to the books and records of the Company and its
Subsidiaries and will cause the Company Representatives to furnish Parent, the
Purchaser and the Parent Representatives to the extent available with such
financial and operating data and such other information with respect to the
business and operations of the Company and its Subsidiaries
<PAGE>
as Parent and the Purchaser may from time to time reasonably request; provided
that if the Company determines in good faith that any such data or information
is competitively sensitive, Parent and the Company will reasonably agree to
appropriate limitations on the dissemination of such information within the
Purchaser's and Parent's respective organizations. Prior to the Offer Purchase
Closing, neither Parent or Purchaser nor the Parent Representatives shall
contact or in any manner communicate with the employees, customers, lessors and
suppliers of the Company and its Subsidiaries with respect to any matter related
to the transactions contemplated hereby, except with the prior consent of the
Company.
SECTION 6.03 Reasonable Efforts Notice of Certain Developments.
(a) Subject to the terms and conditions herein provided and to
applicable legal requirements, each of the parties hereto agrees to use
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done (in the case of the Company consistent with the fiduciary
duties of the Company's Board of Directors under applicable law), and to assist
and cooperate with the other parties hereto in doing, as promptly as
practicable, all things necessary, proper or advisable under applicable laws and
regulations to ensure that the conditions set forth in Article VII are satisfied
and to consummate and make effective the transactions contemplated by the Offer,
the Merger and this Agreement.
(b) If at any time prior to the Effective Time any event or
circumstance relating to either the Company or Parent or the Purchaser or any of
their respective Subsidiaries, is discovered by the Company or Parent, as the
case may be, which should be set forth in an amendment to the Offer Documents or
Schedule 14D-9, the discovering party will promptly inform the other party of
such event or circumstance. If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
including the execution of additional instruments, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
(c) Parent and Purchaser covenant and agree to do all other things
reasonably necessary to obtain the financing necessary for fulfillment of the
Offer Financing Condition (whether from the issuers of the Commitment Letters or
from other sources), on terms and conditions that are not less favorable in the
aggregate to Parent and Purchaser than those contemplated by the Commitment
Letters.
(d) Parent and Purchaser further covenant and agree that they will not,
at any time prior to the termination of this Agreement, terminate or modify,
amend or alter the obligations of the issuer of the Commitment Letter in any way
that would be materially adverse to the Parent's or Purchaser's ability to cause
the Offer Financing Condition to be satisfied.
SECTION 6.04 Consents.
(a) Each party hereby agrees to use its reasonable best efforts to file
the premerger notification report, and all other documents to be filed in
connection therewith, required by the HSR Act and the Premerger Notification
Rules promulgated thereunder
<PAGE>
with the United States Federal Trade Commission ("FTC") and the United States
Department of Justice ("DOJ") as soon as practicable following the date hereof,
but in any event (i) with respect to Parent and Purchaser, within five days
following the date hereof and (ii) with respect to the Company, within ten days
following the date hereof. Each party shall respond promptly to any request for
additional information that may be issued by either FTC or DOJ and shall use
commercially reasonable efforts to assure that the waiting period required by
the HSR Act has expired or been terminated prior to the date that is 20 days
following the commencement of the Offer.
(b) Each of the parties will use commercially reasonable efforts to
obtain as promptly as practicable all Consents of any Governmental Entity or any
other person required in connection with, and waivers of any Violations that may
be caused by, the consummation of the transactions contemplated by the this
Agreement.
(c) In furtherance and not in limitation of the foregoing, Parent shall
use commercially reasonable best efforts to resolve such objections, if any, as
may be asserted with respect to the transactions contemplated by this Agreement
under any antitrust, competition or trade regulatory laws, rules or regulations
of any domestic or foreign government or governmental authority or any
multinational authority ("Antitrust Laws"). If any suit is instituted
challenging any of the transactions contemplated by this Agreement as violative
of any Antitrust Law, Parent shall take such action (including without
limitation, agreeing to hold separate or to divest any of the businesses,
product lines or assets of Parent or any of its affiliates or of any of the
Company, its Subsidiaries or affiliates (a "Business Unit") (but only if the
Business Units required to be held separate or divested do not in the aggregate
have a fair market value of more than $25,000,000 or revenues for the most
recently completed 12 months of more than $25,000,000) as may be required (a) by
the applicable government or governmental or multinational authority (including,
without limitation, the Antitrust Division of the United States Department of
Justice, the Federal Trade Commission or the European Economic Area) in order to
resolve such objections as such government or authority may have to such
transactions under such Antitrust Law, or (b) by any domestic or foreign court
or similar tribunal, in any suit brought by a private party or governmental or
multinational authority challenging the transactions contemplated by this
Agreement as violative of any Antitrust Law, in order to avoid the entry of, or
to effect the dissolution of, any injunction, temporary restraining order or
other order that has the effect of preventing the consummation of any of such
transactions. The entry by a court, in any suit brought by a private party or
governmental or multinational authority challenging the transactions
contemplated by this Agreement as violative of any Antitrust Law, of an order or
decree permitting the transactions contemplated by this Agreement, but requiring
that any Business Units of any of Parent or its affiliates, the Company or its
Subsidiaries or affiliates be divested or held separate by Parent (but only if
such Business Units required to be held separate or divested do not in the
aggregate have a fair market value of more than $25,000,000 or revenues for the
most recently completed 12 months of more than $25,000,000), or that would
otherwise limit Parent's freedom of action with respect to, or its ability to
retain, the Company and its Subsidiaries or any portion thereof or any of
Parent's or its affiliates' other assets or businesses, shall not be deemed a
failure to satisfy the conditions specified in Annex I
<PAGE>
or Section 7.01(b) hereof.
(d) Any party hereto shall promptly inform the others of any material
communication from the United States Federal Trade Commission, the Department of
Justice or any other domestic or foreign government or governmental or
multinational authority regarding any of the transactions contemplated by this
Agreement. If any party or any affiliate thereof receives a request for
additional information or documentary material from any such government or
authority with respect to the transactions contemplated by this Agreement, then
such party will endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request. Parent will advise the
Company promptly in respect of any understandings, undertakings or agreements
(oral or written) which Parent proposes to make or enter into with the Federal
Trade Commission, the Department of Justice, or any other domestic or foreign
government or governmental or multinational authority in connection with the
transactions contemplated by this Agreement.
SECTION 6.05 Public Announcements. Prior to the Closing, except as
required by applicable law or by any rule or regulation of the New York Stock
Exchange, no party hereto shall issue any press release or otherwise make any
public statement with respect to this Agreement and the transactions
contemplated hereby without the prior written consent of the other parties
hereto. With respect to any public statement of either party that does not
require the consent of the other party, the party making such statement shall,
prior to public disclosure thereof, first consult with and provide the other
party a reasonable opportunity to review the contents of such statement.
SECTION 6.06 Employee Benefit Arrangements. Parent shall cause the
Company to honor all accrued obligations as of the date hereof under the
employee arrangements (the "Employee Arrangements") to which the Company or any
of its Subsidiaries is presently a party which are listed in the Employee
Arrangements Schedule and the Developments Schedule in accordance with the terms
and conditions of such arrangements. In addition, from and after the Closing
until the first anniversary of the Closing, subject to the remaining provisions
of this Section 6.06, the Surviving Corporation shall not amend, modify, alter
or terminate any severance or change of control agreements, policies or
practices of the Company or its Subsidiaries, including the SBS Plan; provided
that any such action after the first anniversary of the Closing shall not
adversely affect the accrued or vested rights of any employees or other
beneficiaries which shall have arisen under any severance or change of control
agreements, policies or practices of the Company or its Subsidiaries, including
the SBS Plan prior to such amendment, modification, alteration or termination.
Parent shall cause the Company for a period of one year following the Effective
Time, to continue to provide to employees of the Company and its Subsidiaries
who are employed by the Surviving Corporation (excluding employees covered by
collective bargaining agreements) broad-based employee benefit plans and
Employee Arrangements which are in the aggregate no less favorable than those
provided to such
<PAGE>
employees as of the date hereof provided that it is understood that the
Surviving Corporation may alter, amend, modify and/or terminate specific benefit
plans and/or arrangements (including Employee Arrangements) subject to the
aggregate limitations set forth above. Subject to the foregoing, nothing in this
Section shall be deemed to limit or otherwise affect the right of the Surviving
Corporation to terminate employment or change the place of work,
responsibilities, status or designation of any employee or group of employees as
the Surviving Corporation may determine in the exercise of its business judgment
and in compliance with applicable laws. Solely for purposes of eligibility and
vesting under Employee Arrangements (including without limitation plans or
programs of Parent and its affiliates after the Effective Time), and to the
extent permitted by law, all service with the Company or any of its Subsidiaries
or their predecessors prior to the Effective Time shall be treated as service
with Parent and its affiliates (to the extent such service was recognized by the
Company or any of its Subsidiaries for similar purposes under comparable plans
before the Effective Time).
SECTION 6.07 Indemnification.
(a) Parent agrees that all rights to indemnification now existing in
favor of any director or officer of the Company and its Subsidiaries (the
"Indemnified Parties") as provided in their respective charters or by-laws or,
in an agreement between an Indemnified Party and the Company or one of its
Subsidiaries, shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the Effective Time; provided
that in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until final disposition of any and all such claims. Parent agrees
to cause the Surviving Corporation to honor all rights to indemnification
referred to in the preceding sentence. Without limitation of the foregoing, in
the event any such Indemnified Party is or becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter,
including, without limitation, the transactions contemplated by this Agreement,
occurring prior to, and including, the Effective Time, Parent will cause to be
paid in accordance with the applicable charters, by-laws and agreements, as
incurred such Indemnified Party's legal and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith. The
Surviving Corporation shall pay all reasonable expenses, including attorneys'
fees, that may be incurred by any Indemnified Party in enforcing the indemnity
and other obligations provided for in this Section 6.07 subject to the
limitations of the GCL to the extent applicable.
(b) Parent agrees that the Company, and from and after the Effective
Time, the Surviving Corporation shall cause to be maintained in effect for not
less than six years from the Effective Time for the benefit of all current and
former directors and officers of the Company the current policies of the
directors' and officers' liability insurance maintained by the Company; provided
that the Surviving Corporation may substitute therefor other policies not less
advantageous (other than to a de minimus extent) to the beneficiaries of the
current policies and provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 300% of the last annual
<PAGE>
premium paid by the Company prior to the date hereof which is set forth in the
Insurance Schedule and if the Surviving Corporation is unable to obtain the
insurance required by this Section 6.07(b) it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
SECTION 6.08 Notification of Certain Matters. Parent and the Company
shall promptly notify each other of (a) (i) it becoming aware of any fact or
event which would be reasonably likely to demonstrate that any representation or
warranty of any party hereto contained in this Agreement was or is untrue or
inaccurate in any material respect as of the date of this Agreement or (ii) the
occurrence or non-occurrence of any fact or event which would be reasonably
likely to cause any material covenant, condition or agreement of any party
hereto under this Agreement not to be complied with or satisfied in all material
respects and (b) any failure of any party hereto to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder in any material respect; provided, however, that no such notification
shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder.
SECTION 6.09 No Solicitation; Termination Right.
(a) The Company agrees that, during the term of this Agreement it shall
not, and shall not authorize, support or encourage any of its Subsidiaries or
any of its or its Subsidiaries' directors, officers, employees, agents or
representatives, directly or indirectly, to solicit, initiate, encourage,
facilitate or furnish or disclose non-public information in furtherance of, any
inquiries or the making of any proposal with respect to any recapitalization,
merger, consolidation or other business combination involving the Company, or
acquisition of any capital stock (other than upon exercise of the Options which
are outstanding as of the date hereof) or any portion of the assets (except for
acquisition of assets in the ordinary course of business consistent with past
practice) of the Company and its Subsidiaries, or any combination of the
foregoing (a "Competing Transaction"), or negotiate, or otherwise engage in
discussions with any person (other than Parent, the Purchaser or their
respective directors, officers, employees, agents and representatives) for the
purpose of facilitating any Competing Transaction or enter into any agreement,
arrangement or understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by this Agreement;
provided that the Company shall use its reasonable best efforts to ensure that
none of its Subsidiaries and none of its or its Subsidiaries' directors,
officers, employees, agents or representatives, directly or indirectly,
undertakes any such actions, and, if the Board learns of any such action, the
Company shall take reasonable steps to cause the party undertaking such action
to cease such action immediately or shall immediately terminate the Company's
and/or any Subsidiary's employment or other relationship with any such director,
officer, employee, agent or representative that breaches this Section 6.09;
provided further that prior to the purchase of the Common Shares by the
Purchaser pursuant to the Offer, the Company may furnish information to, and
negotiate or otherwise engage in discussions with, any party who makes a bona
fide proposal regarding a Competing Transaction which was not solicited by the
Company after the date of this Agreement and which does not violate any
Standstill Agreement if and so long as the
<PAGE>
Board after consultation with its counsel determines in good faith that failing
to consider and cooperate with such other party regarding such Competing
Transaction would constitute a breach of the fiduciary duties of the Board to
the Company's stockholders under applicable law, and, provided further, that in
no event does the term "Competing Transaction" include a sale or other
disposition of any of the assets specified on the Non-Coal Asset Schedule or
that is otherwise specifically permitted hereunder. The Company shall and shall
use its reasonable best efforts to cause its Subsidiaries, directors, officers,
employees, agents and representatives immediately to cease all existing
activities, discussions and negotiations with any parties conducted heretofore
with respect to any Competing Transaction. The Company agrees that neither the
Board of Directors nor any committee thereof will, during the period referenced
in the first sentence of this subsection (a), (A) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent or the Purchase,
the Board Recommendation, or (B) approve or recommend, or propose publicly to
approve or recommend, any Competing Transaction. The foregoing notwithstanding,
in the event that prior to the purchase of Common Shares by the Purchaser
pursuant to the Offer the Board of Directors after consultation with its counsel
determines in good faith that failure to do so will result in breach of the
fiduciary duties of the Board to the Company's stockholders under applicable
law, the Board of Directors may (subject to this and the following sentences)
withdraw or modify the Board Recommendation, provided that it gives Parent three
days' prior written notice of its intention to do so. Any such withdrawal or
modification of the Board Recommendation shall not change the approval of the
Board of Directors for purposes of causing any state takeover statute or other
state law to be inapplicable to the transactions contemplated hereby, including
the Offer, the Merger or the Tender Commitments. The Company shall immediately
advise Parent in writing of the receipt, directly or indirectly, of any
inquiries, discussions, negotiations, or proposals relating to a Competing
Transaction, which becomes known to the Board during the term of this Agreement.
The Company shall keep Parent fully apprised of the status and terms of any
proposal relating to a Competing Transaction on a current basis.
(b) If, prior to the purchase of Common Shares by the Purchaser
pursuant to the Offer, the Board after consultation with its financial and legal
advisors determines in good faith that any written proposal from a third party
for a Competing Transaction received after the date hereof that was not
solicited by the Company or any of its Subsidiaries or affiliates in violation
of this Agreement (and that does not violate or breach any Standstill Agreement
executed by such party with respect to the Company prior to the date of this
Agreement) is more favorable to the stockholders of the Company from a financial
point of view than the transactions contemplated by this Agreement (including
any adjustment to the terms and conditions of such transaction proposed in
writing by the Company in response to such Competing Transaction) and is in the
best interest of the stockholders of the Company, the Company may terminate this
Agreement at any time prior to the Offer Purchase Closing and enter into a
letter of intent, agreement-in-principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") with respect to such Competing
Transaction provided that, the Company provides written notice of such
termination to Parent at least three full business days prior to the
<PAGE>
effectiveness of such termination and, the Company delivers to Parent within
five business days following such termination (A) by check or wire transfer of
same day funds, (i) an amount equal to Parent's Costs (as defined in Section
8.02) as the same may have been estimated by Parent in good faith prior to the
date of such delivery (subject to an adjustment payment between the parties upon
Parent's definitive determination of such costs), but in any event not to exceed
$10,000,000, and (ii) the amount of the Termination Fee as provided in Section
8.02 and (B) a written acknowledgment from the Company and the other party to
the Competing Transaction that the Company and such other party have irrevocably
waived any right to contest such payments.
SECTION 6.10 Cooperation for Financing. The Company agrees that, during
the term of this Agreement, it shall provide reasonable cooperation to the
Purchaser to facilitate the Purchaser's efforts to obtain the financing
contemplated by the Commitment Letters (including assisting the Purchaser in
obtaining required consents) and provide all information reasonably requested by
the Purchaser in connection with the Purchaser's efforts to satisfy the Offer
Financing Condition.
SECTION 6.11 Tender Commitments. The Company shall cause each of the
Stockholders to execute a Tender Commitment. The Company shall not permit the
amendment, modification, release under or otherwise lessen the obligations of
the Stockholders under the Tender Commitments. The Company agrees to enforce
fully and promptly all provisions of the Tender Commitments, including, without
limitation, seeking specific performance of (or other equitable and legal
remedies with respect to) each Stockholder's obligations under its Tender
Commitment.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.01 Conditions. The respective obligations of Parent, the
Purchaser and the Company to consummate the Merger are subject to the
satisfaction, at or before the Effective Time, of each of the following
conditions:
(a) Purchase of Common Shares. The Purchaser shall have accepted for
payment and paid for Common Shares pursuant to the Offer in accordance with the
terms hereof; provided that this condition shall be deemed to have been
satisfied with respect to Parent and the Purchaser if the Purchaser fails to
accept for payment or pay for Common Shares pursuant to the Offer in violation
of the terms of the Offer.
(b) No Injunctions or Restraints; Illegality. No (i) order or
preliminary or permanent injunction shall be entered in any action or proceeding
before any court of competent jurisdiction or any statute, rule, regulation,
legislation, or order shall be enacted, entered, enforced, promulgated, amended
or issued by any United States legislative body, court, government or
governmental, administrative or regulatory authority or agency (other than the
waiting period provisions of the HSR Act) which shall remain in effect and which
shall have the
<PAGE>
effect of (x) making illegal or restraining or prohibiting the making of the
Offer, the acceptance for payment of, or payment for, the Common Shares by
Parent, the Purchaser or any other affiliate of Parent, or the consummation of
the Offer or the Merger or (y) imposing material limitations on the ability of
the Purchaser effectively to acquire or hold or exercise full rights of
ownership of the Common Shares, including, without limitation, the right to vote
the Common Shares purchased by the Purchaser on all matters properly presented
to the stockholders of the Company; provided, that Parent, to the extent
provided in this Agreement, shall, if necessary to prevent the taking of such
action, or the enactment, enforcement, promulgation, amendment, issuance or
application of any statute, rule, regulation, legislation, judgment, order or
injunction, offer to accept an order to divest such of the Company's or Parent's
assets and businesses as may be necessary to forestall such injunction or order
and to hold separate such assets and business pending such divestiture; (ii)
proceeding brought by an administrative agency or commission or other domestic
Governmental Entity seeking any of the foregoing shall be pending; or (iii)
action or proceeding shall be commenced following the date of this Agreement and
be pending before any court of competent jurisdiction which would have a
Material Adverse Effect on the Company.
ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company (with
any termination by Parent also being an effective termination by the Purchaser):
(a) By the mutual written consent of Parent and the Company;
(b) By the Company if (i) the Purchaser fails to commence the Offer as
provided in Section 1.01 hereof or, (ii) the Purchaser fails to purchase validly
tendered Common Shares in violation of the terms of the Offer or this Agreement;
(c) By Parent or the Company if the Offer is terminated or withdrawn
pursuant to its terms without any Common Shares being purchased thereunder;
provided, however, that neither Parent nor the Company may terminate this
Agreement pursuant to this Section 8.01(c) if such party shall have materially
breached this Agreement or, in the case of Parent, if it or the Purchaser is in
material violation of the terms of the Offer.
(d) By Parent or the Company if any court or other Governmental Entity
shall have issued, enacted, entered, promulgated or enforced any order,
judgment, decree, injunction, or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment, decree,
injunction, ruling or other action shall have become final and nonappealable;
provided that the party seeking to terminate the Agreement shall have used its
<PAGE>
reasonable efforts to remove or lift such order, decree or ruling;
(e) By Parent or the Company if the Offer Financing Conditions shall be
impossible to satisfy by the end of the twentieth (20th) business day following
commencement of the Offer and by the Parent or the Company if any other
condition set forth in Annex I attached hereto shall be impossible to satisfy by
the end of the thirtieth (30th) business day following commencement of the Offer
unless such circumstance results from the failure of the terminating party to
perform in any material respect its obligations under this Agreement, provided,
however, that the Company may not terminate this Agreement pursuant to this
Section 8.01(e) if Parent waives in writing the relevant condition (other than
the Minimum Condition as defined in Annex I, which cannot be waived);
(f) By Parent if prior to the Offer Purchase Closing the Board shall
have withdrawn or modified in a manner adverse to Parent, or refrained from
making the Board Recommendation, or shall have publicly disclosed its intention
to change such recommendation, or shall have failed to reaffirm the Board
Recommendation within five (5) days of receipt from Parent or the Purchaser of a
request to so reaffirm the Board Recommendation, in each case except due to
Parent or Purchaser's material breach of this Agreement or material violation of
the terms of the Offer;
(g) By the Company, pursuant to and in accordance with Section 6.09(b);
(h) By the Company in the event of any breach of the covenants and/or
representations and warranties of Parent and Purchaser contained in this
Agreement which has a material adverse effect on the consummation of the
transactions contemplated by this Agreement; or
(i) By Parent, if any Stockholder who holds more than five percent of
the Shares shall have breached any of his, her or its obligations under the
Tender Commitment.
SECTION 8.02 Effect of Termination; Fees and Expenses.
(a) In the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders, other than the provisions of this Section 8.02 and the
confidentiality provisions referenced in the first sentence of Section 6.02,
which shall survive any such termination. Nothing contained in this Section 8.02
shall relieve any party from liability for any breach of this Agreement or the
Confidentiality Agreement, and provided, further, however, that if it shall be
judicially determined that termination of this Agreement was caused by an
intentional breach of this Agreement, then, in addition to other remedies at law
or equity for breach of this Agreement, the party so found to have intentionally
breached this Agreement shall indemnify and hold harmless the other parties for
their respective costs, fees and expenses of their counsel, accountants,
financial advisors and other experts and advisors as well as fees and expenses
incident to negotiation, preparation and execution of this Agreement and the
transactions contemplated hereby ("Costs"). If this Agreement is terminated
pursuant to Section
<PAGE>
8.01(f) or (g), the Company will within five business days following any such
termination pay to Parent in cash by wire transfer in immediately available
funds to an account designated by Parent (i) in reimbursement for Parent's
expenses an amount equal to the aggregate amount of Parent's reasonable
documented Costs incurred in connection with pursuing the transactions
contemplated by this Agreement, including, without limitation, legal, accounting
and investment banking fees, up to but not in excess of $10,000,000 in the
aggregate and (ii) a payment in an amount equal to $18,000,000 (the "Termination
Fee"). Purchaser shall terminate the Offer as soon as practicable following
termination of this Agreement for any reason.
(b) The prevailing party in any legal action undertaken to enforce this
Agreement or any provision hereof shall be entitled to recover from the other
party the costs and expenses (including attorneys' and expert witness fees)
incurred in connection with such action.
SECTION 8.03 Amendment. Subject to Section 1.03(c), this Agreement and
the Offer may be amended by the Company, Parent and the Purchaser at any time
before or after any approval of this Agreement by the stockholders of the
Company but, after any the purchase of shares pursuant to the Offer, no
amendment shall be made which decreases the Merger Consideration or which
materially adversely affects the rights of the Company's stockholders hereunder
without the approval of such stockholders. This Agreement and the Offer may not
be amended except by an instrument in writing signed on behalf of all the
parties.
SECTION 8.04 Extension; Waiver. Subject to Section 1.03(c), at any time
prior to the Effective Time, the parties hereto may (i) extend the time for the
performance of any of the obligations or other acts of any other party hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein by any other party or in any document, certificate or writing delivered
pursuant hereto by any other party or (iii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time. Notwithstanding the foregoing, the agreements set forth in
Section 3.02, the last sentence of Section 6.02, Section 6.06 and Section 6.07
shall survive the Effective Time indefinitely (except to the extent a shorter
period of time is explicitly specified therein).
SECTION 9.02 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments
referred to
<PAGE>
herein) and the letter agreement dated March 6, 1998 between Credit Suisse First
Boston Corporation and Addington Enterprises Inc. (the "Confidentiality
Agreement"), constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party; provided however that after the Effective Time Parent and/or the
Purchaser may, without the consent of the Company, (i) assign their rights under
this Agreement to any of their respective Affiliates, or (ii) collaterally
assign their rights under this Agreement to the lender of Parent or the
Purchaser. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
SECTION 9.03 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
SECTION 9.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Parent or the Purchaser:
AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Corporate Secretary
Telecopy: (606) 928-0450
With a copy to:
Brown, Todd & Heyburn PLLC
27000 Lexington Financial Center
250 West Main Street
Lexington, KY 40507-1749
Attention: Paul Sullivan
Telecopy: (606) 231-0011
If to the Company:
Zeigler Coal Holding Company
50 Jerome lane
Fairview Heights, IL 62208
Attention: Brent L. Motchan, Esq.
<PAGE>
Fax: 618-394-2518
Phone: 618-394-2406
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Attention: Glen E. Hess, P.C.
Fax: 212-446-4900
Phone: 212-446-4808
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 9.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof or otherwise.
SECTION 9.06 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.07 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 9.08 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except with respect
to Sections 2.03(d), 3.01, 3.02 and 6.07 nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 9.09 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
ARTICLE X
<PAGE>
DEFINITIONS
SECTION 10.01 Certain Definitions. As used in this Agreement:
"Active Operating Properties and Reserves" means all property included
in mining permits currently issued to the Company or any of its Subsidiaries or
which will be issued prior to the Closing.
"Acquisition Agreement" has the meaning given thereto in Section
6.09(b) hereof.
"Affiliate", as applied to any person, shall mean any other person
directly or indirectly controlling, controlled by, or under common control with,
that person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" has the meaning given thereto in the preamble hereof.
"Antitrust Laws" has the meaning given thereto in Section 6.04(b)
hereof.
"Board" has the meaning given thereto in the recitals hereof.
"Board Recommendation" has the meaning given thereto in Section 1.02(a)
hereof.
"Certificates" has the meaning given thereto in Section 3.02 hereof.
"Closing" has the meaning given thereto in Section 2.02 hereof.
"Closing Date" has the meaning given thereto in Section 2.02 hereof.
"Code" has the meaning given thereto in Section 4.17(a) hereof.
"Commitment Letter" has the meaning given thereto in Section 5.05
hereof.
"Common Share" and "Common Shares" have the meaning given thereto in
the recitals hereof.
"Company" has the meaning given thereto in the first paragraph hereof.
"Company's Knowledge" and words of similar import shall mean actual
knowledge of a particular fact being known by any of (i) the current serving
directors of the
<PAGE>
Company, (ii) or any of the following officers of the Company: Chand B. Vyas,
Douglas Blackburn, Frank Barkofske and Brent Motchan, (iii) with respect to
labor and employment matters, David Young; (iv) with respect to information
concerning any Subsidiary, division or business unit of the Company, the
president or most senior executive of such Subsidiary, and (v) any person
succeeding to the position currently of any of the persons indicated in clauses
(ii), (iii) and (iv) above.
"Company Representatives" has the meaning given thereto in Section 6.02
hereof.
"Competing Transaction" has the meaning given thereto in Section
6.09(a) hereof.
"Confidentiality Agreement" has the meaning given thereto in Section
9.02(a) hereof.
"Consent" has the meaning given thereto in Section 4.05(b) hereof.
"Costs" has the meaning given thereto in Section 8.02 hereof.
"CSFB" has the meaning given thereto in Section 1.02(a) hereof.
"December Balance Sheet" has the meaning given thereto in Section
4.06(b) hereof.
"Disclosure Schedules" shall mean all of the separate schedules
referred to in Article IV and all Supplemental Schedules taken together.
"Dissenting Shares" has the meaning given thereto in Section 3.01
hereof.
"Effective Time" has the meaning given thereto in Section 2.02 hereof.
"Employee Arrangements" has the meaning given thereto in Section 6.06
hereof.
"Environmental Mining and Safety Requirements" means all federal, state
and local statutes, regulations, notices of violations, abatement orders,
closure orders, ordinances, permits, judicial and administrative orders and
determinations, and similar provisions having the force and effect of law, and
all common law concerning public health and safety, worker health and safety,
mine health or safety, surface and underground mining, mineral processing or
transport, mine reclamation, pollution or protection of the environment,
including without limitation all those relating to the presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, release, runoff, containment, control, or cleanup of any Hazardous
Substances, Oils, Pollutants or Contaminants (as such terms as defined in the
National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
300.5), and any mining wastes or byproducts as the foregoing are enacted and in
effect on or prior to the date hereof.
<PAGE>
"ERISA" has the meaning given thereto in Section 4.17(a) hereof.
"Exchange Act" has the meaning given thereto in Section 4.05 (b)
hereof.
"Expiration Date" has the meaning given thereto in Section 1.01.
"GAAP" has the meaning given thereto in Section 4.06(b) hereof.
"GCL" has the same meaning given thereto in the recitals hereof.
"Government Entity" has the meaning given thereto in Section 4.05(b)
hereof.
"HSR Act" has the meaning given thereto in Section 4.05(b) hereof.
"Indemnified Parties" has the meaning given thereto in Section 6.07(a)
hereof.
"Information Memorandum" means that certain Offering Memorandum, dated
February, 1998, prepared by CSFB regarding the Company and its Subsidiaries.
"Intellectual Property" has the meaning given thereto in Section 4.13
hereof.
"Joint Development Agreement" has the meaning given thereto in Section
6.01(j).
"June Balance Sheet" has the meaning given thereto in Section 4.06(b).
"Liens" means liens, security interests, options, rights of first
refusal, easements, mortgages, charges, pledges, deeds of trust, rights-of-way,
restrictions, encroachments, licenses, leases, permits, security agreements, or
any other encumbrances, restrictions or limitations on the use of real or
personal property, whether or not they constitute specific or floating charges.
"March Balance Sheet" has the meaning given thereto in Section 4.06(b).
"Material Adverse Effect on the Company" has the meaning given thereto
in Section 4.01 hereof.
"Material Contract" has the meaning given thereto in Section 4.12(a).
"Merger" has the meaning given thereto in the recitals hereof.
"Merger Consideration" has the meaning given thereto in Section 2.05
hereof.
"Mining Permits" has the meaning given thereto in Section 4.14 hereof.
"Multiemployer Plan" has the meaning given thereto in Section 4.17(f)
hereof.
"Non-Mining Assets" means the operations and business of the Company
and its Subsidiaries and any assets related thereto that are described on the
Non-Mining Assets Schedule
<PAGE>
attached hereto.
"Offer" has the meaning given thereto in the recitals hereof.
"Offer Documents" has the meaning given thereto in Section 1.01(a)
hereof.
"Offer Price" has the meaning given thereto in the recitals hereof.
"Offer Purchase Closing" has the meaning given thereto in Section
1.01(a) hereof.
"Offer to Purchase" has the meaning given thereto in Section 1.01(a)
hereof.
"Operating Facilities" means any real property rights owned, leased or
otherwise controlled by the Company or any of its subsidiaries where the Company
or any of its Subsidiaries has facilities currently used in the coal mining
business including office and administrative buildings, mine openings, air
shafts, preparation and processing plants, slurries and gob disposal areas,
retention and drainage ponds, unfinished reclamation areas, coal terminals, and
coal loading and storage facilities..
"Option" has the meaning given thereto in Section 1.04 hereof.
"Option Plan" has the meaning given thereto in Section 1.04 hereof.
"Other Filings" has the meaning given thereto in Section 4.07 hereof.
"Other Real Property" means any real property rights owned, leased or
otherwise controlled by the Company or any of its Subsidiaries other than
"Active Operating Properties and Reserves" and "Operating Facilities."
"Parent" has the meaning given thereto in the first paragraph hereof.
"Parent Representatives" has the meaning given thereto in Section 6.02
hereof.
"Paying Agent" has the meaning given thereto in Section 3.02 hereof.
"Pension Plan" has the meaning given thereto in Section 4.17(a) hereof.
"Permitted Encumbrances" has the meaning given thereto in Section 4.09
hereof.
"Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act ).
"Permits" has the meaning given thereto in Section 4.15 hereof.
<PAGE>
"Plans" has the meaning given thereto in Section 4.17(a) hereof.
"Proxy Statement" has the meaning given thereto in Section 2.08 (a)(ii)
hereof.
"Purchaser" has the meaning given thereto in the first paragraph
hereof.
"Release" has the meaning given thereto in Section 4.20(d) hereof.
"SBS Plan" has the meaning given thereto in Section 1.04.
"Schedule 14D-9" has the meaning given thereto in Section 1.02(a).
"SEC" has the meaning given thereto in Section 1.01 hereof.
"SEC Reports" has the meaning given thereto in Section 4.06(a) hereof.
"SMCRA" has the meaning given thereto in Section 3.24 hereof.
"Special Meeting" has the meaning given thereto in Section 2.08(a)(I)
hereof.
"Standstill Agreement" has the meaning given thereto to in Section
6.01(k).
"Stockholder" means each or any of Kinman Limited Partnership, Michael
K. Reilly, Chand B. Vyas, Roland E. Casati and John F. Manley, and such persons
collectively are referred to as the "Stockholders."
"Subsidiary" or Subsidiaries" has the meaning given thereto in Section
4.01 hereof.
"Surviving Corporation" has the meaning given thereto in Section 2.01
hereof.
"Taxes" mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest penalty,
or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, estimate, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Tender Commitment" means each of those certain Support Agreements,
dated the date hereof, by and between the Company and each of the Stockholders,
and such agreements collectively are referred to as the "Tender Commitments."
<PAGE>
"Violation" has the meaning given thereto in Section 4.05(a) hereof.
"Welfare Plans" has the meaning given thereto in Section 4.17(a)
hereof.
* * * *
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officer thereunto duly authorized, all
as of the day and year first above written.
AEI RESOURCES, INC.
By:
----------------------------------
Name:
Title:
ZEIGLER ACQUISITION CORPORATION
By:
----------------------------------
Name:
Title:
ZEIGLER COAL HOLDING COMPANY
By:
----------------------------------
Name:
Title:
<PAGE>
ANNEX I
-------
Conditions to the Offer. Notwithstanding any other provisions of the
Offer, the Purchaser shall not be required to accept for payment or pay for any
tendered Common Shares, unless (I) there are validly tendered and not properly
withdrawn prior to the Expiration Date that number of Common Shares which
represent at least 90% of the total number of outstanding Common Shares on a
fully diluted basis (excluding options tendered for cancellation under Section
1.04) on the date of purchase (the "Minimum Condition"), and (ii) the Purchaser
shall have obtained, as contemplated by the Commitment Letters, on terms that
are not less favorable to Parent and the Purchaser (or from such alternative
financing sources on terms and conditions that are not less favorable to Parent
and the Purchaser than those contemplated by the Commitment Letters), the funds
necessary for the consummation of the transactions contemplated by the Merger
Agreement, including the purchase of all of the Common Shares tendered in the
Offer, payment of the Merger Consideration with respect to all Common Shares,
all payments with respect to Options and all related costs and expenses (the
"Offer Financing Condition"). Furthermore, notwithstanding any other provisions
of the Offer, the Purchaser shall not be required to accept for payment and may,
subject to the terms of the Merger Agreement, amend the Offer, postpone the
acceptance for payment of or payment for tendered Common Shares or terminate the
Offer and not accept for payment any Common Shares if at any time on or after
the date of the Merger Agreement (unless otherwise indicated below) and before
the time of payment for any Common Shares, any of the following events (each, an
"Event") shall occur:
(a) (i) The waiting period applicable to the Offer or the
Merger pursuant to the provisions of the HSR Act and any applicable
foreign or supranational Antitrust Laws shall fail to have expired or
to have been terminated; or (ii) action by the Department of Justice or
Federal Trade Commission or any foreign or supranational agency or
entity charged with enforcement of Antitrust Laws that are applicable
to the transactions contemplated hereby challenging or seeking to
enjoin the consummation of the Offer or the Merger shall have been
instituted and be pending; or
(b) (i) Any order or preliminary or permanent injunction shall
be entered in any action or proceeding before any court of competent
jurisdiction or any statute, rule, regulation, legislation, or order
shall be enacted, entered, enforced, promulgated, amended or issued by
any United States legislative body, court, government or governmental,
administrative or regulatory authority or agency (other than the
waiting period provisions of the HSR Act) which shall remain in effect
and which shall have the effect of (x) making illegal or restraining or
prohibiting the making of the Offer, the acceptance for payment of, or
payment for, the Common Shares by Parent, the Purchaser or any other
affiliate of Parent, or the consummation of the Offer or the Merger or
(y) imposing material limitations on the ability of the Purchaser
effectively to acquire or hold or exercise full rights of ownership of
the Common Shares, including, without limitation, the right to vote the
Common Shares purchased by the Purchaser on all matters properly
presented to the stockholders of the Company; provided, that Parent, to
the extent provided in the Merger Agreement, shall, if necessary to
prevent the taking of such
<PAGE>
action, or the enactment, enforcement, promulgation, amendment,
issuance or application of any statute, rule, regulation, legislation,
judgment, order or injunction, offer to accept an order to divest such
of the Company's or Parent's assets and businesses as may be necessary
to forestall such injunction or order and to hold separate such assets
and business pending such divestiture; (ii) any proceeding brought by
an administrative agency or commission or other domestic Governmental
Entity seeking any of the foregoing shall be pending; or (iii) any
action or proceeding shall be commenced following the date of the
Merger Agreement and be pending before any court of competent
jurisdiction which would have a Material Adverse Effect on the Company;
or
(c) The Company and the Purchaser and Parent shall have
reached an agreement that the Offer or the Merger Agreement be
terminated, or the Merger Agreement shall have been terminated in
accordance with its terms; or
(d) The Company or any of its Subsidiaries shall have breached
one or more of its representations and warranties set forth in the
Merger Agreement or failed to perform any of its obligations, covenants
or agreements under the Merger Agreement and such breaches or failures
to perform shall in the aggregate materially and adversely affect the
ability of Parent to own or control the Company, its equity securities
and its assets; or
(e) On or after the date of the Merger Agreement, any Material
Adverse Effect on the Company shall have occurred or be occurring; or
(f) The representations and warranties set forth in Section
4.03 or Section 4.25 shall not be true and correct in all material respects.
The Offer shall terminate if the Merger Agreement is terminated pursuant to its
terms. Pursuant to the Merger Agreement, Parent and Purchaser have agreed to use
their respective reasonable best efforts to obtain financing for the Offer and
to cause all other conditions to be fulfilled.
The foregoing conditions are for the benefit of Parent and the Purchaser and may
be asserted by Parent or the Purchaser regardless of the circumstances giving
rise to any such conditions and may be waived by Parent or the Purchaser in
whole or in part at any time and from time to time in their reasonable
discretion, in each case, subject to the terms of the Merger Agreement. The
failure by Parent or the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such Right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
The capitalized terms used in this Annex I shall have the meanings set forth in
the Agreement to which it is annexed, except that the term "Merger Agreement"
shall be deemed to refer to the Agreement to which this Annex I is appended.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation during
the last three fiscal years paid or granted by the Company or its subsidiaries
to, or accrued for, the Chief Executive Officer and the four highest paid
executive officers of the Company and its subsidiaries during 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- ----------------------------------
NAME AND PRINCIPAL OTHER ANNUAL AWARD LTIP
POSITION DURING 1997 YEAR SALARY($) BONUS($) COMPENSATION OPTIONS/SAUS(#) PAYOUTS($)
- ------------------------------ --------- ----------- ----------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Chand B. Vyas-- 1997 487,500 -- 10,750 100,000 --
President and Chief 1996 425,000 600,000 10,500 100,000 --
Executive Officer 1995 425,000 250,000 10,500 -- --
W.D. Blackburn, Jr.-- 1997 198,750 -- 3,950 30,000 --
Senior Vice President 1996 189,583 188,650 3,950 40,000 --
Operations 1995 175,000 65,000 17,678 -- --
John C. Willson-- 1997 164,167 25,000 4,500 10,000 --
President Triton Coal 1996 158,333 120,000 47,113 15,000 --
Company(1) 1995 125,000 37,500 3,000 16,000 --
Coy K. Lane-- 1997 143,333 36,250 4,300 10,000 --
President Bluegrass Coal 1996 133,333 101,250 27,645 25,000 --
Development Company 1995 122,759 35,000 2,602 -- --
David M. Young-- 1997 164,231 15,000 5,830 10,000 --
President Mountaineer Coal 1996 166,211 120,000 37,099 10,000 --
Development Company 1995 160,000 30,000 4,231 -- --
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION DURING 1997 COMPENSATION($)
- ------------------------------ ---------------------
<S> <C>
Chand B. Vyas-- --
President and Chief --
Executive Officer --
W.D. Blackburn, Jr.-- --
Senior Vice President --
Executive Operations --
John C. Willson-- --
President Triton Coal --
Company(1) --
Coy K. Lane-- --
President Bluegrass Coal --
Development Company --
David M. Young-- --
President Mountaineer Coal --
Development Company --
</TABLE>
- ------------------------
(1) Mr. Willson's employment commenced in March 1995.
EMPLOYMENT AGREEMENTS
Mr. Vyas has an employment agreement with the Company, dated as of February
24, 1993, as amended, which provides for his employment by the Company as
President and, if so elected, Chief Executive Officer at an annual salary and
bonus to be determined by the Board of Directors. Mr. Vyas' employment may be
terminated by him or the Company on 30 days' notice. If he is terminated for
other than cause, or he terminates his employment as a result of an unacceptable
change in his duties, a change
1
<PAGE>
of control of Zeigler or other "Good Reason" (as defined therein), Mr. Vyas
would be entitled to severance payments for three years following termination in
an amount equal to three times his Average Compensation as well as certain other
benefits related to his supplemental retirement payments and acceleration of
vesting of his stock options. In the event of Mr. Vyas' death, his estate is
entitled to receive two times his Average Compensation. The employment agreement
provides that upon retirement, Mr. Vyas would be entitled to supplemental
retirement payments equal to the excess, if any, of (i) the amount he would
receive under the Company's pension plan (described below) if effect were not
given to limitations imposed by the Internal Revenue Code and if his
compensation included his bonuses over (ii) the annual amount payable to Mr.
Vyas under such pension plan plus annual social security benefits payable to
him. The estimated annual supplemental retirement payment payable to Mr. Vyas
upon his normal retirement date was $315,000 as of December 31, 1997. Mr. Vyas'
employment agreement also provides that he will not compete with the Company
during the employment term and for a period of one year following termination.
CHANGE IN CONTROL ARRANGEMENTS
SPECIAL BONUS AND SEVERANCE PAY PLAN. In December, 1997, Zeigler announced
that it was reviewing strategic alternatives to increase stockholder value,
including a possible sale of the Company. In connection therewith Zeigler
adopted a special bonus and severance pay plan which provides that certain of
Zeigler's executives and other non-union personnel would receive specified
retention payments if a sale of Zeigler or other change of control (as defined
in the plan) occurred prior to December 31, 1998 and severance payments if the
employment of such person were terminated in certain circumstances during the
twelve months following such sale or other change of control. The plan also
provides that any unvested stock options will vest upon a sale of the Company or
other change in control. Any severance payment otherwise due an executive under
this plan would be reduced by severance amounts payable under his or her
employment contract. The amounts of such payments vary based on the
classification of the covered employee and his or her compensation level and
tenure with the Company. The amounts payable to Messrs. Blackburn, Willson, Lane
and Young under the plan, as of the date of this Proxy Statement are:
$220,000.00, $164,983.50, $143,550.00 and $164,983.50 respectively, in the event
of change in control and $440,000.00, $330,016.50, $291,450.00 and $330,016.50,
in the event such individual becomes entitled to severance payments (after
reduction of the amount paid upon a change in control). In addition, if a sale
of the Company occurs during 1998 each of the named individuals would be
entitled to receive a special bonus of $150,000 and possibly other payments
determined in the discretion of Messrs. Manley and Reilly. Change in control
arrangements applicable to Mr. Vyas are discussed in "Employment Agreements"
above.
STOCK APPRECIATION AND STOCK OPTION PLANS
STOCK APPRECIATION PLAN. Certain key employees of the Company and its
subsidiaries have been granted stock appreciation units ("SAUs") under the
Company's Stock Appreciation Plan (the "Stock Appreciation Plan"). Each
participant in the Stock Appreciation Plan is entitled to receive a cash payment
at "maturity" for each SAU which has become vested based upon the increase in
fair value (as defined) of a share of the Company's Common Stock from the
effective date of the award of the SAU. Vested SAUs mature on the earliest of
the termination of the participant's employment with the Company, the sixth
anniversary of the date of grant, the sale of the Company or the written
election of the participant. The Stock Appreciation Plan is administered by the
Compensation Committee of the Board of Directors. There were 73,600 SAUs
outstanding as of December 31, 1997, all of which are fully vested and mature in
1998. Under the Stock Appreciation Plan, "fair value" is based on the "market
price" of the Company's Common Stock.
STOCK OPTION PLAN. In 1994 the Company's Board of Directors and stockholders
adopted its Stock Option Plan (the "Option Plan"). A total of 2,560,000 shares
of Common Stock were reserved for issuance upon exercise of options granted
under the Option Plan. The purpose of the Option Plan is to attract and
2
<PAGE>
retrain qualified personnel and to provide additional incentive to executive and
other key employees of the Company and its subsidiaries. The Option Plan is
administered by the Compensation Committee (the "Committee") which determines
the terms of the options granted under the Option Plan, including the exercise
price, number of shares subject to the option and exercisability. Generally,
options may be transferred by the optionees by will or the laws of descent or
distribution or to such transferees and on such terms and conditions as the
Committee approves. Each option may be exercised, during the lifetime of the
optionee, only by the optionee. The exercise price of all options granted under
the Option Plan must equal at least the fair market value of the Common Stock of
the Company on the date of grant.
Unless the Committee specifies otherwise in the option grant, options
granted will vest and become exercisable with respect to 20% of the Common Stock
issuable upon exercise thereof on each anniversary of the grant date, and the
reminder shall vest on the fifth anniversary of the grant date. At the
discretion of the Committee, options may be made exercisable in one or more
installments upon (i) occurrence of certain events, (ii) passage of time, (iii)
fulfillment of certain conditions, or (iv) achievement of corporate performance
goals. In the event of the Sale of the Company (as defined therein), the
Committee may provide, in its discretion, that (i) outstanding options shall
become immediately exercisable and shall terminate if not exercised as of the
date of the Sale of the Company or any other designated date, or (ii) that such
options shall only provide the right to receive the excess of the consideration
per share of Common Stock offered in such Sale of the Company over the exercise
price of such options.
3
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Exhibit 99.3
[Letterhead of Credit Suisse First Boston Corporation]
August 3, 1998
Board of Directors
Zeigler Coal Holding Company
50 Jerome Lane
Fairview Heights, Illinois 62208
Members of the Board:
You have asked us to advise you with respect to the fairness to the holders
of the common stock of Zeigler Coal Holding Company ("Zeigler") from a
financial point of view of the consideration to be received by such holders
pursuant to the terms and subject to the conditions set forth in the
Agreement and Plan of Merger, dated as of August 3, 1998 (the "Merger
Agreement"), by and among AEI Resources, Inc. ("AEI"), Zeigler Acquisition
Corporation ("Sub"), a wholly owned subsidiary of AEI, and Zeigler. The
Merger Agreement provides for, among other things, (i) a tender offer by Sub
to acquire all of the outstanding shares of the common stock, par value $0.01
per share, of Zeigler (the "Zeigler Common Stock") at a purchase price of
$21.25 per share, net to the seller in cash (the "Cash Consideration" and,
such tender offer, the "Tender Offer") and (ii) subsequent to the Tender
Offer, the merger of Sub with and into Zeigler (the "Merger" and, together
with the Tender Offer, the "Transaction") pursuant to which each outstanding
share of Zeigler Common Stock not acquired in the Tender Offer will be
converted into the right to the Cash Consideration.
In arriving at our opinion, we have reviewed the Merger Agreement and certain
publicly available business and financial information relating to Zeigler.
We have also reviewed certain other information relating to Zeigler,
including financial forecasts, provided to or discussed with us by Zeigler,
and have met with the management of Zeigler to discuss the business and
prospects of Zeigler. We have also considered certain financial and stock
market data of Zeigler, and we have compared those data with similar data for
other publicly held companies in businesses similar to Zeigler, and we have
considered, to the extent publicly available, the financial terms of certain
other business combinations and other transactions which have recently been
effected. We also considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied
on its being complete and accurate in all material respects. With respect to
the financial forecasts, we have assumed that such forecasts have been
reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Zeigler as to the future
financial performance of Zeigler. In addition, we have not been requested to
make, and have not made, an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of Zeigler, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon information available to us, and financial, economic, market and
other conditions as they exist and can be evaluated, on the date hereof.
<PAGE>
Board of Directors
Zeigler Coal Holding Company
August 3, 1998
Page 2
We have acted as financial advisor to Zeigler in connection with the
Transaction and will receive a fee for such services, a significant portion
of which is contingent upon the consummation of the Transaction. In the past,
we have provided financial services to Zeigler unrelated to the proposed
Transaction, for which services we have received compensation. In the
ordinary course of business, Credit Suisse First Boston and its affiliates
may actively trade the debt and equity securities of Zeigler for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold long or short positions in such securities.
It is understood that this letter is from the Board of Directors of Zeigler
in connection with its evaluation of the Transaction, does not constitute a
recommendation to any stockholder as to whether such stockholder should
tender shares of Zeigler Common Stock pursuant to the Tender Offer or how
such stockholder should vote with respect to any matters relating to the
Merger, and is not to be quoted or referred to, in whole or in part, in any
registration statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes, without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Cash Consideration to be received in the Transaction by the
holders of Zeigler Common Stock (other than AEI and its affiliates) is fair
to such holders from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE>
Exhibit 99.7
FOR FURTHER INFORMATION:
Francis M. Canavan
618-394-2627
www.zeigler-coal.com
FOR IMMEDIATE RELEASE
MONDAY, AUGUST 3, 1998
ZEIGLER ANNOUNCES SALE AGREEMENT
--------------------------------
FAIRVIEW HEIGHTS, IL, AUGUST 3, 1998 - ZEIGLER COAL HOLDING COMPANY (NYSE:
ZEI) announced that it has executed a definitive agreement for the sale of
the Company to AEI Resources, Inc., a private coal company based in Kentucky,
for $21.25 per share in cash. AEI Resources will tender for all of Zeigler's
outstanding common shares with the tender expected to close during the week
of August 31. Zeigler's Board of Directors voted unanimously to approve
execution of the agreement with AEI Resources.
The deal values Zeigler at approximately $849 million, including $608 million
for the purchase of equity and $241 million for the assumption of debt.
Zeigler is the second largest publicly traded coal company in the United
States with coal mining assets in the Powder River Basin, Central Appalachia
and the Illinois Basin. AEI Resources is a private company owned by the
Addington family that has coal mining assets in the eastern United States.
Credit Suisse First Boston acted as financial advisor to Zeigler on this
transaction.
# # #
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ZEIGLER COAL HOLDING COMPANY
50 JEROME LANE
FAIRVIEW HEIGHTS, IL 62208
August 5, 1998
Dear Stockholders:
We are pleased to inform you that our Company has entered into an Agreement
and Plan of Merger, dated as of August 3, 1998 (the "Merger Agreement"), with
AEI Resources, Inc. ("Parent") and Zeigler Acquisition Corporation, a
wholly-owned subsidiary of Parent ("Purchaser"). Pursuant to the Merger
Agreement, Purchaser has today commenced a cash tender offer (the "Offer") to
purchase all of the outstanding common stock, $.01 par value (the "Shares"), of
the Company at a purchase price of $21.25 per Share, net to the stockholder in
cash. Following the successful consummation of the Offer, Purchaser will be
merged with and into the Company (the "Merger") and the Company will become a
wholly-owned subsidiary of Parent.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND RECOMMENDS THAT
ALL HOLDERS OF SHARES ACCEPT THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including, among
other things, the opinion dated August 3, 1998 of Credit Suisse First Boston
Corporation, the Company's financial advisor, to the effect that, as of such
date and based upon and subject to certain matters stated in such opinion, the
$21.25 per Share cash consideration to be received by holders of Shares (other
than Parent and its affiliates) in the Offer and the Merger was fair, from a
financial point of view, to such holders.
Certain stockholders and directors of the Company owning approximately 33%
of the Shares on a fully diluted basis have agreed to tender their Shares.
In addition to the attached Schedule 14D-9, enclosed is the Offer to
Purchase dated August 5, 1998 together with related materials, including a
Letter of Transmittal, to be used for tendering your Shares pursuant to the
Offer. These documents state the terms and conditions of the Offer and the
subsequent Merger, provide detailed information about the transactions and
include instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
Very truly yours,
/s/ Chand B. Vyas
Chand B. Vyas
PRESIDENT AND CHIEF EXECUTIVE OFFICER
