<PAGE>
As filed on April
29, 1999
Reg. No. 333-72327
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 1
To
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AEI Resources, Inc. and
AEI Holding Company, Inc.
(Exact Name of Registrant as Specified in Its Charter)
---------------
61-13155723
(I.R.S. Employer Identification Number)
1222 Delaware
(Primary Standard Industrial State of Other Jurisdiction of
Classification Code Number) Incorporation or Organization)
1500 North Big Run Road
Ashland, Kentucky 41102
(606) 928-3433
(Address, including Zip Code and Telephone Number, including area code, of
Registrant's Principal Executive Offices)
Kevin Crutchfield, President
1500 North Big Run Road
Ashland, Kentucky 41102
(606) 928-3433
(Address, including Zip Code and Telephone Number, including area code, of
Agent for Service)
---------------
With copies to:
Alan K. MacDonald Paul E. Sullivan
Brown, Todd & Heyburn PLLC Jeffrey L. Hallos
400 West Market Street, 32nd Floor Brown, Todd & Heyburn PLLC
Louisville, Kentucky 40202-3363 2700 Lexington Financial
(502) 589-5400 Center
Lexington, Kentucky 40507-1749
(606) 231-0000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to registered additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
CALCULATION OF REGISTRATION FEE
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Maximum
Title of Each Class of Amount Proposed Maximum Aggregate Amount
Securities to be to be Offering Price Offering Price of
Registered Registered Per Note (1) Registration Fee
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 1/2% Senior Notes due
2005................... $200,000,000 100% $200,000,000 $55,600
- - ---------------------------------------------------------------------------------------
Guarantees of 10 1/2%
Senior Notes due
2005(2)................ $200,000,000 100% $200,000,000 $0(3)
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) See inside facing page for table of additional Registration guarantors.
(3) Pursuant to Rule 457(n), no separate filing fee is required for the
guarantees.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANT GUARANTORS
<TABLE>
<CAPTION>
Address, including zip
code
and telephone number
State or Other of Registrant
Jurisdiction of Guarantor's
Exact Name of Incorporation IRS Employer Principal Executive
Registrant Guarantor or Organization Identification Number Offices
-------------------- --------------- --------------------- ----------------------
<S> <C> <C> <C>
17 West Mining (f/k/a
Martiki Coal Corporation) Delaware 73-0961272 1500 North Big Run Rd.
Ashland, KY 41102
Aceco, Inc. Kentucky 61-0855680 1500 North Big Run Rd.
Ashland, KY 41102
Addington Mining, Inc. Kentucky 61-0855680 1500 North Big Run Rd.
Ashland, KY 41102
AEI Coal Sales Company, Inc. Kentucky 61-1331912 1500 North Big Run Rd.
Ashland, KY 41102
AEI Resources Holding, Inc. Delaware 61-1331911 1500 North Big Run Rd.
Ashland, KY 41102
Americoal Development
Company Delaware 37-1302915 1500 North Big Run Rd.
Ashland, KY 41102
Appalachian Realty Company Kentucky 36-3336051 1500 North Big Run Rd.
Ashland, KY 41102
Ayrshire Land Company Delaware 06-1208946 1500 North Big Run Rd.
Ashland, KY 41102
Bassco Valley, LLC Delaware 61-1311982 1500 North Big Run Rd.
Ashland, KY 41102
Beech Coal Company Delaware 06-1187153 1500 North Big Run Rd.
Ashland, KY 41102
Bellaire Trucking Company Delaware 76-0012930 1500 North Big Run Rd.
Ashland, KY 41102
Bentley Coal Company New York 61-1128414 1500 North Big Run Rd.
Ashland, KY 41102
Bluegrass Coal Development
Company Delaware 76-0078312 1500 North Big Run Rd.
Ashland, KY 41102
Bowie Resources Limited Colorado 84-1287719 1500 North Big Run Rd.
Ashland, KY 41102
Cannelton, Inc. Delaware 55-0711787 1500 North Big Run Rd.
Ashland, KY 41102
Cannelton Industries, Inc. West Virginia 55-0136145 1500 North Big Run Rd.
Ashland, KY 41102
Cannelton Land Company Delaware 55-0715858 1500 North Big Run Rd.
Ashland, KY 41102
Cannelton Sales Company Delaware 55-0677801 1500 North Big Run Rd.
Ashland, KY 41102
CC Coal Company Kentucky 61-7329892 1500 North Big Run Rd.
Ashland, KY 41102
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Address, including zip
code
and telephone number
State or Other of Registrant
Exact Name of Jurisdiction of Guarantor's
Registrant Incorporation IRS Employer Principal Executive
Guarantor or Organization Identification Number Offices
------------- --------------- --------------------- ----------------------
<S> <C> <C> <C>
Coal Ventures
Holding Company,
Inc. Delaware 61-1328606 1500 North Big Run Rd.
Ashland, KY 41102
Dunn Coal and
Dock Company West Virginia 55-0677800 1500 North Big Run Rd.
Ashland, KY 41102
East Kentucky
Energy
Corporation Kentucky 54-0971896 1500 North Big Run Rd.
Ashland, KY 41102
Employee Benefits
Management, Inc. Delaware 36-4168193 1500 North Big Run Rd.
Ashland, KY 41102
Employee Claims
Administration,
LLC Georgia 65-0799584 1500 North Big Run Rd.
Ashland, KY 41102
Encoal
Corporation Delaware 76-0287726 1500 North Big Run Rd.
Ashland, KY 41102
EnerZ Corporation Delaware 37-1362012 1500 North Big Run Rd.
Ashland, KY 41102
Evergreen Mining
Company West Virginia 54-1206519 1500 North Big Run Rd.
Ashland, KY 41102
Fairview Land
Company Delaware 37-1267975 1500 North Big Run Rd.
Ashland, KY 41102
Franklin Coal
Sales Company Delaware 13-3121923 1500 North Big Run Rd.
Ashland, KY 41102
Grassy Cove Coal
Mining Company Delaware 51-0274983 1500 North Big Run Rd.
Ashland, KY 41102
Hayman Holdings,
Inc. Kentucky 61-1313636 1500 North Big Run Rd.
Ashland, KY 41102
Heritage Mining
Company Delaware 61-1286455 1500 North Big Run Rd.
Ashland, KY 41102
Highland Coal,
Inc. Kentucky 61-0923993 1500 North Big Run Rd.
Ashland, KY 41102
Ikerd-Bandy Co.,
Inc. Kentucky 61-0505276 1500 North Big Run Rd.
Ashland, KY 41102
Kanawha
Corporation Delaware 84-1107027 1500 North Big Run Rd.
Ashland, KY 41102
Kentucky Prince
Mining Company New York 61-1128412 1500 North Big Run Rd.
Ashland, KY 41102
Kermit Coal
Company West Virginia 55-0515741 1500 North Big Run Rd.
Ashland, KY 41102
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Address, including zip
code
and telephone number
State or Other of Registrant
Exact Name of Jurisdiction of Guarantor's
Registrant Incorporation IRS Employer Principal Executive
Guarantor or Organization Identification Number Offices
------------- --------------- --------------------- ----------------------
<S> <C> <C> <C>
Kindill Holding,
Inc. Kentucky 31-1529620 1500 North Big Run Rd.
Ashland, KY 41102
Kindill Mining,
Inc. Indiana 35-1962074 1500 North Big Run Rd.
Ashland, KY 41102
Leslie Resources,
Inc. Kentucky 61-1013125 1500 North Big Run Rd.
Ashland, KY 41102
Leslie Resources
Management, Inc. Kentucky 61-1292388 1500 North Big Run Rd.
Ashland, KY 41102
Meadowlark, Inc. Indiana 35-0782260 1500 North Big Run Rd.
Ashland, KY 41102
Mega Minerals,
Inc. West Virginia 55-0720327 1500 North Big Run Rd.
Ashland, KY 41102
Mid-Vol Leasing,
Inc. West Virginia 55-0691054 1500 North Big Run Rd.
Ashland, KY 41102
Midwest Coal
Company Delaware 84-1324803 1500 North Big Run Rd.
Ashland, KY 41102
Midwest Coal
Sales Company Delaware 35-1599521 1500 North Big Run Rd.
Ashland, KY 41102
Mining
Technologies,
Inc. Kentucky 61-1319730 1500 North Big Run Rd.
Ashland, KY 41102
Mountain Coals
Corporation Delaware 63-0725639 1500 North Big Run Rd.
Ashland, KY 41102
Mountain-Clay
Incorporated
d/b/a Mountain
Clay, Inc. Kentucky 61-0621350 1500 North Big Run Rd.
Ashland, KY 41102
Mountaineer Coal
Development
Company West Virginia 54-0989613 1500 North Big Run Rd.
Ashland, KY 41102
NuCoal LLC Delaware 36-4143611 1500 North Big Run Rd.
Ashland, KY 41102
Old Ben Coal
Company Delaware 34-1291413 1500 North Big Run Rd.
Ashland, KY 41102
Phoenix Land
Company Delaware 37-1302916 1500 North Big Run Rd.
Ashland, KY 41102
Premium Coal
Development
Company Delaware 36-4186350 1500 North Big Run Rd.
Ashland, KY 41102
Premium
Processing, Inc. West Virginia 55-0750451 1500 North Big Run Rd.
Ashland, KY 41102
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Address, including zip
code
and telephone number
State or Other of Registrant
Jurisdiction of Guarantor's
Exact Name of Incorporation IRS Employer Principal Executive
Registrant Guarantor or Organization Identification Number Offices
-------------------- --------------- --------------------- ----------------------
<S> <C> <C> <C>
Princess Beverly Coal Company West Virginia 55-0581252 1500 North Big Run Rd.
Ashland, KY 41102
Princess Beverly Coal Holding
Company, Inc. Kentucky 61-1342905 1500 North Big Run Rd.
Ashland, KY 41102
Pro-Land, Inc. d/b/a Kem Coal
Company Kentucky 61-0727363 1500 North Big Run Rd.
Ashland, KY 41102
R. & F. Coal Company Ohio 34-0832344 1500 North Big Run Rd.
Ashland, KY 41102
River Coal Company, Inc. Kentucky 61-0567214 1500 North Big Run Rd.
Ashland, KY 41102
Roaring Creek Coal Company Delaware 35-1597000 1500 North Big Run Rd.
Ashland, KY 41102
Shipyard River Coal Terminal
Company South Carolina 54-1156890 1500 North Big Run Rd.
Ashland, KY 41102
Skyline Coal Company New York 61-1128411 1500 North Big Run Rd.
Ashland, KY 41102
Straight Creek Coal Resources
Company Kentucky 36-3317309 1500 North Big Run Rd.
Ashland, KY 41102
Tennessee Mining, Inc. Kentucky 62-1640672 1500 North Big Run Rd.
Ashland, KY 41102
Turris Coal Company Delaware 74-2121674 1500 North Big Run Rd.
Ashland, KY 41102
West Virginia-Indiana Coal
Holding Company, Inc. Delaware 61-1328604 1500 North Big Run Rd.
Ashland, KY 41102
Wyoming Coal Technology, Inc. Wyoming 61-1336980 1500 North Big Run Rd.
Ashland, KY 41102
Zeigler Coal Holding Company Delaware 36-3344449 1500 North Big Run Rd.
Ashland, KY 41102
Zeigler Environmental
Services Company Delaware 36-4143610 1500 North Big Run Rd.
Ashland, KY 41102
Zenergy, Inc. Delaware 35-1870468 1500 North Big Run Rd.
Ashland, KY 41102
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SELL IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
THIS PROSPECTUS, DATED APRIL 29, 1999, IS SUBJECT TO
COMPLETION AND AMENDMENT.
PROSPECTUS
Exchange Offer
for
$200,000,000
10-1/2% Senior Notes due December 15, 2005
of
AEI RESOURCES, INC.
and AEI HOLDING COMPANY, INC.,
its wholly owned subsidiary
Terms of the Exchange Offer
<TABLE>
<S> <C>
. We are offering to exchange the notes . We believe that the exchange of notes
that we sold in a private offering for will not be a taxable exchange for
new registered exchange notes. U.S. federal income tax purposes.
. The exchange offer expires 5:00 p.m.,
New York City time, , 1999, . We will not receive any proceeds from
unless extended. the exchange offer.
. The terms of the notes to be issued
are identical to the outstanding
. Tenders of outstanding notes may be notes, except for the transfer
withdrawn any time prior to the restrictions and registration rights
expiration of the exchange offer. relating to the outstanding notes.
. All outstanding notes that are validly
tendered and not validly withdrawn
will be exchanged.
</TABLE>
We are not making an offer to exchange notes in any jurisdiction where the
offer is not permitted.
Investing in the notes issued in the exchange offer involves certain risks. See
"Risk Factors" beginning on page .
Neither the Securities and Exchange Commission nor any state securities
commission has approved the notes to be distributed in the exchange offer, nor
have any of these organizations determined that this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
, 1999
<PAGE>
PROSPECTUS SUMMARY
On the cover page, in this summary and in the "Risk Factors" section, the
words "Company," "we," "our," "ours," and "us" refer only to AEI Resources,
Inc. and not to any of our subsidiaries. The following summary contains basic
information about this offering. It likely does not contain all the information
that is important to you. For a more complete understanding of this offering,
we encourage you to read this entire document and the documents we have
referred you to.
The Company
AEI Resources, Inc.
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
(606) 928-3433
AEI Resources, Inc. is one of the largest coal producers in the United States.
We mine and market coal at our 49 mines in Kentucky, West Virginia, Tennessee,
Indiana, Illinois, Ohio and Colorado. Our primary customers are electric
utility companies in the eastern United States. Since October 1, 1997, we have
grown substantially by acquiring coal mining operations. We would have been the
fourth largest steam coal company in the United States as measured by revenues
for 1997 when these transactions are taken into account.
The Exchange Offer
On December 14, 1998, AEI Resources and our subsidiary co-issuer, AEI Holding,
issued $200,000,000 aggregate principal amount of 10 1/2% Senior Notes due 2005
in exchange for $200,000,000 aggregate principal amount of debt securities of
AEI Holding. The transaction was exempt from the registration requirements of
the Securities Act of 1933.
In connection with that issuance, we agreed to complete this exchange offer as
soon as practicable. Under the terms of the exchange offer, you are entitled to
exchange the notes initially issued in December 1998 in this exchange offer for
registered exchange notes with substantially identical terms. The initial notes
may be tendered only in integral multiples of $1,000. You should read the
discussion under the heading "Description of the Notes" for further information
about the exchange notes.
Resale of Exchange Notes.... We believe that the exchange notes issued in the
exchange offer may be offered for resale and
resold or otherwise transferred without
compliance with the registration and prospectus
delivery requirements of the Securities Act, as
long as:
. you are acquiring the exchange notes in the
ordinary course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to
participate in a distribution of exchange
notes; and
. you are not an affiliate of ours.
1
<PAGE>
If any of the foregoing are not true and you
transfer any exchange note without delivering a
prospectus meeting the requirements of the
Securities Act or without an exemption from the
registration requirements of the Securities Act,
you may incur liability under the Securities Act.
We do not assume or indemnify you against such
liability.
If you are a broker-dealer and receive exchange
notes for your own account in exchange for
initial notes that you acquired as a result of
market making or other trading activities, you
must acknowledge that you will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
the exchange notes. A broker-dealer may use this
prospectus for an offer to resell, resale or
other transfer of the exchange notes.
Consequences of Failure to
Exchange Initial Notes......
If you do not exchange your initial notes for
exchange notes, you will no longer be able to
force us to register the initial notes under the
Securities Act. In addition, you will not be able
to offer or sell the initial notes unless:
. they are registered under the Securities
Act, or
. you offer or sell them under an exemption
from the requirements of, or in a
transaction not subject to, the Securities
Act.
Expiration Date........ The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999 or such later date
and time to which it is extended.
Interest on the Exchange
Notes and the Initial
Notes.................. Interest on the exchange notes will accrue from
the date of the last periodic payment of interest
on the initial notes, or, if no interest has been
paid on the initial notes, from December 14,
1998.
Conditions To The Exchange We will proceed with the exchange offer so long
Offer.................. as the exchange offer does not violate any
applicable law or applicable interpretation of
law of the staff of the Securities and Exchange
Commission, or any order of any government agency
or court.
Procedures for Tendering If you wish to accept the exchange offer, you
Initial Notes.......... must:
. complete, sign and date the letter of
transmittal, or a facsimile of it, and
. send the letter of transmittal and all
other documents required by it, including
the initial notes to be exchanged, to IBJ
Whitehall Bank & Trust Company as exchange
agent at the address set forth on the cover
page of the letter of transmittal.
. Alternatively, you can tender your initial
notes by following the procedures for book-
entry transfer, as described in this
prospectus.
2
<PAGE>
Guaranteed Delivery If you wish to tender your initial notes and you
Procedures............. cannot get your required documents to the
exchange agent by the expiration date, you may
tender your initial notes according to the
guaranteed delivery procedure described under the
heading "The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights...... You may withdraw the tender of your initial notes
at any time prior to 5:00 p.m., New York City
time, on the expiration date. To withdraw, you
must send a written or facsimile transmission
notice of withdrawal to the exchange agent by
5:00 p.m., New York City time, on the expiration
date.
Acceptance of Initial Notes
and Delivery of Exchange
Notes..................
If all of the conditions to the exchange offer
are satisfied or waived, we will accept any and
all initial notes that are properly tendered in
the exchange offer prior to 5:00 p.m., New York
City time, on the expiration date. We will
deliver the exchange notes promptly after the
expiration date.
Tax Considerations..... We believe that the exchange of initial notes for
exchange notes will not be a taxable exchange for
federal income tax purposes. You should consult
your tax adviser about the tax consequences of
this exchange as they apply to your individual
circumstances.
Liquidated Damages..... We have agreed to pay to each holder of initial
notes, as liquidated damages, $0.15 per $1,000
principal amount of initial notes per week,
commencing December 8, 1998, until we complete
the exchange offer. Beginning on March 8, 1999,
the amount of liquidated damages payable
increased to $0.20 per $1,000 principal amount
per week. If we do not complete the exchange
offer during the 90 days ending June 6, 1999, the
amount of liquidated damages payable weekly
during the subsequent 90 days will increase to
$0.25 per $1,000 principal amount. Until we
complete the exchange offer, the amount of
liquidated damages payable will increase by an
additional $0.05 per $1,000 principal amount per
week for every subsequent 90-day period, up to a
maximum of $0.50 payable weekly per $1,000
principal amount of initial notes.
Additional Registration We have agreed to file a "shelf" registration
Rights................. statement for a continuous offering of the
initial notes if :
. we determine that we cannot complete the
exchange offer as contemplated because of a
change in applicable law or SEC policy; or
. you notify us before the 20th day after we
complete the exchange offer that:
. you are prohibited by law or SEC policy
from participating in the exchange offer;
or
. you may not resell the exchange notes
you acquired in the exchange offer to
the public without
3
<PAGE>
delivering a prospectus, and that this
prospectus is not appropriate or
available for such resales; or
. you are a broker-dealer and own the
initial notes acquired directly from us
or an affiliate of ours.
Use of Proceeds........ We will not receive any cash proceeds from the
issuance of the exchange notes in exchange for
the initial notes.
Description of the Exchange Notes
Co-issuers............. AEI Resources, Inc. and its wholly owned
subsidiary, AEI Holding Company, Inc.
Notes Offered.......... $200,000,000 aggregate principal amount of 10
1/2% Senior Notes due 2005.
The form and terms of the exchange notes are the
same as the form and terms of the initial notes,
except that the exchange notes will be registered
under the Securities Act. Therefore, the exchange
notes will not bear legends restricting their
transfer and will not be entitled to registration
under the Securities Act, except in limited
circumstances. The exchange notes will evidence
the same debt as the initial notes and both the
initial notes and the exchange notes are governed
by the same indenture.
Maturity............... December 15, 2005
Interest Rate.......... 10 1/2% per year.
Interest Payment Every six months on June 15 and December 15 of
frequency.............. each year.
First payment--June 15, 1999.
Guarantors............. 71 of our direct and indirect subsidiaries and
our parent corporation, AEI Resources Holding,
Inc., fully and unconditionally guarantee our
obligation to make payments on the notes. If we
cannot make payments on the notes when they are
due, each of the guarantors has the
responsibility to make them instead.
Ranking................ These notes and the subsidiary guarantees are
general, unsecured debts of both co-issuers.
They rank on a parity with all of our and our
guarantor subsidiaries' current and future
indebtedness (other than trade payables).
They rank ahead of our current and future
subordinated indebtedness, including our 11 1/2%
Senior Subordinated Notes due 2006.
4
<PAGE>
Optional Redemption......... On or after December 15, 2002, we may redeem some
or all of the notes at any time at the redemption
prices listed in the section "Description of
Notes" under the heading "Optional Redemption."
Before December 15, 2002, we may redeem some or
all of the notes at any time at a redemption
price equal to 100% of the face value of the
notes, plus an additional premium listed in the
section "Description of Notes" under the heading
"Optional Redemption."
Before December 15, 2000, we may redeem up to $70
million of the notes with the proceeds of certain
public offerings of equity in our Company at the
price listed in the section "Description of
Notes" under the heading "Optional Redemption."
Mandatory Offer to If we sell certain assets or experience specific
Repurchase.................. kinds of changes of control, we must offer to
repurchase the notes at the prices listed in the
section "Description of Notes."
Basic Covenants of We issued the initial notes and will issue the
Indenture................... exchange notes under an indenture with IBJ
Whitehall Bank & Trust Company, as trustee. The
indenture, among other things, restricts our
ability and the ability of our subsidiaries to:
. borrow money;
. pay dividends on stock or purchase stock;
. make investments;
. use assets as security in other
transactions; and
. sell certain assets or merge with or into
other companies.
For more details, see the section "Description of
the Notes" under the heading "Certain Covenants."
Risk Factors
We urge you to carefully read the Risk Factors beginning on page for a
discussion of factors you should consider before exchanging your initial notes
for exchange notes.
Market Share Data
Except as otherwise indicated, the market share data included in this
prospectus are based upon estimates by our management, using third-party
sources where available. While we believe that these estimates are reasonable,
they have not been independently verified. Accordingly, we cannot assure you
that the market share data are accurate in all material respects.
5
<PAGE>
Coal Reserve Data
The estimates of our proven and probable reserves described in this prospectus
are based on the reports of the engineering firms listed in the "Experts"
section of this prospectus. While we believe that these estimates are
reasonable, we cannot assure you that the coal reserve data shown in this
prospectus are accurate in all material respects.
Trademarks and Tradenames
Addcar is a trademark that is federally registered in the United States
pursuant to applicable intellectual property laws and is the property of Mining
Technologies, Inc., an indirect subsidiary of AEI Resources, Inc.
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
We have summarized below the unaudited consolidated pro forma financial
information of AEI Resources for the year ending December 31, 1998. The
information should be read in conjunction with the unaudited pro forma
consolidated financial statements included on pages through of this
Prospectus and in conjunction with our historical financial statements and
related notes included beginning on page F-1 of this prospectus.
You should be aware that this pro forma information may not be indicative of
what actual results will be in the future or would have been for the periods
presented.
<TABLE>
<CAPTION>
(Dollars in Millions,
Except Per Ton Data)
---------------------
The Company
---------------------
Year Ended
December 31, 1998
---------------------
<S> <C>
Operating Data:
Revenues................ $1,383.4
Cost of operations...... 1,089.2
Depreciation, depletion
and amortization....... 193.7
Selling, general and
administrative......... 44.2
Writedowns and special
items(1)............... 16.5
--------
Income (loss) from
operations............. 39.8
Interest expense........ (113.7)
Other income (expense),
net(2)................. 11.4
--------
Income (loss) before
income taxes........... (62.5)
Income tax provision
(benefit).............. (30.0)
--------
Net income (loss) from
continuing operations.. $ (32.5)
--------
Other Data:
Adjusted EBITDA(3)...... $ 260.2
Capital expenditures.... 62.7
Ratio of Adjusted EBITDA
to cash interest
expense(3)(4).......... 2.2x
Ratio of total debt to
Adjusted EBITDA(3)..... 4.7x
Operating Data:
Proven and probable
reserves
(at period end in
millions of tons)...... 2,436
Coal sales (millions of
tons)(5)............... 49.1
Average sales price per
ton.................... $ 27.10
Average cost per ton
sold(6)................ 25.61
Balance Sheet Data (end
of period):
Working capital......... $ (72.9)
Total assets............ 2,490.1
Total long-term debt
(including current
portion)............... 1,215.6
Stockholders' equity
(deficit).............. (92.6)
</TABLE>
7
<PAGE>
- - --------
(1) In connection with integrating acquired operations, the Company closed
certain of its preexisting mines. Accordingly, estimated non-recoverable
assets of $2.0 million were written off and estimated reclamation and
closure costs of $14.5 million were recorded.
(2) Other income (expense), net reflects the inclusion of gain or loss on asset
sales.
(3) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the Indenture governing the Notes. The Fixed Charge
Coverage Ratio restricts the Company's ability to incur additional
indebtedness above an approved limit if the ratio is below 2.0 to 1.0. As
of December 31, 1998 the ratio (calculated on a pro forma basis) was 2.2 to
1.0. See "Description of Notes" for a complete presentation of the
methodology employed in calculating Adjusted EBITDA. Adjusted EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service indebtedness and because it is used in the
Indenture to determine compliance with certain covenants. However, Adjusted
EBITDA should not be considered as an alternative to income from operations
or to cash flows from operating activities (as determined in accordance
with generally accepted accounting principles) and should not be construed
as an indication of a company's operating performance or as a measure of
liquidity. See Note G to the Unaudited Pro Forma Consolidated Income
Statement in "Unaudited Pro Forma Consolidated Financial Statements" for
Adjusted EBITDA calculations.
(4) Cash interest expense is calculated as interest expense plus capitalized
interest less interest accreted on discounted notes and amortization of
deferred financing costs.
(5) Coal sales do not give effect to sales from purchased coal tonnage, which
was 1.9 million tons in the twelve months ended December 31, 1998.
(6) Average cost per ton sold is calculated based on total coal operating costs
included in the cost of operations, plus depreciation costs related to
mining, divided by coal sold.
NA = Not Available
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
We have summarized below consolidated financial data derived from the annual
financial statements of AEI Resources Holding, Inc. as of December 31, 1997 and
1998, and for the three years in the period ended December 31, 1998, which have
been audited by Arthur Andersen LLP, independent public accountants, and are
included in this prospectus. Consolidated financial data as of December 31,
1996 has been derived from the annual financial statements of AEI Resources
Holding, Inc., which have been audited by Arthur Andersen LLP, independent
public accountants, and are not included elsewhere in this prospectus.
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages through and the historical financial statements and related notes
beginning on page F-1 of this prospectus.
AEI Resources Holding, Inc. (including its predecessors)
(Dollars in millions, except per ton data)
<TABLE>
<CAPTION>
For the Fiscal Year Ended
December 31,
---------------------------
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Operating Data:
Revenues......................................... $ 123.2 $ 175.3 $ 733.4
Cost of operations............................... 97.1 145.2 590.8
Depreciation, depletion and amortization......... 6.9 10.8 76.8
Selling, general and administrative.............. 9.1 13.9 32.5
Write-downs and special items.................... -- -- 16.5
------- ------- ---------
Income from operations........................... 10.1 5.4 16.8
Interest expense................................. (5.5) (9.2) (65.3)
Other income (expense), net (1).................. 0.5 0.4 4.7
------- ------- ---------
Income (loss) before income tax provision........ 5.1 (3.4) (43.8)
Income tax provision (benefit) (2)............... -- 17.5 (20.4)
------- ------- ---------
Net income (loss) from continuing operations
(3)............................................. $ 5.1 $ (20.9) $ (23.4)
------- ------- ---------
Other Data:
Adjusted EBITDA (4).............................. $ 17.5 $ 16.6 $ 113.8
Cash flows from operating activities............. 4.8 (11.4) (49.4)
Cash flows from investing activities............. (12.5) (38.7) (655.7)
Cash flows from financing activities............. 7.3 133.2 664.0
Capital expenditures............................. 14.1 32.2 40.9
Ratio of Adjusted EBITDA to interest expense
(4)............................................. 3.2x 1.8x 1.7x
Ratio of total debt to Adjusted EBITDA (4)....... 3.7x 13.1x 10.7x
Proven and probable reserves (at period end,
in millions of tons)............................ NA 166 2,436
Coal sales (millions of tons).................... 4.2 6.5 25.2
Average sales price per ton...................... $ 24.84 $ 25.19 $ 27.40
Average cost per ton sold(5)..................... 21.32 22.08 25.40
Balance Sheet Data (end of period):
Working capital.................................. $ (11.6) $ 85.1 $ (72.9)
Total assets..................................... 106.9 265.4 2,490.1
Total debt (including current portion)........... 64.1 217.0 1,215.6
Stockholders' equity (deficit)................... 0.3 (18.1) (92.6)
</TABLE>
9
<PAGE>
- - --------
(1) Other income (expense), net reflects the inclusion of gain or loss on asset
sales.
(2) In April 1997, Bowie changed its tax reporting status from an S-corporation
to a C-corporation, resulting in an initial deferred tax liability of $1.6
million. In November 1997, the other subsidiaries of AEI Holding Company,
Inc. likewise changed from S-corporations to C-corporations, resulting in
an initial deferred tax liability of $18.0 million.
(3) Net income (loss) from continuing operations is prior to extraordinary
items and accounting changes.
(4) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the indenture. The Fixed Charge Coverage Ratio restricts
the Company's ability to incur additional indebtedness above an approved
limit if the ratio is below 2.0 to 1.0. As of December 31, 1998 the ratio
(calculated on a pro forma basis) was 2.2 to 1.0. See "Description of
Notes" for a complete presentation of the methodology employed in
calculating Adjusted EBITDA. Adjusted EBITDA is presented because it is a
widely accepted financial indicator of a company's ability to service
indebtedness and because it is used in the Indenture to determine
compliance with certain covenants. However, Adjusted EBITDA should not be
considered as an alternative to income from operations or to cash flows
from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity.
(5) Average cost per ton sold is calculated based on total coal operating costs
included in cost of operations, plus depreciation costs related to mining,
divided by coal sold.
10
<PAGE>
RISK FACTORS
Before investing in the Notes, a prospective investor should consider the
specific factors set forth below, as well as the other information set forth
elsewhere in this prospectus.
This prospectus includes "forward looking statements" including, in particular,
the statements about our plans, strategies and prospects under the headings
"Prospectus Summary," "Unaudited Pro Forma Combined Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Coal Industry," "Business" and "Government Regulation."
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we can give no
assurance that we will achieve these plans, intentions or expectations.
Important factors that could cause actual results to differ materially from the
forward looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to
AEI Resources or to persons acting on our behalf are expressly qualified in
their entirety by the following cautionary statements.
Substantial Leverage--Our substantial indebtedness could adversely affect our
financial health and prevent us from fulfilling our obligations under these
notes.
We have a significant amount of indebtedness. The following chart shows certain
important credit statistics.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------
<S> <C>
Total indebtedness......................................... $1,215.6
--------
Stockholders' equity....................................... $ (92.6)
--------
Debt to equity ratio....................................... N/A
--------
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998
------------------
<S> <C>
Pro forma deficiency of earnings to fixed charges............ $(78.6)
------
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes, including in particular our obligations to pay principal,
interest and penalties due on the notes and to redeem the notes upon the
occurrence of specific kinds of change of control events;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. limit our ability to obtain additional financing to fund future
acquisitions of coal producers or coal reserves;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
11
<PAGE>
See "Capitalization," "Description of the Notes--Repurchase at the Option of
Holders--Change of Control" and "Description of Other Indebtedness--The Senior
Credit Facility."
Secured Indebtedness--Any claims of holders of the Notes will be effectively
subordinated to claims of holders of any of our or our subsidiaries' secured
indebtedness.
Holders of any of our or our subsidiaries' secured indebtedness will have
claims that have priority over claims of the holders of the Notes with respect
to the assets securing such indebtedness. We and our subsidiaries are currently
parties to our credit facility. Our credit facility is secured by liens on all
of the capital stock of the Company and our subsidiaries, as well as all of our
and our subsidiaries' present and future assets and properties. The Notes will
remain effectively subordinated to all such secured indebtedness. In the event
of any distribution or payment of our assets in any bankruptcy, liquidation or
distribution or similar proceeding, holders of secured indebtedness will have a
prior claim to our assets that constitute their collateral. Holders of the
Notes will participate ratably with all holders of our unsecured indebtedness
that is deemed to be of the same class as the Notes. They may also be able to
participate with all of our other general creditors, based upon the respective
amounts owed to each holder or creditor, in any distribution of our remaining
assets. If any of these events occur, we cannot assure you that there would be
sufficient assets to pay amounts due on the Notes. As a result, holders of the
Notes may receive less, ratably, than holders of secured indebtedness.
As of December 31, 1998, the Company and its subsidiaries would have had $692.0
million(after giving effect to payments and borrowings after that date) in
aggregate amount of secured indebtedness (excluding the guarantees of
borrowings under our credit facility), and $156.9 million would have been
available for additional borrowing under our credit facility, after giving
effect to approximately $26.1 million of outstanding letters of credit.
Additional Borrowings Available--Despite current indebtedness levels, we and
our subsidiaries may still be able to incur substantially more debt. This could
further exacerbate the risks described above.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. Our senior credit facility will permit
additional borrowings of up to $156.9 million as of December 31, 1998 (after
giving effect to payments and borrowings after that date) and all of those
borrowings would be senior to these notes and the guarantees by our
subsidiaries. If we or the guarantors incur additional debt or contingent
liabilities to fund future acquisitions or for other purposes, the related
risks that we now face could intensify.
See "Capitalization," "Selected Historical Consolidated Financial Data" and
"Description of the Notes--Repurchase at the Option of Holders--Change of
Control" and "Description of Other Indebtedness--The Senior Credit Facility."
Ability to Service Debt--To service our indebtedness, we will require a
significant amount of cash. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, including
the notes, and to fund planned capital expenditures and research and
development efforts will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We have not generated cash flows from operations for our 1997 and 1998
fiscal years.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available
cash and available borrowings under our credit facility, will be adequate to
meet our future liquidity needs for at least the next few years.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or at all, or that
12
<PAGE>
future borrowings will be available under our credit facility in amounts
sufficient to enable us to pay our indebtedness, including the notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of
our indebtedness, including the notes, on or before maturity. We cannot assure
you that we will be able to refinance any of our indebtedness, including our
credit facility and the notes, on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity."
Financing Change of Control Offer--We may not have sufficient funds, or the
ability to raise the funds necessary to finance the change of control offer
required by the indenture.
If certain specific kinds of change of control events occur, we will be
required to offer to repurchase all outstanding notes. However, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchase of notes or that restrictions in our credit
facility will not allow those repurchases. In addition, certain important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change of Control" under the
indenture. See "Description of the Notes--Repurchase at the Option of Holders--
Change of Control."
Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
specific circumstances, to void guarantees and require noteholders to return
payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided, or claims in respect of a guarantee
could be subordinated to all other debts of that guarantor if, among other
things, the guarantor, at the time it incurred the indebtedness evidenced by
its guarantee:
. received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
. was insolvent or rendered insolvent by reason of such incurrence; or
. was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
. intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets, or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature, or
. it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, we believe that each guarantor, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have
incurred debts beyond its ability to pay such debts as they mature. We cannot
assure you, however, as to what standard a court would apply in making such
determinations or that a court would agree with our conclusions in this regard.
13
<PAGE>
No Prior Market for the Notes--You cannot be sure that an active trading market
will develop for these notes.
There is no existing market for these notes and we cannot assure you as to the
liquidity of any markets that may develop for the notes, the ability of holders
of the notes to sell their notes, or the prices at which holders would be able
to sell their notes. In addition, changes in the overall market for high yield
securities and changes in our financial performance or prospects or in the
prospects for companies in our industry generally may adversely affect the
liquidity of the trading market in the notes, and the market price quoted for
the notes. As a result, you cannot be sure that an active trading market will
develop for the notes.
Limited Operating History and Prior Losses--Our operations may not be
profitable in the future.
We have a limited operating history and incurred losses in 1997 and 1998. Our
future profitability will depend on our ability to effectively integrate the
businesses, we acquired in recent years, to achieve cost saving, to continue to
obtain profitable coal supply contracts, and other factors described in this
prospectus. We may not be profitable in the future.
Integration of Acquisitions--We may not be able to effectively integrate the
various businesses we have acquired.
We have grown principally through the acquisition of established coal
businesses. Our prospects should be considered in light of the numerous risks
commonly encountered in business combinations. We cannot assure you that our
management group will be able to effectively integrate the businesses we have
acquired since October 1, 1997, or generate the cost savings and operating
improvements we currently anticipate. Our business, financial condition and
results of operations could be materially adversely affected if we are unable
to retain the key operational personnel that have contributed to our historical
performance and that of the businesses we have acquired. See "--Dependence on
Key Management and Control by Principal Shareholder."
Each of the businesses we have acquired since October 1, 1997 operated
independently before we acquired it. Our Unaudited Pro Forma Combined Financial
Statements in this prospectus include the combined operating results of these
acquired businesses during periods before they were under our control. Thus,
the statements may not indicate what our results would have been if we had
operated the acquired businesses on a combined basis during such periods.
While we intend to pursue acquisitions of additional coal reserves and other
coal companies, in the future, we have no present binding commitments or
agreements with respect to any such acquisitions. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies, services and products of the acquired companies and the diversion
of management's attention from other business concerns. If we complete such an
acquisition in the future, we may not successfully manage its integration into
our business and our business may suffer. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity."
Ability to Achieve Anticipated Cost Savings--We may not be able to achieve cost
savings in the manner and on the schedule currently anticipated.
If we cannot achieve the anticipated cost savings, we may encounter financing
constraints in the future. Our management currently estimates that if we had
completed all of our recent acquisitions by January 1, 1997, we could have
achieved cost savings of approximately $71 million through integration of the
businesses acquired. These estimates are based on assumptions made by our
management that, although believed to be reasonable, are inherently uncertain
and difficult to predict and, with respect to industry and general economic
conditions, are beyond our control. We cannot assure you that we will achieve
the anticipated cost savings on the schedule currently anticipated or at all,
nor can we assure you that unforeseen costs and expenses or other factors will
not offset any estimated or actual cost savings.
14
<PAGE>
Reliance on Long-Term Coal Supply Contracts--Many of our long-term contracts
allow contract price renegotiation, contract termination and other provisions
that may adversely affect our operating margins.
We sell a substantial portion of our coal under long-term coal supply
contracts, which are significant to the stability and profitability of our
operations. For our 1998 fiscal year, approximately 72% of our revenues came
from coal sales under long-term sales contracts. As of December 31, 1998, we
had 55 long-term sales contracts with a volume-weighted average term of
approximately 5.7 years. As of December 31, 1998, 52 of our contracts provide
for coal to be sold at a price higher than the price at which such coal could
be sold in the spot market.
Most of our recently negotiated contracts with a term of more than three years
contain price reopeners. Reopeners allow the contract price to be renegotiated
at specific times during the term of the contract to be in line with the market
price prevailing at the time. In some circumstances, the utilities have an
option to terminate the contract if prices have increased by over 10% from the
price at the commencement of the contract or if the parties do not agree on a
new price. We cannot assure you that our long-term contracts will not terminate
before their current terms expire or that the prices we obtain for coal under
such contracts will not decrease.
Our operating profit margins under our long-term coal supply contracts depend
on a variety of factors, many of which are beyond our control. In addition,
price adjustment, price reopener and other provisions may reduce the insulation
from short-term coal price volatility that long-term contracts provide and may
adversely impact our operating profit margins. If any of our long-term sales
contracts are modified or terminated, we could be adversely affected to the
extent that we cannot find alternate customers at the same level of
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Price Fluctuations and Markets--Any significant decline in coal prices may
adversely affect our ability to meet our obligations.
Our results of operations depend upon the prices we receive for our coal. Any
significant decline in prices for coal could have a material adverse effect on
our financial condition, results of operation and quantities of reserves
recoverable on an economic basis. Should the industry experience significant
price declines from current levels or other adverse market conditions, we may
not be able to generate sufficient cash flow from operations to meet our
obligations and make planned capital expenditures. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity" and
"Government Regulation."
The availability of a ready market for our higher sulfur coal production also
depends on a number of other market factors, including the demand for and
supply of low-sulfur coal, and the availability of pollution credits. See
"--Government Regulation of the Mining Industry--Impact of Clean Air Act
Amendments on Coal Consumption."
Highly Competitive Industry--The high level of competition in the coal industry
may make it difficult for us to continue to obtain long-term sales contracts,
making us vulnerable to changes in spot market coal prices.
We compete with other large producers and hundreds of small producers in the
United States and abroad. The markets in which we sell our coal are highly
competitive and affected by factors beyond our control. We cannot assure you
that we will continue to be able to obtain long-term sales contracts with
reliable customers as existing contracts expire. If the percentage of our
revenues generated from long-term sales contracts decreases, changes in spot
market coal prices will have a greater impact on our results. Demand for coal
and the prices that we obtain for our coal are closely linked to coal
consumption patterns of the domestic electric utility industry, which has
accounted for approximately 87% of domestic coal consumption in recent years.
Competition resulting from excess coal production capacity encourages producers
to reduce prices and to pass
productivity gains through to customers. Moreover, because of greater
competition in the domestic electric
15
<PAGE>
utility industry and increased pressure from customers and regulators to lower
electricity prices, public utilities are lowering fuel costs by buying higher
percentages of spot coal through a competitive bidding process and by only
buying the amount of coal necessary under existing contracts to meet their
contractual requirements. See "Business--Long-Term Coal Contracts."
Need to Lease Additional Coal Reserves--Our inability to lease coal reserves on
federal lands could have a material adverse effect on the financial results of
our Colorado mining operations.
In 1998 we signed a ten-year contract to sell low sulfur coal from our Bowie
mine to the Tennessee Valley Authority. Our costs to supply coal for this
contract will be higher if we cannot lease coal reserves located on federal
lands in Colorado. We have applied to the federal Bureau of Land Management for
a lease, and the Bureau plans to prepare a environmental impact statement to
study the effects of existing and potential coal developments in this area,
which will take approximately 12 to 18 months. We cannot assure you that we
will succeed in leasing the coal reserves. Our failure to do so could harm
financial results of our Bowie mine. See "Business--Mining Operations--Rocky
Mountain Region--Bowie."
Transportation--Any disruption in our transportation services or any
significant increase in transportation costs may adversely affect our business.
We deliver approximately 75% of our coal tonnage by railroad. We deliver the
remaining 25% by truck to either the customer's plant or designated barge
loading facility. If problems related to weather, labor, industry consolidation
or other events disrupt these transportation services, it could temporarily
impair our ability to supply coal to our customers and thus adversely affect
our business and operating results. In addition, transportation costs range
from 10% to 90% of the total mining cost to our customers which can
significantly affect a coal producer's competitive position and profitability.
Increases in our transportation costs, or changes in such costs relative to
transportation costs incurred by providers of competing coal or of other fuels,
could harm our business and operating results.
Risks Inherent in Mining Operations--Mining operations are vulnerable to
weather and other conditions that are beyond our control.
Conditions beyond our control can increase or decrease the cost of mining at
particular mines for varying lengths of time. These conditions include weather
and natural disasters, such as heavy rains and flooding, unexpected maintenance
problems, variations in coal seam thickness, variations in the amount of rock
and soil overlying the coal deposit, variations in rock and other natural
materials and variations in geological and other conditions. The highwall
mining process can also be more sensitive to adverse geological conditions that
may diminish coal recovery, and in extreme cases, contribute to the loss or
damage of highwall mining equipment.
Government Regulation of the Mining Industry--Government regulations may impose
costly requirements on us.
The coal mining industry is subject to regulation by federal, state and local
authorities on matters such as employee health and safety, limitations on land
use, permitting and licensing requirements, air quality standards, water
pollution, plant and wildlife protection, reclamation and restoration of mining
properties after mining, the discharge of materials into the environment,
surface subsidence from underground mining and the effects that mining has on
groundwater quality and availability. Legislation mandating certain benefits
for current and retired coal miners also affects the industry. Mining
operations require numerous governmental permits and approvals. We may be
required to prepare and present to federal, state or local authorities data
pertaining to the impact that any proposed exploration for or production of
coal may have upon the environment. Compliance with these requirements may be
costly and time-consuming and may delay commencement or continuation of
exploration or production operations. New legislation and/or regulations and
orders may materially adversely affect our mining operations, our cost
structure and/or our customers' ability to
16
<PAGE>
use coal. New legislation, including proposals related to the protection of the
environment that would further regulate and tax the coal industry, may also
require us or our customers to change operations significantly or incur
increased costs. All of these factors could have a material adverse effect on
our business, financial condition and results of operations. See "Government
Regulation."
Reclamation and Mine Closure Accruals. Federal and state statutes require us to
restore mine property in accordance with specified standards and an approved
reclamation plan, and require that we obtain and periodically renew permits for
mining operations. We expense the cost of reclaiming current mine disturbance
which is performed before final mine closure. We review our entire final mine
reclamation liability annually, make necessary adjustments, and generally
record the economic impact of those adjustments prospectively to cost of coal
sales as remaining tons are mined. We accrue the entire final mine reclamation
liability for operating mines that we acquire at the date of purchase and begin
to accrue for the cost of final mine closure at new mines when mining
activities begin. Although our management believes it is making adequate
provisions for all expected reclamation and other costs associated with mine
closures, our future operating results would be adversely affected if our
accruals for these costs are later determined to be insufficient.
Impact of Clean Air Act Amendments on Coal Consumption. The Federal Clean Air
Act, including the Clean Air Act Amendments of 1990, and corresponding state
laws that regulate emissions of materials into the air, affect coal mining
operations both directly and indirectly. Measures intended to improve air
quality could make coal a less attractive fuel alternative in the planning and
building of utility power plants in the future. Any reduction in coal's share
of the capacity for power generation could have a material adverse effect on
our business, financial condition and results of operations. We cannot predict
how present or future regulations will affect the coal industry in general and
us in particular. They may limit the ability of some of our customers to burn
higher sulfur coal unless our customers have or are willing to install
scrubbers, blend coal or bear the cost of acquiring emission credits that
permit them to burn higher sulfur coal. We cannot assure you, however, that the
implementation of the new air quality standards under the Clean Air Act or any
other future regulatory provisions will not materially increase our costs of
doing business.
The Clean Air Act affects coal mining operations indirectly by extensively
regulating the emissions of sulfur dioxide, nitrogen oxide and other compounds
by coal-fueled utility power plants, which are our primary customers. The
limits on sulfur dioxide emissions will be reduced in 2000 when Phase II under
the 1990 Clean Air Act Amendments takes effect. We currently cannot determine
completely how the implementation of the stricter Phase II emission limits will
affect us. We believe the price of higher sulfur coal is likely to decrease as
more coal-fueled utility power plants become subject to the lower sulfur
dioxide emission limits, which may have an adverse effect on our revenues.
The Clean Air Act Amendments could also require utilities in areas where ozone
levels are a problem to install reasonably available control technology for
nitrogen oxides, which are precursors of ozone. Installation of this technology
and additional control measures required under a proposed implementation plan
will make it more costly to operate coal-fueled utility power plants.
Because coal mining operations emit particulate matter, our mining operations
are likely to be affected directly when the states revise their implementation
plans to comply with the stricter standards for particulate matter and ozone
adopted in 1997. State and federal regulations relating to the new standards
may restrict our ability to develop new mines or could require us to modify our
existing operations. The extent of the potential direct impact of the new
standards on the coal industry will depend on the policies and control
strategies associated with the state implementation process, but could increase
our costs of doing business. See "Government Regulation--Environmental Laws--
Clean Air Act."
Impact of the Framework Convention on Global Climate Change on the Coal
Industry. In 1997 the signatories to the 1992 Framework Convention on Global
Climate Change established the Kyoto Protocol, a binding set of targets for
emissions of greenhouse gases, for developed nations. The United States would
be required to reduce emissions to 93% of 1990 levels over a five-year budget
period from 2008 through 2012.
17
<PAGE>
Although the United States has not ratified the Kyoto Protocol and no
comprehensive requirements focusing on greenhouse gas emissions are in place,
legislative or regulatory requirements to control greenhouse gas emissions, if
established, could reduce the use of coal if electric power generators switch
to lower carbon sources of fuel. It is unclear what impact, if any, greenhouse
gas restrictions may have on our operations. However, such restrictions, if
established through regulation or legislation could substantially reduce our
sales.
Black Lung and Workers' Compensation Obligations. Under federal law, each coal
mine operator must secure payment of federal black lung benefits to claimants
who are current and former employees and to a trust fund for the payment of
benefits and medical expenses to claimants who last worked in the coal industry
before July 1, 1973. Less than 7% of the miners currently seeking federal black
lung benefits are awarded such benefits by the federal government. The trust
fund is funded by an excise tax on production of up to $1.10 per ton for deep-
mined coal and up to $0.55 per ton for surface-mined coal, neither amount to
exceed 4.4% of the per ton sales price. We pass this tax on to the purchaser of
our coal under many of our long-term sales contracts.
If legislation similar to recently proposed but unenacted legislation
ultimately is enacted, the number of claimants who are awarded benefits could
significantly increase. In addition, the U.S. Department of Labor has proposed
amendments to the regulations implementing the federal black lung laws which,
among other things, establish a presumption in favor of a claimant's treating
physician and limit a coal operator's ability to introduce medical evidence
regarding the claimant's medical condition. If new laws or regulations such as
these are adopted, the number and award size of claims could significantly
increase and substantially harm our business.
Additionally, we are required to compensate employees for work-related
injuries. Although our management believes it is making adequate provisions for
our workers' compensation liabilities, including black lung claims, our future
operating results would be adversely effected if our accruals for these costs
are later determined to be insufficient. See "Government Regulation--Black
Lung."
Postretirement Benefits and Pension Plan Liabilities--If our actuarial
assumptions regarding our post-retirement benefit obligations do not
materialize, our cash expenditures and costs incurred could be higher than
anticipated.
We provide post-retirement health and life insurance benefits to eligible union
and union-free employees. We have estimated our total accumulated post-
retirement benefit obligation obligations based on assumptions described in the
notes to the financial statements. If our actuarial assumptions do not
materialize as expected, cash expenditures and costs that we would incur could
be materially higher than those reflected in the Unaudited Pro Forma Combined
Financial Statements.
Replacement and Recoverability of Reserves--Our business may be adversely
affected if we are unable to continue acquiring coal reserves that are
economically recoverable.
Our continued success depends, in part, upon our ability to find, develop or
acquire additional coal reserves that we can recover economically. Our proven
and probable reserves will generally decline as reserves are depleted, except
to the extent that we conduct successful exploration and development activities
or acquire properties containing proven and probable reserves. Our current
strategy includes increasing our reserve base through acquisitions of
complementary properties and by continuing to exploit our existing properties.
We cannot assure you, however, that our planned development and exploration
projects and acquisition activities will increase our reserves significantly or
that we will have continuing success developing additional mines. We conduct
most of our mining operations on properties we own or lease. Because we do not
thoroughly verify title to most of our leased properties and mineral rights
until we apply for a permit to mine the property, defects in title or
boundaries can adversely affect our right to mine certain of our reserves. In
addition, we cannot assure you that we can successfully negotiate new leases or
mining contracts for properties containing additional reserves or maintain our
leasehold interest in properties on which we do not begin mining operations
during the term of the lease. See "Business--Coal Reserves."
18
<PAGE>
Reliance on Estimates of Proven and Probable Reserves--Estimates on proven and
probable reserves may vary substantially from actual results and you should not
rely on these estimates unduly.
There are numerous uncertainties inherent in estimating quantities of proven
and probable reserves, including many factors beyond our control. Estimates of
economically proven and probable coal reserves and future net cash flows
necessarily depend upon a number of variable factors and assumptions. These
include historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies
and assumptions concerning future coal prices, future operating costs,
severance and excise taxes, development costs and reclamation costs, all of
which may in fact vary considerably from actual results. For these reasons,
estimates of the economically recoverable quantities of coal attributable to
any particular group of properties, classifications of such reserves based on
risk of recovery and estimates of future net cash flows expected from them
prepared by different engineers or by the same engineers at different times may
vary substantially. Actual production, revenues and expenditures with respect
to our reserves will likely vary from estimates, and such variances will likely
be material. As a result, prospective holders of the notes should not place
undue reliance on the coal reserve data included herein. See "Business--Coal
Reserves."
Future Availability of Leased Coal Reserves--If we cannot renew the leases for
our coal reserves that we do not currently mine, and cannot obtain leases for
additional reserves, the coal reserves we could need in the future may not be
available when we wish to mine them.
The extent to which we will mine our coal reserves depends upon factors over
which we have no control, such as future economic conditions, the price and
demand for the quality and type of coal available to us, the price and supply
of alternative fuels, and future mining practices and regulation. Our ability
to mine in areas covered by the reserve studies depends upon our ability to
maintain control of the reserves we lease through extensions or renewals of the
leases or other agreements and our ability to obtain new leases or agreements
for other reserves. Having these reserves available to us at the present time
does not assure that the reserves will be available to us when we may wish to
mine them. Moreover, uncertainties that arise from such matters as the lessor's
title to the coal and precise boundaries can often limit the availability of
reserves on leased property. See "Business--Coal Reserves."
Intellectual Property--Any of our patents may be challenged in the future.
Our Addcar highwall mining technology is patented, and these patents give us
the exclusive right to use this technology for the life of the patent. We
believe this technology is a competitive advantage. However, we cannot
guarantee the validity and enforceability of any of our patents. The validity
of a patent is open to challenge on a number of grounds, including lack of
novelty and the failure to adequately describe the invention in the patent
claim. Our patents may be successfully challenged in the future, although we do
not consider this to be likely. Any loss of patent protection could harm our
business because it might allow competitors to use our technology. See
"Business--Highwall Mining Business--The Addcar Highwall Mining System."
Dependence on Key Management and Control by Principal Shareholder--We depend on
our experienced management team and the loss of any of them may adversely
affect us. In addition, one principal shareholder can control our corporate and
management policies.
Our senior management team averages 20 years of experience in the coal
industry, which includes developing innovative, low-cost mining operations,
maintaining strong customer relationships and making strategic, opportunistic
acquisitions.The loss of any of them could have a material adverse effect on
us. In addition, as our business develops and expands, we believe that our
future success will depend greatly on our continued ability to attract and
retain highly skilled personnel with coal industry experience. We cannot assure
you that we will continue to employ key personnel or that we will be able to
attract and retain qualified personnel in the future. Our failure to retain or
attract such key personnel could have a material adverse effect on us. See
"Management."
19
<PAGE>
Larry Addington beneficially owns 100% of the outstanding voting securities of
our parent company, which owns 100% of common stock. Accordingly, Mr. Addington
is able to control the election of our directors and to determine our corporate
and management policies, including decisions relating to any mergers or
acquisitions, the sale of all or substantially all of our assets and other
significant corporate transactions that could result in a Change of Control
under the indenture. See "Security Ownership of Principal Stockholders and
Management."
Unionization of Labor Force--If we cannot extend existing collective bargaining
agreements before they expire, our unionized labor may go on strike. In
addition, our competitors who employ non-unionized employees may have a
competitive advantage over us.
Approximately 32% of the Company's coal employees and the mines at which those
employees work. These mines accounted for 29% of the Company's coal production
for the year ended December 31, 1998, are represented by the United Mine
Workers of America. We have several collective bargaining agreements with the
United Mine Workers. We cannot assure you that our unionized labor will not go
on strike upon expiration of existing contracts. Some of our competitors have
union-free work forces. Because of the increased risk of strikes and other
work-related stoppages in addition to higher labor costs which may be
associated with union operations in the coal industry, our union-free
competitors may have a competitive advantage in areas where they compete with
our unionized operations. We know of only one short and unsuccessful effort to
organize any of our union-free operations during the last three years. If some
or all of our current union-free operations were to become unionized, we could
incur an increased risk of work stoppages and higher labor costs. See
"Business--Employees."
Surety Bonds--Federal and state laws require us to place and maintain surety
bonds in connection with reclamation, workers' compensation and other
obligations. We cannot assure you that the surety bond holders will continue to
renew or refrain from demanding additional collateral upon any renewal.
Federal and state laws require bonds to secure our obligations to reclaim lands
disturbed for mining, to pay federal and state workers' compensation benefits
and to satisfy other miscellaneous obligations. As of December 31, 1998, we had
outstanding surety bonds with third parties for post-mining reclamation
totaling $567.8 million and an additional $182.3 million is in place for
federal and state workers' compensation obligations and other miscellaneous
obligations. These surety bonds are typically renewable on a yearly basis. We
cannot assure you that the surety bond holders will continue to renew the
surety bonds or refrain from demanding additional collateral upon such
renewals. The failure to maintain, or the inability to acquire, sufficient
surety bonds, as required by state and federal law, would have a material
adverse effect on us and therefore create certain risks for holders of these
notes. We may not be able to maintain or acquire surety bonds for a variety of
reasons, including:
. lack of availability, higher expense or unreasonable terms of new surety
bonds,
. restrictions on the demand for collateral by current and future third-
party surety bond holders due to the terms of the indenture for these or
other of our notes or our credit facility; or
. the exercise by third-party surety bond holders of their right to refuse
to renew the surety.
Impact of Year 2000 Issue--Although we believe that the Year 2000 Issue will
not pose significant operational problems for our business systems, any failure
to make needed conversions may adversely affect our operations. In addition, we
will need to monitor our customers and suppliers and we cannot guarantee that
the systems of other companies on which we rely will be timely converted.
We presently believe that the year 2000 issue will not pose significant
operational problems for our business systems. However, if any needed
modifications and conversions are not made, or are not completed on time, the
year 2000 issue would likely have a material impact on our operations. We
anticipate completing our year 2000 testing and remediation by third quarter
1999, before any anticipated impact on our operating systems. This timetable
however, may not allow sufficient time for additional remediation if testing
reveals additional year 2000 related problems.
20
<PAGE>
Our total year 2000 project cost is not expected to be material, based on
presently available information. However, we cannot guarantee that the systems
of other companies on which our systems rely will be timely converted and would
not have an adverse effect on our systems. We have determined that we have no
exposure to claims related to the year 2000 issue for the majority of the
products we have sold. If any of our suppliers or customers do not, or if we do
not, successfully deal with the year 2000 issue, we could experience delays in
receiving or shipping coal and equipment that would increase costs and that
could cause us to lose revenues and even customers and could subject us to
claims for damages. Customer problems with the year 2000 issue could also
result in delays in invoicing our customers or in our receiving payments from
them that would affect our liquidity. Problems with the year 2000 issue could
affect the activities of our customers to the point that their demand for our
products is reduced. The severity of these possible problems would depend on
the nature of the problem and how quickly it could be corrected or an
alternative implemented, which is unknown at this time. In the extreme, such
problems could bring our operations to a standstill.
Some risks of the year 2000 issue are beyond our control and that of our
suppliers and customers. For example, we do not believe that we can develop a
contingency plan which will protect us from a downturn in economic activity
caused by the possible ripple effect throughout the entire economy that could
be caused by problems of others with the year 2000 issue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Impact of Year 2000 Issue."
21
<PAGE>
AEI RESOURCES
History
From 1982 to 1984, Larry Addington and his brothers, Robert and Bruce,
developed several coal and coal-related companies in eastern Kentucky and Ohio.
In 1984, ownership of these companies was consolidated into Addington
Resources, Inc., which became a public company in 1987. From 1984 through 1995,
Addington Resources expanded its coal operations and developed various other
business lines, including integrated waste disposal operations, metal mining
operations and citrus operations. In 1995, Messrs. Addington resigned from the
board of directors of Addington Resources. Shortly thereafter, they purchased
the coal mining operations of Addington Resources through Addington
Enterprises, Inc., their wholly owned corporation.
In 1997, the Addington brothers transferred the coal mining operations and
assets they controlled through Addington Enterprises and other entities to a
newly organized company, AEI Holding Company. These included the eastern
Kentucky and Tennessee mining operations and coal reserves acquired from
Addington Resources in 1995 and mining operations and coal reserves in Colorado
acquired in 1994 and 1995.
Since October 1997, AEI Holding Company and its parent and successor AEI
Resources have grown substantially by acquiring several additional coal mining
businesses, which we describe below.
Recent Acquisitions
Ikerd-Bandy Coal, Inc.
. Acquired in October 1997 for $5.3 million in cash, including $0.3
million of related fees and expenses. We also agreed to pay the former
owners of Ikerd-Bandy Coal, Inc. a $6.5 million promissory note.
. 1998 revenues totaled $30.1 million.
. 1998 production totaled 1.1 million tons.
. Added approximately 27.0 million tons of proven and probable reserves.
. Other assets include a storage facility, a preparation plant and a loadout
facility at each of two mines.
. The Ikerd-Bandy acquisition:
. provided reserves strategically located for our contract with the
Tennessee Valley Authority's Kingston plant;
. broadened our customer base to include industrial customers; and
. allowed us to build market share in southeastern Kentucky.
Leslie Resources
. Acquired in January for $12.0 million in cash, including $0.3 million of
related fees and expenses. We also gave the former owners of Leslie
Resources an $11.1 million promissory note.
. 1998 revenues totaled $94.3 million.
. 1998 production totaled 5.2 million tons from five mines in Knott, Perry
and Leslie counties in Kentucky.
. Added approximately 63.0 million tons of proven and probable reserves.
. The Leslie Resources acquisition provided significant uncommitted
production capacity, allowing us the opportunity to seek new contracts
to be filled by production from the lower-cost Leslie Resources mines.
22
<PAGE>
Crockett Collieries Co.
. Acquired in June 1998 for $4.0 million, including $0.2 million of
related fees and expenses.
. 1998 revenues totaled $6.5 million.
. 1998 production totaled 0.6 million tons.
. Added approximately 9.0 million tons of proven and probable reserves and
a significant contract with the Tennessee Valley Authority.
Cyprus Amax Subsidiaries
. Acquired in June 1998 for a purchase price of $98.0 million, excluding
$8.9 million of related fees and expenses, plus a working capital
adjustment.
. In the transaction, we also:
. purchased certain mining equipment that had previously been leased
by the Cyprus Amax subsidiaries for $30.0 million;
. assumed a $1.0 million debt obligation; and
. agreed to pay Cyprus Amax a royalty on all coal mined from
properties owned or controlled by the subsidiaries at closing. These
royalty payments will commence on June 1, 2002 and will be $0.50 per
ton in Indiana, Illinois, Ohio or California and $0.35 per ton in
West Virginia, Kentucky or Tennessee.
. If we receive, directly or indirectly, an equity investment of $75.0
million or more, we must pay Cyprus Amax $25.0 million (less 55% of
any prior royalty payments) in satisfaction of the royalty
obligation.
. 1998 revenues totaled $372.7 million.
. 1998 production totaled approximately 14.5 million tons.
. Added approximately 707 million tons of proven and probable reserves.
. Our acquisition of the Cyprus Amax subsidiaries:
. strengthened our position in the markets served by our eastern
Kentucky mines.
. added West Virginia operations that provide us an entry to the
markets served by barge transportation from the Kanawha River in
West Virginia. Many of these markets are the same markets served by
our eastern Kentucky mines, which transport coal through barge
loading facilities on the Big Sandy River in eastern Kentucky. Both
the Kanawha River and the Big Sandy River are navigable tributaries
of the Ohio River, which accesses the largest river-borne market for
coal in the United States.
. added Indiana operations that provide above-market contracts and
access to utilities in Indiana that have installed scrubber
technology to control sulfur dioxide emissions from their plants.
Battle Ridge Assets
. Acquired in July 1998 for approximately $6.8 million, including $0.2
million of related fees and expenses.
. 1998 revenues totaled $8.3.
. 1998 production totaled 0.4 million tons.
. Added approximately 37.0 million tons of proven and probable coal
reserves, approximately half of which is compliance coal and the
remainder of which is low-sulfur coal.
. We also acquired two river dock facilities on the Kanawha River, and one
on the Big Sandy River.
. The assets acquired from Battle Ridge complement our West Virginia
operations acquired from Cyprus Amax.
23
<PAGE>
Mid-Vol Leasing
. Acquired in July 1998 for $21.2 million, including $0.4 million of
related fees and expenses. We also agreed to pay the former owners a
$15.0 million promissory note and a production payment on coal mined in
the future from specified properties we acquired in the transaction.
. 1998 revenues totaled $31.6 million.
. 1998 production totaled 1.0 million tons.
. Added 51.0 million tons of proven and probable reserves.
. Mid-Vol produces high-quality mid- and low-volatile coking coals, a coal
product with a niche market. We believe that we can use our Addcar
highwall mining systems and our efficient tailored cast blasting and
heavy dozer pushing mining methods to increase Mid-Vol's production
tonnage and reduce its costs.
Kindill
. Acquired in September 1998 for $11.3 million, including $0.3 million of
related fees and expenses, and the assumption of $50.0 million of
indebtedness. The sellers included Stephen Addington, who is one of our
directors and the brother of our controlling shareholder. We received an
opinion from Rothschild, Inc. that the transaction was fair from a
financial point of view. See "Certain Related Party Transactions."
. 1998 revenues totaled $73.5 million.
. 1998 production totaled approximately 4.5 million tons.
. Added 183.0 million tons to our proven and probable reserves.
. The Kindill acquisition:
. provides us an opportunity to move production for specific long-term
sales contracts to Kindill's lower-cost operations, and
. complements our Indiana operations acquired from Cyprus Amax.
Zeigler Coal Holding Company
. Acquired in September 1998 for $872.8 million, including the assumption
of $255.0 million of indebtedness and the payment of $18.0 million of
related fees and expenses.
. 1998 revenues totaled $534.6 million, excluding Zeigler businesses we
later sold.
. 1998 production totaled approximately 13.2 million tons, excluding
Zeigler businesses we later sold.
. Added 1.2 billion tons of proven and probable reserves.
. Before the transaction, Zeigler was the second largest publicly traded
coal company and ninth largest coal producer in the United States, in
each case measured by tons produced. The Zeigler acquisition:
. Added a strong portfolio of long-term sales contracts, which
generated over [75%] of Zeigler's sales in 1998;
. added about 4.8 million tons of annual production in 1998 in Eastern
Kentucky, making us the largest producer and marketer of coal in
this region as measured by production;
. enhanced our ability to optimize our mix of production and sales;
and
. improved our position in West Virginia and in the Illinois Basin
region.
. In December 1998, we sold certain noncomplementary assets we acquired in
the Zeigler acquisition for $310.0 million. See "--Recent Dispositions."
24
<PAGE>
Martiki
. Acquired in November 1998 from MAPCO Coal Inc. for $32.4 million,
including $0.4 million of related fees and expenses.
. 1998 revenues totaled $69.3 million.
. 1998 production totaled 2.5 million tons.
. Added approximately 25.0 million tons of proven and probable reserves.
. We also acquired a 1,000 ton per hour preparation plant and a high speed
unit train loading facility on the Norfolk Southern rail line.
. Due to the strategic location of Martiki's operations, the acquisition
allowed us to consolidate significant Addington and Zeigler reserve
positions.
Princess Beverly
. Acquired in February 1999 for $11.6 million.
. 1998 revenues totaled $45.0 million.
. 1998 production totaled 2.1 million tons.
. Added approximately 33.0 million tons of proven and probable reserves.
. The Princess Beverly acquisition provides us an ongoing mining operation
with substantial compliance reserves that are located near dock
facilities on the Kanawha River.
MTI Acquisition
In January 1998, we purchased a substantial portion of the assets of the Mining
Technologies Division of Addington Enterprises for $51.0 million. The assets we
acquired included facilities, equipment and intellectual property relating to
the Addcar highwall mining system.
In the transaction we acquired:
. 13 patents, which will expire between December 10, 2010 and November 20,
2015;
. one registered trademark in North America relating to the Addcar
highwall mining system, which will expire September 28, 2013;
. certain mobile mining equipment, spare parts, and continuous mining
machines;
. an 80,000 square foot manufacturing and warehousing facility;
. the equipment and facility for manufacturing Addcar highwall mining
systems; and
. six existing, operable Addcar highwall mining systems.
We believe that our recent acquisitions added significant opportunities to use
the Addcar highwall mining system. We believe that the Addcar highwall mining
system will allow us to reduce our mining costs significantly and increase the
amount of economically mineable reserves at many of our acquired operations.
At the time of the MTI acquisition, Larry Addington owned 80% of Addington
Enterprises, and Robert Addington and Bruce Addington each owned 10%. Larry
Addington is a director of AEI Resources. Robert Addington is a director and
officer of AEI Resources. Robert Addington and Bruce Addington are employees of
AEI Resources.
Recent Dispositions
We recently sold the following mining operations and reserves that we acquired
in our recent acquisitions because they did not complement our business
strategy.
25
<PAGE>
Triton Disposition
In December 1998, we sold Triton Coal Company, LLC, for $275.0 million. Triton
holds the operations in the Powder River Basin of Wyoming that we acquired from
Zeigler. We retained assets and liabilities relating to lignite reserves in
Texas and Arkansas and coal reserves in Montana previously held by Triton's
predecessor. We also agreed to provide transition services to the purchaser of
Triton following the closing.
Dock Disposition
In December 1998, we sold the coal transshipment terminal facilities and
related assets in Newport News, Virginia and Charleston, South Carolina that we
acquired from Zeigler. The purchaser purchased all land, personal property,
fixtures, and equipment used in connection with the operation of the terminal
facilities for $35.0 million.
R&F Disposition
In December 1998, we sold coal mining equipment, inventories, real property,
and a coal supply contract used in the operations of our R&F Coal Company
subsidiary for $7.6 million.
Other Assets Held for Sale
In addition to the assets we already have sold, we acquired other assets in the
Zeigler acquisition that we currently hold for possible sale or liquidation.
The book value of these assets at December 31, 1998, was $3.0 million. See
"Business--Non-Coal Businesses."
26
<PAGE>
Ownership Structure
Larry Addington owns approximately 85.5% of the outstanding capital stock of
AEI Resources Holding (47.5% directly and 38% through Addington Enterprises)
while 9.5% is owned together by Robert and Bruce Addington through Addington
Enterprises, and approximately 5% is owned by Robert Addington individually.
The following chart illustrates the organizational structure:
[FLOW CHART APPEARS HERE]
27
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1998, our historical
capitalization of including AEI Holding, our predecessor. This table should be
read in conjunction with "Description of the Notes," "Description of Other
Indebtedness," the Unaudited Pro Forma Combined Financial Statements and the
notes thereto and the Selected Historical Consolidated Financial Statements and
the notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
---------------------
(Dollars in millions)
<S> <C>
Short-term obligations:
Bridge Facility........................................ $ 10.0
Credit Facility........................................ 30.0
Other short-term obligations (including current portion
of long-term obligations)............................. 21.5
--------
Total short-term obligations......................... 61.5
Long-term obligations (net of current portion):
Credit Facility........................................ 545.0
Revolving Credit Facility (1).......................... 75.0
Notes due 2005......................................... 200.0
Zeigler IRBs .......................................... 145.8
Senior Subordinated Notes due 2006..................... 150.0
Other long-term obligations............................ 38.3
--------
Total long-term obligations.......................... 1,154.1
Stockholders' equity (deficit)........................... (92.6)
--------
Total Capitalization................................. $1,123.0
========
</TABLE>
- - --------
(1) Up to approximately $47.0 million would have been available to us under our
credit facility after giving effect to $178.0 million of outstanding
letters of credit including those related to the Industrial revenue bonds
of Zeigler Coal Holding Company. See "Description of Other Indebtedness--
The Senior Credit Facility," "--Zeigler IRBs."
28
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are based on
the audited financial statements of our parent, AEI Resources Holding and its
predecessor appearing elsewhere in this prospectus as adjusted to illustrate
the estimated effects of the transactions that we completed between January 1,
1998, and December 31, 1998. The transactions include, among other things:
. The acquisitions of the following businesses:
.Martiki (November 1998) .The Cyprus Subsidiaries (June 1998)
.Zeigler (September 1998) .Mid-Vol (July 1998)
.Kindill (September 1998)
.The dispositions of Triton, the coal transshipment facilities and certain
assets of our R&F Coal Company Subsidiary;
. The issuance of the Notes;
. The sale of $150 million principal amount of our 11 1/2% Senior
Subordinated Notes Due 2006; and
. The amendment and restatement of our credit facility.
The unaudited pro forma combined financial statements do not reflect the pro
forma effect of the acquisition of Princess Beverly or the consummation of the
transactions contemplated by the reoffering of the Zeigler IRBs on April 1,
1999.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that we believe are reasonable. You should read the
unaudited pro forma combined financial statements and accompanying notes in
conjunction with our historical financial statements and the other financial
information appearing elsewhere in this prospectus, including "Capitalization"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The unaudited pro forma combined financial statements have been prepared to
give effect to the transactions referenced above as if such transactions had
occurred on January 1, 1998, for the statement of income for the year ended
December 31, 1998. Since all of the transactions occurred on or before December
31, 1998, no adjustments to our audited historical consolidated balance sheet
as of December 31, 1998 were necessary to give effect to the transactions so we
did not include an unaudited pro forma combined balance sheet as of December
31, 1998.
The unaudited pro forma combined financial statements reflect the application
of the principles of purchase accounting to our recent acquisitions. We based
the allocation of the purchase price, in part, on preliminary information,
which we expect to finalize in 1999. Management is awaiting additional
information related to certain reclamation estimates and legal and related
preacquisition contingencies. Certain of the businesses acquired in the recent
acquisitions followed different accounting policies with respect to the
expensing of overburden removal costs. While we capitalize such costs, certain
of the acquired entities expensed such costs as they were incurred. Because the
information needed to conform most of the acquirees' historical accounting to
our accounting for overburden inventory is not available, no pro forma
adjustment has been recorded to the unaudited pro forma combined income
statements. As a result of these factors, the unaudited pro forma combined
financial statements may not be comparable to, or indicative of, our results of
operations in future periods.
The unaudited pro forma combined financial statements do not purport to
indicate what our financial position or results of operation would actually
have been had the transactions been completed on such date or at the beginning
of the periods indicated or to project our results of operations for any future
date.
29
<PAGE>
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
For the year ended December 31, 1998
(Dollars In Millions)
<TABLE>
<CAPTION>
Cyprus
Subsidiaries Zeigler Other R&F Coal Pro Forma
Holdings (1/1-6/30) (1/1-8/31) Acquisitions Disposition Adjustments As
(Note J) (Note A) (Note B) (Note C) (Note D) (Note E) Adjusted
-------- ------------ ---------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues................ $733.4 $201.8 $533.4 $127.1 $(42.2) $ (7.8)(1) $1,383.4
(5.2)(2)
(1.1)(3)
(156.0)(4)
Costs and expenses:
Cost of operations..... 590.8 180.5 438.2 113.6 (30.5) (7.8)(1) 1,089.2
(4.6)(2)
(153.2)(4)
(0.2)(5)
(11.4)(6)
(1.0)(7)
(4.4)(8)
(0.9)(9)
(17.4)(10)
(2.5)(11)
Depreciation, depletion
and amortization...... 76.8 18.7 43.5 12.6 (3.4) (5.9)(4) 193.7
51.4 (12)
Selling, general and
administrative........ 32.5 6.7 9.2 5.3 -- (9.1)(10) 44.2
(0.4)(13)
Write-downs and special
items................. 16.5 -- 21.2 -- -- (21.2)(13) 16.5
------ ------ ------ ------ ------ ------ --------
Total costs and
expenses.............. 716.6 205.9 512.1 131.5 (33.9) (188.6) 1,343.6
------ ------ ------ ------ ------ ------ --------
Income (loss) from
operations............ 16.8 (4.1) 21.3 (4.4) (8.3) 18.5 39.8
Interest and other
income (expense)
Interest expense....... (65.3) (0.2) (8.0) (3.7) -- (3.5)(8) (113.7)
(32.8)(14)
(0.2)(15)
Gain (loss) on sale of
assets................ 1.0 0.9 0.7 (0.1) -- (0.2)(4) 2.3
Other, net............. 3.7 (0.1) 4.5 1.1 -- (0.1)(4) 9.1
------ ------ ------ ------ ------ ------ --------
(60.6) 0.6 (2.8) (2.7) -- (36.8) (102.3)
------ ------ ------ ------ ------ ------ --------
Income (loss) before
income taxes.......... (43.8) (3.5) 18.5 (7.1) (8.3) (18.3) (62.5)
Income tax provision
(benefit).............. (20.4) -- 2.8 (3.8) (1.3) 0.7(4) (30.0)
(8.0)(16)
------ ------ ------ ------ ------ ------ --------
Net Income (loss) from
continuing operations
(Note F).............. $(23.4) $ (3.5) $ 15.7 $ (3.3) $ (7.0) $(11.0) $ (32.5)
====== ====== ====== ====== ====== ====== ========
Other Data:
Adjusted EBITDA (Note
G)..................... $113.8 $15.4 $91.2 $9.0 $(11.7) $ 42.5 $260.2
Capital expenditures.... 40.9 3.3 73.4 1.0 (0.4) (55.5) 62.7
Cash interest expense
(Note H)............... 72.0 0.2 6.0 3.7 -- 36.3 118.2
Ratio of Adjusted EBITDA
to cash interest
expense................ 1.6x 77.0x 15.2x 2.4x -- 1.2x 2.2x
Ratio of earnings to
fixed charges (Note
I)..................... * * 2.4x * -- * *
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT--Other Acquisitions
For the year ended December 31, 1998
(Dollars In Millions)
<TABLE>
<CAPTION>
Other Acquisitions
---------------------------------
Martiki Kindill Mid-Vol Total Other
(1/11-11/6) (1/1-8/31) (1/1-6/30) Acquisitions
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Operating Data:
Revenues........................ $62.8 $49.0 $15.3 $127.1
Costs and expenses:
Cost of operations............ 58.9 42.6 12.1 113.6
Depreciation, depletion and
amortization................. 9.5 3.0 0.1 12.6
Selling, general and
administrative............... 2.7 2.4 0.2 5.3
----- ----- ----- ------
Total costs and expenses.... 71.1 48.0 12.4 131.5
----- ----- ----- ------
Income (loss) from
operations................... (8.3) 1.0 2.9 (4.4)
Interest and other income
(expense)......................
Interest expense.............. -- (3.7) -- (3.7)
Gain (loss) on sale of
assets....................... -- (0.1) -- (0.1)
Other, net.................... 0.5 0.6 -- 1.1
----- ----- ----- ------
0.5 (3.2) -- (2.7)
----- ----- ----- ------
Income (loss) before income
taxes........................ (7.8) (2.2) 2.9 (7.1)
Income tax provision (benefit).. (2.9) (0.9) -- (3.8)
----- ----- ----- ------
Net Income (loss) from
continuing operations
(Note E)..................... $(4.9) $(1.3) $ 2.9 $ (3.3)
===== ===== ===== ======
Other Data:
Adjusted EBITDA (Note F)........ $ 1.7 $ 4.3 $ 3.0 $ 9.0
Capital expenditures............ -- 1.0 -- 1.0
Cash interest expense (Note G).. -- 3.7 -- 3.7
</TABLE>
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
For the year ended December 31, 1998
(Dollars in Millions)
Note A:
This column reflects the historical results of operations of the subsidiaries
acquired from Cyprus Amax for the periods indicated and is prior to any
adjustments for certain seller retained activities and other items described in
Note D below.
Note B:
This column reflects the historical results of operations of Zeigler and is
prior to any adjustment for the net assets held for sale and other items
described in Note D below.
Note C:
This column reflects the pre-acquisition actual combined historical results of
operations for each of Martiki, Kindill and Mid-Vol for the year ended December
31, 1998. Set forth on the following pages is a presentation of the combination
of the preacquisition results of operations for the entities.
Note D:
This column reflects the elimination of the historical results of operations of
our R&F Coal Company subsidiary. We sold certain operating assets of R&F on
December 21, 1998 for $7.6 million.
Note E:
Pro forma adjustments include purchase accounting, accounting policy conformity
and financing entries necessary to reflect the pre-acquisition periods for the
following acquisitions: Martiki (November 1998), Zeigler (September 1998),
Kindill (September 1998), Mid-Vol (July 1998), and the Cyprus Subsidiaries
(June 1998), as well as the debt related financing transactions completed prior
to December 31, 1998. The following notes describe the pro forma adjustments.
1. Reflects the elimination of intercompany transactions involving contract
mining and purchased coal among us and the acquired companies.
2. Reflects the elimination of Cyprus Amax's retained activities, which
consist primarily of the resale of purchased coal by the Cyprus
Subsidiaries under a coal sales contract retained by Cyprus Amax.
3. Reflects the elimination of amortized gain on a sale-leaseback transaction
and deferred income related to a sales contract amendment where such
proceeds were retained by Cyprus Amax.
4. Reflects the elimination of revenues and direct expenses related to certain
assets of Zeigler that are currently held for sale or have been sold (i.e.
Triton, the coal transshipment facilities, energy trading, and fuel
technology).
5. Reflects the decrease in operating expenses resulting from inventory
adjustments to conform the Cyprus Subsidiaries to our accounting policies.
We defer the cost of removing overburden above coal seams, while the
acquired companies expensed such cost as incurred. The information to
reflect this accounting policy conformity item is not known for any of the
acquired companies, except the Cyprus Subsidiaries, as the engineering
estimates to perform the necessary calculations are not available.
6. Reflects adjustments for changes to end-of-mine reclamation expense to
conform to our reclamation cost accounting policy. We record end-of-mine
reclamation at the date of acquisition. Operating expenses of the acquired
companies have been adjusted to eliminate the provision for end-of-mine
reclamation expense.
32
<PAGE>
7. Reflects adjustments for changes in employee benefits expense resulting
from the purchase accounting treatment of the Zeigler, Kindill and Cyprus
Subsidiary acquisitions. Operating expenses of these acquired companies
have been adjusted to eliminate the expense impact of the amortization of
unrecognized prior service costs and unrecognized net gains and losses in
connection with defined benefit plans because we will not have any such
unrecognized costs or gains and losses under purchase accounting.
8. Reflects adjustments for change in accounting for liabilities under the
Coal Retiree Health Benefit Act of 1992. The acquired companies expensed
such costs on a pay-as-you-go method and we record the present value of
these obligations as a liability at the date of purchase. Operating
expenses of the acquired companies have been adjusted to eliminate the cash
payment and record the interest accretion.
9. Reflects the elimination of operating leases on assets controlled by Cyprus
Amax and leased to the Cyprus Subsidiaries pursuant to operating leases.
The Company separately purchased these assets in connection with the
acquisition of the Cyprus Subsidiaries and their depreciation is reflected
in Note (E) 12.
10. Reflects the reduction in operating expenses from the Cyprus Subsidiary and
Zeigler acquisitions. Such reduction resulted from non-acquired employees
and related costs as well as costs associated with terminated redundant
administrative employees and closed administrative offices.
11. Reflects the reduction in cost of operations for a bonus paid to one of our
officers for the consummation of financing transactions and acquisitions.
12. Reflects the increase in depreciation, depletion, and amortization expense
from purchase accounting entries.
13. Reflects the elimination of stock options and retention and special bonuses
and other selling costs directly attributable to the acquisition of
Zeigler.
14. Reflects increased interest expense on the following indebtedness:
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
(unaudited)
<S> <C>
$150 million Senior Subordinated Notes (at 11.5%)..... $16.5
$575 million Senior Credit Facility (at 8.47%)........ 46.7
Incremental interest increase in $200 million Notes
(from 10% to 10.5%).................................. 1.0
Revolving line of credit borrowings to finance
acquisitions ($32.3 million at 8.63%)................ 2.3
Credit Facility revolver fees......................... 0.7
$10 million Bridge Facility........................... 0.8
Less interest on retired debt......................... (35.2)
-----
Total............................................... $32.8
=====
</TABLE>
15. Reflects the increase in amortization expense resulting from the increase
in deferred financing costs in conjunction with the offering of the Senior
Subordinated Notes, offset by finance cost amortization on retired debt.
16. Reflects pro forma tax expense (benefit) estimated at 30% of pretax income
(loss) for entities for which income tax expense (benefit) has not been
determined historically (AEI Resources and Mid-Vol during their S
corporation periods and the Cyprus Subsidiaries) as well as the pro forma
adjustments.
Note F:
Net Income (loss) from continuing operations is prior to any extraordinary
items.
33
<PAGE>
Note G:
Adjusted EBITDA as presented above and as used elsewhere in this prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the indenture governing the Notes. The Fixed Charge
Coverage Ratio restricts our ability to incur additional indebtedness above
an approved limit if the ratio is below 2.0 to 1.0. As of December 31, 1998
the ratio (calculated on a pro forma basis) was 2.2 to 1.0. See
"Description of Notes" for a complete presentation of the methodology
employed in calculating Adjusted EBITDA. Adjusted EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service indebtedness and because it is used in the Indenture to
determine compliance with certain covenants. However, Adjusted EBITDA
should not be considered as an alternative to income from operations or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as an
indication of a company's operating performance or as a measure of
liquidity.
Adjusted EBITDA is calculated as follows for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Cyprus Other R&F Coal Pro Forma As
Holdings Subsidiaries Zeigler Acquisitions Disposition Adjustments Adjusted
-------- ------------ ------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (loss) from
continuing operations.. $(23.4) $ (3.5) $ 15.7 $ (3.3) $ (7.0) $ (11.0) $(32.5)
Exclude gain or loss on
asset sale............. (1.0) -- -- -- -- -- (1.0)
Less net income of
equity method investees
in excess of cash
dividends.............. -- -- -- (0.2) -- -- (0.2)
Plus provision for
taxes.................. (20.4) -- 2.8 (3.8) (1.3) (7.3) (30.0)
Plus interest expense... 65.3 0.2 8.0 3.7 -- 36.5 113.7
Plus depreciation,
depletion and
amortization........... 76.8 18.7 43.5 12.6 (3.4) 45.5 193.7
Plus other non cash
expenses............... 16.5 -- 21.2 -- -- (21.2) 16.5
------ ------ ------ ------- ------- -------- ------
Adjusted EBITDA......... $113.8 $ 15.4 $ 91.2 $ 9.0 $ (11.7) $ 42.5 $260.2
====== ====== ====== ======= ======= ======== ======
</TABLE>
In connection with integrating acquired operations, we closed certain of our
preexisting mines. Accordingly estimated non-recoverable assets of $2.0 million
were written off and estimated reclamation and closure costs of $14.5 million
were recorded.
Note H:
Cash interest expense is calculated as interest expense plus capitalized
interest less interest accreted on discounted notes and amortization of
deferred financing costs.
Note I:
In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest incurred (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest. Our pro
forma earnings were inadequate to cover pro forma fixed charges for the
year ended December 31, 1998 by $78.6.
34
<PAGE>
Note J
This column reflects our income statement for the year ended December 31,
1998 which includes the post-acquisition results of our recent
acquisitions. The purchase price for each acquisition is as follows:
<TABLE>
<CAPTION>
Notes
payable
Cash to
paid to seller Total Costs
Acquisition seller at Acquisition of
Acquiree Date at close close Costs Acquisition
-------- ----------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Ikerd-Bandy............. Oct-97 $ 5,000 $ 5,649 $ 300 $ 10,949
Leslie Resources........ Jan-98 11,700 11,056 300 23,056
Crockett Collierless.... Jun-98 3,750 -- 200 3,950
Cyprus Subsidiaries..... Jun-98 98,000 -- 8,900 106,900
Mid-Vol................. Jul-98 20,786 15,000 378 36,164
Battle Ridge............ Jul-98 6,600 -- 186 6,786
Zeigler................. Sep-98 599,732 -- 18,040 617,772
Kindill................. Sep-98 11,000 -- 267 11,267
Martiki................. Nov-98 32,000 -- 387 32,387
</TABLE>
No equity securities or other non-cash consideration was issued in
connection with our recent acquisitions.
We depreciate acquired property, plant and equipment over its estimated
useful life (ranging from 2 to 20 years). Allocations to mineral reserves
are amortized on a units-of-production method based on estimated
recoverable tons. Estimated mine lives, which consider recoverable tons and
current mining plans, range from 1 to 40 years.
35
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data below as of December 31, 1997 and 1998
and for the years ended December 31, 1996, 1997 and 1998, have been derived
from the Consolidated Annual Financial Statements of AEI Resources Holding,
which have been audited by Arthur Andersen LLP, independent public accountants,
and are included elsewhere in this prospectus. The selected consolidated
financial data as of December 31, 1996 has been derived from the Consolidated
Annual Financial Statements of AEI Resources Holding, Inc. which have been
audited by Arthur Andersen LLP, independent public accountants, and are not
included elsewhere in this prospectus. The selected consolidated financial data
as of and for the years ended December 31, 1994 and 1995 have been derived from
the unaudited Consolidated Financial Statements of our predecessor business and
are not included elsewhere in this prospectus. The information presented below
is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes
included elsewhere in this prospectus.
AEI Resources Holding, Inc. (including its predecessors)
(Dollars in millions, except per ton data)
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31,
----------------------------------------------
1994 1995(1) 1996 1997 1998
------- ----------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues and
Expenses:
Revenues................ $ 103.1 $ 112.3 $ 123.2 $ 175.3 $ 733.4
Cost of operations...... 91.5 94.5 97.1 145.2 590.8
Depreciation, depletion
and amortization....... 4.4 6.0 6.9 10.8 76.8
Selling, general and
administrative......... 7.0 8.6 9.1 13.9 32.5
Writedowns and Special
Items.................. -- -- -- -- 16.5
------- ------- ------- ------- ---------
Income from operations.. 0.2 3.2 10.1 5.4 16.8
Interest expense........ (0.3) (2.0) (5.5) (9.2) (65.3)
Other income (expense),
net(2)................. 0.3 (0.5) 0.5 0.4 4.7
------- ------- ------- ------- ---------
Income (loss) before
income tax provision
and extraordinary
item................... 0.2 0.7 5.1 (3.4) (43.8)
Income tax provision
(benefit)(3)........... -- (0.4) -- 17.5 (20.4)
------- ------- ------- ------- ---------
Net Income (loss) before
extraordinary item(4).. 0.2 1.1 5.1 (20.9) (23.4)
Extraordinary loss from
extinguishment of
debt................... -- -- -- (1.3) (10.2)
------- ------- ------- ------- ---------
Net Income (loss)....... $ 0.2 $ 1.1 $ 5.1 $ (22.2) $ (33.6)
------- ------- ------- ------- ---------
Other Data:
Adjusted EBITDA(5)...... $ 4.9 $ 8.7 $ 17.5 $ 16.6 $ 113.8
Cash flows from
operating activities... NA 11.1 4.8 (11.4) (49.4)
Cash flows from
investing activities... NA (11.0) (12.5) (38.7) (655.7)
Cash flows from
financing activities... NA 0.9 7.3 133.2 664.0
Capital expenditures.... 11.5 12.6 14.1 32.2 40.9
Ratio of Adjusted EBITDA
to interest
expense(5)............. 16.3x 4.4x 3.2x 1.8x 1.7x
Ratio of total debt to
Adjusted EBITDA(5)..... 1.1x 6.0x 3.7x 13.1x 10.7x
Ratio of earnings to
fixed charges(6)....... 1.0x 1.1x 1.6x * *
Operating Data:
Proven and probable
reserves (at period
end, in million of
tons).................. NA NA NA 166 2,436
Coal sales (millions of
tons).................. 3.5 3.3 4.2 6.5 25.2
Average sales price per
ton.................... $ 26.61 $ 26.27 $ 24.84 $ 25.19 $ 27.40
Average cost per ton
sold(7)................ 25.22 24.20 21.32 22.08 25.40
Balance Sheet Data (end
of period):
Working capital......... $ (2.6) $ (5.6) $ (11.6) $ 85.1 $ (72.9)
Total assets............ 69.7 92.3 106.9 265.4 2,490.1
Total debt (including
current portion)....... 5.6 52.4 64.1 217.0 1,215.6
Stockholders' equity
(deficit).............. 31.1 (4.7) 0.3 (18.1) (92.6)
</TABLE>
NA = Not Available
36
<PAGE>
- - --------
(1) The operations data for the year ended December 31, 1995, combine the
audited results of operations for AEI Holding (Holdings' predecessor) for
the period from January 1, 1995 through December 31, 1995 and the results
of Addington Coal Operations (the predecessor to AEI Holding) for the
period from January 1, 1995 through November 1, 1995. The operations data
for the year ended December 31, 1995 do not purport to represent what our
combined results of operations would have been if the predecessor
businesses had actually been acquired as of January 1, 1995.
(2) Other income (expense), net reflects the inclusion of gain or loss on asset
sales and minority interest.
(3) In April 1997, Bowie Resources, Limited changed its tax reporting status
from an S-corporation to a C-corporation, resulting in an initial deferred
tax liability of $1.6 million. In November 1997, the other subsidiaries of
AEI Holding likewise changed from S-corporations to C-corporations,
resulting in an initial deferred tax liability of $18.0 million.
(4) Net income (loss) from continuing operations is prior to any extraordinary
items.
(5) Adjusted EBITDA as presented above and as used elsewhere in this prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the Indenture. The Fixed Charge Coverage Ratio restricts
our ability to incur additional indebtedness above an approved limit if the
ratio is below 2.0 to 1.0. As of December 31, 1998, the ratio (calculated
on a pro forma basis) was 2.2 to 1.0. See "Description of Notes" for a
complete presentation of the methodology employed in calculating Adjusted
EBITDA. Adjusted EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service indebtedness and
because it is used in the Indenture to determine compliance with certain
covenants. However, Adjusted EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest incurred (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest.
Earnings were inadequate to cover fixed charges for 1997 and 1998 by $3.8
million and $57.9 million, respectively.
(7) Average cost per ton sold is calculated based on total coal operating costs
included in cost of operations, plus depreciation costs related to mining,
divided by coal sold.
37
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Prior to June, 1998, the historical results of AEI Holding were identical to
that of its parent, Holdings. The selected consolidated financial data below as
of December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997
and 1998, have been derived from the Consolidated Annual Financial Statements
of AEI Holding, which have been audited by Arthur Andersen LLP, independent
public accountants, and are included elsewhere in this prospectus. The selected
consolidated financial data as of December 31, 1996, has been derived from the
Consolidated Annual Financial Statements of AEI Holding which have been audited
by Arthur Andersen LLP, independent public accountants, and are not included
elsewhere in this prospectus. The selected consolidated financial data for the
years ended December 31, 1994 and 1995 has been derived from the unaudited
Consolidated Financial Statements of the Company's predecessor business and is
not included elsewhere herein. The information presented below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements and related notes included elsewhere in
this Prospectus.
AEI Holding Company, Inc. (including its predecessors)
(Dollars in millions, except per ton data)
<TABLE>
<CAPTION>
For the Fiscal Year Ended December 31,
--------------------------------------------
1994 1995(1) 1996 1997 1998
------- ----------------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Revenues and Expenses:
Revenues........................ $ 103.1 $ 112.3 $ 123.2 $ 175.3 $ 316.2
Cost of operations.............. 91.5 94.5 97.1 145.2 267.8
Depreciation, depletion and
amortization................... 4.4 6.0 6.9 10.8 21.1
Selling, general and
administrative................. 7.0 8.6 9.1 13.9 14.4
Writedowns and Special Items.... -- -- -- -- 16.5
------- ------- ------- ------- -------
Income from operations.......... 0.2 3.2 10.1 5.4 (3.6)
Interest expense................ (0.3) (2.0) (5.5) (9.2) (20.7)
Other income (expense), net(2).. 0.3 (0.5) 0.5 0.4 2.6
------- ------- ------- ------- -------
Income (loss) before income tax
provision and extraordinary
item........................... 0.2 0.7 5.1 (3.4) (21.7)
Income tax provision
(benefit)(3)................... -- (0.4) -- 17.5 (8.7)
------- ------- ------- ------- -------
Net Income (loss) before
extraordinary item(4).......... 0.2 1.1 5.1 (20.9) (13.0)
Extraordinary loss from
extinguishment of debt......... -- -- -- (1.3) (0.4)
------- ------- ------- ------- -------
Net Income (loss)............... $ 0.2 $ 1.1 $ 5.1 $ (22.2) $ (13.4)
------- ------- ------- ------- -------
Other Data:
Adjusted EBITDA(5).............. $ 4.9 $ 8.7 $ 17.5 $ 16.6 $ 35.6
Cash flows from operating
activities..................... NA 11.1 4.8 (11.4) (20.4)
Cash flows from investing
activities..................... NA (11.0) (12.5) (38.7) (33.8)
Cash flows from financing
activities..................... NA 0.9 7.3 133.2 (14.0)
Capital expenditures............ 11.5 12.6 14.1 32.2 28.4
Ratio of Adjusted EBITDA to
interest expense(5)............ 16.3x 4.4x 3.2x 1.8x 1.7x
Ratio of total debt to Adjusted
EBITDA(5)...................... 1.1x 6.0x 3.7x 13.1x 6.12x
Ratio of earnings to fixed
charges(6)..................... 1.0x 1.1x 1.6x * *
Operating Data:
Proven and probable reserves (at
period end, in millions of
tons).......................... NA NA NA 166 195
Coal sales (millions of tons)... 3.5 3.3 4.2 6.5 13.2
Average sales price per ton..... $ 26.61 $ 26.27 $ 24.84 $ 25.19 $ 21.63
Average cost per ton sold(7).... 25.22 24.20 21.32 22.08 19.60
Balance Sheet Data (end of
period):
Working capital................. $ (2.6) $ (5.6) $ (11.6) $ 85.1 $ 17.5
Total assets.................... 69.7 92.3 106.9 265.4 330.4
Total debt (including current
portion)....................... 5.6 52.4 64.1 217.0 217.9
Stockholders' equity (deficit).. 31.1 (4.7) 0.3 (18.1) (43.9)
</TABLE>
NA = Not Available
38
<PAGE>
- - --------
(1) The operations data for the year ended December 31, 1995 combine the
audited results of operations for AEI Holding, Holdings' predecessor for
the period from January 1, 1995 through December 31, 1995 and the results
of Addington Coal Operations (the predecessor to AEI Holding) for the
period from January 1, 1995 through November 1, 1995. The operations data
for the year ended December 31, 1995, do not purport to represent what our
combined results of operations would have been if the predecessor
businesses had actually been acquired as of January 1, 1995.
(2) Other income (expense), net reflects the inclusion of gain or loss on asset
sales.
(3) In April 1997, Bowie Resources, Limited changed its tax reporting status
from an S-corporation to a C-corporation, resulting in an initial deferred
tax liability of $1.6 million. In November 1997, the other subsidiaries of
AEI Holding likewise changed from S-corporations to C-corporations,
resulting in an initial deferred tax liability of $18.0 million.
(4) Net income (loss) from continuing operations is prior to any extraordinary
items.
(5) Adjusted EBITDA as presented above and as used elsewhere in this Prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the Indenture. The Fixed Charge Coverage Ratio restricts
our ability to incur additional indebtedness above an approved limit if the
ratio is below 2.0 to 1.0. As of December 31, 1998 the ratio (calculated on
a pro forma basis) was 2.2 to 1.0. See "Description of the Notes" for a
complete presentation of the methodology employed in calculating Adjusted
EBITDA. Adjusted EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service indebtedness and
because it is used in the Indenture to determine compliance with certain
covenants. However, Adjusted EBITDA should not be considered as an
alternative to income from operations or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of a company's
operating performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest incurred (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest.
Earnings were inadequate to cover fixed charges for 1997 and 1998 by $3.8
million and $24.4 million, respectively.
(7) Average cost per ton sold is calculated based on total coal operating costs
included in cost of operations, plus depreciation costs related to mining,
divided by coal sold.
39
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected financial data below as of and for the period from inception,
December 11, 1998, through December 31, 1998, have been derived from the annual
financial statements of Employee Benefits Management, Inc., which have been
audited by Arthur Andersen LLP, independent public accountants, and are
included elsewhere in this prospectus. The information presented below is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes
included elsewhere in this prospectus.
Employee Benefits Management, Inc.
(In millions)
<TABLE>
<CAPTION>
For the Period from Inception
(December 11, 1998)
through
December 31, 1998
-----------------------------
<S> <C>
Operating Revenues and Expenses:
Revenues.......................................... $ 1.0
Cost of operations................................ 0.9
------
Income from operations............................ 0.1
------
Income (loss) before income tax provision......... 0.1
Income tax provision.............................. 0.1
------
Net Income (loss)................................. --
------
Balance Sheet Data (end of period):
Working capital................................... $(11.5)
Total assets...................................... 501.2
Total debt (including current portion)............ --
Stockholders' equity (deficit).................... --
</TABLE>
40
<PAGE>
The selected consolidated financial data below as of and for the years ended
December 31, 1996 and 1997, and for the two years in the period ended December
31, 1997, have been derived from the Consolidated Annual Financial Statements
of Zeigler which have been audited by Deloitte & Touche LLP, independent
auditors, and are included elsewhere in this prospectus. The selected
consolidated financial data as of August 31, 1998 and for the eight-month
periods ended August 31, 1997 and 1998, have been derived from Zeigler's
Unaudited Consolidated Financial Statements for those periods included
elsewhere in the prospectus and include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results for the unaudited interim periods. Results for the
eight months ended August 31, 1998, are not necessarily indicative of the
results that may be expected for the entire year. The information presented
below is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Zeigler and related
notes included elsewhere in this Prospectus. Ziegler was acquired on September
2, 1998, and the following presents the respective preacquisition periods.
Zeigler
(Dollars in millions, except per ton data)
<TABLE>
<CAPTION>
For the Year Ended Eight Months Ended
December 31, August 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues and Expenses:
Revenues.......................... $ 731.6 $ 800.8 $ 524.3 $ 533.4
Cost of operations(1)............. 559.6 641.3 423.5 438.2
Depreciation, depletion and
amortization(1).................. 60.1 57.9 38.1 43.5
Selling, general and
administrative(1)................ 20.9 15.6 17.2 9.2
Writedowns and special items(2)... -- -- -- 21.2
--------- --------- --------- ---------
Income from operations............ 91.0 86.0 45.5 21.3
Interest (expense)(3)............. (23.8) (24.9) (15.2) (8.0)
Other income (expense), net....... 2.1 7.9 3.8 5.2
--------- --------- --------- ---------
Income (loss) before income
taxes............................ 69.3 69.0 34.1 18.5
Income tax provision (benefit).... 11.3 10.4 6.2 2.8
--------- --------- --------- ---------
Net income (loss) from continuing
operations(4).................... $ 58.0 $ 58.6 $ 27.9 $ 15.7
--------- --------- --------- ---------
Other Data:
Adjusted EBITDA(5)................ $ 142.8 $ 150.6 $ 85.5 $ 69.0
Cash flows from operating
activities....................... 131.9 79.8 18.1 44.1
Cash flows from investing
activities....................... (30.5) (70.7) (19.3) (40.1)
Cash flows from financing
activities....................... (6.1) (14.1) (10.4) (92.2)
Capital expenditures.............. 31.4 74.4 29.5 73.4
Ratio of Adjusted EBITDA to
interest expense(5).............. 6.0x 6.0x 5.6x 8.6x
Ratio of total debt to Adjusted
EBITDA(5)........................ 2.4x 2.3x 3.4x 3.6x
Ratio of earnings to fixed
charges(6)....................... 3.6x 3.4x 2.9x 2.4x
Operating Data:
Coal sales (million of tons)...... 34.6 33.1 21.8 23.0
Average sales price per ton....... $ 20.21 $ 18.22 $ 18.02 $ 17.81
Average cost per ton sold(7)...... 17.74 15.22 15.06 15.28
Balance Sheet Data (end of
period):
Working capital................... $ 84.9 $ 22.2 $ 241.2 $ (5.1)
Total assets...................... 1,050.6 1,077.4 1,248.4 1,018.7
Total debt (including current
portion)......................... 344.8 344.1 289.9 245.6
Stockholders' equity.............. 132.6 177.7 149.0 199.3
</TABLE>
41
<PAGE>
- - --------
(1) Depreciation, depletion and amortization is included in cost of operations
and selling, general and administrative per the audited financials
elsewhere in this prospectus. It is segregated here to conform with the
presentation of the Company and the Cyprus Subsidiaries.
(2) Reflects acceleration of the accruals related to mine closing costs and
pre-tax writedowns in certain asset carrying values, primarily in
connection with the idling, closing, and projected closing of certain mines
earlier than previously forecast.
(3) Interest expense is reported net of interest income per the audited
financials (see F-Section). It is segregated here to conform with the
presentation of the financial statements of the Company.
(4) Net income (loss) from continuing operations is prior to any extraordinary
items.
(5) Adjusted EBITDA as presented above and as used elsewhere in this prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the Indenture. See "Description of Notes" for a complete
presentation of the methodology employed in calculating Adjusted EBITDA.
Adjusted EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness and because it is
used in the Indenture to determine compliance with certain covenants.
However, Adjusted EBITDA should not be considered as an alternative to
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity.
(6) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision plus fixed charges, excluding
capitalized interest. Fixed charges consist of interest incurred, which
includes amortization of deferred financing costs, whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest.
(7) Average cost per ton sold is calculated based on total coal operating costs
included in cost of operations, plus depreciation costs related to mining,
divided by coal sold.
42
<PAGE>
The selected combined financial data below as of December 31, 1996 and 1997,
and for the two years in the period ending December 31, 1997, have been derived
from the Combined Annual Financial Statements of the Cyprus Subsidiaries which
have been audited by PricewaterhouseCoopers, LLP, independent public
accountants, and are included elsewhere in this prospectus. The selected
financial data as of June 30, 1998 and for the six-month periods ended June 30,
1997 and 1998, have been derived from the Cyprus Subsidiaries' Unaudited
Combined Financial Statements for those periods included elsewhere in the
prospectus and include, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the results for the unaudited interim periods. Results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the entire year. The information presented below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements of the Cyprus Subsidiaries and related notes
included elsewhere in this prospectus. The Cyprus Subsidiaries were acquired on
June 29, 1998 and following presents the respective preacquisition periods.
The Cyprus Subsidiaries
(Dollars in millions, except per ton data)
<TABLE>
<CAPTION>
For the Year Ended Six Months Ended
December 31, June 30,
-------------------- ------------------
1996 1997 1997 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues and Expenses:
Revenues............................ $ 412.2 $ 422.9 $ 193.8 $ 201.8
Cost of operations.................. 360.3 377.9 165.8 180.5
Depreciation, depletion and
amortization....................... 39.6 41.9 20.9 18.7
Selling, general and
administrative..................... 14.6 16.4 8.3 6.7
Writedowns and special items (1).... 1.8 92.1 1.1 --
--------- --------- -------- --------
Income (loss) from operations....... (4.1) (105.4) (2.3) (4.1)
Interest (expense).................. (0.8) (0.6) (0.3) (0.2)
Other income (expense), net (2)..... 3.4 6.9 0.2 0.8
--------- --------- -------- --------
Income (loss) before income taxes... (1.5) (99.1) (2.4) (3.5)
Income tax provision (benefit) (3).. -- -- -- --
--------- --------- -------- --------
Net income (loss) from continuing
operations......................... $ (1.5) $ (99.1) $ (2.4) $ (3.5)
--------- --------- -------- --------
Other Data:
Adjusted EBITDA (4)................. $ 40.6 $ 33.9 $ 18.3 $ 15.4
Cash flows from operating
activities......................... 29.6 9.3 (12.3) (4.8)
Cash flows from investing
activities......................... (31.2) (15.7) (13.4) (2.2)
Cash flows from financing
activities......................... 2.8 7.1 24.5 3.3
Capital Expenditures................ 35.0 24.5 15.0 3.3
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Ratio of Adjusted EBITDA to interest expense
(4).......................................... 50.8x 56.5x 61.0x 77.0x
Ratio of total debt to Adjusted EBITDA (4).... 0.3x 0.3x 0.6x 0.5x
Ratio of earnings to fixed charges (5)........ * * * *
Operating Data:
Coal sales (million of tons).................. 14.8 15.8 7.2 7.6
Average sales price per ton................... $24.31 $24.31 $24.35 $24.45
Average cost per ton sold (6)................. 23.18 21.77 22.69 23.01
Balance Sheet Data:
Working capital............................... $ 24.7 $ 28.5 $ 48.1 $ 32.0
Total assets.................................. 379.4 299.9 389.2 275.2
Total debt (including current portion)........ 11.0 9.1 11.0 7.3
Parent Investment............................. 144.0 53.8 166.2 55.5
</TABLE>
43
<PAGE>
- - --------
(1) In 1996, write downs and special items consist of the write down of mining
properties, due to weak demand, transportation and coal quality
disadvantages, and impending long-term contract expirations, among other
factors, in accordance with SFAS 121, and the write down of supplies
inventory to their net realizable value. In 1997, the Cyprus Subsidiaries
recorded write downs and special items of $92.1 million. Such write downs
and special items consist of: 1) charges of $35.8 million for the
anticipated closure of the Armstrong Creek mine (which includes a $9.6
million charge related to end-of-mine reclamation); 2) $2.3 million charge
to increase current reclamation accruals for the Chinook mine; 3) charges
of $6.9 million to write down land assets and prepaid royalties to net
realizable value; and 4) write downs of $33.5 million and $13.6 million in
asset values at the Cyprus Subsidiaries' West Virginia and Chinook mines,
respectively. The write downs resulted from updated mine and business plans
that reflected the views of the Cyprus Subsidiaries' management regarding
the domestic market for mid- to high-sulfur coal and updated reserve
information.
(2) Other income (expense), net reflects the inclusion of minority interest and
gain or loss on asset sales. In the audited financials (set forth elsewhere
herein) gain on asset sales is included in revenues. It is included here to
conform with the presentation of the financial statements of the Company.
(3) No income tax provision (benefit) has been allocated by Cyprus Amax to the
Cyprus Subsidiaries.
(4) Adjusted EBITDA as presented above and as used elsewhere in this prospectus
consists of earnings before interest, taxes, depletion, depreciation,
amortization and other non-cash charges as adjusted to exclude certain
unusual or nonrecurring charges, all in accordance with the term
"Consolidated Cash Flow" as that term is used in the term "Fixed Charge
Coverage Ratio" in the Indenture. See "Description of Notes" for a complete
presentation of the methodology employed in calculating Adjusted EBITDA.
Adjusted EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service indebtedness and because it is
used in the Indenture to determine compliance with certain covenants.
However, Adjusted EBITDA should not be considered as an alternative to
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as an indication of a company's operating
performance or as a measure of liquidity.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income tax provision plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest incurred (which
includes amortization of deferred financing costs) whether expensed or
capitalized and one-third of rental expense, deemed representative of that
portion of rental expense estimated to be attributable to interest.
Earnings were inadequate to cover fixed charges for 1996, 1997, the six
months ended June 30, 1997, and the six months ended June 30, 1998 by $1.5
million, $99.1 million, $2.4 million and $3.5 million, respectively.
(6) Average cost per ton sold is calculated based on total coal operating costs
included in cost of operations, plus depreciation costs related to mining,
divided by coal sold.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data," "Financial Statements" and the notes thereto. Our
actual results may vary materially from forward-looking statements included in
this section and elsewhere in this prospectus due to factors described below
and under "Risk Factors."
General
We derive our revenues primarily from the sale of coal to electric utilities
and other industrial users under long-term sales contracts. We sell a
substantial portion of our coal under long-term sales contracts and sells the
remainder under short-term contracts and on the spot market. Sales pursuant to
long-term sales contracts accounted for 72% of our coal sales revenue during
1998, with the remainder being accounted for by sales pursuant to short-term
contracts and on the spot market.
The principal components of our expenses are costs relating to the production
and transportation of its coal, including labor expenses, royalty and lease
payments, reclamation expenditures and rail, barge and trucking costs. Other
expenses include depletion, depreciation, amortization, selling, general and
administrative and interest expenses.
Certain Factors Affecting Current and Future Operating Results
The Company's current and future operating results will likely be affected by
the following events and factors:
Certain Contract Revenues. Under certain long-term sales contracts, in relation
to contract revenues from coal sales, we have been receiving additional
periodic payments with such payments included in revenues as coal shipments
occur pursuant to contract terms. Such proceeds amounted to $9.7 million in
1998. The contracts call for $46.4 million of additional payments to be paid to
us in 1999. The contracts call for $91.0 million of additional payments over
the following four years.
Significant Customers. We derive our revenues primarily from long-term coal
supply contracts with utilities. Through December 31, 1998, we were in arrears
in delivering coal under one coal supply contract with a customer whose
purchases under several contracts represented approximately 15% of our
consolidated revenues in 1998. We expect to prospectively ship all tonnage for
which we are currently in arrears and do not believe the arrearages will have a
material adverse effect on our financial condition.
Recent Acquisitions. In connection with the recent acquisitions, we expect to
incur certain one-time acquisition charges aggregating approximately $22.1
million, approximately $3.8 million of which has been paid as of December 31,
1998. The costs relate primarily to severance plan obligations and change of
control provisions contained in employment agreements assumed we in connection
with its acquisition of Zeigler on September 2, 1998. We also wrote off $16.3
million of deferred financing costs related to the bridge financing for the
acquisitions of the Cyprus Subsidiaries and Zeigler. Other integration costs
are expected to include closing redundant facilities and relocating certain
business processes of the businesses acquired in the recent acquisitions.
Increased Interest Costs. As a result of increased indebtedness we incurred in
connection with the recent acquisitions, our interest expense increased
substantially from 1997 to 1998 and is expected to further increase in 1999.
Interest costs in 1999 could increase significantly if we acquire additional
coal companies or coal reserves financed through debt.
Reclamation and Mine Accruals. Annually, we review our entire reclamation
liability and makes necessary adjustments, including mine plan and permit
changes and revisions to production levels to optimize mining reclamation and
efficiency. The financial impact of any such adjustment is generally recorded
to cost of coal sales prospectively as remaining tons are mined. Although our
management believes it is making adequate provisions for all expected
reclamation and other costs associated with mine closures, future operating
results would be adversely affected if such accruals were later determined to
be insufficient.
45
<PAGE>
Anticipated Cost Savings and Synergies. The unaudited Pro Forma Combined
Financial Statements do not include the effect of certain cost savings and
synergies we believe are possible to achieve as a result of our recent
acquisitions. On a pro forma basis, we expect that we would have generated
approximately $71 million in additional cost savings over the twelve-month
period ended December 31, 1997. Potential cost-savings and synergies from these
items include approximately $17 million related to overhead and closure of
unneeded offices, approximately $13 million related to certain personnel
reductions and benefit plan consolidations, and approximately $41 million
related to mining and material sourcing synergies. The reduction in overhead
and closure of unneeded offices are expected to result from reduction in costs
due to duplication of corporate management and regional offices at Zeigler. The
benefit plans of the various existing and acquired companies will be
consolidated into a company-wide plan. The mining synergies are expected to
include 1) sourcing coal supply contracts from lower cost mines, 2) mine plan
changes at the Marrow-bone and Armstrong Creek Mines and 3) materials sourcing
activities as we become a larger volume customer of its suppliers. However,
there can be no assurances that we will be able to achieve such cost savings or
synergies or, even if it is able to achieve such cost savings or synergies,
that it will be able to do so within the time period currently anticipated. In
the event such anticipated cost savings and synergies are not achieved, we may
encounter financing constraints in our future operations. See "Risk Factors--
Ability to Achieve Anticipated Cost Savings and Synergies."
Results of Operations
AEI Resources Holding, Inc. (including the Company's predecessor)
The following table sets forth, for the periods indicated, certain operating
and other data of AEI Resources Holding, Inc., including our predecessor, AEI
Holding, presented as a percent of revenues.
<TABLE>
<CAPTION>
Fiscal Year
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Operating Data:
Revenues................................................... 100.0% 100.0% 100.0%
Cost of operations......................................... 78.8 82.8 80.6
Depreciation, depletion and amortization................... 5.6 6.2 10.5
Selling, general and administrative........................ 7.4 7.9 4.4
Writedowns and special items............................... -- -- 2.2
----- ----- -----
Income from operations..................................... 8.2 3.1 2.3
Interest expense........................................... (4.5) (5.2) (8.9)
Other income (expense), net................................ 0.4 0.2 0.6
----- ----- -----
Income (loss) before income tax provision (benefit) ....... 4.1 (1.9) (6.0)
----- ----- -----
</TABLE>
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997
Due to the completion of our recent acquisitions, the changes in results of
operations discussed below may not be illustrative of operations if we had
operated the businesses acquired in the recent acquisitions from January 1,
1998.
Revenues. Revenues were $733.4 million for the year ended December 31, 1998,
compared to $175.3 million for the year ended December 31, 1997, an increase of
$558.1 million or 318%. The increase in revenues is attributable to mining
revenues from recently acquired businesses included in the results of
operations in the year ended December 31, 1998, and not in the results of
operations in the year ended December 31, 1997, which primarily consisted of
$20.8 million from Ikerd-Bandy; $94.2 million from Leslie Resources; $177.5
million from the Company's subsidiaries it acquired from Cyprus Amax Coal
Company; and $199.4 million from Zeigler. Revenues exclusive of the acquirees
increased from $169.0 million to $193.4 million ($24.4 million or 14%). The
increase is due to increased tonnage delivery (6.2 million tons to 7.3 million
tons or 18%) partially offset by a decrease in revenue per ton ($27.07 to
$26.35 or 3%).
46
<PAGE>
Cost of Operations. The cost of operations totaled $590.8 million for the year
ended December 31, 1998, compared to $145.2 million for the year ended December
31, 1997, an increase of $445.6 million or 307%. The increase is primarily
attributable to acquirees included in 1998 and not in 1997, including Ikerd-
Bandy ($28.6 million), Leslie Resources ($95.6 million), the Cyprus
Subsidiaries ($162.2 million), and Zeigler ($148.2 million). Cost of operations
exclusive of the acquirees increased from $139.2 million to $160.8 million
($21.6 million or 16%). This increase is due primarily to the increased
production volumes brought about by increased sales opportunities. Partially
offsetting was a decrease in average cost per ton sold (from $22.29 to $21.92
or 2%).
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1998, totaled $76.8 million
compared to $10.8 million for the year ended December 31, 1997, an increase of
$66.0 million or 611%. The increase in depreciation, depletion and amortization
resulted primarily from: 1) increased depreciation from the property and
equipment acquired in our recent acquisitions, 2) additional depreciation and
amortization from 1997 and 1998 capital expenditures, and 3) increased
depletion of mineral reserves.
Writedowns and Special Items. In connection with integrating acquired
operations, we closed certain of our higher-cost non-acquiree mines during the
year ended December 31, 1998. As a result, estimated non-recoverable assets of
$2.0 million were written off and additional estimated reclamation and mine
closure costs of $14.5 million were recorded. There were no such charges for
the year ended December 31, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1998, were $32.5
million compared to $13.9 million for the year ended December 31, 1997, an
increase of $18.6 million or 134%. The increase in such expenses primarily
resulted from acquirees included in 1998 and not in 1997 and the expansion of
management and administrative functions to support the recent growth.
Interest Expense. Interest expense for the year ended December 31, 1998, was
$65.3 million compared to $9.2 million for the year ended December 31, 1997, an
increase of $56.1 million or 610%. The increase resulted primarily from
interest associated with: 1) the increase in debt levels from $217.0 million as
of December 31, 1997, to $1.2 billion as of December 31, 1998, brought about by
the recent acquisitions and 2) the related amortization of debt financing
costs.
Other Income (Expense), Net. Other income (expense) increased $4.3 million in
1998, primarily due to a $1.0 million gain on the sale of an aircraft and an
increase in interest income resulting from the investment of excess debt
proceeds from the 1997 Notes.
Provision for income taxes. There was a $20.4 million income tax benefit for
the year ended December 31, 1998, as compared to a $17.5 million provision for
the year ended December 31, 1997. During the year ended December 31, 1997, we
operated primarily under S corporation tax status. During April of 1997, Bowie
Resources, Limited, experienced a change in the tax status from an S
corporation to a C corporation, which resulted in the recording of a $1.6
million provision and deferred tax liability. In addition, during November of
1997, the mining businesses transferred from Addington Enterprises (as an S
corporation) to the Company (as a C corporation) initially recorded a net
deferred tax liability of $18.0 million, with an increase to
the income tax provision for the differences in book and tax bases in assets
and liabilities. Prior to September 1, 1998, a deferred tax benefit was not
recorded, due to uncertainties in realization, until after the acquisitions of
Zeigler and Kindill and the establishment of a deferred tax liability in
September 1998. This will allow the utilization of certain tax benefits,
including NOL's and AMT credits, which resulted in a deferred tax benefit for
1998.
Extraordinary Loss From Debt Refinancing. For the year ended December 31, 1998,
we incurred an extraordinary loss of $10.2 million (net of a $6.8 million tax
benefit) compared to $1.3 million (net of a $0.9 million tax benefit) for the
year ended December 31, 1997. During the year ended December 31, 1998, we
retired a $25 million credit facility early and extinguished bridge facilities
related to the acquisitions of Zeigler and the Cyprus Subsidiaries. All
unamortized debt issuance costs associated with the retired facilities were
written off.
47
<PAGE>
Net Income (Loss). For the year ended December 31, 1998, we had a net loss of
$33.6 million compared to a net loss of $22.2 million for the year ended
December 31, 1997, an increase of $11.4 million. The increase primarily was due
to increased depreciation associated with our recent acquisitions, increased
interest expense associated with financing those acquisitions and the
extraordinary loss related to the write-off of unamortized debt issuance costs.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Revenues. Revenues were $175.3 million for the year ended December 31, 1997,
compared to $123.2 million for the year ended December 31, 1996, an increase of
$52.1 million or 42%. The increase in revenues is attributable to a 56%
increase in coal mining revenues (up $59.2 million from $104.8 million to
$164.0 million), partially offset by a 49% decrease in equipment sales, rental
and repair (down $7.9 million from $16.0 million to $8.1 million). Coal sales
tonnage increased 55% from 4.2 million tons for the year ended December 31,
1996, to 6.5 million tons for the year ended December 31, 1997. This increased
volume resulted primarily from increased sales from the eastern Kentucky
operations. Revenue per ton also increased $0.35 or 1% (from $24.84 for the
year ended December 31, 1996, to $25.19 for the year ended December 31, 1997).
This increase in revenues per ton is attributable to the expiration of lower
priced contracts and the inclusion of new higher priced contracts.
Equipment sales, rental and repair declined in 1997 from 1996 due to 1)
revenues from highwall miner equipment repair and sales to Mining Technologies
Australia, Pty. Ltd. ("MTA") (an Australian entity formerly majority owned by
Larry Addington) in 1996 exceeding 1997 revenues by $3.2 million due to
decreased operations in Australia in 1997, and 2) rental of four
Addcar/TM/highwall mining systems by Mining Technologies, Inc. and Bowie
(totaling $5.4 million in revenue) during 1996 which were instead deployed to
internal jobs in 1997.
Cost of Operations. The cost of operations totaled $145.2 million for the year
ended December 31, 1997, compared to $97.1 million for the year ended December
31, 1996, an increase of $48.1 million or 50%. The increase was primarily due
to the increase in tons produced from 4.2 million in 1996 to 6.3 million in
1997 which correspond with the increased sales volume in 1997. Our average cost
per ton sold was $22.08 per ton for the year ended December 31, 1997, compared
to $21.32 per ton for the year ended December 31, 1996, an increase of $0.76
per ton or 4%. This increase was attributable to adverse mining conditions,
primarily increased stripping ratios.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997, totaled $10.8 million
compared to $6.9 million for the year ended December 31, 1996, an increase of
$3.9 million of 57%, which is consistent with the increase in cost of
operations. The increase in depreciation, depletion and amortization primarily
resulted from the use of an Addcar/TM/ highwall mining system and the
amortization of mines developments costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997, were $13.9
million compared to $9.1 million for the year ended December 31, 1996, an
increase of $4.8 million or 53%. The increase in such expenses primarily
resulted from increased costs associated with organizational growth, 1997
bonuses totalling $3.0 million paid to 37 employees and other sales-related
costs.
Interest Expense. Interest expense for the year ended December 31, 1997, was
$9.2 million compared to $5.5 million for the year ended December 31, 1996, an
increase of $3.7 million or 67%. This increase resulted primarily from interest
associated with our 1997 Notes and increased stockholder loans used to fund the
development of our operations.
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1997, was $17.5 million compared to no provision for the year
ended December 31, 1996. The increase in the provision for income taxes is due
primarily to the provision for deferred income taxes resulting from the change
in tax status from an S corporation to a C corporation.
48
<PAGE>
Net Income (Loss). For the year ended December 31, 1997, we had a net loss of
$22.2 million compared to net income of $5.1 million for the year ended
December 31, 1996, a decrease of $27.3 million or 535%. The decrease primarily
resulted from increased tax expenses caused by the change in tax status from an
S corporation to a C corporation in 1997 and the increase in selling, general
and administrative and interest expense.
AEI Holding Company, Inc.
Through June 30, 1998, AEI Holding (and its predecessors) was the predecessor
to AEI Resources, Inc. and AEI Resources Holding, Inc. Accordingly, the results
of operations for periods prior to June 30, 1998 for AEI Holding are discussed
in the preceding section headed AEI Resources Holding, Inc. After June 30,
1998, AEI Holding functioned as subsidiary operations within the Company.
Accordingly, the December 31, 1998 results of operations of AEI Holding are
discussed below.
<TABLE>
<CAPTION>
Fiscal Year
------------
1997 1998
----- -----
<S> <C> <C>
Operating Data:
Revenues....................................................... 100.0% 100.0%
Cost of operations............................................. 82.8 84.7
Depreciation, depletion and amortization....................... 6.2 6.7
Selling, general and administrative............................ 7.9 4.5
Writedowns and special items................................... -- 5.2
----- -----
Income from operations......................................... 3.1 (1.1)
Interest expense............................................... (5.2) (6.5)
Other income (expense), net.................................... 0.2 0.8
----- -----
Income (loss) before income tax provision (benefit)............ (1.9) (6.8)
----- -----
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues were $316.2 million for the year ended December 31, 1998,
compared to $175.3 million for the year ended December 31, 1997, an increase of
$140.9 million or 81%. The increase in revenues was primarily attributable to a
103% increase in coal sales volumes, up 6.7 million tons from 6.5 million tons
for the year ended December 31, 1997 to 13.2 million tons for the year ended
December 31, 1998. The increased sales volume was primarily due to the
acquisitions of Leslie Resources and Ikerd-Bandy. During 1998, these companies
sold a combined 6.6 million tons.
Cost of Operations. The cost of operations totaled $267.8 million for the year
ended December 31, 1998, compared to $145.2 million for the year ended December
31, 1997, an increase of $122.6 million or 84%. The increase was primarily
attributable to a 106% increase in coal production, up 6.7 million tons from
6.3 million tons for the year ended December 31, 1997 to 13.0 million tons for
the year ended December 31, 1998. This increase in production corresponds with
an increase in sales volumes that resulted from the acquisitions of Leslie
Resources and Ikerd-Bandy. During 1998, these companies produced a combined 6.4
million tons.
Depreciation, Depletion, and Amortization. Depreciation, depletion, and
amortization for the year ended December 31, 1998 totaled $21.1 million
compared to $10.8 million for the year ended December 31, 1997, an increase of
$10.3 million or 95%, which is consistent with the increase in cost of
operations. The increase in depreciation, depletion and amortization resulted
primarily from the following factors: 1) the additions of Ikerd-Bandy and
Leslie Resources, which totaled a combined $8.1 million for the year ended
December 31, 1998, 2) additional depreciation and amortization from 1998
capital expenditures and 3) increased depletion of mineral reserves.
49
<PAGE>
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses for the year ended December 31, 1998 were $14.4 million
compared to $13.9 million for the year ended December 31, 1997, an increase of
$0.5 million or 4%. The increase in such expenses primarily resulted from
increased costs associated with organizational growth, including such items as
executive and other compensation and benefits, professional fees, etc.
Writedowns and Special Items. In connection with integrating other parent
acquired operations, AEI Holding closed certain higher-cost mines during the
year ended December 31, 1998. As a result, estimated non-recoverable assets of
$2.0 million were written off and additional estimated reclamation and mine
closure costs of $14.5 million were recorded. There were no such charges for
the year ended December 31, 1997.
Interest Expense. Interest expense for the year ended December 31, 1998 was
$20.7 million compared to $9.2 million for the year ended December 31, 1997, an
increase of $11.5 million or 125%. This increase resulted primarily from
interest associated with the issuance of the 1997 Notes in November 1997.
Provision for Income Taxes. There was an $8.7 million income tax benefit for
the year ended December 31, 1998, as compared to a $17.5 million provision for
the year ended December 31, 1997. During the year ended December 31, 1997, AEI
Holding operated primarily under S Corporation tax status. During April of
1997, Bowie Resources, Limited experienced a change in tax status from an S
corporation to a C corporation, which resulted in the recording of a $1.6
million provision and deferred tax liability. In addition, during November of
1997, the mining businesses transferred from Addington Enterprises (as an S
corporation) to AEI Holding (as a C corporation) initially recorded a deferred
tax liability of 18.0 million with an increase to the income tax provision for
the differences in book and tax bases in assets and liabilities. Prior to
September 1, 1998, a deferred tax benefit was not recorded, due to
uncertainties in realization, until after the acquisitions of Ziegler and
Kindill and the establishment of a deferred tax liability in September 1998.
This will allow the utilization of certain tax benefits, including NOL's and
AMT credits, resulting in a deferred tax benefit for 1998 based upon an
allocation from the Company.
Extraordinary Loss From Debt Refinancing. For the year ended December 31, 1998,
AEI Holding incurred an extraordinary loss of $0.4 million (net of a $0.3
million tax benefit) compared to $1.3 million (net of a $0.9 million tax
benefit) for the year ended December 31, 1997. In 1997, AEI Holding
extinguished a line of credit and bridge financing resulting in prepayment
penalties of $1.6 million and the write-off of $0.6 million in deferred debt
issuance costs. During 1998, AEI Holding extinguished a line of credit which
resulted in the write-off of approximately $0.7 million in deferred debt
issuance costs.
Net Income (Loss). For the year ended December 31, 1998, AEI Holding had a net
loss of $13.4 million compared to a net loss of $22.2 million for the year
ended December 31, 1997. The decreased loss primarily resulted from the
recognition of the $8.7 million income tax benefit in 1998 as compared to the
$17.5 million of expense in 1997, partially offset by the $16.5 million of
write-downs and special items recognized in 1998.
Employee Benefits Management, Inc. (EBMI)
The following table sets forth certain operating and other data of EBMI
presented as a percent of revenues.
<TABLE>
<CAPTION>
Fiscal
Year
1998
------
<S> <C>
Operating Data:
Revenues............................................................. 100.0%
Cost of operations................................................... 93.9
-----
Income from operations before income tax provisions.................. 6.1
-----
</TABLE>
50
<PAGE>
EBMI is an indirect subsidiary of the Company which was recapitalized on
December 11, 1998. EBMI's results of operations for the period from inception
(December 11, 1998) to December 31, 1998 is comprised of interest income ($1.0
million) related to notes receivable from affiliates and expenses ($0.9
million) attributable to service and interest costs related to the vested union
postretirement benefit obligations it manages.
EBMI's liquidity is largely dependent upon its parent as well as its ability to
effectively manage claims related to the postretirement obligations it acquired
in connection with the recapitalization.
Cash flows to cover post retirement obligations come from interest income on
intercompany notes. Additionally, EBMI has a revolving credit note with
Holdings in the amount of $10 million, which was not drawn upon at December 31,
1998.
Zeigler
The following table sets forth, for the pre-acquisition periods indicated,
certain operating and other data of Zeigler presented as a percent of revenues.
<TABLE>
<CAPTION>
Eight Months Ended
---------------------
Fiscal Year
------------ August 31, August 31,
1996 1997 1997 1998
----- ----- ---------- ----------
<S> <C> <C> <C> <C>
Operating Data:
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
Cost of operations........................ 76.5 80.1 80.8 82.1
Depreciation, depletion and amortization.. 8.2 7.2 7.2 8.2
Selling, general and administrative....... 2.9 2.0 3.3 1.7
Writedowns and special items.............. -- -- -- 4.0
----- ----- ----- -----
Income (loss) from operations............. 12.4 10.7 8.7 4.0
Interest expense.......................... (3.2) (3.1) (2.9) (1.5)
Other income (expense), net............... 0.3 1.0 0.7 1.0
----- ----- ----- -----
Income (loss) before income tax provision
(benefit)................................ 9.5 8.6 6.5 3.5
----- ----- ----- -----
</TABLE>
Eight Months Ended August 31, 1998 Compared to Eight Months Ended August 31,
1997
Because the Zeigler acquisition was consummated on September 2, 1998, the
results of operations for September 1998 are included in the Company's results
of operations.
Revenues. Revenues were $533.4 million for the eight months ended August 31,
1998, compared to $524.3 million for the eight months ended August 31, 1997, an
increase of $9.1 million or 2%. The increase in revenues resulted primarily
from increased coal revenues of $16.7 million, partially offset by lower energy
trading revenue of $6.2 million reflecting a management decision to reduce
electricity and gas trading during the second quarter of 1998. Increased coal
sales primarily resulted from higher volumes at Pike County from the start-up
of the new Matrix Mining operations ($19.4 million), and increased revenues of
$5.3 million at Evergreen mine due to higher production, partially offset by
decreased revenues of $7.6 million in the Midwest due to the expiration of a
contract and lower spot volume primarily due to the closure of Old Ben Coal
Company's Spartan mine in the fourth quarter of 1997.
Cost of Operations. The cost of operations totaled $438.2 million for the eight
months ended August 31, 1998 compared to $423.5 million for the eight months
ended August 31, 1997, an increase of $14.7 million or 4%. The increase
primarily reflects a $13.0 million increase related to 1997 revisions in mine
closing estimates and employee benefit obligations, higher production costs at
Marrowbone due to lower yield caused by continued geologic problems ($6.4
million) and higher expenses associated with the increased sales volumes at
Pike County and Evergreen mine as discussed above. These increases were
partially offset by $7.6 million of lower energy trading expense as discussed
above, and $3.9 million of lower expense associated with Zeigler's clean coal
demonstration plant.
51
<PAGE>
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the eight months ended August 31, 1998 totaled $43.5 million
compared to $38.1 million for the eight months ended August 31,
1997, an increase of $5.4 million or 14%. The increase in depreciation,
depletion and amortization primarily resulted from depreciation in 1998 for the
full nine-month period on 1997 capital expenditures and a revision in certain
asset lives.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the eight months ended August 31, 1998 were $9.2
million compared to $17.2 million for the eight months ended August 31, 1997, a
decrease of $8.0 million or 47%. The decrease in such expenses primarily
resulted from lower incentive compensation and consulting costs.
Write Downs and Special Items. Write downs and special items of $21.2 million
for the eight months ended August 31, 1998 consist of charges related to the
sale of Zeigler to the Company, including professional sales fees, and
retention and special bonuses. No write-downs and special charges were incurred
for the eight months ended August 31, 1997.
Interest Expense. Interest expense for the eight months ended August 31, 1998
was $8.0 million compared to $15.2 million for the eight months ended August
31, 1997, a decrease of $7.2 million or 47%. This decrease reflects the
prepayment in January 1998 of Zeigler's 8.61% senior secured notes.
Other Income (Expense), Net. In the second quarter of 1998, Zeigler received a
$5.2 million distribution of surplus funds from Old Ben's investment in a
reciprocal insurance association. The distribution was offset by a decrease in
interest income due to decreased levels of excess cash.
Provision for Income Taxes. The provision for income taxes for the eight months
ended August 31, 1998 was $2.8 million compared to $6.2 million for the eight
months ended August 31, 1997. The decrease in the provision for income taxes is
due to a decrease of pretax income of $15.6 million or 46%.
Net Income. For the eight months ended August 31, 1998, Zeigler had net income
of $15.7 million compared to net income of $27.9 million for the eight months
ended August 31, 1997, a decrease of $12.2 million or 44%. The decrease is due
of $18.0 million of expense associated with the sale of the Company in
September 1998, the 1997 nonrecurring benefits from changes in mine closing
estimates, employee benefit obligations, and lost cost claims totaling $14.4
million, and higher production costs at Marrowbone of $5.4 million. These items
were partially offset by lower selling, general and administrative expenses of
$3.9 million, higher margins from purchased coal of $4.2 million, lower expense
at Zeigler's clean coal demonstration plant of $3.7 million, lower interest
expense of $3.6 million, distribution of surplus funds from an investment in a
reciprocal insurance association of $3.2 million, improved productivity at Pike
County of $2.9 million and lower property taxes at Old Ben of $1.6 million.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues were $800.8 million for the year ended December 31, 1997,
compared to $731.6 million for the year ended December 31, 1996, an increase of
$69.2 million or 10%. EnerZ Corporation's energy trading and marketing
activities commenced in January 1997. Approximately 80% of EnerZ's fiscal 1997
revenues of $166.5 million were generated from electricity transactions with
the remainder attributable to natural gas trading. Coal sales declined $95.0
million in fiscal 1997 compared to 1996, of which $80.2 million reflected the
1996 closures of Old Ben Mine #24 and Old Ben Mine #26, $30.5 million reflected
the 1996 closure of Old Ben Mine #20, and $20.4 million reflected the 1996
expiration of Triton's contract with Western Farmers Electric Cooperative.
These decreases were partially offset by a $14.3 million increase in revenues
related to the reactivation of Old Ben Mine #11 and other small sales
increases. Other revenues include throughput fees of $19.3 million at Zeigler's
two east coast transshipment terminals; farm, timber, coal trucking, and ash
disposal income; royalty and rental income from land and mineral interests; and
gains from sales of surplus properties. The fiscal 1997 revenue decline was
mainly due to lower revenue from third-party coal leases and timber sales.
52
<PAGE>
Since we acquired Zeigler in September 1998, we have sold or are in the process
of winding up several of Zeigler's non-coal businesses, including EnerZ and
Encoal Corporation. We hold the remaining non-coal businesses as assets held
for sale. See "Business--Non-coal Businesses."
Cost of Operations. The cost of operations totaled $641.3 million for the year
ended December 31, 1997 compared to $559.6 million for the year ended December
31, 1996, an increase of $81.7 million or 15%. The increase was primarily due
to higher trading costs of $173.2 million reflecting the first year of
operations for EnerZ, a $16.3 million 1996 curtailment gain resulting from a
reduction in Zeigler's recorded obligation to provide retiree medical benefits
to certain former midwestern mining employees as a result of their re-
employment or termination prior to vesting, and higher costs for operating the
Encoal Corporation plant after the 1996 expiration of Department of Energy co-
funding. Partially offsetting these increases was a decrease in cost of coal
sales primarily reflecting the impact of 1996 mine closings and reductions in
certain recorded liabilities. During 1997, Zeigler also reduced accrued mine
closing costs by approximately $23.4 million, including decreases in the Old
Ben reclamation obligations and contingent claims liabilities. In addition,
actuarially-based liability reductions reducing cost of operations included
$8.2 million for accrued pneumoconiosis benefits, $3.2 million for
postemployment benefits and $2.4 million for postretirement benefits. Various
other estimated liabilities were reevaluated and reduced cost of operations in
total by $4.5 million.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997 totaled $57.9 million
compared to $60.1 million for the year ended December 31, 1996, a decrease of
$2.2 million or 4%. The decrease in depreciation, depletion and amortization
primarily resulted from the 1995 closing of Old Ben Mine #1 and the 1996
closing of Old Ben Mine #24.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $15.6 million
compared to $20.9 million for the year ended December 31, 1996, a decrease of
$5.3 million or 25%. Lower 1997 expenses were mainly the result of lower stock
appreciation unit and compensation-related charges and the timing of other
expenses.
Interest Expense. Interest expense for the year ended December 31, 1997 was
$24.9 million compared to $23.8 million for the year ended December 31, 1996, a
decrease of $1.1 million or 5%. The higher expense in fiscal 1997 primarily
resulted from increased average borrowings.
Other Income (Expense), Net. Other Income (expense), net for the year ended
December 31, 1997 was $7.9 million compared to $2.1 million for the year ended
December 31, 1996, an increase of $5.8 million or 276%. The increase primarily
reflects higher interest income earned due to larger cash investments.
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1997 was $10.4 million compared to $11.3 million for the year
ended December 31, 1996. The decrease in the provision for income taxes is due
to the slightly lower pretax income and lower tax rate. Zeigler's effective tax
rate was 15.0% in 1997 versus 16.3% in 1996. The 1997 rate improvement was
mainly due to the benefits of tax loss carryforwards. The valuation allowance
on deferred tax assets decreased $10.5 million from 1996 to 1997. This
valuation allowance primarily relates to alternative minimum tax ("AMT") credit
carryforwards. Although management believes that it is unlikely to realize all
of its AMT credit carryforward under existing law and company structure, AMT
credit carryforward is recognized to reduce the deferred tax liability from the
amount of regular tax on temporary differences to the amount of tentative
minimum tax on AMT temporary differences.
Net Income. For the year ended December 31, 1997, Zeigler had net income of
$58.6 million compared to $58.0 million for the year ended December 31, 1996,
an increase of $0.6 million or 1%. The increase primarily resulted from a $9.0
million positive change in customer claims expense representing reversal in
1997 of a $4.5 million contingent claims liability accrued in 1996, reduced
1997 estimates of Old Ben reclamation liabilities totaling $8.2 million, a $6.2
million actuarially-based reduction in the accrued liability for black lung
benefits, an unusually large $8.2 million increase in accrued workers'
compensation expense in 1996, and a
53
<PAGE>
$3.9 million reduction in net interest expense. These factors were
substantially offset after taxes by a $16.4 million reduction in net earnings
attributable to the 1996 closings of Old Ben Mine #24 and Old Ben Mine #26, a
$16.3 million nonrecurring gain in 1996 on curtailment of postretirement
benefits, a $6.8 million net earnings decrease related to the December 1996
expiration of Triton's contract with WFEC, a $5.6 million net loss at EnerZ,
and a $4.2 million increase in the net loss at Zeigler's technology unit.
The Cyprus Subsidiaries
The following table sets forth, for the preacquisition periods indicated,
certain operating and other data of the Cyprus Subsidiaries presented as a
percent of revenues.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year -----------------
------------ June 30, June 30,
1996 1997 1997 1998
----- ----- -------- --------
<S> <C> <C> <C> <C>
Operating Data:
Revenues...................................... 100.0% 100.0% 100.0% 100.0%
Cost of operations............................ 87.4 89.4 85.6 89.4
Depreciation, depletion and amortization...... 9.6 9.9 10.8 9.3
Selling, general and administrative........... 3.5 3.8 4.3 3.3
Writedowns and special items.................. 0.5 21.8 0.5 --
----- ----- ----- -----
Income (loss) from operations................. (1.0) (24.9) (1.2) (2.0)
Interest expense.............................. (0.2) (0.1) (0.2) (0.1)
Other income (expense), net................... 0.8 1.6 0.2 0.4
----- ----- ----- -----
Income (loss) before income tax provision
(benefits)................................... (0.4) (23.4) (1.2) (1.7)
----- ----- ----- -----
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Because the Cyprus Acquisition was consummated on June 29, 1998, the results of
operations for the three-month period ended September 30, 1998, are included in
the Company's results of operations.
Revenues. Revenues were $201.8 million for the six months ended June 30, 1998,
compared to $193.8 million for the six months ended June 30, 1997, an increase
of $8.0 million or 4%. The increase in revenues resulted primarily from
increased sales from the Straight Creek deep mine, which began mining
operations in July 1997, and the Straight Creek surface mine, which were
partially offset by reduced sales from other mines. The increased sales were
the result of a new contract for 1.2 million tons per year.
Cost of Operations. The cost of operations totaled $180.5 million for the six
months ended June 30, 1998 compared to $165.8 million for the six months ended
June 30, 1997, an increase of $14.7 million or 9%. The increase was primarily
due to increased coal production to provide for the increased coal sales and
increased production costs of approximately $1.50 per ton at the Cyprus
Subsidiaries' West Virginia mines, which were primarily due to operating
inefficiencies arising from adverse weather conditions and reduced production
volumes.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the six months ended June 30, 1998 totaled $18.7 million
compared to $20.9 million for the six months ended June 30, 1997, a decrease of
$2.2 million or 11%. The decrease was primarily the result of the write down of
assets at the Armstrong Creek mine in December 1997 when the mine's economic
life was shortened.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1998 were $6.7
million compared to $8.3 million for the six months ended June 30, 1997, a
decrease of $1.6 million or 19%. The decrease in such expenses primarily
resulted from a decrease in consulting and other third party administrative
charges.
54
<PAGE>
Interest Expense. Interest expense for the six months ended June 30, 1998 was
$0.2 million compared to $0.3 million for the six months ended June 30, 1997, a
decrease of $0.1 million or 33%. This decrease was primarily the result of
decreased capital lease obligations.
Pre-tax Net Income. For the six months ended June 30, 1998, the Cyprus
Subsidiaries had a pre-tax net loss of $3.5 million compared to a pre-tax net
loss of $2.4 million for the six months ended June 30, 1997, an increase of
$1.1 million or 46%. The increase primarily resulted from the increased
production costs at the West Virginia mines which were partially offset by
decreases in depreciation, depletion and amortization and selling, general and
administrative expenses.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues were $422.9 million for the year ended December 31, 1997,
compared to $412.2 million for the year ended December 31, 1996, an increase of
$10.7 million or 3%. The increase in revenues resulted primarily from increased
coal sales from the Cyprus Subsidiaries' Kentucky mines. The increased sales
were the result of shipments under new contracts providing for 2.2 million tons
per year.
Cost of Operations. The cost of operations totaled $377.9 million for the year
ended December 31, 1997 compared to $360.3 million for the year ended December
31, 1996, an increase of $17.6 million or 5%. The increase was primarily due to
the increase in production coupled with increased production costs of
approximately $2.50 per ton and $2.00 per ton at the Cyprus Subsidiaries'
Kentucky and Tennessee mines, respectively, which were primarily due to roof
control problems at the Straight Creek deep mine and increased stripping ratios
at the Skyline mine.
Depreciation, Depletion and Amortization. Depreciation, depletion and
amortization for the year ended December 31, 1997 totaled $41.9 million
compared to $39.6 million for the year ended December 31, 1996, an increase of
$2.3 million or 6%. The increase in depreciation, depletion and amortization
primarily resulted from accelerated depletion of the Cyprus Subsidiaries' West
Virginia coal reserves due to the economic lives of the West Virginia mines
being shortened and increased amortization of purchase price allocated to
various coal contracts acquired in a previous merger, which resulted from
increased sales under such contracts.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $16.4 million
compared to $14.6 million for the year ended December 31, 1996, an increase of
$1.8 million or 12%. The increase in such expenses primarily resulted from
increased administrative costs driven by increased sales.
Interest Expense. Interest expense for the year ended December 31, 1997 was
$0.6 million compared to $0.8 million for the year ended December 31, 1996, a
decrease of $0.2 million or 25%. This decrease was primarily the result of
decreased capital lease obligations.
Pre-tax Net Income. For the year ended December 31, 1997, the Cyprus
Subsidiaries had a pre-tax net loss of $99.1 million compared to a pre-tax net
loss of $1.5 million for the year ended December 31, 1996, a decrease of
$97.6 million. The decrease primarily resulted from the special charge of $92.1
million taken in 1997, which provided for the shortened economic lives of the
Armstrong Creek and Chinook mines and the write down of a portion of the
purchase price allocated to the coal contracts acquired in a previous merger,
the increased production costs at the Kentucky and Tennessee mines and
increased depreciation, depletion and amortization, selling, general and
administrative expenses.
55
<PAGE>
Liquidity
Our cash flow/(usage) from operations was ($49.4 million), ($11.4 million) and
$4.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. During the year ended December 31, 1998, the Company had a net
loss of $33.6 million, compared to a net loss of $22.2 million for the year
ended December 31, 1997, and net income of $5.1 million for the year ended
December 31, 1996. During the year ended December 31, 1998, cash flow from
operations was decreased by the increase in the net loss of $11.4 million and a
decrease in non-current liabilities of $65.7 million primarily due to increased
reclamation activities resulting from the closure of higher-cost operations.
Partially offsetting were decreases in accounts receivable of $13.3 million and
an increase in accounts payable of $5.1 million. During the year ended December
31, 1997, cash flow from operations was decreased due to an increase in
accounts receivable of $8.0 million, an increase in inventories of $6.2
million, an increase in other non-current assets of $2.2 million and a decrease
in other non-current liabilities of $2.7 million which was more than offset by
a provision for deferred income tax of $16.6 million, prepayment penalties on
debt refinancing of $1.6 million, depreciation of $10.8 million and an increase
in accounts payable of $4.2 million. During the year ended December 31, 1996,
cash flow from operations was decreased by an increase in accounts receivable
of $6.1 million, an increase in inventories of $3.1 million, a decrease in
other non-current liabilities of $5.7 million which was partially offset by an
increase in accounts payable of $9.5 million and depreciation of $6.9 million.
At various times during the first nine months of 1998, events of default
existed under our prior $25 million credit facility as a result of non-
compliance with certain financial covenants contained therein and under the
indenture governing the notes issued by AEI Holding Company in 1997 as a result
of cross default provisions. In addition, a default existed under the one of
our old credit facilities and the indenture because we failed to timely provide
certain required notices, reports and certificates. We remedied our non-
compliance by obtaining a waiver and amendment to the old credit facility,
which has subsequently been retired, providing the required information and
curing the other defaults under the prior indenture. The prior credit facility
subsequently was retired.
We have substantial indebtedness and significant debt service obligations. As
of December 31, 1998, the Company had total long-term indebtedness, including
current maturities, aggregating $1.2 billion. The loan agreement and the
guaranty related to Zeigler's industrial revenue bonds and the indentures
governing the Company's Senior Notes and its Senior Subordinated Notes will
permit the Company to incur substantial additional indebtedness in the future,
including secured indebtedness, subject to certain limitations. Such
limitations will include certain covenants that, among other things:
(1) limit the incurrence by the Company of additional indebtedness and the
issuance of certain preferred stock;
(2) restrict the ability of the Company to make dividends and other
restricted payments (including investments);
(3) limit transactions by the Company with affiliates;
(4) limit the ability of the Company to make asset sales;
(5) limit the ability of the Company to incur certain liens;
(6) limit the ability of the Company to consolidate or merge with or into,
or to transfer all or substantially all of its assets to, another
person and
(7) limit the ability of the Company to engage in other lines of business.
The Senior Credit Facility will contain additional and more restrictive
covenants as compared to the guaranty and the loan agreement related to
Zeigler's industrial revenue bonds and will require the Company to
maintain specified financial ratios and satisfy certain tests relating
to its financial condition.
We may continue to engage in evaluating potential strategic acquisitions. We
expect that funding for any such future acquisitions may come from a variety of
sources, depending on the size and nature of such acquisition.
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<PAGE>
Potential sources of capital include cash generated from operations, borrowings
under our credit facility, or other external debt or equity financings. There
can be no assurance that such additional capital sources will be available to
us on commercially reasonable terms or at all.
On December 14, 1998, we amended and restated our credit facility, which
currently provides for aggregate borrowings of up to $875.0 million. As of
December 31, 1998, we had approximately $47.0 million of borrowings available
under our credit facility (after giving effect to approximately $178.0 million
of outstanding letters of credit). On April 1, 1999, Zeigler converted its
industrial revenue bonds, in the aggregate principal amount of $145.8 million,
from a daily interest rate to a fixed interest rate for the term of the bonds.
In connection with the conversion, we and our majority-owned subsidiaries,
other than Yankeetown Dock Corporation, guaranteed the bonds and created a
mechanism whereby, upon the satisfaction of certain conditions, the letters of
credit issued by our lender in support of the bonds will be released. If all of
the letters of credit supporting the bonds are released, we will have
approximately $156.9 million of borrowings available under our credit facility
(after giving effect to approximately $26.1 million of outstanding letters of
credit). Interest rates on the revolving loans under our credit facility will
be based, at our option, on the Base Rate (as defined therein) or LIBOR (as
defined therein). The revolving loan portion ($300 million) of our credit
facility will mature on the last business day of December 2003, and the
repayment of the term loan portion ($575 million) of our credit facility will
occur in unequal installment payments between September 1999 and December 2004.
Our credit facility will contain certain restrictions and limitations,
including financial covenants that will require us to maintain and achieve
certain levels of financial performance and limit the payment of cash dividends
and similar restricted payments.
We made capital expenditures of $14.1 million, $32.2 million and $40.9 million
for the years ended December 31, 1996, 1997 and 1998, respectively. We
currently anticipate a total of $52.3 million of capital expenditures in the
year ending December 31, 1999, $40.8 million for replacement of and
improvements to equipment and facilities, 4.5 million for expansion at Bowie,
and $7.0 million for the manufacture of an additional Addcar(TM) highwall
mining system and rebuild of an existing system.
Since September 30, 1998, our principal liquidity requirements have been for
debt service requirements under the industrial revenue bonds, the Notes, the
Senior Subordinated Notes, our credit facility, other outstanding indebtedness,
and for working capital needs and capital expenditures, including future
acquisitions. Our ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including each issue of the industrial revenue bonds, the Notes
and the Senior Subordinated Notes), or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated cost savings and operating improvements, we believe that cash
flow from operations and available cash, together with available borrowings
under our credit facility, will be adequate to meet our liquidity needs for the
reasonably foreseeable future. We will likely need to refinance our credit
facility, the Notes and the Senior Subordinated Notes upon or prior to their
respective maturities. There can be no assurance that our business will
generate sufficient cash flow from operations, that anticipated cost savings
and operating improvements will be realized or that future borrowings will be
available under our credit facility in an amount sufficient to enable us to
service our indebtedness, including the industrial revenue bonds, the Notes and
the Senior Subordinated Notes, or to fund our other liquidity needs. In
addition, there can be no assurance that we will be able to effect any such
refinancing on commercially reasonable terms or at all.
Hedging Policy
We have not historically purchased or sold coal future contracts or engaged in
financial hedging transactions to any material extent, although it may do so in
the future. A subsidiary of Zeigler was actively engaged in financial hedging
transactions through June 2, 1998, however, that subsidiary will wind down its
operations during the fourth quarter of 1999 and the first quarter of 2000. We
may from time to time enter into contracts to supply coal to utilities or other
customers prior to acquiring the coal reserves necessary to meet all of its
obligations under these contracts but it does not expect this practice to
impact its results of operations materially in the near term.
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Inflation
Due to the capital-intensive nature of our activities, inflation may have an
impact on the development or acquisition of mining operations, or the future
costs of final mine reclamation and the satisfaction of other long-term
liabilities, such as health care or pneumoconiosis (black lung) benefits.
However, inflation in the United States has not had a significant effect on our
operations in recent years.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued which
establishes new rules for the reporting and display of comprehensive income and
its components in the financial statements. Comprehensive income generally
represents all changes in shareholder's equity except those resulting from
investments by or distributions to shareholders. We adopted this statement in
1998 with no impact on us as we currently have no transactions which give rise
to differences between Net Income and Comprehensive Income.
Also in June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS 131") was issued which establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. This statement supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." The new standard was adopted
for our 1998 fiscal year-end, comparative information from earlier years were
restated to conform to requirements of this standard.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" was issued which improves and standardizes
disclosures by eliminating certain existing reporting requirements and adding
new disclosures. The statement addresses disclosure issues only and does not
change the measurement of recognition provisions specified in previous
statements. The statement supersedes SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." We
adopted this statement for its 1998 fiscalyear-end.
Effective January 1, 1999, we will adopt Statement of Position (SOP) 98-5
"Reporting on the Costs of Start-Up Activities." The new statement requires
that the costs of start-up activities be expensed as incurred. We do not expect
the impact of this statement to be material on our results of operations or
financial position.
Impact of Year 2000 Issue
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of our computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations and the ability to engage
in normal business activities. Based on our ongoing assessment of our business
information systems, we have determined that our key business systems are
substantially compliant with year 2000 requirements. We have substantially
completed deployment of a new Company-wide management accounting system. This
system is year 2000 compliant and is being installed due to additional
functionality needed due to our growth. Non-information technology components
could have an impact on us. Management is currently in the final stages of
reviewing all non-information technology components including embedded
technology and equipment related hardware and software utilized in mobile
mining machinery, coal preparation plants, conveyor belt lines, draglines,
etc., as well as our communication systems. Such review was substantially
completed in March 1999, with any necessary upgrades or replacements expected
to be completed by the third quarter of 1999. All of the recent acquisitions
have been considered in our assessment and are not believed to pose any
additional risks related to year 2000 readiness. We are not materially reliant
on third party systems (e.g. electronic data interchange) to conduct business.
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We presently believe that the year 2000 issue will not pose significant
operational problems for our business systems. However, if any needed
modifications and conversions were not made, or were not completed timely, the
year 2000 issue would likely have a material impact on our operations. Our
total year 2000 project cost is not expected to be material, based on presently
available information. However, there can be no guarantee that the systems of
other companies on which our systems rely will be timely converted and would
not have an adverse effect on our systems. We have determined we have no
exposure to contingencies related to the year 2000 issue for the majority of
the products we have sold. If any of our suppliers or customers do not, or if
we do not, successfully deal with the year 2000 issue, we could experience
delays in receiving or shipping coal and equipment that would increase its
costs and that could cause us to lose revenues and even customers and could
subject us to claims for damages. Customer problems with the year 2000 issue
could also result in delays in us invoicing our customers or in us receiving
payments from them that would affect our liquidity. Problems with the year 2000
issue could affect the activities of our customers to the point that their
demand for our products is reduced. The severity of these possible problems
would depend on the nature of the problem and how quickly it could be corrected
or an alternative implemented, which is unknown at this time. In the extreme
such problems could bring us to a standstill.
We, based on our normal interaction with our customers and suppliers and the
wide attention the year 2000 issue has received, believe that our suppliers and
customers will be prepared for the year 2000 issue. There can, however, be no
assurance that this will be so. In February 1999, we requested written
assurances from approximately 300 of our major customers and suppliers as to
their year 2000 compliance. As of April 1999, approximately one-third of the
assurance requests have been complied with.
Some risks of the year 2000 issue are beyond our control and the control of our
suppliers and customers. For example, we do not believe that we can develop a
contingency plan which will protect us from a downturn in economic activity
caused by the possible ripple effect throughout the entire economy that could
be caused by problems of others with the year 2000 issue.
We will utilize both internal and external resources to test its business
systems for year 2000 compliance. We anticipate completing our year 2000
testing by December 2000, which is prior to any anticipated impact on our
operating systems. For 1999, we have budgeted $0.1 million for assessment and
testing of year 2000 compliance by outside service providers. Information
technology costs specifically for the year 2000 issue in excess of normal
operations to cover assessment, remediation and testing are not expected to
exceed $0.5 million and will be expensed as incurred. We have not yet seen any
need for contingency plans for the year 2000 issue, but this need will be
continuously monitored as we acquire more information.
The costs of the project and the date on which we believe we will complete the
year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the ability to locate and correct
all relevant computer codes, the ability to successfully integrate the business
systems of newly acquired entities and similar uncertainties. See "Risk
Factors--Impact of Year 2000 Issue."
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<PAGE>
THE COAL INDUSTRY
According to data compiled by the Energy Information Administration of the U.S.
Department of Energy, U.S. coal production totaled 1.09 billion tons in 1997, a
2.8% increase from the 1.06 billion tons produced in 1996 and a record high.
Factors driving the increase in 1997 coal production include:
. the lower cost of generating electricity with coal, compared to oil,
natural gas and nuclear power;
. decreased reliance on nuclear powered generation;
. volatile natural gas prices; and
.strong economic growth.
Total U.S. coal consumption reached 1.06 billion tons in 1997, a 2.1% increase
from 1996. Utilities used approximately 89.0% of the coal consumed in the
United States for the generation of electricity. Coal continues to be the
principal energy source for U.S. utilities, with its share of total electricity
generation rising from 56.0% in 1996 to 57.0% in 1997, as compared with 20.1%
from nuclear, 10.8% from hydroelectric and 9.1% from gas-fired facilities in
1997. In the last three years, coal prices under long-term sales contracts have
generally remained steady. However, spot market coal prices have fluctuated due
to seasonal variations in supply and demand caused by weather.
Despite the increased consumption and the many inefficient mines that have
closed in the last 10 years, coal mining companies with improving productivity
have filled the increasing demand without price increases. As a result of
increased competition among generators of electricity, utility buyers must
purchase coal more selectively. This heightened fiscal responsibility has led
to lower stockpiles, increased spot market activity and shorter contract terms,
which may create greater price volatility than in the past.
According to statistics compiled by the federal government, the number of
operating mines has declined 47.3% from 1987 through 1997, even though
production during that same time has increased 21.2%. Productivity gains have
contributed to the stability of coal prices in recent years. The United States
coal industry has undergone significant consolidation since 1987. The 10
largest coal producers in 1987 accounted for 36.4% of total domestic coal
production. After giving pro forma effect to our acquisitions since October
1997, the 10 largest coal companies accounted for 62% of total domestic coal
production in 1997.
A recent report by Energy Ventures Analysis, Inc. forecasts that the demand for
steam coal and the demand for coal by electric utilities in the United States
generally will increase steadily over the next 13 years. In addition, clean air
concerns and legislation have increased consumption of coal with a lower sulfur
content mined in Central Appalachia and the western United States. The
following table highlights the increases in coal demand as projected by Energy
Ventures Analysis:
<TABLE>
<CAPTION>
Coal Demand Forecast
-------------------------------
1995 1997 2000 2005 2010
----- ----- ----- ----- -----
(in millions of tons)
---------------------
<S> <C> <C> <C> <C> <C>
Domestic
Utility........................................ 828 885 979 1,057 1,112
Metallurgical.................................. 33 32 30 29 27
Industrial/Other............................... 81 77 78 81 79
----- ----- ----- ----- -----
Total Domestic.............................. 942 994 1,087 1,167 1,218
Export
Steam.......................................... 40 31 31 30 31
Metallurgical.................................. 50 52 45 40 36
----- ----- ----- ----- -----
Total Export................................ 90 83 76 70 67
----- ----- ----- ----- -----
Total Demand.................................... 1,032 1,077 1,163 1,237 1,285
Consumers Stock Change.......................... (2) (16) -- -- --
----- ----- ----- ----- -----
Total Consumption............................... 1,030 1,061 1,163 1,237 1,285
----- ----- ----- ----- -----
</TABLE>
60
<PAGE>
Coal Types
In general, coal is classified by Btu content and sulfur content. In ascending
order of heat values, measured in British Thermal Units or "Btus," the four
basic types of coal are lignite, subbituminous, bituminous and anthracite. Coal
of all geological composition may be used as steam coal. Bituminous coals must
have certain characteristics to qualify for use as metallurgical coal.
Lignite Coal. Lignite coal is a brownish-black coal with a Btu content that
generally ranges from 3,500 to 8,300 Btus per pound. Major lignite
operations are located in Texas, North Dakota, Montana and Louisiana.
Lignite coal is used almost exclusively in power plants adjacent to the
mine because the addition of any transportation costs to the mining costs
would exceed the price a customer would pay for such low-Btu coal.
Subbituminous Coal. Subbituminous coal is a black coal with a Btu content
that ranges from approximately 8,300 to 11,500 Btus per pound. Most
subbituminous reserves are found in Montana, Wyoming, Colorado, New Mexico,
Washington and Alaska. Subbituminous coal is used almost exclusively by
electric utilities and some industrial consumers.
Bituminous Coal. Bituminous coal is a "soft" black coal with a Btu content
that ranges from 10,500 to 14,000 Btus per pound. This coal is found in
Appalachia, the Midwest, Colorado and Utah, and is the type most commonly
used for electric power generation in the United States. Bituminous coal is
used to generate steam by utility and industrial customers, and as a
feedstock for metallurgical purposes in steel production. Coal used in
metallurgical processes has higher expansion/contraction characteristics
than steam coal.
Anthracite Coal. Anthracite coal is a "hard" coal with a Btu content as
high as 15,000 Btus per pound. Anthracite deposits are found primarily in
eastern Pennsylvania, and are used primarily for utility, industrial and
home heating purposes.
Coal Qualities
Steam Coal
The primary factors considered in determining the value and marketability of
steam coal include the Btu content, sulfur content, and the percentage of ash
(small particles of inert material), moisture and volatile matter.
Btu Content. The Btu content provides the basis for satisfying the heating
requirements of boilers. Coal having a lower Btu content frequently must be
blended with coal having a higher Btu content to allow the consumer to use
the coal efficiently in its operations.
Sulfur Content. Due to the restrictive environmental regulations regarding
sulfur dioxide emissions, coal is commonly described with reference to its
sulfur content, measured by pounds of sulfur dioxide produced per million
Btus (SO/2/ /MMBtu).
<TABLE>
<CAPTION>
Sulfur Content
Classification (pounds SO/2/ /MMBtus)
-------------- ----------------------
<S> <C>
Super-compliance Up to 0.8
Compliance Up to 1.2
Low-sulfur Up to 1.6
Near low-sulfur Over 1.6 and up to 2.5
</TABLE>
Super-compliance and compliance coal exceed the current requirements of
Phase I of the Clean Air Act Amendments of 1990 and meet or exceed the
prospective requirements of Phase II of that legislation. Consumers using
super-compliance and compliance coal can either earn sulfur emission
credits, which they can sell to other coal consumers, or blend the coal
with higher sulfur coal to lower the overall sulfur emissions without
having to install expensive sulfur-reduction "scrubber" technology. Super-
compliance
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<PAGE>
coal is desirable because utilities can burn it without blending and earn
sulfur emission credits or blend it with higher-sulfur non-compliance coal
even under Phase II requirements. Generally, a utility can burn near low-
sulfur coal without scrubbing by blending with super-compliance coal or by
purchasing reasonable quantities of emissions credits to comply with the
Phase II requirements.
Ash Content. The non-combustible nature of ash diminishes the heating value
of the coal. Therefore, coal with a higher percentage of ash will have a
lower heating value. For electric utilities, the percentage of ash is
important not only for its effect on heating value, but also because it
affects the amount of combustion by-products. Electric utilities typically
require coal with an ash content ranging from 6% to 15%, depending on
individual power plant specifications. More stringent ash standards apply
for metallurgical coal, typically requiring less than 8% ash. Moisture
content also diminishes the heating value of coal. A high percentage of
moisture also may cause customers to experience problems handling the coal.
Moisture concerns arise principally with coal from the Powder River Basin.
Volatile matter, combustible matter that vaporizes easily during
combustion, is important for electric utilities because most utility power
plant boilers are designed to burn coal having a medium to high percentage
of volatile matter.
Metallurgical Coal
Sulfur content, ash content, volatility, carbon content and certain other
coking characteristics are especially important for determining the value and
marketability of metallurgical coal. Metallurgical coal is fed into a coke oven
where it is heated in an oxygen deficient environment, producing porous coke
with a high carbon content which is then used to fuel blast furnaces. It is
important in the coking process to create a stable and high strength coke. This
is done by careful blending low volatile and high volatile metallurgical coals
to create the proper coke characteristics. The lower the volatile
characteristics and percentage of ash in coal, the higher the yield and carbon
content of the coke. However, too much low volatility coal may cause coke to
stick in the coke oven if it is an expanding coal.
Coal Regions
The majority of U.S. coal production comes from six regions: Northern
Appalachia, Central Appalachia, Southern Appalachia, the Illinois Basin, the
Rocky Mountains, and the Powder River Basin.
Northern Appalachia. Northern Appalachia includes northern West Virginia,
Pennsylvania and Ohio. Coal from this region generally has a high Btu
content (12,000-13,000 Btus per pound of coal). However, its sulfur content
(1.5%-2.5%) generally does not meet the Phase II standards.
Central Appalachia. Central Appalachia includes southern West Virginia,
eastern Kentucky and Virginia. Coal from this region generally has a low
sulfur content (0.7%-1.5%) and high Btu content (12,000-13,500 Btus per
pound of coal). Most of this coal complies with Phase I standards. After
the implementation of Phase II of that legislation, demand for this coal is
expected to increase. Central Appalachia sources provide most of the U.S.'s
overseas export coal.
Southern Appalachia. Southern Appalachia includes Tennessee and Alabama.
Coal from this region also has a low sulfur content (0.7%-1.5%), which
generally satisfies Phase I standards, and a high Btu content (12,000-
13,000 Btus per pound of coal). While the region's highly variable thin
seams impair productivity, readily accessible waterways and proximity to
southern utility plants help to reduce delivery costs of coal from this
region to utility customers.
The Illinois Basin. The Illinois Basin includes western Kentucky, Illinois
and Indiana. Coal from this region varies in Btu content (10,000-12,000
Btus per pound of coal) and has a high sulfur content (2.5%-3.5%).
Generally, unwashed Illinois Basin coal will not satisfy the Phase I or
Phase II standards. However, Illinois Basin coal is burned in plants
equipped with scrubbers, blended with low-sulfur coal or burned by plants
with sulfur dioxide emission credits.
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<PAGE>
The Rocky Mountains. The Rocky Mountain region consists of Utah and
Colorado. The coal from this region has a low sulfur content (0.4%-0.5%)
and varies in Btu content (10,500-12,800 Btus per pound of coal). This coal
complies with Phase I and Phase II standards. A portion of U.S. coal
exports come from this region.
The Powder River Basin. The Powder River Basin consists mainly of
northeastern Wyoming and southeastern Montana. This coal has a very low
sulfur content (0.25% to 0.65%), a low Btu content (8,000-9,200 Btus per
pound of coal) and very high in moisture content (20%-35%). All of this
coal complies with Phase I and Phase II standards, but many utilities
cannot burn it without derating [explain term] their plants, unless it is
blended with higher Btu coal.
Mining Methods
Coal is mined using either surface or underground methods. The method used
depends upon several factors, including the proximity of the target coal seam
to the earth's surface, and the geology of the surrounding area. We describe
the mining methods used at each of our mining operations under "Business--
Mining Operations."
Surface techniques generally require a favorable stripping ratio, the amount of
overburden that must be removed to excavate a given quantity of coal.
Underground techniques are used for deeper seams. In 1996, surface mining
accounted for approximately 62% of total U.S. coal production, with underground
mining accounted for the balance of production. Surface mining generally costs
less and has a higher recovery percentage than underground mining. Surface
mining typically results in the recovery of 80% to 90% of the total coal from a
particular deposit, while underground mining typically results in the recovery
of 50% to 60%.
Surface Mining Methods
Mountaintop Removal Mining. Mountaintop removal mining involves removing
all material above the coal seam before removal of the coal, leaving a
relatively level plateau in place of the hilltop after mining. This method
achieves a more complete recovery of the coal. However, its feasibility
depends on the amount of overlying material in relation to the coal to be
removed.
Area Mining. Area mining essentially involves a large-scale moving trench.
After removal of the initial overburden from a trench, the trench
progresses forward over the coal seam. As the trench moves forward, the
stripped overburden is moved to the back side of the trench. Area mining is
usually performed with draglines, truck and shovel units and large dozers.
Contour Mining. Contour mining is conducted on coal seams where mountaintop
removal is not feasible because of the high overburden ratios. Mining
proceeds laterally around a hillside, at essentially the same elevation,
assuming the seam is fairly flat. The contour cut in a coal seam provides a
flat surface that can be used to facilitate highwall mining or the less
efficient auger mining (both discussed below). This is a common surface
mining method in the steeper slopes of the Appalachian coalfields.
Auger Mining. In auger mining, the miners remain outside of the mine and a
large, corkscrew-like machine (the "auger") bores into the side of a hill
and extracts coal by "twisting" it out. Many of our competitors use this
method, which is less efficient than highwall mining. Auger mining
generally permits the extraction of coal to depths of only 300 feet or
less.
Highwall Mining. Highwall mining is an innovative mining method that uses
the patented Addcar highwall mining system developed by Addington Resources
under the guidance of Larry Addington. The Addcar mining system bores into
the face of a coal seam using a continuous miner and transports coal to the
mine opening using cascading conveyor belts with wheels on a series of cars
connected to the continuous miner. An employee controls the system from the
launch vehicle located at the mine entrance on the surface. Projects
requiring large volumes of coal production can use the highwall mining
equipment
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<PAGE>
as the primary production machine for mining in trench, box, open-pit or
contour cuts which are types of excavations commonly used in surface mining
to gain access to coal seams. The Addcar system allows us to reduce
operating costs and extract coal profitably from reserves that would
otherwise have been uneconomical to mine. The Addcar system allows the
Company to drive down stripping ratios, decreasing the extraction cost per
ton significantly.
Deep Mining Methods
Room and Pillar Mining. Room and pillar mining uses remote-controlled
continuous miners that cut a network of interconnected 20-foot wide
passages as high as the coal seam. Roof bolters stabilize the mine roof and
pillars are left to provide overall roof support. As a result of
significant technological advances, this mining method has become the most
common method of deep mining. Room and pillar mining is used as a primary
recovery method in smaller mines and for developing a network of panels for
longwall mining.
Longwall Mining. Longwall mining uses powerful hydraulic jacks, varying
from four feet to 12 feet in height, to support the roof of the mine while
mobile shearing machines extract the coal. High capacity chain conveyors
then move the coal to a high capacity mine belt system for delivery to the
surface. The longwall machine generally cuts blocks of coal, referred to as
longwall panels, that have a width of approximately 900 feet and a length
ranging from 9,000 to 11,000 feet. Longwall mining is a low-cost, high-
output method of deep mining that results in the recovery of approximately
60% of coal reserves. In addition, longwall mining is much faster than room
and pillar mining. After a longwall panel is cut, the longwall machine must
be disassembled and moved to the next panel location, a process which
generally takes one to two weeks.
Coal Preparation and Blending
Depending on coal quality and customer requirements, raw coal may be shipped
directly from the mine to the customer. Generally, raw coal from mountaintop
removal, contour and strip mines can be shipped in this manner. However, the
quality of most raw coal does not allow it to be shipped directly to the
customer without processing in a preparation plant. Preparation plants separate
impurities from coal. This processing upgrades the quality and heating value of
the coal by removing or reducing sulfur and ash-producing materials, but
entails additional expense and results in some loss of coal. Coals of various
sulfur and ash contents can be mixed or "blended" at a preparation plant or
loading facility to meet the specific combustion and environmental needs of
customers. Coal blending helps increase profitability by reducing the cost of
meeting the quality requirements of specific customer contracts, thereby
optimizing contract revenue.
Customers
Over the last 10 years, annual coal consumption in the United States has grown
steadily, reaching a record level of 1.06 billion tons in 1997. This steady
growth in coal consumption reflects the growth in the demand for electricity
over the same period, because the electric utility industry accounts for 87% of
domestic coal consumption. In 1997, coal-fired utilities generated
approximately 57% of the nation's electricity, followed by nuclear (20.1%),
hydroelectric (10.8%) and gas-fired (9.1%) utilities. Energy Venture Analysis
and other industry sources expect electricity usage to increase at an average
annual rate of 1.4% to 1.9% over the next several years. Because coal is one of
the least expensive and most abundant resources for the production of
electricity, and imports of coal historically have not exceeded 1.0% of
domestic coal consumption, industry analysts expect domestically produced coal
to continue to play a significant role in generating electricity in the future.
64
<PAGE>
[PIE CHART APPEARS HERE]
* "Other" includes oil, petroleum coke, biomass, wind, geothermal, and other
renewable energy sources.
Source: Department of Energy, EIA Monthly Review, March 1998.
Electricity can be generated less expensively using coal than natural gas, oil
or nuclear energy. The delivered cost of coal for utilities averaged
$1.273/MMBtu in 1997 compared to $2.761/MMBtu for natural gas and $2.879/MMBtu
for oil. Although the cash operating costs of nuclear and hydroelectric energy
are less expensive than coal, no new nuclear plant permits have been issued
since 1978, and many existing plants are near the end of their useful lives.
Additionally, the availability of hydroelectricity is limited. Oil and all
other petroleum by-products accounted for less than 2.5% of all utility fuel
consumption in both 1990 and 1997. The table below illustrates the relative
cost advantage of coal over certain other power generation sources:
Average Total Generating Costs(1)
<TABLE>
<CAPTION>
1990(2) 1997(3)
------- -------
<S> <C> <C>
Coal......................................................... $20.06 $17.24
Nuclear...................................................... 22.36 18.98
Hydroelectricity............................................. 3.04 5.86
Natural Gas.................................................. 28.84 35.12
</TABLE>
- - --------
(1) Average annual generating costs per Mwh produced for all U.S. power plants;
costs are all-in and include the cost of fuel, depreciation of plant, and
overhead and maintenance.
(2) Source: RDI Power Data 1996. FERC Form 1 Data.
(3) Source: Monthly operating data from RDI, 1998 from FERC reports.
65
<PAGE>
Utility Deregulation
Since 1935, domestic electric utilities have operated in a regulated
environment, with prices and return on investment being determined by state
utility and power commissions. In April 1996, the Federal Energy Regulatory
Commission established rules providing for open access to electricity
transmission systems, thereby initiating consumer choice in electricity
purchasing and encouraging competition in electricity generation. Industry
analysts anticipate that the open access rules will create a national market
for the sale of wholesale electricity where competition will primarily focus on
price. Within the electric utility industry, the increased focus on price
should favor low-cost producers of electricity. Among the eastern states,
Kentucky, South Carolina, West Virginia, Indiana, Virginia, Ohio and Georgia
are in the top half of low cost electricity producers. Competition will likely
benefit the coal industry generally because coal is a relatively low-cost fuel
for electricity generation. Within the coal industry, companies with customers
that are low-cost producers and have excess capacity are likely to see the
greatest increase in coal demand.
Our primary customers are low-cost electricity producers located in the eastern
half of the United States, where we focus our marketing efforts. The following
table highlights the states east of the Mississippi River where we sell
significant quantities of coal. Since utilities are currently regulated, we
believe that the sales price of their electricity is a reasonable proxy for the
relative generation costs within those states. We believe that we are a low
cost coal supplier to those utilities which have relatively low cost and can
benefit from deregulation. Consequently, we believe that we share the
opportunity to benefit from electric utility deregulation.
<TABLE>
<CAPTION>
1996 Industrial
Eastern States Electric Rate
- - -------------- ---------------
(cents per kWh)
<S> <C>
Kentucky*............... 2.92
Wisconsin............... 3.66
South Carolina*......... 3.89
Alabama................. 3.90
West Virginia*.......... 3.91
Indiana*................ 3.93
Virginia*............... 3.99
Maryland................ 4.15
Ohio*................... 4.21
Georgia*................ 4.29
Mississippi............. 4.41
Tennessee*.............. 4.52
Delaware................ 4.68
North Carolina*......... 4.79
Michigan................ 5.08
Florida................. 5.11
Illinois*............... 5.24
New York................ 5.62
Pennsylvania............ 5.93
Maine................... 6.26
Vermont................. 7.58
Connecticut............. 7.86
New Jersey.............. 8.15
Massachusetts........... 8.43
Rhode Island............ 8.51
New Hampshire........... 9.16
</TABLE>
<TABLE>
<CAPTION>
1996 Industrial
Western States Electric Rate
- - -------------- ---------------
(cents per kWh)
<S> <C>
Idaho................... 2.68
Washington.............. 2.85
Montana................. 3.30
Oregon.................. 3.41
Wyoming................. 3.45
Nebraska................ 3.68
Utah.................... 3.70
Oklahoma................ 3.78
Iowa.................... 3.91
Texas................... 4.03
Minnesota............... 4.26
Louisiana............... 4.32
Colorado................ 4.35
New Mexico.............. 4.35
Missouri................ 4.44
North Dakota............ 4.44
South Dakota............ 4.45
Arkansas................ 4.47
Kansas.................. 4.70
Nevada.................. 4.90
Arizona................. 5.19
California.............. 6.97
</TABLE>
- - --------
An asterisk indicates States where the Company has significant customers.
SOURCE: Department of Energy/Energy Information Administration, Electric Sales
and Revenue, 1996.
66
<PAGE>
Environmental Laws
Various federal, state and local environmental laws have had, and will continue
to have, a significant effect on the domestic coal industry. These laws govern
matters such as employee health and safety, limitations on land use, permitting
and licensing requirements, air quality standards, water pollution, plant and
wildlife protection, reclamation and restoration of mining properties after
mining is completed, discharge of materials into the environment, surface
subsidence from underground mining and the effects of mining on groundwater
quality and availability. In addition, the electric utility industry is subject
to extensive regulation regarding the environmental impact of electricity
generation activities which could affect demand for coal. New legislation or
regulations could be adopted that may have a significant impact on coal mining
operations or the ability of coal customers to use coal. See "Risk Factors--
Government Regulation of the Mining Industry" and "Government Regulation--
Environmental Laws."
67
<PAGE>
BUSINESS
AEI Resources is one of the largest coal producers in the United States. On a
pro forma basis for 1998, we would have been:
. the fourth largest steam coal company in the United States as measured
by revenues;
. the second largest steam coal producer in the Central Appalachian coal
region as measured by production;
. the largest steam coal producer in eastern Kentucky as measured by
production; and
. among the top 25% of coal producers in productivity in eastern Kentucky
as measured by tons per manhour.
Since October 1, 1997 we have grown substantially by acquiring coal mining
businesses and assets. By integrating the acquired businesses, we intend to
strengthen our market position while realizing the benefits of consolidation.
We believe our acquisitions provide the opportunity to reduce costs by:
. allowing us to meet our customers' coal orders from multiple mines,
thereby decreasing transportation costs and production costs;
. increasing productivity by applying more efficient, lower-cost mining
methods; and
. eliminating certain corporate overhead expenses by consolidating
administrative functions.
The coal we mine and market from our 49 mines in Kentucky, West Virginia,
Tennessee, Indiana, Illinois, Ohio and Colorado is primarily steam coal. Based
on the reserve studies prepared by independent mining consultants, we estimate
we have, on a pro forma basis, approximately 1.1 billion tons of proven and
probable coal reserves assigned to mining projects. We estimate that
approximately 0.4 billion tons, or 39%, of our assigned coal reserves are low-
sulfur coal. A total of 0.8 billion tons, or 73%, of our assigned reserves
consist of low-sulfur coal or coal generating less than 2.5 pounds of sulfur
dioxide per million Btus. Our proven or probable coal reserves, including both
assigned and unassigned reserves, total 2.4 billion tons.
Our primary customers are low-cost electric utility companies located in the
eastern half of the United States. On a pro forma basis for 1998, we generated
72% of our revenues under 55 long-term sales contracts for sale of steam coal
to domestic electric utilities. Long-term contracts are contracts having an
original term of more than one year. As of December 31, 1998, on a pro forma
basis, our long-term sales contracts had a volume-weighted average remaining
term of 5.7 years, excluding option periods. We sell the remainder of our steam
coal under short-term sales contracts and on the spot market. We believe that
the transportation, mining method and corporate efficiencies we can realize
from our recent acquisitions enhance our opportunity to maintain and increase
our base of long-term sales contracts with these customers.
We also supply premium-quality, mid- and low-volatility metallurgical coal to
certain integrated steel producers. On a pro forma basis for 1998, we sold 50.0
million tons of steam coal and 1.0 million tons of metallurgical coal, and
generated $1.4 billion of revenues and $260.2 million of Adjusted EBITDA.
We believe that we will benefit if demand for coal grows as anticipated by
industry analysts. See "The Coal Industry." Based on studies by Hill and
Associates, Resource Data International and Energy Venture Analysis, we believe
that the demand for coal will continue to increase among low-cost producers of
electricity with excess capacity in Kentucky, Tennessee, Indiana, Ohio, South
Carolina and West Virginia. If any of the factors driving the recent increases
in coal production change, however, it could reduce future demand.
68
<PAGE>
Competitive Strengths
We believe we possess the following competitive strengths:
Regional Market Focus. We have focused our recent growth on the Central
Appalachian and Illinois Basin coal regions. With 42 mines in those
regions, we can deliver coal from multiple sources to our principal
customers, reduce transportation expense for both ourselves and our
customers, and maximize production at lower-cost mines. On a pro forma
basis for 1998, we believe we would have been the second largest steam coal
producer in the Central Appalachian coal region and the third largest steam
coal producer in the Illinois Basin coal region. Approximately 51% of our
reserves in the Central Appalachian coal region consist primarily of low-
sulfur and compliance coal. We believe this will give us a competitive
advantage because of the more stringent air quality requirements under
Phase II of the Clean Air Act Amendments that currently are scheduled to go
into effect in 2000. Most of our higher sulfur coal reserves are located in
the Illinois Basin. On a pro forma basis, we sold 76% of the coal we
produced from the Illinois Basin 1998 under long-term sales contracts to
electric utilities which operate "scrubbed" facilities that reduce sulfur
dioxide emissions.
Our Portfolio of Long-Term Sales Contracts. As of December 31, 1998, we had
55 long-term sales contracts with utilities and other industrial customers.
Our utility customers include the Tennessee Valley Authority, Carolina
Power & Light, Georgia Power, American Electric Power, Cincinnati Gas &
Electric and Dayton Power & Light. The remaining term on our long-term
contracts, on a volume-weighted basis, averaged approximately 5.7 years as
of that date. On a pro forma basis for 1998, we generated approximately 72%
of our revenues from long-term sales contracts.
Low-Cost Operations. We believe our production costs are lower than those
of our primary competitors. We attribute our ability to maintain low-cost
operations to several factors:
. use of our patented Addcar highwall mining system. This allows us to
recover coal at up to 30% less cost, or to mine coal that would
otherwise be unprofitable due to its high stripping ratios;
. our substantial use of mountaintop removal mining;
. our tailored cast blasting techniques, which reduce the cost of
overburden removal;
. the close proximity of our coal reserves to customers, which enhances
transportation efficiencies; and
. blending raw coals to fullest extent possible, which minimizes costs and
optimizes revenues.
We believe we can apply these competitive advantages to many of the
properties we have acquired since October 1, 1997.
Successful Integration of Acquisitions. Since November 1995, we have
expanded operations through a series of acquisitions, growing from annual
production of approximately 3 million tons in fiscal 1995 to approximately
50.9 million tons in fiscal 1998 on a pro forma basis. We attribute our
success in integrating acquired properties and companies to:
. reducing operating costs through the implementation of better mining
methods, including use of the Addcar highwall mining system;
. shifting production to lower-cost operations; and
. reducing corporate overhead expense through headcount reduction.
We believe that similar opportunities exist to improve the operating
performance of our more recently acquired businesses.
69
<PAGE>
Addcar Highwall Mining System. Our patented Addcar highwall mining system
gives us both a proprietary low-cost mining method and a source of revenue
from leasing Addcar systems to non-competing third parties. The Addcar
system reduces effective stripping ratios, which significantly decreases
the extraction cost per ton of coal. In addition, the Addcar system reduces
operating costs and allows us to extract coal profitably from reserves that
may otherwise be uneconomical to mine. We plan to expand our use of the
Addcar highwall mining system whenever possible to the mining operations we
have recently acquired.
Experienced Management. Our senior management team averages 20 years of
experience in the coal industry. This management team has a proven record
of developing innovative, low-cost operations, maintaining strong customer
relationships and making strategic, opportunistic acquisitions.
Business Strategy
We have adopted a business strategy of consolidating regionally. This involves
integrating the businesses we have acquired since October 1997, acquiring
complementary reserves, and continuing to focus on our existing customer base.
To implement this strategy, we will seek to:
Continue Reducing Costs. We continue to focus on reducing costs at our
current and recently acquired operations. By increasing production at our
most efficient mines and shifting production to sites that are nearest to
our customers' facilities, we believe we can improve our operating margins.
We will concentrate our cost reduction efforts on using low-cost mining
methods to the fullest possible extent, reducing transportation costs by
producing coal from multiple mines, and eliminating certain redundant
corporate expenses. We believe we can also increase productivity by
investing capital prudently in new production technologies, such as the
Addcar highwall mining system.
Expand Our Use of Addcar Systems. We believe our Addcar highwall mining
system provides significant competitive advantages by reducing costs and
allowing us to mine coal reserves that our competitors cannot economically
mine. For example, we plan to use the Addcar systems in our West Virginia
and eastern Kentucky operations, where we believe they will allow us to
increase coal production and reduce costs. We are also leasing three Addcar
systems to a third party and intend to pursue additional leasing
opportunities with noncompetitors to increase our revenue stream from the
Addcar.
Focus on Key Electric Utility Customers. We intend to focus on maintaining
and increasing our portfolio of long-term sales contracts with customers.
Except for certain customers served by our Rocky Mountain mine, all of such
customers are located in the eastern half of the United States. We made
more than 35% of our pro forma sales for the 1998 fiscal year to operating
divisions of the Tennessee Valley Authority, American Electrical Power, the
Southern Company and Carolina Power & Light. Our recent acquisitions have
enabled us to add new electric utility customers and increase the volume of
coal sold to these customers.
Focus on Complementary Acquisitions. Our recent acquisitions established
our position as a leading low-cost coal producer in the Central Appalachian
and Illinois Basin coal regions. To enhance our regional market position,
we will seek to make acquisitions that complement our existing operations
or reserves whenever opportunities arise. We plan to expand our low-cost
operations in the Central Appalachian region through acquisitions of
complementary coal reserves or operations.
Develop Growth Opportunities. We believe the metallurgical coal business we
acquired in 1998 and our super-compliance, high Btu coal operations in
Colorado present niche opportunities for incremental revenue growth. We
believe that by using more advanced mining methods at our metallurgical
coal operation we can enhance production and increase sales at this high-
margin operation, while also reducing production costs. We have also
developed our Colorado reserves to produce super-compliance coals that our
key customers can blend with our eastern coals to produce a very low-
sulfur-burn. By expanding our low-cost operations in Colorado, we believe
we can improve our opportunity to capture a greater share of the coal
market if demand for high-Btu, compliance coal increases as more stringent
air quality standards take effect.
70
<PAGE>
Coal Production
We currently conduct mining operations at 28 surface mines and 17 deep mines in
five regions: Northern Appalachia, Central Appalachia, Southern Appalachia, the
Illinois Basin and the Rocky Mountains. Historically, approximately 69% of our
production has come from surface mines, and 31% has come from deep mines. The
following table presents each mining region's production, in millions of tons,
for each of the years 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
(in millions of tons)
<S> <C> <C>
Mining Region
Northern Appalachia..................................... 142.4 149.5
Central Appalachia...................................... 277.3 287.9
Southern Appalachia..................................... 24.9 24.3
Illinois Basin.......................................... 112.6 110.7
Rocky Mountains......................................... 70.6 72.7
---------- ----------
Total................................................. 627.8 645.1
========== ==========
</TABLE>
We use mountaintop removal mining wherever possible because it allows us to
recover more tons of coal per acre and facilitates the permitting of larger
projects, which allows mining to continue over a longer period of time than
would be the case using other mining methods. We also use other surface mining
techniques, including contour mining, to the extent practicable. We currently
use six Addcar highwall mining systems for our highwall mining operations. The
Addcar system is more cost-effective than traditional mining methods in areas
where it can be used.
As part of our strategy to expand our low-cost operations, we are developing
longwall panels at our Bowie mine to install a longwall mining system in the
fourth quarter of 1999. Using the longwall mining system will enhance our
ability to produce large volumes of high quality compliance coal at lower cost
to support a recently acquired contract with the Tennessee Valley Authority. It
will also improve our ability to procure additional long-term sales contracts
as long as we can lease additional reserves on adjacent federal land. See
"Rocky Mountain Region--Bowie."
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<PAGE>
Mining Operations
The following table sets forth (in millions of tons) estimated proven and
probable coal reserves for our mining operations as of December 31, 1998. The
data are derived from reserve studies prepared by the mining engineering firms
identified under "Expert." While we believe the estimates are reasonable, we
cannot assure you that the coal reserve data are accurate in all respects.
<TABLE>
<CAPTION>
Proven and
Probable Reserves
----------------------
Number Total Average Year
of (millions Owned Leased Average Percent Mining Established
Mining Operation Mines of tons) % % Btu Content Sulfur Method(2) or Acquired
---------------- ------ --------- ----- ------ ----------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
I. NORTHERN APPALACHIA
Evergreen mine.......... 1 22 62 38 12,300 0.9% SM 1998
--- ---
Subtotal.............. 1 22
II. CENTRAL APPALACHIA
Kentucky
Addington Mining........ 4 23 0 100 12,300 0.9 SM* 1984
Crockett................ 1 9 0 100 12,000 1.6 DM 1998
Ikerd-Bandy............. 2 27 0 100 12,500 1.1 SM* 1997
Leslie Resources........ 5 63 0 100 12,000 1.1 SM 1998
Pike County Coal ....... 7 32 74 26 12,700 1.1 DM/SM 1998
Pine Mountain........... 2 6 75 25 12,800 1.2 DM 1998
Star Fire............... 0 39 52 48 12,800 1.1 SM 1998
Wolf Creek.............. 0 18 15 85 12,500 1.1 DM 1998
Straight Creek.......... 4 6 1 99 12,800 1.0 DM/SM 1998
Martiki................. 1 25 0 100 12,500 1.0 SM 1998
West Virginia
Battle Ridge............ 0 37 0 100 12,300 0.7 SM 1998
Kanawha River
Operations............. 4 16 1 99 12,300 0.9 DM/SM 1998
Marrowbone.............. 3 25 5 95 12,000 0.6 DM/SM 1998
Zeigler Heritage........ 0 55 0 100 -- 0.6 HWM/SM 1998
Mid-Vol................. 2 51 0 100 -- 0.6 SM 1998
Princess Beverly........ 1 33 0 100 12,500 SM 1999
--- ---
Subtotal.............. 36 465
III. SOUTHERN APPALACHIA
Skyline................. 1 14 0 100 12,300 1.0 SM 1998
Cumberland.............. 0 42 0 100 12,200 2.2 DM/SM 1995
--- ---
Subtotal.............. 1 56
IV. ILLINOIS BASIN
Illinois
Elkhart Mine............ 1 71 34 66 10,500 3.2 DM 1998
Mine #11................ 1 17 80 20 11,075 3.1 DM 1998
Indiana
Chinook................. 0 8 99 1 10,750 3.8 SM 1998
Kindill #1.............. 1 68 19 81 11,500 3.8 DM/SM 1998
Kindill #2.............. 1 57 58 42 11,600 3.8 SM 1998
Kindill #3.............. 1 58 96 4 10,800 1.2 SM 1998
Sycamore................ 1 6 99 1 10,900 2.0 SM 1998
--- ---
Subtotal.............. 6 285
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Proven and Probable
Reserves
----------------------
Number Total Average Year
of (millions Owned Leased Average Percent Mining Established
Mining Operation Mines of tons) % % Btu Content Sulfur Method(2) or Acquired
---------------- ------ --------- ----- ------ ----------- ------- --------- -----------
(in millions
of tons)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
V. ROCKY MOUNTAINS
Bowie............................ 1 47 50 50 12,800 0.4 DM 1998
VI. OTHER UNASSIGNED RESERVES(1)
Milam ........................... 0 242 0 100 6,700 1.0 SM 1998
Unassigned Reserves(1)........... 0 1,254 20 80
--- -----
Total Other Unassigned Reserves.. 0 1,496
--- -----
VII. TOTAL RESERVES.............. 45 2,371
=== =====
</TABLE>
- - --------
(1) Assigned Proven and Probable Reserves are those reserves that are currently
being mined or have been developed so they could be mined with minimal
additional preparation. Unassigned Reserves are those reserves which are
not yet developed.
(2) DM = Deep Mining; SM = Surface Mining and HWM = Highwall Mining. An
asterisk indicates locations where Addcar highwall mining systems are
currently being used.
You should note that reserve studies are estimates based on an evaluation of
available data. Actual reserves may vary substantially from the estimates.
Estimated minimum recoverable reserves are comprised of coal that is considered
to be merchantable and economically recoverable by using mining practices and
techniques prevalent in the coal industry at the time of the reserve study,
based upon then-current prevailing market prices for coal. We use the mining
method that we believe will be most profitable with respect to particular
reserves. We believe the volume of our current reserves exceed the volume of
our contractual delivery requirements. Although the reserves shown in the table
above include a variety of qualities of coal, we presently blend coal of
different qualities to meet contract specifications. We have blended coal to
meet contract specifications for many years. See "Risk Factors--Reliance on
Estimates of Proven and Probable Reserves."
In the following sections, we describe the operating characteristics of the
principal mines and reserves of each of our mining units.
Northern Appalachia Region
This region includes all of our mining operations in Ohio and northern West
Virginia. Our one surface mine in this region produced 2.0 million tons of coal
during fiscal 1998, or approximately 1% of the total coal production in the
region. As of December 31, 1998, we had 129 union-free employees in this
region. In 1998, our coal production in this region accounted for approximately
4% of our total coal production.
Evergreen
The Evergreen mine is located in Webster County, West Virginia. We use the
mountaintop removal method to mine five seams of coal at this mine. Production
from this mine in 1998 totaled approximately 2.0 million tons, which had an
average sulfur content of 0.9%, an average ash content of 12.7% and an average
Btu content of 12,300. We employ 129 union-free employees at this mine. Coal
from this mine is transported by rail to a loadout. We estimate that the
Evergreen mine contains 22 million tons of proven and probable reserves. We own
and operate a preparation plant and a unit train loading facility in connection
with this mine.
Central Appalachia Region
This region includes all of our mining operations in southern West Virginia,
and eastern Kentucky. We own and operate 36 surface and deep mines in this
region which produced 35.4 million tons of coal in 1998, or
73
<PAGE>
approximately 13% of the total coal production in the region. As of December
31, 1998, we had 766 union and 1,526 union-free employees in this region. In
1998, our production in this region accounted for approximately 70% of our
total coal production.
Kentucky
Addington Mining
Addington Mining's four mines are located in Pike and Breathitt Counties in
eastern Kentucky. We use the mountaintop removal method and the Addcar highwall
mining system to mine four seams of coal at these mines. Production from these
mines in 1998, was approximately 4.2 million tons, which had an average sulfur
content of 0.9%, an average ash content of 10% and an average Btu content of
12,300. We employ 295 union-free employees at these mines. Coal from these
mines is trucked to river and rail loadout facilities. We estimate these mines
contain approximately 23 million tons of proven and probable reserves. We own
and operate a storage facility, a preparation plant and a unit train loadout
facility in connection with these mines.
Crockett
Crockett's mine is located in Bell County, Kentucky. We use room and pillar
mining to mine one seam of coal at this mine. Production from this mine in
1998, was approximately 0.6 million tons, which had an average sulfur content
of 1.6%, an average ash content of 8% and an average Btu content of 12,800. We
employ 19 union-free employees at this mine. Coal from this mine is trucked to
a preparation plant. We estimate this mine contains 9 million tons of proven
and probable reserves. We own and operate a preparation plant and a unit train
loading facility in connection with this mine.
Ikerd-Bandy
Ikerd-Bandy's two mines are located in Perry and Bell counties in eastern
Kentucky. We use surface and highwall mining methods to mine six seams of coal
at these mines. Production from these mines in 1998, was approximately 1.1
million tons, which had an average sulfur content of 1.1%, an average ash
content of 10% and an average Btu content of 12,500. We employ 91 union-free
employees at these mines. Coal from these mines is transported by rail either
to a barge or directly to the customer. We estimate these mines contain 27
million tons of proven and probable reserves. We own and operate a storage
facility, a preparation plant and a loadout facility at each of these mines.
Leslie Resources
The Leslie Resources mines are located in Perry, Knott and Leslie Counties in
eastern Kentucky. We use mountaintop removal mining and contour mining to mine
12 seams of coal at these mines. Production from these mines in 1998, was
approximately 5.2 million tons, which had an average sulfur content of 1.1%, an
average ash content of 12% and an average Btu content of 12,000. We employ 419
union-free employees at these mines. Coal from these mines is trucked to a
barge loadout on the Big Sandy River and a unit train loading facility. We
estimate these mines contain 63 million tons of proven and probable reserves.
We own and operate a preparation plant, a coal blending facility and a unit
train loading facility in connection with these mines.
Pike County Coal--Clark Elkhorn
We operate the Ratliff-Elkhorn and Sunset #2 underground mines and the #460
surface mine at our Pike County Coal--Clark Elkhorn operations in Pike County,
Kentucky. We use the room and pillar method to mine one seam of coal at the
Ratliff Elkhorn and Sunset #2 mines and the mountaintop removal method to mine
8 to 10 seams of coal at the #460 mine. Production from these mines in 1998,
was approximately 1.8 million tons, which had an average sulfur content of
1.1%, an average ash content of 9.0% and an average Btu content of 12,700. We
employ 114 union-free employees at these mines. Coal from these mines is
trucked to barge loading facilities located on the Big Sandy River or to one of
two nearby processing and loading facilities. We estimate these mines contain 9
million tons of proven and probable reserves.
74
<PAGE>
Pike County Coal--Knott County
We own and operate the Hollybush mine and the Brimstone mine at our operations
in eastern Knott County, Kentucky. We use the room and pillar method to mine
two seams of coal at these mines. Production from these mines in 1998, was
approximately 1.4 million tons, which had an average sulfur content of 1.1%, an
average ash content of 9% and an average Btu content of 12,700. We employ 137
union-free employees at these mines. Coal from these mines is trucked to the
Bates Branch processing complex. We estimate these mines contain 8 million tons
of proven and probable reserves. We own and operate a preparation plant, a coal
blending facility and a unit train loading facility in connection with these
mines.
Pike County Coal--Matrix Coal
We own and operate the Shop Branch mine and Tuscarora mine at our Pike County
Coal--Matrix Coal operations in Pike County, Kentucky. We use the mountaintop
removal mining method to mine three seams of coal at the Shop Branch mine and
room and pillar mining to mine one seam of coal at Tuscarora. Production from
these mines in 1998, was approximately 1.4 million tons, which had an average
sulfur content of 1.1%, an average ash content of 9% and an average Btu content
of 12,700. We employ 42 union-free employees at these mines. Coal from these
mines is trucked to either the Big Sandy River docks or a rail loadout. We
estimate these mines contain 11 million tons of proven and probable reserves.
We own and operate a preparation plant in connection with these mines.
Pine Mountain
The Pine Mountain mines are located in Bell and Harlan Counties, Kentucky. We
use the room and pillar mining method to mine two seams of coal at these mines.
Production from these mines in 1998, was approximately 1.7 million tons, which
had an average sulfur content of 1.2%, an average ash content of 8% and an
average Btu content of 12,800. We employ 19 union-free employees at these
mines. Coal from these mines is trucked to a unit train loading facility. We
estimate these mines contain 6 million tons of proven and probable reserves. We
own and operate a preparation plant and a truck loading facility in connection
with these mines.
Star Fire
The Star Fire mine is located near Perry and Knott Counties in eastern
Kentucky. We use mountaintop removal, highwall mining and contour mining to
mine five seams of coal at this mine. Production from this mine in 1998, was
approximately 2.4 million tons, which had an average sulfur content of 1.1%, an
average ash content of 13% and an average Btu content of 11,800. We employ 25
union and 8 union-free employees at this mine. Coal from this mine is
transported by rail. We estimate this mine contains 39 million tons of proven
and probable reserves. We own and operate a preparation plant, a coal blending
facility and a unit train loading facility in connection with this mine. The
Star Fire mine shut down in November 1998 following an order of the Office of
Surface Mining that closed the main haul road from the mine. We have challenged
the order in an administrative proceeding before the U. S. Department of the
Interior. We expect the administrative law judge will issue a decision in the
third quarter of 1999.
Straight Creek
The Straight Creek mines are located in Bell County, Kentucky. We use room and
pillar mining and mountaintop removal mining to mine four seams of coal at
these mines. Production from these mines in 1998, was approximately 2.2 million
tons, which had an average sulfur content of 1.0%, an average ash content of 8%
and an average Btu content of 12,800. We employ 27 union-free employees at
these mines. Coal from these mines is trucked to a unit train loading facility.
We estimate these mines contain 6 million tons of proven and probable reserves.
We own and operate a preparation plant, a coal blending facility and a unit
train loading facility in connection with these mines.
Martiki
The Martiki mine is located in Martin County, Kentucky. We use mountain top
removal and contour mining to produce coal from three seams. Production from
this mine totaled 2.5 million tons for 1998. Coal quality
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averaged 1.0% sulfur, 10% ash and 12,500 Btus per pound. We estimate that this
mine contains 25 million tons of proven and probable reserves. The workforce is
currently being restructured, but we expect to have about 150 union-free
employees at this mine. We own and operate a 1,000 ton per hour preparation
plant and a unit train loading facility.
West Virginia
Battle Ridge
We own the former Battle Ridge mines in Kanawha and Boone Counties, West
Virginia. We use the mountaintop method to mine 11 seams of coal. Production
from these mines in 1998, was approximately 0.4 million tons, which had an
average sulfur content of 0.8%, an average ash content of 13% and an average
Btu content of 12,200. These mines are currently idle. Coal from these mines is
trucked. We estimate these mines contain 37 million tons of proven and probable
reserves. We own two river dock facilities on the Kanawha River and one on the
Big Sandy River.
Kanawha River Operations
We own and operate the Dunn, Armstrong Creek, Stockton and Cannelton #165 mines
at our Kanawha River operations. These mines are located in Kanawha County,
West Virginia. We use the mountaintop removal method to mine 10 seams of coal
at Dunn and Armstrong Creek, and room and pillar mining at Stockton and
Cannelton #165 to mine one seam of coal. Production from these mines in 1998,
was approximately 5.7 million tons, which had an average sulfur content of
0.9%, an average ash content of 11% and an average Btu content of 12,300. We
employ 466 union and 70 union-free employees at these mines. Coal from these
mines is transported by truck and conveyor to the coal blending yard. We
estimate these mines contain 16 million tons of proven and probable reserves.
We own and operate a preparation plant in connection with these mines.
Marrowbone Operations
We own and operate the Marrowbone Creek mine, the Northern Mingo #2 mine and
the Triad mine at Marrowbone operations in Mingo County, West Virginia. We use
the room and pillar method to mine one seam of coal at the Marrowbone Creek
mine and the Northern Mingo #2 mine, and the mountaintop removal mining method
to mine three seams of coal at the Triad mine. Production from these mines in
1998, was approximately 3.8 million tons, which had an average sulfur content
of 0.6%, an average ash content of 12% and an average Btu content of 12,000. We
employ 275 union and 64 union-free employees at these mines. Coal from these
mines is transported by conveyor or truck to a preparation plant. We estimate
these mines contain 25 million tons of proven and probable reserves. We own and
operate the Tug Valley processing plant and a unit train loading facility in
connection with these mines.
Mid-Vol
The Mid-Vol mine is located in McDowell County, West Virginia. We use
mountaintop removal and contour mining to mine 5 seams of coal at these mines.
Production from these mines in 1998, was approximately 1.0 million tons, which
had an average sulfur content of 0.6%, an average ash content of 5%. We employ
71 union-free employees at these mines. Coal from these mines is trucked to the
Norfolk Southern rail line. We estimate these mines contains 51 million tons of
proven and probable reserves. We own and operate a preparation plant, a coal
blending facility and a rail loading facility in connection with these mines.
Princess Beverly
The Princess Beverly mine is located in Kanawha and Raleigh Counties, West
Virginia. We use the mountaintop removal mining method to mine ten seams of
coal at this mine. Production from this mine in 1998, was approximately 2.1
million tons, which had an average sulfur content of .70%, and an average ash
content of 12.5%, and an average Btu content of 12,650. We employ 82 union and
9 union-free employees at this mine. Coal from this mine is transported by
truck. We estimate this mine contains 7.5 million tons of proven and probable
reserves with another 25 million tons available on another permit.
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Southern Appalachia Region
This region includes all of our mining operations in eastern Tennessee. We own
and operated two surface mines in this region, which produced approximately 1.0
million tons of coal in 1998, or approximately 4% of the total coal production
in the region. We closed one of the mines in August 1998. As of December 31,
1998, we had 74 union-free employees in this region. In 1998, our coal
production in this region accounted for approximately 2% of our total coal
production.
Cumberland
The Cumberland mine is located in Campbell County, Tennessee. We used surface,
highwall and deep mining methods to mine one seam of coal at this mine.
Production from this mine in 1998, was approximately 0.2 million tons, which
had an average sulfur content of 2.2%, an average ash content of 17% and an
average Btu content of 12,200. We employ 11 union-free employees at this mine.
We estimate this mine contains 42 million tons of proven and probable reserves.
The mine was closed in August 1998.
Skyline
The Skyline mine is located in Sequatchie County in eastern Tennessee. We use
the area mining method to mine one seam of coal at this mine. Production from
this mine in 1998, was approximately 0.5 million tons, which had an average
sulfur content of 1.0%, an average ash content of 14% and an average Btu
content of 12,300. We employ 63 union-free employees at this mine. Coal from
this mine is trucked directly to the customers. We estimate this mine contains
14 million tons of proven and probable reserves. We own and operate a coal
blending yard at this mine.
Illinois Basin Region
This region includes all of our mining operations in Illinois and Indiana. We
own and operate six surface and deep mines in this region which produced 11.3
million tons of coal in 1998, or approximately 10% of the total coal production
in the region. As of December 31, 1998, we had 614 union and 395 union-free
employees in this region. In 1998, our coal production in this region accounted
for approximately 22% of our total coal production.
Illinois
Elkhart Mine
The Elkhart mine is located approximately 20 miles northeast of Springfield,
Illinois. We use the room and pillar mining method to mine one seam of coal at
this mine. Production from this mine in 1998, was approximately 2.4 million
tons, which had an average sulfur content of 3.2%, an average ash content of
9.0% and an average Btu content of 10,500. We employ 253 union-free employees
at this mine. Coal from this mine is trucked directly to the customers. We
estimate this mine contains 71 million tons of proven and probable reserves. We
own and operate a preparation plant in connection with this mine.
Mine #11
Mine No. 11 is located in Randolph County, Illinois. We use the room and pillar
mining method to mine one seam of coal at this mine. Production from this mine
in 1998, was approximately 2.4 million tons, which had an average sulfur
content of 3.1%, an average ash content of 9.5% and an average Btu content of
11,075. We employ 223 union and 49 union-free employees at this mine. Coal from
this mine is transported by truck or rail. We estimate this mine contains 17
million tons of proven and probable reserves. We own and operate a preparation
plant and a unit train loading facility in connection with this mine.
Indiana
Chinook
The Chinook mine is located in Clay and Vigo Counties. We use the area mining
method to mine three seams of coal at this mine. Production from this mine in
1998, was approximately 1.4 million tons, which had an
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average sulfur content of 3.8%, an average ash content of 10% and an average
Btu content of 11,000. Coal from this mine is transported by rail. We estimate
this mine contains 8 million tons of proven and probable reserves. We own and
operate a preparation plant and a unit train loading facility in connection
with this mine. The Chinook mine was closed indefinitely in December 1998. The
market for coal having the sulfur content of coal mined at Chinook is limited.
At this time, we have no apparent customer for coal from this mine and no
specific plans for a return to production. Chinook was one of several mines we
acquired in a transaction with Cyprus Amax Coal Company in June 1998.
Kindill #1
The Kindill #1 mine is located in Davies County, Indiana. We use the area
mining method to mine one seam of coal at this mine. Production from this mine
in 1998, was approximately 1.7 million tons, which had an average sulfur
content of 3.9%, an average ash content of 8% and an average Btu content of
11,500. We employ 135 union and 33 union-free employees at this mine. Coal from
this mine is transported by rail. We estimate this mine contains 68 million
tons of proven and probable reserves. We own and operate a preparation plant
and a unit train loading facility in connection with this mine.
Kindill #2
The Kindill #2 mine is located in Davies County, Indiana. We use the area
mining method to mine one seam of coal at this mine. Production from this mine
in 1998, was approximately 1.0 million tons. We employ 95 union and 19 union-
free employees at this mine. Coal from this mine is transported by rail. We
estimate this mine contains 57 million tons of proven and probable reserves. We
own and operate a preparation plant and a unit train loading facility in
connection with this mine.
Kindill #3
The Kindill #3 mine is located in Sullivan County, Indiana. We use the area
mining method to mine three seams of coal at this mine. Production from this
mine in 1998, was approximately 1.8 million tons, which had an average sulfur
content of 0.9%, an average ash content of 8% and an average Btu content of
10,900. We employ 109 union and 20 union-free employees at this mine. Coal from
this mine is transported by rail. We estimate this mine contains 58 million
tons of proven and probable reserves. We own and operate a preparation plant
and a unit train loading facility in connection with this mine.
Sycamore
The Sycamore mine is located in Knox County, Indiana. We use the area mining
method to mine three seams of coal at this mine. Production from this mine in
1998, was approximately 0.6 million tons, which had an average sulfur content
of 2.4%, an average ash content of 12% and an average Btu content of 11,000. We
employ 44 union and 11 union-free employees at this mine. Coal from this mine
is transported by truck. We estimate this mine contains 6 million tons of
proven and probable reserves. We own and operate a preparation plant and a coal
blending facility in connection with this mine.
Rocky Mountain Region
This region includes all of our mining operation in Colorado. We own and
operate one deep mine in this region which produced approximately 1.2 million
tons of coal in 1998, or approximately 1% of the total coal production in the
region. We have 147 union-free employees in this region. In 1998, our coal
production in this region accounted for approximately 2% of our total coal
production.
Bowie
The Bowie mine is located in Delta County, Colorado. We use the room and pillar
mining method to mine one seam of coal at this mine. Production from Bowie in
1998, was approximately 1.2 million tons, which had an average sulfur content
of 0.4%, an average ash content of 8% and an average Btu content of 12,800. We
employ 147 union-free employees at Bowie. Coal from Bowie is transported by
rail. We estimate Bowie contains 47 million tons of proven and probable
reserves. We own and operate a unit train loading facility at Bowie.
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We plan to increase production at the Bowie mine by installing a longwall
mining system. Our ability to fully implement our plan depends on our obtaining
a lease to mine reserves located on federal lands adjacent to our Bowie
operations. In 1996 we applied for a lease with the U.S. Department of the
Interior's Bureau of Land Management to mine 1.5 to 2.0 million tons per year
from the reserves. The Bureau granted a lease for this purpose, but later
vacated the grant after we increased the annual volume of coal we planned to
mine from the reserves by using the longwall mining system. The Bureau is
preparing an environmental impact statement to study the effects of existing
and potential coal development in this area. The Bureau expects to complete its
study by August 2000, at which time it will determine whether the federal lands
are suitable for mining. We believe that if the Bureau determines that the land
is suitable for mining, the proximity of our current operations and reserves to
the federal reserves gives us a significant advantage over any other potential
competitor in a bidding process. We do not know if any other coal producers or
other parties intend to apply to lease these reserves. We believe we could meet
our current contractual commitments from other sources even if we cannot lease
the federal reserves in Colorado. Although our failure to obtain the lease
would materially diminish growth prospects for our Bowie operation, it would
not have a material adverse effect on our business taken as a whole. The
developments regarding the lease will not impede the planned installation of
the longwall mining system at our Bowie mine.
Coal Reserves
Existing Reserves
The majority of our reserves are bituminous and subbituminous coal. Studies of
our reserves assigned to existing operations prepared by the mining engineering
firms identified under "Experts" indicate:
. approximately 3% of our coal reserves is super compliance coal,
. approximately 25% of our reserves meet or exceed compliance coal
requirements,
. approximately 39% of our reserves meet or exceed low-sulfur coal; and
. approximately 71% of our reserves meet or exceed near low-sulfur coal
requirements.
The high percentage of our reserves comprised of super compliance, compliance,
low-sulfur and near low-sulfur coal gives us a long-term competitive advantage
as more stringent air quality requirements under Phase II of the Clean Air Act
Amendments take effect. According to Energy Venture Analysis, 94% of the
utilities that will be affected by Phase II and have made a decision on their
compliance strategy have indicated they will switch to compliance coal, whereas
only 5% of those utilities have indicated they will use scrubbers.
We lease a substantial part of the reserves currently available to us. Most of
our leases expire after a fixed term, usually less than five years, and, in
most cases, less than two years. Most of our leases give us an option to renew,
usually on the condition that mining shall have begun on or near the leased
property. Most of our leases require us to periodically pay either an advance
royalty or a delay rental payment as long as mining has not begun on the
property. After mining commences, the leases generally require the payment of a
royalty based on the tonnage mined and sold.
We believe that we can satisfy our current requirements under long-term sales
contracts from leased reserves for which we have preserved our renewal rights
together with the reserves that we own. We have additional reserves on other
leased properties. However, having these reserves available to us at the
present time does not assure that the reserves will be available to us when we
may wish to mine them. Moreover, uncertainties that arise from such matters as
the lessor's title to the coal and precise boundaries can often limit the
availability of reserves on leased property.
The extent to which we will mine our coal reserves depends upon factors over
which we have no control, such as future economic conditions, the price and
demand for the quality and type of coal available to us, the price and supply
of alternative fuels, and future mining practices and regulation. Our ability
to mine in areas covered
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by the reserve studies depends upon our ability to maintain control of the
reserves we lease through extensions or renewals of the leases or other
agreements and our ability to obtain new leases or agreements for other
reserves.
We have title examinations performed on the properties we own by qualified
title examiners. Because of the short-term nature of our leases and the expense
involved, we do not have all titles to the leases reviewed by qualified title
examiners. In most cases, we conduct a limited title investigation and, to the
extent possible, a determination of the precise boundaries of a leased property
only as a part of the process of securing a mining permit shortly before we
begin mining operations. We verify title to a property before we begin mining
operations. We believe our practices are consistent with customary industry
practices in the region in which the reserves are located and are adequate to
enable us to acquire the right to mine such properties.
Acquisition of Additional Reserves
We intend to continue expanding our coal reserves by making strategic
acquisitions of reserves.
. To reduce production and transportation costs and maintain our position
as a low-cost operator, we will continue to focus on acquiring reserves
that are both suitable for low-cost mining methods and located near our
customers, existing operations or efficient transportation facilities.
. We will continue to add low-sulfur and compliance coal reserves because
they are more likely to yield a premium as environmental regulations
become more stringent.
. We will seek to utilize the competitive advantage our Addcar system
provides by acquiring, at below-market rates, reserves that our
competitors cannot economically mine.
. We will seek to increase our market share in geographic areas where we
currently have operations by acquiring additional coal reserves in those
areas.
. We also will acquire additional reserves as necessary to insure we can
meet the coal quality requirements under our current and future
contracts.
Coal Transportation
We deliver our coal to customers by rail, barge and truck. Depending on the
proximity of a customer to the mine and the transportation available for
delivering coal to that customer, transportation costs can range from 10% to
90% of the mine cost of a customer's coal. We generally pay truck charges to
deliver coal to a barge or rail loadout facility, and customers typically pay
the transportation costs from the loadout facilities to the customer's plant.
As a result, the availability and cost of transportation constitute important
factors for the marketability of coal.
In 1998, approximately 75% of our tonnage traveled by rail on Norfolk Southern,
CSX Corporation and Union Pacific Railroad Company trains. The remaining 25%
traveled by truck to either the customer's plant or its designated barge
loading facility. The rates set and practices followed by the railroad serving
a particular mine can affect, either adversely or favorably, how we market coal
produced from the mine. See "Risk Factors--Transportation." Operations
representing approximately 50% of our production have access to alternative
transportation sources.
Mining Permits and Approvals
Before we begin mining on a particular property, we must obtain mining permits.
State regulatory authorities must also approve a reclamation plan for restoring
the mined property to its prior condition, productive use or another permitted
condition. We typically begin the permitting process between 18 and 24 months
before we plan to mine a specific area. Based on prior experience, permits
generally are approved within 12 months after a completed application is
submitted. We have not experienced difficulties in obtaining mining permits in
the areas where our current reserves are located. However, we could experience
difficulty in obtaining mining permits in the future.
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As mining operations on a property advance, we reclaim and restore mined areas
by grading, shaping and preparing the soil for seeding. Upon completion of
mining, we generally complete reclamation by seeding with grasses or planting
trees for use as pasture or timberland, as specified in the approved
reclamation plan. We believe that we have all material permits required to
carry on our mining operations and that we have complied in all material
respects with applicable regulations relating to reclamation. Over the past 10
years, the Company has received several reclamation awards, including:
. Kentucky Outstanding Reclamation Award;
. Ohio Greening of the Lands Award;
. Kentucky Department for Surface Mining Reclamation & Enforcement
Reclamation Award;
. Governor's Conference on the Environment Outstanding Reclamation Award;
and
. Nomination for the Kentucky Natural Resources and Environmental
Protection Cabinet's 1997 Mining Reclamation (Eastern Kentucky) Award.
Long-Term Coal Contracts
General
We have a large portfolio of long-term sales contracts. In 1998 we generated
72% of our revenues under long-term sales contracts. As of December 31, 1998,
we had long-term sales contracts for more than 226 million tons of coal. At
December 31, 1998, our long-term sales contracts had terms ranging from one to
13 years, with an average volume-weighted remaining term of 5.7 years.
Typically, customers enter into long-term sales contracts to secure reliable
sources of coal at predictable prices, while we seek stable sources of revenue
to support the investments required to open, expand, maintain or improve
productivity at mines needed to supply such contracts. We negotiate sales
contracts in the ordinary course of business.
Contract Terms
Long-term sales contracts involve bidding and extensive negotiations with
customers. Consequently, the terms of such contracts typically vary
significantly in many respects, including price adjustment features, price
reopener terms, coal quality requirements, quantity parameters, flexibility and
adjustment mechanics, permitted sources of supply, treatment of environmental
constraints, options to extend and force majeure, termination and assignment
provisions.
Most of our recently negotiated contracts over three years in duration include
price reopeners, which usually occur midway through a contract or every two to
three years, depending upon the length of the contract. Reopeners allow the
parties to renegotiate the contract price in order to be in line with the
market price prevailing at the time. In some circumstances, the utilities have
an option to terminate the contract if prices have increased by over 10% from
the price at the commencement of the contract or if the parties do not agree on
a new price.
Base prices are set at the start of a contract and then adjust at intervals for
changes due to inflation and, in many cases, changes in costs such as taxes,
reclamation fees, black lung charges and royalties. The inflation adjustments
are measured by public indices, the most common of which is the implicit price
deflator for the gross domestic product as published by the U.S. Department of
Commerce. The base price is then adjusted to a negotiated market price when a
price reopener occurs.
Long-term sales contracts stipulate quality and volumes for the coal, although
buyers normally have the option to vary volume by up to 10% if necessary.
Variations to the quality and volumes of coal may lead to adjustments in the
contract price. Long-term sales contracts typically stipulate procedures for
quality control, sampling and weighing.
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Contract provisions in some cases set out how to make up coal volumes lost due
to the occurrence of an event of force majeure, which includes such events as
strikes, adverse mining conditions or serious transportation problems. More
recent contracts stipulate that lost tonnage can be made up by mutual agreement
or at the discretion of the buyer. Buyers often insert similar clauses covering
changes in environmental laws. We have negotiated the right to supply coal that
complies with any new environmental requirements rather than allowing the
contract to terminate if the customer claims that the coal type supplied
previously may no longer be used. Long-term sales contracts typically contain
termination clauses if either party fails to comply with the terms and
conditions of the contract.
In certain contracts, we have a right of substitution, allowing us to provide
coal from different mines as long as it is of a certain specified quality and
will be sold at the same delivered cost.
Most contracts contain the terms set out above. There are certain contracting
terms that differ between a standard "eastern U.S." contract and a standard
"western U.S." contract. One difference relates to the sampling locations. In
the eastern United States, approximately 50% of customers require that the coal
be sampled and weighed at the destination, whereas in the western United States
all samples are taken at source. Also, historically, contracts have been
shorter in eastern regions. Eastern and western contacts are now of a more
similar length, although a larger percentage of eastern coal is purchased on
the spot market compared to western coal. Traditionally, the eastern market is
a short-term market. There are more smaller mining operations in the eastern
coal market, which enables customers to negotiate new contracts more frequently
in order to obtain a better price. This has also led to a larger number of spot
market transactions in eastern regions. Western U.S. contracts normally
stipulate that the buyer must reimburse the seller for certain production taxes
and coal royalties rather than being a pricing component within the contract.
These items comprise a more significant portion of the western coal price than
the eastern coal price.
Historically, coal prices under long-term sales contracts were higher than the
spot prices for coal. However, in the past several years the price of coal has
been very competitive, and coal prices under new contracts have not differed
significantly from existing spot rates.
The term of sales contracts has decreased significantly over the last two
decades as competition in the coal industry has increased and, more recently,
as the electricity generators have prepared themselves for the Clean Air Act
Amendments and the impending deregulation of their industry. We believe that
the average term of long-term sales contracts was 20 years in the 1970s and 10
years in the 1980s. It decreased to two to five years in the early 1990s.
Although, in the last three years contracts of five to ten years in duration
have become more prevalent, customers have insisted on price reopeners every
two or three years, which provide them with the security of having coal under
contract and knowing that the price will not significantly exceed the market
price. We sell most of the coal we sell to utilities under long-term contracts.
These long-term sales contracts tend to limit our exposure to any fluctuation
in spot market prices and the uncertainty of marketing our production capacity.
Contract Expirations
On a pro forma basis as of March 31, 1999, our long-term sales contracts had an
average volume-weighted remaining term of 5.7 years. As our long-term sales
contracts expire, we intend to negotiate new contracts in order to maintain our
high percentage of volume sold through long-term sales contracts. When a coal
company's contracts expire without being replaced, that company is exposed to
the risk of having to sell coal into the spot market, which may be subject to
lower and more volatile prices.
As of December 31, 1998, we had commitments to sell approximately 226 million
tons of coal under our long-term contracts, assuming all the contracts run
through to their expiration date. This tonnage commitment may vary depending on
future performance, buyer contractual elections and other contractual
provisions.
Our profits could decline as our major contracts reprice from the existing
prices to market rates at the contract reopener or expiration dates. We believe
that our volume of coal sales will not change and that we will enter
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into new coal sales contracts as current contracts expire. Our challenge is to
negotiate prices at above-spot rates to lessen the potential loss of profits.
We cannot assure you that we can carry out this strategy successfully.
Highwall Mining Business
The Addcar Highwall Mining System
We operate or lease seven Addcar highwall mining systems and will build
additional systems as required. The Addcar highwall mining system is an
innovative, efficient mining system, capable of producing more than 300,000
tons of raw coal per month. This equates to more than twenty miles of tunnel or
7 million cubic feet of excavation in a single month. The system is often
deployed at reserves that cannot be economically mined with surface methods.
The main elements of the Addcar system are:
. a continuous miner;
. conveyor cars (the Addcars);
. a launch vehicle;
. an elevating stacker/conveyor; and
. a wheel-loader with a forklift attachment.
The continuous miner, located at the front of the Addcar system, mines coal and
conveys it to the first Addcar. The miner forms a rectangular opening in the
coal seam at the highwall and continues to cut a roadway into the seam,
approximately 10 feet wide. The cutting end of the miner is hydraulically
raised and lowered as it rotates, allowing the machine to mine a variety of
seam thicknesses and follow the contours of the seam. A gathering head loads
the cut coal onto a chain conveyor, and the coal passes on to the first Addcar.
The Addcars form a modular conveyor system that transports the coal to the
surface. As the miner cuts into the seam, Addcars are added individually behind
the miner in a manner that does not interrupt the flow of coal. The continuous
nature of this operation is a key feature of the Addcar system, which adds
significantly to its overall productivity and efficiency. The mined coal moves
from one car to the next until it reaches the launch vehicle on the surface.
Each Addcar weighs approximately 12 tons, and is approximately 40 feet long.
The launch vehicle is a two-deck steel structure placed on the floor of the pit
at the base of the highwall. The launch vehicle serves as a stable work
platform, propulsion unit, and utility supply center for the equipment in the
highwall entry. It contains an electric powered distribution center, a control
cabin where a person operates the entire system by remote control, two separate
hydraulic power systems, and cable and hose reels for electrical power, coaxial
cable, dust suppression, water, and, when required, either inert gas or
compressed air, for ventilation at the cutting face.
The elevating stacker/conveyor receives the coal from the belt on the launch
vehicle, and pours it into a pile, from where the coal can be loaded by the
wheel-loader into trucks, or onto a conveyor. The stacker/conveyor is wheel-
mounted and easy to move with the launch vehicle.
The highwall mining system weighs over 450 tons and has more than 2,000
horsepower.
The wheel-loader transports the Addcars by replacing its bucket with a forklift
attachment. The wheel-loader operator positions the forklift under the Addcars
and transports them to and from the launch vehicle during the mining cycle.
The Highwall Mining Process
The highwall mining process involves the following steps:
Step One: Geological Analysis. Each coal seam must be analyzed before mining
begins. Analysis includes geological surveys and, in some instances, test
mining. The mine operator also may be able to provide details of the seam
geology based on the operator's mining experience and previous exploration.
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Step Two: Geotechnical Design. Before mining commences, a coal extraction
pattern for the target mine must be designed. The primary design parameters
include the thickness of the seam, the strength of the coal, the thickness of
the overburden, the nature of the intermediate roof and the identification and
configuration of any joints and weaknesses in roof and floor strata.
Step Three: Positioning the Launch Vehicle. To start the mining cycle, the
launch vehicle is moved into position in accordance with the survey stations
established prior to mining.
Step Four: Initiating Mining. The miner starts cutting with only the lead
Addcar behind it. The launch vehicle assists the mining by applying continuous
hydraulic pressure to the continuous miner.
Step Five: Adding Addcars. As the miner and Addcars move forward, the loader
collects and places another Addcar on the work platform, holding it in position
while it is connected to the cable. The newly added Addcar is then lowered into
position and secured. This process is completed without halting the continuous
flow of coal.
Step Six: On-Line Maintenance. While each Addcar is on the launch vehicle, the
mining crew has access to it for about 15 minutes until it moves into the
entry. This gives the crew an opportunity to service the Addcar and check its
functions before it goes underground. Each 1,200-foot entry will take
approximately 12 hours to complete.
Step Seven: Remote Operation. The remote control system is connected by coaxial
cable to a receiver on the miner. The coaxial cable carries signals from a
diagnostics package that monitors equipment performance, methane and other gas
levels, and other mining parameters. The cable also provides a visual link for
the operator through three video cameras mounted in strategic locations on the
miner and the first Addcar.
Step Eight: System Retreat. When the highwall mining entry has been completed,
removal of the Addcar system involves a simple reverse operation. The
combination of the miner pushing from the front and the hydraulic cylinders
pulling from the rear allows efficient recovery of the Addcar system so that it
can be relocated quickly and mining can resume without significant delay.
Step Nine: General Maintenance. After the Addcar system has been removed from
the mine, routine maintenance is performed while the system is being relocated
to the next entry. Under normal circumstances, the withdrawal from one entry
and the commencement of mining in the next entry requires 45 to 60 minutes.
Step Ten: Relocation. Once maintenance is complete, a hydraulic skid propulsion
system on the launch vehicle assists the system in relocating quickly and
efficiently to the next entry.
Patents and Trademark
Mining Technologies, Inc., our wholly owned subsidiary holds 13 U.S. patents
and one registered trademark in North America relating to the Addcar highwall
mining system. MTI acquired the patents and trademark from Addington
Enterprises in 1998. The patents will expire between December 10, 2010 and
November 20, 2015, and the registered trademark will expire September 28, 2013.
Manufacturing Facilities
We manufacture Addcar systems at facilities in Ashland, Kentucky. The
facilities include the fabrication shop, where we construct launch vehicles and
continuous miners, and the car shop, where we construct Addcars. Skilled
subcontractors perform machining, heat treating, electric motor repair, and
other aspects of manufacturing and repairing of the Addcar systems at the
fabrication shop. The car shop has a complete set of jigs, which have been
built for the efficient manufacture of Addcars. These jigs significantly reduce
manufacturing costs, while improving the quality control of the finished
product. Both the fabrication shop and the car shop also perform major repairs
and rebuilds on a routine basis. The rebuilds range from minor repairs
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on Addcars as part of routine maintenance, to a fullscale overhaul of a
continuous miner or launch vehicle. We have the capacity to manufacture eight
Addcar systems per year. This capacity permits us to expand our highwall mining
operations and to lease, sell or license Addcar systems to other coal
companies.
Non-Coal Businesses
In addition to its coal operations, we acquired several non-coal businesses in
the Zeigler acquisition. These include a technology segment, a power segment,
an environmental services segment, an import/export services segment and a
property development segment. We sold the properties managed by the
import/export services segment and expect to wind up the operations of the
power segment by the end of 1999. We have classified the other non-coal
businesses as assets held for sale.
Zeigler's technology segment, headed by its wholly owned subsidiary Encoal,
focuses on producing two new clean burning, high heating fuels from
subbituminous coal. Both fuels are developed by a process known as "liquids
from coal," which is owned by the TEK-KOL Partnership. The environmental
services segment provides Zeigler with its own in-house support for mining
construction activities as well as reclamation of closed mines. The property
development segment focuses on Zeigler's expertise in land management through
the development of real estate trust quality assets.
Zeigler's power segment operated through Zenergy, Inc. and EnerZ, which are
energy marketing companies in the process of winding up their operations.
Historically, EnerZ has entered into contracts to purchase fixed amounts of
energy during a calendar year and concurrently entered into contracts to sell
offsetting amounts of energy during the same period. EnerZ has not entered into
any such contracts since June 2, 1998, and all of its remaining contract
obligations terminate near the end of 1999.
Administrative Offices
We maintain administrative offices in Ashland and five other cities in
Kentucky; Charleston, West Virginia; and Evansville, Indiana. We are currently
evaluating elimination of certain duplicative or unnecessary administrative
facilities.
Certain Liabilities
Our long-term liabilities for pensions, retiree health care, work-related
injuries and illnesses, and mine reclamation reflect our commitment to our
employees and to environmental stewardship. The total amount of these
liabilities reflects our size, diversity and changing nature. The majority of
these liabilities relate to the operating subsidiaries we have recently
acquired, and the resulting increase in the number of our employees and mines.
All U.S. coal companies must comply with laws and regulations governing mine
reclamation and other environmental liabilities for work-related injuries and
illnesses. In addition, labor contracts with unionized employees include long-
term benefits, notably health care coverage for retirees and their dependents.
These obligations fall into four principal categories: reclamation, workers'
compensation (including black lung), pensions and retiree health care.
Reclamation. All coal mining companies must return the land on which they mine
to its original state or to an alternative productive use, as applicable.
Reclamation liabilities primarily represent the future costs to restore the
lands as required by law. We undertake short-term ongoing reclamation
activities as we disturb areas in the mining process. We project long-term
reclamation and mine closing costs, which we accrue, upon commencement of
mining, over the life of the mine. The end of mine reclamation and mine-closing
costs accruals totaled approximately $376.8 million on our balance sheet as of
December 31, 1998, of which $45.6 million is a current liability. See "Risk
Factors--Government Regulation of the Mining Industry."
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Workers' Compensation. These liabilities represent the actuarial estimates for
compensable, work-related injuries (traumatic claims) and occupational disease,
primarily black lung disease (pneumoconiosis). Federal law requires employers
to pay black lung awards to former employees who filed claims after July 1,
1973. The federal black lung trust fund, which is supported by an excise tax on
all U.S. coal production, pays prior claims. On a pro forma basis, these
liabilities will be discounted at 7.25%. These liabilities totaled
approximately $93.5 million on our balance sheet as of December 31, 1998, $10.0
million of which is a current liability.
Pension Related Provisions. These costs represent the unfunded actuarially-
estimated cost of paying pension benefits to current active employees when they
retire. Provisions for active employees reflect their service to date and
additional amounts are provided so that the total liability is accrued when the
employee actually retires. Consulting actuaries determine annual contributions
to the pension plans based on ERISA minimum funding standards. These
liabilities are discounted at 7.25%. The pension liability totaled
approximately $1.5 million on our balance sheet as of December 31, 1998, $0.1
million of which is a current liability.
Post Employment Benefits. These liabilities represent actuarial estimates of
various benefits to be provided to former or inactive employees after
employment but before retirement. Examples of such benefits are severance
benefits and disability-related benefits. We accrue postemployment benefits
over the working life of the employee in accordance with generally accepted
accounting principles.
These liabilities are discounted at an average rate of 7.25%. These liabilities
totaled approximately $4.5 million on our balance sheet as of December 31,
1998, $1.2 million of which is a current liability.
Retiree Health Care. Consistent with SFAS 106, we record a liability
representing the estimated cost of providing retiree health care benefits to
current retirees and active employees who will retire in the future. Provisions
for active employees represent the amount recognized to date, based on their
service to date; additional amounts are provided periodically so that the total
liability is accrued when the employee retires. These liabilities are
discounted at 7.25%.
Our retiree health care obligations also include a liability representing
future contributions to the Combined Fund. This multi-employer fund provides
health care benefits to a closed group of former employees who retired prior to
1977. No new retirees will be added to this group unless the Social Security
Administration assigns new retirees to us. The liability may increase or
decrease depending on changes in per capita health care costs, offset by the
mortality curve in this aging population of beneficiaries. See "Government
Regulation--Mine Health and Safety." As a result of a 1998 U.S. Supreme Court
decision, companies that first signed the National Bituminous Coal wage
agreement after 1974 may bear a greater portion of liability to ensure that the
Combined Fund is fully funded. The premiums we pay to the Combined Fund are
relatively small, totaling $5.0 million in 1998. We do not expect that any
increase in our contributions to the Combined Fund will have a material adverse
effect on our financial condition or results of operations.
Retiree health care liabilities totaled approximately $391.9 million on our
balance sheet as of December 31, 1998, $16.9 million of which is a current
liability. Obligations to the Combined Fund totaled $48.0 million on our
balance sheet as of December 31, 1998, of which $5.0 million is a current
liability.
Our senior executives focus on actively managing these liabilities. Provisions
for these liabilities reflect standard U.S. coal industry accounting practices.
These costs are borne by the operating subsidiaries from which the obligations
arose.
Employees
As of December 31, 1998, we had a total of 4,081 employees, 3,668 of whom
worked in coal production, and 413 of whom worked in the management of its coal
business.
Approximately 32% of our coal employees are affiliated with unions. Relations
with union labor are extremely important to us. The United Mine Workers of
America represents our union employees, who are subject to separate wage
agreements negotiated with the United Mine Workers or under the National
Bituminous Coal
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Wage Agreement. We have several collective bargaining agreements with the
United Mine Workers. These agreements contain rolling provisions requiring two
weeks notification prior to any termination. We cannot assure you that our
unionized labor will not go on strike upon expiration of existing contracts.
Legal Proceedings
A subsidiary of Pittston Minerals Group, Inc. has made claims for
indemnification from our Company. The claimed indemnification covers a number
of items, including allegedly delinquent taxes and fees, allegedly assumed
liabilities, alleged failure to transfer specific licenses, assets and permits
and alleged non-compliance with certain agreements and applicable laws and
permits. The claims arise from the January 1994 sale of several indirect
subsidiaries by Addington Resources to the Pittston subsidiary. Addington
Resources also guaranteed the obligations of its subsidiaries under the
transaction agreement. Addington Enterprises assumed Addington Resources'
indemnity obligations when Addington Enterprises purchased Addington Resources'
coal mining subsidiaries in 1995. AEI Holding assumed those obligations when it
acquired substantially all of Addington Enterprises' coal assets in November
1997.
Addington Enterprises is investigating and negotiating the claims with the
Pittston subsidiary. Many of the claims have been resolved without any payment
by or liability to our Company. To our knowledge, no lawsuit has been filed or
otherwise threatened by the Pittston subsidiary against our Company. We intend
to defend these claims vigorously, and at this time it is not possible to
predict the outcome of the claims. However, even if the Pittston subsidiary
successfully pursued its indemnification claims, we believe that the liability
arising from those claims would not have a material adverse effect on the
business of AEI Resources and its subsidiaries, taken as a whole. See "Certain
Related Party Transactions--Indemnification."
In 1996, Cyprus Amax Coal Company was sued in the Circuit Court of Perry
County, Kentucky, with the plaintiffs alleging competing claims to
approximately 1,425 acres of property in eastern Kentucky upon which we conduct
coal mining activities. The lawsuit claims damages of approximately $400.0
million. We assumed this potential liability in our June 1998 acquisition of
subsidiaries of Cyprus Amax. Based on a prior federal appellate court decision
related to a similar claim of different plaintiffs based on the same alleged
source of claim rights, we believe we are likely to prevail. We believe that an
adverse result would not require us to pay significant damages and would not
likely have a material adverse effect on AEI Resources and its subsidiaries,
taken as a whole.
In addition, our Company or its subsidiaries are defendants in various actions
in the ordinary course of our business. These actions generally involve such
matters as property boundaries, mining rights, blasting damage, personal injury
and royalty payments. We believe these proceedings are incidental to our
business and are not likely to result in materially adverse judgments.
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GOVERNMENT REGULATION
Federal, state and local authorities regulate the U.S. coal mining industry as
to several matters, including:
.employee health and safety,
.limitations on land use,
.permitting and licensing requirements,
.air quality standards,
.water pollution,
.plant and wildlife protection,
.reclamation and restoration of mining properties after mining is
completed,
.the discharge of materials into the environment,
.surface subsidence from underground mining
.the effects of mining on groundwater quality and availability.
In addition, taxes on coal production fund health benefits paid to current and
retired coal miners.
Mining operations require many federal, state and local governmental permits
and approvals. We believe we have obtained all permits currently required to
conduct our present mining operations. We also believe that we will not
encounter substantial difficulty obtaining or renewing necessary permits in the
future, which generally requires us to file required information with the
appropriate regulatory agencies. We may be required to prepare and present to
federal, state and local authorities data pertaining to the effect or impact
that proposed exploration or production of coal may have on the environment.
These requirements could prove costly and time consuming, and could delay our
exploration or production operations. Future environmental legislation and
administrative regulations could cause our operations to become more closely
regulated. New legislation and regulations, or more rigorous interpretations
and enforcement of existing laws, could cause our equipment and operating costs
to increase substantially and cause delays, interruptions or termination of our
operations. We cannot predict the extent to which these regulatory changes
might affect our operations. In addition, as discussed below, the extensive
regulation of the environmental impact of electricity generation by utilities
may affect demand for coal. See "Risk Factors -- Governmental Regulation of the
Mining Industry."
We attempt to conduct our mining operations in compliance with all applicable
federal, state and local laws and regulations. However, because of extensive
and comprehensive regulatory requirements, violations during mining operations
occur from time to time in the industry. None of our violations to date or the
monetary penalties assessed upon us has been material, and we believe we are in
substantial compliance with all applicable laws and regulations.
Environmental Laws
Our operations are subject to various federal, state and local environmental
laws. These laws require approval of many aspects of our coal mining
operations, and both federal and state inspectors regularly visit our mines and
facilities to ensure compliance.
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Surface Mining Control and Reclamation Act
The Federal Surface Mining Control and Reclamation Act is administered by the
Office of Surface Mining Reclamation and Enforcement, establishes mining and
reclamation standards for all aspects of surface mining as well as many aspects
of deep mining. The Reclamation Act and similar state statutes, among other
things, require that mined property be restored in accordance with specified
standards and an approved reclamation plan. In addition, the Abandoned Mine
Lands Act, which is part of the Reclamation Act, imposes a tax on all current
mining operations the proceeds of which are used to restore mines closed before
1977. The maximum tax is $0.35 per ton on surface-mined coal and $0.15 per ton
on deep-mined coal.
The Reclamation Act also requires that we meet comprehensive environmental
protection and reclamation standards during the course of and upon completion
of mining activities. For example, the Reclamation Act requires us to restore a
surface mine to the approximate original contour as contemporaneously as
practicable during surface coal mining operations. The mine operator must
submit a bond or otherwise secure the performance of these reclamation
obligations. Either the Office of Surface Mining or the appropriate state
regulatory authority issues and renews permits for surface mining operations.
We accrue for the liability associated with all end of mine reclamation on a
ratable basis as we mine the coal reserve. We also evaluate our annually
estimated cost of reclamation, and the corresponding accrual on our financial
statements. A reclamation bond can not be released sooner than five years after
reclamation to the approximate original contour or to a productive use, as
applicable.
We currently have posted more than $567.8 million in reclamation bonds. Because
much of the reclamation process occurs contemporaneously with mining activities
in accordance with the approved reclamation plan, the estimated reclamation
cost to immediately cease mining operations substantially exceeds the recorded
reclamation accrual.
Most states in which we conduct active mining operations have primary
jurisdiction for the Reclamation Act enforcement through approved state
programs. These state programs have established reclamation and environmental
standards that generally correspond to, and are not less stringent than, those
of the Reclamation Act. Each state must enforce its own laws and, subject to
federal oversight, the Reclamation Act.
The Reclamation Act requires the issuance and periodic renewal of permits to
conduct mining operations. Although we do not anticipate significant permit
issuance or renewal problems, we cannot assure you that our permits will be
renewed or granted in the future or that permit issues will not adversely
affect operations. Under previous Reclamation Act regulations, responsibility
for any coal operator currently in violation of the Reclamation Act could be
imputed to other companies deemed, according to regulations, to "own or
control" the coal operation. Sanctions included being blocked from receiving
new permits and rescission or suspension of existing permits. Because of a
recent federal court action invalidating these Reclamation Act regulations, the
scope and potential impact of the "ownership and control" requirements on us is
not clear. The Office of Surface Mining has responded to the court action by
promulgating interim regulations that more narrowly apply the ownership and
control standards to coal companies. Although the federal action should, by
analogy, have a precedential effect on state "ownership and control"
regulations, which in many instances are similar to the invalidated federal
regulation, we cannot predict the impact the federal court decision will have
on these state regulations.
Clean Air Act
The Federal Clean Air Act, including the Clean Air Act Amendments, and
corresponding state laws that regulate the emissions of materials into the air,
affect coal mining operations both directly and indirectly.
Direct impacts on coal mining and processing operations may occur through Clean
Air Act permitting requirements or emissions control requirements relating to
particulate matter (e.g., "fugitive dust"), including future regulation of fine
particulate matter measuring 2.5 micrometers in diameter or smaller. In July
1997, the U.S. Environmental Protection Agency, or "EPA," adopted new, more
stringent National Ambient Air Quality
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Standards for particulate matter and ozone. As a result, some states must
change their existing implementation plans to comply with the new air quality
standards. Because coal mining operations emit particulate matter, our mining
operations and utility customers will likely be affected directly when the
states revise their implementation plans. Any related state and federal
regulations could restrict our ability to develop new mines or require us to
modify our existing operations. The potential direct impact of the new air
quality standards on the coal industry will depend on the policies and control
strategies associated with the state implementation process under the Clean Air
Act. The new air quality standards could have a material adverse effect on our
business, financial condition and results of operations.
The Clean Air Act indirectly affects coal mining operations by extensively
regulating the emissions of sulfur dioxide (believed to be a cause of "acid
rain"), nitrogen oxide and other compounds by coal-fueled utility power plants.
The limits on sulfur dioxide emissions were reduced in 1995 by Phase I of the
Clean Air Act Amendments and will be reduced again in 2000 when Phase II takes
effect. The affected utilities may be able to meet these requirements by, among
other ways, switching to low-sulfur fuels, installing pollution control devices
such as scrubbers, reducing electricity generating levels or purchasing or
trading emission allowances. Utilities and industrial concerns will receive
these emission allowances for specific emission sources they operate, and they
can trade or sell the allowances to permit other units to emit higher levels of
sulfur dioxide.
We currently cannot determine completely how the implementation of the stricter
Phase II emission limits will affect us. We believe the price of higher sulfur
coal is likely to decrease as more coal-fueled utility power plants become
subject to the lower sulfur dioxide emission limits. We expect this price
effect to occur after the large surplus of emission allowances that has
accumulated in connection with Phase I has been reduced, and before the
utilities that choose to comply with Phase II by installing sulfur-reduction
technologies can do so.
The Clean Air Act Amendments also require utilities that currently are major
sources of nitrogen oxides in moderate or higher ozone nonattainment areas to
install reasonably available control technology for nitrogen oxides, which are
precursors of ozone. In addition, the EPA is expected to implement stricter
ozone standards by 2003. The EPA announced an implementation plan that will
require 22 eastern states to amend their state implementation plans to reduce
nitrogen oxide emissions substantially. Installation of reasonably available
control technology and additional control measures required under the proposal
will make it more costly to operate coal-fueled utility power plants. Depending
on requirements of individual state attainment plans and the development of
revised new source performance standards, these measures could make coal a less
attractive fuel alternative in the planning and building of utility power
plants in the future.
The Clean Air Act Amendments also require a study of utility power plant
emissions of certain toxic substances, including mercury, and direct the EPA to
regulate these substances if warranted. Although the EPA recently indicated
that it plans to study the issue further, it does not plan to propose
regulations in the near future. However, future federal or state regulatory or
legislative activity may seek to reduce mercury emissions. If these
requirements are enacted, they could result in reduced use of coal if utilities
switch to other sources of fuel.
In addition, Clean Air Act Amendment regulations that protect visibility in
Class I Federal areas, such as national parks and wilderness areas, apply to
air emissions of sulfur dioxide, particulate matter, and nitrogen oxide.
Currently, these regulations address visibility impairment reasonably
attributable to a single source or small group of sources in 35 states and one
territory. In July 1997, the EPA proposed regulations that would expand the
applicability of the regional haze program to all states, including those that
may not have any Class I areas, and would establish presumptive reasonable
progress targets for states. If these proposed regional haze regulations take
effect, some states may be required to change their existing implementation
plans. Although the proposed regulations do not identify specific sources as
potential contributors to visibility impairment, coal-fueled utilities emit
these substances. Depending on the requirements of the final rule and
individual state implementation plans, efforts to reduce sulfur dioxide,
particulate matter, and nitrogen oxide emissions may make it more costly to
operate coal-fueled utility power plants. Existing strategies for other air
quality programs, such as those previously discussed, may improve visibility
and thereby limit the potential adverse effects of any final regulations on us.
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Clean Water Act
The Federal Water Pollution Control Act (the "Clean Water Act") affects coal
mining operations by:
.imposing effluent discharge restrictions on pollutants discharged into
water;
.imposing regular monitoring and reporting requirements;
.requiring the issuance and renewal of permits for the discharge of
pollutants into waters; and
.imposing performance standards as a requirement for the issuance of
permits.
In addition, states in which we operate regulate the water pollution effects of
coal mining operations. Each state must enforce its state laws and the Clean
Water Act in its jurisdiction, subject to federal oversight.
The environmental impact of valley fills associated with surface mining
activities, including mountaintop removal mining, is currently the subject of
litigation and various state and federal initiatives. Clean Water Act
provisions that authorize the discharge of fill material into navigable waters
currently permit valley fills. Ongoing citizen suits against permitting
authorities in federal court in both Pennsylvania and West Virginia allege that
valley fill permits violate the anti-degradation provisions of the Clean Water
Act and therefore should not be issued. In addition, various task forces and
agencies at the state and federal level are currently exploring environmental
issues associated with valley fills in general, as well as environmental issues
associated with mountaintop removal mining in particular. We cannot predict the
outcome of the pending litigation or whether legislation and/or regulations, if
enacted, regarding valley fills or mountaintop removal mining could have a
material adverse effect on us.
Resource Conservation and Recovery Act
The Federal Resource Conservation and Recovery Act and similar state laws
affect coal mining operations by imposing requirements for the treatment,
storage and disposal of hazardous wastes. Although the Resource Conservation
and Recovery Act exempts coal mining wastes covered by Reclamation Act permits,
we cannot predict whether this exclusion will continue.
Federal and State Superfund Statutes
The Federal Comprehensive Environmental Response, Compensation and Liability or
"Superfund" Act, and similar state laws affect coal mining operations by
. creating investigation and remediation obligations for releases of
hazardous substances that may endanger public health or the environment,
and
.providing for natural resource damages.
Under the Superfund Act, waste generators, past and present site owners and
operators, as well as others, may be jointly and severally liable regardless of
fault or the legality of the disposal activity at the time it occurred. Waste
substances generated by coal production and processing are generally not
considered hazardous substances covered by the Superfund Act. However, the
statute governs products used by coal companies in operations, such as certain
chemicals, and the disposal of these products. Although we do not currently
anticipate that we will incur material liabilities or costs associated with the
Superfund Act or similar state laws, we cannot assure you that we will not do
in the future.
Global Climate Change
The United States and over 160 other nations have signed the 1992 Framework
Convention on Global Climate Change, which is intended to limit or capture
emissions of greenhouse gases such as carbon dioxide. The December 1997 Kyoto
Protocol established a binding set of emissions targets for developed nations.
The specific limits under the terms of the Kyoto Protocol vary from country to
country. The United States would be
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required to reduce emissions to 93% of its 1990 levels over a five-year budget
period from 2008 through 2012. The United States has not ratified the Kyoto
Protocol, and no comprehensive requirements focusing on greenhouse gas
emissions are currently in place. However, the imposition of measures intended
to stabilize or reduce greenhouse gas emissions, whether through ratification
of the Kyoto Protocol or otherwise, could adversely affect the price and demand
for coal. According to the Department of Energy's Annual Energy Outlook for
1998, coal accounts for 34% of the man-made greenhouse gas emissions in the
United States. Efforts to control greenhouse gas emissions could result in
reduced use of coal if electric generators switch to lower carbon sources of
fuel.
Mine Health and Safety
Since the Federal Coal Mine Health and Safety Act of 1969 was adopted, federal
legislation has imposed stringent health and safety standards. That legislation
resulted in increased operating costs and reduced productivity. The Federal
Mine Health and Safety Act of 1977 significantly expanded the enforcement of
health and safety standards and imposed health and safety standards on all
aspects of mining operations.
All of the states in which we conduct coal mining operations have programs for
mine health and safety regulation and enforcement. In combination, federal and
state health and safety regulation in the coal mining industry is perhaps the
most comprehensive and pervasive system for protection of employee health and
safety affecting any segment of U.S. industry. Together with the federal
requirements, these programs provide extensive and comprehensive requirements
for protection of employee safety and health.
Black Lung
Under the Black Lung provisions of the Coal Mine Health and Safety Act of 1969,
the Black Lung Benefits Revenue Act of 1977, the Black Lung Benefits Reform Act
of 1977, as amended in 1981, and provisions of state workers' compensation
acts, each coal mine operator must secure payment of federal black lung
benefits
.to claimants who are current and former employees, and
. to a federal trust fund for the payment of benefits and medical expenses
to claimants who last worked in the coal industry prior to July 1, 1973.
On a program-wide basis, the federal government awards federal black lung
benefits to fewer than 7% of the miners who currently seek these benefits. The
trust fund is funded by an excise tax on production of up to $1.10 per ton for
deep-mined coal and up to $0.55 per ton for surface-mined coal, and neither
amount can exceed 4.4% of the sales price. We pass this tax on to the purchaser
under many of our coal sales agreements.
Since 1980, sponsors have repeatedly introduced federal legislation to increase
the black lung approval rate. The last such bill died when Congress adjourned
in 1997. Similar legislation will likely be introduced in future sessions of
Congress. Black lung claims may also be filed under the provisions of workers
compensation laws in states in which a company operates. Kentucky, the state
with the most costly black lung provisions, has seen a significant decrease in
claims awards since a 1996 law reformed the state workers' compensation system.
However, future changes in Kentucky's workers' compensation statutes could
result in a return to higher levels of claims.
In 1997, the U.S. Department of Labor issued proposed amendments to the
regulations implementing the federal black lung laws which, among other things,
establish a presumption in favor of a claimant's treating physician and limit a
coal operator's ability to introduce medical evidence regarding the claimant's
medical condition. If adopted, the amendments could have an adverse impact on
us, the extent of which we cannot accurately predict. The House subcommittee
with oversight authority for the Federal Black Lung program has included
provisions in the current budget bill that would prohibit the Department of
Labor from implementing these regulations until the Department addresses issues
related to the cost of the regulations.
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Coal Industry Retiree Health Benefit Act of 1992
The Coal Industry Retiree Health Benefit Act of 1992, or "Coal Act," provides
for the funding of health benefits for certain UMWA retirees. The Coal Act
merged previously established UMWA benefit plans into a newly created fund
called the "Combined Fund," into which "signatory operators" and "related
persons" are obligated to pay annual premiums for beneficiaries. The Coal Act
also created a second benefit fund, the "1992 Fund," for miners who retired
between July 21, 1992 and September 30, 1994 and whose former employers are no
longer in business. Companies that sign labor agreements under the National
Bituminous Coal Wage Agreement must pay premiums to the Combined Fund and the
1992 Fund. The Social Security Administration assigns retired miners and their
beneficiaries to the coal companies with which they were formerly employed or
related for purposes of assessing the premium. A 1998 U.S. Supreme Court held
that the assessment of premiums under the Coal Act against only those coal
companies that were signatories to UMWA wage agreements only before 1974 is an
unconstitutional taking under the Fifth Amendment.
We currently must pay premiums to both the Combined Fund and the 1992 Fund. The
possibility exists that we will be assessed for more miners than could be
reasonably foreseen, or that higher premiums will be assessed for the Combined
Fund and the 1992 Fund.
Federal Land Policy
The U.S. government is the largest owner of coal reserves in the nation. It
exercises its authority through several agencies, but primarily through the
Bureau of Land Management. The majority of these reserves are located in the
western United States. Some are on lands on which we have conducted surface
coal mining operations since 1995 and on which we will mine in the future.
The federal government's authority over public lands exceeds the rights of any
private owner of coal. The federal government possesses both the customary
property rights of a private owner and the rights of the sovereign over the
management of public lands. Although the relevant statutes and regulations,
including the Mineral Leasing Act of 1920, as amended by the Federal Coal
Leasing Amendments Act of 1976, the Federal Land Policy Management Act of 1977
and the Reclamation Act, are well-established, they create a complex and
cumbersome process for a lease applicant. The consequence is that an opponent
of federal coal leasing has numerous opportunities to delay the issuance of a
federal coal lease.
Penalties
Under certain circumstances, the Bureau of Land Management can impose
substantial fines and penalties, including revocation of mining permits, under
the laws described above. The Bureau can impose monetary sanctions and, in
severe circumstances, criminal sanctions for failure to comply with these laws.
Regulations also provide that the Bureau can deny or revoke a mining permit if
an officer, director or a shareholder with a 10% or greater interest in the
entity is affiliated with another entity which has outstanding permit
violations. Although we have been cited for violations, neither we nor our
subsidiaries has ever had a permit suspended or revoked because of any
violation by us, our subsidiaries or any of our affiliates. The penalties
assessed for these violations have not been material, and most of the
violations have been abated without any penalty being assessed.
Compliance with Regulatory Requirements
We try to conduct our mining operations in compliance with all applicable
federal, state and local laws and regulations. We believe we currently are in
substantial compliance with all of these laws and regulations. However, because
of the extensive and comprehensive regulatory requirements, minor, inadvertent
violations during mining operations are not unusual. Although we have no
intention to commit infractions, and seek to prevent their occurrence, we may
have violations in the future. We believe our compliance record compares
favorably with that of other coal mining companies.
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Because of the extensive nature of our land holdings, we have not undertaken an
investigation of environmental conditions on most of our land holdings that
might subject us to liability under existing environmental laws. From time to
time during the course of normal operations there have been discharges of
hazardous materials onto our lands. We are not aware of other adverse
environmental conditions on our lands that might subject us to material
liability under existing environmental laws.
In addition to environmental liability at our own properties, we are
potentially liable for environmental conditions on properties our predecessor
transferred to a subsidiary of Pittston Coal in 1994. Addington Holding
Company, Inc. transferred certain mining properties to the Pittston subsidiary
and agreed to indemnify the subsidiary for specific liabilities, including
specific environmental liabilities, associated with the transferred properties.
We agreed to assume these indemnification liabilities when we purchased our
current operating properties from Addington Holding in 1995. The Pittston
subsidiary has notified us of various environmental conditions existing on the
transferred properties for which it claims to have the right to be indemnified.
We contested the applicability of the indemnification provisions to many of
these conditions. However, it is possible that we may incur liability as a
result of these conditions. See "Certain Related Party Transactions --
Indemnification." We do not believe any such liability would have a material
adverse effect on our business and the business of our subsidiaries, taken as a
whole.
We believe that our continued compliance with regulatory standards will not
substantially affect our ability to compete with similarly situated coal mining
companies. The cost of compliance, however, does increase the cost of mining
coal and to this extent makes coal less competitive with alternative fuels. We
are not aware of any pending or proposed legislation or regulatory action
relating to environmental issues that materially affect us other than those
discussed above. However, new legislation may be enacted or new regulations may
be adopted that will have the effect of materially increasing the cost of
mining coal.
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MANAGEMENT
Directors and Executive Officers
The following information is furnished with respect to the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position with the Company
- - ---- --- -------------------------
<S> <C> <C>
Larry Addington......... 62 Chairman of the Board, Director
Don Brown............... 53 Vice Chairman
Kevin Crutchfield....... 37 President, Chief Operating Officer
John Baum............... 44 Chief Financial Officer
Keith Sieber............ 47 Vice President--Western Operations
Robert Addington........ 58 Senior Vice President--Eastern Operations, Director
Bernie Mason............ 50 Senior Vice President--Technical Services, Land and
Business Development
Marc Merritt............ 45 Senior Vice President--Sales & Marketing
Vic Grubb............... 39 Treasurer/Controller
John Lynch.............. 50 Vice President--Supply/Maintenance, Secretary
Stonie Barker........... 72 Director
Robert Anderson......... 72 Director
Stephen Addington....... 32 Director
</TABLE>
Larry Addington, Robert Anderson, Robert Addington, Stonie Barker and Stephen
Addington are the directors of the Company. All directors hold office until the
next annual meeting of stockholders and until their successors are elected and
qualified. Officers serve at the discretion of the Board of Directors. All
officers spend substantially full time working for the Company or its
subsidiaries.
Larry Addington, Chairman of the Board since the formation of AEI Resources and
its predecessor AEI Holding, 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, Inc. in 1976. In 1978, Larry Addington formed Pyramid Mining Company,
which mined coal in western Kentucky and was sold to First Mississippi
Corporation in 1981. In 1984, Larry Addington formed Addington Resources, which
became a public company in 1987, and which primarily conducted coal mining and
integrated solid waste disposal operations. In 1995, he resigned from the board
of directors of Addington Resources and shortly thereafter purchased the coal
mining operations of Addington Resources through Addington Enterprises, Inc., a
corporation owned by Mr. Addington and his brothers Robert and Bruce. In 1997,
the Addington brothers transferred the coal mining operations and assets they
controlled through Addington Enterprises and other entities to a newly
organized company, AEI Holding. Larry Addington is the brother of Robert
Addington and Stephen Addington. See "The Company" for more details.
Don Brown, Vice Chairman of the Company since January 1999, has worked in the
coal industry since 1968, and has extensive experience in all phases of coal
mining operations. From 1987 to 1993, Mr. Brown served as President of Cyprus
Coal Company. From 1993 to 1995, Mr. Brown served as President of Cyprus Amax,
and directed that company's increase in annual production from 10 million tons
of coal to over 80 million tons of coal, making it the second largest coal
company in the United States. From 1995 until September 1997, Mr. Brown was
Chief Executive Officer of International Executive Services LLC, a coal mining
consulting business, and Chief Executive Officer of Beaver Brook Coal Company,
LLC, a coal leasing and exploration company. From September 1997 until January
1999, Mr. Brown served as President and Chief Executive Officer of the Company.
Kevin Crutchfield, Chief Operating Officer of the Company since July 1, 1998,
and President of the Company since January 1999, has worked in the coal
industry since 1981. From 1993 to 1995, he worked for Pittston Coal Company and
its subsidiaries as a Vice President. From 1995 until his employment by the
Company, he served in various capacities for Cyprus Amax, including President
and Chairman of Cyprus Australia Coal Company, where he directed operations
employing 1,600 workers and producing 16 million tons of coal per year.
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John Baum, Chief Financial Officer of the Company since November 1997, has been
involved in the coal industry since 1981. From 1991 through April 1993, Mr.
Baum served as Vice President of Business Development for Cyprus Coal. From May
1993 until June 1995, Mr. Baum was employed by Cyprus Australia as Deputy
Chairman and Chief Financial Officer of its Australian operations. From June
1996 until his employment by the Company, he was a general consultant with J.E.
Baum & Associates.
Keith Sieber, Vice President--Western Operations of the Company since November
1997, has worked in the coal industry since 1972. From 1992 until his
employment by the Company, he was employed as a Vice President by Cyprus Amax.
Mr. Sieber was responsible for the operations of Twentymile mine when it set a
world record for monthly coal production by a longwall mine (944,443 tons).
Robert Addington, Senior Vice President--Eastern Operations of the Company
since 1970, has worked in the coal industry 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. Since 1995, he has been employed by the Company
or its predecessor.
Bernie Mason, Senior Vice President--Technical Services and Business
Development of the Company since January 1999, has worked in the coal industry
since 1978. From 1986 until his employment by the Company, Mr. Mason worked as
a manager and geologist for various Addington-related entities.
Marc Merritt, Senior Vice President--Sales and Marketing of the Company since
January 1998, has worked in the coal industry since 1977. From 1986 until 1994,
he was a sales manager for Addington, Inc., and from 1994 until 1997, he was
the Executive Vice President--Coal Sales for Pittston Coal Sales Corp. From
1997 until his employment by the Company, he was President of M&M Management,
Inc., a coal industry consulting company.
Vic Grubb, Treasurer/Controller has worked in the coal industry since 1989.
From 1989 to 1995, he was an accountant with Addington Resources, and since
1995 he has been the Chief Financial Officer of Addington Enterprises.
John Lynch, Vice President--Supply/Maintenance and Secretary of the Company
since September 1997 and has worked in the coal industry since 1983. From 1983
until his employment by the Company, he worked as a manager and an equipment
purchaser for various Addington-affiliated companies. He has been the Vice
President and Secretary of Addington Enterprises since 1987.
Stonie Barker, director of the Company since November, 1997, has worked in the
coal industry since 1951. He has served as President, Chief Executive Officer
and Chairman of the Board of Island Creek Coal Company and Executive Vice
President of Occidental Petroleum Corporation. Since 1984, Mr. Barker has
served as President of the Executive Energy Company, a coal industry consulting
group. He is also a director of Kaiser Steel Corporation.
Robert Anderson, director of the Company since August, 1998, has worked in the
coal industry since 1953. He has served in various senior executive capacities,
including as President of ANDALEX Resources, Inc. ("ANDALEX") from 1990 until
1994 and Vice Chairman of the Board of Directors of ANDALEX from 1990 until
1995. From 1995 until 1996, he served as Chief Executive Officer and from 1995
until October 1998 he served as Chairman of the Board of Directors of
Centennial Resources, Inc. ("Centennial"). On October 13, 1998, Centennial
filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code in
the U.S. Bankruptcy Court, District of Delaware.
Stephen Addington, director of the Company since its formation, has worked in
the coal industry since 1991. He was a Regional Manager of Addington Resources
from 1990 until 1992. From 1992 until 1995, he was the Vice President of
Operations for Addington Environmental, Inc. Since 1995 he has been a Division
Manager of Tennessee Mining, Inc. and a consultant to Kindill Mining, Inc.,
positions he continues to hold.
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<PAGE>
Directors of the Company who are also officers or shareholders of the Company
or Holdings receive no compensation for their services as directors. Non-
management directors are paid $25,000 per year for services as directors, plus
an additional $2,000 per meeting actually attended and $500 for each committee
meeting actually attended which was not held in conjunction with a Board of
Directors meeting.
Limitation on Liability of Directors
AEI Resources' Certificate of Incorporation provides that no director will be
personally liable to the Company or its stockholders for monetary damages for
breaches of fiduciary duty as a director, except for:
. a breach of the director's duty of loyalty to us or our shareholders;
. acts and omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
. transactions from which a director derived an improper personal benefit;
or
. unlawful payment of dividends or stock purchases or redemptions pursuant
to Section 174 of the Delaware General Corporation Law.
This provision protects persons who serve on the Company's board of directors
against awards of monetary damages for negligence in the performance of their
duties. It does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of the duty of care.
Executive Compensation
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities for the year ended December 31, 1998,for (i) the Chief Executive
Officer of the Company, and (ii) each of the four other most highly compensated
executive officers of the Company who received in excess of $100,000, (the
"Named Executive Officers") determined as of December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation Awards
-------------------------------- ----------------------------------
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Position Fiscal Year Salary Bonus (2) Compensation Stock Awards Options/SARs Payments Compensation(3)
------------------ ----------- -------- ---------- ------------ ------------ ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don Brown............... 1998 $524,200 $2,501,000 -- -- -- -- $57,959
President and Chief
Executive Officer
John Baum............... 1998 $201,881 $1,451,000 -- -- -- -- --
Chief Financial Officer
Kevin Crutchfield....... 1998 $183,312 $ 700,350 -- -- -- -- $ 7,497
Chief Operating Officer
James Morris............ 1998 $138,524 $ 250,500 -- -- -- -- --
Former Senior Vice
President--Technical
Service, Land &
Business Development
Keith Sieber............ 1998 $247,681 $ 50,000 -- -- -- -- --
Vice President--
Western Operations
</TABLE>
- - --------
(1) Perquisites and other personal benefits paid in 1998 for the Named
Executive Officers aggregated less than the lesser of $50,000 and 10% of
the total annual salary and bonus set forth in the columns entitled
"Salary" and "Bonus" for each Named Executive Officer.
(2) The Company accrued discretionary cash bonuses in 1998 for extraordinary
services provided by certain key employees in connection with the
restructuring of the Company and its predecessors.
(3) Represents payment of moving expenses.
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<PAGE>
Employment Contracts
Don Brown
The Company entered into an amended and restated employment agreement with Don
Brown on June 30, 1998. The agreement terminates on October 1, 1999, but is
automatically renewed for one-year periods unless either party gives notice not
to renew. Under the terms of the agreement, Mr. Brown is responsible for
advising the Company on strategic acquisitions and dispositions, the Company's
restructuring and reorganization and financing matters. The Company will pay
Mr. Brown an annual base salary of $600,000, plus such annual merit increases
and bonus compensation as determined by the Company. Under the terms of the
agreement, Mr. Brown earned bonus compensation of $1.5 million in connection
with his participation in the September 1998 acquisition of Zeigler Coal
Holding Company and $1.0 million in connection with his participation in the
December 1998 offerings of its senior and senior subordinated notes and the
September 1998 refinancing of its senior credit facility. The Company paid Mr.
Brown $2.5 million in January 1999 in connection with a separate bonus
agreement for services rendered in the Company's disposition of Triton Coal
Company, LLC. The Company will provide Mr. Brown a house in Ashland, Kentucky
during the term of his employment and a life insurance policy in the amount of
$500,000. He is also entitled to participate in any employee benefit plan
sponsored by the Company. If Mr. Brown's employment is terminated prior to
October 1, 1999 for any reason other than death, disability or for cause, the
Company will continue to pay Mr. Brown his then existing annual base salary,
and any bonuses that would otherwise have been paid if he had remained
employed, for the remaining term of his contract.
In addition, the Company paid Mr. Brown's moving expenses and the real estate
commission on the sale of his prior residence. The Company also provided Mr.
Brown a $150,000 bridge loan, which was repaid upon the sale of his prior
residence. Mr. Brown received options to purchase 6,600 shares of the stock of
Holdings pursuant to the stock option plan.
The Company entered into a Stock Option Purchase Agreement with Mr. Brown on
June 30, 1998. Under the terms of the agreement, Mr. Brown may cause the
Company to purchase his stock options, and the Company may cause Mr. Brown to
sell to the Company such stock options, for a purchase price of $2.5 million if
Mr. Brown remains in the Company's employment through October 1, 1999. This
agreement is triggered upon the termination of Mr. Brown's employment and
expires ninety (90) days thereafter.
Kevin Crutchfield
The Company entered into an employment agreement with Kevin Crutchfield on June
26, 1998. The agreement was amended, effective January 11, 1999, and Mr.
Crutchfield assumed his current position of President and retained his position
as Chief Operating Officer. Under the terms of the agreement, which expires on
July 20, 2003, Mr. Crutchfield receives an annual base salary of $500,000, with
such annual merit increases and bonus compensation as determined by the
Company. If the Company employs Mr. Crutchfield in any position other than
President and Chief Operating Officer, his annual base salary will be reduced
to $350,000. The Company paid Mr. Crutchfield a sign-on bonus of $700,000 as an
incentive to join its management team. Mr. Crutchfield is also entitled to
participate in any incentive, savings, retirement, welfare, fringe or employee
benefit plan sponsored by the Company. If Mr. Crutchfield remains employed with
us through the first anniversary of a change of control (as defined in the
employment agreement), Mr. Crutchfield will receive an additional bonus equal
to the sum of his annual base salary plus the greater of the "Annual Bonus" and
the "Recent Average Bonus" (each as defined in the employment agreement). The
Company will provide Mr. Crutchfield a life insurance policy in the amount of
$1,000,000 and a disability policy for the amount of the maximum insurable
interest permitted. The Company paid Mr. Crutchfield's moving expenses from
Sydney, Australia. If Mr. Crutchfield remains employed by the Company for two
years and the Company terminates his employment prior to July 20, 2003, other
than for death, disability or cause, then the Company will continue to pay Mr.
Crutchfield his then existing annual base salary, and any bonuses that would
otherwise have been paid if he had remained employed, for one year from the
date of termination of employment or such shorter period as may remain under
the term of the employment agreement. If Mr. Crutchfield remains employed for
three years, he may terminate his employment for good reason (as defined in the
employment
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<PAGE>
agreement) and the Company will continue to pay Mr. Crutchfield his then
existing annual base salary, and any bonuses that would otherwise have been
paid if he had remained employed, for one year from the date of termination of
employment or such shorter period as may remain under the term of the
employment agreement. Mr. Crutchfield received options to purchase 2,284 shares
of the stock of Holdings pursuant to the stock option plan.
Keith Sieber
The Company entered into an employment agreement with Keith Sieber on November
1, 1997, which was then amended on February 5, 1998. The agreement expires on
October 31, 2000. As compensation for his services as Senior Vice President--
Western Operations, the Company will pay Mr. Sieber an annual base salary of
$235,000, with such annual merit increases and bonus compensation as determined
by the Company. Mr. Sieber is also entitled to participate in any employee
benefit plan sponsored by the Company. For the initial year of his employment,
the Company leased an apartment in Grand Junction, Colorado for Mr. Sieber, and
loaned Mr. Sieber $10,300 per month. The balance of such loan is currently
$144,200. During the term of his employment, Mr. Sieber receives a life
insurance policy in the amount of $500,000. If Mr. Sieber's employment with the
Company is terminated at any time prior to October 31, 2000, other than due to
death, disability or cause, the Company must continue to pay him the
compensation remaining over the term of his contract. Mr. Sieber has received
options to purchase 2,200 shares of the stock of Holdings pursuant to the stock
option plan.
John Baum
The Company entered into an amended and restated employment agreement with John
Baum on December 22, 1998. The agreement expires on November 1, 2001, but may
be terminated by the Company upon giving 60 days prior written notice. Mr. Baum
is employed as the Chief Financial Officer at an annual base salary of
$190,000, with such annual merit increases and bonus compensation as determined
by the Company. Mr. Baum is also entitled to participate in any employee
benefit plan sponsored by the Company. The Company paid Mr. Baum $1.0 million
in consideration of the modification of his prior employment agreement and the
cancellation of his options to purchase 1,760 shares of the stock of Holdings
pursuant to the Stock Option Plan.
Marc R. Merritt
The Company entered into an employment agreement with Marc R. Merritt on
January 1, 1998. The agreement expires on January 15, 2001. Mr. Merritt is
employed as Senior Vice-President of Sales and Marketing at an annual base
salary of $165,000, with such annual merit increases and bonus compensation as
determined by the Company. Mr. Merritt is also entitled to participate in any
employee benefit plan sponsored by the Company. The Company paid Mr. Merritt's
moving expenses and the real estate commission on the sale of his residence
located at Abbington, Virginia. Mr. Merritt receives a life insurance policy in
the amount of $500,000. If Mr. Merritt's employment with the Company is
terminated at any time prior to January 15, 2001, other than due to death,
disability or cause, the Company must continue to pay him the remaining
compensation over the term of his contract. Mr. Merritt has received options to
purchase 1,702 shares of the stock of Holdings pursuant to the stock option
plan.
Deferred Compensation
Stock Option Plan
Holdings adopted the AEI Resources Holding, Inc. Stock Option Plan, which
provides for the issuance to certain key employees of or advisors to Holdings,
its parent and its subsidiaries (as defined in the plan) for up to 75,000
shares of Common Stock (as defined in the plan) of Holdings. The options will
be issued from time
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<PAGE>
to time, subject to adjustment to reflect certain events such as stock
dividends, stock split-ups, subdivisions or consolidations of share or other
events which necessitate a similar adjustment. The stock option plan is
intended to:
. increase the profitability and growth of Holdings and its subsidiaries;
. motivate key employees to contribute to the success of Holdings and its
subsidiaries; and
. provide competitive compensation while obtaining the benefits of tax
deferral.
The Board of Directors of Holdings or a committee appointed by the Board of
Directors will administer the plan. The Board or the committee has the
authority to designate which employees and advisors are granted options and the
number of shares of Common Stock for each grant, subject to various limitations
and conditions specified in the Stock Option Plan (including certain legal
restrictions). Holdings has granted options to employees or advisors that, if
fully exercised, would result in individuals other than Larry, Robert, Bruce
and Stephen Addington owning a significant (but less than 50%) portion of the
outstanding capital stock of Holdings.
The Board has the authority to make amendments to any terms and conditions
applicable to outstanding grants as are consistent with the stock option plan,
unless the optionee's prior approval is required. Any amendment which adversely
affects any rights of an optionee requires the consent of the optionee.
Stock Option Agreements
The exercise price of any options granted under the stock option plan is
determined by the Board or committee and set forth in a stock option agreement.
The exercise price cannot be less than the fair market value of Common Stock on
the date the option is granted. If the optionee receives an incentive stock
option and owns more than 10% of the total combined voting power of Holdings, a
subsidiary or a parent, then the exercise price cannot be less than 110% of the
fair market value.
Options are exercisable based upon a date set forth in each optionee's stock
option agreement. Any vesting period for an option may be subject to
acceleration upon a change in control (as defined in the stock option plan).
The exercise period for an option may be shortened due to a termination of
employment (as defined in the stock option plan). No option can be exercised
more than 10 years from the date it was granted. If the optionee receives an
incentive stock option and owns more than 10% of the total combined voting
power of Holdings, a subsidiary or a parent, no option can be exercised more
than five years from the date it was granted.
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CERTAIN RELATED PARTY TRANSACTIONS
General
AEI Resources Holding parent corporation of AEI Resources, is closely held and
has entered into transactions and loans with related individuals and entities.
As provided in the indenture, all future related party transactions or loans
must be for a bona fide business purpose on terms at least as favorable as
those obtainable from an unaffiliated party unless otherwise authorized under
the indenture. In addition, all such transactions or loans will be approved or
ratified by a majority of the independent and disinterested directors of AEI
Resources. In situations where there will be an ongoing relationship with
related parties for the purchase of services or products, a majority of the
independent and disinterested directors must approve continuation or initiation
of the relationship and will periodically review such transactions to assure
that they meet the aforementioned standard. See "Description of the Notes--
Certain Covenants--Transactions with Affiliates" and "Description of Other
Indebtedness--The New Senior Notes" for a further description of the procedure
for review and approval of transactions with affiliates.
Arrangements Involving Affiliates
TASK Trucking Company, which is owned by Austin Dickerson, Larry Addington's
brother-in-law, provides trucking brokerage services to us, for which TASK
receives compensation per ton hauled. We paid TASK gross payments of $9.8
million, $12.9 million and $18.2 million for trucking services in 1995, 1996
and 1997, respectively, and $18.2 million for the year ended December 31, 1998.
Based upon our annual review of prices charged by competing trucking companies,
we believe that the price charged for such trucking services was not greater
than the prices generally charged by non-affiliated entities in the area.
We have a service agreement dated October 22, 1997 with Mining Machinery, Inc.
("MMI"), of which John Lynch and Larry Addington own more than 10% and more
than 86% of the capital stock, respectively. The service agreement expires
November 30, 2007, but may be terminated earlier upon written notice by MMI.
Under this agreement, MMI repairs and maintains some of our mining equipment.
In 1997, we paid MMI $5.8 million, and for the year ended December 31, 1998, we
paid MMI $13.7 million for repairs and maintenance. Based upon our annual
review of prices charged by competing equipment repair and maintenance
companies, we believe that the price charged for such repair and maintenance
services is not greater than prices generally charged by non-affiliated
entities in the area.
We have several month-to-month equipment leases with MMI, whereby MMI leases
mining equipment. In 1997, we paid MMI $3.8 million, and for the year ended
December 31, 1998, we paid MMI $5.9 million pursuant to such equipment leases.
Based on our annual review of prices charged by competing equipment leasing
companies, we believe that the price charged for such leases is not greater
than prices generally charged by non-affiliated entities in the area.
In connection with the September 1998 Kindill acquisition, Stephen Addington, a
director of AEI Resources and the brother of Larry Addington, received
approximately $3.6 million in exchange for his interest in a company that owned
an option to purchase a controlling interest in Kindill Holding, Inc.
Rothschild, Inc., delivered an opinion in connection with the Kindill
acquisition which stated that the transaction was fair to the Company from a
financial point of view.
For the years ended December 31, 1996 and December 31, 1997, we paid Bruce
Addington, Larry Addington's brother, approximately $230,000 and $232,000,
respectively, for services rendered as an employee of the Company. Bruce
Addington assists in managing Addington Mining's operations in eastern
Kentucky.
On August 4, 1998, AEI Resources Holding and AEI Resources entered into a Tax
Allocation Agreement providing for the filing of consolidated income tax
returns by the consolidated group of corporations of which the two companies
are members, and the allocation among the members of such consolidated group of
the tax liabilities or credits arising from such consolidated filings.
Under the terms of Keith Sieber's employment agreement, AEI Resources will pay
Mr. Sieber $10,300 per month for the shorter of 12 consecutive months or until
he sells his previous home. As of December 31, 1998, the balance of this loan
was $144,200. The rate of interest on the loan is 6.02%.
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Pursuant to a Technology Sharing Agreement, dated as of April 29, 1998, between
MTI and Addington Enterprises, MTI and Addington Enterprises agreed to share
with each other certain technology and technological developments relating to
highwall mining. We have not acquired, and currently do not intend to acquire
from Addington Enterprises, the foreign patent rights for Addcar highwall
mining systems, which are in effect in Australia, China, France, Germany,
Spain, the United Kingdom, India, Indonesia, Poland, Russia and South Africa.
Pursuant to a Manufacture and Service Agreement, dated as of November 12, 1998,
between MTI and Addington Enterprises, MTI agreed to manufacture Addcar
highwall mining systems for Addington Enterprises on a cost plus ten percent
basis.
Indemnification
In 1995, when Addington Enterprises purchased the stock of the Addington
Resources' subsidiaries engaged in coal mining operations, Addington
Enterprises assumed Addington Resources indemnity obligations to a Pittston
subsidiary that acquired coal operations from Addington Resources in January
1994. Our predecessor, AEI Holding assumed those obligations when it acquired
substantially all of Addington Enterprises' coal assets in November, 1997. See
"Business--Legal Proceedings."
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DESCRIPTION OF CAPITAL STOCK
The following description of the material rights and provisions of the capital
stock of AEI Resources, its parent corporation, AEI Resources Holding, and its
subsidiary and predecessor AEI Holding does not purport to be complete and is
subject in all respects to applicable Delaware law and to the provisions of
each company's Certificate of Incorporation. The common shares of each company
have substantially identical rights, preferences and limitations.
The common shares of each corporation have one vote per share on all matters
presented to its stockholders.
Each common share is entitled to receive such dividends or other distributions
as may be declared by the board of directors from funds legally available for
payment of dividends. Covenants in the indenture and our credit facility
restrict the declaration and payment of dividends.
Each common share cannot be redeemed at the sole option of either the
corporation or the stockholder and has no preemptive, conversion or cumulative
voting rights. In the event of a liquidation, dissolution or winding-up of the
corporation, the stockholders of that corporation will share equally and
ratably in the assets, if any, remaining after the payment of all debts and
liabilities of the corporation. These notes are debts of each of the three
corporations.
No established public trading market exists for the common shares of any of the
three corporations.
AEI Resources, Inc.
The authorized capital stock of AEI Resources, Inc. consists of 150,000 shares
of common stock, par value $0.01 per share, of which 52,802 shares were issued
and outstanding as of December 31, 1998.
AEI Resources Holding, Inc.
The authorized capital stock of AEI Resources Holding, Inc. Consists of 150,000
shares of common stock, par value $0.01 per share, of which 52,804 shares were
issued and outstanding as of December 31, 1998.
AEI Holding Company, Inc.
The authorized capital stock of AEI Holding Company, Inc. consists of 120,000
shares of common stock, par value $0.01 per share, of which 52,800 shares were
issued and outstanding as of December 31, 1998.
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information concerning ownership of the
common stock of Holdings as of the consummation of the Offering by each
director, each person who is known to Holdings to be the beneficial owner of
more than 5% of its common stock, all Named Executive Officers and all
directors and officers of Holdings as a group. Each stockholder listed below
has sole voting and dispositive power with respect to the shares listed next to
his name. Holdings owns all of the issued and outstanding capital stock of the
Company as of the consummation of the Offering.
<TABLE>
<CAPTION>
Percentage of
Name and Address Percentage of Class
of Beneficial Owner Shares Owned Class Beneficially Owned
- - ------------------- ------------ ------------- ------------------
<S> <C> <C> <C>
Larry Addington (1)............. 26,402 47.5% 100%
1500 North Big Run Road
Ashland, Kentucky 41101
Addington Enterprises, Inc.
(2)............................ 26,402 47.5% 100%
1500 North Big Run Road
Ashland, Kentucky 41101
Named Executive Officers (3).... 3,100 5% 100%
All executive officers and
directors as a group
(13 persons) (4)............... 29,502 52.5% 100%
</TABLE>
- - --------
(1) Larry Addington's beneficial ownership includes 38% beneficial ownership
through Addington Enterprises and 9.5% beneficial ownership attributed
based on Robert Addington's and Bruce Addington's interest in Addington
Enterprises, and 5% beneficial ownership is attributed based on shares
owned by Robert Addington..
(2) Addington Enterprises is owned 80%, 10% and 10% by Larry Addington, Robert
Addington and Bruce Addington, respectively.
(3) The 3,100 shares are owned by Robert Addington. Beneficial ownership
includes Robert Addington's 4.8% beneficial ownership through Addington
Enterprises and 90.2% beneficial ownership attributed through Bruce
Addington's interest in Addington Enterprises and Larry Addington's direct
ownership and his interest in Addington Enterprises.
(4) Beneficial ownership is attributable to the beneficial ownership of Larry
Addington and Robert Addington set forth above.
Reports to Noteholders
The Indenture provides that the Company will furnish the holders of the Notes
with annual reports containing audited financial statements and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year.
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THE EXCHANGE OFFER
We issued the initial notes in exchange for $200,000,000 aggregate principal
amount of debt securities of AEI Holding. As a condition to the exchange, AEI
Resources, its subsidiary AEI Holding, its parent AEI Resources Holding, and
the subsidiary guarantors of the notes entered into a registration rights
agreement with Warburg Dillon Read LLC, which served as dealer manager in
connection with the transaction. The registration rights agreement requires the
two co-issuers, AEI Resources and AEI Holding, and the guarantors, AEI
Resources Holding and the subsidiary guarantors, to file a registration
statement for a registered exchange offer relating to an issue of new notes
identical in all material respects to the initial notes but containing no
restrictive legend. The registration rights agreement has been filed as an
exhibit to the registration statement and a copy of it is available as set
forth under the heading "Where You Can Find More Information."
Under the registration rights agreement, the co-issuers and the guarantors are
required to:
.file the registration statement as soon as reasonably practicable;
.use all reasonable commercial efforts to cause the registration statement
to become effective under the Securities Act at the earliest possible
time; and
. upon effectiveness of the registration statement, commence this exchange
offer and offer the eligible holders of initial notes the opportunity to
exchange them for the same principal amount of exchange notes.
General Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and
in the letter of transmittal, we will accept for exchange all initial notes
validly tendered and not withdrawn before 5:00 p.m., New York City time, on
, 1999, or such date and time to which we extend the offer. We will
issue exchange notes in exchange for an equal principal amount of outstanding
initial notes accepted in the exchange offer. Initial notes may be tendered
only in integral multiples of $1,000. This prospectus, together with the letter
of transmittal, is being sent to all record holders of initial notes as of May
, 1999. The exchange offer is not conditioned upon any minimum principal amount
of initial notes being tendered in exchange. However, our obligation to accept
initial notes for exchange is subject to certain conditions stated in this
section under "-- Conditions."
Our acceptance of initial notes will occur when, as and if we have given oral
or written notice to the exchange agent. The exchange agent will act as agent
for the tendering holders of initial notes for the purposes of receiving the
exchange notes and delivering them to the holders.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to other issuers, we believe that the exchange notes issued in
the exchange offer may be offered for resale, resold or otherwise transferred
by each holder without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
. the holder is not a broker-dealer who acquires the initial notes directly
from us for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act;
.the holder is not an "affiliate" of ours, as that term is defined in Rule
405 under the Securities Act;
. the exchange notes are acquired in the ordinary course of the holder's
business and the holder is not engaged in, and does not intend to engage
in, a distribution of the exchange notes and has no arrangement or
understanding with any person to participate in a distribution of the
exchange notes.
By tendering the initial notes in exchange for exchange notes, each holder,
other than a broker-dealer, will represent to us that:
.the holder is acquiring any exchange notes to be received by it in the
ordinary course of its business;
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<PAGE>
. it is not engaged in, and does not intend to engage in, a distribution of
such exchange notes and has no arrangement or understanding to
participate in a distribution of the exchange notes; and
.it is not an affiliate of ours, within the meaning of Rule 405 under the
Securities Act.
If a holder of initial notes is engaged in or intends to engage in a
distribution of the exchange notes or has any arrangement or understanding with
respect to the distribution of the exchange notes to be acquired pursuant to
the exchange offer, the holder may not rely on the applicable interpretations
of the staff of the SEC and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction. Each broker-dealer that receives exchange notes for its own
account in the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of those exchange notes. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an underwriter" within the
meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of exchange notes received
in exchange for initial notes when the broker-dealer acquired those initial
notes as a result of market-making activities or other trading activities. We
have agreed to make this prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
.If the exchange offer is not permitted by applicable law or SEC policy; or
.If a holder notifies us within 20 business days after the exchange offer
commences that:
.the holder is prohibited by applicable law or SEC policy from
participating in the offer, or
. the holder may not resell the exchange notes it acquires in the
exchange offer to the public without delivering a prospectus, and
this prospectus is not appropriate or available for use in resales by
the holder, or
. the holder is a broker-dealer and holds initial notes acquired
directly from the co-issuers or one of their affiliates; or
. we do not complete the exchange offer within 45 days following the
effectiveness of the registration statement for the exchange offer,
then we must use our reasonable best efforts to:
. file a shelf registration statement with the SEC covering resales of the
initial or exchange notes subject to the transfer restrictions listed
above;
. cause the shelf registration statement to be declared effective as
promptly as practicable; and
. keep the shelf registration statement continuously effective until the
earlier of two years or such time as all of the applicable initial notes
have been sold under the shelf registration.
If we file a shelf registration statement, we will provide to each holder of
initial or exchange notes subject to transfer restrictions copies of the
prospectus that is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
notes covered by the shelf registration. A holder that sells notes pursuant to
the shelf registration statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with its sales, and will be bound by the
provisions of the registration rights agreement that are applicable to that
holder, including certain indemnification rights and obligations.
From December 8, 1998 to March 8, 1999, we paid to each holder of initial
notes, as liquidated damages, $0.15 per $1,000 principal amount of initial
notes per week. Beginning on March 8, 1999, the amount of liquidated damages
payable increased to $0.20 per $1,000 principal amount per week. If we do not
complete the exchange
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<PAGE>
offer during the 90 days ending June 6, 1999, the amount of liquidated damages
payable weekly during the subsequent 90 days will increase to $0.25 per $1,000
principal amount. Until we complete the exchange offer, the amount of
liquidated damages payable will increase by an additional $0.05 per $1,000
principal amount per week for every subsequent 90-day period, up to a maximum
of $0.50 payable weekly per $1,000 principal amount of initial notes.
In addition, we must pay liquidated damages to holders of initial notes before
completion of the exchange or to broker-dealers who exchange initial notes for
exchange notes if a "registration default" occurs. Any of the following events
would be a registration default:
. the exchange offer registration statement or the shelf registration
statement, as the case may be, is not filed with the SEC as soon as
practicable;
.the exchange offer registration statement or the shelf registration
statement, as the case may be, is not declared effective as soon as
practicable, or
. the exchange offer registration statement or the shelf registration
statement, as the case may be, is filed and declared effective, but
subsequently ceases to be effective and usable in connection with resales
of notes.
In any such event, we would be obligated to pay liquidated damages during the
period of one or more such registration defaults, in an amount equal to $0.05
per week per $1,000 principal amount of notes held by an applicable holder
until all registration defaults are cured. The amount of liquidated damages
payable will increase by an additional $0.05 per $1,000 principal amount per
week for every subsequent 90-day period while a registration default exists, up
to a maximum of $0.50 payable weekly per $1,000 principal amount of transfer
restricted notes.
Upon consummation of the exchange offer, subject to certain exceptions, holders
of initial notes who do not exchange their initial notes for exchange notes in
the exchange offer will no longer be entitled to registration rights and will
not be able to offer or sell their initial notes, unless the initial notes are
subsequently registered under the Securities Act (which, subject to certain
limited exceptions, we will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.
Expiration Date; Extensions; Amendments; Termination
The term "expiration date" means , 1999 (30 calendar days following
the commencement of the exchange offer), unless the exchange offer is extended
if and as required by applicable law, in which case the term "expiration date"
will mean the latest date to which the exchange offer is extended.
To extend the expiration date, we will notify the exchange agent of any
extension by oral or written notice and may notify the holders of the initial
notes by mailing an announcement or by means of a press release or other public
announcement before 9:00 A.M., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right to delay acceptance of any initial notes, to extend the
exchange offer or to terminate the exchange offer and not permit acceptance of
initial notes not previously accepted if any of the conditions set forth herein
under "--Conditions" occurs and is not waived by us (if permitted to be
waived), by giving oral or written notice of such delay, extension or
termination to the exchange agent. We also reserves the right to amend the
terms of the exchange offer in any manner we deem to be advantageous to the
holders of the initial notes. If we materially change terms of the exchange
offer, the exchange offer will remain open for a minimum of an additional five
business days, if the exchange offer would otherwise expire during that period.
We will provide oral or written notice of the delay to the exchange agent as
promptly as practicable after any such delay in acceptance, extension,
termination or amendment. If we amend the exchange offer in a manner we
determine
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<PAGE>
to be material, we will promptly disclose the amendment in a manner reasonably
calculated to inform the holders of the initial notes of the amendment,
including by making public announcement or giving oral or written notice to the
holders of the initial notes. A material change in the terms of the exchange
offer could include, among other things, a change in the timing of the exchange
offer, a change in the exchange agent, and other similar changes in the terms
of the exchange offer.
Without limiting the manner in which we may choose to publicly announce any
delay, extension, amendment or termination of the exchange offer, we are not
required to obligation to publish, advertise, or otherwise communicate any such
public announcement.
Interest on the Exchange Notes
The exchange notes will accrue interest payable in cash at 10 1/2% per year,
from the date of the last periodic payment of interest on the initial notes,
or, if no interest has been paid on the initial notes, from December 14, 1998.
Procedures for Tendering
To tender in the exchange offer, a holder of initial notes must:
.complete, sign and date the letter of transmittal or a facsimile of it,
.have the signatures guaranteed if required by the letter of transmittal,
. mail or otherwise deliver the letter of transmittal or facsimile, or an
agent's message together with the initial notes and any other required
documents, to the exchange agent before 5:00 p.m., New York City time, on
the expiration date.
In addition, one of the following must occur:
.the exchange agent must receive certificates for the initial notes along
with the letter of transmittal,
. the exchange agent must receive a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of the initial notes, if such
procedure is available, into the exchange agent's account at The
Depository Trust Company (the "Book- Entry Transfer Facility" or "DTC")
pursuant to the procedure for book-entry transfer described below before
5:00 p.m., New York City time, on the expiration date, or
.the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of initial notes, letters of transmittal and all other
required documents is at the election and risk of the holder. Instead of
delivery by mail, we recommend that holders use an overnight or hand-delivery
service. If delivery is by mail, we recommend that holders use registered mail,
properly insured, with return receipt requested, be used. In all cases, holders
should allow sufficient time to assure timely delivery. No letters of
transmittal or initial notes should be sent to AEI Resources.
All documents must be delivered to the exchange agent, IBJ Whitehall Bank &
Trust Company, at its address set forth below. Holders of initial notes may
also request their respective brokers, dealers, commercial banks, trust
companies or nominees to tender initial notes for them.
The term "agent's message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the exchange agent and forming a part of
a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering initial notes that are the subject of the Book-
Entry Confirmation that the participant has received and agrees to be bound by
the terms of the letter of transmittal, and that we may enforce this agreement
against the participant.
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The tender by a holder of initial notes will constitute an agreement between
that holder and us in accordance with the terms and subject to the conditions
set forth here and in the letter of transmittal.
Only a holder of initial notes may tender the initial notes in the exchange
offer. The term "holder" for this purpose means any person in whose name
initial notes are registered on our books or any other person who has obtained
a properly completed bond power from the registered holder.
Any beneficial owner whose initial notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on his or her behalf. If the beneficial owner
wishes to tender on his or her own behalf, that beneficial owner must, before
completing and executing the letter of transmittal and delivering his or her
initial notes, either make appropriate arrangements to register ownership of
the initial notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Exchange Act (each, an "Eligible Institution"), unless
the initial notes are tendered:
. by a registered holder (or by a participant in DTC whose name appears on
a security position listing as the owner) who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal and the exchange notes are
being issued directly to such registered holder (or deposited into the
participant's account at DTC); or
.for the account of an Eligible Institution.
If the letter of transmittal is signed by the recordholder(s) of the tendered
initial notes, the signature must correspond with the name(s) written on the
face of the initial notes without alteration, enlargement or any change
whatsoever. If the letter of transmittal is signed by a participant in DTC, the
signature must correspond with the name as it appears on the security position
listing as the holder of the initial notes.
If the letter of transmittal is signed by a person other than the registered
holder of any initial notes listed in the letter, those initial notes must be
endorsed or accompanied by bond powers and a proxy that authorize the signing
person to tender the initial notes on behalf of the registered holder, in each
case as the name of the registered holder or holders appears on the initial
notes.
If the letter of transmittal or any initial notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity,
each of the signing persons should indicate his or her capacity when signing,
and unless waived by us, evidence satisfactory to us of their authority to so
act must be submitted with the letter of transmittal.
A tender will be deemed to have been received as of the date when the exchange
agent receives:
.the tendering holder's duly signed letter of transmittal accompanied by
initial notes, or
.a timely confirmation received of a book-entry transfer of initial notes
into the exchange agent's account at DTC with an agent's message, or
.a notice of guaranteed delivery from an Eligible Institution.
Issuances of exchange notes in exchange for initial notes tendered pursuant to
a notice of guaranteed delivery by an Eligible Institution will be made only
against delivery of the letter of transmittal and any other required documents,
and the tendered initial notes or a timely confirmation received of a book-
entry transfer of initial notes into the exchange agent's account at DTC with
the exchange agent.
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We will determine all questions as to the validity, form, eligibility, time of
receipt, acceptance and withdrawal of the tendered initial notes in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all initial notes not properly tendered or any
initial notes which, if accepted, would, in our opinion or the opinion of our
counsel, be unlawful. We also reserve the absolute right to waive any
conditions of the exchange offer or irregularities or defects in tender as to
particular initial notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of initial notes must be cured within
such time as we determine. Neither we, the exchange agent nor any other person
will be under any duty to give notification of defects or irregularities with
respect to tenders of initial notes, nor shall any of them incur any liability
for failure to give that notification. Tenders of initial notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any initial notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived
will be returned without cost by the exchange agent to the
tendering holders of such initial notes, unless otherwise provided in the
letter of transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion, subject to the
provisions of the Indenture, to:
.purchase or make offers for any initial notes that remain outstanding
after the expiration date or,
. to terminate the exchange offer in accordance with the terms of the
registration rights agreement, as set forth under "--Expiration Date;
Extensions; Amendments; Termination"; and
. to the extent permitted by applicable law, purchase initial notes in the
open market, in privately negotiated transactions or otherwise. The terms
of any such purchases or offers could differ from the terms of the
exchange offer.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer, we
will accept all initial notes properly tendered promptly after the expiration
date, and will issue the exchange notes promptly after acceptance of the
initial notes. For purposes of the exchange offer, we will accept initial notes
as validly tendered for exchange when, as and if we give oral or written notice
of acceptance to the exchange agent. See "--Conditions" below.
In all cases, we will issue exchange notes for initial notes accepted for
exchange only after timely receipt by the exchange agent of certificates for
those initial notes or a timely Book-Entry Confirmation of those initial notes
into the exchange agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed letter of transmittal and all other
required documents. If we do not accept any tendered initial notes for any
reason set forth in the terms and conditions of the exchange offer or if
initial notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged initial notes will be
returned without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer. In the case of
initial notes tendered by the book-entry transfer procedures described below,
the non-exchanged initial notes will be credited to an account maintained with
the Book-Entry Transfer Facility.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect to
the initial notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of initial notes by causing the
Book-Entry Transfer Facility to transfer those initial notes into the exchange
agent's account at the Book-Entry Transfer Facility in accordance with the
Book-Entry Transfer Facility's procedures for transfer. However, although
initial notes may be delivered through book-entry transfer into the exchange
agent's account at the Book-Entry Transfer Facility, the exchange agent must
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receive an agent's message or the letter of transmittal or facsimile thereof
with any required signature guarantees and any other required documents at one
of the exchange agent's addresses set forth below under "--Exchange Agent" on
or before the expiration date, or the guaranteed delivery procedures described
below must be complied with. Delivery of documents to DTC does not constitute
delivery to the exchange agent. All references in the prospectus to deposit of
initial notes will be deemed to include the Book-Entry Transfer Facility's
book-entry delivery method.
Guaranteed Delivery Procedure
If a registered holder of the initial notes desires to tender the notes, and
the notes are not immediately available, or time will not permit the holder's
initial notes or other required documents to reach the exchange agent before
the expiration date, or the procedures for book-entry transfer cannot be
completed on a timely basis and an agent's message delivered, the holder may
tender its initial notes if:
.the tender is made through an Eligible Institution;
. before the expiration date, the exchange agent receives from that
Eligible Institution a properly completed and duly executed letter of
transmittal or facsimile thereof and notice of guaranteed delivery,
substantially in the form provided by us, by facsimile transmission, mail
or hand delivery, stating:
.the name and address of the holder of the initial notes,
.the amount of initial notes tendered,
.that the tender is being made thereby,
. a guarantee that within five business days after the expiration date, the
certificates for all physically tendered initial notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the letter of transmittal will be deposited
by the Eligible Institution with the exchange agent; and
. the exchange agent actually receives the certificates for all physically
tendered initial notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the
letter of transmittal within five business days after the expiration
date.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of initial notes may
be withdrawn at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal of tendered notes to be effective, the exchange agent must
receive a written notice of withdrawal before 5:00 p.m., New York City time on
the business day before the expiration date at the address stated below under
"--Exchange Agent" and before we accept the tendered notes. Any notice of
withdrawal must:
.specify the name of the person having tendered the initial notes to be
withdrawn (the "Depositor");
. identify the initial notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of those
initial notes;
. be signed by the Depositor in the same manner as the original signature
on the letter of transmittal by which those initial notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee to register the
transfer of those initial notes into the name of the Depositor
withdrawing the tender;
. specify the name in which any of those initial notes are to be
registered, if different from that of the Depositor; and
. if the initial notes have been tendered pursuant to the book-entry
procedures, the notice of withdrawal must specify the name and number of
the participant's account at DTC to be credited, if different than that
of the Depositor.
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We will determine all questions as to the validity, form and eligibility, time
of receipt of notices of withdrawal, and our determination will be final and
binding on all parties. Any initial notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the exchange offer. Any
initial notes that have been tendered for exchange and that are not exchanged
for any reason will be returned to the holder without cost to the holder as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of initial notes tendered by book-entry transfer,
the initial notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the initial notes. Properly withdrawn initial notes may
be re-tendered by following one of the procedures described above under "--
Procedures for Tendering" and "--Book-Entry Transfer" at any time on or before
the expiration date.
Conditions
Notwithstanding any other term of this exchange offer, we will not be required
to complete the exchange offer if, because of any change in law or applicable
interpretations thereof by the SEC, or any order of any government agency or
court, we determine that we are not permitted to complete the exchange offer.
Exchange Agent
IBJ Whitehall Bank & Trust Company has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
<TABLE>
<CAPTION>
By Mail: By Courier or Overnight Delivery
<S> <C>
IBJ Whitehall Bank & Trust Company IBJ Whitehall Bank & Trust Company
P. O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Window,
Attn: Reorganization Operations Subcellar One (SC-1)
</TABLE>
By Facsimile:
IBJ Whitehall Bank & Trust Company
Attn: Reorganization Operations
Facsimile No: (212) 858-2611 with a
confirmation by telephone to:
Telephone No: (212) 858-2103
Fees and Expenses
We will pay the expenses of soliciting tenders under the exchange offer. The
principal solicitation for tenders pursuant to the exchange offer is being made
by mail; however, additional solicitations may be made by telegraph, telephone,
telecopy or in person by our officers and regular employees.
We will not make any payments to brokers, dealers or other persons soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection therewith. We may
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of the
prospectus, letters of transmittal and related documents to the beneficial
owners of the initial notes, and in handling or forwarding tenders for
exchange.
We will pay the expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and Trustee and accounting,
legal, printing and related fees and expenses.
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We will pay all transfer taxes, if any, applicable to the exchange of initial
notes pursuant to the exchange offer. If, however:
. certificates representing exchange notes or initial notes for principal
amounts not tendered or accepted for exchange are to be delivered to, or
are to be registered or issued in the name of, any person other than the
registered holder of the initial notes tendered, or
. tendered initial notes are registered in the name of any person other
than the person signing the letter of transmittal, or
. if a transfer tax is imposed for any reason other than the exchange of
initial notes pursuant to the exchange offer,
then the amount of any such transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If a
holder does not submit satisfactory evidence of payment of any transfer taxes
or exemption from payment with the letter of transmittal, the amount of the
transfer taxes will be billed directly to the tendering holder.
Accounting Treatment
We will record the exchange notes at the same carrying value as the initial
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes.
The costs of the exchange offer and the unamortized expenses related to the
issuance of the initial notes will be amortized over the term of the exchange
notes.
Federal Income Tax Consequences of the Exchange Offer
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended applicable Treasury regulations, judicial
authority and administrative rulings and practice. The Internal Revenue Service
could take a contrary view, and we have not and will not seek a ruling from the
IRS. In the future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conditions in this
section. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders of the initial
notes (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
The issuance of the exchange notes to holders of the initial notes pursuant to
the terms of the exchange offer set forth in this prospectus will not
constitute an exchange for federal income tax purposes. Consequently, holders
of the initial notes will not recognize gain or upon receipt of the exchange
notes, and ownership of the exchange notes will be considered a continuation of
ownership of the initial notes. For purposes of determining gain or loss upon
the subsequent sale or exchange of the exchange notes, a holder's basis in the
exchange notes should be the same as that holder's basis in the initial notes
exchanged for exchange notes. A holder's holding period for the exchange notes
should include the holder's holding period for the initial exchanged for
exchange notes. The issue price, original issue discount inclusion and other
tax characteristics of the exchange notes should be identical to the issue
price, original issue discount inclusion and other tax characteristics of the
initial notes exchanged for exchange notes.
Holders of initial notes should consult their own tax advisors as to the
particular tax consequences of exchanging them for exchange notes, including
the applicability and effect of any state, local or foreign tax laws.
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DESCRIPTION OF NOTES
You can find the definitions of certain capitalized terms used in this
description under the subheading "Certain Definitions." In this description:
. the word "Company" refers only to AEI Resources and not to any of its
subsidiaries;
. the word "Issuers" refers to AEI Resources and its wholly owned
subsidiary and co-issuer of the Notes, AEI Holding;
. the word "Notes" refers to both the initial notes and the exchange
notes. The form and terms of the exchange notes are the same as the form
and terms of the initial notes, except that the exchange notes will be
registered under the Securities Act.
Pursuant to this exchange offer, the Issuers will issue the exchange notes for
the initial notes accepted for exchange under the Indenture among the Issuers,
the Guarantors and IBJ Whitehall Bank & Trust Company, as Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of these Notes. We have filed a copy of the Indenture as an exhibit to
the registration statement that includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These Notes:
. are general, unsecured obligations of the Issuers;
. are on a parity in right of payment with all existing and future Senior
Indebtedness of the Company, but are subordinated to our credit facility
because it is secured by the capital stock of the Company and each
guarantor and substantially all of our current and future assets;
. are senior in right of payment to all subordinated Indebtedness of the
Company; and
. are unconditionally guaranteed by the Guarantors.
The Guarantees
These Notes are guaranteed by:
. AEI Resources Holding, the corporate parent of AEI Resources, and
. 71 subsidiary corporations of AEI Resources
The Guarantees of these Notes:
.are senior unsecured obligations of each Guarantor;
. are on a parity in right of payment with all existing and future Senior
Indebtedness of each Guarantor, but are subordinated to each guarantee
of our credit facility because each guarantee is secured by
substantially all of each guarantor's current and future assets; and
. are senior in right of payment to all subordinated Indebtedness of each
Guarantor.
As of December 31, 1998, the Company and the Guarantors would have had total
Senior Indebtedness of approximately $692.0 million (after giving effect to
payments and borrowings after that date). The Indenture will permit us and the
Guarantors to incur additional Senior Indebtedness.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries
will not guarantee these Notes.
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Principal, Maturity and Interest
As of the date of this prospectus, the Issuers had issued initial notes with a
$200 million aggregate principal amount. In this exchange offer, the Issuers
will issue exchange notes with the same aggregate principal amount as the
initial notes accepted for exchange. The Issuers will issue Notes in
denominations of $1,000 and integral multiples of $1,000. The Notes will mature
December 15, 2005.
Interest on these Notes will accrue at the rate of 10 1/2% per annum and will
be payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 1999. The Company will make each interest payment to the Holders
of record of these Notes on the immediately preceding June 1 and December 1.
Interest on these Notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given us wire transfer instructions, we will make all
principal, premium and interest payments on those Notes in accordance with
those instructions. All other payments on these Notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless we elect to make interest payments by check mailed to the
Holders at their address set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. We may change the
Paying Agent or Registrar without prior notice to the Holders of the Notes, and
we or any of our Subsidiaries may act as Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and we may require a Holder to
pay any taxes and fees required by law or permitted by the Indenture. We are
not required to transfer or exchange any Note selected for redemption. Also, we
are not required to transfer or exchange any Note for a period of 15 days
before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Guarantees
The Guarantors will jointly and severally guarantee the Company's obligations
under these Notes. Each Subsidiary Guarantee will be on a parity in right of
payment with all Senior Indebtedness of that Guarantor. The obligations of each
Guarantor under its Guarantee will be limited as necessary to prevent that
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors--Fraudulent Conveyance Matters."
The Notes will not be guaranteed by Yankeetown Dock Corporation or any of its
direct and indirect Subsidiaries or by any current or future foreign
subsidiaries of the Company. The aggregate net assets, earnings and equity of
the Guarantors and the Company are substantially equivalent to the net assets,
earnings and equity of the Company on a consolidated basis. The claims of
creditors (including trade creditors) of any non-Guarantor subsidiary will
generally have priority as to the assets of those subsidiaries over the claims
of the holders of the Notes.
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A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists;
(2) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger assumes
all the obligations of that Guarantor pursuant to a supplemental indenture
satisfactory to the Trustee; and
(3) the Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation), if the Company applies the Net Proceeds of that
sale or other disposition, in accordance with the applicable provisions of
the Indenture; or
(2) in connection with any sale of all of the capital stock of a
Guarantor, if the Company applies the Net Proceeds of that sale in
accordance with the applicable provisions of the indenture; or
(3) if the Company designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary.
See "Redemption or Repurchase at Option of Holders--Asset Sales."
Ranking
The Notes are general unsecured obligations of the Issuers. In right of
payment, the Notes rank equal with all current and future Senior Indebtedness
of the Company, including its credit facility, and senior to all subordinated
Indebtedness of the Company, including the Senior Subordinated Notes. However,
the Company's borrowings under its current Credit Facility are secured by a
first priority lien on certain of the assets of the Company and its Restricted
Subsidiaries. As a result, the Notes are effectively subordinated to the credit
facility to the extent of that collateral. As of December 31, 1998, on a pro
forma basis after giving effect to the acquisitions and dispositions of
businesses in 1999, $692.0 million would have been outstanding under the
Company's credit facility and approximately $156.9 million would have been
available for borrowing (after giving effect to approximately $26.1 million of
outstanding letters of credit). The Indenture will permit substantial
additional borrowings under the credit facilities in the future. See "Risk
Factors--Secured Indebtedness."
Optional Redemption
At any time on or before December 15, 2000, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 110.50% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages to the redemption date, with the net cash proceeds of one or more
Public Equity Offerings; provided that
(1) at least $130 million in aggregate principal amount of Notes remains
outstanding immediately after the occurrence of such redemption (excluding
Notes held by the Company and its Subsidiaries); and
(2) the redemption must occur within 45 days of the date of the closing of
such Public Equity Offering.
Beginning on December 15, 2002, the Company may redeem all or a part of these
Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth
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below plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002........................................ 105.25%
2003........................................ 103.50%
2004 and thereafter......................... 101.75%
</TABLE>
In addition, before December 15, 2000, the Company may redeem all or a part of
these Notes at the a price (expressed as percentages of principal amount) equal
to 100% of the principal amount plus an applicable Make Whole Premium, plus, to
the extent not included in the Make Whole Premium, accrued and unpaid interest
and Liquidated damage, if any, to the date of redemption.
The applicable Make Whole Premium will be equal to the greater of:
. 105.25%, and
. the excess of:
. the present value of the remaining interest, premium, if any, and
principal payments due on the Notes if they were redeemed on
December 15, 2002, computed using a discount rate equal to the
Treasury Rate plus 50 basis points,
. over the outstanding principal amount of the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of Notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's Notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
Notes repurchased plus accrued and unpaid interest thereon, if any, to the date
of purchase. Within ten days following any Change of Control, the Company will
mail a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the Change
of Control Payment Date specified in such notice, pursuant to the procedures
required by the Indenture and described in such notice. The Change of Control
Payment Date will be no earlier than 30 days and no later than 60 days from the
date the notice is mailed. The Company will comply with the requirements of
Rule l4e-1 under the Exchange Act and any other, securities laws and
regulations thereunder to the extent such laws and regulations are applicable
in connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of Notes or portions thereof being purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The
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Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's outstanding Senior Indebtedness currently prohibits the Company
from purchasing any Notes, and also provides that certain change of control
events with respect to the Company would constitute a default under the
agreements governing the Senior Indebtedness. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. If a Change of Control occurs
at a time when the Company is prohibited from purchasing Notes, the Company
could seek the consent of its senior lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under such Senior
Indebtedness. In such circumstances, the first priority lien on the assets of
the Company and its Restricted Subsidiaries that secures borrowings under the
Company's Credit Facility would likely limit any payments to the Holders of
Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee; and
(3) except in the case of assets the Company holds for sale, at least 75%
of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash, cash equivalents or marketable
securities. For purposes of this provision, each of the following shall be
deemed to be cash:
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Subsidiary Guarantee) that are
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assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted
Subsidiary from further liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by
the Company or such Restricted Subsidiary into cash (to the extent of
the cash received in that conversion);
(c) any noncash consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Sales, and designated as such in
a certificate of officers of the Company. The aggregate value of such
designated noncash consideration, taken together with the value at the
time of receipt of all other designated noncash consideration received
in prior Asset Sales less the amount of Net Proceeds previously
realized in cash from prior designated noncash consideration must be
less than 5% of Total Assets at the time of the receipt of such
designated noncash consideration; and
(d) additional assets received in an exchange of assets transaction.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the
Company may apply those Net Proceeds at its option:
(1) to repay Senior Indebtedness;
(2) to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure;
(4) to acquire other long-term assets that are used or useful in a
Permitted Business; or
(5) to make an investment in additional assets
Pending the final application of any Net Proceeds from an Asset Sale, the
Company may temporarily reduce revolving credit borrowings or otherwise invest
those Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $15.0 million, the Company will make an Asset
Sale Offer to all Holders of Notes and all holders of other Indebtedness that
is on a parity with the Notes containing provisions similar to those set forth
in the Indenture with respect to offers to purchase or redeem with the proceeds
of sales of assets to purchase the maximum principal amount of Notes and such
other Indebtedness that maybe purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of principal amount plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and such other Indebtedness tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the
Notes and such other Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee will
select Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
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Notes of $1,000 or less cannot be redeemed in part. Notices of redemption must
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note must state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any payment of the types described in (1) and
(2) below prior to December 14, 1999. The Company will not at any time
thereafter, and will not permit any of its Restricted Subsidiaries to directly
or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (including without limitation, any payment in connection with any
merger or consolidation involving the Company or any of its Restricted.
Subsidiaries) or to the direct or indirect holders of the Company's or any
of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company), any Equity Interests of the Company or any direct
or indirect parent of the Company or any Restricted Subsidiary of the
Company (other than any Such Equity Interests owned by the Company or any
Restricted Subsidiary of the Company);
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to a Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) the Company would, at the time of the Restricted Payment and after
giving pro forma effect to that Restricted Payment as if it had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) the Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted
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Payments permitted by clauses (2), (3), (4), (5), (7), (8), and (9) of the
next succeeding paragraph), is less than the sum, without duplication, of
(a) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the date of the Indenture to the
end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by the Company
since the date of the Indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of the Company
(other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus
(c) to the extent that any Restricted Investment that reduced the
amount available for restricted Payments under this clause (3) is sold
for cash or otherwise liquidated or repaid for cash or any dividend or
payment is received by the Company or a Restricted Subsidiary after the
date of the closing of the Acquisitions in respect of such Investment,
100% of the amount of Net Proceeds or dividends or payments (including
the fair market value of property) received in connection therewith, up
to the amount of the Restricted Investment that reduced this clause
(3), and thereafter 50% of the amount of Net Proceeds or dividends or
payments (including the fair market value of property) received in
connection therewith (except that the amount of dividends or payments
received in respect of payments of Obligations in respect of such
Investments, such as taxes, shall not increase the amounts under this
clause (3)), plus
(d) to the extent that any Unrestricted Subsidiary of the Company is
redesignated as a Restricted Subsidiary after the date of the Exchange
Note Indenture, 100% of the fair market value of the Company's
Investment in such Subsidiary as of the date of such redesignation up
to the amount of the Restricted Investments made in such Subsidiary
that reduced this clause (3) and 50% of the excess of the fair market
value of the Company's Investment in such Subsidiary as of the date of
such redesignation over (1) the amount of the Restricted Investment
that reduced this clause (3) and (2) any amounts that increased the
amount available as a Permitted Investment provided that with respect
to any redesignation pursuant to this clause (d) the Company shall
deliver to the Exchange Note Trustee (I) in the case of any such
redesignation involving aggregate fair market value greater than $2.0
million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying such value or (II) in the case of any
such redesignation involving aggregate fair market value greater than
$10.0 million, an independent appraisal or valuation opinion issued by
an accounting, appraisal or investment banking firm of national
standing; provided that any amounts that increase this clause (3) shall
not duplicatively increase amounts available as Permitted Investments.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration the dividend payment
would have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, Equity Interests of the Company (other than Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
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(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of the Company or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the Company
to the holders of its common Equity Interests on a pro rata basis;
(5) Investments in Unrestricted Subsidiaries having an aggregate fair
market value not to exceed the amount, at the time of such Investment,
substantially concurrently contributed in cash or Cash Equivalents to the
common equity capital of the Company after the date of the closing of the
Acquisitions; provided that any such amount contributed shall be excluded
from the calculation made pursuant to clause (3) of the preceding
paragraph;
(6) the payment of dividends on the Company's Common Stock, following the
first public offering of the Company's Common Stock after the date of the
closing of the Acquisitions, of up to 6% per annum of the net proceeds
received by the Company in such public offering, other than public
offerings with respect to the Company's Common Stock registered on Form S-
8;
(7) the repurchase, redemption or other acquisition or, retirement for
value of any Equity Interests of the Company or any Restricted Subsidiary
held by any member of the Company's (or any of its Restricted
Subsidiaries') management or directors, other than Equity Interests held by
the Principals or any of their Related Parties, pursuant to any management
equity subscription agreement or stock option agreement or any other
management or employee benefit plan; provided that (A) the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $2.0 million in any calendar year (with unused
amounts in any calendar year being carried over to succeeding calendar
years subject to a maximum (without giving effect to the following proviso)
of $5.0 million in any calendar year); provided further that such amount in
any calendar year may be increased by an amount not to exceed (x) the cash
proceeds from the sale of Equity Interests (not including Disqualified
Stock) of the Company or a Restricted Subsidiary to members of management
and directors of the Company and its Subsidiaries that occurs after the
date of the Indenture, plus (y) the cash proceeds of key-man life insurance
policies received by the Company and its Restricted Subsidiaries after the
date of the Indenture, less (z) the amount of any Restricted Payments
previously made pursuant to clauses (x) and (y) of this subparagraph (7)
and (B) no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; and, provided further, that
cancellation of Indebtedness owing to the Company from members of
management of the Company or any of its Restricted Subsidiaries (other than
the Principals or any of their Related Parties) in connection with a
repurchase of Equity Interests of the Company or a Restricted Subsidiary
pursuant to any employment agreement or arrangement or any stock option or
similar plan will not be deemed to constitute a Restricted Payment for
purposes of this covenant or any other provision of the Indenture;
(8) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(9) the payment of dividends or distributions to Holdings (I) pursuant to
a tax allocation agreement in effect on the date of the Indenture, in
amounts required by Holdings to pay income taxes; (II) in amounts required
by Holdings to pay administrative expenses not to exceed $500,000 in any
calendar year; and (III) in order to permit Holdings to repay Indebtedness
under the Bridge Facilities; and
(10) the use of any and all Net Proceeds received from the sale of Assets
Held for Sale to repay Indebtedness outstanding under the Bridge
Facilities.
The amount of all Restricted Payments (other than cash) will be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case maybe, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto must be delivered to the Trustee. The Board of Directors'
determination
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must be based upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if the fair market value
exceeds $10.0 million. Not later than the date of making any Restricted
Payment, the Company must deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant
were computed, together with a copy of any fairness opinion or appraisal
required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt).
The Company will not issue any Disqualified Stock and will not permit any of
its Restricted Subsidiaries to issue any shares of preferred stock. However,
the Company and any Guarantor may incur Indebtedness (including Acquired Debt),
or issue Disqualified Stock or preferred stock, if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred, or the Disqualified Stock
or preferred stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The provisions of the preceding paragraph will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company of Indebtedness under Credit Facilities
(and the Guarantee thereof by the Subsidiary Guarantors); provided that the
aggregate principal amount of all Indebtedness outstanding under this
clause (1) after giving effect to such incurrence does not exceed an amount
equal to $875.0 million (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
and its Restricted Subsidiaries thereunder) less the amount of proceeds of
Asset Sales applied to repay any such term Indebtedness or revolving
Indebtedness if such repayment of revolving Indebtedness resulted in a
corresponding commitment reduction (excluding any such payments to the
extent refinanced at the time of repayment);
(2) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness, the Senior Subordinated Notes issued in the Offering and the
Guarantees thereof;
(3) (A) the guarantee by the Company or any of the Subsidiary Guarantors
of Indebtedness of the Company or a Restricted Subsidiary of the Company or
(B) the incurrence of Indebtedness of a Restricted Subsidiary to the extent
that such Indebtedness is supported by a letter of credit, in each case
that was permitted to be incurred by another provision of this covenant;
(4) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (including Capital Lease Obligations) to finance the
acquisition (including by direct purchase, by lease or indirectly by the
acquisition of the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of such acquisition) or improvement of assets or
property (real or personal) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding pursuant to this clause (4) and including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), does not exceed an
amount equal to 5% of Total Assets at the time of such incurrence;
(5) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (2), (3) or (4) of
this paragraph;
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(6) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (a) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (b)(I) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (II) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (6);
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred in the ordinary course of business
for the purpose of risk management and not for the purpose of speculation;
(8) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (8), and
the issuance of preferred stock by Unrestricted Subsidiaries;
(9) the incurrence of Indebtedness solely in respect of performance,
surety and similar bonds or completion or performance guarantees
(including, without limitation, performance guarantees pursuant to coal
supply agreements or equipment leases and including letters of credit
issued in support of such performance, surety and similar bonds), to the
extent that such incurrence does not result in the incurrence of any
obligation for the payment of borrowed money to others;
(10) the incurrence of Indebtedness arising from agreements of the
Company or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets or a
Subsidiary; provided, however, that (a) such Indebtedness is not reflected
on the balance sheet of the Company or any Restricted Subsidiary
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (a)) and (b)
the maximum assumable liability in respect of all such Indebtedness shall
at no time exceed the gross proceeds including noncash proceeds (the fair
market value of such noncash proceeds being measured at the time received
and without giving effect to any subsequent changes in value) actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition; and
(11) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (11), not to exceed the
greater of (a) (I) $25.0 million and (II) 1% of Total Assets if incurred on
or prior to December 15, 2000 or (b) (I) $50.0 million and (II) 2% of Total
Assets if incurred thereafter.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (11) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company will
be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
Incurrence of Senior Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly, or indirectly, incur any Senior Indebtedness (other than (a)
secured Indebtedness pursuant to the Senior Credit Facilities not in excess of
$875.0 million at any one time outstanding thereunder and (b) Indebtedness
incurred pursuant to
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clauses (3) through (ii) of the definition of Permitted Debt); provided,
however, that the Company or any of its Restricted Subsidiaries may incur
Senior Indebtedness (including Acquired Debt that is Senior Indebtedness) if
the Company's Debt to Cash Flow Ratio at the time of incurrence of such Senior
Indebtedness, after giving pro forma effect to such incurrence as of such date
and to the use of proceeds therefrom as if the same had occurred at the
beginning of the most recently ended four full fiscal quarter period of the
Company for which internal financial statements are available, would have been
no greater than 3.0 to 1; provided, further, that any unsecured Senior
Indebtedness to be issued in compliance with this proviso must have a maturity
date or mandatory redemption or repurchase date which is the same as or later
than the maturity date of the Notes.
Liens
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
of any kind, except Permitted Liens, upon any of their property or assets,
unless all payments due under the Indenture and the Notes are secured on an
equal and ratable basis.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to the Company or any of its
Restricted Subsidiaries;
(2) make loans or advances to the Company or any of the Company's
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture;
(2) our credit facility, as in effect on the date of this Indenture and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in such Existing Indebtedness, as
in effect on the date of the Indenture;
(3) this Indenture and these Notes, and the Indenture for the Senior
Subordinated Notes and the Senior Subordinated Notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture
to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
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(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Secured Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under the caption "--Liens"
that limits the right of the debtor to dispose of the assets securing such
Indebtedness;
(11) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business;
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(13) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (12) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, not materially more restrictive in the
aggregate with respect to such dividend and other payment restrictions than
the dividend or other payment restrictions (considered as a whole) prior to
such amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
Merger, Consolidation, or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not the Company is the surviving corporation);
or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the Notes, this Indenture and the
Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of the Company with or into a Wholly
Owned Restricted Subsidiary of the Company, immediately after giving pro
forma effect to such transaction, as if such transaction had occurred at
the beginning of the applicable four-quarter period, (A) the entity
surviving such consolidation or merger would be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock" or (B) the Fixed Charge Coverage Ratio for the Company or the Person
formed by or surviving any such consolidation or merger (if other than the
Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made would, immediately after giving pro
forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, not be less than such Fixed Charge
Coverage Ratio for the Company and its Restricted Subsidiaries immediately
prior to such transaction.
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In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among the Company and any of its
Restricted Subsidiaries.
Notwithstanding the foregoing clause (4), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and the Company may merge with an Affiliate that has no
significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of the Company in another State of
the United States or the form of organization of the Company so long as the
amount of Indebtedness of the Company and its Restricted Subsidiaries is not
increased thereby and provided that the successor assumes all the obligations
of the Company under the Registration Rights Agreement, the Notes and the
Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee.
Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) agreements between the Company and Affiliates or related parties in
effect on the date of, and listed in the Indenture;
(2) any employment agreement entered into by the Company or any of its
Subsidiaries or any employee benefit plan available to employees of the
Company and its Subsidiaries, in each case in the ordinary course of
business and consistent with the past practice of the Company or such
Restricted Subsidiary;
(3) transactions between or among the Company and/or its Subsidiaries;
(4) payment of reasonable directors fees to Persons who are not otherwise
Affiliates of the Company; and
(5) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted Payments" or
pursuant to the definition of Permitted Investments.
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Additional Subsidiary Guarantees
If the Company or any of its Domestic Subsidiaries acquires or creates another
Domestic Subsidiary after the date of the Indenture and such Domestic
Subsidiary provides a guarantee of our credit facility, then that newly
acquired or created Domestic Subsidiary must become a Guarantor and execute a
supplemental indenture satisfactory to the Trustee. This covenant will not
apply to any Domestic Subsidiary that has been properly designated as an
Unrestricted Subsidiary in accordance with the Exchange Note Indenture for so
long as it continues to constitute an Unrestricted Subsidiary.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries in
the Subsidiary so designated will be deemed to be Restricted Payments made as
of the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "--Restricted Payments." All such outstanding Investments
will be valued at their fair market value at the time of such designation. That
designation will only be permitted if such Restricted Payment would be
permitted at that time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Company will not, and will not permit any of its Wholly Owned Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Wholly Owned Restricted Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Restricted Subsidiary of
the Company), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described
above under the caption "--Asset Sales."
In addition, the Company will not permit any Wholly Owned Restricted Subsidiary
of the Company to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company.
Notwithstanding the preceding paragraph, any Subsidiary Guarantee of the Notes
will provide by its terms that it will be automatically and unconditionally
released and discharged under the circumstances described above under the
caption "--Subsidiary Guarantees." The form of the Subsidiary Guarantee will be
attached as an exhibit to the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such
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consideration is offered to be paid and is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by the Company's certified independent accountants;
and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis, of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the Commission, the Company will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to the Notes;
(2) default in payment when due of the principal of or premium, if any,
on the Notes;
(3) failure by the Company or any of its Subsidiaries to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," or "--Repurchase at the Option of Holders--
Asset Sales;"
(4) failure by the Company or any of its subsidiaries for 30 days after
notice to comply with the provisions of the covenants described above under
the caption "--Certain Covenants--Restricted Payments" or "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock" or
failure for 60 days after notice to comply with any of its other agreements
in the Indenture of the Notes;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness before the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness before its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount, of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25.0 million or more;
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(6) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments aggregating in excess of $25.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any Guarantee of the Notes
shall be held in any judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its significant subsidiaries that are Restricted
Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Restricted Subsidiary that is a
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of the Company, with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding paying the
premium upon redemption of the Notes prior to December 15, 2002, then the
premium specified in the event of an optional redemption using the net cash
proceeds of an Equity Offering shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or
any person controlling such person, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture, the Subsidiary
Guarantees, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages, if any, on such Notes when such payments are due from the trust
referred to below;
(2) the Issuers' obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants will not constitute a Default or Event
of Default with respect to the Notes. If Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
and Liquidated Damages, if any, on the outstanding Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or;
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
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(4) no Default or Event of Default shall have occurred and be continuing
either:
(a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or
(b) insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after
the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an opinion of counsel
to the effect that the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders of Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors
of the Company or others; and
(8) the Company must deliver to the trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes or the Guarantees may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Notes then
outstanding, and any existing default or event of default (other than a default
or event of default in the payment of the principal of premium, if any, or
interest on the Notes) compliance with any provision of the Indenture, the
Notes or the Guarantees may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes.
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter or waive the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
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(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders");
(8) make any change in the preceding amendment and waiver provisions; or
(9) release any Guarantor from any of its obligations under its Guarantee
of the Notes or the Indenture, except in accordance with the terms of the
Indenture
Notwithstanding the preceding, without the consent of any Holder of Notes, the
Issuers, the Guarantors and the Trustee may amend or supplement the Indenture,
the Notes or the Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of an Issuer's or a Guarantor's
obligations to Holders of Notes in the case of a merger or consolidation or
sale of all or substantially all of the Issuer's or Guarantor's assets;
(5) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder;
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act;
or
(7) to allow any Guarantor to execute a supplemental indenture and/or a
Guarantee with respect to the Notes.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The Holders of a majority in principal, amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Certain Definitions
We have listed below certain defined terms used in the Indenture. You should
refer to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
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"Acquisitions" means the acquisition by the Company of:
(1) all of the outstanding capital stock of Zeigler Coal Holding Company,
(2) all of the outstanding capital stock of certain subsidiaries of
Cyprus Amax Coal Company and certain mining equipment used by such
subsidiaries together with an agreement to pay Cyprus Amax Coal Company or
its affiliate certain royalties,
(3) all of the outstanding capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. together with an agreement to
pay the former owners of Mid-Vol Leasing, Inc. certain royalties,
(4) all of the outstanding capital stock of Kindill Holding, Inc. and
Hayman Holdings, Inc.,
(5) certain of the assets of The Battle Ridge Companies,
(6) the stock of Leslie Resources, Inc. and Leslie Resources Management,
Inc.,
(7) certain facilities, equipment, and intellectual property through the
purchase of a substantial portion of the assets of the Mining Technologies
Division of Addington Enterprises, Inc.,
(8) all of the outstanding capital stock of Martiki Coal Corporation and
(ix) all of the outstanding capital stock if Ikerd-Bandy Co., Inc.
"Additional Assets" means
(1) any property or assets (other than Capital Stock, Indebtedness or
rights to receive payments over a period greater than 180 days, other than
with respect to coal supply contract restructurings) that are usable by the
Company or a Restricted Subsidiary in a Permitted Business or
(2) the Capital Stock of a Person that is at the time, or becomes, a
Restricted Subsidiary as a result of the acquisition of such Capital Stock
by the Company or another Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and leaseback)
other than sales of coal or rights to acquire coal or sales of mining
equipment and related parts and services, in each case, in the ordinary
course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Exchange Note Indenture described above under the caption
"--Change of Control" and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant), and
(2) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (1) or (2), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $2.0 million or (b) for Net Proceeds in excess of $2.0
million.
Notwithstanding the foregoing, the following items shall not be deemed to be
Asset Sales:
(1) a transfer of assets by the Company to a Subsidiary Guarantor
Restricted Subsidiary or by a Subsidiary Guarantor Restricted Subsidiary to
the Company or to another Restricted Subsidiary,
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(2) an issuance of Equity Interests by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary,
(3) a Restricted Payment that is permitted by, or an Investment that is
not prohibited by, the covenant described above under the caption "--
Certain Covenants--Restricted Payments,"
(4) a disposition of Cash Equivalents or obsolete equipment,
(5) foreclosures on assets,
(6) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof,
(7) the factoring of accounts receivable arising in the ordinary course
of business pursuant to arrangements customary in the industry and
(8) the sale or disposition by the Company or a Restricted Subsidiary of
its Equity Interest in, or all or substantially all of the assets of, an
Unrestricted Subsidiary.
"Assets Held for Sale" means (1) assets of the Company that are reported on the
pro forma financial statements of the Company contained in the offering
memorandum for the issuance of the Notes as assets held for sale in accordance
with GAAP and (2) the office building in Fairview Heights, Illinois.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition.
"Board of Directors" means the board of directors of AEI Resources, Inc. or any
authorized committee of the Board of Directors.
"Bridge Facilities" means the (1) Senior Subordinated Credit Agreement, dated
as of September 2, 1998, among the Company, the Guarantors, Warburg Dillon Read
LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the lenders party thereto and (2) Senior Credit
Agreement, dated as of September 2, 1998, among Holdings, Warburg Dillon Read
LLC, as Arranger and Syndication Agent, UBS AG, Stamford Branch, as
Administrative Agent, and the lenders party thereto.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed or insured by the U.S. Government or
any agency thereof,
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(2) certificates of deposit and time deposits with maturities of one year
or less from the date of acquisition and overnight bank deposits of any
lender under our credit facility or of any commercial bank having capital
and surplus in excess of $500.0 million and a Thompson Bank Watch Rating of
"B" or better, except that up to $10.0 million of such certificates of
deposit, time deposits and overnight deposits may be of or with the
Kentucky Bank and Trust Company at any one time,
(3) repurchase obligations of any lender under our credit facility or of
any commercial bank satisfying the requirements of clause (2) of this
definition, having a term of not more than 90 days with respect to
securities issued or fully guaranteed or insured by the United States
Government,
(4) commercial paper of a domestic issuer rated at least A-2 by Standard
and Poor's Rating Group ("S&P") or P-2 by Moody's Investors Service, Inc.
("Moody's"), or carrying an equivalent rating by a nationally recognized
rating agency if both of S&P and Moody's cease publishing ratings of
investments,
(5) securities with maturities of one year or less from the date of
acquisition, rated at least A by S&P or A by Moody's, issued or fully
guaranteed by any state, commonwealth or territory of the United States, by
any political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government,
(6) securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by any lender under
our credit facility or any commercial bank satisfying the requirements of
clause (2) of this definition, or
(7) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (1) through
(6) of this definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than a Principal or a Related
Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
the Company;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of the Company, measured by voting power rather than
number of shares; or
(4) the Company consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the Company, in any
such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
the Company outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
immediately after giving effect to such issuance.
"Consolidated Cash Flow" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on, income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
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issuance costs, deferred financing fees and original issue discount, non-
cash interest payments, the interest component of any deferred payment
obligations (other than employee benefit obligations), the interest
component of all payments associated with Capital Lease Obligations
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments, if
any, pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(3) depreciation, depletion, amortization (including amortization of
goodwill and other intangibles and other non-cash expenses (including,
without limitation, writedowns and impairments of property, plant and
equipment and intangibles and other long-lived assets) (excluding any such
non-cash expense for periods after the date of this Indenture to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, depletion, amortization and other non-
cash expenses were deducted in computing such Consolidated Net Income;
minus
(4) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in accordance with GAAP; and
(5) unusual or nonrecurring charges incurred either (A) prior to the date
of this Indenture or (B) within twelve months thereafter and in connection
with any of the transactions contemplated by the Transaction Documents, in
each case to the extent deducted in computing such Consolidated Net Income,
plus
(6) noncash items decreasing such Consolidated Net Income for such period
(other than accruals in accordance with GAAP), in each case, on a
consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation, depletion and amortization and other non-cash
charges of, a Restricted Subsidiary that is not a subsidiary guarantor shall be
added to Consolidated Net Income to compute Consolidated Cash Flow of the
Company only to the extent that a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior governmental approval (that has not been obtained),
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Income" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
specified Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the Net Income (or loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Restricted Subsidiaries;
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(5) the cumulative effect of a change in accounting principles shall be
excluded;
(6) any non-cash expense related to employee equity participation
programs or stock option or similar plans shall be disregarded; and
(7) losses of TEK-KOL prior to the date of the Indenture shall be
disregarded.
"Credit Facilities" means, with respect to the Company or any of its Restricted
Subsidiaries, one or more debt facilities or commercial paper facilities, in
each case with banks or other institutional lenders providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Debt to Cash Flow Ratio" means, as of any date of determination, the ratio of
(a) the Consolidated Indebtedness of any Person and its Restricted Subsidiaries
as of such date to (b) the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for the four most recent full fiscal quarters ending
immediately prior to such date for which internal financial statements are
available. For purposes of making the computation referred to above, (1)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the date on which the
event for which the calculation of the Debt to Cash Flow Ratio is being
calculated ("Calculation Date") shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect
to clause (3) of the proviso set forth in the definition of Consolidated Net
Income and (2) the Consolidated Cash Flow and Consolidated Senior Indebtedness
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded.
"Default" means any event that is or with the passage of time or the giving of
notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Senior Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means a Restricted Subsidiary that is (1) formed under
the laws of the United States of America or a state or territory thereof or (2)
as of the date of determination, treated as a domestic entity or a partnership
or a division of a domestic entity for United States federal income tax
purposes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Stock) of the Company or Holdings (to the extent that
the net proceeds therefrom are contributed to the Company as common equity
capital), other than any private sales to an Affiliate of the Company.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries (other than Indebtedness under the Senior Credit Facilities, the
Notes, the Senior Subordinated Notes and related Guarantees) in existence on
the date of the Indenture, including without duplication, outstanding letters
of credit which support such Indebtedness, until such amounts are repaid.
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"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations (other than employee benefit
obligations) commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net
payments, if any, pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period (but excluding
amortization of debt issuance costs); plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock)
or to the Company or a Restricted Subsidiary of the Company, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then effective combined federal, state and local tax rate of such
Person for such period, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person and
its Restricted Subsidiaries for any period, the ratio of the Consolidated Cash
Flow of such Person and its Restricted Subsidiaries for such period to the
Fixed Charges of such Person and its Restricted Subsidiaries for such period.
In the event that the specified Person or any of its Restricted Subsidiaries
incurs; assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date or held for sale as of the date
of the Indenture, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date.
"Foreign Subsidiaries" means Subsidiaries of the Company that are not Domestic
Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and
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pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) AEI Resources Holding, Inc.; and
(2) any subsidiary of the Company that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, currency exchange or commodity
prices;
in each case for the purpose of risk management and not for speculation.
"Indebtedness" means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) evidenced by banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense
or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
Notwithstanding the foregoing, the term "Indebtedness" will not include any of
the foregoing that constitutes:
(1) an accrued expense,
(2) trade payables,
(3) Obligations in respect of reclamation, workers' compensation,
including black lung, pensions and retiree health care, in each case to the
extent not overdue for more than 90 days, and
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(4) agreements to make royalty payments, including minimum royalty
payments, that are entered into in connection with the acquisition of
assets to be used in a Permitted Business and which comprise part of the
purchase price of the assets acquired.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the form of direct or indirect loans
(including guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Restricted Subsidiary of the Company sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of the Company
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Company, the Company shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Restricted Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any Person, the net income or loss of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring item, together with any related
provision for taxes on such extraordinary or nonrecurring item.
"Net Proceeds" means the aggregate proceeds (cash or property) received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) or the
sale or disposition of any Investment, net of the direct costs relating to such
Asset Sale, sale or disposition, (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Guarantor Subsidiaries" means (i) Yankeetown Dock Corporation and its
direct and indirect Subsidiaries, (ii) the Company's future Unrestricted
Subsidiaries and (iii) the Company's current and future Foreign Subsidiaries.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness)
other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable as a guarantor or
otherwise other than by virtue of a pledge of the Equity Interests of any
Unrestricted Subsidiaries, or (c) constitutes the lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the Notes) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Obligations" means any principal, premium (if any), interest, penalties, fees,
charges, expenses, indemnifications, reimbursement obligations, damages,
Guarantees and other liabilities and amounts payable under the documentation
governing any Indebtedness or in respect thereto.
"Permitted Business" means coal production, coal mining, coal brokering, coal
transportation, mine development, energy related businesses, coal, natural gas,
petroleum or other fossil fuel exploration, production, marketing,
transportation and distribution and other related businesses, and activities of
the Company and its Subsidiaries as of the date of the Indenture and any
business or activity that is reasonably similar to any of the foregoing or a
reasonable extension, development or expansion thereof or ancillary to any of
the foregoing.
"Permitted Group" means any group of investors that is deemed to be a "person"
(as such term is used in Section 13(d)(3) of the Exchange Act) by virtue of any
agreement or arrangement among two or more Persons, provided that no single
Person (together with its Affiliates), other than the Principals and their
Related Parties, is the beneficial owner and beneficial ownership shall be
determined without regard to such agreement or arrangement directly or
indirectly, of (A) more than 50% of the Voting Stock of the Company that is
"beneficially owned" (as defined above) by such group of investors and (B) more
of the Voting Stock of the Company than is at the time "beneficially owned" (as
defined above) by the Principals and their Related Parties in the aggregate
(Voting Stock, in each case, measured by voting power rather than number of
shares).
"Permitted Investments" means
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person, in
one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company
or a Restricted Subsidiary of the Company;
(4) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Company;
(5) any Investment existing on the date of the Exchange Note Indenture (an
"Existing Investment") and any Investment that replaces, refinances or
refunds an Existing Investment, provided that the new Investment is in
an amount that does not exceed the amount replaced, refinanced or
refunded and is made in the same Person as the Investment replaced,
refinanced or refunded,
(6) advances to employees not in excess of $5.0 million outstanding at any
one time;
(7) Hedging Obligations permitted under clause (7) of "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock;"
(8) loans and advances to officers, directors and employees for business-
related travel expenses, moving expenses and other similar expenses,
in each case incurred in the ordinary course of business;
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(9) any Investment in a Permitted Business (whether or not an Investment
in an Unrestricted Subsidiary) having an aggregate fair market value,
that when taken together with all other Investments made pursuant to
this clause (9), does not exceed in aggregate amount the sum of (a) 5%
of Total Assets at the time of such Investment (with the fair market
value of each Investment being measured at the time made and without
giving effect to subsequent changes in value) plus (b) 100% of the Net
Proceeds from the sale or disposition of any Investment previously
made pursuant to this clause (9) or 100% of the amount of any
dividend, distribution or payment from any such Investment, net of
income taxes paid or payable in respect thereof, in each case up to
the amount of the Investment that was made pursuant to this clause (9)
and 50% of the amount of such Net Proceeds or 50% of such dividends,
distributions or payments, in each case received in excess of the
amount of the Investments made pursuant to this clause (9);
(10) guarantees (including Guarantees) of Indebtedness permitted under "--
Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;"
(11) any Investment acquired by the Company or any of its Restricted
Subsidiaries (a) in exchange for any other Investment or accounts
receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other
Investment or accounts receivable or (b) as a result of the transfer
of title with respect to any secured Investment in default as a
result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to such secured Investment;
(12) that portion of any Investment by the Company or a Restricted
Subsidiary in a Permitted Business to the extent that the Company or
such Restricted Subsidiary will receive in a substantially concurrent
transaction an amount in cash equal to the amount of such Investment
(or the fair market value of such Investment), net of any obligation
to pay taxes or other amounts in respect of the receipt of such cash;
and
(13) any Investment made by the Company or any Restricted Subsidiary in an
Unrestricted Subsidiary with the proceeds of any equity contribution to
or sale of Equity Interest by the Company or any Restricted Subsidiary,
provided that such proceeds shall not increase the amount available
pursuant to clause (3) of the first paragraph of the covenant described
above under "--Certain Covenants--Restricted Payments;" provided that
the receipt of such cash does not carry any obligation by the Company or
such Restricted Subsidiary to repay or return such cash;
provided, however, that with respect to any Investment, the Company may, in its
sole discretion, allocate all or any portion of any Investment to one or more
of the above clauses so that the entire Investment would be a Permitted
Investment.
"Permitted Liens" means
(1) Liens securing Indebtedness under Credit Facilities that was
permitted by the terms of the Exchange Note Indenture to be incurred;
(2) Liens in favor of the Company;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other
kinds of social security;
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(7) Liens existing on the date of the Exchange Note Indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens on assets of Subsidiary Guarantors to secure Senior
Indebtedness of such Subsidiary Guarantors that was permitted by the
Exchange Note Indenture to be incurred;
(10) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary;
(11) Liens on assets of Foreign Subsidiaries to secure Indebtedness that
was permitted by the Exchange Note Indenture to be incurred;
(12) statutory liens of landlords, mechanics, suppliers, vendors,
warehousemen, carriers or other like Liens arising in the ordinary course
of business;
(13) judgment Liens not giving rise to an Event of Default so long as any
appropriate legal proceeding that may have been duly initiated for the
review of such judgment shall not have been finally terminated or the
period within which such legal proceeding may be initiated shall not have
expired;
(14) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices
which, in the aggregate, are not substantial in amount, and which do not in
any case materially detract from the value of the property subject thereto
(as such property is used by the Company or its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or such
Subsidiaries; provided, however, that any such Liens are not incurred in
connection with any borrowing of money or any commitment to loan any money
or to extend any credit;
(15) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (d) of the second paragraph of the covenant entitled
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" and other purchase money Liens to finance property or assets of the
Company or any Restricted Subsidiary acquired in the ordinary course of
business; provided that such Liens are only secured by such property or
assets so acquired or improved (including, in the case of the acquisition
of Capital Stock of a Person who becomes a Restricted Subsidiary, Liens on
the assets of the Person whose Capital Stock was so acquired);
(16) Liens securing Indebtedness under Hedging Obligations, provided that
such Liens are only secured by property or assets that secure the
Indebtedness subject to the Hedging Obligation;
(17) Liens to secure Indebtedness permitted by clause (11) of the second
paragraph of the covenant entitled "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(18) Liens on the Equity Interests of Unrestricted Subsidiaries securing
obligations of Unrestricted Subsidiaries not otherwise prohibited by the
Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest and premium, if
any, on the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith);
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(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Principals" means Larry Addington, Bruce Addington and Robert Addington.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (1) a Public Equity Offering has
been consummated and (2) at least 35% of the total issued and outstanding
common stock of the Company immediately prior to the consummation of such
Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder, Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a 50% or more controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately
preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"Senior Indebtedness" means any Indebtedness of the Company or any of its
Restricted Subsidiaries (other than intercompany Indebtedness that is not
contractually subordinated to any other Indebtedness).
"Senior Subordinated Notes" mean the Senior Subordinated Notes of the Company
due 2006, to be issued concurrently herewith.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
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(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Subsidiary Guarantee" means a guarantee endorsed on the Senior Notes by a
Subsidiary Guarantor.
"Subsidiary Guarantors" means each of (1) the Company's Domestic Subsidiaries
at the date of the closing of the Acquisition, other than Yankeetown Dock
Corporation and the Subsidiaries of Yankeetown Dock Corporation at the date of
the Exchange Note Indenture and (2) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Exchange Note
Indenture, and their respective successors and assigns.
"Technology Sharing Agreement" means that certain agreement dated as of April
29, 1998 between the Company and Addington Enterprises, Inc., as the same may
be extended or renewed from time to time without alteration of the material
terms thereof.
"Total Assets" means the total assets of the Company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of the Company
and its Restricted Subsidiaries.
"Transaction Documents" means the documents related to (1) the Acquisitions,
(2) the Senior Credit Facilities and (iii) the offering of the Senior Notes and
the Senior Subordinated Notes.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two business days prior to the
date fixed for redemption of the Notes (or, if such Statistical Release is no
longer published, any publicly available source of similar market data)) most
nearly equal to the then remaining Weighted Average Life to Maturity of the
Notes; provided, however, that if the Weighted Average Life of Maturity of the
Notes is not equal to the constant maturity of a United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Weighted Average Life to
maturity of the Notes is less than one year, the weekly average yield on
actually traded Unites States Treasury securities adjusted to a constant
maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the Board
of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution, but
only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Restricted Subsidiary of the Company unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any obligation (a) to subscribe for additional
Equity Interests in unrestricted subsidiaries or (b) to maintain or
preserve such Person's net worth; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries provided, however, that the Company and its Restricted
Subsidiaries may guarantee the performance of Unrestricted Subsidiaries in
the ordinary course of business except for guarantees of Obligations in
respect of borrowed money.
Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was
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permitted by the covenant described above under the caption "Certain Covenants-
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the preceding requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Company as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
the Company shall be in default of such covenant. The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (1) such Indebtedness is permitted under the
covenant described under the caption "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period; and (2) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest one-
twelfth) that will elapse between such date and the making of such payment;
by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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DESCRIPTION OF OTHER INDEBTEDNESS
The Senior Credit Facility
General
We have entered into a Senior Credit Agreement dated as of September 2, 1998
and amended and restated as of December 14, 1998 with UBS AG, Stamford Branch,
an affiliate of the Initial Purchaser, pursuant to which UBS and a syndicate of
financial institutions provided us with:
(a) a $575.0 million senior secured term loan facility consisting of (a) a
term loan A facility in an aggregate principal amount of $325.0
million and (b) a term loan B facility in an aggregate amount of
$250.0 million and
(b) a $300.0 million senior secured revolving credit facility. The
Revolving Credit Facility includes a $225.0 million sublimit for the
issuance of letters of credit.
Security
Our Indebtedness under the senior credit facility is secured by a perfected
first priority security interest in:
(a) all of our capital stock and the capital stock of our subsidiaries;
(b) all of the capital stock of each of the entities comprising the
businesses acquired in the Recent Acquisitions; and
(c) substantially all accounts receivable, inventory, property, plant and
equipment, intangibles, contract rights, other personal property and
real property of the Company, its Subsidiaries and the businesses
acquired in the Recent Acquisitions. Holdings and each of our
Subsidiaries has guaranteed the senior credit facility.
Interest
Our Indebtedness of the Company under the senior credit facility shall bear
interest, at the option, at a rate as follows: LIBOR plus the Applicable LIBOR
Spread or ABR plus the Applicable ABR Spread. LIBOR borrowings may have
interest periods of one, two, three or six months at the election of the
Company.
The "Applicable LIBOR Spread" will initially be:
(a) under the revolving credit facility, 3.00% per annum;
(b) under the term loan A facility, 3.00% per annum; and (iii) under the
term loan B facility, 3.50% per annum. Thereafter, the Applicable LIBOR
Spread will be determined pursuant to a grid-based test adjusted in
accordance with the financial performance of the Company.
The "Applicable ABR Spread" initially will be:
(a) under the Revolving Credit Facility, 2.00% per annum;
(b) under the term loan A facility, 2.00% per annum; and
(c) under the term loan B facility, 2.50% per annum.
Thereafter, the Applicable ABR Spread will be described pursuant to a grid-
based test adjusted in accordance with the financial performance of the
Company. "ABR" (Alternate Base Rate) is the higher of the Prime Rate of the
reference bank set forth in the Senior Credit Facility documentation and the
Federal Funds effective rate plus 0.5%.
Maturity
The term loan facility matures on September 30, 2005. The revolving credit
facility matures on December 31, 2003.
Fees
We have agreed to pay the lenders unused commitment fees of 0.50% per annum on
the undrawn committed amount under the revolving credit facility, payable
quarterly in cash.
We have agreed to pay the issuing bank per annum letter of credit fees equal to
the Applicable LIBOR Spread on the undrawn face amounts of outstanding letters
of credit, payable quarterly in arrears. Fronting fees of 0.25% will be payable
to the issuing bank along with customary issuance and administrative fees.
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Covenants
The senior credit facility contains certain customary covenants including,
without limitation, restrictions on our ability to:
(a) incur additional indebtedness, pay certain dividends and make certain
other restricted payments and investments;
(b) make acquisitions or dispose of assets;
(c) create liens;
(d) engage in transactions with affiliates;
(e) issue disqualified capital stock;
(f) merge, consolidate or transfer substantially all of their respective
assets, and
(g) make capital expenditures.
In addition, we are required to maintain compliance with certain financial
tests, including a maximum leverage ratio of 4.00, decreasing over time to 2.75
in December 2001, a minimum interest coverage ratio of 2.50, increasing over
time to 3.50 in December 2001 and thereafter, and a minimum net worth of
negative $125.0 million plus 50% of consolidated net income from October 1,
1998 plus 100% of the proceeds of equity issuances and capital contributions.
Events of Default
The senior credit facility contains customary events of default including,
without limitation:
(a) the non-payment of principal, interest, fees or other amounts when due
under the loans issued under the Senior Credit Facility;
(b) certain changes in our control and ownership;
(c) cross defaults to certain other indebtedness;
(d) certain events of bankruptcy and insolvency;
(e) judgment defaults; and
(f) failure of any guaranty or security agreement supporting the credit
facility to be in full force and effect.
Optional and Mandatory Prepayment and Commitment Reductions
We may prepay and reduce in whole or in part the senior credit facility at any
time without penalty, subject to reimbursement of the lenders' breakage costs
and payments of any and all accrued interest.
We will be required, subject to certain exceptions, to prepay the senior credit
facility with:
(a) 75.0% of annual excess cash flow, reduced to 50.0% in any fiscal year
where the year-end leverage ratio is less than 3.0:1,
(b) 100.0% of the net proceeds of our asset sales and other asset
dispositions,
(c) 100.0% of the net proceeds of our issuance or incurrence of debt or
sale lease-back transactions, and
(d) 50.0% of the net proceeds from any issuance of equity securities.
"Excess cash flow" is defined to mean
(1) the sum of operating cash flow, net decrease in working capital and
cash received from any life insurance or "key man policies" minus
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(2) the sum of cash interest expense, capital lease expense, principal
payments on indebtedness, capital expenditures, income taxes and
certain dividends, cash paid for acquisitions to the extent funded
from internally generated funds, and net increases in working capital.
Mandatory prepayments will be applied pro rata among the outstanding
amounts of the term loans. Any excess amount to be applied against the
Term Loans over the then outstanding amount of the term loans shall be
applied to the revolving credit facility.
Loans made pursuant to the revolving credit facility will be prepaid to the
extent the aggregate extensions of credit under the revolving credit facility
exceed the commitments then in effect. Any excess amount to be applied against
the revolving credit loans over the then outstanding amount of such revolving
credit loans will be applied to cash collateralize outstanding letters of
credit.
The Senior Subordinated Credit Facility
We have entered into a Senior Subordinated Credit Agreement, dated as of
September 2, 1998 (the "Bridge Credit Facility") with UBS, pursuant to which
UBS and a syndicate of financial institutions provided the Company with a
$500.0 million secured loan facility. The outstanding principal balance under
the Bridge Credit Facility is approximately $8.0 million. In the event that the
Company does not repay the Bridge Credit Facility on or before April 30, 1999,
UBS is entitled to receive 2.5% of the common stock of Holdings.
Surety Bonds
Federal and state laws require surety bonds to secure our obligations to
reclaim lands disturbed for mining, to pay federal and state workers'
compensation and to satisfy other miscellaneous obligations. The amount of
these bonds varies constantly, depending upon, among other things, the amount
of acreage disturbed, the degree to which each property has been reclaimed and
the number of persons we employ. Under federal law, partial bond release for
reclamation bonds is provided as mined lands (i) are backfilled and graded to
approximate original contour, (ii) are re-vegetated and (iii) achieve pre-
mining vegetative productivity levels on a sustained basis for a period of five
to ten years.
As of December 31, 1998, we had outstanding surety bonds with third parties for
post-mining reclamation totaling $524.4 million. Surety bonds valued at an
additional $123.3 million are in place for federal and state workers'
compensation obligations and other miscellaneous obligations.
Zeigler IRBs
Charleston County, South Carolina
On August 21, 1997, Charleston County, South Carolina, issued $30.8 million of
Industrial Revenue Refunding Bonds, Series 1997, due August 1, 2028. The bonds
will be paid from revenues derived from or in connection with a Loan Agreement
between Charleston County, South Carolina, and Zeigler, dated as of August 1,
1997. The bonds bear interest at a term rate equal to 6.95%. The bonds are
subject to various optional and mandatory tender and redemption provisions upon
the occurrence of certain events, and are guaranteed by the same entities that
have guaranteed the Notes and the Company.
Peninsula Ports Authority of Virginia
On August 20, 1997, the Peninsula Ports Authority of Virginia issued $115.0
million of Port Facility Refunding Revenue Bonds (Zeigler Coal Project), Series
1997, due May 1, 2022. The bonds will be paid from revenues derived from or in
connection with a Financing Agreement between the Port Authority and Zeigler,
dated as of August 1, 1997. The bonds bear interest at term rate equal to
6.90%. The bonds are subject to various optional and mandatory tender and
redemption provisions upon the occurrence of certain events, and are guaranteed
by the same entities that have guaranteed the Notes and the Company.
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The Senior Subordinated Notes
The Senior Subordinated Notes are senior subordinated obligations of the
Company and will mature December 15, 2006.
Interest on the Senior Subordinated Notes will accrue at a rate of 11 1/2%, and
be payable semiannually in arrears on June 15 and December 15 of each year,
commencing June 15, 1999. The Senior Subordinated Notes are guaranteed on a
senior subordinated basis by the Guarantors.
The Senior Subordinated Notes are redeemable, at the Company's option, in whole
or in part, on or after December 15, 2002 at specified redemption prices,
together with accrued and unpaid interest and Liquidated Damages, if any, to
the date of redemption. Prior to that date, the Company may redeem the Notes in
whole or in part subject to payment of a make-whole premium. Upon the
occurrence of a Change of Control (as defined in the Senior Subordinated Note
Indenture), the Company is required to make an offer to repurchase the Senior
Subordinated Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest.
The Senior Subordinated Note Indenture contains restrictive covenants that,
among other things, limit the ability of the Company and its subsidiaries to:
. dispose of assets; engage in mergers and consolidations;
. engage in certain transactions with subsidiaries and affiliates;
. incur or guarantee additional indebtedness;
. pay dividends or make other payments or investments; and limit the
ability of subsidiaries to make certain distributions.
Events of Default under the Senior Subordinated Note Indenture include
(a) failure to pay interest on the Senior Subordinated Notes within 30 days
after such payments are due;
(b) failure to repay principal when due at its maturity date, upon optional
redemption, upon required repurchase, upon acceleration or otherwise;
(c) failure to comply for 30 days after notice with the covenants regarding
restricted payments and incurrence of indebtedness and failure to
comply for 60 days after notice with the other covenants contained in
the Senior Subordinated Note Indenture;
(d) the default by the Company or any Significant Subsidiary (as defined in
the Senior Subordinated Note Indenture) in respect of any indebtedness
above specified levels;
(e) certain events of bankruptcy;
(f) certain judgments against the Company or any Significant Subsidiary
remain unsatisfied for a period of 60 days;
(g) any Guarantee (as defined in the Senior Subordinated Note Indenture)
ceasing to be in full force and effect (except as contemplated by the
terms thereof); and
(h) the denial or disaffirmation by any Guarantor (as defined in the Senior
Subordinated Note Indenture) of its obligations under the applicable
indenture or any Guarantee.
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UNITED STATES INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of the exchange of the initial notes for exchange notes that may
be relevant to a beneficial owner of notes that is a citizen or resident of the
United States or a U.S. domestic corporation or that otherwise is subject to
United States federal income taxation on a net income basis in respect of such
Notes (a "U.S. holder"). This summary is based on laws, regulations, rulings
and decisions now in effect, all of which are subject to change. This summary
deals only with U.S. holders that hold the initial notes as capital assets, and
does not address tax considerations applicable to investors that may be subject
to special tax rules, such as, but not limited to, banks, tax-exempt entities,
insurance companies or dealers in securities or currencies, traders in
securities electing to mark to market, persons that hold the initial notes as a
position in a "straddle" or conversion transaction, or as part of a "synthetic
security" or other integrated financial transaction or persons that have a
"functional currency" other than the U.S. dollar.
An Exchange pursuant to this exchange offer will not be a taxable event for
U.S. federal income tax purposes. As a result, a U.S. holder of an initial note
whose initial note is accepted in the exchange offer will not recognize gain or
loss on the Exchange. A tendering U.S. holder's tax basis in the exchange notes
will be the same as such U.S. holder's tax basis in its initial notes. A
tendering U.S. holder's holding period for the exchange notes received pursuant
to the exchange offer will include its holding period for the initial notes
surrendered therefor.
Investors should consult their own tax advisors in determining the tax
consequences to them, as a result of their individual circumstances, of the
exchange of the initial notes for the exchange notes and of the ownership and
disposition of exchange notes received in the exchange offer, including the
application of state, local, foreign or other tax laws.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account in exchange
for initial notes pursuant to the exchange offer, where such initial notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for initial
notes where such initial notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of up
to one year after the expiration date, we will make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such exchange notes. Any broker-
dealer that resells exchange notes that were received by it for its own account
pursuant to such exchange notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver any by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of up to one year after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents at any time during
such period. We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the initial notes,
other than commissions or concessions of any broker-dealers, subject to certain
prescribed limitations. We will indemnify the Holders of the initial notes,
including any broker-dealers, against certain liabilities, including
liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives Notes
pursuant to the exchange offer agrees to notify us prior to using this
prospectus in connection with the sale or transfer of Notes, and acknowledges
and agrees that, upon receipt of notice from us of the happening of any event
which makes any statement in this prospectus untrue in any material respect or
which requires the making of any changes in this prospectus in order to make
the statements therein not misleading or which may impose upon us disclosure
obligations that may have a material adverse effect on us (which notice we
agree to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of this prospectus until we have notified such broker-dealer that
delivery of this prospectus may resume and has furnished copies of any
amendment or supplement to the Prospectus to such broker-dealer.
The Notes will constitute a new issue of securities with no established trading
market. We do not intend to list the Notes on any national securities exchange
or to seek approval for quotation through any automated quotation system. We
have been advised by the initial purchaser of the Notes that following
completion of the exchange offer, it may make a market in the Notes. In
addition, the initial purchaser may bid for, and purchase, the Notes on the
open market. These activities may stabilize or maintain the market price of the
Notes above independent market levels. The initial purchaser is not obligated
to make a market for, bid for or purchase the Notes, and any market-making
activities with respect to the Notes may be discontinued at any time without
153
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notice. Accordingly, no assurance can be given that an active public or other
market will develop for the Notes or as to the liquidity of or the trading
market for the Notes. If a trading market does not develop or is not
maintained, holders of the Notes may experience difficulty in reselling the
Notes or may be unable to sell them at all. If a market for the Notes develops,
any such market may cease to continue at any time. If a public trading market
develops for the Notes, future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, our results
of operations and the market for similar securities and other factors,
including our financial condition.
154
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LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Latham &
Watkins, New York, New York. Certain legal matters relating to the exchange
offer will be passed upon for us by Brown, Todd & Heyburn PLLC, Lexington and
Louisville, Kentucky.
ENGINEERS
The information appearing in this prospectus concerning estimates of our proven
and probable coal reserves have been included in this prospectus in reliance on
the following experts:
. the estimates of the proven and probable coal reserves of AEI Holding
Company, Inc. were reviewed and evaluated by Marshall Miller &
Associates in June 1997 and September 1997, and updated in September
1998;
. the estimated proven and probable coal reserves of Zeigler Coal Holding
Company are based on a reserve study prepared by Weir International
Mining Consultants in 1994, as updated in May 1998;
. the estimated proven and probable coal reserves acquired from Cyprus
Amax as of April 1998, have been reviewed and evaluated by Marshall
Miller & Associates as of that date;
. the estimated proven and probable coal reserves of Crockett Collieries
were reviewed and evaluated by Stagg Engineering Services, Inc. in
February 1998;
. the estimated proven and probable coal reserves acquired from The Battle
Ridge Companies were reviewed and evaluated by Marshall Miller &
Associates in November 1997;
. the estimated proven and probable coal reserves of Mid-Vol Leasing and
related companies were reviewed and evaluated by Marshall Miller &
Associates in May 1998;
. the estimated proven and probable coal reserves of Kindill Holding, Inc.
and a related company, as of November 1997, as updated in August 1998,
have been reviewed and evaluated by Norwest Mine Services; and
. the estimated proven and probable coal reserves of Martiki Coal
Corporation and related companies were reviewed and evaluated by
Marshall Miller & Associates in October 1998.
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WHERE YOU CAN FIND MORE INFORMATION
AEI Resources and AEI Holding have filed a registration statement on Form S-4
to register the exchange notes to be issued in exchange for the initial notes
with the Securities and Exchange Commission. This prospectus is part of that
registration statement. As allowed by the SEC's rules, this prospectus does not
contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
You may read and copy the registration statement and exhibits at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call 1-800-SEC-0330 for further information on the public
reference rooms. Our registration statement is also available to the public
from commercial document retrieval services and at the website maintained by
the SEC at http://www.sec.gov.
We have not authorized anyone to give you any information or to make any
representations about the transactions we discuss in this prospectus other than
those contained herein or in the registration statement. If you are given any
information or representations about these matters that is not discussed in
this prospectus or included in the registration statement, you must not rely on
that information.
This prospectus is not an offer to sell or a solicitation of an offer to buy
securities anywhere or to anyone where or to whom we are not permitted to offer
or sell securities under applicable law.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements about our final
condition, results of operations, and business. You can find many of these
statements by looking for words such as "believes," "expects," "anticipates,"
"estimates," or similar expressions used in this prospectus.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those forward-looking statements
include, among others, the following:
.Our ability to pay interest and principal on a very large amount of debt;
.Our ability to successfully integrate our recent acquisitions;
.Our ability to achieve cost savings from integrating our recent acquisitions;
.A significant decline in coal prices and any resulting impact on our operating
margins;
. Our ability to continue to obtain long-term sales contracts, due to the high
level of competition in the coal industry; and
. Changes in governmental regulation of the coal industry, including among
other things, employee health and safety, limitations on land use, and
environmental matters.
Because forward-looking statements are subject to risks and uncertainties,
actual results differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this Prospectus.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this Prospectus. In addition, we don't undertake
any responsibility to update you on the occurrence of any unanticipated events
that may cause actual results to differ from those expressed or implied by the
forward-looking statements contained in this Prospectus.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AEI Resources Holding, Inc. and Predecessor
Report of Arthur Andersen LLP, Independent Public Accountants........... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-4
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998.................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1997 and 1998................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
AEI Holding Company, Inc.
Report of Arthur Andersen LLP, Independent Public Accountants........... F-35
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-36
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998.................................................... F-37
Consolidated Statements of Stockholder's Equity (Deficit) for the years
ended December 31, 1996, 1997 and 1998................................. F-38
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.................................................... F-39
Notes to Consolidated Financial Statements.............................. F-40
Employee Benefits Management, Inc.
Report of Arthur Andersen LLP, Independent Public Accountants........... F-58
Balance Sheet as of December 31, 1998................................... F-59
Statement of Income and Comprehensive Income for the period from
inception (December 11, 1998) through December 31, 1998................ F-60
Statement of Stockholders' Equity for the period from inception
(December 11, 1998) through December 31, 1998.......................... F-61
Statement of Cash Flows for the period from inception (December 11,
1998) through December 31, 1998........................................ F-62
Notes to Financial Statements........................................... F-63
Zeigler Coal Holding Company
Report of Deloitte & Touche LLP, Independent Auditors................... F-68
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited) .................................................. F-69
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited)............................................................ F-71
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited)............................................................ F-72
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1998
(unaudited)............................................................ F-73
Notes to Consolidated Financial Statements.............................. F-74
The Cyprus Subsidiaries
Report of PricewaterhouseCoopers LLP, Independent Accountants........... F-89
Combined Statements of Assets, Liabilities and Parent Investment as of
December 31, 1996 and 1997 and June 30, 1998 (unaudited)............... F-90
Combined Statements of Operating Revenues and Expenses for the years
ended December 31, 1995, 1996 and 1997 and the six months ended June
30, 1997 and 1998 (unaudited).......................................... F-91
Combined Statements of Parent Investment for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited) ........................................................... F-92
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited)............................................................ F-93
Notes to Combined Financial Statements.................................. F-94
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Leslie Resources Financial Statements
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-104
Combined Balance Sheet as of December 31, 1997......................... F-105
Combined Statement of Operations and Retained Earnings for the year
ended December 31, 1997............................................... F-106
Combined Statement of Cash Flows for the year ended December 31, 1997.. F-107
Notes to Combined Financial Statements................................. F-108
Mid-Vol Leasing, Inc. and Affiliates
Report of Arthur Andersen LLP, Independent Public Accountants.......... F-117
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)...................................................... F-118
Combined Statements of Operations and Retained Earnings for the years
ended December 31, 1995, 1996 and 1997 and the six months ended June
30, 1997 and 1998 (unaudited)......................................... F-119
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited)........................................................... F-120
Notes to Combined Financial Statements................................. F-121
Kindill Holding, Inc.
Report of Deloitte & Touche LLP, Independent Auditors.................. F-129
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited).................................................. F-130
Consolidated Statements of Income for the years ended December 31, 1996
and 1997 and the six months ended June 30, 1997 and 1998 (unaudited).. F-131
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1997 and the six months ended June 30, 1998
(unaudited)........................................................... F-132
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1997 and the six months ended June 30, 1997 and 1998
(unaudited) .......................................................... F-133
Notes to Consolidated Financial Statements............................. F-134
Martiki Coal Corporation
Report of Deloitte & Touche LLP, Independent Auditors.................. F-142
Balance Sheets as of December 31, 1997 and September 30, 1998.......... F-143
Statements of Operations for the seven months ended July 31, 1996
(predecessor), the five months ended December 31, 1996, the year ended
December 31, 1997 and the nine months ended September 30, 1998
(successor)........................................................... F-144
Statements of Stockholders Equity for the seven months ended July 31,
1996 (predecessor), the five months ended December 31, 1996, the year
ended December 31, 1997 and the nine months ended September 30, 1998
(successor)........................................................... F-
Statements of Cash Flows for the seven months ended July 31, 1996
(predecessor), the five months ended December 31, 1996, the year ended
December 31, 1997 and the nine months ended September 30, 1998
(successor)........................................................... F-146
Notes to Financial Statements.......................................... F-147
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
AEI Resources Holding, Inc.:
We have audited the accompanying consolidated balance sheets of AEI Resources
Holding, Inc. and subsidiaries (see Note 1), as of December 31, 1997 and 1998,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AEI Resources
Holding, Inc. and subsidiaries (see Note 1) as of December 31, 1997 and 1998
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
April 9, 1999
F-3
<PAGE>
AEI RESOURCES HOLDING, INC. (Note 1)
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
-------------- ---------------
(Dollar amounts in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 83,616 $ 42,614
Short-term investments....................... 401 --
Accounts receivable (including amounts due
from related parties of $7,951 and $1,757,
respectively, net of allowance for doubtful
accounts of $2,489 in 1998)................. 29,939 141,095
Inventories.................................. 22,658 117,552
Prepaid expenses and other................... 6,562 18,800
------------- ---------------
Total current assets........................ 143,176 320,061
------------- ---------------
Property, Plant and Equipment, at cost,
including mineral reserves and mine
development and contract costs................ 129,685 2,151,503
Less--accumulated depreciation, depletion and
amortization................................ (23,027) (80,416)
------------- ---------------
106,658 2,071,087
------------- ---------------
Debt issuance costs, net....................... 12,713 70,090
Advance royalties.............................. 2,179 16,332
Other non-current assets, net.................. 667 12,494
------------- ---------------
Total assets................................ $ 265,393 $ 2,490,064
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable (including amounts due to
related parties of $3,301 and $3,110,
respectively)............................... $ 30,410 $ 124,502
Current portion of long-term debt and capital
leases...................................... 7,608 61,533
Current portion of reclamation and mine
closure costs............................... 2,100 45,617
Current portion of employee benefits......... 484 33,776
Income taxes payable......................... -- 7,816
Deferred income taxes........................ 5,199 --
Accrued expenses and other................... 12,318 119,758
------------- ---------------
Total current liabilities................... 58,119 393,002
------------- ---------------
Non-Current Liabilities, less current portion:
Long-term debt and capital leases............ 209,361 1,154,049
Employee benefits............................ 46 528,081
Reclamation and mine closure costs........... 9,431 331,249
Deferred income taxes........................ 5,933 108,932
Other non-current liabilities................ 577 67,401
------------- ---------------
Total non-current liabilities............... 225,348 2,189,712
------------- ---------------
Total liabilities........................... 283,467 2,582,714
------------- ---------------
Commitments and Contingencies (see notes)
Stockholders' Equity (Deficit):
Common stock ($.01 par value, 100,000 and
150,000 shares authorized, respectively,
52,800 and 52,804 shares issued and
outstanding, respectively).................. 1 1
Additional capital........................... 7,193 --
Retained deficit............................. (25,268) (92,651)
------------- ---------------
Total stockholders' deficit................. (18,074) (92,650)
------------- ---------------
Total liabilities and stockholders' equity
(deficit).................................. $ 265,393 $ 2,490,064
============= ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
AEI RESOURCES HOLDING, INC. (Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Coal mining.................................... $104,804 $163,980 $704,832
Equipment sales, rental and repair (including
amounts from related parties of $14,333,
$6,764 and $--, respectively)................. 16,033 8,086 9,532
Other (including amounts from related parties
of $607, $2,381 and $509, respectively)....... 2,363 3,188 19,050
-------- -------- --------
Total revenues............................... 123,200 175,254 733,414
-------- -------- --------
Costs and expenses:
Cost of operations (including amounts to
related parties of $19,866, $25,575 and
$29,880, respectively)........................ 97,101 145,203 590,869
Depreciation, depletion and amortization....... 6,945 10,755 76,846
Selling, general and administrative............ 9,025 13,870 32,476
Writedowns and special items................... -- -- 16,466
-------- -------- --------
Total costs and expenses..................... 113,071 169,828 716,657
-------- -------- --------
Income from operations....................... 10,129 5,426 16,757
Interest and other income (expense):
Interest expense (including amounts to related
parties of $427, $1,382 and $--,
respectively)................................. (5,527) (9,192) (65,247)
Gain on sale of assets......................... 305 338 1,004
Other, net..................................... 97 59 3,697
-------- -------- --------
(5,125) (8,795) (60,546)
-------- -------- --------
Income (loss) before minority interest, income
taxes and extraordinary item.................. 5,004 (3,369) (43,789)
Less -- Minority interest........................ (59) -- --
-------- -------- --------
Income (loss) before income taxes and
extraordinary item............................ 5,063 (3,369) (43,789)
Income tax provision (benefit)................... -- 17,516 (20,409)
-------- -------- --------
Income (loss) before extraordinary item........ 5,063 (20,885) (23,380)
Extraordinary loss from extinguishment of debt
(net of $--, $869 and $6,801 tax benefit,
respectively)................................... -- (1,303) (10,196)
-------- -------- --------
Net income (loss)............................ $ 5,063 $(22,188) $(33,576)
======== ======== ========
Unaudited pro forma information (Note 21):
Income (loss) before income taxes and
extraordinary item............................ $ 5,063 $ (3,369)
Unaudited pro forma income tax expense
(benefit)..................................... 1,924 (1,280)
Extraordinary item, net of tax benefit......... -- (1,303)
-------- --------
Unaudited pro forma net income (loss).......... $ 3,139 $ (3,392)
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
AEI RESOURCES HOLDING, INC. (Note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Common Stock Retained
------------- Earnings Additional
Shares Amount (Deficit) Capital Total
------ ------ --------- ---------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ -- $ -- $ 528 $(5,259) $ (4,731)
1996 net income (loss).......... -- -- (2,621) 7,684 5,063
Owners' distribution, net....... -- -- -- (7) (7)
------ ----- -------- ------- --------
Balance at December 31, 1996...... -- -- (2,093) 2,418 325
Issued 2 shares of $.01 par
value common stock on October
20, 1997....................... 2 -- -- -- --
Issued 98 shares of $.01 par
value common stock on November
12, 1997....................... 98 -- -- -- --
Deferred tax benefit............ -- -- -- 5,515 5,515
Stock split of 528 to 1 on
December 9, 1997............... 52,700 1 -- (1) --
1997 net income (loss).......... -- -- (23,175) 987 (22,188)
Owners' distribution, net....... -- -- -- (1,726) (1,726)
------ ----- -------- ------- --------
Balance at December 31, 1997...... 52,800 1 (25,268) 7,193 (18,074)
Charge to equity for MTI
purchase....................... -- -- (43,807) (7,193) (51,000)
Deferred tax benefit............ -- -- 10,000 -- 10,000
Issued 2 shares of $.01 par
value common stock on May 28,
1998........................... 2 -- -- -- --
Issued 2 shares of $.01 par
value common stock on July 27,
1998........................... 2 -- -- -- --
1998 net income (loss).......... -- -- (33,576) -- (33,576)
------ ----- -------- ------- --------
Balance at December 31, 1998...... 52,804 $ 1 $(92,651) $ -- $(92,650)
====== ===== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
AEI RESOURCES HOLDING, INC. (Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ----------
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................ $ 5,063 $(22,188) $ (33,576)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation, depletion and amortization.... 6,945 10,755 76,846
Amortization of finance costs included in
interest expense........................... 65 198 7,349
Loan cost write-offs from debt refinancing.. -- 572 16,997
Provision for deferred income taxes......... -- 16,647 (64,121)
Provision for writedowns and special items.. -- -- 16,466
Gain on sale of assets...................... (305) (338) (1,004)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables................................. (6,079) (7,951) 13,348
Inventories................................. (3,050) (6,173) 1,235
Prepaid expenses and other.................. (1,408) (835) (8,640)
Other non-current assets.................... (372) (2,177) (1,804)
Increase (decrease) in:
Accounts payable............................ 9,518 4,191 5,123
Accrued expenses and other.................. 66 (1,354) (11,929)
Other non-current liabilities............... (5,669) (2,726) (65,662)
-------- -------- ----------
Total adjustments......................... (289) 10,809 (15,796)
-------- -------- ----------
Net cash provided by (used in) operating
activities............................... 4,774 (11,379) (49,372)
-------- -------- ----------
Cash Flows From Investing Activities:
Net proceeds from sale of assets............. 1,589 549 14,400
Disposition of assets held for sale.......... -- -- 310,000
Additions to property, plant and equipment
and mine development and contract costs..... (14,092) (32,214) (40,862)
Acquisition of coal-mining companies
including debt retirement, net of cash
received.................................... -- (6,625) (939,615)
Short-term investments....................... -- (401) 401
-------- -------- ----------
Net cash used in investing activities..... (12,503) (38,691) (655,676)
-------- -------- ----------
Cash Flows From Financing Activities:
Borrowings on long-term debt................. 3,629 265,327 1,760,000
Repayments on long-term debt................. (4,150) (98,243) (957,056)
Net borrowings (payments) on revolving line
of credit................................... 4,258 (8,584) --
Net borrowings from (repayments to)
stockholders................................ 7,315 (8,715) --
Repayments on capital leases................. (3,617) (3,782) (6,175)
Payments for debt issuance costs............. -- (12,673) (81,723)
Charge to equity for MTI purchase............ -- -- (51,000)
Other changes in owners' equity (deficit),
net......................................... (87) (97) --
-------- -------- ----------
Net cash provided by financing
activities............................... 7,348 133,233 664,046
-------- -------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. (381) 83,163 (41,002)
-------- -------- ----------
Cash and Cash Equivalents, beginning of
period........................................ 834 453 83,616
-------- -------- ----------
Cash and Cash Equivalents, end of period....... $ 453 $ 83,616 $ 42,614
======== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
(Dollars in thousands)
1. ORGANIZATIONAL TRANSACTIONS AND BASIS OF PRESENTATION
a. Organizational Transactions
During November 1997, pursuant to an exchange agreement, the mining assets of
Addington Enterprises, Inc. (Enterprises) and 69.8% of the common stock of
Bowie Resources, Ltd. (Bowie) were transferred to a newly formed entity, AEI
Holding Company, Inc. (AEI HoldCo.--a Delaware company) in exchange for the
issuance of AEI HoldCo.'s shares to Enterprises (50%) and Larry Addington
(50%). Additionally, AEI HoldCo. purchased Harold Sergent's 7.7% ownership
interest in Bowie for $2,000. Enterprises is owned by Larry Addington (80%),
Robert Addington (10%) and Bruce Addington (10%), who are brothers. Enterprises
retained, in November 1997, certain non-coal mining properties as well as
technology related assets which were subsequently disposed in the MTI agreement
(see below).
The MTI Agreement was between Mining Technologies, Inc., a newly formed
subsidiary of AEI HoldCo. (as purchaser) and Enterprises (as seller) for
Enterprises' ownership interest in its North American (N.A.) mining
technologies division. The purchase price of $51,000 (cash) was delivered at
closing on January 2, 1998. The net assets acquired include mining equipment
(primarily Highwall Mining Systems), contract mining agreements, real property
and the intellectual property for the N.A. Highwall Mining Systems (patents,
trademarks, etc.). Enterprises retained ownership of the non-N.A. intellectual
property.
The November 1997 Exchange and MTI transactions described above were treated
for accounting purposes as a transfer of entities and net assets under common
control with accounting similar to that of a pooling of interests. Accordingly,
the historical cost basis of the underlying assets and liabilities transferred
(from Enterprises and Bowie) were carried over from the transferring entity to
AEI HoldCo. Due to common control, the MTI cash purchase price of $51,000 paid
by AEI HoldCo. to Enterprises was recorded as a charge to equity when paid in
January 1998.
During May 1998, the owners of AEI HoldCo. (Larry Addington and Enterprises)
established a new company, Coal Ventures, Inc. (CVI--a Delaware company) and in
June 1998 transferred their shares of AEI HoldCo. to CVI in exchange for
similar proportionate CVI shares, thereby making CVI the owner of AEI HoldCo.
During August 1998, CVI changed its name to AEI Resources, Inc. (Resources). In
addition, during July 1998, the owners of Resources established a new company,
AEI Resources Holding, Inc. (ARHI--a Delaware company--collectively, the
Company) and transferred their shares of Resources to ARHI in exchange for
similar proportionate ARHI shares, thereby making ARHI the owner of Resources.
ARHI has no other assets or activities other than the ownership of Resources.
b. Basis of Presentation
The accompanying financial statements include the historical accounts of ARHI
and Subsidiaries as well as its predecessors: Resources, AEI HoldCo. and
Enterprises, all under the common control of Larry Addington. The accompanying
financial statements also include the purchase accounting and post-acquisition
operations of the following significant acquisitions since their date of
acquisition: Ikerd-Bandy (October 1997), Leslie Resources (January 1998),
Cyprus Subsidiaries (June 1998), Mid-Vol (July 1998), Zeigler (September 1998),
Kindill (September 1998) and Martiki (November 1998). See Note 3 for discussion
of acquisitions. Significant intercompany transactions and balances have been
eliminated in consolidation. Minority interests for 1997 and 1998 have not been
recorded due to insignificance or deficit equity.
Various allocations and carve-out adjustments have been made in the preparation
of the accompanying consolidated financial statements. Such allocations have
been recorded to segregate the historical accounts to
F-8
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reflect the businesses transferred. Management believes that the method used
for allocations and carve-out adjustments is reasonable.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
a. Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Company Environment and Risk Factors
The Company's principal business activities consist of surface and deep mining
and marketing of bituminous coal, performance of contract mining for third
parties, construction and licensing of mining equipment, as well as leasing and
repairing mining equipment. These operations are primarily located in Kentucky,
Indiana, Illinois, West Virginia, Tennessee and Colorado.
The Company, in the course of its business activities, is exposed to a number
of risks including: the possibility of the termination or alteration of coal
sales contracts, fluctuating market conditions of coal and transportation
costs, competitive industry and overcapacity, changing government regulations,
unexpected maintenance and equipment failure, employee benefits cost control,
misestimates of proven and probable coal reserves, satisfactory labor
relations, loss of key employees, satisfactory resolution of the year 2000
issue and the ability of the Company to obtain financing, necessary mining
permits and control of adequate recoverable mineral reserves. In addition,
adverse uncontrollable (wet) weather and geological conditions tend to increase
mining costs, sometimes substantially. Precipitation is generally highest at
most of the Company's mining operations in early spring and late fall.
The Company is exposed to risks associated with a highly leveraged
organization. Such risks include: increased vulnerability to adverse economic
and industry conditions, limited ability to fund future working capital,
capital expenditures, business acquisitions or other corporate requirements,
possible liquidity problems as well as financing and credit constraints.
Management believes it has adequate financing resources (including cash
equivalents, cash generated from operations and additional borrowings) to meet
its needs in 1999.
The Company's current business plans include on-going growth in its coal mining
operations, primarily through acquisitions. The Company faces numerous risks in
the successful identification, consummation and post-acquisition integration of
such acquisitions.
c. Inventories
Inventories are stated at average cost, which approximates first-in, first-out
(FIFO) cost and does not exceed market. Components of inventories consist of
coal, deferred overburden and parts and supplies (Note 4). Coal inventories
represent coal contained in stockpiles and exposed in the pit. Deferred
overburden represents the costs to remove the earthen matter (i.e., overburden)
covering the coal seam in surface mining. Costs to remove overburden are
accumulated and deferred on a pro-rata basis as overburden is removed and
eventually charged to cost of operations when the coal is sold. The calculation
of deferred overburden requires significant estimates and assumptions,
principally involving engineering estimates of overburden removal and coal seam
characteristics.
F-9
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
d. Advance Royalty Payments (current portion included in Prepaid Expenses and
Other)
The Company is required, under certain royalty lease agreements, to make
minimum royalty payments whether or not mining activity is being performed on
the leased property. These minimum payments are recoupable once mining begins
on the leased property. The Company capitalizes these minimum royalty payments
and amortizes the deferred costs once mining activities begin or expenses the
deferred costs when the Company has ceased mining or has made a decision not to
mine on such property. Included in prepaid expenses and other is $3,491 and
$8,669 for 1997 and 1998, respectively, relating to advanced royalties.
e. Net Assets Held for Sale
At the time of the Zeigler acquisition, the Company identified various Zeigler
items which it would resell including the Wyoming coal mines (within Triton
Coal Company) and non-coal mining activities. Net assets held for sale as of
December 31, 1998 in the accompanying financial statements includes net assets
related to Zeigler's power marketing and fuel technology.
On December 14, 1998, the Company sold all issued and outstanding stock of its
subsidiary, Triton Coal Company for $275,000 (the Triton Disposition). Prior to
the closing of the Triton Disposition, all assets and liabilities of Triton
which were not related to the Wyoming Mines were transferred to another
subsidiary of the Company. The Company has agreed to provide certain transition
services as well as temporary credit support via letters of credit (Note 7b) to
the purchaser of Triton following the closing. Net proceeds from the Triton
Disposition were used to partially retire the remaining amount due on the
bridge financing facility for the Zeigler acquisition (Note 7).
On December 18, 1998, the Company sold the Pier IX and Shipyard River Terminals
and related assets (the Pier Disposition) for an aggregate purchase price of
$35,000.
Through an energy-trading subsidiary, Zeigler began entering into power and gas
forward contracts and options for trading purposes in 1997. These forward
contracts and options were recorded at their estimated fair market values by
the Company at the date of purchase. At December 31, 1998, open net contract
and option positions were not material and did not represent significant credit
related exposure. The net assets held for sale balance is $3,038 at December
31, 1998 and is included in prepaid expenses and other current assets. The
Company assigned amounts to assets held for sale based on expected sale
proceeds as well as earnings, advances and allocated interest during the
holding period prior to disposal. The Company expects the remaining assets held
for sale to be disposed during 1999. No gain or loss was recorded on the Triton
Disposition and Pier Disposition. A recap of net assets held for sale for 1998
follows:
<TABLE>
<S> <C>
Initial assigned value............................................. $292,576
1998 holding period cash advances.................................. 10,812
1998 allocated interest............................................ 9,650
1998 net proceeds from disposal.................................... (310,000)
--------
Balance at December 31, 1998....................................... 3,038
1999 expected holding period cash advances......................... 954
1999 expected allocated interest................................... 1,008
--------
1999 expected net proceeds from disposal........................... $ 5,000
--------
</TABLE>
f. Depreciation, Depletion and Amortization
Property, plant and equipment are recorded at cost, including construction
overhead and interest, where applicable. Expenditures for major renewals and
betterments are capitalized while expenditures for maintenance
F-10
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and repairs are expensed as incurred. Depreciation, depletion and amortization
are provided using either the straight-line or units of production method with
estimated useful lives under the straight-line method comprising substantially
the following ranges:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Buildings........................................................... 10 to 45
Mining and other equipment and related facilities................... 2 to 20
Transportation equipment............................................ 2 to 7
Furniture and fixtures.............................................. 3 to 10
</TABLE>
Mineral reserves and mine development costs (included in property, plant and
equipment) are amortized using the units-of-production method, based on
estimated recoverable reserves. Coal sales contract related costs are amortized
as tons are delivered, based on contracted tonnage requirements.
Debt issuance costs are being amortized using the effective interest method,
over the life of the related debt, or using the straight-line method, over the
life of the related debt, if the result approximates the effective interest
method.
g. Restricted Cash (Included in Other Non-Current Assets)
The Company pays amounts as required by various royalty agreements. Certain of
these agreements have been disputed by third parties, requiring that cash be
paid into an escrow account until the rightful recipient is determined.
Included in other non-current assets is $93 and $843 for 1997 and 1998,
respectively, relating to restricted cash.
h. Coal Mine Reclamation and Mine Closure Costs
The Company estimates its future cost requirements for reclamation of land
where it has conducted surface and deep mining operations, based on its
interpretation of the technical standards of regulations enacted by the U.S.
Office of Surface Mining, as well as state regulations.
The Company accrues for the cost of final mine closure and related exit costs
over the estimated useful mining life of the developed property or, if
purchased, at the date of acquisition. These costs relate to reclaiming the pit
and support acreage at surface mines and sealing portals at deep mines. Other
costs common to both types of mining are related to reclaiming refuse and
slurry ponds as well as holding period and related termination/exit costs. The
Company expenses the reclamation of current mine disturbance which is performed
prior to final mine closure. The establishment of the final mine closure
reclamation liability and the current disturbance is based upon permit
requirements and requires various significant estimates and assumptions,
principally associated with cost and production levels. Annually, the Company
reviews its end of mine reclamation and closure liability and makes necessary
adjustments, including mine plan and permit changes and revisions to cost and
production levels to optimize mining and reclamation efficiency. The economic
impact of such adjustments is generally recorded to cost of coal sales
prospectively as remaining tons are mined. Also, as described in Note 2l., when
a mine life is shortened due to change in mine plan, mine closing obligations
are accelerated and the related accrual is increased accordingly. Although the
Company's management believes it is making adequate provisions for all expected
reclamation and other costs associated with mine closures, future operating
results would be adversely affected if such accruals were later determined to
be insufficient. End of mine reclamation and closure expense for 1996, 1997 and
1998 was $596, $2,196 and $18,188, respectively.
F-11
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
i. Income Taxes
For 1996 and part of 1997 (Note 8), Enterprises and Bowie were S corporations
under the Internal Revenue Code and similar state statutes. As a result,
Enterprises and Bowie were not subject to income taxes and their taxable income
or loss was reported in the stockholders' individual tax returns. Accordingly,
the historical net income (loss) presented in the accompanying financial
statements during the S corporation periods is exclusive of an income tax
provision (See Notes 8 and 21).
The provision for income taxes includes the change in tax status matters as
described above plus federal, state and local income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax basis of assets and liabilities. The Company records income
taxes under the liability method. Under this method, deferred income taxes are
recognized for the estimated future tax effects of differences between the tax
basis of assets and liabilities and their financial reporting amounts as well
as net operating loss carryforwards and tax credits based on enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
j. Revenue Recognition
Most of the Company's revenues have been generated under long-term coal sales
contracts with electric utilities, industrial companies or other coal-related
organizations, primarily in the eastern United States. Revenues are recognized
on coal sales in accordance with the sales agreement, which is usually when the
coal is shipped to the customer and title is passed. Advance payments received
are deferred and recognized in revenue as coal is shipped. The Company also
rents and sells equipment and provides repair and contract mining services, and
the revenue from such rental, sale and service is recognized when earned.
Revenue from the construction of mining equipment is recognized on a percentage
of completion basis. The Company grants credit to its customers based on their
creditworthiness and generally does not secure collateral for its receivables.
The allowance for doubtful accounts for 1997 and 1998 is $0 and $2,489,
respectively. Historically, accounts receivable write-offs have been
insignificant.
k. Stockholders' Equity (Deficit)
The 1996 and 1997 historical owners' equity accounts (retained earnings
(deficit) and additional capital) for legal entities (Bowie) which have been
carried over from the transferor under the exchange agreement (Note 1) have
remained unchanged as presented within the accompanying consolidated statements
of stockholders' equity (deficit).
The businesses transferred from Enterprises have operated as divisions and,
accordingly, the 1996 and 1997 historical equity account changes (earnings and
losses and owners' contributions and distributions) have been presented within
additional capital in the accompanying consolidated statements of stockholders'
equity (deficit) for the pre-transfer period.
Prior to the formation of Resources in May 1998, the common stock activity
presented in the accompanying consolidated statement of stockholders' equity
(deficit) represents that of the predecessor company AEI HoldCo. The common
stock activity in July 1998 relates to ARHI.
As described in Note 8, in connection with the consummation of the November
1997 exchange agreement, the mining businesses transferred from Enterprises
required that deferred taxes be recorded by AEI HoldCo. Because a portion of
the mining assets transferred from Enterprises were stepped up for tax
purposes, but not book (similar to a taxable pooling), the resulting deferred
tax benefit of approximately $5,500 was recorded in November 1997 with a
corresponding increase in additional capital.
F-12
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As described in Note 1a, on January 2, 1998, AEI HoldCo. made a payment of
$51,000 for the purchase of MTI which was recorded as a charge to equity in
January 1998. In addition, because the tax basis of the MTI net assets
transferred were stepped up for tax purposes, but not book (similar to a
taxable pooling), the resulting deferred tax benefit of $10,000 was recorded in
January 1998 with a corresponding increase in equity.
l. Asset Impairments and Accelerated Mine Closing Accruals
In certain situations, expected mine lives are shortened because of changes to
planned operations. When that occurs and it is determined that the mine's
underlying costs are not recoverable in the future, reclamation and mine
closing obligations are accelerated and the mine closing accrual is increased
accordingly. Also, to the extent that it is determined that asset carrying
values will not be recoverable during a shorter mine life, a provision for such
impairment is recognized. The Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in
prior years. SFAS No. 121 expanded the Company's criteria for loss recognition,
and provides methods for both determining when an impairment has occurred and
for measuring the amount of the impairment. SFAS No. 121 requires that
projected future cash flows from use and disposition of all the Company's
assets be compared with the carrying amounts of those assets. When the sum of
projected cash flows is less than the carrying amount, impairment losses are
recognized.
m. Employee Benefits
Postretirement Benefits Other Than Pensions--As prescribed by SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pension, the
Company accrues, based on annual independent actuarial valuations, for the
expected costs of providing postretirement benefits other than pensions, which
are primarily medical benefits, during an employee's actual working career
until vested.
Workers Compensation and Black Lung Benefits--Certain of the Company's
subsidiaries are liable under federal and state laws to pay workers
compensation and pneumoconiosis (black lung) benefits to eligible employees,
former employees and their dependents. The Company is self-insured for
significant federal and state workers compensation and black lung benefits. The
remaining portion of workers compensation and black lung claims are covered by
state insurance funds into which the Company pays premiums.
The accrual for self-insured workers compensation and black lung is adjusted to
equal the present value of future claim payments, determined based on outside
actuarial valuations performed annually.
Postemployment Benefits--The Company provides certain postemployment benefits,
primarily long-term disability and medical benefits, to former and inactive
employees and their dependents during the time period following employment but
before retirement. The Company accrues the discounted present value of expected
future benefits, based on annual outside actuarial valuations.
n. Stock-Based Compensation
The Financial Accounting Standards Board issued SFAS No. 123, Accounting for
Stock-Based Compensation, which the Company has adopted. This standard defines
a fair value method of accounting for stock options and similar equity
instruments. Pursuant to this standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion (APB) No. 25, Accounting
for Stock Issued to Employees, but are required to disclose in a note to the
financial statements pro forma net income as if the Company had applied SFAS
No. 123. The accounting requirements of SFAS No. 123 are effective for all
employee awards granted after the beginning of the fiscal year of adoption. The
Company has elected to account for such transactions under APB No. 25.
F-13
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
o. Reclassifications
Certain reclassifications of prior year amounts were made to conform with the
current year presentation with no effect on previously reported net income
(loss) or stockholders' equity (deficit).
p. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of the purchase to be
cash equivalents.
Supplemental disclosure:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Cash paid for interest, net of capitalized inter-
est of $246, $467 and $14,060, respectively..... $ 5,357 $ 7,193 $ 53,667
Income taxes paid................................ -- -- 880
</TABLE>
The 1997 Statement of Cash Flows is exclusive of non-cash deferred tax asset
and equity increase of $5,515, non-cash property additions of $2,253, non-cash
capitalized loan fees of $238, non-cash transfers of inventory items to
development costs of $1,062 and settlement of a note (included in other assets)
for property and mine development work valued at $1,220.
The 1998 statement of cash flows is exclusive of non-cash deferred tax asset
and equity increase of $10,000.
3. ACQUISITIONS
The following significant acquisitions in Notes 3a through 3g have each been
accounted for as a purchase, and their results of operations have been included
with that of the Company since the date of acquisition.
a. Ikerd-Bandy Co., Inc.
In October 1997, Enterprises acquired all of the capital stock of Ikerd-Bandy
Co., Inc., a coal mining business with operations in eastern Kentucky, for the
purchase price of approximately $5,300 (including $300 in related fees and
expenses) plus the assumption of approximately $5,600 in debt.
b. Leslie Resources
In January 1998, AEI HoldCo. acquired all the capital stock of Leslie
Resources, Inc. and Leslie Resources Management, Inc., (collectively, Leslie
Resources) a coal mining business with operations in eastern Kentucky, for the
purchase price of $12,000 (including $300 in related fees and expenses), plus
the assumption of approximately $11,100 in debt.
c. Cyprus Subsidiaries
On June 29, 1998, pursuant to a May 28, 1998 stock purchase and sale agreement
with Cyprus Amax Coal Company (Cyprus), CVI acquired various Cyprus
Subsidiaries, a coal mining business with operations in Kentucky, West
Virginia, Indiana and Tennessee. The purchase price was $98,000 plus a working
capital adjustment as well as payments for purchased and leased equipment and a
royalty owed to Cyprus for future production.
d. Mid-Vol
On July 10, 1998, CVI acquired the capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. (collectively, Mid-Vol), a coal
mining business with operations in West Virginia for the
F-14
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purchase price of approximately $21,200 (including $400 in related fees and
expenses) plus the assumption of $15,000 in debt as well as production royalty
payments.
e. Zeigler
On August 5, 1998, Resources (via a subsidiary) submitted a cash tender offer
to acquire all of the common stock of Zeigler Coal Holding Company (Zeigler), a
diversified publicly held coal mining and energy business with operations
primarily in Kentucky, West Virginia, Ohio, Illinois and Wyoming. The cash
purchase price for the stock was approximately $600,000, and Resources assumed
approximately $255,000 of Zeigler's debt. This acquisition closed on September
2, 1998. Certain acquired assets were held for resale as discussed in Note 2e.
f. Kindill
On September 2, 1998, the Company acquired the capital stock of Kindill
Holding, Inc. and Hayman Holdings, Inc. (collectively Kindill) (a related
party) for the purchase price of $11,000 plus assumption of approximately
$50,000 of Kindill's debt. Kindill is a coal mining business with operations in
Indiana.
g. Martiki
On November 6, 1998, the Company acquired the capital stock of Martiki Coal
Corporation (Martiki), a subsidiary of MAPCO Coal, Inc. for $32,000. Martiki is
a coal mining business with operations in eastern Kentucky.
The following unaudited pro forma information for the periods shown below gives
effect to the aforementioned acquisitions as if they had occurred at the
beginning of each period:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Revenues............................................. $1,395,200 $1,383,400
Income (loss) before extraordinary items............. (135,100) (32,500)
Net income (loss).................................... (136,400) (42,700)
</TABLE>
The unaudited pro forma information assumes that the Company owned the
aforementioned acquisitions at the beginning of the periods presented and
includes adjustments for depreciation, depletion and amortization, interest
expense and an inventory adjustment to conform to the Company's accounting
policies. The unaudited pro forma financial data is presented for information
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had such acquisitions been consummated
at the beginning of these periods, and is not intended to be a projection of
future results.
The purchase accounting entries recorded from the acquisitions noted in 3c
through 3g above are preliminary and are expected to be finalized in 1999.
Upon acquisition of Zeigler, the Company assumed a transition and severance
plan covering up to approximately 500 former Zeigler employees. Subject to
certain conditions, employees will receive severance payments if terminated up
to one year after acquisition (through September 1, 1999). Included in other
current accruals at December 31, 1998 are $18,216 of future payments
anticipated under this plan. In 1998, the Company incurred costs of $3,846
which reduced the accrual.
F-15
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVENTORIES
As of December 31, 1997 and 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Coal........................................................ $ 3,995 $ 44,813
Deferred overburden......................................... 10,768 40,201
Parts and supplies.......................................... 7,895 32,538
------- --------
$22,658 $117,552
======= ========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including mineral reserves and mine development
and contract costs, at December 31, 1997 and 1998 are summarized by major
classification as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Land................................................... $ 1,670 $ 88,250
Mining and other equipment and related facilities...... 63,125 406,592
Mine development and contract costs.................... 24,177 52,725
Mineral reserves....................................... 15,992 1,579,478
Mine development in process............................ 22,150 658
Construction work in process........................... 2,571 23,800
-------- ----------
129,685 2,151,503
Less-accumulated depreciation, depletion and amortiza-
tion.................................................. 23,027 80,416
-------- ----------
Net property, plant and equipment...................... $106,658 $2,071,087
======== ==========
</TABLE>
Included in property, plant and equipment is $24,721 for 1997 and $24,458 for
1998 related to development and construction projects for which depreciation,
depletion and amortization have not yet commenced. The Company reviews
realization of these projects on a periodic basis.
6. ACCRUED EXPENSES AND OTHER
Accrued expenses and other as of December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Payroll, Bonus and Vacation................................ $ 5,385 $ 34,250
Non-income Taxes........................................... 2,568 27,571
Severance.................................................. -- 18,216
Deferred revenues.......................................... -- 16,799
Royalties.................................................. 1,081 12,667
Interest................................................... 2,701 3,715
Other...................................................... 583 6,540
------- --------
$12,318 $119,758
======= ========
</TABLE>
F-16
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. DEBT
a. Long-Term Debt and Capital Leases
Long-term debt and capital leases as of December 31, 1997 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Senior Credit Facility (Note 7b):
Term Loan A........................................... $ -- $ 325,000
Term Loan B........................................... -- 250,000
Revolving Credit Facility............................. -- 75,000
10.5% Senior Notes (Note 7c)............................ 200,000 200,000
11.5% Senior Subordinated Notes (Note 7c)............... -- 150,000
Zeigler Industrial Revenue Bonds (Note 7e).............. -- 145,800
Notes payable to sellers of Cyprus Subsidiaries
($25,033), Mid-Vol ($15,000), Leslie Resources ($8,988)
and Ikerd-Bandy ($4,543) (Note 7d)..................... 4,647 53,564
Zeigler acquisition bridge facility (Note 7d)........... -- 10,000
Capital leases (Note 10b)............................... 10,527 4,352
Other................................................... 1,795 1,866
-------- ----------
Total............................................... 216,969 1,215,582
Less -- current portion............................. 7,608 61,533
-------- ----------
Long-term debt...................................... $209,361 $1,154,049
======== ==========
</TABLE>
Principal maturities of long-term debt and capital leases as of December 31,
1998 are as follows:
<TABLE>
<S> <C>
Year Ended December 31:
1999............................................................ $ 61,533
2000............................................................ 97,753
2001............................................................ 97,397
2002............................................................ 92,883
2003............................................................ 218,969
Thereafter........................................................ 647,047
----------
$1,215,582
==========
</TABLE>
Upon early extinguishment in 1997 of the Company's previously outstanding
credit facility and bridge financing, the Company expensed as an extraordinary
item in November 1997 approximately $1,600 of prepayment penalties and bridge
financing costs and $571 of deferred debt issuance costs. In connection with
arranging the November 1997 financing transactions, the Company paid a fee of
$4,375 to a related party.
b. Senior Credit Facility
The Senior Credit Facility term loan and revolver (collectively the "Credit
Facility") are with UBS AG (an affiliate of Warburg Dillon Read LLC), as
administrative agent and a syndicate of other lending institutions (lenders).
The Credit Facility consists of a Term Loan A Facility of $325,000 (maturing
through 2003), a Term Loan B Facility of $250,000 (maturing through 2004) (the
"term loan facilities") and a $300,000 senior secured revolving credit facility
(Revolver), maturing through 2003. The revolver includes a $225,000 sublimit
for the issuance of letters of credit. Interest is calculated at the option of
the Company based on LIBOR or
F-17
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ABR (alternative base rate) plus the applicable "spread", as defined. The
applicable "spread" shall be determined pursuant to a formula based on the
Company's financial performance. The ABR is the higher of the Federal Funds
effective rate plus 0.5% and the Prime Rate. As of December 31, 1998, the
average interest rates were as follows: Term loan A (9.65%), Term Loan B
(9.91%) and Revolver (9.49%). The Credit Facility is collateralized primarily
by capital stock of the Company and its subsidiaries, along with all accounts
receivable; inventory; property, plant and equipment; intangibles; contract
rights and other personal and real property of the Company. The Company and
most of its subsidiaries have guaranteed the Credit Facility.
The Credit Facility also contains various financial covenants which, among
other things, limits additional indebtedness, dividend and other restricted
payments, affiliate transactions, mergers and capital expenditures as well as
meeting certain financial ratios including, but not limited to interest
coverage, minimum net worth and maximum leverage ratio, all as defined. In
addition, the credit facilities are required to be prepaid with either 75% of
annual Excess Cash Flow (or 50%, depending on leverage ratio), as defined, 100%
of proceeds from the incurrence of additional debt, 100% of proceeds from asset
sales or dispositions above certain defined thresholds or 50% of the net
proceeds from the issuance of equity securities. There was no such required
pre-payment during 1998.
As of December 31, 1998, the Company has $75,000 in outstanding borrowings
under the Revolver. In addition, the Company has letters of credit in the
amount of $178,047 issued under the Revolver. These letters of credit cover the
following:
<TABLE>
<S> <C>
Insurance/Workers compensation/Reclamation Bonds................... $ 14,514
Zeigler IRBs....................................................... 148,947
Mineral leases/Royalties........................................... 1,900
Seller financing/Taxes............................................. 2,686
Vulcan acquisition of Triton (Note 2e)............................. 10,000
--------
$178,047
========
</TABLE>
The amount available for borrowing under the revolver at December 31, 1998 was
$46,953.
On June 29, 1998, the Company replaced a former credit facility and,
consequently, expensed as an extraordinary item in June 1998 approximately $424
of related deferred debt issuance costs, net of a tax benefit of $283. At
December 31, 1997, there were no borrowings under the former credit facility.
c. 10.5% Senior Notes and 11.5% Senior Subordinated Notes
On December 14, 1998, Resources and AEI HoldCo. co-issued $200,000 of 10.5%
Senior Notes due 2005 (Senior Notes). These 10.5% Senior Notes were exchanged
for previously issued $200,000 10% Senior Notes of AEI HoldCo. due 2007. As
part of the $200,000 Senior Notes exchange, the old indenture was modified to
eliminate substantially all of the covenants and certain related definitions
and events of default. Warburg Dillon Read LLC was the dealer manager of the
Senior Notes exchange.
Also on December 14, 1998, Resources issued $150,000 of 11.5% Senior
Subordinated Notes due 2006 (Subordinated Notes). Warburg Dillon Read LLC was
the initial purchaser of the Subordinated Notes.
The Senior Notes mature in their entirety on December 15, 2005 and the
Subordinated Notes mature in their entirety on December 15, 2006. The Senior
Notes and Subordinated Notes are general, unsecured obligations of the issuers.
Interest is payable on June 15 and December 15 of each year. The Company has
the option to redeem the Senior Notes and Subordinated Notes on or after
December 15, 2002, at redemption prices ranging
F-18
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
from 105.75% in 2002 to 100% in 2005. Before December 15, 2002, the Company may
redeem the Senior Notes and Subordinated Notes at the face amount plus accrued
and unpaid interest, liquidated damages, if any, and an applicable "make whole
premium" of up to $35,446 and $32,109, respectively.
Upon a change in control (as defined), the Company will be required to make an
offer to purchase all outstanding Senior Notes and Subordinated Notes at 101%
of the principal amount. The Senior Notes and Subordinated Notes are jointly
and severally guaranteed on a senior unsecured basis by ARHI and each of the
Company's current and future domestic majority-owned subsidiaries, other than
Yankeetown Dock Corporation. In addition to containing various restrictive
financial covenants, the Senior Notes and subordinated Note Indentures will
restrict, among other things, additional indebtedness, issuance of preferred
stock, dividend payments, mergers, sale of subsidiaries and assets and
affiliate transactions.
The Company has agreed to file a registration statement under the U.S.
Securities Act for the Senior Notes and Subordinated Notes which would provide
for their resale. If such registration statement is not filed or declared
effective within the time periods allotted in the Indentures (such effective
date being March 14, 1999 for the Subordinated Notes), the Company will be
required to pay liquidated damages to Senior Notes and Subordinated Notes
holders. For the Senior Notes, the Company has agreed to pay each noteholder
liquidated damages of 20c per one thousand dollars principal amount
(aggregating to $40 per week) per week commencing December 8, 1998 for 90 days.
If the registration statement is not declared effective by March 8, 1999, then
the amount of liquidated damages payable weekly will increase by an additional
5c per one thousand dollars principal amount for each 90-day period up to a
maximum of 50c payable weekly per one thousand dollars principal amount. For
Subordinated Notes, the Company will be required to pay liquidated damages
commencing March 14, 1999 at a weekly rate of 5c per one thousand dollars
principal amount (aggregating to $7.5 per week) for the first 90 days and
increasing 5c each 90 days thereafter until up to a maximum of 50c payable
weekly per one thousand dollars principal amount. The Company has filed an
initial registration statement with the Securities and Exchange Commission on
February 12, 1999; however, it is uncertain when or if this filing will become
effective.
d. Bridge Facilities
The Company has funded the acquisitions of Cyprus Subsidiaries, Mid-Vol,
Kindill and Zeigler (see Note 3) with short-term (bridge) financing arranged by
UBS AG, an affiliate of Warburg Dillon Read LLC. The bridge financing facility
for the Cyprus Subsidiaries and Mid-Vol acquisitions was for $200,000. The
bridge financing facility for the Zeigler and Kindill acquisitions was for
$600,000.
As of December 31, 1998, the Cyprus/Mid-Vol bridge was retired and only $10,000
of the Zeigler bridge facility remained outstanding, which the Company plans to
repay in 1999. In connection with the extinguishment of the bridge facilities,
the Company recorded in 1998 an extraordinary loss on extinguishment of $9,772,
net of a tax benefit of $6,518.
The Company has also committed to issue common equity shares to UBS AG
(aggregating from 2.5% to 10% of the total outstanding common equity), under
certain circumstances, in the event all outstanding loans under the bridge loan
agreements are not repaid prior to April 30, 1999. The Company does not believe
these agreements will result in UBS AG acquiring any equity interest in the
Company. Nothing has been recorded in the December 31, 1998 financial
statements related to this matter as the Company believes no significant amount
of consideration was provided to UBS AG under these agreements.
e. Industrial Revenue Bonds
The Company has industrial revenue bonds which are floating rate obligations
issued by the Peninsula Ports Authority of Virginia ($115,000) and Charleston
County, South Carolina ($30,800) (collectively, Zeigler IRBs).
F-19
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Both obligations are backed by letters of credit issued under the Company's
revolver (Note 7b). The principal of the obligation by the Peninsula Ports
Authority of Virginia is due in one lump-sum payment on May 1, 2022, and the
principal of the obligation by Charleston County, South Carolina is due in one
lump-sum payment on August 1, 2028. The Zeigler IRBs are not secured by any
assets of the Company. Interest on these obligations is variable and payable
monthly. The weighted-average interest rate for these borrowings was 3.61% as
of December 31, 1998. Refer to Note 18c for subsequent refinancing of the
Zeigler IRBs.
f. Seller Notes Payable
In connection with the acquisitions of Ikerd-Bandy, Leslie Resources, Cyprus
Subsidiaries and Mid-Vol (Note 3), the Company entered into notes payable to
the sellers of these businesses (Seller Notes). The Cyprus Subsidiaries Sellers
Notes are secured and the other Seller Notes are unsecured and bear interest
(or have been discounted) at rates ranging from 5% to 10%. These Seller Notes
also mature from 2002 to 2004.
8. INCOME TAXES
As discussed in Note 2i., during April 1997 Bowie's S corporation status was
terminated. Upon such termination, Bowie initially recorded a net deferred tax
liability of $1,600 with an increase to income tax provision for the
differences in book and tax bases in assets and liabilities. In addition,
during November 1997, the mining businesses transferred from Enterprises (see
Note 1, as an S corporation) to the Company (as a C corporation) initially
recorded a net deferred tax liability of $17,963 with an increase to income tax
provision for the differences in book and tax bases in assets and liabilities.
Presented below are income tax disclosures as of and for the years ended
December 31, 1997 and 1998. Prior to 1997, the Company operated as an S
corporation, and no corporate income taxes were recorded.
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Tax provisions:
Current.................................................... $ -- $ 36,911
Deferred................................................... 17,516 (57,320)
------- --------
$17,516 $(20,409)
======= ========
</TABLE>
The following table presents the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% to the 1997 and 1998 net loss before income taxes.
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Federal provision computed at statutory rate............ $(1,145) $(15,326)
State income tax (net of federal tax benefits and appor-
tionment factors) computed at statutory rate........... (135) (2,189)
Change in tax status.................................... 19,563 --
Percentage depletion in-excess of cost.................. -- (3,928)
Premium amortization.................................... -- 1,034
Federal and state tax effect on S corporation period
earnings............................................... (679) --
Other................................................... (88) --
------- --------
$17,516 $(20,409)
======= ========
</TABLE>
F-20
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Deferred Tax Assets:
Accrued employee benefits................................. $ -- $209,341
Accrued reclamation and closure........................... 4,560 135,966
AMT credits............................................... -- 28,547
Net operating loss carryovers............................. 9,353 8,015
Patents and technology.................................... -- 12,574
Other..................................................... 681 38,742
------- --------
14,594 433,185
Valuation allowance....................................... -- (8,015)
------- --------
14,594 425,170
------- --------
Deferred Tax Liabilities:
Property, plant and equipment............................. 1,903 215,784
Mineral reserves and mine development costs............... 17,343 286,313
Other..................................................... 6,480 32,005
------- --------
25,726 534,102
------- --------
Net Deferred Tax Liability.............................. $11,132 $108,932
======= ========
</TABLE>
Certain subsidiaries have carryforwards for net operating losses (NOL) of
approximately $20,000 which may only be used by these subsidiaries, and if not
used will expire between 2011 and 2018. NOL carryforwards may also be limited
under certain ownership changes. The valuation allowance was recorded in
purchase accounting due to uncertainties in realization using the more likely
than not methodology.
9. EMPLOYEE BENEFITS
Employee benefits at December 31, 1998 is summarized as follows:
<TABLE>
<CAPTION>
Non-
Current Current Total
------- -------- --------
<S> <C> <C> <C>
Postretirement benefits........................... $16,882 $375,045 $391,927
Coal Act benefits................................. 5,582 63,774 69,356
Workers compensation and black lung benefits...... 9,978 83,555 93,533
Pension benefits.................................. 101 2,488 2,589
Postemployment benefits........................... 1,233 3,219 4,452
------- -------- --------
Total........................................... $33,776 $528,081 $561,857
======= ======== ========
</TABLE>
a. Postretirement Benefits Other than Pensions
Prior to the Cyprus Subsidiaries acquisition on June 29, 1998, the Company did
not have any defined benefit pension plans, postretirement or postemployment
benefits or UMWA Combined Benefit Fund obligations. In conjunction with certain
of the acquisitions described in Note 3, the Company acquired, or agreed to put
in place, benefit plans providing defined benefits to certain non-union
employees and post-retirement healthcare and life insurance to eligible union
employees.
F-21
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's non-contributory pension plans cover certain of its non-union
employees and union employees at one of the Company's acquired mines. Benefits
are generally based on the employee's years of service and compensation during
each year of employment. The Company's funding policy is to make the minimum
payment required by the Employee Retirement Income Security Act of 1974. There
were no minimum contributions required in 1998.
Summaries of the changes in the benefit obligations, plan assets (consisting
principally of common stocks and U.S. government and corporate obligations) and
funded status of the plans are as follows:
<TABLE>
<CAPTION>
1998
---------------------
Other Post-
Pension Retirement
Benefits Benefits
-------- -----------
<S> <C> <C>
Change in Benefit Obligations
Benefit obligations at January 1.................... $ -- $ --
Acquisition of Cyprus Subsidiaries and Zeigler...... 102,027 385,861
Service cost........................................ 1,472 326
Interest cost....................................... 2,363 9,679
Benefits paid....................................... (3,487) (3,939)
-------- --------
Benefit obligation at December 31................... $102,375 $391,927
======== ========
Change in Plan Assets
Value of plan assets at January 1................... $ -- $ --
Acquisition of Cyprus Subsidiaries and Zeigler...... 100,261 --
Actual return on plan assets........................ 8,607 --
Benefits paid....................................... (3,487) --
-------- --------
Fair value of plan assets at end of year............ $105,381 $ --
======== ========
Funded Status of the Plans
Accumulated obligations less plan assets............ $ 3,006 $391,927
Unrecognized actuarial gain......................... (5,595) --
-------- --------
Net liability recognized............................ $ 2,589 $391,927
======== ========
Net Periodic Benefit Cost
Service cost........................................ $ 1,472 $ 326
Interest cost....................................... 2,363 9,679
Expected return on plan assets...................... (3,013) --
-------- --------
$ 822 $ 10,005
======== ========
Weighted Average Assumptions as of December 31
Discount rate....................................... 7.25% 7.25%
Expected return on plan assets...................... 9.50% N/A
Rate of compensation increase....................... 4.00% 4.00%
Health care cost trend on covered charges........... -- 8.00% in
1998 Decline
to 5.00%
over 20
years
</TABLE>
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by the actuaries. If the healthcare cost trend rates
were increased by one percent in each year, the accumulated
F-22
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
postretirement benefit obligation would increase by $60,200 or 15.4% as of
December 31, 1998. The effect of this change on the 1998 expense accrual would
be an increase of $4,500 or 45%.
b. Multi-Employer Pension and Benefits Plans
UMWA Pension Plan--Certain of the Company's recently acquired subsidiaries are
required under their respective contracts with the UMWA to pay amounts based on
hours worked to the 1974 UMWA Pension Plan and Trust, a multi-employer pension
plan covering all employees who are members of the UMWA. The accompanying
consolidated statements of operations include $348 of expense in 1998,
applicable to the plan. The Employee Retirement Income Security Act of 1974
(ERISA) as amended in 1980, imposes certain liabilities on contributors to
multi-employer pension plans in the event of a contributor's complete or
partial withdrawal from the plan. The withdrawal liability would be calculated
based on the contributor's proportionate share of the plan's unfunded vested
liabilities.
c. UMWA Combined Benefit Fund
The Company provides healthcare benefits to eligible retirees and their
dependents. Retirees who were members of the United Mine Workers of America
(UMWA) and who retired on or before December 31, 1975 received these benefits
from multi-employer benefit plans. The Company contributed to these funds based
on the number of its retirees in one of the funds and based on hours worked by
current UMWA members for the other fund. Current and projected operating
deficits of these trusts led to the passage of the Coal Industry Retiree Health
Benefit Act of 1992 (the Coal Act). The Coal Act established a new multi-
employer benefit trust that will provide healthcare and life insurance benefits
to all beneficiaries of the earlier trusts who were receiving benefits as of
July 20, 1992. The Coal Act provides for the assignment of beneficiaries to
their former employers and any unassigned beneficiaries to employers based on a
formula. Based upon an independent actuarial valuation, the Company estimates
the amount of its obligation (discounted at 7.25%) under the Coal Act to be
approximately $69,356 as of December 31, 1998. The Company recorded expenses
related to the Coal Act of $0, $0 and $1,919 for 1996, 1997 and 1998, for 1996,
1997 and 1998, respectively.
d. Workers Compensation and Black Lung
The operations of the Company are subject to the federal and state workers'
compensation laws. These laws provide for the payment of benefits to disabled
workers and their dependents, including lifetime benefits for black lung. The
Company's subsidiary operations are either fully insured or self-insured for
their workers compensation and black lung obligations.
The actuarially determined liability for self-insured workers compensation and
black lung benefits is based on a 7.25% discount rate and various other
assumptions including incidence of claims, benefit escalation, terminations and
life expectancy. The annual black lung expense consists of actuarially
determined amounts for self-insured obligations plus the premiums paid to the
state insurance funds. The estimated amount of discounted obligations for self-
insured workers compensation and black lung claims plus an estimate for
incurred but not reported claims is $93,533 as of December 31, 1998. The
Company recorded self-insured expenses related to workers compensation and
black lung of $0, $0 and $2,470, for 1996, 1997 and 1998, respectively.
e. Post-Employment Benefits Other than Pensions
The Company has a long-term disability plan which provides for three years of
disability benefits and for three years of continuation in the medical plan.
Claimants on disability at January 1, 1999 will receive three additional years
of indemnity and medical benefits, at which point further eligibility will end.
The actuarially determined liability for long-term disability benefits is based
on a 7.25% discount rate and various other
F-23
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
assumptions including life expectancy. The present value of the long-term
disability claimants is $4,452 at December 31, 1998. The Company recorded
expenses related to long-term disability benefits of $0, $0 and $334 for 1996,
1997 and 1998, respectively.
f. 401(k) Plans
The Company and certain subsidiaries sponsor savings and long-term investment
plans for substantially all employees other than employees covered by the
contract with the UMWA. Some of the plans matched the voluntary contributions
of participants up to a maximum contribution based upon a percentage of a
participant's salary with an additional matching contribution possible at the
Company's discretion. The expense for 1998 under these plans was $401.
10. COMMITMENTS AND CONTINGENCIES
a. Coal Sales Contracts and Contingency
As of December 31, 1998, the Company had commitments under 55 long-term sales
contracts to deliver scheduled base quantities of coal annually to 34
customers. The contracts expire from 1999 through 2010, with the Company
contracted to supply a minimum of approximately 226 million tons of coal over
the remaining lives of the contracts at prices which are at or above market.
The Company also has commitments to purchase certain amounts of coal to meet
its sales commitments. These purchase amounts are insignificant to sales
commitments. Certain of the contracts have sales price adjustment provisions,
subject to certain limitations and adjustments, based on changes in specified
production costs. Larry Addington has guaranteed the Company's obligations
under one of the coal sales contracts.
Under a ten-year contract dated July 1, 1998, the Company is required to sell
coal from its Bowie mine to TVA. The Company cannot satisfy the delivery
requirements in full from its Bowie mine if it is unable to lease certain
additional reserves located on federal land in Colorado. The failure to do so
could materially adversely impact the profitability of the Bowie mine. The
Company is in process of procuring the necessary leases and permits, however,
it may encounter resistance in its efforts.
b. Leases
The Company has various operating and capital leases for mining, transportation
and other equipment. Lease expense for the years ended December 31, 1996, 1997
and 1998 was approximately $6,000, $9,600 and $30,128 (net of amount
capitalized in mine development cost of $1,800 and $463 in 1997 and 1998,
respectively). Property under capital leases included in property, plant and
equipment in the accompanying balance sheets at December 31, 1997 and 1998 was
approximately $21,400 less accumulated depreciation of approximately $5,810 and
$7,400, respectively. Depreciation of assets under capital leases is included
in depreciation expense.
The Company also leases coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the years ended
December 31, 1996, 1997 and 1998 was approximately $11,200, $13,600 and
$61,700, respectively. Certain agreements require minimum annual royalties to
be paid regardless of the amount of coal mined during the year. However, such
agreements are generally cancelable at the Company's discretion. The assets of
the Bowie mine are held as collateral for one of these agreements.
F-24
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Approximate future minimum lease and royalty payments are as follows:
<TABLE>
<CAPTION>
Operating Capital
Royalties Leases Leases
--------- --------- -------
<S> <C> <C> <C>
Year ended December 31,
1999......................................... $17,712 $44,447 $4,885
2000......................................... 22,081 37,809 202
2001......................................... 22,624 33,255 --
2002......................................... 22,992 23,239 --
2003......................................... 24,025 11,400 --
Thereafter..................................... 28,747 2,598 --
------
Total minimum lease payments................... 5,087
Less--amount representing interest............. 735
------
Present value of minimum lease payments (Note
7a)........................................... 4,352
Less--current portion.......................... 4,161
------
$ 191
======
</TABLE>
Included in the above operating lease commitments are $47,034 to a related
party.
c. Legal Matters
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings. Certain actions are
described as follows:
In connection with the acquisition of the Cyprus Subsidiaries (Note 1), the
Company became potentially liable under a suit filed in the Circuit Court of
Perry County, Kentucky in 1996 by Joseph D. Weddington and Kentucky Land &
Exploration Company ("Kentucky Land"). Kentucky Land has asserted claims to
approximately 1,425 acres of property upon which the Company mines coal and is
claiming substantial damages. Based on a prior federal appellate court decision
related to a similar claim by different plaintiffs, the Company believes that
it is likely to prevail. The Company does not believe the ultimate outcome of
this matter will result in a material adverse effect on the financial position
or results of operations of the Company.
A subsidiary of Pittston Minerals Group, Inc. has made claims for
indemnification from the Company under the terms of a sale agreement between a
predecessor of the Company (as seller) and the Pittston subsidiary. The claimed
indemnification covers a number of items, including allegedly assumed
liabilities, alleged failure to transfer specific licenses, assets and permits
and alleged non-compliance with certain agreements, applicable laws and
permits. The Company is in process of investigating and negotiating the claims
with the Pittston subsidiary. Many of the claims have been resolved without any
payment by or liability to the Company. To the Company's knowledge, no lawsuit
has been filed or otherwise threatened by the Pittston subsidiary against the
Company. The Company intends to defend these claims vigorously, and at this
time it is not possible to predict the outcome of the claims. However, the
Company believes that the liability arising from such claims would not have a
material adverse effect on the financial position or results of operations of
the Company.
In October 1998, Cyprus Amax Coal Company filed a complaint against the Company
alleging that under the terms of the purchase agreement, the Company is
responsible for certain long-term disability coverage to current and former
employees of the acquired Cyprus subsidiaries. The Company contends that the
obligations in question were retained by Cyprus and intends to defend the
claims vigorously. At this time, it is not possible
F-25
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to determine the likely outcome of the claim, but the Company does not believe
the ultimate outcome of this matter will result in a material adverse effect
on the financial position or results of operations of the Company taken as a
whole.
Through December 31, 1998, the Company is in arrears in delivering coal under
a certain coal supply contract with TVA. The Company intends to prospectively
ship all tons for which it is currently in arrears. The Company does not
believe the ultimate outcome of this matter will result in a material adverse
impact upon the financial position or results of operations of the Company.
In August 1998, the Company settled a claim by Robert C. Billips, d/b/a Peter
Fork Mining Company for an initial cash payment of $150 and payments over the
next 49 years estimated at a present value of $250. The Company has a
litigation accrual to cover the settlement.
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position or results of operations of the Company.
d. Commissions
The Company has various Sales and Agency Agreements with third parties,
whereby the Company pays a $.10-$2.00 per ton commission on various coal sales
agreements. The costs are expensed as the coal is delivered, and in 1998 the
Company paid approximately $3,900 in commissions.
e. Addcar(TM) Highwall Mining System Lease Agreement
Effective May 1998, the Company entered into an agreement with Independence
Coal Company, Inc. (Independence) whereby the Company (as lessor) shall lease
an Addcar(TM) Highwall Mining System to Independence (as lessee) for a term of
24 months from initial set up or until all mineable coal from the lessee's
Twilight mine is recovered, for $220 per month subject to various terms and
conditions.
Additionally, effective September 1998 the Company leased to Independence a
second Addcar(TM) Highwall Mining System and agreed to lease a third System in
January, 1999. Each lease is for two years and requires a $4,125 prepaid
rental payment upon delivery, and at the lessee's option each may be extended
for a third year with a rental prepayment of $1,547. Additionally, a monthly
rental payment of $37 for each system is payable by the lessee. Payment terms
are subject to various terms and conditions.
f. Environmental Matters
Based upon current knowledge, the Company believes that it is in material
compliance with environmental laws and regulations as currently promulgated
(also, see Note 2h). However, the exact nature of environmental control
problems, if any, which the Company may encounter in the future cannot be
predicted, primarily because of the increasing number, complexity and changing
character of environmental requirements that may be enacted by federal and
state authorities.
g. Performance Bonds
The Company has outstanding performance bonds of approximately $750,000 as of
December 31, 1998, to secure reclamation, workers compensation and other
performance commitments.
F-26
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
h. Employment Agreements
The Company has entered into employment agreements with individuals for various
officer positions. These agreements expire through February 2003 and contain
termination benefits and other matters.
i. Collective Bargaining Agreements
Approximately 32% of the Company's coal employees are affiliated with unions.
The Company has several collective bargaining agreements with the United Mine
Workers of America (UMWA). These agreements expire from 1999 through 2002.
j. Indemnifications and Other
Pursuant to various stock and asset purchase agreements with sellers, the
Company has granted indemnification for performance guarantees made by certain
sellers relating to mineral lease obligations and employee benefits. The
Company believes no significant obligation will result relating to such
indemnifications.
Pursuant to the purchase agreement for the Cyprus Subsidiaries (Note 3c), the
Company has committed to pay Cyprus up to $25,000 in satisfaction of its
royalty obligations in the event the Company receives an equity investment of
$75,000 or more.
k. The Year 2000 Issue (Unaudited)
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting an entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
11. STOCK OPTION PLAN
During 1998, the Company's Board of Directors adopted a Stock Option Plan (the
Option Plan). A total of 75,000 shares of Common Stock are reserved for
issuance upon exercise of options granted under the Option Plan. The Option
Plan is administered by the Benefits Committee of the Board of Directors which
determines the terms of the options granted including the exercise price,
number of shares subject to the option and exercisability.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan. The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been recognized
for the Option Plan.
The following summarizes the stock option transactions under the Option Plan
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------- --------
<S> <C> <C>
Options outstanding at January 1, 1998.................... -- $ --
Granted.................................................. 66,371 147.00
Exercised................................................ -- --
Canceled................................................. 1,760 64.40
------
Options outstanding at December 31, 1998.................. 64,611 $149.25
====== =======
Options exercisable at December 31, 1998.................. 39,114 $137.50
====== =======
</TABLE>
F-27
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock options are granted with exercise prices which are equal to the market
value of the stock on the date of grant, have a maximum term of ten years and
vest over periods ranging from three months to five years. In February 1999, an
option holder exercised options to purchase 3,100 shares of the Company. The
weighted average fair value at date of grant for options granted during 1998
was $34.46 per option. The fair value of options at date of grant was estimated
using the Black-Scholes model with the following weighted-averaged assumptions:
<TABLE>
<CAPTION>
1998
----
<S> <C>
Expected life (years).................................................. 6.2
Risk-free interest rate................................................ 5.57%
Volatility............................................................. 0%
Dividend yield......................................................... 0%
</TABLE>
A summary of stock options outstanding at December 31, 1998 follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------- ---------------------
Weighted
Number Average Weighted Number Weighted
of Exercise Price Average of Average
Exercise Price Per Share Shares Per Share Contractual Life Shares Exercise Price
------------------------ ------ -------------- ---------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$64.40.................. 53,727 $ 64.40 9.1 years 32,550 $ 64.40
$500.00................. 10,884 $500.00 9.6 years 6,564 $500.00
</TABLE>
As previously discussed, the Company accounts for the Option Plan in accordance
with APB No. 25 under which no compensation expense has been recognized for
stock option awards. Had compensation cost for the Company's stock option plan
been determined on the fair vale at the grant date for awards for the year
ended December 31, 1998 consistent with the provisions of SFAS No. 123, the
Company's net income (loss) would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Net income (loss) -- as reported.................................... (33,576)
Net income (loss) -- pro forma...................................... (35,803)
</TABLE>
12. OTHER SUBSIDIARY MATTERS
a. Bowie Resources, Ltd.
In April 1997, Bowie's shareholders (Larry Addington (90%) and Harold Sergent
(10%)) collectively sold 22.5% of their shares of Bowie common stock to Mitsui
Matasushima (Mitsui).
In November 1997, in connection with the exchange agreement described in Note
1, the Company purchased a 7.7% ownership interest in Bowie from Harold Sergent
for $2,000, bringing the Company's total interest in Bowie to 77.5%.
On September 2, 1998, the Company reacquired the 22.5% minority interest in
Bowie for the purchase price of $11,500. This acquisition was accounted for as
a purchase.
b. Employee Benefits Management, Inc.
Employee Benefits Management, Inc. (EBMI), a renamed subsidiary of the Company,
was recapitalized on December 11, 1998 in the State of Delaware whereby it
authorized 1,000 shares of Class A stock and 176
F-28
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
shares of Class B stock. The Class A stock was issued on December 11, 1998 to
Enterprises (1 share) and to Zeigler (999 shares).
The Class B shares were initially issued on December 18, 1998 to several
subsidiaries of the Company. On December 29, 1998, these subsidiaries holding
Class B shares of EBMI aggregately sold their shares to Employers Risk
Services, Inc. (ERSI) (an unrelated party) for $300.
All voting rights of EBMI are vested solely in the holders of the Class A
Common Stock, except that the holders of the Class B Common Stock shall be
entitled as a class to elect one of the six directors of EBMI. The Class B
Shares can be put to EBMI after July 1, 2007 for the lesser of 15% of EBMI's
net worth or $7,000. EBMI has the right to call the Class B Shares after
January 1, 2008 for the lesser of 15.75% of EBMI's net worth or $7,350.
c. R&F Coal Company
In December 1998, R&F Coal Company (R&F), a subsidiary of the Company, sold
coal mining assets including inventories, property, equipment and a coal supply
contract for approximately $7,600. No gain or loss on sale was recorded.
13. MAJOR CUSTOMERS
The Company had coal mining sales to the following major customers that in any
period exceeded 10% of revenues:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------------------ ------------------------------
Percentage Percentage Year-End Percentage Year-End
of Total of Total Receivable of Total Receivable
Revenues Revenues Revenues Revenues Balance Revenues Revenues Balance
-------- ---------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.............. $21,577 18% $60,457 34% $7,687 $110,261 15% $10,048
Customer B.............. NA NA 19,593 11% 2,425 88,724 12% 8,185
Customer C.............. 22,547 18% 23,464 13% 4,055 NA NA NA
Customer D.............. 27,019 22% 20,776 12% 1,411 NA NA NA
</TABLE>
14. WRITEDOWNS AND SPECIAL ITEMS
In connection with integrating acquired operations, the Company closed certain
of its (non-acquiree) mines. Accordingly, estimated non-recoverable assets of
$2,000 were written off and estimated reclamation and closure costs of $14,400
were recorded.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, accounts receivable and accounts
payable are considered to be representative of their respective fair values
because of the immediate short-term maturity of these financial instruments.
The book value of the Company's debt instruments approximate fair value given
the refinancing in December 1998.
F-29
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. RELATED PARTY TRANSACTIONS AND BALANCES
The Company has dealt with certain companies or individuals which are related
parties either by having stockholders in common or because they are controlled
by stockholders/officers of the Company or by relatives of
stockholders/officers of the Company. In addition to related party transactions
and balances described elsewhere, the following related party transactions and
balances are summarized and approximated as follows below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues, costs and expenses:
Equipment Sales....................................... $7,010 $5,502 $ --
Repair and Maintenance Income......................... 2,954 781 --
Property sales........................................ -- 145 --
Equipment Rental Income............................... 4,369 336 --
Management Fee Income................................. 165 199 115
Flight fee income..................................... 442 590 394
Cancellation fee income............................... -- 1,592 --
Trucking expense...................................... 13,521 18,308 19,613
Repair and maintenance cost........................... 4,916 4,791 13,700
Equipment rental cost................................. 1,429 2,016 5,897
Consultant fees....................................... 180 135 --
Interest expense...................................... 427 1,382 --
Commission expense.................................... 91 31 --
Administrative and miscellaneous expense.............. 58 294 123
Assets:
Accounts receivable................................... $4,814 $7,951 $1,757
Liabilities:
Accounts payable...................................... 6,094 3,301 3,110
Interest payable...................................... 393 -- --
Commission payable.................................... 19 -- --
</TABLE>
The Company leases mining equipment and aircraft as well as constructs, repairs
and sells equipment to related parties. The Company has employed related
parties for trucking, consulting, equipment rental and repair and other
administrative services. Equipment sales (listed above) are primarily to a
related party in Australia (formerly majority-owned by Larry Addington) that
performs contract mining using the Highwall Miner.
For 1997, the Company earned $1,592 in fees when a related party cancelled a
mining arrangement with the Company.
17. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS No. 130) became effective during 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. Implementation of SFAS No. 130 had no impact
on the Company as the Company does not currently have any transactions which
give rise to differences between net income and comprehensive income.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, (SFAS No. 131) will be implemented in
the financial statements for the year ended
F-30
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998. SFAS No. 131 requires publicly-held companies to report
financial and descriptive information about operating segments in financial
statements issued to shareholders for interim and annual periods. SFAS No. 131
also requires additional disclosures with respect to products and services,
geographic areas of operation and major customers. See Note 19 for segment
information.
In February 1998, SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits was issued which improves and standardizes disclosures
by eliminating certain existing reporting requirements and adding new
disclosures. The statement addresses disclosure issues only and does not change
the measurement of recognition provisions specified in previous statements. See
Note 9 for SFAS No. 132 disclosures.
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5 Reporting on the Costs of Start-Up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company does
not expect the impact of this statement will be material to its results of
operations or financial position.
18. EVENTS SUBSEQUENT TO DECEMBER 31, 1998
a. Energy Resources, LLC
In January 1999, the Company acquired 95% of Energy Resources, LLC from the
Harold Sergent family for $3,000. The acquisition was accounted for as a
purchase.
b. Princess Beverly
In February 1999, the Company acquired all the capital stock of Princess
Beverly Coal Company, a coal mining business with operations in West Virginia,
for the purchase price of approximately $11,500. This acquisition will be
accounted for as a purchase. The Company also acquired approximately a 1%
interest in Hanna Land Company LLC, a limited liability company established to
develop a coal mining property in West Virginia owned by the Company. The
Company also has an option to purchase (and the owner has the right to put) the
remaining 99% in Hanna Land Company LLC for $12,000 upon the successful
permitting of the mining property.
c. Industrial Revenue Bonds
On April 1, 1999, the Company refinanced their Zeigler IRBs (Note 7e). The old
IRBs were retired and new IRBs were issued under the following terms: $145,800
principal amount, secured by letters of credit, 6.91% average interest,
maturing in 2022 and 2028 with the ability to release letters of credit as
security upon the satisfaction of certain conditions.
d. Sunny Ridge
On April 9, 1999, the Company entered into a stock purchase agreement to
acquire all the common stock of Sunny Ridge Enterprises, Inc., a coal mining
business with operations in Kentucky for the purchase price of $50,000.
F-31
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. SEGMENT DATA
The Company's principal industry segments are as follows: coal mining,
equipment sales, rental and repair and other. Included in the segment "other"
is the Company's railcar earnings, non-coal royalty fee and management fee
income. The Company's segments are managed separately because each requires
different operating and marketing strategies. Products and services are
generally sold between segments on a cost basis. Operating earnings for each
segment includes all costs and expenses directly related to the segment before
financing charges and corporate allocations. Corporate items principally
represent general and administrative costs. Identifiable assets are those used
in the operations of each business segment. Corporate assets consist primarily
of cash and unamortized financing costs. Information about the Company's
operations for each segment is as follows:
Financial Data by Business Segment
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Coal mining.............................. $ 104,804 $ 163,980 $ 704,832
Equipment sales, rental and repair....... 16,033 8,086 9,532
Other.................................... 2,363 3,188 19,050
--------- --------- -----------
$ 123,200 $ 175,254 $ 733,414
--------- --------- -----------
Income (loss) before income taxes and ex-
traordinary item:
Coal mining.............................. $ 9,193 $ 15,761 $ 19,240
Equipment sales, rental and repair....... 6,670 794 1,491
Other.................................... 4,057 (370) 13,576
--------- --------- -----------
Operating earnings..................... 19,920 16,185 34,307
Corporate expenses....................... (10,273) (10,090) (17,550)
Interest expenses........................ (5,527) (9,192) (65,247)
Unallocated.............................. 884 (272) 4,701
--------- --------- -----------
$ 5,004 $ (3,369) $ (43,789)
--------- --------- -----------
Identifiable assets:
Coal mining.............................. $ 147,216 $ 2,331,948
Equipment sales, rental and repair....... 14,031 32,186
Other.................................... 611 575
Corporate assets......................... 103,535 125,355
--------- -----------
$ 265,393 $ 2,490,064
--------- -----------
Capital expenditures:
Coal mining.............................. $ 11,103 $ 28,969 $ 30,373
Equipment sales, rental and repair....... 2,642 3,196 4,216
Other.................................... 347 49 6,273
--------- --------- -----------
$ 14,092 $ 32,214 $ 40,862
--------- --------- -----------
Depreciation, depletion and amortization:
Coal mining.............................. $ 6,217 $ 9,858 $ 74,726
Equipment sales, rental and repair....... 578 640 2,120
Other.................................... 150 257 --
--------- --------- -----------
$ 6,945 $ 10,755 $ 76,846
--------- --------- -----------
</TABLE>
F-32
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. PARENT AND SUBSIDIARY GUARANTEES
The following tables summarize the financial position, operating results and
cash flows for ARHI, Resources and its guarantor and non-guarantor subsidiaries
regarding the Senior Notes and Subordinated Notes (Note 7c) as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998.
Each of the guarantor subsidiaries (except EBMI--Note 12b) is a wholly-owned
subsidiary of Resources and each has fully and unconditionally guaranteed the
Senior Notes and Subordinated Notes on a joint and several basis. Separate
financial statements and other disclosures concerning ARHI and the Guarantor
subsidiaries are not presented because the Company has determined that they are
not material to investors. Yankeetown Dock Corporation (60% owned by the
Company) is the only non-guarantor subsidiary. Resources was organized in May
1998 and commenced operations in June 1998. ARHI was organized in July 1998.
<TABLE>
<CAPTION>
Wholly Non-Wholly
AEI Owned Owned Non-
Resources AEI Guarantor Guarantor Guarantor Combining
Holding Resources Subsidiaries Subsidiary Subsidiary Adjustments Total
--------- --------- ------------ ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Operating Results
(1996):
Revenues................ $ -- $ -- $123,200 $ -- $ -- $ -- $123,200
Costs and expenses...... -- -- 113,071 -- -- 113,071
----- ----- -------- ----- ----- ----- --------
Income (loss) from
operations............ -- -- 10,129 -- -- -- 10,129
Interest and other
income (expense)....... -- -- (5,125) -- -- -- (5,125)
----- ----- -------- ----- ----- ----- --------
Income (loss) before
minority interest..... -- -- 5,004 -- -- -- 5,004
Less--Minority
interest............... -- -- (59) -- -- -- (59)
----- ----- -------- ----- ----- ----- --------
Net income (loss)...... $ -- $ -- $ 5,063 $ -- $ -- $ -- $ 5,063
===== ===== ======== ===== ===== ===== ========
Cash Flows (1996):
Cash flows from
operating activities:
Net income (loss)....... $ -- $ -- $ 5,063 $ -- $ -- $ -- $ 5,063
Total adjustments to
reconcile net income
(loss) to net cash used
in operating
activities............. -- -- (289) -- -- -- (289)
----- ----- -------- ----- ----- ----- --------
Net cash provided by
(used in) operating
activities............. -- -- 4,774 -- -- -- 4,774
Net cash used in
investing activities... -- -- (12,503) -- -- -- (12,503)
Net cash provided by
financing activities... -- -- 7,348 -- -- -- 7,348
----- ----- -------- ----- ----- ----- --------
Net decrease in cash and
cash equivalents....... -- -- (381) -- -- -- (381)
Cash and cash
equivalents, beginning
of year................ -- -- 834 -- -- -- 834
----- ----- -------- ----- ----- ----- --------
Cash and cash
equivalents, end of
year................... $ -- $ -- $ 453 $ -- $ -- $ -- $ 453
===== ===== ======== ===== ===== ===== ========
December 31, 1997:
Balance Sheet:
Total current assets.... $ -- $ -- $143,176 $ -- $ -- $ -- $143,176
Properties, net......... -- -- 106,658 -- -- -- 106,658
Other assets............ -- -- 15,559 -- -- -- 15,559
----- ----- -------- ----- ----- ----- --------
Total assets........... $ -- $ -- $265,393 $ -- $ -- $ -- $265,393
===== ===== ======== ===== ===== ===== ========
Total current
liabilities including
current portion of
long-term debt and
capital leases......... $ -- $ -- $ 58,119 $ -- $ -- $ -- $ 58,119
Long-Term debt and
capital leases, less
current Portion........ -- -- 209,361 -- -- -- 209,361
Other liabilities....... -- -- 15,987 -- -- -- 15,987
----- ----- -------- ----- ----- ----- --------
Total liabilities...... -- -- 283,467 -- -- -- 283,467
----- ----- -------- ----- ----- ----- --------
Total Stockholders'
equity (deficit)....... -- -- (18,074) -- -- -- (18,074)
----- ----- -------- ----- ----- ----- --------
Total liabilities and
owners' equity
(deficit).............. $ -- $ -- $265,393 $ -- $ -- $ -- $265,393
===== ===== ======== ===== ===== ===== ========
Operating Results
(1997):
Revenues................ -- $ -- $175,254 $ -- $ -- $ -- $175,254
Costs and expenses...... -- -- 169,828 -- -- -- 169,828
----- ----- -------- ----- ----- ----- --------
Income (loss) from
operations............ -- -- 5,426 -- -- -- 5,426
Interest and other
income (expense)....... -- -- (8,795) -- -- -- (8,795)
----- ----- -------- ----- ----- ----- --------
Income (loss) before
income taxes and
extraordinary item.... -- -- (3,369) -- -- -- (3,369)
Income tax provision
(benefit).............. -- -- 17,516 -- -- -- 17,516
----- ----- -------- ----- ----- ----- --------
Income (loss) before
extraordinary item.... -- -- (20,885) -- -- -- (20,885)
Extraordinary loss from
extinguishment of debt
(net of tax benefit)... -- -- (1,303) -- -- -- (1,303)
----- ----- -------- ----- ----- ----- --------
Net income (loss)...... $ -- $ -- $(22,188) $ -- $ -- $ -- $(22,188)
===== ===== ======== ===== ===== ===== ========
</TABLE>
F-33
<PAGE>
AEI RESOURCES HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Non-Wholly
AEI Wholly Owned Owned Non-
Resources AEI Guarantor Guarantor Guarantor Combining
Holding Resources Subsidiaries Subsidiary Subsidiary Adjustments Total
--------- ---------- ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Flows (1997):
Cash flows from
operating activities:
Net income (loss)....... $ -- $ -- $ (22,188) $ -- $ -- $ -- $ (22,188)
Total adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities... -- -- 12,008 -- -- -- 12,008
-------- ---------- ---------- -------- ------ ----------- ----------
Net cash used in
operating activities... -- -- (10,180) -- -- -- (10,180)
Net cash used in
investing activities... -- -- (38,290) -- -- -- (38,290)
Net cash provided by
financing activities... -- -- 131,633 -- -- -- 131,633
-------- ---------- ---------- -------- ------ ----------- ----------
Net increase (decrease)
in cash and cash
equivalents............ -- -- 83,163 -- -- -- 83,163
Cash and cash
equivalents, beginning
of period.............. -- -- 453 -- -- -- 453
-------- ---------- ---------- -------- ------ ----------- ----------
Cash and cash
equivalents, end of
period................. $ -- $ -- $ 83,616 $ -- $ -- $ -- $ 83,616
======== ========== ========== ======== ====== =========== ==========
December 31, 1998:
Balance Sheet:
Total current assets.... $ -- $ (88,724) $ 404,378 $ 1,024 $3,383 $ -- $ 320,061
Properties, net......... -- 5,376 2,065,630 -- 81 -- 2,071,087
Other assets............ (92,650) 1,070,536 50,749 500,151 256 (1,430,126) 98,916
-------- ---------- ---------- -------- ------ ----------- ----------
Total assets........... $(92,650) $ 987,188 $2,520,757 $501,175 $3,720 $(1,430,126) $2,490,064
======== ========== ========== ======== ====== =========== ==========
Total current
liabilities, including
current portion of
long-term debt and
capital leases......... $ -- $ 57,923 $ 323,134 $ 12,513 $ 265 $ (833) $ 393,002
Long-term debt and
capital leases, less
current portion........ -- 987,309 366,740 -- -- (200,000) 1,154,049
Other liabilities....... -- 34,606 1,009,656 488,631 2,921 (500,151) 1,035,663
-------- ---------- ---------- -------- ------ ----------- ----------
Total liabilities..... -- 1,079,838 1,699,530 501,144 3,186 (700,984) 2,582,714
Total shareholders'
equity (deficit)....... (92,650) (92,650) 821,227 31 534 (729,142) (92,650)
-------- ---------- ---------- -------- ------ ----------- ----------
Total liabilities and
shareholders' equity
(deficit).............. $(92,650) $ 987,188 $2,520,757 $501,175 $3,720 $(1,430,126) $2,490,064
======== ========== ========== ======== ====== =========== ==========
Operating Results
(1998):
Revenues................ $ -- $ -- $ 731,406 $ 1,024 $ 984 $ -- $ 733,414
Costs and expenses...... -- 10,905 703,884 962 906 -- 716,657
-------- ---------- ---------- -------- ------ ----------- ----------
Income (loss) from
operations............. -- (10,905) 27,522 62 78 -- 16,757
Interest and other
income (expense)....... -- (49,567) (11,806) (6) -- 833 (60,546)
-------- ---------- ---------- -------- ------ ----------- ----------
Income (loss) before
income taxes.......... -- (60,472) 15,716 56 78 833 (43,789)
Income tax provision
(benefit).............. -- (26,238) 5,768 25 36 -- (20,409)
-------- ---------- ---------- -------- ------ ----------- ----------
Income (loss) before
extraordinary item.... -- (34,234) 9,948 31 42 833 (23,380)
Extraordinary loss from
debt extinguishment.... -- (9,772) (424) -- -- -- (10,196)
-------- ---------- ---------- -------- ------ ----------- ----------
Net Income (loss)...... $ -- $ (44,006) $ 9,524 $ 31 $ 42 $ 833 $ (33,576)
======== ========== ========== ======== ====== =========== ==========
Cash Flows (1998):
Cash Flows from
Operating Activities:
Net income (loss)....... $ -- $ (44,006) $ 10,351 $ 37 $ 42 $ -- $ (33,576)
Total adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities... -- 2,547 (18,385) (37) 79 -- (15,796)
-------- ---------- ---------- -------- ------ ----------- ----------
Net cash provided by
(used in) operating
activities............. -- (41,459) (8,034) -- 121 -- (49,372)
Net cash used in
investing activities... -- (632,203) (23,473) -- -- -- (655,676)
Net cash provided by
financing activities... -- 684,134 (20,906) -- 180 638 664,046
-------- ---------- ---------- -------- ------ ----------- ----------
Net increase (decrease)
in cash and cash
equivalents............ -- 10,472 (52,413) -- 301 638 (41,002)
Cash and cash
equivalents, beginning
of period.............. -- -- 80,794 -- 2,822 -- 83,616
-------- ---------- ---------- -------- ------ ----------- ----------
Cash and cash
equivalents, end of
period................. $ -- $ 10,472 $ 28,381 $ -- $3,123 $ 638 $ 42,614
======== ========== ========== ======== ====== =========== ==========
</TABLE>
21. UNAUDITED PRO FORMA INFORMATION
A pro forma adjustment has been made to historical net income (loss) to reflect
a provision for federal, state and local income taxes during the respective S
corporation periods (see Note 2i) using a combined effective rate of 38%.
F-34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
AEI Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of AEI Holding
Company, Inc. (see Note 1), as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholder's equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AEI Holding
Company, Inc. (see Note 1) as of December 31, 1997 and 1998 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Louisville, Kentucky
April 9, 1999
F-35
<PAGE>
AEI HOLDING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
-------- --------
(Dollar amounts
in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 83,616 $ 15,327
Short-term investments................................... 401 --
Accounts receivable (including amounts due from related
parties of $7,951 and $12,720, respectively)............ 29,939 43,878
Inventories.............................................. 22,658 36,278
Prepaid expenses and other............................... 6,562 4,873
-------- --------
Total current assets.................................... 143,176 100,356
-------- --------
Property, Plant and Equipment, at cost, including mineral
reserves and mine development and contract costs.......... 129,685 227,911
Less--accumulated depreciation, depletion and
amortization............................................ (23,027) (33,094)
-------- --------
106,658 194,817
-------- --------
Debt issuance costs, net................................... 12,713 24,567
Advance royalties.......................................... 2,179 1,871
Deferred tax asset......................................... -- 5,912
Other non-current assets, net.............................. 667 2,875
-------- --------
Total assets............................................ $265,393 $330,398
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable (including amounts due to related
parties of $3,301 and $6,889, respectively)............. $ 30,410 $ 39,668
Current portion of long-term debt and capital leases..... 7,608 9,944
Current portion reclamation and mine closure cost........ 2,100 6,837
Deferred income taxes.................................... 5,199 5,184
Accrued expenses and other............................... 12,802 21,240
-------- --------
Total current liabilities............................... 58,119 82,873
-------- --------
Non-Current Liabilities, less current portion:
Long-term debt and capital leases........................ 209,361 207,939
Payable to affiliates.................................... -- 43,782
Reclamation and mine closure costs....................... 9,431 36,665
Deferred income taxes.................................... 5,933 --
Other non-current liabilities............................ 623 3,044
-------- --------
Total non-current liabilities........................... 225,348 291,430
-------- --------
Total liabilities....................................... 283,467 374,303
-------- --------
Commitments and Contingencies (see notes)
Stockholder's Equity (Deficit):
Common stock ($.01 par value, 100,000 and 120,000 shares
authorized, respectively, 52,800 shares issued and
outstanding)............................................ 1 1
Additional capital....................................... 7,193 28,586
Retained deficit......................................... (25,268) (72,492)
-------- --------
Total stockholder's deficit............................. (18,074) (43,905)
-------- --------
Total liabilities and stockholder's equity (deficit).... $265,393 $330,398
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-36
<PAGE>
AEI HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Coal mining (including amounts from related
parties of $--, $-- and $12,759,
respectively)................................. $104,804 $163,980 $304,411
Equipment sales, rental and repair (including
amounts from related parties of $14,333,
$6,764 and $3,020, respectively).............. 16,033 8,086 9,532
Other (including amounts from related parties
of $607, $2,381 and $753, respectively)....... 2,363 3,188 2,288
-------- -------- --------
Total revenues............................... 123,200 175,254 316,231
-------- -------- --------
Costs and expenses:
Cost of operations (including amounts to
related parties of $19,866, $25,575 and
$33,367, respectively)........................ 97,101 145,203 267,805
Depreciation, depletion and amortization....... 6,945 10,755 21,105
Selling, general and administrative............ 9,025 13,870 14,430
Writedowns and special items................... -- -- 16,466
-------- -------- --------
Total costs and expenses..................... 113,071 169,828 319,806
-------- -------- --------
Income (loss) from operations................ 10,129 5,426 (3,575)
Interest and other income (expense):
Interest expense (including amounts to related
parties of $427, $1,382 and $-,
respectively)................................. (5,527) (9,192) (20,739)
Gain on sale of assets......................... 305 338 1,004
Other, net..................................... 97 59 1,655
-------- -------- --------
(5,125) (8,795) (18,080)
-------- -------- --------
Income (loss) before minority interest, income
taxes and extraordinary item.................. 5,004 (3,369) (21,655)
Less--Minority interest.......................... (59) -- --
-------- -------- --------
Income (loss) before income taxes and
extraordinary item.......................... 5,063 (3,369) (21,655)
Income tax provision (benefit)................... -- 17,516 (8,662)
-------- -------- --------
Income (loss) before extraordinary item...... 5,063 (20,885) (12,993)
Extraordinary loss from extinguishment of debt
(net of $--, $868 and $283 tax benefit,
respectively)................................... -- (1,303) (424)
-------- -------- --------
Net income (loss)............................ $ 5,063 $(22,188) $(13,417)
======== ======== ========
Unaudited pro forma information (Note 18):
Income (loss) before income taxes and
extraordinary item............................ $ 5,063 $ (3,369)
Unaudited pro forma income tax expense
(benefit)..................................... 1,924 (1,280)
Extraordinary item, net of tax benefit......... -- (1,303)
-------- --------
Unaudited pro forma net income (loss).......... $ 3,139 $ (3,392)
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-37
<PAGE>
AEI HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Common Stock
-------------
Retained
Earnings Additional
Shares Amount (Deficit) Capital Total
------ ------ --------- ---------- --------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996........ -- $ -- $ 528 $(5,259) $ (4,731)
1996 net income (loss).......... -- -- (2,621) 7,684 5,063
Owners' distribution, net....... -- -- -- (7) (7)
------ ----- -------- ------- --------
Balance at December 31, 1996...... -- -- (2,093) 2,418 325
Issued 2 shares of $.01 par
value common stock on
October 20, 1997............... 2 -- -- -- --
Issued 98 shares of $.01 par
value common stock on
November 12, 1997.............. 98 -- -- -- --
Deferred tax benefit............ -- -- -- 5,515 5,515
Stock split of 528 to 1 on
December 9, 1997............... 52,700 1 -- (1) --
1997 net income (loss).......... -- -- (23,175) 987 (22,188)
Owners' distribution, net....... -- -- -- (1,726) (1,726)
------ ----- -------- ------- --------
Balance at December 31, 1997...... 52,800 1 (25,268) 7,193 (18,074)
Charge to equity for MTI
purchase....................... -- -- (43,807) (7,193) (51,000)
Deferred tax benefit............ -- -- 10,000 -- 10,000
Capital contribution from
parent......................... -- -- -- 17,086 17,086
Parent contribution of
subsidiary interest............ -- -- -- 11,500 11,500
1998 net income (loss).......... -- -- (13,417) -- (13,417)
------ ----- -------- ------- --------
Balance at December 31, 1998...... 52,800 $ 1 $(72,492) $28,586 $(43,905)
====== ===== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-38
<PAGE>
AEI HOLDING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................... $ 5,063 $(22,188) $(13,417)
Adjustments to reconcile net income (loss) to
net cash provided by
(used in) operating activities
Depreciation, depletion and amortization....... 6,945 10,755 21,105
Amortization of finance costs included in
interest expense.............................. 65 198 779
Loan cost write-offs from debt refinancing..... -- 572 707
Provision for deferred income taxes............ -- 16,647 --
Provision for writedowns and special items..... -- -- 16,466
Gain on sale of assets......................... (305) (338) (1,004)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables.................................... (6,079) (7,951) (3,933)
Inventories.................................... (3,050) (6,173) (3,518)
Prepaid expenses and other..................... (1,408) (835) 2,145
Other non-current assets....................... (372) (2,177) (2,732)
Increase (decrease) in:
Accounts payable............................... 9,518 4,191 (2,537)
Accrued expenses and other..................... 66 (1,354) (26,106)
Other non-current liabilities.................. (5,669) (2,726) (8,381)
------- -------- --------
Total adjustments............................ (289) 10,809 (7,009)
------- -------- --------
Net cash provided by (used in) operating
activities.................................. 4,774 (11,379) (20,426)
------- -------- --------
Cash Flows From Investing Activities:
Net proceeds from sale of assets................ 1,589 549 3,122
Additions to property, plant and equipment and
mine development
and contract costs............................. (14,092) (32,214) (28,355)
Acquisition of coal-mining companies including
debt retirement, net
of cash received............................... -- (6,625) (9,016)
Short-term investments.......................... -- (401) 401
------- -------- --------
Net cash used in investing activities........ (12,503) (38,691) (33,848)
------- -------- --------
Cash Flows From Financing Activities:
Borrowings on long-term debt.................... 3,629 265,327 --
Repayments on long-term debt.................... (4,150) (98,243) (6,890)
Net borrowings (payments) on revolving line of
credit......................................... 4,258 (8,584) --
Net borrowings from (repayments to)
stockholders................................... 7,315 (8,715) --
Repayments on capital leases.................... (3,617) (3,782) (3,653)
Payments for debt issuance costs................ -- (12,673) (13,340)
Payable to affiliates........................... -- -- 43,782
Charge to equity for MTI purchase............... -- -- (51,000)
Contribution from parent........................ -- -- 17,086
Other changes in owners' equity (deficit), net.. (87) (97) --
------- -------- --------
Net cash provided by (used in) financing
activities.................................. 7,348 133,233 (14,015)
------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. (381) 83,163 (68,289)
------- -------- --------
Cash and Cash Equivalents, beginning of period.... 834 453 83,616
------- -------- --------
Cash and Cash Equivalents, end of period.......... $ 453 $ 83,616 $ 15,327
======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-39
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
(Dollars in thousands)
1. ORGANIZATIONAL TRANSACTIONS AND BASIS OF PRESENTATION
a. Organizational Transactions
During November 1997, pursuant to an exchange agreement, the mining assets of
Addington Enterprises, Inc. (Enterprises) and 69.8% of the common stock of
Bowie Resources, Ltd. (Bowie) were transferred to a newly formed entity, AEI
Holding Company, Inc. (AEI HoldCo. or the Company--a Delaware company) in
exchange for the issuance of AEI HoldCo.'s shares to Enterprises (50%) and
Larry Addington (50%). Additionally, AEI HoldCo. purchased Harold Sergent's
7.7% ownership interest in Bowie for $2,000. Enterprises is owned by Larry
Addington (80%), Robert Addington (10%) and Bruce Addington (10%), who are
brothers. Enterprises retained, in November 1997, certain non-coal mining
properties as well as technology related assets which were subsequently
disposed in the MTI agreement (see below).
The MTI Agreement was between Mining Technologies, Inc., a newly formed
subsidiary of AEI HoldCo. (as purchaser) and Enterprises (as seller) for
Enterprises' ownership interest in its North American (N.A.) mining
technologies division. The purchase price of $51,000 (cash) was delivered at
closing on January 2, 1998. The net assets acquired include mining equipment
(primarily Highwall Mining Systems), contract mining agreements, real property
and the intellectual property for the N.A. Highwall Mining Systems (patents,
trademarks, etc.). Enterprises retained ownership of the non-N.A. intellectual
property.
The November 1997 Exchange and MTI transactions described above were treated
for accounting purposes as a transfer of entities and net assets under common
control with accounting similar to that of a pooling of interests. Accordingly,
the historical cost basis of the underlying assets and liabilities transferred
(from Enterprises and Bowie) were carried over from the transferring entity to
AEI HoldCo. Due to common control, the MTI cash purchase price of $51,000 paid
by AEI HoldCo. to Enterprises was recorded as a charge to equity when paid in
January 1998.
During May 1998, the owners of AEI HoldCo. (Larry Addington and Enterprises)
established a new company, Coal Ventures, Inc. (CVI--a Delaware company) and in
June 1998 transferred their shares of AEI HoldCo. to CVI in exchange for
similar proportionate CVI shares, thereby making CVI the owner of AEI HoldCo.
During August 1998, CVI changed its name to AEI Resources, Inc. (Resources or
Parent). In addition, during July 1998, the owners of Resources established a
new company, AEI Resources Holding, Inc. (ARHI--a Delaware company) and
transferred their shares of Resources to ARHI in exchange for similar
proportionate ARHI shares, thereby making ARHI the owner of Resources. ARHI has
no other assets or activities other than the ownership of Resources. Resources
owns numerous other coal mining related subsidiaries besides AEI HoldCo.
b. Basis of Presentation
The accompanying financial statements include the historical accounts of AEI
Holding Company, Inc. and subsidiaries as well as its predecessor: Enterprises,
all under the common control of Larry Addington. The predecessor operations of
Enterprises exclude the non-coal mining properties and non-N.A. intellectual
property. The accompanying financial statements also include the purchase
accounting and post-acquisition operations of the following significant
acquisitions since their date of acquisition: Ikerd-Bandy (October 1997) and
Leslie Resources (January 1998). See Note 3 for discussion of acquisitions.
Significant intercompany transactions and balances have been eliminated in
consolidation. Minority interests for 1997 or 1998 have not been recorded due
to insignificance or deficit equity.
F-40
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Various allocations and carve-out adjustments have been made in the preparation
of the accompanying consolidated financial statements. Such allocations have
been recorded to segregate the historical accounts to reflect the businesses
transferred. Management believes that the method used for allocations and
carve-out adjustments is reasonable.
As of December 31, 1997, the Company owned 77.5% of Bowie and 22.5% is
considered minority interest. As of December 31, 1998, the Company owned 100%
of BRL (see Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
a. Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Company Environment and Risk Factors
The Company's principal business activities consist of surface and deep mining
and marketing of bituminous coal, performance of contract mining for third
parties, construction and licensing of mining equipment, as well as leasing and
repairing mining equipment. These operations are primarily located in Kentucky,
Tennessee and Colorado.
The Company, in the course of its business activities, is exposed to a number
of risks including: the possibility of the termination or alteration of coal
sales contracts, fluctuating market conditions of coal and transportation
costs, competitive industry and overcapacity, changing government regulations,
unexpected maintenance and equipment failure, employee benefits cost control,
misestimates of proven and probable coal reserves, satisfactory labor
relations, loss of key employees, satisfactory resolution of the year 2000
issue and the ability of the Company to obtain financing, necessary mining
permits and control of adequate recoverable mineral reserves. In addition,
adverse uncontrollable (wet) weather and geological conditions tend to increase
mining costs, sometimes substantially. Precipitation is generally highest at
most of the Company's mining operations in early spring and late fall.
The Company is exposed to risks associated with a highly leveraged
organization. Such risks include: increased vulnerability to adverse economic
and industry conditions, limited ability to fund future working capital,
capital expenditures, business acquisitions or other corporate requirements,
possible liquidity problems as well as financing and credit constraints.
Management believes it has adequate financing resources (including cash
equivalents, cash generated from operations and additional borrowings or parent
financing) to meet its needs in 1999.
The Company and its parent faces numerous risks in the successful consummation
and post-acquisition integration of its acquisitions.
c. Inventories
Inventories are stated at average cost, which approximates first-in, first-out
(FIFO) cost and does not exceed market. Components of inventories consist of
coal, deferred overburden and parts and supplies (Note 4). Coal inventories
represent coal contained in stockpiles and exposed in the pit. Deferred
overburden represents the costs to remove the earthen matter (i.e., overburden)
covering the coal seam in surface mining. Costs to remove overburden are
accumulated and deferred on a pro-rata basis as overburden is removed and
eventually charged
F-41
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to cost of operations when the coal is sold. The calculation of deferred
overburden requires significant estimates and assumptions, principally
involving engineering estimates of overburden removal and coal seam
characteristics.
d. Advance Royalty Payments (current portion included in Prepaid Expenses and
Other)
The Company is required, under certain royalty lease agreements, to make
minimum royalty payments whether or not mining activity is being performed on
the leased property. These minimum payments are recoupable once mining begins
on the leased property. The Company capitalizes these minimum royalty payments
and amortizes the deferred costs once mining activities begin or expenses the
deferred costs when the Company has ceased mining or has made a decision not to
mine on such property. Included in prepaid expenses and other is $3,491 and
$3,553 for 1997 and 1998, respectively, relating to advanced royalties.
e. Depreciation, Depletion and Amortization
Property, plant and equipment are recorded at cost, including construction
overhead and interest, where applicable. Expenditures for major renewals and
betterments are capitalized while expenditures for maintenance and repairs are
expensed as incurred. Depreciation, depletion and amortization are provided
using either the straight-line or units of production method with estimated
useful lives under the straight-line method comprising substantially the
following ranges:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Buildings........................................................ 10 to 45
Mining and other equipment and related facilities................ 2 to 20
Transportation equipment......................................... 2 to 7
Furniture and fixtures........................................... 3 to 10
</TABLE>
Mineral reserves and mine development costs (included in property, plant and
equipment) are amortized using the units-of-production method, based on
estimated recoverable reserves. Coal sales contract related costs are amortized
as tons are delivered, based on contracted tonnage requirements.
Debt issuance costs are being amortized using the effective interest method,
over the life of the related debt, or using the straight-line method, over the
life of the related debt, if the result approximates the effective interest
method.
f. Restricted Cash (included in Other Non-Current Assets)
The Company pays amounts as required by various royalty agreements. Certain of
these agreements have been disputed by third parties, requiring that cash be
paid into an escrow account until the rightful recipient is determined.
Included in other non-current assets is $93 and $843 for 1997 and 1998,
respectively, relating to restricted cash.
g. Coal Mine Reclamation and Mine Closure Costs
The Company estimates its future cost requirements for reclamation of land
where it has conducted surface and deep mining operations, based on its
interpretation of the technical standards of regulations enacted by the U.S.
Office of Surface Mining, as well as state regulations.
The Company accrues for the cost of final mine closure and related exit costs
over the estimated useful mining life of the developed property or, if
purchased, at the date of acquisition. These costs relate to reclaiming the
F-42
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
pit and support acreage at surface mines and sealing portals at deep mines.
Other costs common to both types of mining are related to reclaiming refuse and
slurry ponds as well as holding period and related termination/exit costs. The
Company expenses the reclamation of current mine disturbance which is performed
prior to final mine closure. The establishment of the final mine closure
reclamation liability and the current disturbance is based upon permit
requirements and requires various significant estimates and assumptions,
principally associated with cost and production levels. Annually, the Company
reviews its end of mine reclamation and closure liability and makes necessary
adjustments, including mine plan and permit changes and revisions to cost and
production levels to optimize mining and reclamation efficiency. The economic
impact of such adjustments is generally recorded to cost of coal sales
prospectively as remaining tons are mined. Also, as described in Note 2k., when
a mine life is shortened due to change in mine plan, mine closing obligations
are accelerated and the related accrual is increased accordingly. Although the
Company's management believes it is making adequate provisions for all expected
reclamation and other costs associated with mine closures, future operating
results would be adversely affected if such accruals were later determined to
be insufficient. End-of-mine reclamation and closure expense for 1996, 1997 and
1998 was $596, $2,196 and $18,188, respectively.
h. Income Taxes
For 1996 and part of 1997 (Note 8), Enterprises and Bowie were S corporations
under the Internal Revenue Code and similar state statutes. As a result,
Enterprises and Bowie were not subject to income taxes and their taxable income
or loss was reported in the stockholders' individual tax returns. Accordingly,
the historical net income (loss) presented in the accompanying financial
statements during the S corporation periods is exclusive of an income tax
provision (See Notes 8 and 18).
The provision for income taxes includes the change in tax status matters as
described above plus federal, state and local income taxes currently payable
and those deferred because of temporary differences between the financial
statement and tax basis of assets and liabilities. The Company records income
taxes under the liability method. Under this method, deferred income taxes are
recognized for the estimated future tax effects of differences between the tax
basis of assets and liabilities and their financial reporting amounts as well
as net operating loss carryforwards and tax credits based on enacted tax laws.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
i. Revenue Recognition
Most of the Company's revenues have been generated under long-term coal sales
contracts with electric utilities, industrial companies or other coal-related
organizations, primarily in the eastern United States. Revenues are recognized
on coal sales in accordance with the sales agreement, which is usually when the
coal is shipped to the customer and title is passed. Advance payments received
are deferred and recognized in revenue as coal is shipped. The Company also
rents and sells equipment and provides repair and contract mining services, and
the revenue from such rental, sale and service is recognized when earned.
Revenue from the construction of mining equipment is recognized on a percentage
of completion basis.
The Company grants credit to its customers based on their creditworthiness and
generally does not secure collateral for its receivables. The Company has no
allowance for doubtful accounts for 1997 and 1998, respectively. Historically,
accounts receivable write-offs have been insignificant.
j. Stockholder's Equity (Deficit)
The 1996 and 1997 historical owner's equity accounts (retained earnings
(deficit) and additional capital) for legal entities (Bowie) which have been
carried over from the transferor under the exchange agreement (Note 1) have
remained unchanged as presented within the accompanying consolidated statements
of stockholder's equity (deficit).
F-43
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The businesses transferred from Enterprises have operated as divisions and,
accordingly, the 1996 and 1997 historical equity account changes (earnings and
losses and owners' contributions and distributions) have been presented within
additional capital in the accompanying consolidated statements of stockholder's
equity (deficit) for the pre-transfer period. The common stock activity
represents that of AEI HoldCo. The consolidated operations of AEI HoldCo. after
the consummation of the exchange agreement (Note 1) on November 12, 1997, are
included in retained earnings (deficit) in the accompanying consolidated
statements of stockholder's equity (deficit).
As described in Note 8, in connection with the consummation of the November
1997 exchange agreement, the mining businesses transferred from Enterprises
required that deferred taxes be recorded by AEI HoldCo. Because a portion of
the mining assets transferred from Enterprises were stepped up for tax
purposes, but not book (similar to a taxable pooling), the resulting deferred
tax benefit of approximately $5,500 was recorded in November 1997 with a
corresponding increase in additional capital.
As described in Note 1a, on January 2, 1998, AEI HoldCo. made a payment of
$51,000 for the purchase of MTI which was recorded as a charge to equity in
January 1998. In addition, because the tax basis of the MTI net assets
transferred were stepped up for tax purposes, but not book (similar to a
taxable pooling), the resulting deferred tax benefit of $10,000 was recorded in
January 1998 with a corresponding increase in equity.
k. Asset Impairments and Accelerated Mine Closing Accruals
In certain situations, expected mine lives are shortened because of changes to
planned operations. When that occurs and it is determined that the mine's
underlying costs are not recoverable in the future, reclamation and mine
closing obligations are accelerated and the mine closing accrual is increased
accordingly. Also, to the extent that it is determined that asset carrying
values will not be recoverable during a shorter mine life, a provision for such
impairment is recognized. The Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in
prior years. SFAS No. 121 expanded the Company's criteria for loss recognition,
and provides methods for both determining when an impairment has occurred and
for measuring the amount of the impairment. SFAS No. 121 requires that
projected future cash flows from use and disposition of all the Company's
assets be compared with the carrying amounts of those assets. When the sum of
projected cash flows is less than the carrying amount, impairment losses are
recognized.
l. Reclassifications
Certain reclassifications of prior year amounts were made to conform with the
current year presentation with no effect on previously reported net income
(loss) or stockholder's equity (deficit).
m. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of the purchase to be
cash equivalents.
Supplemental disclosure:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Cash paid for interest, net of capitalized interest of
$246, $467 and $2,762, respectively.................... $5,357 $7,193 $21,171
Income taxes paid....................................... -- -- --
</TABLE>
F-44
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1997 Statement of Cash Flows is exclusive of non-cash deferred tax asset
and equity increase of $5,515, non-cash property additions of $2,253, non-cash
capitalized loan fees of $238, non-cash transfers of inventory items to
development costs of $1,062 and settlement of a note (included in other assets)
for property and mine development work valued at $1,220.
The 1998 statement of cash flows is exclusive of non-cash property additions of
$4,000, non-cash property disposals of $3,126, and settlement of a capital
lease of $2,505.
3. ACQUISITIONS
The following significant acquisitions have each been accounted for as a
purchase, and their results of operations have been included with that of the
Company since the date of acquisition.
a. Ikerd-Bandy Co., Inc.
In October 1997, Enterprises acquired all of the capital stock of Ikerd-Bandy
Co., Inc., a coal mining business with operations in eastern Kentucky, for the
purchase price of approximately $5,300 (including $300 in related fees and
expenses) plus the assumption of approximately $5,600 in debt.
b. Leslie Resources
In January 1998, AEI HoldCo. acquired all the capital stock of Leslie
Resources, Inc. and Leslie Resources Management, Inc., (collectively, Leslie
Resources) a coal mining business with operations in eastern Kentucky, for the
purchase price of approximately $12,000 (including $300 in related fees and
expenses), plus the assumption of approximately $11,100 in debt.
The following unaudited pro forma information for the period ending December
31, 1997 gives effect to the aforementioned acquisitions as if they had
occurred at the beginning of 1997:
<TABLE>
<CAPTION>
1997
-----------
(Unaudited)
<S> <C>
Revenues..................................................... $296,700
Income (loss) before extraordinary items..................... (12,936)
Net income (loss)............................................ (14,239)
</TABLE>
The unaudited pro forma information assumes that the Company owned the
aforementioned acquisitions at the beginning of the periods presented and
includes adjustments for depreciation, depletion and amortization, interest
expense and an inventory adjustment to conform to the Company's accounting
policies. The unaudited pro forma financial data is presented for information
purposes only and is not necessarily indicative of the results of operations
that actually would have been achieved had such acquisitions been consummated
at the beginning of these periods, and is not intended to be a projection of
future results.
4. INVENTORIES
As of December 31, 1997 and 1998, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Coal..................................................... $ 3,995 $ 8,145
Deferred overburden...................................... 10,768 18,718
Parts and supplies....................................... 7,895 9,415
-------- -------
$ 22,658 $36,278
======== =======
</TABLE>
F-45
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including mineral reserves and mine development
and contract costs, at December 31, 1997 and 1998 are summarized by major
classification as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land.................................................. $ 1,670 $ 1,843
Mining and other equipment and related facilities..... 63,125 91,404
Mine development and contract costs................... 24,177 53,712
Mineral reserves...................................... 15,992 76,364
Mine development in process........................... 22,150 --
Construction work in process.......................... 2,571 4,588
-------- --------
129,685 227,911
Less-accumulated depreciation, depletion and
amortization......................................... 23,027 33,094
-------- --------
Net property, plant and equipment..................... $106,658 $194,817
======== ========
</TABLE>
Included in property, plant and equipment is $24,721 for 1997 and $-- for 1998
related to development and construction projects for which depreciation,
depletion and amortization have not yet commenced. The Company reviews the
realization of these projects on a periodic basis.
6. ACCRUED EXPENSES AND OTHER
Accrued expenses and other as of December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Payroll, Bonus and Vacation............................. $ 5,385 $ 4,153
Production and sales tax................................ 1,182 1,893
Property taxes.......................................... 1,386 1,723
Deferred revenues....................................... -- 8,197
Royalties............................................... 1,081 3,043
Interest................................................ 2,701 1,306
Other................................................... 1,067 925
-------- -------
$ 12,802 $21,240
======== =======
</TABLE>
7. DEBT
a. Long-Term Debt and Capital Leases
Long-term debt and capital leases as of December 31, 1997 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
10.5% Senior Notes (Note 7b)................................ $200,000 $200,000
Notes payable to sellers of Leslie Resources (Note 7c)...... -- 8,988
Notes payable to sellers of Ikerd-Bandy (Note 7c)........... 4,647 4,543
Capital leases secured by equipment, maturing through 2000
(Note 9b).................................................. 10,527 4,352
Other....................................................... 1,795 --
-------- --------
Total..................................................... 216,969 217,883
Less--current portion..................................... 7,608 9,944
-------- --------
Long-term debt............................................ $209,361 $207,939
======== ========
</TABLE>
F-46
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal maturities of long-term debt and capital leases as of December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31:
-----------------------
<S> <C>
1999.......................................................... $ 9,944
2000.......................................................... 2,832
2001.......................................................... 2,472
2002.......................................................... 1,420
2003.......................................................... 969
Thereafter...................................................... 200,246
--------
$217,883
========
</TABLE>
b. 10.5% Senior Notes
On December 14, 1998, Resources and AEI HoldCo. (Issuers) co-issued $200,000 of
10.5% Senior Notes due 2005 (Senior Notes). These 10.5% Senior Notes were
exchanged for previously issued $200,000 10% Senior Notes of AEI HoldCo. due
2007. As part of the $200,000 Senior Notes exchange, the old indenture was
modified to eliminate substantially all of the covenants and certain related
definitions and events of default. Warburg Dillon Read LLC was the dealer
manager of the Senior Notes exchange.
The Senior Notes mature in their entirety on December 15, 2005. The Senior
Notes are general, unsecured obligations of the issuers. Interest is payable on
June 15 and December 15 of each year. The Issuers have the option to redeem the
Senior Notes on or after December 15, 2002, at redemption prices ranging from
105.75% in 2002 to 100% in 2005. Before December 15, 2002, the Issuers may
redeem the Senior Notes at the face amount plus accrued and unpaid interest,
liquidated damages, if any, and an applicable "make whole premium" of up to
$35,446.
Upon a change in control (as defined), the Issuers will be required to make an
offer to purchase all outstanding Senior Notes at 101% of the principal amount.
The Senior Notes are jointly and severally guaranteed on a senior unsecured
basis by ARHI and the Issuers and each of the Issuers' current and future
domestic majority-owned subsidiaries, other than Yankeetown Dock Corporation.
In addition to containing various restrictive financial covenants, the Senior
Notes Indentures will restrict, among other things, additional indebtedness,
issuance of preferred stock, dividend payments, mergers, sale of subsidiaries
and assets and affiliate transactions.
The Issuers have agreed to file a registration statement under the U.S.
Securities Act for the Senior Notes which would provide for their resale. If
such registration statement is not filed or declared effective within the time
periods allotted in the Indenture, the Issuers will be required to pay
liquidated damages to Senior Notes holders. For the Senior Notes, the Issuers
have agreed to pay each noteholder liquidated damages of 20c per one thousand
dollars principal amount (aggregating to $40 per week) per week commencing
December 8, 1998 for 90 days. If the registration statement is not declared
effective by March 8, 1999, then the amount of liquidated damages payable
weekly will increase by an additional 5c per one thousand dollars principal
amount for each 90-day period up to a maximum of 50c payable weekly per one
thousand dollars principal amount. The issuers have filed an initial
registration statement with the Securities and Exchange Commission on February
12, 1999; however, it is uncertain when or if this filing will become
effective.
c. Seller Notes Payable
In connection with the acquisitions of Ikerd-Bandy and Leslie Resources, the
Company entered into notes payable to the sellers of these businesses (Seller
Notes). The Seller Notes are unsecured and bear interest (or have been
discounted) at rates ranging from 6% to 10%. These Seller Notes also mature
from 2003 to 2004.
F-47
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
d. Debt Extinguishment
Upon early extinguishment in 1997 of the Company's previously outstanding
credit facility and bridge financing, the Company expensed as an extraordinary
item in November 1997 approximately $1,600 of prepayment penalties and bridge
financing costs and $571 of deferred debt issuance costs. In connection with
arranging the November 1997 financing transactions, the Company paid a fee of
$4,375 to a related party.
On June 29, 1998, the Company replaced a former credit facility and,
consequently, expensed as an extraordinary item in June 1998 approximately $424
of related deferred debt issuance costs, net of a tax benefit of $283. At
December 31, 1997, there were no borrowings under the former credit facility.
8. INCOME TAXES
ARHI and its subsidiaries (including the Company) file a consolidated federal
income tax return. Pursuant to a written tax sharing agreement, the
subsidiaries provide for federal and state income taxes on their financial
statements as if they were an independent taxpayer filing separately. As such,
ARHI follows the policy of allocating taxes payable and tax benefits to its
subsidiaries on the basis of taxes or benefits applicable to each subsidiary.
As discussed in Note 2h., during April 1997 Bowie's S corporation status was
terminated. Upon such termination, Bowie initially recorded a net deferred tax
liability of $1,600 with an increase to income tax provision for the
differences in book and tax bases in assets and liabilities. In addition,
during November 1997, the mining businesses transferred from Enterprises (see
Note 1, as an S corporation) to the Company (as a C corporation) initially
recorded a net deferred tax liability of $17,963 with an increase to income tax
provision for the differences in book and tax bases in assets and liabilities.
Presented below are income tax disclosures as of and for the years ended
December 31, 1997 and 1998. Prior to 1997, the Company operated as an
S corporation, and no corporate income taxes were recorded.
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Tax provisions:
Current.............................................. $ -- $(8,662)
Deferred............................................. 17,516 --
-------- -------
$ 17,516 $(8,662)
======== =======
</TABLE>
The following table presents the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% to the 1997 and 1998 net loss before income taxes.
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Federal provision computed at statutory rate......... $ (1,145) $(7,827)
State income tax (net of federal tax benefits and
apportionment factors) computed at statutory rate (135) (1,118)
Change in tax status................................. 19,563 --
Federal and state tax effect on S corporation period
earnings............................................ (679) --
Other................................................ (88) 283
-------- -------
$ 17,516 $(8,662)
======== =======
</TABLE>
F-48
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------- ------
<S> <C> <C>
Deferred Tax Assets:
Accrued reclamation and closure............................. $ 4,560 $4,560
Net operating loss carryforwards............................ 9,353 11,486
Patents and technology...................................... -- 12,574
Other....................................................... 681 3,899
-------- ------
14,594 32,519
Valuation allowance......................................... -- (5,733)
-------- ------
14,594 26,786
-------- ------
Deferred Tax Liabilities:
Property, plant and equipment............................... 1,903 1,671
Mineral reserves and mine development costs................. 17,343 17,907
Other....................................................... 6,480 6,480
-------- ------
25,726 26,058
-------- ------
Net Deferred Tax Asset (Liability)........................ $(11,132) $ 728
======== ======
</TABLE>
Bowie has carryforwards for net operating losses (NOL) of $14,333 and may only
be used by Bowie and if not used will expire in 2012. AEI HoldCo. has NOL
carryforwards of $14,382 which if not used will expire in 2017. NOL
carryforwards may also be limited under certain ownership changes. The
valuation allowance was recorded due to uncertainties in realization using the
more likely than not methodology.
9. COMMITMENTS AND CONTINGENCIES
a. Coal Sales Contracts and Contingency
As of December 31, 1998, the Company had commitments under 15 long-term sales
contracts to deliver scheduled base quantities of coal annually to nine
customers. The contracts expire from 1999 through 2008, with the Company
contracted to supply a minimum of approximately 67 million tons of coal over
the remaining lives of the contracts at prices which are at or above market.
The Company also has commitments to purchase certain amounts of coal to meet
its sales commitments. These purchase amounts are insignificant to sales
commitments. Certain of the contracts have sales price adjustment provisions,
subject to certain limitations and adjustments, based on changes in specified
production costs. Larry Addington has guaranteed the Company's obligations
under one of the coal sales contracts.
Under a ten-year contract dated July 1, 1998, the Company is required to sell
coal from its Bowie mine to TVA. The Company cannot satisfy the delivery
requirements in full from its Bowie mine if it is unable to lease certain
additional reserves located on federal land in Colorado. The failure to do so
could materially adversely impact the profitability of the Bowie mine. The
Company is in process of procuring the necessary leases and permits; however,
it may encounter resistance in its efforts.
b. Leases
The Company has various operating and capital leases for mining, transportation
and other equipment. Lease expense for the years ended December 31, 1996, 1997
and 1998 was approximately $6,000, $9,600 and $24,594 (net of amount
capitalized in mine development cost of $1,800 and $463 in 1997 and 1998,
respectively). Property under capital leases included in property, plant and
equipment in the accompanying
F-49
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
balance sheets at December 31, 1997 and 1998 was approximately $21,400 less
accumulated depreciation of approximately $5,810 and $7,400, respectively.
Depreciation of assets under capital leases is included in depreciation
expense.
The Company also leases coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the years ended
December 31, 1996, 1997 and 1998 was approximately $11,200, $13,600 and
$29,922, respectively. Certain agreements require minimum annual royalties to
be paid regardless of the amount of coal mined during the year. However, such
agreements are generally cancelable at the Company's discretion. The assets of
the Bowie mine are held as collateral for one of these agreements.
Approximate future minimum lease and royalty payments are as follows:
<TABLE>
<CAPTION>
Operating Capital
Royalties Leases Leases
--------- --------- -------
<S> <C> <C> <C>
Year ended December 31,
1999.................... $ 9,803 $30,962 $4,885
2000.................... 16,730 26,092 202
2001.................... 17,330 22,731 --
2002.................... 18,212 14,745 --
2003.................... 19,346 5,742 --
Thereafter................ 20,300 1,150 --
------
Total minimum lease
payments................. 5,087
Less--amount representing
interest................. 735
------
Present value of minimum
lease payments (Note
7a)...................... 4,352
Less--current portion..... 4,161
------
$ 191
======
</TABLE>
Included in the above operating lease commitments are $11,412 to a related
party.
c. Legal Matters
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings. Certain actions are
described as follows:
A subsidiary of Pittston Minerals Group, Inc. has made claims for
indemnification from the Company under the terms of a sale agreement between a
predecessor of the Company (as seller) and the Pittston subsidiary. The claimed
indemnification covers a number of items, including allegedly assumed
liabilities, alleged failure to transfer specific licenses, assets and permits
and alleged non-compliance with certain agreements, applicable laws and
permits. The Company is in the process of investigating and negotiating the
claims with the Pittston subsidiary. Many of the claims have been resolved
without any payment by or liability to the Company. To the Company's knowledge,
no lawsuit has been filed or otherwise threatened by the Pittston subsidiary
against the Company. The Company intends to defend these claims vigorously, and
at this time it is not possible to predict the outcome of the claims. However,
the Company believes that the liability arising from such claims would not have
a material adverse effect on the financial position or results of operations of
the Company.
Through December 31, 1998, the Company is in arrears in delivering coal under a
certain coal supply contract with TVA. The Company intends to prospectively
ship all tons for which it is currently in arrears. The
F-50
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company does not believe the ultimate outcome of this matter will result in a
material adverse impact upon the financial position or results of operations of
the Company.
In August 1998, the Company settled a claim by Robert C. Billips, d/b/a Peter
Fork Mining Company for an initial cash payment of $150 and payments over the
next 49 years estimated at a present value of $250. The Company has a
litigation accrual to cover the settlement.
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position or results of operations of the Company.
d. Commissions
The Company has various Sales and Agency Agreements with third parties, whereby
the Company pays a $.10-$2.00 per ton commission on various coal sales
agreements. The costs are expensed as the coal is delivered, and in 1998 the
Company paid approximately $1,409 in commissions.
e. Addcar(TM) Highwall Mining System Lease Agreement
Effective May 1998, the Company entered into an agreement with Independence
Coal Company, Inc. (Independence) whereby the Company (as lessor) shall lease
an Addcar(TM) Highwall Mining System to Independence (as lessee) for a term of
24 months from initial set up or until all mineable coal from the lessee's
Twilight mine is recovered, for $220 per month subject to various terms and
conditions.
Additionally, effective September 1998 the Company leased to Independence a
second Addcar(TM) Highwall Mining System and agreed to lease a third System in
January, 1999. Each lease is for two years and requires a $4,125 prepaid rental
payment upon delivery, and at the lessee's option each may be extended for a
third year with a rental prepayment of $1,547. Additionally, a monthly rental
payment of $37 for each system is payable by the lessee. Payment terms are
subject to various terms and conditions.
f. Environmental Matters
Based upon current knowledge, the Company believes that it is in material
compliance with environmental laws and regulations as currently promulgated
(also, see Note 2g). However, the exact nature of environmental control
problems, if any, which the Company may encounter in the future cannot be
predicted, primarily because of the increasing number, complexity and changing
character of environmental requirements that may be enacted by federal and
state authorities.
g. Performance Bonds
The Company has outstanding performance bonds of approximately $161,000 as of
December 31, 1998, to secure reclamation, workers compensation and other
performance commitments.
h. Indemnifications and Guarantees
Pursuant to various stock and asset purchase agreements with sellers, the
Company has granted indemnification for performance guarantees made by certain
sellers relating to mineral lease obligations and employee benefits. The
Company believes no significant obligation will result relating to such
indemnifications.
F-51
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company (including its subsidiaries) has guarantees in place related to
Resources' financing arrangements. The Company's capital stock and most
corporate assets have been pledged as collateral in connection with Resources'
$875,000 Credit Facility with UBS AG (an affiliate of Warburg Dillon Reed LLC).
In addition, the Company is a guarantor on a subordinated basis of: 1)
Resources' $150,000 11.5% Senior Subordinated Notes due 2006 and 2) Resources
$145,800 6.91% (average interest) Zeigler Industrial Revenue Bonds due 2022 and
2028. Reference is made to the consolidated financial statements of ARHI for a
more detailed description of the terms of such indebtedness in the notes to
financial statements.
i. The Year 2000 Issue (Unaudited)
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting an entity, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
10. OTHER SUBSIDIARY MATTERS
In April 1997, Bowie's shareholders (Larry Addington (90%) and Harold Sergent
(10%)) collectively sold 22.5% of their shares of Bowie common stock to Mitsui
Matasushima (Mitsui).
In November 1997, in connection with the exchange agreement described in Note
1, the Company purchased a 7.7% ownership interest in Bowie from Harold Sergent
for $2,000, bringing the Company's total interest in Bowie to 77.5%.
On September 2, 1998, Resources reacquired the 22.5% minority interest in Bowie
for the purchase price of $11,500. This acquisition was accounted for as a
purchase. In December 1998, this minority interest was contributed by Resources
to the Company.
11. MAJOR CUSTOMERS
The Company had coal mining sales to the following major customers that in
any period exceeded 10% of revenues:
<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------------------ ------------------------------
Percentage Percentage Year-End Percentage Year-End
of Total of Total Receivable of Total Receivable
Revenues Revenues Revenues Revenues Balance Revenues Revenues Balance
-------- ---------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A.............. $21,577 18% $60,457 34% $7,687 $90,592 27% $5,548
Customer B.............. NA NA 19,593 11% 2,425 40,408 12% 4,573
Customer C.............. 22,547 18% 23,464 13% 4,055 36,154 11% 3,216
Customer D.............. 27,019 22% 20,776 12% 1,411 N/A N/A N/A
</TABLE>
12. WRITEDOWNS AND SPECIAL ITEMS
In connection with integrating other acquired operations by the Parent, the
Company closed certain of its (non-acquired) mines. Accordingly, estimated non-
recoverable assets of $2,000 were written off and estimated reclamation and
closure costs of $14,400 were recorded.
F-52
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash and cash equivalents, accounts receivable and accounts
payable are considered to be representative of their respective fair values
because of the immediate short-term maturity of these financial instruments.
The book value of the Company's debt instruments approximate fair value given
the refinancing in December 1998.
14. RELATED PARTY TRANSACTIONS AND BALANCES
The Company has dealt with certain companies or individuals which are related
parties either by having stockholders in common or because they are controlled
by stockholders/officers of the Company or by relatives of
stockholders/officers of the Company. In addition to related party transactions
and balances described elsewhere, the following related party transactions and
balances are summarized and approximated as follows below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Revenues, costs and expenses:
Coal Mining............................................ $ -- $ -- $12,759
Equipment Sales........................................ 7,010 5,502 --
Repair and Maintenance Income.......................... 2,954 781 2996
Property sales......................................... -- 145 --
Equipment Rental Income................................ 4,369 336 24
Management Fee Income.................................. 165 199 115
Flight fee income...................................... 442 590 638
Cancellation fee income................................ -- 1,592 --
Purchased Coal......................................... -- -- 5,954
Trucking expense....................................... 13,521 18,308 19,248
Repair and maintenance cost............................ 4,916 4,791 4,508
Equipment rental cost.................................. 1,429 2,016 3,657
Consultant fees........................................ 180 135 --
Interest expense....................................... 427 1,382 --
Commission expense..................................... 91 31 --
Administrative and miscellaneous expense............... 58 294 86
Assets:
Accounts receivable.................................... -- 7,951 12,720
Liabilities:
Accounts payable....................................... -- 3,301 6,889
Long-term payable...................................... -- -- 43,782
</TABLE>
The Company shares general and administrative duties with its parent. The
Company also participates in the Parent's cash management program. In addition,
employees of the Company participate in employee benefit plans sponsored by the
Parent.
The Company leases mining equipment and aircraft as well as constructs, repairs
and sells equipment to related parties. The Company has employed related
parties for trucking, consulting, equipment rental and repair and other
administrative services. Equipment sales (listed above) are primarily to a
related party in Australia (formerly majority-owned by Larry Addington) that
performs contract mining using the Highwall Miner.
For 1997, the Company earned $1,592 in fees when a related party cancelled a
mining arrangement with the Company.
F-53
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS No. 130) became effective during 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. Implementation of SFAS No. 130 had no impact
on the Company as the Company does not currently have any transactions which
give rise to differences between net income and comprehensive income.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, (SFAS No. 131) will be implemented in
the financial statements for the year ended December 31, 1998. SFAS No. 131
requires publicly-held companies to report financial and descriptive
information about operating segments in financial statements issued to
shareholders for interim and annual periods. SFAS No. 131 also requires
additional disclosures with respect to products and services, geographic areas
of operation and major customers. See Note 16 for segment information.
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5 Reporting on the Costs of Start-Up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company does
not expect the impact of this statement will be material to its results of
operations or financial position.
16. SEGMENT DATA
The Company's principal industry segments are as follows: coal mining,
equipment sales, rental and repair and other. Included in the segment "other"
is the Company's railcar earnings, non-coal royalty fee and management fee
income. The Company's segments are managed separately because each requires
different operating and marketing strategies. Products and services are
generally sold between segments on a cost basis. Operating earnings for each
segment includes all costs and expenses directly related to the segment before
financing charges and corporate allocations. Corporate items principally
represent general and administrative costs.
F-54
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Identifiable assets are those used in the operations of each business segment.
Corporate assets consist primarily of cash and unamortized financing costs.
Information about the Company's operations for each segment is as follows:
Financial Data by Business Segment
<TABLE>
<CAPTION>
For the year ended December
31,
-----------------------------
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Coal mining.................................. $104,804 $ 163,980 $304,411
Equipment sales, rental and repair........... 16,033 8,086 9,532
Other........................................ 2,363 3,188 2,288
-------- --------- --------
$123,200 $ 175,254 $316,231
-------- --------- --------
Income (loss) before income taxes and
extraordinary item:
Coal mining.................................. $ 9,193 $ 15,761 $ 3,212
Equipment sales, rental and repair........... 6,670 794 1,491
Other........................................ 4,057 (370) (992)
-------- --------- --------
Operating earnings......................... 19,920 16,185 3,711
Corporate expenses........................... (10,273) (10,090) (4,492)
Interest expense............................. (5,527) (9,192) (20,739)
Unallocated.................................. 884 (272) (135)
-------- --------- --------
$ 5,004 $ (3,369) $(21,655)
-------- --------- --------
Identifiable assets:
Coal mining.................................. $ 147,216 $232,461
Equipment sales, rental and repair........... 14,031 48,366
Other........................................ 611 --
Corporate assets............................. 103,535 49,571
--------- --------
$ 265,393 $330,398
--------- --------
Capital expenditures:
Coal mining.................................. $ 11,103 $ 28,969 $ 20,502
Equipment sales, rental and repair........... 2,642 3,196 4,216
Other........................................ 347 49 3,637
-------- --------- --------
$ 14,092 $ 32,214 $ 28,355
-------- --------- --------
Depreciation, depletion and amortization:
Coal mining.................................. $ 6,217 $ 9,858 $ 17,386
Equipment sales, rental and repair........... 578 640 3,551
Other........................................ 150 257 168
-------- --------- --------
$ 6,945 $ 10,755 $ 21,105
-------- --------- --------
</TABLE>
F-55
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. SUBSIDIARY GUARANTEES
The following tables summarize the financial position, operating results and
cash flows for the Company and its guarantor subsidiaries regarding the Senior
Notes (Note 7b) as of December 31, 1997 and 1998 and for the three years in the
period ended December 31, 1998. Each of the guarantor subsidiaries is a wholly-
owned subsidiary of the Company and each has fully and unconditionally
guaranteed the Senior Notes on a joint and several basis. Separate financial
statements and other disclosures concerning the Guarantor subsidiaries are not
presented because the Company has determined that they are not material to
investors. The Company was organized in October 1997 (see Note 1 for
organizational transactions). The following tables exclude data related to ARHI
and Resources (and its subsidiaries) which are also guarantors of the Senior
Notes. Reference for such data is made to the consolidated financial statements
of ARHI which present similar tables in the notes to financial statements.
<TABLE>
<CAPTION>
AEI Holding Guarantor Combining
Company, Inc. Subsidiaries Adjustments Total
------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
December 31, 1996:
Operating Results (1996):
Revenues...................... $ -- $123,200 $ -- $123,200
Costs and expenses............ -- 113,071 -- 113,071
-------- -------- --------- --------
Income from operations....... -- 10,129 -- 10,129
Interest and other income
(expense).................... -- (5,125) -- (5,125)
-------- -------- --------- --------
Income before minority
interest..................... -- 5,004 -- 5,004
Less-Minority interest........ -- (59) -- (59)
-------- -------- --------- --------
Net income.................... $ -- $ 5,063 $ -- $ 5,063
======== ======== ========= ========
Cash Flows (1996):
Cash flows from operating
activities:
Net income.................... $ -- $ 5,063 $ -- $ 5,063
Total adjustments to reconcile
net income to net cash used
in operating activities...... -- (289) -- (289)
-------- -------- --------- --------
Net cash provided by operating
activities................... -- 4,774 -- 4,774
Net cash used in investing
activities................... -- (12,503) -- (12,503)
Net cash provided by financing
activities................... -- 7,348 -- 7,348
-------- -------- --------- --------
Net decrease in cash and cash
equivalents.................. -- (381) -- (381)
Cash and cash equivalents,
beginning of year............ -- 834 -- 834
-------- -------- --------- --------
Cash and cash equivalents, end
of year...................... $ -- $ 453 $ -- $ 453
======== ======== ========= ========
December 31, 1997:
Balance Sheet:
Total current assets.......... $ 93,022 $ 59,963 $ (9,809) $143,176
Properties, net............... 2,464 104,194 -- 106,658
Other assets.................. 102,883 13,067 (100,391) 15,559
-------- -------- --------- --------
Total assets................. $198,369 $177,224 $(110,200) $265,393
======== ======== ========= ========
Total current liabilities
including current portion of
long-term debt and capital
leases....................... $ 13,525 $ 54,403 $ (9,809) $ 58,119
Long-term debt and capital
leases, less current
Portion...................... 202,314 34,217 (27,170) 209,361
Other liabilities............. 604 33,300 (17,917) 15,987
-------- -------- --------- --------
Total liabilities............ 216,443 121,920 (54,896) 283,467
-------- -------- --------- --------
Total Stockholder's equity
(deficit).................... (18,074) 55,304 (55,304) (18,074)
-------- -------- --------- --------
Total liabilities and
stockholder's equity
(deficit).................... $198,369 $177,224 $(110,200) $265,393
======== ======== ========= ========
Operating Results (1997):
Revenues...................... $ 83 $175,723 $ (552) $175,254
Costs and expenses............ 4,314 166,066 (552) 169,828
-------- -------- --------- --------
Income (loss) from
operations................... (4,231) 9,657 -- 5,426
Interest and other income
(expense).................... (582) (8,213) -- (8,795)
-------- -------- --------- --------
Income (loss) before income
taxes and extraordinary
item......................... (4,813) 1,444 -- (3,369)
Income tax provision
(benefit).................... (799) 18,315 -- 17,516
-------- -------- --------- --------
Income (loss) before
extraordinary item........... (4,014) (16,871) -- (20,885)
Extraordinary loss from
extinguishment of debt (net
of tax benefit).............. (1,040) (263) -- (1,303)
-------- -------- --------- --------
Net loss..................... $ (5,054) $(17,134) $ -- $(22,188)
======== ======== ========= ========
</TABLE>
F-56
<PAGE>
AEI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
AEI Holding
Company, Guarantor Combining
Inc. Subsidiaries Adjustments Total
----------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Cash Flows (1997):
Cash flows from operating
activities:
Net loss........................ $ (5,054) $(17,134) $ -- $(22,188)
Total adjustments to reconcile
net loss to net cash provided
by (used in) operating
activities..................... (1,004) 13,012 -- 12,008
-------- -------- --------- --------
Net cash used in operating
activities..................... (6,058) (4,122) -- (10,180)
Net cash used in investing
activities..................... (223) (38,067) -- (38,290)
Net cash provided by financing
activities..................... 87,577 44,056 -- 131,633
-------- -------- --------- --------
Net increase in cash and cash
equivalents.................... 81,296 1,867 -- 83,163
Cash and cash equivalents,
beginning of period............ -- 453 -- 453
-------- -------- --------- --------
Cash and cash equivalents, end
of period...................... $ 81,296 $ 2,320 $ -- $ 83,616
======== ======== ========= ========
December 31, 1998:
Balance Sheet:
Total current assets............ $ 31,724 $ 82,381 $ (13,749) $100,356
Properties, net................. 898 193,919 -- 194,817
Other assets.................... 152,599 21,898 (139,272) 35,225
-------- -------- --------- --------
Total assets................. $185,221 $298,198 $(153,021) $330,398
======== ======== ========= ========
Total current liabilities,
including current portion of
long-term debt and capital
leases......................... $ 7,625 $ 88,997 $ (13,749) $ 82,873
Long-term debt and capital
leases, less current portion... 200,000 43,241 (35,302) 207,939
Other liabilities............... 21,501 73,599 (11,609) 83,491
-------- -------- --------- --------
Total liabilities............ 229,126 205,837 (60,660) 374,303
Total shareholder's equity
(deficit)...................... (43,905) 92,361 (92,361) (43,905)
-------- -------- --------- --------
Total liabilities and
shareholder's equity
(deficit)...................... $185,221 $298,198 $(153,021) $330,398
======== ======== ========= ========
Operating Results (1998):
Revenues........................ $ 878 $315,475 $ (122) $316,231
Costs and expenses.............. 10,590 309,338 (122) 319,806
-------- -------- --------- --------
Income (loss) from operations... (9,712) 6,137 -- (3,575)
Interest and other income
(expense)...................... (16,308) (1,772) -- (18,080)
-------- -------- --------- --------
Income (loss) before income
taxes.......................... (26,020) 4,365 -- (21,655)
Income tax provision (benefit).. (10,408) 1,746 -- (8,662)
-------- -------- --------- --------
Income (loss) before
extraordinary item............. (15,612) 2,619 -- (12,993)
Extraordinary loss from debt
extinguishment (net of tax
benefit)....................... (424) -- -- (424)
-------- -------- --------- --------
Net Income (loss)............ $(16,036) $ 2,619 $ -- $(13,417)
======== ======== ========= ========
Cash Flows (1998):
Cash Flows from Operating
Activities:
Net income (loss)............... $(16,036) $ 2,619 $ -- $(13,417)
Total adjustments to reconcile
net income (loss) to net cash
provided by (used in) operating
activities..................... (61,437) 54,428 -- (7,009)
-------- -------- --------- --------
Net cash provided by (used in)
operating activities........... (77,473) 57,047 -- (20,426)
Net cash used in investing
activities..................... (2,842) (31,006) -- (33,848)
Net cash provided by (used in)
financing activities........... 13,982 (27,997) -- (14,015)
-------- -------- --------- --------
Net decrease in cash and cash
equivalents.................... (66,333) (1,956) -- (68,289)
Cash and cash equivalents,
beginning of period............ 81,296 2,320 -- 83,616
-------- -------- --------- --------
Cash and cash equivalents, end
of period...................... $ 14,963 $ 364 $ -- $ 15,327
======== ======== ========= ========
</TABLE>
18. UNAUDITED PRO FORMA INFORMATION
A pro forma adjustment has been made to historical net income (loss) to reflect
a provision for federal, state and local income taxes during the respective S
corporation periods (see Note 2h) using a combined effective rate of 38%.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Employee Benefits Management, Inc.:
We have audited the accompanying balance sheet of Employee Benefits Management,
Inc. as of December 31, 1998, and the related statements of income and
comprehensive income, stockholders' equity and cash flows for the period from
inception (December 11, 1998) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Employee Benefits Management,
Inc. as of December 31, 1998 and the results of its operations and its cash
flows for the period from inception (December 11, 1998) through December 31,
1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
April 9, 1999
F-58
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
BALANCE SHEET
As of December 31, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets:
Interest receivable from affiliates................................ $ 1,024
--------
Total current assets............................................. 1,024
--------
Non-Current Assets:
Notes receivable from affiliates................................... 357,084
Deferred income taxes.............................................. 143,067
--------
Total non-current assets......................................... 500,151
--------
Total assets..................................................... $501,175
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of post-retirement benefits........................ $ 11,878
Current payables to affiliates..................................... 635
--------
Total current liabilities........................................ 12,513
--------
Non-Current Liabilities, less current portion:
Post-retirement benefits........................................... 345,801
Long-term payable to affiliates.................................... 142,824
--------
Total non-current liabilities.................................... 488,625
--------
Total liabilities................................................ 501,138
--------
Commitments and Contingencies (see Notes)
Redeemable common stock.............................................. 6
--------
Stockholders' Equity:
Class A common stock ($.01 par value., 1,000 shares authorized,
issued and outstanding)........................................... --
Class B common stock ($.01 par value, 176 shares authorized, issued
and outstanding).................................................. --
Contributed capital................................................ 1,700
Receivable from capital contribution............................... (1,700)
Retained earnings.................................................. 31
--------
Total stockholders' equity....................................... 31
--------
Total liabilities and stockholders' equity....................... $501,175
========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-59
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Period from Inception (December 11, 1998) through December 31, 1998
(Dollar amounts in thousands)
<TABLE>
<S> <C>
Revenues:
Interest income from affiliates....................................... $1,024
------
Total revenues...................................................... 1,024
------
Costs and expenses:
Post-retirement benefits.............................................. 962
------
Total costs and expenses............................................ 962
------
Income before income taxes.......................................... 62
Income tax provision.................................................... 25
------
Net income.......................................................... 37
------
Comprehensive income items:
Redeemable stock accretion.............................................. 6
------
Net income available to common stock and comprehensive income....... $ 31
======
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-60
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from Inception (December 11, 1998) through December 31, 1998
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Receivable
from Stock Less
Common Stock Sale and Redeemable
------------- Retained Contributed Capital Common
Shares Amount Earnings Capital Contribution Subtotal Stock Total
------ ------ -------- ----------- ------------ -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 11,
1998................... -- $ -- $ -- $ -- $ -- $ -- $-- $ --
Issued 1,000 shares of
$.01 par value Class A
common stock on
December 11, 1998..... 1,000 -- -- -- -- -- -- --
Capital Contribution... -- -- -- 1,700 -- 1,700 -- 1,700
Receivable from Capital
Contribution.......... -- -- -- -- (1,700) (1,700) -- (1,700)
Issued 176 shares of
$.01 par value Class B
redeemable common
stock on December 18,
1998.................. 176 -- -- 300 -- 300 300 --
Receivable from Class B
stock sale............ -- -- -- -- (300) (300) (300) --
1998 accretion on
redeemable stock...... -- 6 (6) -- -- -- 6 (6)
1998 net income........ -- -- 37 -- -- 37 -- 37
----- ----- ----- ------ ------- ------ ---- ------
Balance at December 31,
1998................... 1,176 $ 6 $ 31 $2,000 $(2,000) $ 37 $ 6 $ 31
===== ===== ===== ====== ======= ====== ==== ======
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-61
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
For the Period from Inception (December 11, 1998) through December 31, 1998
(Dollar amounts in thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities:
Net income.......................................................... $ 37
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Changes in assets and liabilities:
(Increase) decrease in:
Interest receivable............................................... (1,024)
Deferred income taxes............................................. (243)
Increase (decrease) in:
Current payable to affiliates..................................... 635
Post-retirement benefits payable.................................. 595
-------
Total adjustments............................................... (37)
-------
Net cash provided by (used in) operating activities............. --
-------
Net increase (decrease) in cash and cash equivalents............ --
-------
Cash and Cash Equivalents, beginning of period........................ --
-------
Cash and Cash Equivalents, end of period.............................. $ --
=======
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-62
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
For the Period from Inception (December 11, 1998) through December 31, 1998
(Dollar amounts in thousands)
1. ORGANIZATIONAL TRANSACTIONS AND BASIS OF PRESENTATION
a. Organizational Transactions
Employee Benefits Management, Inc. (EBMI or the Company), a renamed dormant
indirect subsidiary of AEI Resources, Inc. (Resources), was recapitalized on
December 11, 1998 in the State of Delaware whereby it authorized 1,000 shares
of Class A stock and 176 shares of Class B stock. The Class A stock was issued
on December 11, 1998 to Addington Enterprises, Inc. (a related party) (1 share)
and to Zeigler Coal Holding Company, Inc. (Zeigler--an affiliate) (999 shares).
Zeigler subsequently contributed its Class A shares to Fairview Land Company,
an affiliate. Affiliates referred to herein include AEI Resources Holding, Inc.
(ARHI--parent of Resources) and its consolidated subsidiaries, a coal mining
organization.
The Class B shares were initially issued on December 18, 1998 to several
subsidiaries of Resources. Net consideration received by EBMI for issuance of
these Class B shares to affiliates was Notes Receivable of $357,384 (Note 3)
and post-retirement benefit obligations of $357,084 (Note 5). On December 29,
1998, these subsidiaries holding Class B shares of EBMI aggregately sold their
shares to Employers Risk Services, Inc. (ERSI) (an unrelated party) for $300.
All voting rights of EBMI are vested solely in the holders of the Class A
Common Stock, except that the holders of the Class B Common Stock shall be
entitled as a class to elect one of the six directors of EBMI. The Class B
Shares can be put to EBMI after July 1, 2007 for the lesser of 15% of EBMI's
net worth (as defined) or $7,000. EBMI has the right to call the Class B Shares
after January 1, 2008 for the lesser of 15.75% of EBMI's net worth (as defined)
or $7,350. Because the Class B shares are redeemable, they have been excluded
from stockholders' equity in the accompanying balance sheet. In addition, EBMI
has recorded the redemption accretion as a charge to retained earnings and an
increase to redeemable common stock.
b. Basis of Presentation
The accompanying financial statements include the accounts of EBMI as of
December 31, 1998 and for the period from inception (December 11, 1998) through
December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
a. Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
b. Company Environment and Risk Factors
The Company's principal business is managing liabilities related to certain
post-retirement benefits for vested union (United Mine Workers of America--
UMWA) employees of affiliates. Its results of operations are comprised of
interest income related to notes receivable from affiliates and expenses
attributable to service and interest costs for the post-retirement benefit
obligations it manages as well as incidental administrative fees. The Company,
in the course of its business activities, is exposed to risks including
employee benefits cost control and financing credit constraints.
F-63
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
c. Post-Retirement Benefits Other Than Pensions
As prescribed by SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, the Company has accrued, based on independent
actuarial valuation, for the expected costs of providing post-retirement
benefits other than pensions, which are primarily medical benefits, for
eligible vested current or former employees.
d. Statement of Cash Flows
The statement of cash flows is exclusive of the following non-cash items: notes
receivable and equity increases totaling $1,700, exchange of debt securities
and post-retirement liabilities for an equity interest totaling $357,384,
deferred tax asset and affiliate payable increase of $142,824. EBMI
participates in the Parent's cash management program.
3. NOTES RECEIVABLE FROM AFFILIATES
Notes receivable from affiliates are comprised of the following:
<TABLE>
<S> <C>
Seven notes receivable from Bluegrass Coal Development Company,
unsecured, bearing interest of 6.97% payable quarterly, due
entirely on December 31, 2008.................................. $357,384
Note receivable from Fairview Land Company, unsecured, bearing
interest of 6.97% payable quarterly, due December 31, 1999..... 1,700
--------
Total notes receivable from affiliates.......................... 359,084
Less: amount recorded in redeemable stock....................... 300
amount recorded as contra-equity................................ 1,700
--------
Total presented in assets................................... $357,084
========
</TABLE>
4. INCOME TAXES
ARHI and its subsidiaries (including EBMI) file a consolidated federal income
tax return. Pursuant to a written tax sharing agreement, the subsidiaries
provide for federal and state income taxes on their financial statements as if
they were an independent taxpayer filing separately. As such, ARHI follows the
policy of allocating taxes payable and tax benefits to its subsidiaries on the
basis of taxes or benefits applicable to each subsidiary. Presented below are
income tax disclosures as of and for the period from inception (December 11,
1998) through December 31, 1998.
The provision for income taxes is comprised of the following:
<TABLE>
<S> <C>
Tax provisions:
Current........................................................... $ 268
Deferred.......................................................... (243)
-----
$ 25
=====
</TABLE>
F-64
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table presents the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% to the 1998 net income before income taxes.
<TABLE>
<S> <C>
Federal provision computed at statutory rate....................... $ 22
State income tax (net of federal tax benefits and apportionment
factors) computed at statutory rate............................... 3
----
$ 25
====
</TABLE>
The Company's deferred tax asset of $143,067 is entirely related to non-current
post-retirement benefit obligations.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company manages obligations related to certain vested union employee post-
retirement healthcare and life insurance benefits. Plan benefits are stipulated
under agreements with UMWA.
Summaries of the changes in the benefit obligations, plan assets and funded
status of the plans are as follows:
<TABLE>
<CAPTION>
Other Post-
Retirement
Benefits
-----------
<S> <C>
Change in Benefit Obligations
Benefit obligations at January 1.............................. $ --
Contribution of benefits...................................... 357,084
Service cost.................................................. 13
Interest cost................................................. 949
Benefits paid................................................. 367
--------
Benefit obligation at December 31............................. $357,679
========
Change in Plan Assets
Value of plan assets at December 11........................... $ --
Actual return on plan assets.................................. --
Benefits paid................................................. --
--------
Fair value of plan assets at end of year...................... $ --
========
Funded Status of the Plans
Accumulated obligations less plan assets...................... $357,679
Unrecognized actuarial gain................................... --
--------
Net liability recognized...................................... $357,679
========
Net Periodic Benefit Cost
Service cost.................................................. $ 13
Interest cost................................................. 949
Expected return on plan assets................................ --
--------
$ 962
========
</TABLE>
<TABLE>
<S> <C>
Weighted Average Assumptions as of December 31
Discount rate............................................ 7.25%
Rate of compensation increase............................ 4.00%
Health care cost trend on covered charges................ 8.00% in 1998
Decline to 5.00%
over 20 years
</TABLE>
F-65
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by the actuaries. If the healthcare cost trend rates
were increased by one percent in each year, the accumulated post-retirement
benefit obligation would increase by $54,900 or 15% as of December 31, 1998.
The effect of this change on the 1998 expense accrual would be an increase of
$4,100 or 16%.
6. REVOLVING CREDIT AGREEMENT
On December 21, 1998, the Company established a revolving credit note in the
amount of $10,000 with Resources. The outstanding principal of this credit
facility is payable in full on January 1, 2009. Interest accrues at 7.75% and
is payable semi-annually. As of December 31, 1998, there were no outstanding
amounts related to this note.
7. RELATED PARTY TRANSACTIONS AND BALANCES
The Company has dealt with certain companies or individuals which are related
parties either by having stockholders in common or because they are controlled
by stockholders/officers of the Company or by relatives of
stockholders/officers of the Company. In addition to related party transactions
and balances described elsewhere, the following related party transactions and
balances are summarized and approximated as follows:
<TABLE>
<S> <C>
Revenues, costs and expenses:
Interest income............................................... $ 1,024
Assets:
Interest receivable........................................... 1,024
Notes receivable (Note 3)..................................... $359,084
Liabilities:
Current payable............................................... 635
Long-term payable............................................. $142,824
</TABLE>
The long-term payable is non-interest bearing with no fixed maturity date
(beyond one year) will be reduced as the deferred tax asset is realized. EBMI
also participates in the parent's cash management program.
8. COMMITMENTS AND CONTINGENCIES
a. Administrative Services Agreement
On December 21, 1998 EBMI entered into an agreement with Resources whereby
Resources will provide various management, financial and technical services to
assist the Company in its administrative duties to service the post-retirement
benefit obligations with charges based on allowable costs and fees, as defined.
The agreement has a term of one year, but is automatically extended for
successive six-month periods, unless written notice is provided. No amounts
were recorded related to this agreement for the period from inception
(December, 11, 1998) through December 31, 1998.
b. Limitations on Stock Redemption
The Company is prohibited from redeeming or acquiring any issued or outstanding
Class A Common Shares as long as there are Class B Common Shares issued and
outstanding.
c. Indemnifications and Guarantees
The Company has guarantees in place related to Resources' financing
arrangements. The Company's capital stock and most corporate assets have been
pledged as collateral in connection with Resources' $875,000 Credit Facility
with UBS AG (an affiliate of Warburg Dillon Reed LLC). In addition, the Company
is a guarantor of: 1) Resources' $200,000 10.5% Senior Notes due 2005, 2)
Resources' $150,000 11.5% Senior Subordinated Notes due 2006 and 3) Resources'
$145,800 6.91% (average interest) Zeigler Industrial Revegue Bonds due
F-66
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
2022 and 2028. Reference is made to the consolidated financial statements of
ARHI for more detailed description of the terms of such indebtedness in the
notes to financial statements.
d. The Year 2000 Issue (Unaudited)
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on or after January 1, 2000, and if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. It is not possible to be certain that all aspects
of the Year 2000 Issue affecting an entity, including those related to the
efforts of customers, suppliers or other third parties, will be fully resolved.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of current receivable and payables are considered to be
representative of their respective fair values because of the immediate short-
term maturity of these financial instruments. The book value of the Company's
notes receivable and debt obligations approximate fair value given their
inception in December 1998.
10. NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS No. 130) became effective during 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. Comprehensive income generally represents
all changes in shareholders' equity except those resulting from investments by
or distributions to shareholders. Implementation of SFAS No. 130 is presented
on the statement of income and comprehensive income.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information, (SFAS No. 131) will be implemented in
the financial statements for the period from inception (December 11, 1998)
through December 31, 1998. SFAS No. 131 requires publicly-held companies to
report financial and descriptive information about operating segments in
financial statements issued to shareholders for interim and annual periods.
SFAS No. 131 also requires additional disclosures with respect to products and
services, geographic areas of operation and major customers. Separate segment
information is unnecessary as it is not applicable.
In February 1998, SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits was issued which improves and standardizes disclosures
by eliminating certain existing reporting requirements and adding new
disclosures. The statement addresses disclosure issues only and does not change
the measurement of recognition provisions specified in previous statements. See
Note 5 for SFAS No. 132 disclosures.
F-67
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Zeigler Coal Holding Company:
We have audited the accompanying consolidated balance sheets of Zeigler Coal
Holding Company and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
St. Louis, Missouri
February 5, 1998
F-68
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- -----------
1996 1997 1998
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents..................... $ 108,321 $ 103,254 $ 15,027
Receivables:
Trade accounts receivable (net of
allowances of $2,840, $1,891 and
$2,064)............................... 51,122 72,533 55,528
Other receivables...................... 3,974 3,677 3,589
---------- ---------- ---------
Total receivables, net............... 55,096 76,210 59,117
---------- ---------- ---------
Inventories:
Coal finished goods.................... 12,525 9,287 9,660
Coal work in process................... 8,744 12,932 15,162
Mine supplies.......................... 20,093 18,937 18,145
---------- ---------- ---------
Total inventories.................... 41,362 41,156 42,967
Deferred income taxes (Note 3)........... 9,747 9,583 9,513
Other current assets..................... 3,426 3,541 5,333
---------- ---------- ---------
Total current assets................. 217,952 233,744 131,957
---------- ---------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and mineral rights.................. 674,583 679,995 676,036
Prepaid royalties........................ 21,705 20,173 20,267
Plant and equipment...................... 493,962 540,566 576,155
---------- ---------- ---------
Total at cost........................ 1,190,250 1,240,734 1,272,458
Less--Accumulated depreciation, depletion
and amortization........................ (371,380) (412,528) (433,783)
---------- ---------- ---------
Property, plant and equipment, net... 818,870 828,206 838,675
---------- ---------- ---------
OTHER ASSETS:
Prepaid pension expense (Note 6)......... 7,056 4,836 3,857
Deferred financing costs, net............ 1,835 2,329 1,194
Other long-term assets................... 4,912 8,289 9,217
---------- ---------- ---------
Total other assets................... 13,803 15,454 14,268
---------- ---------- ---------
TOTAL ASSETS............................... $1,050,625 $1,077,404 $ 984,900
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-69
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1996 1997 1998
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note
4)........................................ $ -- $ 68,342 $ --
Accounts payable--trade.................... 38,895 64,970 48,366
Other taxes payable........................ 22,057 22,527 20,249
Accrued payroll and related benefits....... 23,807 20,103 18,488
Other accrued expenses (Note 6)............ 48,263 35,598 32,714
---------- ---------- --------
Total current liabilities............... 133,022 211,540 119,817
LONG-TERM DEBT (Notes 4 and 5).............. 344,770 275,800 255,800
ACCRUED POSTRETIREMENT BENEFIT
OBLIGATIONS (Note 7)....................... 245,385 253,700 257,893
ACCRUED PNEUMOCONIOSIS BENEFITS (Note 8).... 46,256 36,156 35,294
ACCRUED MINE CLOSING COSTS (Note 10)........ 75,663 55,957 54,978
DEFERRED INCOME TAXES (Note 3).............. 13,033 20,527 21,629
OTHER LONG-TERM LIABILITIES:
Accrued workers' compensation.............. 36,617 29,459 27,766
Accrued postemployment benefits............ 18,095 14,619 14,408
Other...................................... 5,178 1,906 2,637
---------- ---------- --------
Total other long-term liabilities....... 59,890 45,984 44,811
---------- ---------- --------
COMMITMENTS AND CONTINGENCIES (Notes 15 and
16)
Total liabilities....................... 918,019 899,664 790,222
---------- ---------- --------
SHAREHOLDERS' EQUITY:
Preferred stock (Note 12).................. -- -- --
Common stock--$0.01 par value per share--
50,000 shares authorized; 28,377 issued
and outstanding as of December 31, 1996,
28,441 shares issued and 28,197 shares
outstanding as of December 31, 1997, and
28,467 shares issued and 28,223 shares
outstanding as of June 30, 1998........... 284 284 285
Capital in excess of par value............. 72,191 73,120 73,458
Retained earnings (Note 4)................. 60,131 110,284 126,883
---------- ---------- --------
132,606 183,688 200,626
Less cost of common stock in treasury--no
shares at December 31, 1996, 244 shares at
December 31, 1997 and June 30, 1998....... -- (5,948) (5,948)
---------- ---------- --------
Total shareholders' equity.............. 132,606 177,740 194,678
---------- ---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.. $1,050,625 $1,077,404 $984,900
========== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-70
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------------- --------------------------
1995 1996 1997 1997 1998
--------- -------- -------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Coal sales (Notes 13
and 16).............. $ 754,975 $698,523 $603,553 $ 293,843 $ 298,590
Energy trading
revenues............. -- -- 166,474 37,878 74,709
Other revenues........ 28,128 33,101 30,729 16,334 15,299
--------- -------- -------- ------------ ------------
Total revenues...... 783,103 731,624 800,756 348,055 388,598
--------- -------- -------- ------------ ------------
COSTS AND EXPENSES:
Cost of coal sales.... 686,232 613,166 503,946 246,258 259,991
Energy trading costs.. -- -- 173,230 39,558 76,851
Selling, general and
administrative
expenses............. 20,740 21,271 16,017 10,159 6,057
Other costs and
expenses............. 18,487 22,514 29,823 15,321 11,387
Gain on curtailment of
postretirement
benefits (Note 7).... -- (16,295) -- -- --
Reduction in accrued
pneumoconiosis
benefits (Note 8).... (23,299) -- (8,244) (5,725) --
Provision for asset
impairments and
accelerated mine
closings (Note 10)... 114,662 -- -- -- --
--------- -------- -------- ------------ ------------
Total costs and
expenses........... 816,822 640,656 714,772 305,571 354,286
--------- -------- -------- ------------ ------------
OTHER INCOME:
Proceeds from contract
settlement........... 45,500 -- -- -- --
Distribution of funds
in reciprocal
insurance
association.......... -- -- -- -- 3,766
--------- -------- -------- ------------ ------------
OPERATING EARNINGS...... 11,781 90,968 85,984 42,484 38,078
NET INTEREST EXPENSE.... 27,478 21,704 16,997 8,637 5,763
--------- -------- -------- ------------ ------------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEM..... (15,697) 69,264 68,987 33,847 32,315
INCOME TAXES (BENEFIT)
(Note 3)............... (4,484) 11,300 10,348 6,090 4,847
--------- -------- -------- ------------ ------------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY ITEM..... (11,213) 57,964 58,639 27,757 27,468
EXTRAORDINARY ITEM...... -- -- -- -- (6,637)
--------- -------- -------- ------------ ------------
NET EARNINGS (LOSS)..... $ (11,213) $ 57,964 $ 58,639 $ 27,757 $ 20,831
========= ======== ======== ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic................. 28,356 28,362 28,261 28,342 28,207
Diluted............... 28,356 28,483 28,646 28,795 28,365
</TABLE>
See notes to consolidated financial statements.
F-71
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------ ---------------------------
1995 1996 1997 1997 1998
--------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES: (Unaudited)
Net earnings (loss).... $ (11,213) $ 57,964 $ 58,639 $ 27,757 $ 20,831
--------- -------- --------- ------------ -------------
Adjustments for
differences between
net earnings (loss)
and cash flows from
operating activities:
Extraordinary item..... -- -- -- -- 1,045
Depreciation, depletion
and other
amortization.......... 68,576 60,134 57,912 28,764 32,384
Amortization of
deferred financing
costs................. 838 838 790 420 100
Postretirement
benefits.............. 3,318 (10,454) 8,315 3,110 4,193
Gain on sales of
property, plant and
equipment............. (1,462) (5,062) (5,066) (2,760) (1,575)
Prepaid pension costs.. 2,943 2,499 2,220 1,784 979
Pneumoconiosis
benefits.............. (23,754) (3,168) (10,100) (7,106) (862)
Postemployment
benefits.............. 3,485 811 (3,476) (4) (211)
Workers' compensation.. 8,905 5,851 (7,158) (2,510) (1,693)
Mine closing costs..... (9,654) (6,539) (17,810) (10,154) (979)
Provision for asset
impairments and
accelerated mine
closings.............. 114,662 -- -- -- --
Stock appreciation
units................. 2,492 (10,172) (4,195) (3,494) (142)
Deferred income taxes.. (16,984) 13,885 7,658 4,006 1,172
Other noncash items.... (1,489) (4,892) (5,143) (3,783) (1,403)
Changes in working
capital components:
(Increase) decrease in
receivables.......... 15,502 16,660 (21,164) (16,539) 17,093
(Increase) decrease in
inventories.......... 7,809 8,584 71 (4,872) (1,811)
(Increase) decrease in
other current
assets............... 2,353 (441) (117) (2,754) (1,792)
Increase (decrease) in
accounts payable--
trade................ (7,365) (7,292) 26,075 11,092 (16,604)
Increase (decrease) in
deferred revenue..... -- 3,746 7,455 (2,481) (5,047)
Increase (decrease) in
accrued expenses and
other current
liabilities.......... 1,323 8,922 (15,145) (2,400) (1,591)
--------- -------- --------- ------------ -------------
(Increase) decrease in
working capital...... 19,622 30,179 (2,825) (17,954) (9,752)
--------- -------- --------- ------------ -------------
Total adjustments to
net earnings (loss).. 171,498 73,910 21,122 (9,681) 23,256
--------- -------- --------- ------------ -------------
Net cash provided by
operating
activities........... 160,285 131,874 79,761 18,076 44,087
--------- -------- --------- ------------ -------------
INVESTING ACTIVITIES:
Additions to property,
plant and equipment... (56,334) (31,427) (74,426) (20,606) (45,630)
Cash paid for sale of
Indiana assets........ -- (7,000) (4,000) (4,000) --
Proceeds from sales of
property, plant and
equipment............. 4,545 7,890 7,745 5,327 5,548
--------- -------- --------- ------------ -------------
Net cash used in
investing activities.. (51,789) (30,537) (70,681) (19,279) (40,082)
--------- -------- --------- ------------ -------------
FINANCING ACTIVITIES:
Proceeds from debt
refinancing........... -- -- 145,800 -- --
Net repayments of long-
term debt............. (105,288) -- (146,428) (628) (198,342)
Net borrowings under
credit agreement...... -- -- -- -- 110,000
Proceeds from common
stock issued under
stock option plan..... -- 247 929 482 339
Payment of dividends... (5,672) (6,382) (8,484) (4,258) (4,229)
Purchase of treasury
stock................. -- -- (5,998) (5,998) --
Sale of treasury
stock................. -- -- 34 34 --
--------- -------- --------- ------------ -------------
Net cash used in
financing
activities........... (110,960) (6,135) (14,147) (10,368) (92,232)
--------- -------- --------- ------------ -------------
NET INCREASE (DECREASE)
IN CASH AND
EQUIVALENTS............ (2,464) 95,202 (5,067) (11,571) (88,227)
CASH AND EQUIVALENTS,
BEGINNING............. 15,583 13,119 108,321 108,321 103,254
--------- -------- --------- ------------ -------------
CASH AND EQUIVALENTS,
ENDING................ $ 13,119 $108,321 $ 103,254 $ 96,750 $ 15,027
========= ======== ========= ============ =============
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid (received)
during period for:
Interest, net of amount
capitalized........... $ 27,372 $ 22,804 $ 16,085 $ 8,142 $ 6,670
Income taxes, net of
refunds............... 10,549 (2,997) 5,231 4,900 208
</TABLE>
See notes to consolidated financial statements.
F-72
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Total
Capital in Share-
Common Excess of Retained Treasury holders'
Stock Par Value Earnings Stock Equity
------ ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995........ $283 $71,945 $ 26,143 $ -- $ 98,371
Net loss...................... -- -- (11,213) -- (11,213)
Cash dividends declared ($.20
per share)................... -- -- (5,672) -- (5,672)
---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1995...... 283 71,945 9,258 -- 81,486
Issuance of 22 shares of
common stock under stock
option plan (Note 9)......... 1 246 -- -- 247
Net income.................... -- -- 57,964 -- 57,964
Cash dividends declared ($.25
per share)................... -- -- (7,091) -- (7,091)
---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1996...... 284 72,191 60,131 -- 132,606
Issuance of 66 shares of
common stock under stock
option plan (Note 9)......... -- 929 -- -- 929
Purchase of 246 shares of
common stock................. -- -- -- (5,998) (5,998)
Issuance of 2 shares of
treasury stock at less than
cost......................... -- -- (16) 50 34
Net income.................... -- -- 58,639 -- 58,639
Cash dividends declared ($.30
per share)................... -- -- (8,470) -- (8,470)
---- ------- -------- ------- --------
BALANCE, DECEMBER 31, 1997...... 284 73,120 110,284 (5,948) 177,740
---- ------- -------- ------- --------
Issuance of 26 shares of com-
mon stock under stock option
plan (unaudited)............. 1 338 -- -- 339
Net income (unaudited)........ -- -- 20,831 -- 20,831
Cash dividends declared ($.15
per share)
(unaudited) ................. -- -- (4,232) -- (4,232)
---- ------- -------- ------- --------
BALANCE, JUNE 30, 1998 (unau-
dited)......................... $285 $73,458 $126,883 $(5,948) $194,678
==== ======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-73
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(Amounts in thousands, except share and per share amounts)
1. Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include the
accounts of Zeigler Coal Holding Company and Subsidiaries (Zeigler or the
"Company"), all of which are wholly-owned. All material intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the balance sheet date,
and the reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates.
Interim Financial Information--The interim financial statements as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
Cash and Equivalents--Cash and equivalents include cash on deposit and highly
liquid investments with an original maturity of three months or less.
Inventories--Coal inventory is valued using the average cost method and is
stated at the lower of cost or market. Coal inventory costs include labor,
equipment costs and operating overhead. Coal work in process includes partially
uncovered coal and unprocessed coal. Mine supply inventory is valued using the
average cost method and is stated at the lower of cost or market.
Property, Plant and Equipment--Additions and betterments are capitalized at
cost. Maintenance and repair costs are expensed as incurred. Depreciation of
plant and equipment is computed principally by the straight-line method over
the expected useful lives of the assets.
Mine development costs and the net amount of associated interest cost are
capitalized. Exploration costs are expensed as incurred. Depletion of mineral
rights and capitalized mine development costs is provided on the basis of
tonnage mined in relation to total estimated recoverable tonnage.
Zeigler pays royalties to certain landowners and holders of mineral interests
for the rights to perform certain mining activities. Amounts advanced to
landowners, which are recoupable against future production, are capitalized; as
the coal is mined, these prepayments are offset against earned royalties and
included in the cost of coal sales.
Deferred Financing Costs--The costs of issuing and restructuring long-term debt
are capitalized and amortized using the effective interest method over the term
of the related debt.
Income Taxes--Zeigler accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred taxes are established for the temporary
differences between the financial reporting basis and the tax basis of
Zeigler's assets and liabilities at enacted tax rates expected to be in effect
when such amounts are realized or settled.
F-74
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Postretirement Benefits Other Than Pensions---As prescribed by SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, Zeigler
accrues, based on annual independent actuarial valuations, for the expected
costs of providing postretirement benefits other than pensions, primarily
medical benefits, during an employee's actual working career until vested.
Pneumoconiosis Benefits--Certain Zeigler subsidiaries are liable under the
Federal Black Lung Benefits Act of 1972, as amended, to pay pneumoconiosis
(black lung) benefits to eligible employees, former employees and their
dependents for claims filed after June 30, 1973. These subsidiaries are also
liable under certain state statutes for black lung claims. Zeigler acts as
self-insurer for most federal and state black lung benefits. The remaining
portion of black lung claims are covered by state insurance funds into which
Zeigler pays premiums.
The accrual for self-insured pneumoconiosis benefits is adjusted to equal the
present value of future claim payments, determined as of the beginning of the
year, based on outside actuarial valuations performed annually.
Postemployment Benefits--Zeigler provides certain postemployment benefits,
primarily long-term disability and medical benefits, to former and inactive
employees and their dependents during the time period following employment but
before retirement. The Company accrues the discounted present value of expected
future benefits, determined as of the beginning of the year, based on annual
outside actuarial valuations.
Reclamation and Mine Closing Costs--Zeigler provides for the estimated costs of
future mine closings over the expected lives of active mines. Those costs
relate to sealing portals at deep mines and to reclaiming the final pit and
support acreage at surface mines. Other costs common to both types of mining
are related to removing or covering refuse piles and slurry (or settling) ponds
and dismantling preparation plants and other facilities. The regular provision
for future mine closing costs is calculated under the units-of-production
method based on a per ton charge determined by dividing estimated unrecorded
closing costs by estimated remaining recoverable tons. These estimates are
updated annually and the accrual rate is adjusted on a prospective basis
accordingly. The cost of restoring land and water resources affected by normal
ongoing surface mining operations is expensed as incurred.
Asset Impairments and Accelerated Mine Closing Accruals--In certain situations,
expected mine lives are shortened because of changes to planned operations.
When that occurs, and it is determined that the mine's underlying costs are not
recoverable in the future, reclamation and mine closing obligations are
accelerated and the mine closing accrual is increased accordingly. Also, to the
extent that it is determined that asset carrying values will not be recoverable
during a shorter mine life, a provision for such impairment is recognized. The
Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, in 1995. SFAS No. 121
expanded the Company's criteria for loss recognition, and provides methods for
both determining when an impairment has occurred and for measuring the amount
of the impairment. SFAS No. 121 requires that projected future cash flows from
use and disposition of all the Company's assets be compared with the carrying
amounts of those assets. When the sum of projected cash flows is less than the
carrying amount, impairment losses are recognized.
Revenue Recognition--Coal sales are recognized at contract prices at the time
title transfers to the customer. Coal sales are reduced and an allowance is
established for pricing disputes. Revenue at the import/export terminals is
recognized at the time of throughput.
Energy Trading Revenues and Costs--Energy trading revenues and costs represent
revenues and costs derived from the trading of power and gas forward and future
contracts and options. These forward and future contracts and options are
marked-to-market with gains and losses recognized currently. Revenue and cost
on forward and future contracts is recognized on settlement date.
F-75
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Revenues, Costs and Expenses--Other revenues represent amounts primarily
related to the terminals, coal leases to third parties, farming, timber, gains
on sales of surplus assets, and oil and gas royalties. Costs and expenses
related to other revenues and those related to Zeigler's clean coal plant are
included in other costs and expenses.
Stock-Based Compensation--In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, Accounting for Stock-Based Compensation, which
required adoption in 1996. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Pursuant to the
new standard, companies are encouraged, but not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies are
also permitted to continue to account for such transactions under Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, but are required to disclose in a note to the financial statements
pro forma net income and earnings per share as if the Company had applied the
new method of accounting. The accounting requirements of the new method are
effective for all employee awards granted after the beginning of the fiscal
year of adoption. The Company has elected to continue to account for such
transactions under APB No. 25.
Reclassifications--Certain amounts in the 1995, 1996, and 1997 financial
statements and notes have been reclassified to conform with the 1998
presentation.
2. Description of Business
Zeigler is engaged principally in the mining of coal for sale primarily to
electric utilities in the United States. In addition, during 1997, the Company
began power and gas trading through its new energy trading and marketing
subsidiary, EnerZ Corporation.
3. Income Taxes
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $ 10,521 $(2,179) $ 2,228
State........................................... 1,979 (408) 462
Deferred:
Federal......................................... (14,862) 12,151 6,701
State........................................... (2,122) 1,736 957
-------- ------- -------
Total......................................... $ (4,484) $11,300 $10,348
======== ======= =======
</TABLE>
F-76
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate of 35% to earnings before income taxes due to
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1996 1997
-------- ------- --------
<S> <C> <C> <C>
Computed tax at federal statutory rate.......... $ (5,494) $24,246 $ 24,145
State tax--net of federal benefits.............. (4,758) 2,162 2,242
Percentage depletion............................ (10,469) (8,164) (8,893)
Change in valuation allowance................... 14,113 (8,889) (10,542)
Other--net...................................... 2,124 1,945 3,396
-------- ------- --------
Income tax expense (benefit) provided........... $ (4,484) $11,300 $ 10,348
======== ======= ========
</TABLE>
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities related to:
Property and equipment............................... $127,798 $143,366
Land and mineral rights.............................. 31,666 32,659
Other................................................ 11,592 8,772
-------- --------
Total deferred tax liability....................... 171,056 184,797
-------- --------
Deferred tax assets related to:
Accrued mine closing costs........................... 23,730 22,383
Accrued pneumoconiosis benefits...................... 18,344 14,462
Accrued workers' compensation costs.................. 14,647 11,784
Accrued postretirement benefits...................... 98,154 101,480
Other................................................ 21,812 20,727
Alternative minimum tax credit carryforwards......... 32,419 33,811
-------- --------
Total deferred tax asset before valuation
allowance......................................... 209,106 204,647
Less--Valuation allowance.......................... (41,336) (30,794)
-------- --------
Total deferred tax asset........................... 167,770 173,853
-------- --------
Net deferred tax liability............................. $ (3,286) $(10,944)
======== ========
Shown as:
Current deferred tax asset........................... $ 9,747 $ 9,583
Noncurrent deferred tax liability.................... (13,033) (20,527)
</TABLE>
Zeigler also has an AMT credit carryforward of $32,419 and $33,811 at December
31, 1996 and 1997, respectively, available to be used in future periods.
Although management believes that it is unlikely to realize all of its AMT
credit carryforward under existing law and company structure, AMT credit
carryforward is recognized to reduce the deferred tax liability from the amount
of regular tax on temporary differences to the amount of tentative minimum tax
on AMT temporary differences.
F-77
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
--------- ---------
<S> <C> <C>
8.61% senior secured notes................................. $ 198,970 $ 198,342
Industrial revenue bonds................................... 145,800 145,800
--------- ---------
Total.................................................. 344,770 344,142
Less current maturities.................................... -- 68,342
--------- ---------
Long-term debt......................................... $ 344,770 $ 275,800
========= =========
</TABLE>
8.61% Senior Secured Notes--The 8.61% Senior Secured Notes are payable to a
group of insurance companies and other financial institutions under Note
Purchase Agreements dated as of November 16, 1992. Interest on the notes is
payable semiannually. Annual principal payments begin on November 15, 1998 at
the rate of 20% of the original outstanding amount of $400,000. The notes
require Zeigler to offer to make mandatory prepayments in the event Zeigler
generates excess cash flow, as defined in the Note Purchase Agreements, or
makes asset sales above specified levels. The amount of excess cash flow that
must be offered as a prepayment to the Noteholders is based upon the percentage
of debt due to the Noteholders divided by the total indebtedness to both the
Noteholders and the lenders under the Credit Agreement described in the fourth
following paragraph. The Noteholders were offered a prepayment of $25,050 in
1997 based on free cash flow, as defined, for 1996, of which $628 of the
prepayments were accepted by the Noteholders.
The notes are collateralized by a first mortgage on substantially all of
Zeigler's assets. The collateral is shared pari passu with the lenders involved
with the Credit Agreement. The notes may be prepaid at Zeigler's discretion;
however, the Noteholders are entitled to receive a prepayment premium that
protects the yield to the Noteholders over the remainder of the term of notes.
In effect, this yield maintenance premium is the net present value of the
reduced yield to the Noteholders over the remaining scheduled term of the Notes
based upon an assumed reinvestment rate of 50 basis points (0.5%) over the then
available yield for U.S. Treasury securities with a maturity equal to that of
the Senior Secured Notes. No yield maintenance premium is payable on mandatory
prepayments out of excess cash flow.
On January 5, 1998, Zeigler prepaid $198,342 to the Noteholders, using $68,342
of cash and borrowing $130,000 under a new Credit Agreement's revolving credit
facility (see below). A related yield maintenance premium of $7,604 was also
paid to the Noteholders as required by the Note Purchase Agreement.
Accordingly, Zeigler will recognize an extraordinary loss of $8,849 ($6,637 net
of taxes) in the first quarter of 1998, consisting of the yield maintenance
premium and the write-off of deferred financing costs related to the early
extinguishment of debt.
Industrial Revenue Bonds--In August 1997, the Company completed the refunding
of its industrial revenue bonds. The industrial revenue bonds are floating rate
obligations issued by the Peninsula Ports Authority of Virginia ($115,000) and
Charleston County, South Carolina ($30,800). Both obligations are backed by
letters of credit issued under the Company's revolving credit facility. These
refundings served to extend the maturities of the industrial revenue bonds and
to release Shell Oil Company from its guarantees of the underlying obligations.
The principal of the obligation by the Peninsula Ports Authority of Virginia is
due in one lump-sum payment on May 1, 2022, and the principal of the obligation
by Charleston County, South Carolina is due in one lump-sum payment on August
1, 2028. Interest on these obligations is payable monthly. The weighted average
interest rate for these borrowings was 3.38% and 3.66% as of December 31, 1996
and 1997, respectively.
F-78
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit Agreement--On October 19, 1994, Zeigler amended and restated its Credit
Agreement dated November 16, 1992, as previously amended and restated on March
15, 1994. The Credit Agreement provides for a $200,000 revolving credit
facility, with a three year term, and can be used for both loans and letters of
credit. As of December 31, 1997, Zeigler had used $186,107 out of the total
$200,000 revolving credit facility for outstanding letters of credit. The
provisions of the Credit Agreement require a commitment fee to be paid on the
unused portion of the revolving credit facility. Interest is paid based on
floating rates which fluctuate based on the prime rate, or the London Interbank
Offer Rate (LIBOR) plus various increments. The interest rate was 6.42% at
December 31, 1997. The Credit Agreement is collateralized by a first mortgage
on substantially all of Zeigler's assets. The collateral is shared pari passu
with the holders of the Senior Secured Notes.
In April 1997, the Company executed a new Credit Agreement (the "New Credit
Agreement") with certain financial institutions, which provides for senior
unsecured revolving credit and letter of credit facilities aggregating
$700,000. Interest on the revolving credit facility is paid in arrears based on
rates which fluctuate based on the prime rate or a certain Interbank Offer
Rate, as the Company may elect. Amounts outstanding under the New Credit
Agreement are not secured. The New Credit Agreement and the facilities
thereunder terminate five years from the initial advance. The New Credit
Agreement requires the Company to maintain a minimum net worth and maximum
long-term debt to EBITDA ratio, and contains other customary covenants and
events of default. The New Credit Agreement, which replaces the Amended and
Restated Credit Agreement dated October 19, 1994, became effective on January
5, 1998, in conjunction with the payment of the Company's outstanding Senior
Secured Notes.
Maturities--At December 31, 1997, aggregate scheduled maturities of all long-
term debt for each year through 2002 are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 68,342
1999............................................................ --
2000............................................................ --
2001............................................................ --
2002............................................................ --
Thereafter...................................................... 275,800
---------
Total........................................................... $ 344,142
=========
</TABLE>
5. Financial Instruments
The fair value of Zeigler's long-term debt has been calculated based on quoted
market prices for similar issues or current rates offered to Zeigler for debt
of the remaining maturities. Long-term debt has an estimated fair value of
$349,451 and $351,746 compared to the carrying amount of $344,770 and $344,142
at December 31, 1996 and 1997, respectively. The carrying amount of all other
financial instruments, including cash and equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term nature of these
instruments.
Through its energy trading subsidiary, the Company began entering into power
and gas forward contracts and options for trading purposes in 1997. These
forward contracts and options were marked-to-market with any gains and losses
recognized currently. At December 31, 1997, open net contract and option
positions were not material and did not represent significant credit related
exposure.
F-79
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Pension and Savings Plans
Salaried Pension Plan--Zeigler has a non-contributory pension plan covering
substantially all employees other than those who are members of the United Mine
Workers of America ("UMWA"). The plan is a cash balance retirement plan which
provides benefits based upon the employee's length of credited service and
compensation during each year of employment. Zeigler's funding policy is to
make, as a minimum contribution, the equivalent of the minimum payment required
by the Employee Retirement Income Security Act of 1974. The Company contributed
$123 in 1997 to the pension plan. There were no minimum contributions required
in 1995 and 1996.
The pension cost components for the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost (for benefits earned during the
year)...................................... $ 3,566 $ 3,543 $ 3,186
Interest cost on projected benefit
obligations................................ 7,636 7,321 7,285
Actual return on plan assets................ (20,889) (14,043) (11,709)
Net amortization and deferral............... 12,630 5,678 3,581
-------- -------- --------
Total..................................... $ 2,943 $ 2,499 $ 2,343
======== ======== ========
</TABLE>
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Plan assets at fair value.............................. $105,897 $108,081
-------- --------
Actuarial present value of plan benefits:
Vested............................................... 84,305 89,679
Nonvested............................................ 3,390 3,932
-------- --------
Accumulated benefit obligation....................... 87,695 93,611
Additional obligation for future salary increases.... 7,190 6,497
-------- --------
Projected benefit obligation....................... 94,885 100,108
-------- --------
Excess of plan assets over projected benefit
obligation............................................ 11,012 7,973
Unrecognized net transition asset...................... (548) (480)
Unrecognized prior service cost........................ 264 242
Unrecognized net gain.................................. (3,672) (2,899)
-------- --------
Prepaid pension expense................................ $ 7,056 $ 4,836
======== ========
</TABLE>
The unrecognized net transition asset, representing the excess of the fair
value of plan assets over the projected benefit obligation at the date of
adoption, is being amortized over the average expected future service periods
of employees.
Assumptions used in developing the projected benefit obligation as of December
31, are as follows:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Discount rate.................................................... 7.75% 7.25%
Rate of compensation increase.................................... 4.00% 4.00%
Rate of return on plan assets.................................... 9.50% 9.50%
</TABLE>
Plan assets consist principally of common stocks and U.S. government and
corporate obligations.
F-80
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
UMWA Pension Plan--Old Ben Coal Company ("Old Ben"), a wholly-owned subsidiary,
and Marrowbone Development Company, a division of Mountaineer Coal Development
Company, an indirect subsidiary, are required under their respective contracts
with the UMWA to pay amounts based on hours worked to the UMWA Pension Plan and
Trust, a multi-employer pension plan covering all employees who are members of
the UMWA. The accompanying consolidated statements of operations include
$2,778, $2,102, and $1,578, of expense in 1995, 1996 and 1997, respectively,
applicable to the plan. The National Bituminous Coal Wage Agreement of 1998
("NBCWA") authorizes the Bituminous Coal Operators Association to increase the
rate of contributions from employers to assure payment of benefits. The union
contract requires all currently participating employers to guarantee benefits
jointly, but not severally, with all other currently participating employers.
It is not practical to determine each subsidiaries' allocable share of the
plan's net assets and accumulated benefits.
401(k) Plans--Zeigler and certain subsidiaries sponsor savings and long-term
investment plans for substantially all employees other than employees covered
by the contract with the UMWA. One of the plans will match 50% of the voluntary
contributions up to a maximum contribution of 3% of a participant's salary with
an additional matching contribution subject to certain performance criteria.
The expense under these plans was $1,036, $1,391, and $1,276, in 1995, 1996 and
1997, respectively.
Stock Appreciation Units--Zeigler has a long-term incentive plan which entitles
certain officers and key employees to receive a cash award for an amount equal
to the excess of the fair market value of Zeigler's common stock on the date
the unit matures over the base price at the date of grant of the award. The
plan permits an aggregate of 1,635,200 such stock appreciation units of which
284,320 and 73,600 were outstanding at December 31, 1996 and 1997,
respectively. The vesting period ranges from three to five years. During 1997,
210,080 stock appreciation units matured. Costs and expenses include
approximately $3,178, $2,917, and $141, of charges in connection with this plan
for 1995, 1996 and 1997, respectively. Outstanding stock appreciation units
with maturities less than one year are included as a component of other accrued
expenses.
7. Postretirement Benefits Other Than Pensions
UMWA Combined Benefit Fund--Zeigler provides healthcare benefits to eligible
retirees and their dependents. Retirees who were members of the UMWA and who
retired on or before December 31, 1975 received these benefits from multi-
employer benefit plans. Old Ben contributed to these funds based on the number
of its retirees in one of the funds and based on hours worked by current UMWA
members for the other fund. Current and projected operating deficits of these
trusts led to the passage of the Coal Industry Retiree Health Benefit Act of
1992 (the "Act"). The Act established a new multi-employer benefit trust that
will provide healthcare and life insurance benefits to all beneficiaries of the
earlier trusts who were receiving benefits as of July 20, 1992. The Act
provides for the assignment of beneficiaries to their former employers and any
unassigned beneficiaries to employers based on a formula. The expense under
these plans, which is recognized as contributions are made, amounted to $3,527,
$2,968, and $3,431, in 1995, 1996 and 1997, respectively. Based upon an
independent actuarial valuation, Zeigler estimates the amount of its obligation
under the new plan to be approximately $21,637 as of December 31, 1997.
F-81
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Zeigler Benefit Plans--Net postretirement healthcare cost for the year ended
December 31, includes the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost....................................... $ 5,027 $ 4,562 $ 4,270
Interest cost...................................... 17,842 17,123 18,436
Amortization of prior service cost................. (9,208) (4,608) (1,176)
Amortization of unrecognized gain.................. (327) (573) (126)
------- ------- -------
Net periodic postretirement benefit cost......... $13,334 $16,504 $21,404
======= ======= =======
</TABLE>
A reconciliation of the plan's status to amounts recognized in Zeigler's
balance sheets as of December 31, follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $135,044 $146,388
Fully eligible active employees........................ 53,477 61,974
Other active employees................................. 52,760 61,899
-------- --------
Total................................................ 241,281 270,261
Unrecognized net (loss) gain............................. 4,909 (17,379)
Unrecognized prior service cost (benefit)................ (805) 818
-------- --------
Accumulated postretirement benefit obligation............ $245,385 $253,700
======== ========
</TABLE>
In 1996, as a result of the re-employment or termination prior to vesting of
certain Midwestern employees, the Company recorded a $16,295 gain related to
the curtailment of its postretirement benefit plan.
The discount rate used to determine the accumulated postretirement benefit
obligation was 7.5% and 7.25% at January 1, 1997 and December 31, 1997,
respectively. The assumed healthcare cost trend rates used in determining the
net expense for 1997 are shown in the following table. Healthcare cost trends
were assumed to decline from 1997 levels to an ultimate ongoing level over five
years as follows:
<TABLE>
<CAPTION>
1997 Ultimate
Rate Rate
---- --------
<S> <C> <C>
Pre-65..................................................... 8.0% 5.0%
Post-65.................................................... 6.5% 5.0%
Medicare offset............................................ 6.0% 5.0%
</TABLE>
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by the actuaries. If the healthcare cost trend rates
were increased by one percent in each year, the accumulated postretirement
benefit obligation would be 14 percent higher as of December 31, 1997. The
effect of this change on the 1997 expense accrual would be an increase of 14
percent.
8. Pneumoconiosis Benefits
The actuarially determined liability for pneumoconiosis (black lung) benefits
is based on a 6% discount rate and various other assumptions including
incidence of claims, benefit escalation, terminations and life expectancy. The
annual black lung expense is comprised of the net change in the beginning
accrual balance, a charge for interest on the unfunded accrual balance plus the
premiums paid to the state insurance funds. The January 1, 1995 and January 1,
1997 actuarial studies reduced the estimated pneumoconiosis liability by
$23,299 and $8,244, respectively, as compared to the previous study. The lower
estimates resulted primarily from favorable claims experience and reduced
projected future claims.
F-82
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The cost of black lung benefits charged to operations for Zeigler and its
subsidiaries, excluding the changes in estimated liability mentioned above, was
$2,967, $157, and $2,280 in 1995, 1996 and 1997, respectively.
9. Stock Option Plan
In February 1994, Zeigler's Board of Directors and shareholders adopted a Stock
Option Plan (the "Option Plan"). A total of 2,560,000 shares of Common Stock
are reserved for issuance upon exercise of options granted under the Option
Plan. The Option Plan is administered by the Compensation Committee of the
Board of Directors which determines the terms of the options granted including
the exercise price, number of shares subject to the option and exercisability.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plan. The Company
has adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been recognized
for the stock option plan.
The following summarizes the stock option transactions under the Option Plan
for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Number of Weighted Average
Shares Option Prices Exercise Price
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at December
31, 1994......................... 1,096,800 $11.13 to 16.05 $14.27
Granted......................... 19,000 10.75 to 12.88 12.54
Canceled........................ (29,800) 11.13 to 16.05 15.22
---------
Options outstanding at December
31, 1995......................... 1,086,000 10.75 to 16.05 14.22
Granted......................... 688,000 14.00 to 20.00 15.86
Exercised....................... (21,530) 11.13 to 16.05 11.42
Canceled........................ (153,320) 11.13 to 16.05 14.50
---------
Options outstanding at December
31, 1996......................... 1,599,150 10.75 to 20.00 14.93
Granted......................... 434,000 23.38 to 26.25 25.52
Exercised....................... (65,710) 10.75 to 16.05 14.68
Canceled........................ (210,280) 10.75 to 26.25 20.19
---------
Options outstanding at December
31, 1997......................... 1,757,160 11.13 to 26.25 16.93
=========
</TABLE>
The outstanding stock options at December 31, 1995, 1996 and 1997 have a
weighted average remaining contractual life of 8.51, 8.28, and 7.64 years,
respectively. The number of stock option shares exercisable at December 31,
1995, 1996, and 1997 were 213,400, 362,710, and 717,464, respectively.
Generally, stock options are granted at prices which are equal to the market
value of the stock on the date of grant, have a maximum term of ten years, and
vest in equal annual increments over five years. The weighted average fair
value at date of grant for options granted during 1995, 1996, and 1997 was
$3.96, $5.76, and $10.66 per option, respectively. The fair value of options at
date of grant was estimated using the Black-Scholes model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Expected life (years)................................... 7 7 7
Risk-free interest rate................................. 6.18% 6.26% 5.52%
Volatility.............................................. 29.90% 29.90% 34.98%
Dividend yield.......................................... 2.52% 1.94% 1.18%
</TABLE>
F-83
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As previously discussed, the Company accounts for the Option Plan in accordance
with APB No. 25 under which no compensation expense has been recognized for
stock option awards. Had compensation cost for the Company's stock option plan
been determined on the fair value at the grant date for awards for the three
year period ended December 31, 1997 consistent with the provisions of SFAS No.
123, the Company's net earnings (loss) and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Net earnings (loss)--as reported.................. $(11,213) $57,964 $58,639
Net earnings (loss)--pro forma.................... (11,217) 57,611 57,590
Earnings (loss) per share--as reported
Basic........................................... $ (.40) $ 2.04 $ 2.07
Diluted......................................... (.40) 2.04 2.05
Earnings (loss) per share--pro forma
Basic........................................... $ (.40) $ 2.03 $ 2.04
Diluted......................................... (.40) 2.02 2.01
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
10. Asset Impairments and Accelerated Mine Closing Costs
The following summarizes the components of asset impairments and accelerated
mine closing costs:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1996 1997
--------- ------- -------
<S> <C> <C> <C>
Regular accruals for future mine closings........ $ 9,440 $ 6,875 $ 6,403
========= ======= =======
Impairments and accelerated accruals:
Write-down of assets........................... $ 84,513 $ -- $ --
End of mine closing and reclamation
liabilities................................... 28,024 -- --
Other liabilities.............................. 2,125 -- --
--------- ------- -------
Total impairments and accelerated accruals....... $ 114,662 $ -- $ --
========= ======= =======
</TABLE>
In July 1995, the Company closed Old Ben Mine #1 in Indiana after termination
of its supply contract with Southern Indiana Gas and Electric Company.
Accordingly, the carrying value of the mine and other related assets that
supported the contract were reduced to their estimated net realizable values,
which resulted in asset write-downs of $15,762. In addition, a provision for
accelerated mine closing costs of $16,500 was recorded, based on the amount of
estimated closing costs that would have been expensed during the full term of
the contract.
In the fourth quarter of 1995, the Company recorded asset impairments and
accelerated accruals totaling $82,400 in connection with the idling, closing
and projected closing of certain mines. Of that amount, $49,100 relates to Old
Ben's operations in southern Illinois. Old Ben idled one mine in Randolph
County, Illinois on December 31, 1995, and made plans to close two other mines
in Franklin County, Illinois later in 1996, mainly due to a sharp reduction in
demand for the Illinois Basin's high-sulfur coal. Management did not expect the
high-sulfur market to improve significantly in the foreseeable future. The
remaining $33,300 fourth quarter charge was associated with the indefinite
idling of Wolf Creek's underground mine in eastern Kentucky on October 1, 1995.
That amount consists of asset write-downs totaling $26,000 and increased
reclamation liabilities of $7,300. Operations were suspended at the mine
chiefly due to the new sourcing flexibility negotiated in the amended contract
with Carolina Power & Light Company which allows the Company to supply the
contract with coal purchased from lower-cost producers. The ongoing high costs
at the Wolf Creek mine were mainly attributable to unfavorable geology and
declining productivity.
F-84
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Sale of Indiana Assets
On February 12, 1996, the Company closed the sale of the majority of its assets
in Indiana to Kindill Mining, Inc. ("Kindill"). These assets had a combined
book value of $13,400 and included Old Ben Mine #1 and Old Ben Mine #2, along
with various other coal properties and interests. The Company also agreed to
make cash payments to Kindill of $7,000 in 1996 and $4,000 in 1997. In
exchange, Kindill assumed the associated reclamation liabilities, estimated at
approximately $23,400. This sale was completed on April 30, 1996, after Kindill
secured the required mining permits. The sale of these assets did not have a
material effect on current income.
12. Preferred Stock
Zeigler is authorized to issue 1,000,000 shares of preferred stock, $0.01 par
value, with such issuance to be in one or more classes or series. The Board of
Directors is authorized to determine the designations, preferences,
qualifications, limitations and restrictions of any class or series with
respect to, among other things, the rate and nature of dividends, the price and
terms, the amount payable in the event of liquidation, the terms and conditions
for conversion or exchange into any other class or series of the stock or other
securities and voting rights.
13. Significant Customers
Coal sales include transactions involving both produced and purchased coal. Two
customers accounted for 18% and 13% of coal sales in 1995, 18% and 14% of coal
sales in 1996, and 29% and 16% of coal sales in 1997.
14. Related Party Transactions
Shell Oil Company, a former indirect shareholder, provides guarantees for
certain letters of credit and surety bonds of Zeigler. Zeigler reimburses Shell
for its costs in providing these guarantees.
15. Commitments and Contingencies (Also see Note 16--Legal Proceedings)
Zeigler and its subsidiaries have operating lease commitments expiring at
various dates, primarily for equipment. Minimum rental obligations under these
leases at December 31, 1997 are summarized by fiscal year as follows:
<TABLE>
<S> <C>
1998.................................................................. $5,095
1999.................................................................. 1,172
2000.................................................................. 623
2001.................................................................. 284
2002.................................................................. 20
Thereafter............................................................ --
------
Total............................................................. $7,194
======
</TABLE>
Rental expense relating to operating leases amounted to $9,733, $7,834, and
$7,626 in 1995, 1996 and 1997, respectively. As of December 31, 1997, Zeigler
and its subsidiaries had $192,571 of surety bonds issued by an insurance
company to secure self-insured workers' compensation and pneumoconiosis claims,
reclamation and other performance commitments. Of that amount, $23,061 was
backed by guarantees of Shell (see Note 14). Letters of credit of $246,161 were
outstanding at December 31, 1997, of which amount $60,053 was also guaranteed
by Shell.
F-85
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1997, upon completion of planned development, the Company idled Encoal
Corporation's clean coal demonstration plant in Wyoming. In 1998, marketing of
the LFC technology, both domestically and internationally, will continue as
well as the evaluation of options regarding Encoal. The net book value of
Encoal Corporation's assets and the Company's related investment in clean coal
technology was $6.7 million as of December 31, 1997.
16. Legal Proceedings
Cajun Electric Power Cooperative--On December 21, 1994, Cajun Electric Power
Cooperative Inc. ("Cajun") filed with the U.S. Bankruptcy Court for the Middle
District of Louisiana (the "Bankruptcy Court") for voluntary reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Triton Coal Company ("Triton")
has a requirements contract (the "Triton Contract") with Cajun through Western
Fuels Association, Inc., with a term extending through the life of Big Cajun
Plant No. 2. During 1997, Triton shipped 5.8 million tons of coal to Cajun
(representing 3.0% of the Company's total consolidated revenues), while 1996
shipments to Cajun totaled 5.0 million tons. To date during the bankruptcy,
Triton has continued to ship coal to Cajun and Cajun has continued to pay for
such coal. The price for coal sold under the Triton Contract is at or near the
market price for this coal. The Triton Contract provides for a price reopener
effective January 1, 1998. The parties were unable to reach agreement on the
price to be effective January 1, 1998 and are attempting to resolve that matter
through the procedure set forth in the Triton Contract.
An Appellate Court affirmed a District Court's ruling that a court-appointed
trustee will manage Cajun's affairs during the bankruptcy. At this time, it
appears likely that the trustee will reject the Triton Contract. In the event
that the contract is rejected, it may be necessary for Triton to find other
markets for this coal, possibly including sales to the new operator of Cajun's
coal fired units.
Louisiana Generating LLC (an affiliate of the Company, Southern Energy, Inc.
and NRG Energy, Inc.) has executed an Amended and Restated Asset Purchase and
Reorganization Agreement to purchase substantially all of Cajun's non-nuclear
assets. This Agreement is incorporated in the trustee's plan of reorganization,
which is subject to Bankruptcy Court approval (including evaluation of
competing plans of reorganization) and a number of other conditions. As a
result of Louisiana Generating's entering into this Agreement, Western Fuels
Association, Inc. has formally requested certain assurances regarding Triton's
performance under the Triton Contract and informed the Company that it reserves
the right to assert certain claims against Triton if the trustee rejects the
Triton Contract.
Entergy-Gulf States Utilities, Inc.--Entergy-Gulf States, Inc. ("GSU") owns 42%
of Unit 3 at the Big Cajun II coal-fired power station. Pursuant to the Triton
Contract, Triton supplies the coal requirements of all three units at Big Cajun
II. Two of the three plans for reorganization of Cajun pending before the
Bankruptcy Court call for the rejection of the Triton Contract. Triton and
Western Fuels Association, Inc. maintain that Unit 3 is a joint venture between
GSU and Cajun, that joint ventures are partnerships under Louisiana law and
that, as Cajun's partner and as a direct beneficiary of the coal provided by
Triton, GSU is liable for some or all of their damages in the event that the
Triton Contract is rejected. On January 13, 1997, GSU requested a judgment from
the Bankruptcy Court declaring that Cajun is the sole principal under the
Triton Contract and that GSU has no liability to Western Fuels Association,
Inc. or Triton in the event the Triton Contract is rejected. In February 1997,
Western Fuels Association, Inc. and Triton filed a counterclaim asking for a
declaration from the Bankruptcy Court that GSU is liable to them for damages if
the Triton Contract is rejected. On September 3, 1997, the Bankruptcy Court
granted GSU a summary judgment. Western Fuels Association, Inc. and Triton have
appealed this judgment.
F-86
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 21, 1997, GSU filed additional claims against the Company, Triton and
Western Fuels Association, Inc. In these claims, GSU alleged that these parties
violated the Sherman Antitrust Act and Louisiana Fair Trade Statutes in the
course of settlement discussions between the parties. The Company believes that
these allegations have no merit and a Motion to Dismiss these claims is
pending.
If the Triton Contract is rejected by the Bankruptcy Court, Triton will suffer
damages for breach of contract, for which its only remedies will be a claim
against GSU (as described above) and/or a claim in Cajun's bankruptcy
proceeding as a creditor of Cajun, and Triton will have to find other markets
for this coal, possibly including sales to the new operator of Cajun's coal-
fired units. Triton is currently in negotiations with alternative customers for
this coal. Triton has executed an agreement with Louisiana Generating pursuant
to which Triton will supply coal to Big Cajun II in the event Cajun's court-
appointed trustee's plan of reorganization is confirmed by the Bankruptcy Court
and Louisiana Generating completes the purchase of Cajun's non-nuclear assets.
Triton, Western Fuels Association, Inc., and the Trustee have also executed an
agreement which provides that if Louisiana Generating is successful in
purchasing the Cajun assets and the Triton Contract is rejected, Triton will
release any and all claims in Cajun's bankruptcy and will receive approximately
$4,000.
Janet Saad-Cook et al. v. Zeigler Coal Holding Company and R. & F. Coal
Company--In March, 1995, plaintiff filed a lawsuit against the Company and its
subsidiary, R. & F. Coal Company. The complaint includes several causes of
action based on alleged actions of the defendant companies involving fraud,
deceit, misrepresentation, and tortuous breach of contract with respect to two
coal mining leases made among the plaintiffs and R. & F. Coal Company. The
plaintiffs' complaint has since been amended to add Bluegrass Coal Development
Company as a named defendant, to eliminate the allegations that the defendants'
behavior violated the U.S. Racketeer Influenced and Corrupt Organizations Act
and to include additional causes of action involving trespass and breach of
lease. The defendant companies have denied the allegations in the complaint,
believe they have meritorious defenses to plaintiffs' claims, and intend to
defend vigorously against the claims. The Company believes that Shell Oil
Company is obligated to indemnify the Company against any loss (over certain
minimum amounts) that the Company may incur as a result of plaintiff s' claims
in the litigation and has given Shell notice thereof in accordance with the
terms of the purchase agreement under which the Company acquired Shell Mining
companies. The Company believes that ultimate resolution of the claims in the
lawsuit will have no material adverse effect on the Company's consolidated
results of operations or financial position.
Other--Various lawsuits and claims, including those involving ordinary routine
matters incidental to its business, to which the Company and its subsidiaries
are a party, are pending, or have been asserted, against the Company. Although
the outcome of these matters cannot be predicted with certainty, management
believes that their disposition will not have materially adverse effects on the
Company's consolidated results of operations or financial position.
17. Segment Reporting
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, beginning with the Company's fourth quarter of 1997.
The Company has two reportable segments: coal and energy. The coal segment is
engaged in the mining of coal for utilities in the United States. The energy
segment is principally responsible for the trading and marketing of electricity
and natural gas within the U.S. These reportable segments are separately
managed strategic business units that offer different products and services,
and whose performance is evaluated based on earnings from operations before
interest, taxes and extraordinary items, not including nonrecurring gains and
losses. The accounting policies of the segments are the same as those described
in Note 1. There were no sales or transfers between segments in 1995, 1996, or
F-87
<PAGE>
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 and in the first half of 1998. The "Other" category below consists of five
operating segments that did not meet the quantitative thresholds for
determining reporting segments. These segments consist primarily of amounts
related to two import/export terminals, a clean coal plant in Wyoming, the
Company's environmental subsidiary, coal leases to third parties, farming,
timber, gains on sales of surplus assets, oil and gas royalties, and selling,
general and administrative costs.
<TABLE>
<CAPTION>
(unaudited)
For the Year Ended December 31, Six Months Ended June 30,
---------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Coal.................. $ 754,975 $ 698,523 $ 603,553 $ 293,843 $ 298,590
Energy................ -- -- 166,474 37,878 74,709
Other................. 28,128 33,101 30,729 16,334 15,299
---------- ---------- ---------- ------------ ------------
Total............... $ 783,103 $ 731,624 $ 800,756 $ 348,055 $ 388,598
Operating Earnings:
Coal.................. $ 68,743 $ 85,357 $ 99,607 $ 53,310 $ 38,599
Energy................ -- -- (6,756) (1,680) (2,142)
Other................. (11,099) (10,684) (15,111) (9,146) 1,621
Nonrecurring gains/
(losses)............. (45,863) 16,295 8,244 -- --
---------- ---------- ---------- ------------ ------------
Total............... $ 11,781 $ 90,968 $ 85,984 $ 42,484 $ 38,078
Depreciation, Depletion,
and Amortization:
Coal.................. $ 64,382 $ 55,649 $ 53,259 $ 26,442 $ 30,072
Energy................ -- -- 35 -- 38
Other................. 4,194 4,485 4,618 2,322 2,274
---------- ---------- ---------- ------------ ------------
Total............... $ 68,576 $ 60,134 $ 57,912 $ 28,764 $ 32,384
Capital Expenditures:
Coal.................. $ 46,496 $ 24,671 $ 65,768 $ 19,127 $ 45,102
Energy................ -- -- 398 314 151
Other................. 9,838 6,756 8,260 1,165 377
---------- ---------- ---------- ------------ ------------
Total............... $ 56,334 $ 31,427 $ 74,426 $ 20,606 $ 45,630
Assets:
Coal.................. $ 901,916 $ 885,724 $ 890,030 $ 890,978
Energy................ -- 10,000 18,030 14,999
Other................. 123,325 154,901 169,344 78,923
---------- ---------- ---------- ------------
Total............... $1,025,241 $1,050,625 $1,077,404 $ 984,900
</TABLE>
18. Sale of Company
On December 3, 1997, the Company announced that it was retaining an investment
banking firm to explore various strategic alternatives to maximize value for
shareholders, including the possible sale of the entire Company. In connection
therewith, the Board of Directors adopted a change-in-control severance plan
and retention bonus plan for all salaried employees as well as special
incentives for certain key employees. The Company subsequently retained the
investment banking firm Credit Suisse First Boston and prepared materials for
interested parties. On September 2, 1998, the Company was acquired by, and
became the successor by merger to, Zeigler Acquisition Corporation, a wholly
owned subsidiary of AEI Resources, Inc.
F-88
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
AEI Resources, Inc.
We have audited the accompanying combined statements of assets, liabilities and
parent investment of the Cyprus Eastern Coal Operations (as defined in Note 1)
at December 31, 1997 and 1996, and the related combined statement of operating
revenues and expenses, of cash flows, and of parent investment for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the management of Cyprus Amax Coal Company (parent of
Cyprus Eastern Coal Operations). Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 and are not intended to be a complete
presentation of the Cyprus Eastern Coal Operations financial position or
results of operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined assets, liabilities and parent investment
of the Cyprus Eastern Coal Operations, as described in Note 1, at December 31,
1997 and 1996, and their combined operating revenues and expenses and their
cash flows for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Denver, Colorado
August 31, 1998
F-89
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
COMBINED STATEMENTS OF ASSETS, LIABILITIES AND PARENT INVESTMENT (NOTE 1)
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1996 1997 1998
-------- -------- -----------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents...................... $ 6,657 $ 7,391 $ 3,709
Accounts Receivable............................ 45,360 52,157 44,674
Inventories.................................... 20,616 20,065 23,355
Prepaid Expenses and Other..................... 10,151 8,203 8,809
-------- -------- --------
Total Current Assets......................... 82,784 87,816 80,547
-------- -------- --------
Properties--At Cost, Net......................... 278,695 193,407 177,776
Other Noncurrent Assets.......................... 17,956 18,720 16,902
-------- -------- --------
Total Assets..................................... $379,435 $299,943 $275,225
======== ======== ========
LIABILITIES AND PARENT INVESTMENT
Current Liabilities
Current Portion of Capital Leases.............. $ 1,883 $ 2,329 $ 3,347
Accounts Payable............................... 21,657 10,474 7,603
Accrued Payroll and Benefits................... 15,671 17,442 17,728
Accrued Royalties and Interest................. 3,127 3,638 3,605
Accrued Closure, Reclamation, and
Environmental................................. 6,083 6,159 3,561
Other Accrued Liabilities...................... 3,627 12,350 5,609
Taxes Payable Other Than Income Taxes.......... 6,056 6,904 7,117
-------- -------- --------
Total Current Liabilities.................... 58,104 59,296 48,570
Noncurrent Liabilities and Deferred Credits
Long-Term Debt................................. 1,000 1,000 1,000
Capital Lease Obligations, Less Current
Portion....................................... 8,135 5,806 2,922
Deferred Employee and Retiree Benefits......... 98,737 97,489 89,383
Deferred Closure, Reclamation, and
Environmental................................. 57,980 69,534 71,251
Other.......................................... 10,284 11,819 6,400
-------- -------- --------
Total Noncurrent Liabilities and Deferred
Credits..................................... 176,136 185,648 170,956
Commitments and Contingencies (Note 11).......... -- -- --
Minority Interest................................ 1,182 1,172 227
-------- -------- --------
Parent Investment................................ 144,013 53,827 55,472
-------- -------- --------
Total Liabilities and Parent Investment.......... $379,435 $299,943 $275,225
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-90
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
COMBINED STATEMENTS OF OPERATING REVENUES AND EXPENSES (NOTE 1)
<TABLE>
<CAPTION>
For the Year Ended
December 31, Six Months Ended June 30,
---------------------------- --------------------------
1995 1996 1997 1997 1998
-------- -------- -------- ------------ ------------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ $428,545 $415,663 $429,756 $ 193,923 $ 202,658
Costs and Expenses
Cost of Operations.... 342,886 360,301 377,925 165,822 180,464
Depreciation,
Depletion, and
Amortization......... 40,215 39,599 41,840 20,910 18,691
Selling, General and
Administrative....... 15,907 14,605 16,460 8,282 6,743
Write-Downs and
Special Charges...... 98,051 1,819 92,134 1,141 --
-------- -------- -------- ------------ ------------
Total Costs and
Expenses............... 497,059 416,324 528,359 196,155 205,898
-------- -------- -------- ------------ ------------
Loss From Operations.... (68,514) (661) (98,603) (2,232) (3,240)
Other Income (Expense)
Interest Income....... 598 63 83 38 32
Interest Expense...... (1,243) (755) (639) (293) (216)
Other income.......... -- -- -- 82 --
-------- -------- -------- ------------ ------------
Net Loss Before Minority
Interest and Income
Taxes.................. (69,159) (1,353) (99,159) (2,405) (3,424)
Minority Interest..... (53) (99) 10 4 (51)
-------- -------- -------- ------------ ------------
Net Loss Before Income
Taxes.................. $(69,212) $ (1,452) $(99,149) $ (2,401) $ (3,475)
======== ======== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-91
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
COMBINED STATEMENTS OF PARENT INVESTMENT
<TABLE>
<CAPTION>
For The Year Ended Six Months
December 31, Ended June 30,
---------------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period...................... $250,382 $141,205 $144,013 $144,013 $53,827
Loss Before Income Taxes..... (69,212) (1,452) (99,149) (2,401) (3,475)
Changes in Parent Investment,
net......................... (39,965) 4,260 8,963 24,547 5,120
-------- -------- -------- -------- -------
Balance at end of period..... $141,205 $144,013 $ 53,827 $166,159 $55,472
======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-92
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended Six Months
December 31, Ended June 30,
--------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- -------- -------- --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net Loss Before Income
Taxes....................... $(69,212) $(1,452) $(99,149) $ (2,401) $ (3,475)
Adjustments to Reconcile Loss
Before Income Taxes to Net
Cash Provided by Operating
Activities:
Depreciation, Depletion, and
Amortization............... 40,215 39,599 41,840 20,910 18,691
Write-Downs and Special
Charges.................... 98,051 1,819 92,134 1,141 --
Minority Interest........... 53 99 (10) 28 (945)
Gain on Sales of Assets..... (1,808) (3,416) (6,798) (128) (890)
Changes in Assets and
Liabilities Net of Effects
from Businesses Sold and
Write-Downs and Special
Charges:
(Increase) Decrease in
Receivables................ 6,217 1,342 (7,097) (4,208) 7,483
(Increase) Decrease in
Inventories................ (54) 10,547 (465) (16,236) (3,290)
Decrease (Increase) in
Prepaid Expenses and
Other...................... (1,852) (1,320) 1,844 1,390 (606)
Decrease in Current
Liabilities................ (7,222) (3,469) (7,727) (8,456) (11,743)
(Increase) Decrease in Other
Assets..................... 4,787 (1,707) (1,675) (333) 1,818
Decrease in Other
Liabilities................ (11,650) (12,463) (3,565) (3,974) (11,810)
-------- ------- -------- -------- --------
Net Cash (Used for) Provided
by Operating Activities...... 57,525 29,579 9,332 (12,267) (4,767)
-------- ------- -------- -------- --------
Cash Flows from Investing
Activities
Capital Expenditures......... (16,706) (35,000) (24,509) (14,955) (3,274)
Payments Related to
Liabilities of Disposed Mine
Assets (Note 4)............. (3,750) -- -- -- --
Proceeds from Sales of
Assets...................... 2,024 3,751 8,831 1,557 1,105
-------- ------- -------- -------- --------
Net Cash Used for Investing
Activities................... (18,432) (31,249) (15,678) (13,398) (2,169)
Cash Flows from Financing
Activities
Payments on Capital Lease
Obligations................. -- (1,454) (1,883) -- (1,866)
Changes in Parent Investment,
net......................... (39,965) 4,260 8,963 24,547 5,120
-------- ------- -------- -------- --------
Net Cash (Used for) Provided
by Financing Activities...... (39,965) 2,806 7,080 24,547 3,254
-------- ------- -------- -------- --------
Net Increase (Decrease) in
Cash and Cash Equivalents.... (872) 1,136 734 (1,118) (3,682)
Cash and Cash Equivalents at
Beginning of Year............ 6,393 5,521 6,657 6,657 7,391
-------- ------- -------- -------- --------
Cash and Cash Equivalents at
End of Year.................. $ 5,521 $ 6,657 $ 7,391 $ 5,539 $ 3,709
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-93
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(In Thousands)
NOTE 1. ACQUISITION AND BASIS OF PRESENTATION
Acquisition--In accordance with a stock purchase and sale agreement (the
Agreement) dated May 28, 1998, between a subsidiary of Cyprus Amax Minerals
Company (Cyprus or the Parent) and AEI Holding Company, Inc. (AEI), Cyprus
agreed to sell to AEI the stock of certain of its coal mining subsidiaries
(collectively referred to as Cyprus Eastern Coal Operations or the Company) as
follows:
.Amax Coal Company, a Delaware corporation
.Amax Coal Sales Company, a Delaware corporation
.Ayrshire Land Company, a Delaware corporation
.Beech Coal Company, a Delaware corporation
.Bentley Coal Company, a partnership organized under the laws of the State
of New York
.Cannelton, Inc., a Delaware corporation
.Cannelton Industries, Inc., a West Virginia corporation
.Cannelton Land Company, a Delaware corporation
.Cannelton Sales Company, a Delaware corporation
.Cyprus Cumberland Coal Corporation, a Kentucky corporation
.Cyprus Kanawha Corporation, a Delaware corporation
.Cyprus Mountain Coals Corporation, a Delaware corporation
.Cyprus Southern Realty Corporation, a Kentucky corporation
.Dunn Coal and Dock Company, a West Virginia corporation
.Grassy Cove Coal Mining Company, a Delaware corporation
.Kentucky Prince Mining Company, a partnership organized under the laws of
the State of New York
.Meadowlark, Inc., an Indiana corporation
.Roaring Creek Coal Company, a Delaware corporation
.Skyline Coal Company, a partnership organized under the laws of the State
of New York
.Yankeetown Dock Corporation, an Indiana corporation
All of the subsidiaries listed above are wholly-owned, except for Yankeetown
Dock Corporation, which is 60%-owned. The Company represents the majority of
Cyprus's coal mining operations in Indiana, Kentucky, West Virginia and
Tennessee. Included in the businesses to be acquired are coal producing
properties (7 surface mining and 4 underground mining operations) and related
coal reserves, coal wash plants, tipples, land, buildings, machinery and
equipment, coal sales contracts and certain other liabilities and working
capital items. Excluded from the accompanying financial statements are certain
mines previously included in the subsidiaries to be sold, which will be
retained by Cyprus.
As consideration for the acquisition, AEI will pay to Cyprus approximately
$93,000 in cash. The Agreement also includes a clause stating that AEI will pay
to Cyprus a royalty per ton produced by the Company after June 1, 2002 in
amounts ranging from thirty-five cents to fifty cents per ton (the Royalty
Agreement). In addition, in the event the Company's undeveloped reserves are
not mined, then an additional minimum undeveloped reserve royalty (Undeveloped
Reserve Royalty Agreement) is due, beginning December 31, 2002, with a total
minimum due of $4,000 by December 31, 2006. If AEI has a sale transaction, as
defined, that produces aggregate proceeds greater than $75,000, then AEI will
pay a one-time royalty buyout to terminate the Royalty Agreement and the
Undeveloped Reserve Royalty Agreement (payment up to $25,000, as defined),
otherwise the royalty agreement will continue until the aggregate proceeds of
the royalty payments and undeveloped royalty payments total $45,455. Further,
as defined in the agreement, Cyprus will retain certain
F-94
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
assets and will indemnify AEI for certain obligations of the Company that exist
as of the closing date, including, among others, certain post-retirement
medical obligations, certain pension assets, certain workers compensation
obligations, black lung trust assets, certain black lung obligations and
certain disability obligations.
The Company's mining operations mine, clean, market, and sell coal to electric
utilities and industrial users. The Company's coal is primarily sold to
domestic electric utilities under both term contracts, with an initial term of
at least one year, and spot sales orders. New sales are predominantly one to
three year term contracts and spot orders. As of December 31, 1997, the Company
had 11 operating mines of which 7 were governed by union contracts. As of
December 31, 1997, union representation accounts for approximately 76% percent
of the Company's employees and 74% percent of production. The contract with the
United Mine Workers of America, which covers all the union coal operations
except the Kentucky operations and Sycamore mine, expires in August of 1998.
The union contracts covering employees of the Kentucky and Sycamore operations
expire in June of 1999 and April of 1999, respectively.
Basis of Presentation--The accompanying combined financial statements of the
Company contain the historical accounts of the subsidiaries included under the
Agreement and include certain assets and liabilities that will be retained by
Cyprus as described above. In addition various direct and indirect expense
allocations from Cyprus have been recorded in the financial statements of the
Company. Such allocations were based primarily on actual and estimated usages
and include expenses related to executive management, accounting, treasury,
land administration, environmental management, investor relations, legal and
information and technology services. Management believes its method for expense
allocations is reasonable.
Certain carve-out adjustments have been made to segregate the historical
accounts of the Company from those of Cyprus. In addition, certain expenses and
related assets and liabilities incurred by Cyprus on behalf of the Company have
been excluded from the Company's statements of operations. Among the expenses
excluded is interest expense on parent long-term debt and provisions related to
income taxes. These exclusions result in a financial statement presentation
that is not complete in accordance generally accepted accounting principles.
All significant intercompany accounts and transactions have been eliminated in
combination.
Interim Financial Information--The interim financial statements as of June 30,
1998 and for the six months ended June 30, 1997 and 1998 are unaudited and have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, the unaudited
interim financial statements contain all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire fiscal year.
Company Environment and Risks--The Company's principal business activities
consist of surface and deep mining and marketing of bituminous coal located in
Indiana, Kentucky, Tennessee and West Virginia. The Company, in the course of
its business activities, is exposed to a number of risks including: the
possibility of the termination of sales contracts, fluctuating market
conditions for coal and transportation services, competitive industry and over
capacity, changing government regulations, labor disruption, loss of key
employees and the ability of the Company to obtain necessary mining permits and
control adequate recoverable mineral reserves. In addition, adverse weather and
geological conditions could significantly impact operations and mining costs.
Precipitation is generally highest at the Company's mining operations in early
spring and late fall.
In the past, the Company has operated under the ownership of Cyprus Amax, which
may have resulted in operating results or financial position of the Company
significantly different from those that would have been obtained if the Company
were autonomous.
F-95
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates--The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The more significant areas requiring the use of
management estimates relate to mineral reserves; reclamation and environmental
obligations; postemployment, postretirement, and other employee benefit
liabilities; future cash flows associated with assets; and useful lives for
depreciation, depletion, and amortization. Actual results could differ from
those estimates.
Cash Equivalents and Statements of Cash Flows--The Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. Overdrafts representing outstanding checks in excess of
funds on deposit are classified as accounts payable.
The Combined Statements of Cash Flows provide information about changes in cash
and cash equivalents. All interest payments were paid by the Parent and thus
such payments are presented in Changes in Parent Investment, net on the
accompanying statements.
See Notes 3 and 4 for additional supplemental information on non-cash investing
activities.
Inventories--Coal inventories are carried at the lower of current market or
average production cost. Materials and supplies inventories are carried at
average cost less allowance for obsolete and surplus items.
Advanced Royalties--The Company is required, under certain royalty lease
agreements, to make minimum royalty payments whether or not mining activity is
being performed on the leased property. These minimum payments are recoupable
once mining begins on the leased property. The Company capitalizes these
minimum royalty payments and expenses the prepaid balances as they are offset
against production royalties once mining activities begin or expenses the
prepaid balances when the Company has ceased mining or has made a decision not
to mine on such property. Included in the accompanying Combined Statements of
Assets, Liabilities and Parent Investment at December 31, 1996 and 1997, the
advanced royalties included in Prepaid Expenses was $970 and $1,019,
respectively, and the advanced royalties included in Other Noncurrent Assets
was $7,010 and $10,722, respectively.
Properties--Costs for mineral rights and certain tangible assets, and mine
development costs incurred to expand capacity of operating mines or develop
mine areas substantially in advance of current production are capitalized and
charged to operations generally on the units-of-production method. Mobile
mining equipment and most other assets are depreciated on a straight-line basis
over their estimated useful lives. Interest costs for the construction or
development of significant long-term assets are capitalized and amortized over
the related assets' estimated useful lives or the life of the mine, whichever
is shorter. Gains or losses upon retirement or replacement of equipment and
facilities are credited or charged to income. Expenditures for betterments are
capitalized. Ongoing maintenance and repairs are expensed as incurred;
expenditures for renewals in excess of defined limits (generally $250) are
deferred and charged to expense over the period benefited. Included in Coal
Properties are values assigned to coal reserves at certain of the Company's
mines as a result of the Amax acquisition. The affected mines are Chinook and
Sycamore in Indiana and Stockton, Dunn and Mine 155 in West Virginia. These
values are being cost depleted on a unit-of-production basis over the
recoverable reserves at each mine.
Impairment of Long-Lived Assets--The Company follows Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
prescribes that an impairment loss is recognized in the event that facts and
circumstances
F-96
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
indicate that the carrying amount of an asset may not be recoverable and an
estimate of future undiscounted cash flows is less than the carrying amount of
the asset. Impairment is recorded based on an estimate of future discounted
cash flows. The implementation impact of SFAS No. 121 is discussed in Note 3.
Reclamation and Environmental Costs--Minimum standards for mine reclamation
have been established by various governmental agencies and affect certain
operations of the Company. Reclamation is performed and expensed on an ongoing
basis as mining operations are performed. Reclamation costs and other shutdown
expenses related to the period after mine closure are accrued and charged
against income on a units-of-production basis over the life of the mine. The
Company is subject to various environmental regulations. Environmental
liabilities are accrued on an ongoing basis when such losses are probable and
reasonably estimable and reflect management's best estimates of future
obligations. Costs of future expenditures for reclamation and environmental
remediation obligations are not discounted to their present value.
Revenue Recognition--Revenues are recognized on coal sales when title passes,
in accordance with the sales agreement, which usually occurs when the coal is
shipped to the customer.
Income Taxes--As previously noted, income tax accounts have not been "pushed
down" to the Company as such accounts are maintained by Cyprus on a
consolidated basis. Therefore, no income tax benefit (provision) nor deferred
income tax balances are recorded in the accompanying statements.
NOTE 3. WRITE-DOWNS AND SPECIAL CHARGES
Write-Downs and Special Charges reported in the accompanying Combined
Statements of Operating Revenues and Expenses consist of the following:
In 1995, coal reserves were reduced and the Company wrote down certain of its
mining properties by $98,051 in response to weak demand and lower prices,
ongoing transportation and coal quality disadvantages compared to other
regions, the impending expiration of certain long-term contracts in 1995 and
1998 and the adoption of revised mining plans. Included in the charge was
$86,800 of write-downs related to the Kentucky mining operations, $2,220 for
West Virginia, and $9,031 related to the Indiana properties. The write-downs
were calculated in accordance with SFAS No. 121.
In 1996, the Company recorded a one-time special charge of $1,819 related to
the write-down of Midwest materials and supplies inventories to net realizable
value.
In 1997, a $92,134 charge was recorded. This included a $35,767 charge for the
anticipated closure of the Armstrong Creek mine, reclamation adjustments of
$2,332 at the Chinook mine and other asset adjustments and accruals of $6,935.
Additionally, asset impairment charges of $33,500 and $13,600, were recorded at
the West Virginia steam coal properties and the Chinook mine, respectively, due
to updated mine and business plans that reflected the current views of the
domestic markets for mid- to high-sulfur coal and updated reserve information.
These impairments were calculated in accordance with SFAS No. 121.
NOTE 4. DIVESTITURE OF MINNEHAHA MINE
In the fourth quarter of 1995, the Company sold a majority of the assets of one
of its Indiana mines, Minnehaha. The Company paid $3,750 and conveyed title to
the assets in exchange for the purchaser's assumption of reclamation and mine
closure liabilities that were recorded at $8,235. The transaction resulted in
no gain or loss. In 1995, the mine had sales and an operating loss of
approximately $8,863 and $6,895 (including write-offs and special charges of
$7,067). The mine also had total assets of approximately $8,346 as of the date
of divestiture.
F-97
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
NOTE 5. INVENTORIES
Inventories detailed by component are summarized below:
<TABLE>
<CAPTION>
At December 31
--------------- At June 30,
1996 1997 1998
------- ------- ----------- ---
(Unaudited)
-----------
<S> <C> <C> <C>
In-Process Inventories..................... $ 7,692 $ 9,698 $10,640
Finished Goods............................. 6,751 6,128 8,413
Materials and Supplies..................... 6,173 4,239 4,302
------- ------- -------
Total Inventories.......................... $20,616 $20,065 $23,355
======= ======= =======
</TABLE>
NOTE 6. PROPERTIES
Properties consist of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
At December 31
-----------------
1996 1997
-------- --------
<S> <C> <C>
Coal Properties............................................. $248,023 $184,588
Property, Plant and Equipment............................... 330,121 344,179
-------- --------
Total Properties............................................ 578,144 528,767
Less: Accumulated Depreciation, Depletion, Amortization, and
Write-downs................................................ 299,449 335,360
-------- --------
Net Properties.............................................. $278,695 $193,407
======== ========
</TABLE>
NOTE 7. EMPLOYEE BENEFIT PLANS
Pension Plans--The Company (through a Cyprus plan) participates in a number of
defined benefit pension plans covering most of its employees. Benefits are
based on either the employee's compensation prior to retirement or stated
amounts for each year of service with the Company. The Company makes annual
contributions to these plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974 (ERISA). Plan assets consist of
cash and cash equivalents, equity and fixed income securities, and real estate.
Net annual pension cost includes the following components:
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service Cost......................................... $ 870 $ 1,074 $ 1,129
Interest Cost........................................ 2,112 2,141 4,277
Actual Gain on Plan Assets........................... (4,401) (3,916) (4,925)
Amortization and Deferred Gain....................... 2,693 1,877 626
------- ------- -------
$ 1,274 $ 1,176 $ 1,107
======= ======= =======
</TABLE>
F-98
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
At December 31
---------------
1996 1997
------- -------
<S> <C> <C>
Accumulated Benefit Obligation............................... $27,001 $34,198
------- -------
Projected Benefit Obligation................................. 28,813 36,363
Plan Assets at Fair Value.................................... 30,630 34,852
------- -------
Plan Assets Greater Than (Less Than) Projected Benefit Obli-
gation...................................................... 1,817 (1,511)
Unrecognized Net Gain (Loss)................................. 689 (491)
Unrecognized Prior Service Cost.............................. 1,080 934
Unrecognized Transition Credit............................... 1,972 5,519
------- -------
Prepaid Pension Cost......................................... $ 5,558 $ 4,451
======= =======
</TABLE>
Prepaid pension cost is included in Prepaid Expenses on the Combined Statements
of Assets, Liabilities and Parent Investment at December 31, 1996 and 1997,
respectively.
The significant actuarial assumptions at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Rate of Increase in Future Compensation Levels............. 5.25% 5.75% 5.00%
Expected Long-Term Rate of Return on Assets................ 9.00% 9.00% 9.00%
Discount Rate.............................................. 7.25% 7.75% 7.25%
</TABLE>
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the
assumptions as of the end of the year.
Substantially all domestic employees not covered under the plans administered
by the Company are covered under multi-employer defined benefit plans
administered by the United Mine Workers of America. Contributions by the
Company to these multi-employer plans, which are expensed when paid, are based
primarily upon hours worked and amounted to $965, $977 and $1,212 in 1995, 1996
and 1997.
Postretirement Benefits Other Than Pensions--In addition to the Company's
defined benefit pension plans, the Company has plans that provide
postretirement medical benefits and life insurance benefits. The medical plans
provide benefits for most employees who reach normal, or in certain cases,
early retirement age while employed by the Company. The postretirement medical
plans are contributory, with annual adjustments to retiree contributions, and
contain certain other cost-sharing features such as deductibles and
coinsurance.
Net periodic postretirement benefit cost consists of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service Cost.......................................... $1,296 $1,490 $1,526
Interest Cost......................................... 6,070 5,385 5,405
Net Amortization and Deferral......................... (404) 16 (688)
------ ------ ------
Net Periodic Postretirement Benefit Cost.............. $6,962 $6,891 $6,243
====== ====== ======
</TABLE>
F-99
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the plans' combined status:
<TABLE>
<CAPTION>
At December 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees................................................. $ 52,103 $ 48,807
Active................................................... 17,983 20,770
-------- --------
Total Accumulated Postretirement Benefit Obligation........ 70,086 69,577
Plan Assets at Fair Value.................................. -- --
Accumulated Postretirement Benefit Obligation.............. $(70,086) $(69,577)
-------- --------
Unrecognized Prior Service Cost............................ (1,200) (1,400)
Unrecognized Net Gain...................................... (21,428) (20,677)
-------- --------
Accrued Postretirement Benefit Cost........................ $(92,714) $(91,654)
======== ========
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1996 and
1997, consisted of a current liability of $7,000 included in Accrued Payroll
and Benefits each year, and a long-term liability of $85,714 and $84,655,
respectively, included in Deferred Employee and Retiree Benefits.
The weighted average annual rate of increase in the per capita cost of covered
benefits (i.e., health care cost trend rate) for medical benefits is 7.0
percent for 1998 and is assumed to decrease gradually (one-half of one percent
per year) to 4.25 percent by the year 2003 and remain at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation for
the medical plans as of December 31, 1997, by $3,700 and the aggregate of the
service cost and interest cost components of net periodic postretirement
benefit cost for 1997 by $470.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1995, 1996, and 1997, was
7.25 percent, 7.75 percent, and 7.25 percent, respectively. The change in the
discount rate and a reduction in the assumed health care cost trend rate
resulted in a $1,100 unrecognized net gain as of December 31, 1997.
In addition, health care and life insurance benefits of certain retirees are
covered by multi-employer benefit trusts established by the United Mine Workers
of America and the Bituminous Coal Operators Association, Inc. Current and
projected operating deficits of these trusts led to the passage of the Coal
Industry Retiree Health Benefit Act of 1992 (the "Act"). The Act established a
new multi-employer benefit trust called the United Mine Workers of America
Combined Benefit Fund (the "Fund") that will provide health and life insurance
benefits to all beneficiaries of the earlier trusts who were receiving benefits
as of July 20, 1992. The Act provides for the assignment of beneficiaries to
former employers and the allocation of any unassigned beneficiaries to
enterprises using a formula included in the legislation. It also established a
second trust fund known as the 1992 Plan that covers beneficiaries whose
employers cease providing benefits. The Company has chosen to account for its
obligation under the Act on a cash basis in accordance with established
accounting guidance. The 1995, 1996, and 1997 contributions to the Funds were
$2,136, $1,923, and $2,060, respectively. Based upon independent actuarial
valuation, the Company estimates the present value of its obligations under the
Act to be approximately $21,676 as of December 31, 1997.
The Company is liable under the federal Mine Safety and Health Act of 1977, as
amended, to provide for pneumoconiosis (black lung) benefits to eligible
employees, former employees, and dependents with respect to claims filed by
such persons on or after July 1, 1973. The Company is also liable under various
states' statutes for black lung benefits. The Company currently provides for
federal and state claims principally through self-
F-100
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
insurance programs. Benefits and related expenses are paid from a dedicated
trust fund qualified under Section 501(C) (21) of the Internal Revenue Code.
The assets of the trust fund exceed the actuarial present value of black lung
benefits at December 31, 1996 and 1997.
Total future black lung obligations of the Company as of December 31, 1996 and
1997 approximated $19,000 and $20,000, respectively. These amounts were
actuarially determined using the following key assumptions: discount rate of
8%, black lung benefit cost escalation rate of 3.5%. The existence of the trust
assets results in a net liability of $172 and $70 in 1996 and 1997,
respectively, which is included in Deferred Employee and Retiree Benefits.
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1996 and 1997, the accumulated postemployment
benefit liability consisted of a current amount of $538 and $496, respectively,
which is included in Accrued Payroll and Benefits, and $4,722 and $4,143,
respectively, which is included in Deferred Employee and Retiree Benefits.
NOTE 8. DEBT
The Company's long-term debt consists of a $1,000 note securing an Industrial
Revenue Bond issued by Perry County, Kentucky, the proceeds of which were used
to construct facilities at the Company's mine site. The note is due on May 1,
2013, with interest payable semiannually based upon a floating rate, as defined
(5.10% at December 31, 1996 and 1997).
NOTE 9. LEASES AND MINERAL ROYALTY OBLIGATIONS
The Company leases mineral interests and various other types of properties,
including draglines, shovels, offices, computers, and miscellaneous equipment.
Certain of the Company's mineral leases require minimum annual royalty
payments, whereas others provide only for royalties based on production.
Summarized below as of December 31, 1997, are future minimum rentals and
royalties under non-cancelable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
Leases Royalties Leases
--------- --------- -------
<S> <C> <C> <C>
1998............................................ $ 9,343 $ 2,530 $ 2,796
1999............................................ 5,855 3,082 4,883
2000............................................ 4,767 3,046 1,282
2001............................................ 2,372 2,932 --
2002............................................ 1,193 2,932 --
After 2002...................................... 2,624 6,525 --
------- ------- -------
Total Payments................................ $26,154 $21,047 8,961
======= ======= -------
Less Imputed Interest........................... (827)
-------
Present Value of Lease Payments................. 8,134
Less Current Portion............................ (2,329)
-------
Capital Lease Obligations....................... $ 5,805
=======
</TABLE>
F-101
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Rental Expense....................................... $11,927 $14,791 $13,022
Mineral Royalties.................................... $18,516 $18,880 $16,593
</TABLE>
Other Noncurrent Liabilities includes $2,104 and $1,722 at December 31, 1996
and 1997, respectively, which represents deferred gains on mining equipment
that was sold and leased-back by the Company in 1986 and 1994. The 1986 lease
is accounted for as an operating lease; the 1994 lease is accounted for as a
capital lease. These gains are being recognized as revenue over the terms of
the respective leases that expire in 2000 and 2003. The future minimum lease
commitments, operating lease expense and capital lease obligations for these
two leases are included in the above disclosures. See below for subsequent
modifications of these lease agreements.
Certain of the operating and capital leases discussed above are included in
lease agreements entered into by other subsidiaries of Cyprus. As part of the
stock purchase and sale agreement, AEI entered into various agreements to
sublease and purchase equipment subject to these leases. According to the
sublease agreement and the first purchase agreement, AEI is required to make
semi-annual lease payments of $1,485 through July 2000, at which time AEI will
purchase the equipment through semi-annual installments of $1,485 from January
2001 through January 2002. The second purchase agreement requires semi-annual
installments of $1,977 through January 2002, and the third purchase agreement
requires monthly installments of $249 from July 1998 through December 1998 and
monthly installments of $67 from January 1999 through December 1999. The
sublease and purchase agreements are secured by the equipment and any monies to
become due under insurance policies, up to the amount of the obligations. In
addition, a $3,500 equipment surety bond secures and guarantees the
obligations.
NOTE 10. PARENT INVESTMENT AND RELATED PARTY TRANSACTIONS
Parent investment is comprised of the Company's equity (see Note 1) and
advances to and from Cyprus at December 31, 1996 and 1997. The Company had
sales to a subsidiary of Cyprus not included in the acquisition of $1,856 and
$2,982 in 1996 and 1997, respectively.
Certain obligations of the Company have been guaranteed by the Parent. Such
obligations include, among others, obligations for the following: workers
compensation claims, lease agreements, industrial revenue bonds and coal supply
agreements.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Coal Sales Contracts--As of December 31, 1997, the Company had commitments to
deliver scheduled base quantities of coal annually to 34 customers. The
contracts expire between January 1, 1998 and December 31, 2003, with the
Company contracted to supply a minimum of approximately 42 million tons over
the remaining lives of the contracts at prices ranging from $14.21 to $37.00
per ton. Certain contracts have sale price adjustment provisions, as defined,
over the life of the contracts.
Environmental Remedial Action--The Company's past and present operations
include activities which are subject to extensive federal and state
environmental regulations. Based upon current knowledge, the Company believes
it is in material compliance with environmental laws and regulations as
currently promulgated. The extent of environmental control problems which the
Company may encounter in the future cannot be predicted, primarily because of
the increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities.
F-102
<PAGE>
CYPRUS EASTERN COAL OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Mine Closure Costs--At December 31, 1997, the Company's accruals for deferred
closure, shutdown, and reclamation totaled approximately $75,700. Reclamation
is an ongoing activity and a cost associated with the Company's mining
operations. Accruals for closure and final reclamation liabilities are
established on a life of mine basis. The Company's reclamation reserve
component is largely a result of reclamation obligations incurred for grading,
replacing soils, and revegetation of mined areas as required by provisions and
permits pursuant to the Surface Mining Control and Reclamation Act. Total
reclamation and mine closure costs for the Company at the end of current mine
lives are estimated at approximately $120,000.
Legal Proceedings--The Company is a party to numerous claims and lawsuits with
respect to various matters. The Company provides for costs related to
contingencies when a loss is probable and the amount is reasonably estimable.
The Company estimates that the amount of probable aggregate loss, included in
current accrued liabilities, is approximately $3,100 at December 31, 1997.
The Company is named as defendant in various other actions occurring in the
ordinary course of its operations for which an estimation of the likelihood of
probable outcome is not possible. These actions generally involve disputes as
to property boundaries, contract performance, mining rights, royalty payments,
blasting damages, personal injuries and other civil actions which could result
in additional litigation or other adversary proceedings. While the final
resolution of any matter may have an impact on the Company's financial results
for a particular period, management believes the ultimate disposition of these
matters will not have a material adverse effect upon the financial position of
the Company.
Subsequent to December 31, 1997, $2,959 of the accrued legal contingencies were
settled for an amount equal to the Company's recorded estimate.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of cash and cash equivalents, trade receivables and trade
payables are considered to be representative of their respective fair values
because of the immediate or short-term maturity of these financial instruments.
The fair value of the Company's debt instruments approximated the book value
because the instruments bear interest at a variable rate and re-price
frequently.
NOTE 13. MAJOR CUSTOMERS
The Company had sales to the following major customers:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
TVA........................................................ 7.5% 12.0% 15.8%
Dayton Power and Light..................................... 13.4 12.2 13.0
Hoosier Energy............................................. 7.9 10.2 12.1
American Electric Power.................................... 7.5 11.8 11.6
Georgia Power.............................................. 23.2 5.8 5.8
---- ---- ----
Total.................................................... 59.5% 52.0% 58.3%
==== ==== ====
</TABLE>
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Leslie Resources, Inc. and Leslie Resources Management, Inc.:
We have audited the accompanying combined balance sheet of Leslie Resources,
Inc. and Leslie Resources Management, Inc. as of December 31, 1997, and the
related combined statements of operations and retained earnings and cash flows
for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Leslie Resources,
Inc. and Leslie Resources Management, Inc. as of December 31, 1997 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
March 20, 1998
F-104
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
COMBINED BALANCE SHEET
As of December 31, 1997
<TABLE>
<CAPTION>
1997
--------------
(In Thousands)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 3,623
Restricted cash............................................... 300
Accounts receivable........................................... 6,644
Other receivables............................................. 428
Inventories................................................... 1,224
Property held for resale...................................... 3,195
Current portion of advance royalties.......................... 150
Prepaid expenses and other.................................... 307
-------
Total current assets........................................ 15,871
-------
Property, plant and equipment, at cost, including mineral
reserves and mine development costs, net of accumulated
depreciation of $14,807........................................ 8,097
Other non-Current Assets:
Advance royalties, less current portion....................... 892
Investment in security........................................ 2,000
Deferred tax assets........................................... 297
Other non-current assets...................................... 298
-------
Total other non-current assets.............................. 3,487
-------
Total assets................................................ $27,455
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.............................................. $ 7,397
Current portion of accrued royalties.......................... 2,043
Income taxes payable.......................................... 942
Revolving lines of credit..................................... 1,895
Current portion of long-term debt............................. 5,964
Current portion of reclamation and mine closure costs......... 343
Accrued expenses and other.................................... 1,540
-------
Total current liabilities................................... 20,124
-------
Non-Current Liabilities:
Long-term debt, less current portion.......................... 2,922
Accrued royalties, less current portion....................... 3,179
Accrued reclamation and mine closure costs, less current por-
tion......................................................... 1,064
-------
Total non-current liabilities............................... 7,165
-------
Commitments and Contingencies (see notes)
Stockholder's Equity:
Common stock.................................................. 2
Less: cost of treasury stock.................................. (4,252)
Retained earnings............................................... 4,416
-------
Total stockholder's equity.................................. 166
-------
Total liabilities and stockholder's equity.................. $27,455
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this balance sheet.
F-105
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
1997
--------------
(In Thousands)
<S> <C>
Revenues......................................................... $87,994
Costs and expenses:
Cost of operations............................................. 80,003
Depreciation, depletion and amortization....................... 3,288
Selling, general and administrative............................ 2,978
-------
Total costs and expenses..................................... 86,269
-------
Income from operations..................................... 1,725
Other income (expense):
Interest expense............................................... (888)
Gain on sale of assets......................................... 2,257
Interest and dividend income................................... 201
Other, net..................................................... 162
-------
Other income (expense)....................................... 1,732
-------
Income before income taxes................................. 3,457
Income tax expense............................................... 959
-------
Net income................................................. 2,498
Beginning retained earnings...................................... 4,403
Plus deferred tax benefits from tax basis step-up.............. 297
Less dividends paid............................................ (2,782)
-------
Ending retained earnings......................................... $ 4,416
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
F-106
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
COMBINED STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
1997
--------------
(In Thousands)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 2,498
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization..................... 3,288
Equipment used for repairs................................... --
Gain on sale of assets....................................... (2,257)
Changes in assets and liabilities:
(Increase) decrease in:
Receivables................................................ (2,074)
Inventories................................................ (430)
Advance royalties.......................................... 201
Prepaids and other......................................... (65)
Other non-current assets................................... (286)
Increase (decrease) in:
Accounts payable........................................... 1,184
Income taxes payable....................................... 930
Accrued reclamation and mine closure costs................. 982
Accrued royalties.......................................... (557)
Accrued expenses and other................................. 312
-------
Net cash provided by operating activities................ 3,726
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property, plant and equipment and mine development
costs......................................................... (4,341)
Proceeds from sale of assets................................... 3,805
-------
Net cash used in investing activities.................... (536)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving lines of credit.................... 994
Proceeds from debt............................................. 6,017
Repayments on long-term debt................................... (6,983)
Distributions to shareholder................................... (2,502)
Purchase of treasury stock..................................... --
Loans from affiliates.......................................... --
-------
Net cash used in financing activities.................... (2,474)
-------
Net increase (decrease) in cash and cash equivalents..... 716
CASH AND CASH EQUIVALENTS, beginning of period................. 2,907
-------
CASH AND CASH EQUIVALENTS, end of period....................... $ 3,623
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this statement.
F-107
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997
(Dollars in thousands)
1. DESCRIPTION OF BUSINESS
Leslie Resources, Inc. (a Kentucky corporation) and Leslie Resources
Management, Inc. (a Kentucky corporation) (collectively the Company) and its
subsidiaries are owned by Greg Wells and engage in coal mining activities using
the surface mining method. Coal mining and the operation of loading facilities
are conducted in four counties in Southeast Kentucky. The Company's sales are
predominantly to utility and industrial users of coal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying combined financial statements include those of Leslie
Resources, Inc. (an S corporation) and Leslie Resources Management, Inc. (a C
corporation) and its subsidiaries because of common ownership. All significant
intercompany transactions and balances have been eliminated in combination.
b. Principles of Consolidation
The accompanying combined financial statements include the consolidated
accounts of Leslie Resources Management, Inc. and its subsidiaries. All
material intercompany transactions have been eliminated in its consolidation.
c. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
d. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of purchase to be cash
equivalents.
Supplemental disclosure:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Cash paid for interest................................................. $796
Cash paid for income taxes............................................. 29
</TABLE>
The 1997 statement of cash flows excludes non-cash dividends of property with a
book value of $280 distributed to the sole shareholder and a deferred tax asset
and equity increase of $297.
e. Inventories
Inventories consist of coal that is available for sale at various loading
facilities, and is stated at an average cost using direct operating costs of
mining coal, which is less than market.
F-108
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
f. Advance Royalties
Recoupable advance royalties obtained in the 1995 purchase of the subsidiary
companies of Leslie Resources Management, Inc. had a higher recoupable amount
than the portion of the purchase price that was allocated to them in purchase
accounting (a valuation allowance was established). As these advance royalties
become recoupable, the expense recognized is partially offset by a reduction in
the valuation allowance.
Other recoupable royalties the Company has paid in the normal course of
operations are expensed as the coal is mined or the royalty no longer becomes
recoupable.
g. Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation of the depreciable assets by using accelerated and other methods
with useful lives that range from 5 to 31 years. Depreciation expense was
$3,172 for 1997.
h. Depletion
Cost depletion is calculated on a per ton basis to allocate the cost of mineral
reserves against the related coal sales. Cost depletion expense was $59 for
1997.
i. Mine Development Costs
Mine development costs are amortized over the expected life of the respective
mine sites which range from 5 to 10 years. Amortization expense was $57 for
1997.
j. Revenue Recognition
The Company's revenues have been generated under coal sales contracts with
electric utilities or other coal-related organizations, primarily in the
eastern United States. Revenues are recognized on coal sales in accordance with
the sales agreement, which is usually when the coal is shipped to the customer
and title is passed. The Company grants credit to its customers based on their
creditworthiness and generally does not secure collateral for its receivables.
No allowance for doubtful accounts is recorded for 1997, as management does not
believe it is necessary. Historically, accounts receivable write-offs have been
insignificant.
k. Asset Impairment
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, then the carrying
value of the asset is reduced to its estimated fair value.
l. Reclassifications
Certain prior year amounts have been reclassified to conform with current year
presentation with no effect on previously reported net income or shareholder's
equity.
3. CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposits at financial institutions. The
balances, at times, may exceed federally insured limits. The Company exceeded
the insured limit by $3,651 for 1997.
F-109
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including mineral reserves and mine development
costs at December 31, 1997 are summarized by major classifications as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Land................................................................ $ --
Machinery & equipment............................................... 20,227
Buildings........................................................... 1,589
Mine development costs.............................................. 585
Mineral reserves.................................................... 503
-------
22,904
Less accumulated depreciation, depletion and amortization........... 14,807
-------
Net property, plant and equipment................................... $ 8,097
=======
</TABLE>
5. INVESTMENT IN SECURITY
Included in other long-term assets, at December 31, 1996 and 1997, is 800
shares of preferred stock in Reclamation Surety Holding Company, Inc. (RSHC)
purchased for $2,000. A subsidiary of RSHC, Cumberland Surety Insurance
Company, provides the Company insurance coverage for reclamation bonds (see
Note 9), and the purchase of this preferred stock was required in lieu of the
Company placing $2,000 in an escrow collateral account. This preferred stock
pays a dividend of 6% annually. The Company and RSHC both have options to
redeem this stock after January 1, 1998. The Company also has an option to
convert to common shares of RSHC after January 1, 1998. Under present bonding
arrangements, an option to redeem this stock would result in similar funds
being placed into an escrow collateral account.
6. DEBT
a. Revolving Lines of Credit
The Company has the following outstanding balances under lines of credit at
December 31, 1997:
<TABLE>
<S> <C>
Citizens National Bank & Trust, bearing interest of 5.65%. Total of
$300 available, secured by three certificates of deposit totaling
$300.............................................................. $ 200
Bank of Whitesburg, bearing interest of 9.25% and 9.50%,
respectively, secured by certain accounts receivable.............. 1,695
------
$1,895
======
</TABLE>
F-110
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
b. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Fixed assets financed with 12 different notes to banks, finance
companies and vendors for 1997. Interest rates ranged from 8.19% to
10.11% with a weighted-average rate of 8.93%, maturing through
August 2001. Each note is secured by one or more pieces of
equipment.......................................................... $1,964
Note payable to GE Capital Corporation, bearing interest of 9.25%,
payable in monthly installments of $94 principle and interest for
60 months, maturing May 2001, secured by equipment................. 3,130
Note payable to Caterpillar Finance, bearing interest of 8.44%,
payable in monthly installments of $49 principle and interest,
secured by equipment (settled in 1998, see Note 17)................ 2,301
Note payable to Caterpillar Finance, bearing interest of 10.25%,
payable in monthly installments of $41 principle and interest,
secured by equipment (settled in 1998, see Note 17)................ 941
Note payable to Whayne Supply Company, bearing interest of 8.76%,
payable in monthly installments of $18 principle and interest,
secured by equipment (settled in 1998, see Note 17)................ 550
------
Totals............................................................ 8,886
Less: Current Portion............................................. 5,964
------
Long-term Debt.................................................... $2,922
======
</TABLE>
Principal payments required for long-term debt after December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1998................................................................ $5,964
1999................................................................ 1,216
2000................................................................ 1,309
2001................................................................ 397
------
$8,886
======
</TABLE>
In connection with the GE Capital Corporation note maturing in May 2001, the
Company is required to maintain, at the end of each fiscal year, adequate, as
defined, debt service coverage.
7. ACCRUED ROYALTIES DUE TO TRANSCO
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company recorded a liability for minimum royalties due to
Transco Coal Company. The liability is reduced as coal is mined, and as of
December 31, 1997, a liability of $399, remained. This amount is included in
current portion of accrued royalties and based on mining plans is expected to
be paid in 1998.
8. OVERRIDE ROYALTY OBLIGATION DUE TO TRANSCO
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company is obligated to pay to Transco Coal Company 75c
for each ton of coal mined from the Ball Creek Property
F-111
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
until all reserves are mined. In 1997, $438 were paid. Payments are required
monthly as the coal is mined or, at the Company's option, this obligation can
be canceled at any time by paying Transco an amount that, when aggregated with
previously paid amounts, totals a discounted $4,000 (discounted from the date
of the purchase (November 20, 1995) to each payment date at 15%). At the date
of purchase from Transco Coal, the Company recorded as an accrual $4,000 for
what it estimated as the aggregate amount to be paid under this obligation.
Beginning in the calendar year 1997, this royalty payment requires minimum
annual payments of $150; however, the aggregate payments of the two preceding
years in excess of the yearly minimum may be used in meeting the $150 annual
minimum.
The Company projects to mine 480,000 tons from the Ball Creek Property in 1998.
As of December 31, 1997, $360 is included in current portion of accrued
royalties and $3,175 is included in long-term accrued royalties related to this
obligation.
9. ACCRUED RECLAMATION AND MINE CLOSURE COSTS
Although the majority of the reclamation process is performed contemporaneously
with mining, the Company will incur additional reclamation costs when a
particular mine site closes, currently estimated at approximately $7,000 for
all sites. The Company accrues on a per ton basis the expected remaining
reclamation and mine closure costs. As of December 31, 1997, an aggregate of
$1,407 has been accrued for reclamation and mine closure costs. These
reclamation and mine closure costs, when mining is completed, represent the
estimated costs to reclaim the land at the end of the mining process, as well
as other required activities. However, the Company is contingently liable to
reclaim the land whenever the mining process stops and these costs could exceed
the accrued amounts.
According to Kentucky law, the Company is required to post reclamation bonds to
assure the reclamation work is completed. Outstanding reclamation bonds totaled
$42,712 at December 31, 1997. The Company pays an insurance bonding premium
monthly. In addition, as Note 5 explains, the Company purchased $2,000 in
preferred stock in lieu of having an escrow collateral account for 1997.
Beginning in January 1997, the Company was required to fund an escrow
collateral account. As of December 31, 1997, $284 had been paid into the escrow
account (included in other long-term assets) with total future obligations
totaling $1,216 at a rate of $20 per month.
F-112
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
10. INCOME TAXES
Leslie Resources, Inc. elected to be taxed as a Sub-chapter S corporation,
effective for the tax year beginning January 1, 1989, whereby its taxable
income is reported by its stockholders. Accordingly, there was no income tax
reported at the corporate level. Dividends have been paid to stockholders at
various times during the year and totaled $2,782.
Leslie Resources Management, Inc. and its subsidiaries are C corporations, and
therefore incur income taxes at the corporate level. Income tax disclosures for
the C corporation group follows:
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Current:
Federal................................................ $ 814
State.................................................. 145
------
Total................................................ $ 959
======
The following accounts for the difference between the actual tax provision and
the amounts obtained by applying the statutory U.S. federal income tax rate of
34% to the 1997 income before taxes:
<CAPTION>
1997
-----------------
<S> <C>
Federal provision computed at statutory rate............. $1,175
State income tax (net of federal tax benefits and
apportionment factors).................................. 138
Federal and state tax effect on S corporation earnings... (445)
Other.................................................... 91
------
$ 959
======
</TABLE>
During 1997, certain assets (machinery and equipment) were transferred from the
S corporation to the C corporation. These assets were stepped up for tax
purposes, but not book. The deferred tax benefit of $297 was recorded with a
corresponding increase in equity.
11. COMMITMENTS AND CONTINGENCIES
a. Coal Sales Contracts
As of December 31, 1997, the Company had commitments to deliver base quantities
of coal to four customers. Three contracts expire in 1998, and one expires in
2000 with the Company contracted to supply a minimum of approximately 2.7
million tons over the remaining lives of the contracts at prices which are at
or above market.
b. Commissions
The Company has an agreement to pay a 10c per ton commission on all tonnage
delivered on a coal contract expiring in 2000. Additionally, beginning in 1998
the Company will pay a $15 per month commission for sales made under various
contracts.
c. Contract Mining Agreements
The Company has an agreement with a contract miner to mine at two job sites at
a cost to the Company of $13.00 and $14.00 per ton mined, respectively. The
contract has no minimum tonnage requirements and is cancelable by either party.
F-113
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
d. Aminex
As part of the 1995 purchase of the subsidiary companies by Leslie Resources
Management, Inc., the Company is contingently liable under a February 14, 1979
agreement to pay a portion of its "coal proceeds" (as defined) related to
certain leases on specified properties to a group of partnerships in bankruptcy
that were previously owners of these certain leases. This potential contingent
liability exists until January 1, 2004. The computation and definition of "coal
proceeds" under this agreement is different than net income according to
generally accepted accounting principles. Any prior year deficiencies in
calculating "coal proceeds" is carried forward to future years for application
to positive amounts. According to the most recent audit report for the period
ended June 1, 1996, there exists a deficiency of $2,361 that the Company may
carry forward to future years. Due to this deficiency carry forward, no
liability for this Aminex agreement has been recorded, nor is any liability
expected in the near future.
e. Litigation
The Company is named as defendant in various actions in the ordinary course of
its business. These actions generally involve disputes related to contract
performance, property boundaries, mining rights, blasting damages, personal
injuries and royalty payments, as well as other civil actions that could result
in additional litigation or other adversary proceedings.
While the final resolution of any matter may have an impact on the Company's
financial results for a particular reporting period, management believes that
the ultimate disposition of these matters will not have a materially adverse
effect upon the financial position of the Company.
f. Leases
The Company has various operating leases for mining equipment and rental of
tipples from a related party (see Note 15b). Rental expense for the year ended
December 31, 1997 was approximately $370.
The Company also leases coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the years ended
December 31, 1997 was approximately $8,700. Certain agreements require minimum
annual royalties to be paid regardless of the amount of coal mined during the
year. However, such agreements are generally cancelable at the Company's
discretion. These minimum royalties are recoverable against future royalty
payments due on subsequent coal sales and are expensed as the related coal is
mined.
Approximate future minimum rental and royalty payments for subsequent years
are:
<TABLE>
<CAPTION>
Rental Royalty
------ -------
<S> <C> <C>
Year ended December 31:
1998........................................................ $ 60 $ 4,480
1999........................................................ 40 4,830
2000........................................................ -- 4,830
2001........................................................ -- 4,830
2002........................................................ -- 4,010
Thereafter.................................................. -- 12,825
</TABLE>
F-114
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
12. MAJOR CUSTOMERS
The Company had sales to the following major customers that in any period
exceeded 10% of revenues:
<TABLE>
<CAPTION>
1997
---------------------------
Year-End
Percent Receivable
Sales of Sales Balance
------- -------- ----------
<S> <C> <C> <C>
Customer A....................................... $20,987 23.9% $3,211
Customer B....................................... 17,033 19.4% 585
Customer C....................................... 9,032 10.3% 324
</TABLE>
13. STOCKHOLDER'S EQUITY
Stockholder's equity consists of:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Common Stock:
Leslie Resources, Inc.--
No par value, 1,000 shares authorized, 100 shares issued and 20
shares outstanding............................................. $ 1
Leslie Resources Management, Inc.--
No par value, 1,000 shares authorized, 25 shares issued and
outstanding.................................................... 1
------
2
------
Treasury Stock:
Leslie Resources, Inc
20 shares purchased at a cost of................................ 349
60 shares purchased at a cost of................................ 3,903
------
4,252
------
Retained Earnings:
Leslie Resources, Inc............................................. 2,744
Leslie Resources Management, Inc.................................. 1,672
------
4,416
------
Total Stockholder's Equity.................................... $ 166
======
</TABLE>
14. TREASURY STOCK
In November 1995, Leslie Resources, Inc. signed an option agreement with three
of its stockholders to purchase all the shares of their common stock for
$3,903, which was exercised in March 1996. After this transaction, only one
stockholder, Greg Wells, owns all the outstanding shares of Leslie Resources,
Inc. In 1990 Leslie Resources, Inc. purchased 20 shares from a previous
stockholder for $349.
Greg Wells is the only stockholder of Leslie Resources Management, Inc. and its
subsidiaries, and no treasury stock has ever been purchased.
F-115
<PAGE>
LESLIE RESOURCES, INC. AND LESLIE RESOURCES MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
15. RELATED PARTY TRANSACTIONS
As indicated in Note 2b, all material related party transactions among the
combining Companies have been eliminated. Other related corporations with
common ownership with the Company which had transactions are:
(a) Resource Trucking, Inc. was paid $884 for contract trucking and
equipment rental. These services are continually provided to the Company on
a month to month basis.
(b) Mountain Properties, Inc. was paid $1,494 for coal royalties, rents
and wheelage and $299 for tipple lease. The Company has leases for varying
lengths of time with Mountain Properties, Inc. for future rental and
royalty obligations. Approximate minimum payments are included in Note 11f.
No material receivables or payables with these related companies exist at
December 31, 1997.
16. NEW ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). The new
standard requires that long-lived assets and certain identified intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing such
impairment reviews, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. Adopting SFAS No. 121 had no impact
on the Company's financial position or results of operations.
The Company will implement Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, (SFAS No. 130) during 1998. SFAS No. 130
establishes standards for the reporting and display of comprehensive income and
its components in financial statements. Comprehensive income generally
represents all changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. Such changes are not
significant to the Company.
Effective January 1, 1999, the Company will adopt Statement of Position (SOP)
98-5, Reporting on the Costs of Start-up Activities. The new statement requires
that the costs of start-up activities be expensed as incurred. The Company has
not yet evaluated the impact of this statement on the results of operations or
financial position.
17. SUBSEQUENT EVENTS
In December 1997, the shareholder agreed to sell all of the stock of the
Company to AEI Holding Company, Inc., the closing of which took place January
15, 1998.
Prior to January 15, 1998, the Company committed to sell, and subsequently
sold, property classified as held for resale to Caterpillar Finance for
settlement of three notes (see Note 6b). The property sold is leased back from
Caterpillar Finance under operating leases.
F-116
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AEI Resources, Inc. and
Mid-Vol Leasing, Inc.
and Affiliates:
We have audited the accompanying combined balance sheets of Mid-Vol Leasing,
Inc. and Affiliates (Mid-Vol Leasing, Inc., Mega Minerals, Inc. and Premium
Processing, Inc., see Note 1) as of December 31, 1996 and 1997, and the related
combined statements of operations and retained earnings and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Mid-Vol Leasing, Inc.
and Affiliates as of December 31, 1996 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
April 23, 1998
F-117
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
COMBINED BALANCE SHEETS
as of December 31, 1996 and 1997 and June 30, 1998
(In Thousands)
<TABLE>
<CAPTION>
December 31,
-------------- June 30,
1996 1997 1998
------ ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $1,607 $ 693 $ 574
Restricted cash................................... 106 -- --
Accounts receivable............................... 943 6,417 3,869
Due from affiliates............................... 572 2,432 4
Inventories....................................... 2,840 712 4,078
Prepaid expenses and other........................ 624 147 425
------ ------- -------
Total current assets............................ 6,692 10,401 8,950
------ ------- -------
Property, plant and equipment, at cost, including
mineral reserves, net of accumulated depreciation,
depletion and amortization of $1,494, $1,833 and
$2,005, respectively............................... 3,118 2,860 2,691
Other non-current assets............................ 180 180 164
------ ------- -------
Total assets.................................... $9,990 $13,441 $11,805
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 329 $ 704 $ 632
Due to affiliates................................. 2,710 5 363
Note payable...................................... 400 -- 750
Current portion of long-term debt................. 565 551 168
Construction contract............................. -- 100 2,000
Accrued expenses and other........................ 216 589 341
------ ------- -------
Total current liabilities....................... 4,220 1,949 4,254
------ ------- -------
Non-Current Liabilities:
Long-term debt and related obligations, less
current portion.................................. 1,185 666 205
Other non-current liabilities..................... 190 174 --
------ ------- -------
Total non-current liabilities................... 1,375 840 205
------ ------- -------
Commitments and Contingencies (see notes)
Stockholders' Equity:
Common stock...................................... 3 3 3
Retained earnings................................. 4,392 10,649 7,343
------ ------- -------
Total stockholders' equity...................... 4,395 10,652 7,346
------ ------- -------
Total liabilities and stockholders' equity...... $9,990 $13,441 $11,805
====== ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these balance sheets.
F-118
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For The Years Ended December 31, 1995, 1996 and 1997
And The Six Months Ended June 30, 1997 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31, June 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues........................ $12,489 $17,862 $34,471 $ 18,301 $ 15,324
Costs and expenses:
Cost of operations............ 11,774 15,868 25,021 15,218 12,041
Depreciation, depletion and
amortization................. 321 301 329 167 173
Selling, general and
administrative............... 59 148 466 99 218
------- ------- ------- -------- --------
Total costs and expenses.... 12,154 16,317 25,816 15,484 12,432
------- ------- ------- -------- --------
Income from operations.... 335 1,545 8,655 2,817 2,892
Other income (expense):
Gain on sale of assets........ -- -- 18 18 --
Interest income............... 86 88 112 58 43
Interest expense.............. (184) (129) (97) (50) (7)
Other, net.................... 2 9 (3) -- --
------- ------- ------- -------- --------
Other income (expense).... (96) (32) 30 26 36
------- ------- ------- -------- --------
Income before income
taxes.................... 239 1,513 8,685 2,843 2,928
Income tax expense (Note 6)..... -- -- 5 3 1
------- ------- ------- -------- --------
Net income................ 239 1,513 8,680 $ 2,840 $ 2,927
Beginning retained earnings..... 5,500 4,189 4,392 4,392 10,649
Less dividends paid......... (1,550) (1,310) (2,423) (566) (6,233)
------- ------- ------- -------- --------
Ending retained earnings........ $ 4,189 $ 4,392 $10,649 $ 6,666 $ 7,343
======= ======= ======= ======== ========
Unaudited pro forma information
(note 13)
Income before income taxes.... $ 239 $ 1,513 $ 8,680 $ 2,840 $ 2,928
Unaudited pro forma income tax
expense...................... 91 575 3,298 1,079 1,113
------- ------- ------- -------- --------
Unaudited pro forma net
income....................... $ 148 $ 938 $ 5,382 $ 1,761 $ 1,815
======= ======= ======= ======== ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-119
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES (NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1995, 1996 and 1997 And For The Six Months
Ended June 30, 1997 and 1998
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31, June 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income..................... $ 239 $ 1,514 $ 8,680 $ 2,840 $ 2,927
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation, depletion and
amortization................. 321 301 329 167 173
Gain on sale of assets........ -- -- (18) (18) --
Changes in assets and
liabilities:
(Increase) decrease in:
Receivables.................. 1,686 (614) (5,474) (2,829) 2,549
Due from affiliates.......... 1,120 (562) (1,860) (88) 2,428
Inventories.................. (1,151) (879) 2,128 2,479 (3,366)
Prepaids and other........... (57) (572) 478 201 (278)
Other noncurrent assets...... -- -- -- -- 16
Increase (decrease) in:
Accounts payable............. 43 256 375 153 (72)
Due to affiliate............. (194) 2,352 (2,704) (691) 357
Accrued expenses and other... (90) 48 373 288 (248)
Other non-current
liabilities................. 157 (17) (17) -- (174)
------- ------- ------- -------- --------
Net adjustments............. 1,835 313 (6,390) (338) 1,385
------- ------- ------- -------- --------
Net cash provided by
operating activities....... 2,074 1,827 2,290 2,502 4,312
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Restricted cash................ 7 7 106 -- --
Additions of property, plant
and equipment................. (59) -- (74) -- --
Proceeds from sale of assets... 7 11 20 -- 3
Proceeds from construction
contract...................... -- -- 100 18 1,900
------- ------- ------- -------- --------
Net cash provided by (used
in) investing activities... (45) 18 152 18 1,903
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
debt.......................... 300 100 -- -- 750
Repayments on long-term debt
and note payable.............. (647) (619) (932) (278) (844)
Distributions to shareholders.. (1,550) (1,310) (2,424) (566) (6,240)
------- ------- ------- -------- --------
Net cash used in financing
activities................. (1,897) (1,829) (3,356) (844) (6,334)
------- ------- ------- -------- --------
Net increase (decrease) in
cash and cash equivalents.. 132 16 (914) 1,676 (119)
CASH AND CASH EQUIVALENTS,
beginning of period............ 1,459 1,591 1,607 1,607 693
------- ------- ------- -------- --------
CASH AND CASH EQUIVALENTS, end
of period...................... $ 1,591 $ 1,607 $ 693 $ 3,283 $ 574
======= ======= ======= ======== ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-120
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997 and June 30, 1997 and 1998 (Unaudited)
(Dollars in Thousands)
1. DESCRIPTION OF BUSINESS
Mid-Vol Leasing, Inc. and Affiliates consists of Mid-Vol Leasing, Inc. (a West
Virginia S corporation), Mega Minerals, Inc. (a West Virginia S corporation)
and Premium Processing, Inc. (a West Virginia C corporation), collectively
referred to as "the Company".
Mid-Vol Leasing, Inc. (MVL) engages in the brokering of coal with sales
predominantly to international coal brokering firms. MVL uses contract miners
(including a related party, see Note 7b) to mine the coal. Coal mining and the
operation of the loading facilities are conducted in McDowell County in
southern West Virginia.
Mega Minerals, Inc. (MMI) leases land for coal mining purposes primarily to
MVL. Premium Processing, Inc. (PPI) exclusively provides labor to operate MVL's
load out facilities.
Richard Preservati owns 81% of MVL and MMI and 9% of PPI. Tim Boggess, Richard
Preservati's son-in-law, owns 75% of PPI. The remaining shares of each of the
three companies are owned by Richard Preservati's wife, Nancy, and their three
children, Richard Preservati II, Nicholas Preservati and Gina Boggess.
See Note 12b regarding sale to Coal Ventures, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Method of Accounting and Basis of Presentation
The accompanying combined financial statements include those of Mid-Vol
Leasing, Inc., Mega Minerals, Inc. and Premium Processing, Inc. because of
common ownership and control. All significant intercompany transactions and
balances have been eliminated in the combination.
The Company's books and records are maintained on an income tax basis of
accounting which differs from and is a comprehensive basis of accounting other
than generally accepted accounting principles. Adjustments have been made to
the income tax records via "memorandum" entries in order for the financial
statements to be prepared in accordance with generally accepted accounting
principles.
b. Interim Financial Information
The interim financial statements as of June 30, 1998 and for the six months
ended June 30, 1997 and 1998 are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
fiscal year.
c. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-121
<PAGE>
d. Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers investments
having maturities of three months or less at the time of purchase to be cash
equivalents.
Supplemental disclosure:
<TABLE>
<CAPTION>
(Unaudited)
Six Months
December 31, Ended June 30,
-------------- ---------------
1995 1996 1997 1997 1998
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Cash paid for interest.......................... $184 $129 $97 $50 $29
</TABLE>
Not included in the statement of cash flows for 1995 is an addition to
property, plant and equipment of $500 which was financed through a $400 note in
1995 and a $100 option payment in 1993. Additionally in 1995, a line of credit
of $800 was refinanced into a long-term note of $800, which has been excluded
from the 1995 statement of cash flows.
e. Restricted Cash
In accordance with a 1989 coal mining sublease agreement with USX Corporation
(USX), the Company was required to maintain $100 in escrow for the purpose of
satisfying any obligations owed to USX. During 1997, this requirement was
released.
f. Inventories
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market. All inventories consists of stock piled coal.
g. Advance Royalties (included in prepaid expenses and other)
The Company is required under certain royalty lease agreements to make minimum
royalty payments whether or not mining activity is being performed on the
leased property. These minimum payments are recoupable once mining begins on
the leased property. The Company capitalizes these minimum royalty payments and
expenses them once mining activities begin. As of December 31, 1996 and 1997,
the Company had advance royalties of $56 and $49, respectively.
h. Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation of the depreciable assets by using accelerated methods with useful
lives that range from 7 to 15 years. Depreciation expense was $229, $199 and
$177 for 1995, 1996 and 1997, respectively.
i. Depletion
Cost depletion is calculated on a per ton basis to allocate the cost of mineral
reserves against the related coal sales. Cost depletion expense was $93, $101
and $152 for 1995, 1996 and 1997, respectively.
j. Revenue Recognition
The Company's revenues have primarily been generated under coal sales contracts
with coal brokerage firms, primarily internationally based. All sales are
consummated in US dollars, and revenues are recognized at the time the train
cars are loaded as all sales agreements are FOB mine site. The Company grants
credit to its customers based on their creditworthiness and generally does not
secure collateral for its receivables. No allowance for doubtful accounts is
recorded for 1996 and 1997, as management does not believe it is necessary.
Historically, accounts receivable write-offs have been insignificant.
F-122
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
k. SFAS No. 121
Effective January 1, 1996, for purposes of this presentation in accordance with
generally accepted accounting principles, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). The
new standard requires that long-lived assets and certain identified intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In performing such
impairment review, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. Adopting SFAS No. 121 had no impact
on the Company's financial position or results of operations.
l. New Accounting Standard
Effective January 1, 1999, for purposes of this presentation in accordance with
generally accepted accounting principles, the Company will adopt Statement of
Position (SOP) 98-5 Reporting on the Costs of Start-Up Activities. The new
statement requires that the costs of start-up activities be expensed as
incurred. The Company has not yet evaluated the impact of this statement on the
results of operations or financial position.
m. Reclassifications
Certain reclassifications of prior year amounts were made to conform with the
current year presentation with no effect on previously reported net income
(loss) or stockholders' equity.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including mineral reserves at December 31, 1996
and 1997, are summarized by major classifications as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Machinery & equipment....................................... $2,019 $2,100
Mineral reserves............................................ 2,593 2,593
------ ------
4,612 4,693
Less accumulated depreciation, depletion and amortization... (1,494) (1,833)
------ ------
Net property, plant and equipment........................... $3,118 $2,860
====== ======
</TABLE>
F-123
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
4. DEBT
a. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Note payable to Consolidation Coal Company, imputed interest
at 5.24%, payable in quarterly installments of $100,000
principal and interest for 22 quarters, maturing November
1999, secured by letter of credit.......................... $1,155 $ 787
Note payable to One Valley Bank, bearing interest at 7.75%,
payable in monthly installments of $14,296 principal and
interest for 66 months, maturing August 2000, secured by
equipment and guaranteed by owner.......................... $ 570 $ 430
Note payable to One Valley Bank, bearing interest at 7%,
payable in monthly installments of $12 principal and inter-
est for 36 months, maturing February 1997, secured by
equipment and guaranteed by owner.......................... 25 --
------ -----
Totals.................................................... 1,750 1,217
Less: Current portion (565) (551)
------ -----
Long-term debt............................................ $1,185 $ 666
====== =====
</TABLE>
Principal payments required for long-term debt after December 31, 1997 are as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1998................................................................ $ 551
1999................................................................ 550
2000................................................................ 116
------
$1,217
======
</TABLE>
b. Note payable
As of December 31, 1996, the Company had a $400 note payable to One Valley
Bank, bearing interest at 5.29%, payable on demand principal and interest for
180 days. This note was paid in 1997.
c. Letters of Credit
MVL has a letter of credit, secured by affiliate equipment, amounting to $800
to cover certain debt obligations.
d. Guarantor
As of December 31, 1997, MVL guarantees an affiliates' term loans of
approximately $1.4 million that mature on January 15, 2001. Subsequent to year-
end, MVL was released from its guarantor obligations (see Note 12a).
5. RECLAMATION COSTS
Under current federal and state surface mine laws, the Company is required to
reclaim land where surface mining operations are conducted. As the Company
obtained the permits relating to the surface mining of its controlled reserves,
they have the ultimate responsibility for ensuring that reclamation is
completed. Under agreements entered into by the Company with its contract
miners, such contract miners are contractually responsible for reclamation. In
the event that the contract miners do not perform the required reclamation, the
F-124
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Company would become liable for this reclamation. The Company assesses the
financial stability of the contract miners before entering into agreements. The
Company may require contract miners to maintain $250 in escrow to be released
upon completion of reclamation. If the contract miner obtains its own bonding,
the escrow requirement is waived. No additional amounts for reclamation have
been provided in the accompanying financial statements as the Company does not
believe it will be required to perform such activities. As of December 31,
1997, the Company had approximately $2.8 million in mining bonds.
6. INCOME TAXES
MVL and MMI have elected to be recognized as S corporations under the Internal
Revenue Code and similar state statutes. As a result, both entities are not
subject to income taxes and their taxable income or loss is reported in the
stockholders' individual tax returns.
PPI (organized in 1996) has elected to be recognized as a C corporation under
the Internal Revenue Code and similar state statutes. During 1996 and 1997, PPI
had no temporary differences between financial statement and tax bases of
assets and liabilities. Accordingly, the income tax provision for 1997 is
entirely current with no deferred portion. There are no significant differences
between the statutory tax rate and effective tax rate for PPI earnings.
7. COMMITMENTS AND CONTINGENCIES
a. Coal Sales Contracts
As of December 31, 1997, MVL had commitments to deliver base quantities of coal
to two customers. One contract expires at the end of 1998, with MVL contracted
to supply a minimum of approximately 60,000 tons of coal over the remaining
life of this contract at prices which are at or above market. MVL also has a
contract with CoalArbed, which extends through June 30, 1999 (see Note 9). MVL
is to supply a minimum of approximately 600,000 tons of coal at prices which
are at or above market.
b. Contract Mining Agreements
As of December 31, 1997, MVL had commitments to purchase quantities of coal
from three contract miners (including one affiliate) under various agreements.
In 1998, MVL is committed to purchase approximately 1,000,000 tons of coal at
cost which will not exceed the ultimate sales prices.
Included in the aforementioned tonnage purchase commitment is approximately
360,000 tons of coal to be purchased from a party related by common ownership,
Extra Energy, Inc. (EEI). MVL has used EEI as a contract miner since 1993.
Prior to January 1, 1998, EEI's per ton selling price to MVL was equal to EEI's
cost per ton to mine the coal, exclusive of any profit or cost of capital. As
of December 31, 1995, 1996 and 1997, EEI's price per ton was $28.20, $34.60 and
$16.00, respectively. Beginning January 1, 1998, EEI's sales price to MVL was
set at $23.00 per ton. These rates exclude additional mining costs such as
production taxes and royalty fees.
c. Litigation
The Company is named as defendant in two pending civil actions that relate to
an on-the-job accident. While the final resolution of any matter may have an
impact on the Company's financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not
have a materially adverse effect upon the financial position of the Company.
F-125
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
d. Leases
Lease Cost
The Company leases equipment from a related party. Lease expense for the years
ended December 31, 1995, 1996 and 1997 was $254, $243 and $619, respectively.
MMI and MVL also lease coal reserves under agreements that call for royalties
to be paid as the coal is mined. Total royalty expense for the periods ending
December 31, 1995, 1996 and 1997 was $259, $398 and $1,062, respectively.
Approximate future minimum lease and royalty payments are as follows:
<TABLE>
<CAPTION>
Operating
Year ended December 31: Royalties Leases
----------------------- --------- ---------
<S> <C> <C>
1998................................................... $53 $2,312
1999................................................... 53 2,312
2000................................................... 53 1,884
2001................................................... 32
2002................................................... 31
Thereafter............................................. 30
</TABLE>
Subsequent to year-end, the leases relating to royalties were amended (see Note
11b).
Lease Income
MMI leases certain coal reserve rights. During 1995, 1996 and 1997, MMI
recognized royalty income of $139, $198 and $353, respectively. The Company has
two lease agreements extending through 2001 and 2008, which call for minimum
annual payments to be received of $10 and $7, respectively.
8. STOCKHOLDERS' EQUITY
Stockholders' equity consists of:
<TABLE>
<CAPTION>
December 31,
--------------------- June 30,
1995 1996 1997 1998
------ ------ ------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Common Stock:
Mid-Vol Leasing, Inc.--$10.00 par value,
100 shares authorized, 100 shares issued
and outstanding........................... $ 1 $ 1 $ 1 $ 1
Mega Minerals, Inc.--$10.00 par value, 100
shares authorized, 100 shares issued and
outstanding............................... 1 1 1 1
Premium Processing, Inc.--$10.00 par value,
100 shares authorized, 100 shares issued
and outstanding........................... -- 1 1 1
------ ------ ------- ------
2 3 3 3
------ ------ ------- ------
Retained Earnings:
Mid-Vol Leasing, Inc....................... 3,326 3,133 9,286 5,840
Mega Minerals, Inc......................... 862 1,250 1,355 1,499
Premium Processing, Inc.................... -- 9 8 4
------ ------ ------- ------
4,188 4,392 10,649 7,343
------ ------ ------- ------
Total Stockholders' Equity............... $4,190 $4,395 $10,652 $7,346
====== ====== ======= ======
</TABLE>
F-126
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
9. MAJOR CUSTOMERS
The Company had sales to the following major customers that in any period
exceeded 10% of revenues:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------------------- -----------------------------
Year-End Year-End
Percent Percent Receivable Percent Receivable
Sales of Sales Sales of Sales Balance Sales of Sales Balance
------ --------- ------ --------- ----------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CoalArbed............... $3,315 27% $9,614 54% $455 $24,469 71% $4,554
Consol.................. $3,101 25% NA NA NA NA NA NA
Metcoal................. NA NA $3,093 17% $ 89 NA NA NA
Rheinbraun.............. $1,986 16% $2,235 13% -- NA NA NA
National Fuel Corp...... $1,251 10% NA NA NA NA NA NA
</TABLE>
10. RELATED PARTY TRANSACTIONS
As indicated in Note 2, all material related party transactions among the
combining Companies have been eliminated. Transactions with other corporations
related via common ownership were as follows:
<TABLE>
<CAPTION>
December 31, June 30,
--------------------- -------------
1995 1996 1997 1997 1998
------ ------ ------- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues and expenses:
Royalty income........................ $ -- $ -- $ 2 $ -- $ 13
Contract mining costs................. 9,653 9,282 13,029 7,209 5,396
Purchased coal........................ 986 -- -- -- --
Loading............................... 26 33 35 17 --
Equipment rental...................... 254 243 619 140 620
Administrative services............... 12 38 73 30 49
Maintenance and repair................ 122 -- -- -- --
</TABLE>
11. SUBSEQUENT EVENTS
a. Pace Carbon West Virginia Synthetic Fuels #3, L.L.C. Refuse Plant
In January 1998, MVL (as Lessor) and Pace Carbon West Virginia Synthetic Fuels
#3, L.L.C. (Pace) entered into a sub-lease agreement pertaining to 7 acres at
the Dan's Branch Location. The agreement runs through June 30, 2008, with Pace
paying $7 per year in rent to MVL.
Pace is constructing a coal palletizing plant on the leased property. Pace
plans to blend refuse type material with low quality coal to produce coal
briquettes, which will be sold to utilities.
As of December 31, 1997, Pace had advanced to MVL $100 towards the construction
of a beltway (conveyor). In March 1998, Pace advanced MVL an additional $1,900.
The beltway will run to MVL's Eckman loadout facility. MVL and Pace will both
have access to the beltway with MVL gaining ownership upon its completion. If
MVL cannot construct the beltway for $2,000 but can complete for up to $3,000,
Pace will loan MVL up to $1,000 at 8% interest. If MVL cannot complete the
project for the $3,000, the parties will decide who will fund the additional
amount. If the belt is determined to be not economically feasible (prior to
beginning construction), MVL is obligated to use the $2,000 advanced from Pace
to improve the haul roads at the Dan's Branch location. The Company estimates
construction costs of approximately $3,700. Due to the conveyor project not
being economically feasible, the Company plans on using the $2,000 towards
improving the haul roads.
F-127
<PAGE>
MID-VOL LEASING, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
b. Amendment to Pocahontas Land Corporation (Pocahontas) Leases
On April 1, 1998, MVL and MMI amended their individual leases with Pocahontas,
bringing all leases under the same terms. All leases extend through December
31, 2012, with renewal periods of 15 years. The Company will pay Pocahontas a
royalty rate of 3.25% on the average gross selling price per ton, beginning
April 1, 1998 through March 31, 2000; thereafter, the royalty rate increases to
3.50%. The advance minimum annual payment will be $185 payable in quarterly
payments of $46, effective January 1, 1998.
c. Potential Acquisition by AEI Holding Company, Inc.
In March 1998, the shareholders signed a letter of intent to sell all of the
stock of MVL, MMI and PPI to AEI Holding Company, Inc.
12. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
a. Release from Obligations
Subsequent to April 23, 1998, MVL was released from its guarantor obligation
(see Note 4d). Additionally, MVL was released from its operating lease
obligations (see Note 7d).
b. Purchase Agreement
On July 10, 1998, the shareholders entered into a stock purchase agreement and
immediately sold all their shares to Coal Ventures, Inc. (CVI), which is an
entity related to AEI Holding Company, Inc. CVI subsequently change its name to
AEI Resources, Inc. (Resources). The purchase price was $35,000 plus a working
capital adjustment as well as production royalty payments.
c. Debt Retirement
In July 1998 the Company paid off its remaining debt with company cash and net
proceeds from the $750 short-term note payable. Subsequently, the Company's
major shareholder retired the $750 note payable.
13. Unaudited Pro Forma Information
Upon acquisition by CVI (see note 12b) MVL and MMIs tax status changed from S
corporation to C corporation.
A pro forma adjustment has been made to historical net income to reflect a
provision for federal, state and local income taxes during the respective S
corporation periods (see note 6) using a combined effect rate of 38%.
F-128
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Kindill Holding, Inc.
Owensboro, Kentucky
We have audited the accompanying consolidated balance sheets of Kindill
Holding, Inc. (Company) as of December 31, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1996 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Louisville, Kentucky
April 3, 1998
(May 15, 1998 as to note 6 and August 17, 1998 as to note 16)
F-129
<PAGE>
KINDILL HOLDING, INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
---------------- -----------
1996 1997 1998
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS (In thousands)
CURRENT ASSETS:
Cash, and cash equivalents............. $ 102 $ 6,901 $ 2,713
Accounts receivable:
Trade, less allowance for doubtful
accounts of $119 (1996).............. 5,945 4,888 4,625
Escrow receivable related to
acquisition.......................... 3,888 -- --
Insurance claim....................... 1,161 -- --
Coal inventory......................... 718 1,964 3,291
Other.................................. 1,176 1,574 1,396
------- ------- --------
Total current assets................. 12,990 15,327 12,025
PROPERTY, PLANT, AND EQUIPMENT, net...... 76,409 79,131 86,413
OTHER ASSETS............................. 1,773 3,311 2,558
------- ------- --------
TOTAL.................................... $91,172 $97,769 $100,996
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................... $ 6,561 $ 6,167 $ 4,702
Accrued expenses:
Accrued payroll....................... 1,464 1,374 1,345
Accrued interest...................... 80 952 --
Other................................. 2,821 3,584 4,389
Payable to a relative of a stockholder
of the Parent......................... 11,193 -- --
Current maturities of long-term debt... 5,309 4,000 4,000
Current portion of accrued reclamation
liability............................. 13,000 8,000 5,000
------- ------- --------
Total current liabilities............ 40,428 24,077 19,436
LONG-TERM DEBT........................... 5,750 33,330 39,000
ACCRUED RECLAMATION LIABILITY............ 17,999 10,026 9,290
ACCRUED POSTRETIREMENT BENEFIT
OBLIGATION.............................. 20,937 23,587 25,037
DEFERRED INCOME TAXES.................... 2,014 1,697 2,899
COMMITMENTS AND CONTINGENCIES............ -- -- --
------- ------- --------
Total liabilities.................... 87,128 92,717 95,662
------- ------- --------
STOCKHOLDERS' EQUITY:
Common stock, no par value: authorized
30,000 shares; issued and outstanding
10,000 shares......................... 13 13 13
Note receivable from sale of common
stock................................. (8) (8) (8)
Retained earnings...................... 4,039 5,047 5,329
------- ------- --------
Total stockholders' equity........... 4,044 5,052 5,334
------- ------- --------
TOTAL.................................... $91,172 $97,769 $100,996
======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-130
<PAGE>
KINDILL HOLDING, INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
---------------- ----------------
1996 1997 1997 1998
------- ------- ------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
COAL SALES................................ $62,860 $58,761 $28,803 $36,867
COST OF COAL SOLD......................... 54,786 54,624 26,590 32,659
------- ------- ------- -------
GROSS PROFIT.............................. 8,074 4,137 2,213 4,208
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 3,435 2,019 1,111 1,337
------- ------- ------- -------
INCOME FROM OPERATIONS.................... 4,639 2,118 1,102 2,871
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Investment income....................... 363 340 110 233
Rental income........................... 100 159 122 54
Income from insurance claim............. 1,161 176 400 --
Other income............................ 147 303 76 31
Interest expense........................ (429) (1,562) (416) (2,720)
------- ------- ------- -------
Other income (expense), net........... 1,342 (584) 292 (2,402)
------- ------- ------- -------
INCOME BEFORE INCOME TAX EXPENSE.......... 5,981 1,534 1,394 469
INCOME TAX EXPENSE........................ 1,942 526 488 187
------- ------- ------- -------
NET INCOME................................ $ 4,039 $ 1,008 $ 906 $ 282
======= ======= ======= =======
NET INCOME PER COMMON SHARE (BASIC AND
DILUTED)................................. $ 404 $ 101 91 $ 28
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-131
<PAGE>
KINDILL HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1997 and Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Note Receivable
Common From Sales of Retained
Stock Common Stock Earnings Total
------ --------------- -------- ------
(In thousands)
<S> <C> <C> <C> <C>
BALANCES AT
JANUARY 1, 1996....................... $13 $(8) $ -- $ 5
Net income............................ -- -- 4,039 4,039
--- --- ------ ------
BALANCES AT
DECEMBER 31, 1996..................... 13 (8) 4,039 4,044
Net income............................ -- -- 1,008 1,008
--- --- ------ ------
BALANCES AT
DECEMBER 31, 1997..................... 13 (8) 5,047 5,052
Net income (Unaudited)................ -- -- 282 282
--- --- ------ ------
BALANCE AT
JUNE 30, 1998 (Unaudited)............. $13 $(8) $5,329 $5,334
=== === ====== ======
</TABLE>
See notes to consolidated financial statements.
F-132
<PAGE>
KINDILL HOLDING, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
-------------------------- --------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Unaudited)
(In thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 4,039 $ 1,009 $ 906 $ 282
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation,
depletion and
amortization......... 4,249 5,123 1,962 1,961
Gain on sales of
property, plant and
equipment............ (1) (37) -- (131)
Deferred income
taxes................ 1,627 (278) 488 187
Changes in assets and
liabilities (net of
effects
of acquisitions):
Accounts receivable.. 1,007 6,105 6,478 263
Coal inventory....... (718) (1,246) (713) (1,327)
Other current assets
and other assets.... (166) (5,324) 1,088 930
Accounts payable..... 6,561 (394) (720) (1,465)
Accrued expenses..... 11,939 1,546 (1,320) 839
Accrued reclamation
liability........... (28,501) (12,973) (4,435) (3,736)
Accrued
postretirement
benefit obligation.. 2,302 2,650 804 1,450
------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities......... 2,338 (3,819) 4,538 (747)
------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Expenditures for
purchases of property,
plant and equipment... (16,037) (4,624) (806) (9,330)
Proceeds from
(Expenditures for)
sales of property,
plant and equipment... 7 165 (110) 218
Cash received from
acquisitions.......... 2,735 -- -- --
Payable to a relative
of a stockholder of
the Parent............ -- (11,193) -- --
------------ ------------ ------------ ------------
Net cash used in
investing
activities......... (13,295) (15,652) (916) (9,112)
------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt..... 31,262 81,223 -- 7,171
Principal payments on
long-term debt........ (20,203) (54,953) (3,239) (1,500)
------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities......... 11,059 26,270 (3,239) 5,671
------------ ------------ ------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 102 6,799 383 (4,188)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. -- 102 102 6,901
------------ ------------ ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 102 $ 6,901 $ 485 $ 2,713
============ ============ ============ ============
CASH PAID DURING THE
PERIOD FOR INTEREST.... $ 349 $ 690 $ 436 $ 3,144
============ ============ ============ ============
CASH PAID DURING THE
PERIOD FOR INCOME
TAXES.................. $ -- $ 44 $ -- $ --
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-133
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 31, 1996 and 1997
(Dollars In Thousands)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Description of Business--Kindill Holding, Inc., (Company) is primarily engaged
in the extraction and processing of coal in Southern Indiana. The principal
market for the Company's coal is electric utilities located in Southern Indiana
and Western Kentucky. Coal sales are made under long-term contracts and on the
spot market, and are made on an unsecured basis. A substantial portion of the
Company's labor force is under a contract with the United Mine Workers of
America (UMWA).
Basis of Presentation--The consolidated financial statements include the
accounts of Kindill Holding, Inc. and its subsidiary. All significant
intercompany transactions and balances have been eliminated. Any information as
of June 30, 1998 and for the six months ended June 30, 1997 and 1998 is
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
these interim periods have been included. The result for its interim periods
ended June 30, 1997 and 1998, are not necessarily indicative of the results to
be obtained for the full year.
Acquisitions--On December 6, 1995 and February 12, 1996, the Company acquired
certain assets, primarily mineral reserves and mining machinery and equipment
of approximately $79,019, assumed certain liabilities, primarily reclamation
and postretirement benefit obligation of approximately $81,754, and received
cash of $2,735. Liabilities assumed also include a payable to a relative of a
stockholder of the Parent for fees related to the acquisitions of approximately
$16,600. The purchase method was used to account for the acquisitions.
Cash and Cash Equivalents--Cash and cash equivalents include cash on deposit
and highly liquid investments with original maturities of three months or less.
Inventories--Coal inventory is stated at the lower of costs (first-in, first-
out method) or market. Coal inventory costs primarily include labor, equipment,
drilling, blasting and stripping costs. Expenditures for mine supply inventory,
which totaled approximately $11,130 and $10,804 in 1996 and 1997, respectively,
are charged to expense when incurred.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost. Depreciation is determined using principally the straight-line method
over the estimated useful lives of the related assets. Expenditures for mineral
rights are capitalized. Mineral rights costs are depleted or amortized using
the units of production method. Expenditures for maintenance and repair costs
which totaled approximately $8,270 and $9,013 in 1996 and 1997, respectively,
are charged to expense when incurred.
Deferred Financing Costs--The cost of issuing long-term debt is capitalized and
amortized using the effective interest method over the term of the related
debt.
Advanced Royalties--Advanced, or recoupable, royalties represent prepayments on
leases for the rights to mine minerals. These royalties are charged to expense
based on the units of production method or charged to operations when the
Company has ceased mining or has made the decision not to mine such property.
Asset Impairment--In certain situations, expected mine lives are shortened
because of changes to planned operations. To the extent that it is determined
that asset carrying values will not be recoverable during the shorter mine
life, a provision for such impairment is recognized. In addition, the Company
elected to adopt Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of in 1996. SFAS No. 121 expanded the Company's criteria
F-134
<PAGE>
for loss recognition, and provides methods for both determining when an
impairment has occurred and for measuring the amount of the impairment. SFAS
No. 121 requires that projected future cash flows from use and disposition of
all the Company's assets be compared with the carrying amounts of those assets.
When the sum of projected cash flows is less than the carrying amount,
impairment losses are to be recognized. There are no asset impairments at
December 31, 1996 and 1997.
Accrued Reclamation Liability--The Company is required to reclaim land on which
mining operations are conducted. An estimated reclamation liability associated
with acquired properties is recognized on the purchase date. The costs of
normal ongoing surface mining reclamation are charged to cost of sales as
incurred. Reclamation costs primarily include reclaiming the final pit and
support acreage at surface mines, removing or covering refuse piles and slurry
(or settling) ponds and dismantling preparation plants and other facilities.
Accrued Postretirement Benefit Obligation--As prescribed by SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions, the
Company accrues, based on annual independent actuarial valuation, for expected
costs of providing postretirement benefits other than pensions, primarily
medical benefits, during an employee's actual working career.
Income Taxes--The Company accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes. Under SFAS No. 109, deferred taxes are
established for temporary differences between financial reporting basis and the
tax basis of the Company's assets and liabilities at enacted tax rates expected
to be in effect when such amounts are realized or settled.
Revenue Recognition--Coal sales are recognized at contract prices as the time
title transfers to the customer.
Net Income Per Common Shares--The Company adopted SFAS No. 128, Earnings Per
Share, which requires the Company to present its basic net income per common
share. Net income per common share is determined by dividing the weighted
average number of common shares outstanding during the year into net income.
Rate Ceiling Agreement--The Company centered into a rate ceiling agreement to
reduce the impact of changes in interest rates on $21,000 of its floating rate
debt for the period from October 2, 1997 through September 30, 2000. The rate
available under the agreement caps the 10.25% rate under a term note at 12.25%.
Net cash amounts paid or received under the agreement, if any, are accrued and
recognized as an adjustment to interest expense. There were no amounts paid or
received under the agreement in 1997.
Use of Estimates--Financial statements prepared in conformity with a generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
2. FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance sheet risk. No
losses are anticipated due to nonperformance by the counterparties relating to
financial instruments. Pursuant to SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, the Company is required to disclose the fair value of
financial instruments where practicable. The carrying amounts of cash
equivalents, accounts receivable and accounts payable reflected on the balance
sheets approximate the fair value of these instruments due to the short
duration to maturity. The fair value of long-term debt is based on the interest
rates available to the Company for debt with similar terms and maturities. The
fair value of the rate ceiling agreement is based on the quoted market price as
provided by the financial institution which is the counterparty to the
agreement.
F-135
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of the Company's long-term debt and rate ceiling agreement as of
December 31 is as follows:
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Long-term debt............................ $11,059 $11,059 $37,330 $37,330
Rate ceiling agreement.................... $ 14
</TABLE>
3. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Advanced royalties, current portion........................... $ 370 $ 210
Deferred income taxes......................................... 386 347
Prepaid insurance............................................. 210 530
Other......................................................... 210 487
------ ------
Total......................................................... $1,176 $1,574
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Useful Lives
1996 1997 (Years)
------- ------- ------------
<S> <C> <C> <C>
Land.......................................... $ 2,733 $ 3,128
Mining machinery and equipment................ 33,066 33,531 5-12
Mineral reserves.............................. 34,136 39,819
Buildings, preparation plans, loading
facilities and improvements.................. 9,483 9,956 5-15
Vehicles...................................... 993 1,289 5
Office equipment, furniture and fixtures...... 159 323 5
------- -------
Total..................................... 80,570 88,046
Less accumulated depreciation, depletion and
amortization................................. 4,161 8,915
------- -------
Net........................................... $76,409 $79,131
======= =======
</TABLE>
5. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred loan financing costs, less current portion, net of
accumulated amortization of $350 (1997).................... $1,465
Advanced royalties.......................................... $ 866 1,024
Other....................................................... 907 822
------ ------
Total....................................................... $1,773 $3,311
====== ======
</TABLE>
F-136
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Term notes payable, secured by substantially all assets,
interest at prime (8.5% at December 31, 1997) plus 1.75%
and 2.25%, payable in installments through March 2005, plus
interest notes as described below.......................... $37,330
Interest notes, less deferred interest as described below...
Term note payable........................................... $ 7,500
Revolving credit commitment (weighted average interest
rate of 8.4%).............................................. 3,559
------- -------
Total................................................... 11,059 37,330
Less current maturities..................................... 5,309 4,000
------- -------
Long-term maturities........................................ $ 5,750 $33,330
======= =======
</TABLE>
Annual principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
1998............................................................. $ 4,000
1999............................................................. 5,333
2000............................................................. 5,333
2001............................................................. 5,333
2002............................................................. 5,333
Thereafter....................................................... 11,998
-------
Total............................................................ $37,330
=======
</TABLE>
At December 31, 1997, the Company has interest notes of $8,000 for additional
interest payable to the term note lenders. The interest notes are secured by
substantially all assets, bear interest at prime (8.5% at December 31, 1997)
plus 2%, and are payable in installments through March 2005. The cost related
to these notes has been recorded as a contra account to long-term debt and is
being amortized using the effective interest method over the period of the term
notes. The Company can prepay the interest notes, for $5,000 at any time on or
prior to December 31, 1998, for $6,000 at any time on or prior to June 30,
1999, or for $7,000 at any time on or prior to December 31, 1999. At present,
Company management intends to pay the interest notes in installments through
March 2005. However, if the Company prepays the term and additional interest
notes, interest will be adjusted to include the amount of the interest
prepayment not yet recognized under the effective interest method. The
approximate amount of the interest that would be adjusted to include the amount
of interest prepayment not yet recognized under the effective interest method
is $2,933 in 1998 if prepaid on December 31, 1998, is $2,362 in 1998 and $647
in 1999 if prepaid on June 30, 1999, or is $2,044 in 1998 and 1999 if prepaid
on December 31, 1999.
Loan agreements related to the term notes require the Company to maintain
certain minimum financial ratios and also contain certain restrictive
provisions, including, among others, restrictions on selling or transferring
assets, incurring additional indebtedness, making distributions without prior
consent of the lenders, leasing of real or personal property and purchasing
fixed assets. The Company was not in compliance with its interest coverage
ratio covenant and, on May 15, 1998, received a waiver from the term note
lenders.
F-137
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. ACCRUED POSTRETIREMENT BENEFIT OBLIGATION
Pursuant to Article XX, Health and Retirement Benefits, of the National
Bituminous Coal Wage Agreement of 1993 (NBCWA), the Company is required to
provide for postretirement benefits other than pensions to eligible
beneficiaries covered by the NBCWA. The net postretirement healthcare cost for
1996 and 1997 includes the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Service cost.................................................. $ 310 $ 187
Interest cost................................................. 2,125 2,233
Amortization of unrecognized loss............................. 406 277
------ ------
Net periodic postretirement benefit cost...................... $2,841 $2,697
====== ======
</TABLE>
A reconciliation of the plan's status to amounts recognized in the Company's
balance sheets at December 31, follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 3,139
Fully eligible active employees........................... $23,502 23,500
Other active employees.................................... 4,735 2,979
------- -------
Total................................................... 28,237 29,618
Unrecognized net loss..................................... 7,300 6,031
------- -------
Accumulated postretirement benefit obligation............... $20,937 $23,587
======= =======
</TABLE>
The discount rate used to determine the accumulated postretirement benefit
obligation was 7% at December 31, 1996 and 1997. The assumed healthcare cost
trend rates used in determining the net expense for 1997 are shown in the
following table. Healthcare cost trends were assumed to decline from 1997
levels to an ultimate ongoing level over four years as follows:
<TABLE>
<CAPTION>
1997 Ultimate
Rate Rate
---- --------
<S> <C> <C>
Pre-65......................................................... 7.4% 5%
Post-65........................................................ 6.2% 5%
Medicare offset................................................ 5.8% 5%
</TABLE>
The expense and liability estimates can fluctuate by significant amounts based
upon the assumptions used by actuaries. If the healthcare cost trend rate was
increased by 1% in each year, the accumulated postretirement benefit obligation
would be approximately $5,670 higher as of December 31, 1997. The effect of
this change on the 1997 expense would be an increase of approximately $440.
8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Current........................................................ $ 315 $ 804
Deferred expense (benefit)..................................... 1,627 (278)
------ -----
Income tax expense............................................. $1,942 $ 526
====== =====
</TABLE>
F-138
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax expense does not differ materially from the amount computed by
applying the statutory federal income tax rate of 34% to income before income
taxes.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current deferred tax assets:
Accrued liabilities, primarily accrued vacation.......... $ 300 $ 281
Deferred rent............................................ 46 66
Allowance for doubtful accounts.......................... 40
------- -------
Total current deferred tax assets.......................... $ 386 $ 347
------- -------
Non-current deferred tax assets:
Postretirement benefits.................................. $ 7,119 $ 7,989
Reclamation.............................................. 6,129 6,129
------- -------
Total non-current deferred tax assets...................... 13,248 14,118
------- -------
Non-current deferred tax liabilities:
Differences between assigned values and tax bases of
minerals acquired....................................... 6,148 6,439
Differences between assigned values and tax bases of
fixed assets acquired................................... 9,114 9,376
------- -------
Total non-current deferred tax liabilities................. 15,262 15,815
------- -------
Net non-current deferred tax liabilities................... $ 2,014 $ 1,697
======= =======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The following summarizes expenses incurred during 1996 and 1997 and for the six
months ended June 30, 1998 and amounts payable at December 31, 1996 and 1997
and June 30, 1998 to related parties:
<TABLE>
<CAPTION>
1996 1997 June 30, 1998
---------------- ---------------- ----------------
Expenses Payable Expenses Payable Expenses Payable
-------- ------- -------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Payable to a relative of a
stockholder.............. $11,200
Equipment rentals and
other operational costs
paid to a company owned
by a relative of a
stockholder.............. $7,444 1,646 $8,680 $996 $5,558 $71
Sales commissions paid to
a company owned by a
relative of a
stockholder.............. 1,048 117
Consulting fees paid to a
former stockholder....... 1,435 75
Consulting fees paid to a
stockholder.............. 131 30
------ ------- ------ ---- ------ ---
Total..................... $9,927 $12,963 $8,886 $996 $5,588 $71
====== ======= ====== ==== ====== ===
</TABLE>
F-139
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. COAL SUPPLY CONTRACTS
The Company has commitments to deliver scheduled base quantities of coal
annually to various customers, which require the Company to supply a minimum
supply of coal over the remaining lives of the contracts at prices as defined
under the contracts. The annual requirements of tons to be delivered under coal
supply contracts are as follows:
<TABLE>
<CAPTION>
Tons
--------------
(In Thousands)
<S> <C>
1998.......................................................... 2,040
1999.......................................................... 1,260
2000.......................................................... 1,260
2001.......................................................... 1,260
2002.......................................................... 1,260
Thereafter.................................................... 3,960
------
Total......................................................... 11,040
======
</TABLE>
11. LEASES
The Company has certain noncancelable royalty and equipment operating lease
agreements with terms in excess of one year. The annual minimum commitments are
as follows:
<TABLE>
<CAPTION>
Royalty Equipment Total
------- --------- -------
<S> <C> <C> <C>
1998............................................... $ 69 $ 2,848 $ 2,917
1999............................................... 69 2,848 2,917
2000............................................... 69 2,848 2,917
2001............................................... 69 2,848 2,917
2002............................................... 69 2,848 2,917
2003 and Thereafter................................ 367 2,848 3,215
---- ------- -------
Total.............................................. $712 $17,088 $17,800
==== ======= =======
</TABLE>
Royalty and lease expense for 1996 and 1997 was approximately $8,950 and
$4,100, respectively.
12. BENEFIT TRUST AND PLANS
The Company is required under their contract with the UMWA to pay amounts based
on hours worked to the UMWA Pension Plan and Trust, a multi-employer pension
plan covering all employees who are members of the UMWA. The accompanying
statements of income include approximately $540 and $466 of expense in 1996 and
1997, respectively, applicable to the plan. The NBCWA authorizes the
Bituminious Coal Operators Association to increase the rate of contributions
from employers to assure payment of benefits. The union contract requires all
currently participating employers to guarantee benefits jointly, but not
severally, with all other currently participating employers.
The Company has a defined contribution savings plan under the provisions of
Sec. 401(k) of the Internal Revenue Code that provides retirement benefits to
substantially all employees other than employees covered by the contract with
the UMWA. The Company's contribution is discretionary. The Company did not make
any contributions in 1996 or 1997.
F-140
<PAGE>
KINDILL HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. SELF-INSURED EMPLOYEE HEALTH AND DISABILITY BENEFITS
The Company maintains self-insurance programs for that portion of
nonadministrative employees' workers' compensation costs not covered by the
Company's stop loss insurance policy. During 1996 and 1997, the maximum cash
outlays were $250 in annual claims for each accident and aggregate annual
claims of $750 and $500, respectively. Workers' compensation costs charged to
expense in 1996 and 1997 were approximately $185 and $132, respectively.
Effective August 1, 1997, the Company began a self-insurance program for that
portion of employees' health care costs not covered by the Company's stop loss
insurance policy, which sets the maximum cash outlays for annual claims for
each employee or employee's dependent up to $35 and individual lifetime maximum
of $1,000 at December 31, 1997. Health care costs charged to expense in 1997
were approximately $63.
14. NET INCOME PER COMMON SHARE
The following are reconciliations of the numerators and denominators used for
the determination of net income per common share for the years ended December
31, 1996 and 1997.
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Numerator:
Net income...................................................... $4,039 $1,008
Denominator:
Weighted-average number of common shares outstanding............ 10 10
------ ------
Net income per common share...................................... $ 404 $ 101
------ ------
</TABLE>
15. MAJOR CUSTOMERS
The Company has sales to the following major customers that exceed 10% of
revenues. These revenues and each customer's relative percentage of total trade
receivables are summarized below:
<TABLE>
<CAPTION>
Percentage of Percentage of
Revenues Total Revenues Total Receivables
-------- -------------- -----------------
<S> <C> <C> <C>
As of and for the year ending
December 31, 1996
Customer A.......................... $11,068 17.6% 19.9%
Customer B.......................... 9,977 15.9% 13.4%
Customer C.......................... 9,415 15.0% 0.0%
Customer D.......................... 9,048 14.4% 27.2%
Customer E.......................... 7,705 12.3% 19.1%
As of and for the year ending
December 31, 1997
Customer A.......................... $24,471 41.6% 18.5%
Customer B.......................... 6,661 11.3% 13.6%
</TABLE>
16. SUBSEQUENT EVENT
On August 17, 1998 the stockholders of the Company agreed to sell all of the
outstanding common stock of the Company to West Virginia--Indiana Coal Holding
Company, Inc. for approximately $11,000.
F-141
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of AEI Resources, Inc.:
We have audited the accompanying balance sheets of Martiki Coal Corporation (a
wholly-owned subsidiary of MAPCO Coal, Inc.) as of December 31, 1997, and
September 30, 1998, and the related statements of operations, stockholder's
equity, and cash flows for the seven months ended July 31, 1996 (predecessor),
and for the five months ended December 31, 1996, the year ended December 31,
1997, and the nine months ended September 30, 1998 (successor). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Martiki Coal Corporation at December 31,
1997, and September 30, 1998, and the results of its operations and its cash
flows for the seven months ended July 31, 1996 (predecessor), and for the five
months ended December 31, 1996, the year ended December 31 1997, and the nine
months ended September 30, 1998 (successor), in conformity with generally
accepted accounting principles.
As discussed in Note 1, effective August 1, 1996, Martiki Coal Corporation's
parent became a wholly owned subsidiary of Alliance Coal Corporation in a
business combination accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on fair values. Accordingly, the predecessor
financial statements for the seven months ended July 31, 1996, are not
necessarily comparable to the successor financial statements subsequent to
August 1, 1996.
DELOITTE & TOUCHE LLP
Tulsa, Oklahoma
January 7, 1999
F-142
<PAGE>
MARTIKI COAL CORPORATION
(A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
BALANCE SHEETS
December 31, 1997 and September 30, 1998
(Amounts in Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
1997 1998
ASSETS ------- -------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable........................................ $ 9,095 $ 7,914
Inventory.................................................. 8,732 6,801
Prepaid expenses and other current assets.................. 99 --
------- -------
Total current assets..................................... 17,926 14,715
PROPERTY, PLANT AND EQUIPMENT--Net........................... 34,238 25,557
DEFERRED INCOME TAXES--Net................................... 1,137 2,022
OTHER ASSETS................................................. 47 47
------- -------
TOTAL........................................................ $53,348 $42,341
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 3,863 $ 2,746
Accrued expenses........................................... 2,246 1,881
Due to Parent.............................................. 1,688 1,236
------- -------
Total current liabilities................................ 7,797 5,863
RECLAMATION AND MINE CLOSING................................. 4,268 4,465
ACCRUED PNEUMOCONIOSIS BENEFITS.............................. 1,534 1,553
WORKERS COMPENSATION AND OTHER LONG-TERM LIABILITIES......... 773 770
------- -------
Total liabilities........................................ 14,372 12,651
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $3,000 par value per share--authorized,
issued,
and outstanding, 1 share.................................. 3 3
Additional paid-in capital................................. 39,360 35,315
Accumulated deficit........................................ (387) (5,628)
------- -------
Total stockholder's equity............................... 38,976 29,690
------- -------
TOTAL........................................................ $53,348 $42,341
======= =======
</TABLE>
See notes to financial statements.
F-143
<PAGE>
MARTIKI COAL CORPORATION
(A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
STATEMENTS OF OPERATIONS
Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months Ended
December 31, 1996, Year Ended December 31, 1997, and Nine Months Ended
September 30, 1998 (Successor)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Predecessor Successor
----------- -------------------------------------------
July 31, December 31, December 31, September 30,
1996 1996 1997 1998
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
REVENUES............................................................ $52,589 $42,730 $73,857 $54,371
------- ------- ------- -------
OPERATING EXPENSES:
Cost of operations................................................ 43,649 31,285 67,333 51,648
Depreciation and amortization..................................... 5,299 7,167 9,702 8,621
General and administrative........................................ 1,231 932 2,963 2,434
------- ------- ------- -------
Total operating expenses........................................ 50,179 39,384 79,998 62,703
======= ======= ======= =======
INCOME (LOSS) FROM OPERATIONS....................................... 2,410 3,346 (6,141) (8,332)
OTHER INCOME........................................................ 126 119 559 93
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES................................... 2,536 3,465 (5,582) (8,239)
INCOME TAX EXPENSE (BENEFIT)........................................ 358 183 (1,913) (2,998)
------- ------- ------- -------
NET INCOME (LOSS)................................................... $ 2,178 $ 3,282 $(3,669) $(5,241)
======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-144
<PAGE>
MARTIKI COAL CORPORATION
(A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
STATEMENTS OF OPERATIONS
Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months Ended
December 31, 1996, Year Ended December 31, 1997, and Nine Months Ended
September 30, 1998 (Successor)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Retained Total
Additional Earnings Stock-
Common Paid-In (Accumulated holder's
Stock Capital Deficit) Equity
------ ---------- ------------ --------
<S> <C> <C> <C> <C>
PREDECESSOR BALANCE, JANUARY 1, 1996... $ 3 $31,062 $ 16,111 $47,176
Net income........................... -- -- 2,178 2,178
---- ------- -------- -------
PREDECESSOR BALANCE, JULY 31, 1996..... 3 31,062 18,289 49,354
Purchase price allocation in business
combination (Note 1)................ -- 15,798 (18,289) (2,491)
---- ------- -------- -------
SUCCESSOR BALANCE, AUGUST 1, 1996...... 3 46,860 -- 46,863
Net income........................... -- -- 3,282 3,282
Capital contributed.................. -- 2,040 -- 2,040
---- ------- -------- -------
BALANCE, DECEMBER 31, 1996............. 3 48,900 3,282 52,185
Net loss............................. -- -- (3,669) (3,669)
Return of capital.................... -- (9,540) -- (9,540)
---- ------- -------- -------
BALANCE, DECEMBER 31, 1997............. 3 39,360 (387) 38,976
Net loss............................. -- -- (5,241) (5,241)
Return of capital.................... -- (4,045) -- (4,045)
---- ------- -------- -------
BALANCE, SEPTEMBER 30, 1998............ $ 3 $35,315 $ (5,628) $29,690
==== ======= ======== =======
</TABLE>
See notes to financial statements.
F-145
<PAGE>
MARTIKI COAL CORPORATION
(A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
STATEMENTS OF CASH FLOWS
Seven Months Ended July 31, 1996 (Predecessor) And For The Five Months Ended
December 31, 1996, Year Ended December 31, 1997, And Nine Months Ended
September 30, 1998 (Successor)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------------------------------------
July 31, December 31, December 31, September 30,
1996 1996 1997 1998
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................................... $ 2,178 $ 3,282 $(3,669) $(5,241)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.......................................... 5,299 7,167 9,702 8,621
Deferred income taxes.................................................. 1,915 (2,067) (1,407) (885)
Gain on sale of property and equipment................................. (1) -- (2) (4)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............................ 2,323 (8,096) 6,499 1,181
(Increase) decrease in inventory...................................... (1,765) (775) (1,741) 1,931
(Increase) decrease in prepaid expenses and other current assets...... (32) 10 (99) 99
(Increase) decrease in other assets................................... 251 (38) 31 --
Increase (decrease) in accounts payable............................... 1,398 (3,103) 150 (1,117)
Increase (decrease) in accrued expenses............................... (269) 756 18 (365)
Increase (decrease) in due to Parent.................................. (6,372) 1,113 574 (452)
Increase (decrease) in accrued pneumoconiosis benefits................ 45 (42) 76 19
Increase in reclamation and mine closing.............................. 96 89 259 197
Increase (decrease) in workers compensation and other long-term
liabilities.......................................................... 269 236 67 (3)
------- ------- ------- -------
Net cash provided by (used in) operating activities.................. 5,335 (1,468) 10,458 3,981
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.............................. (5,399) (572) (1,138) --
Proceeds from sale of property, plant and equipment.................... 64 -- 220 64
------- ------- ------- -------
Net cash provided by (used in) investing activities.................. (5,335) (572) (918) 64
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributed by Parent.......................................... -- 2,040 -- --
Return of capital to Parent............................................ -- -- (9,540) (4,045)
------- ------- ------- -------
Net cash provided by (used in) financing activities.................. -- 2,040 (9,540) (4,045)
------- ------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS AND BALANCE AT END OF PERIOD..... $ -- $ -- $ -- $ --
======= ======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded) through Parent (Note 2).................... $(1,557) $ 2,250 $ (506) $(2,113)
======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-146
<PAGE>
MARTIKI COAL CORPORATION
(A Wholly-Owned Subsidiary of MAPCO Coal, Inc.)
NOTES TO FINANCIAL STATEMENTS
Seven Months Ended July 31, 1996 (Predecessor) and for the Five Months
Ended December 31, 1996, Year Ended December 31, 1997 and Nine Months
Ended September 30, 1998 (Successor)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization--Martiki Coal Corporation (the "Company") produces and markets
coal from a surface mine complex located in Kentucky. Coal is sold primarily to
electric utilities located in the eastern United States. The Company is a
wholly-owned subsidiary of MAPCO Coal, Inc., that, since August 1, 1996, has
been a wholly-owned subsidiary of Alliance Coal Corporation ("Alliance") and
represents the successor company ("Successor"). Prior to August 1, 1996, MAPCO
Coal, Inc. was a wholly-owned subsidiary of MAPCO Inc. ("MAPCO") and represents
the predecessor company ("Predecessor").
Basis of Presentation--The accompanying financial statements present the
assets, liabilities, revenues and expenses related to the Company. Effective
August 1, 1996, pursuant to a stock purchase agreement by and between Alliance
and MAPCO, Alliance acquired all of the outstanding stock of MAPCO Coal, Inc.
The allocation of the acquisition costs among the acquired assets and assumed
liabilities was based on fair values using appraisals, actuarial valuations,
and management estimates using the purchase method of accounting for business
combinations. Operating results prior to August 1, 1996 for the Predecessor are
presented on a historical cost basis and are not necessarily comparable to
operating results subsequent to August 1, 1996 for the Successor primarily due
to depreciation and amortization.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates in the Financial Statements--The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
Fair Value of Financial Instruments--The carrying amounts for accounts
receivable, accounts payable and amounts due from Parent approximate fair value
because of the short maturity of those instruments.
Cash Management--The Company participated in the cash management program of
Alliance subsequent to August 1, 1996 and MAPCO prior to August 1, 1996. All
cash transactions for the Company, including current income taxes attributable
to the Company, were processed by Alliance and MAPCO's treasury function during
the respective periods and reflected through Due to Parent.
Inventories--Inventories are stated at the lower of cost or market. Coal and
supplies inventories are determined on an average cost basis.
Property, Plant, and Equipment--Property, plant, and equipment were presented
at fair value at August 1, 1996 and at historical cost prior to that date.
Additions and replacements constituting improvements are capitalized.
Maintenance, repairs, and minor replacements are expensed as incurred.
Depreciation and amortization is computed principally on the straight-line
method based upon the estimated useful lives of the assets or the estimated
life of the mine (6 years at revaluation date of August 1, 1996), whichever is
less. Depreciable lives for mining equipment and processing facilities range
from 3 to 6 years. Depreciable lives for land and land improvements range from
6 to 10 years. Depreciable lives for buildings, office equipment and
improvements are 6 years. Gains or losses arising from retirements are included
in current operations.
F-147
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company reviews the carrying value of property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable based upon estimated future cash flows.
As of September 30, 1998, the Company had not recorded any impairments.
Advance Royalties--Advance royalties are included in Other Assets and represent
rights to coal mineral leases acquired through advance royalty payments.
Management assesses the recoverability of royalty prepayments based on
estimated future production and capitalizes these amounts accordingly. As
mining occurs on those leases, the royalty prepayments are included in the cost
of mined coal. Royalty prepayments estimated to be nonrecoverable are expensed.
Coal Supply Agreement--A portion of the acquisition costs ($3.2 million) at
August 1, 1996 was allocated to a coal supply agreement which was amortized to
expense during the five months ended December 31, 1996 due to the expiration of
the coal supply agreement on December 31, 1996.
Reclamation and Mine Closing Costs--Estimates for the cost of future mine
reclamation and closing procedures are recorded on a present value basis.
Accruals for estimated future reclamation and mine closing costs are subject to
potential changes in conditions, such as regulatory requirements, that affect
these estimates. Ongoing reclamation costs are expensed as incurred.
Workers' Compensation and Pneumoconiosis ("Black Lung") Benefits--The Company
is self-insured for workers' compensation benefits, including black lung
benefits. The Company accrues a workers' compensation liability for the
estimated present value of current and future workers' compensation benefits
based on actuarial valuations. These estimates are subject to potential changes
in benefit development factors that affect management's projections of the
ultimate benefits liability.
Income Taxes--The Company uses the asset and liability method of accounting for
income taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial and tax reporting purposes. For the predecessor, the Company's
operations were included in the consolidated U.S. income tax return of MAPCO.
For the successor, the Company's operations have been included in the
consolidated U.S. income tax return of Alliance. Accordingly, income tax
balances will ultimately be settled through the intercompany account with the
Parent. The Company files a separate state income tax return in Kentucky. For
purposes of preparing the financial statements, federal and state income taxes
are determined as if the Company filed separate income tax returns.
Revenue Recognition--Revenues are recognized when coal is shipped from the
mine.
Return of Capital--By way of directive from Alliance, $9,540,000 and $4,045,000
of capital was returned to Alliance on December 31, 1997 and September 30,
1998, respectively.
New Accounting Standards - Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"), requires publicly-held companies to report financial and descriptive
information about operating segments in financial statements issued to
shareholders for interim and annual periods. SFAS No. 131 also requires
additional disclosures with respect to products and services, geographic areas
of operation, and major customers. The Company adopted SFAS No. 131 effective
January 1998. The Company has no reportable segments due to its operations
consisting solely of producing and marketing coal, and the Company has
disclosed major customer sales information (Note 10) and geographic areas of
operation (Note 1) in accordance with SFAS No. 131.
F-148
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The statement establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company has not determined the impact on its
financial statements that may result from adoption of SFAS No. 133, which is
required no later than January 1, 2000.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Coal.............................................. $5,815 $4,031
Supplies.......................................... 2,917 2,770
------ ------
$8,732 $6,801
====== ======
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Mining equipment and processing facilities....... $44,703 $44,533
Land and land improvements....................... 2,605 2,610
Buildings, office equipment and improvements..... 587 587
------- -------
47,895 47,730
Less accumulated depreciation and amortization... (13,657) (22,173)
------- -------
$34,238 $25,557
======= =======
</TABLE>
5. INCOME TAXES
The Company recognizes a deferred tax asset for the future tax benefits
attributable to deductible temporary differences to the extent that realization
of such benefits is more likely than not. Realization of these future tax
benefits is dependent on the Company's ability to generate future taxable
income. Management believes that future taxable income will be sufficient to
recognize a portion of the tax benefits and has established a valuation
allowance for the remaining portion. There can be no assurance, however, that
the Company will generate sufficient taxable income in the future.
The Company has approximately $1,305,000 and $6,715,000 of net operating loss
carryforwards ("NOLs") as of December 31, 1997 and September 30, 1998,
respectively, that expire during 2012 and 2013. The Company has established a
100% valuation allowance for the tax benefit of these NOLs due to the
uncertainty of realizing these benefits on future consolidated tax returns for
Alliance.
F-149
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The tax effects of significant items comprising the Company's net deferred tax
asset are as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Coal supply agreements............................ $2,166 $2,039
Accrued reclamation and mine closing.............. 1,707 1,786
Accrued workers' compensation and pneumoconiosis
benefits......................................... 818 816
Accrued expenses not currently deductible......... 329 342
Net operating loss carryforwards.................. 522 2,686
------ ------
5,542 7,669
Valuation allowance............................... (1,409) (3,626)
------ ------
Deferred tax asset................................ 4,133 4,043
------ ------
DEFERRED TAX LIABILITIES:
Differences between book and tax basis of
property, plant and equipment.................... 2,906 2,021
Other............................................. 90 --
------ ------
Deferred tax liability............................ 2,996 2,021
------ ------
NET DEFERRED TAX ASSET.............................. $1,137 $2,022
====== ======
</TABLE>
Income (loss) before income taxes is derived from domestic operations.
Significant components of income tax expense (benefit) are as follows (in
thousands):
<TABLE>
<CAPTION>
Predecessor Successor
------------ ---------------------------------------
Seven Months Five Months Nine Months
Ended Ended Year Ended Ended
July 31, December 31, December 31, September 30,
1996 1996 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
CURRENT:
Federal................ $(1,362) $2,012 $ (457) $(1,893)
State.................. (195) 238 (49) (220)
------- ------ ------- -------
Total.................. (1,557) 2,250 (506) (2,113)
------- ------ ------- -------
DEFERRED:
Federal................ 1,676 (1,809) (1,230) (776)
State.................. 239 (258) (177) (109)
------- ------ ------- -------
Total.................. 1,915 (2,067) (1,407) (885)
------- ------ ------- -------
INCOME TAX EXPENSE
(BENEFIT)............... $ 358 $ 183 $(1,913) $(2,998)
======= ====== ======= =======
</TABLE>
F-150
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income tax expense (benefit) differs from the amount computed by applying the
statutory federal income tax rate of 35% to income (loss) before income taxes
due to the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Successor
------------ ---------------------------------------
Seven Months Five Months Year Nine Months
Ended Ended Ended Ended
July 31, December 31, December 31, September 30,
1996 1996 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Computed tax at federal
statutory rate.......... $888 $1,213 $(1,954) $(2,884)
Increase (decrease)
resulting from:
Excess of tax over book
depletion............... (577) (1,190) -- --
Change in valuation
allowance............... -- -- 50 50
State income taxes, net
of Federal benefit...... (128) 157 (32) (169)
Other.................... 175 3 23 5
---- ------ ------- -------
Actual income tax expense
(benefit)............... $358 $ 183 $(1,913) $(2,998)
==== ====== ======= =======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Defined Contribution Plans--Prior to August 1, 1996, the Company's employees
participated in a defined contribution profit sharing and savings plan
sponsored by MAPCO which covered substantially all full-time employees. The
plan provisions were similar to the provisions of the plan sponsored by
Alliance discussed below.
The Company's employees currently participate in a defined contribution profit
sharing and savings plan sponsored by Alliance which covers substantially all
full-time employees. Plan participants may elect to make voluntary
contributions to this plan up to a specified amount of their compensation.
Alliance makes contributions based on matching 75% of employee contributions up
to 3% of their annual compensation. Additionally, Alliance contributes a
defined percentage of eligible earnings for employees not covered by the
defined benefit plan described below. The Company's expense for the profit
sharing and savings plans allocated by MAPCO and Alliance was approximately
$40,000 for the seven months ended July 31, 1996, $20,000 for the five months
ended December 31, 1996, $78,000 for the year ended December 31, 1997, and
$55,000 for the nine months ended September 30, 1998.
Defined Benefit Plans--Prior to August 1, 1996, the Company participated in
MAPCO's defined benefit plan which covered substantially all employees at the
mining operations. Effective January 1, 1997, Alliance established a defined
benefit plan covering substantially all employees at its mining operations,
including those employed by the Company. Total accrued pension expense
(benefit) included in the Company's operating expenses was allocated to the
Company by MAPCO and Alliance, respectively, based on its proportional number
of employees participating in the plans. The allocated net pension expense
(benefit) included in operating expenses for the seven months ended July 31,
1996, the year ended December 31, 1997, and the nine months ended September 30,
1998 was approximately $(116,000), $239,000, and $192,000, respectively. The
allocated pension expense (benefit) were settled through Due to Parent. The
Company did not participate in a defined benefit plan during the five months
ended December 31, 1996.
7. RECLAMATION AND MINE CLOSING COSTS
The Company is governed by state statutes and the Federal Surface Mining
Control and Reclamation Act of 1977 which establish reclamation and mine
closing standards. These regulations, among other requirements, require
restoration of property in accordance with specified standards and an approved
reclamation plan. The
F-151
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Company has estimated the costs and timing of future reclamation and mine
closing costs and recorded those estimates on a present value basis using a 6%
discount rate.
8. PNEUMOCONIOSIS ("BLACK LUNG") BENEFITS
The Company is liable under state statutes and the Federal Coal Mine Health and
Safety Act of 1969, as amended, to pay black lung benefits to eligible
employees and former employees and their dependents. The Company provides self-
insurance accruals, determined by independent actuaries, at the present value
of the actuarially computed present and future liabilities for such benefits.
The actuarial studies utilize a 6% discount rate and various assumptions as to
the frequency of future claims, inflation, employee turnover, and life
expectancies.
The cost of black lung benefits charged to operations for the seven months
ended July 31, 1996, the five months ended December 31, 1996, the year ended
December 31, 1997, and the nine months ended September 30, 1998 was
approximately $57,000, $30,000, $92,000, and $69,000, respectively.
9. COMMITMENTS AND CONTINGENCIES
General Litigation--The Company is involved in various lawsuits, claims, and
regulatory proceedings incidental to its business. In the opinion of
management, the outcome of such matters will not have a material adverse effect
on the Company's business, financial position, or results of operations.
10. MAJOR CUSTOMERS
The Company has significant long-term coal supply agreements at sales prices
above current spot market prices. The contracts contain price adjustment
provisions designed to reflect changes in market conditions, labor, and other
production costs and, when the coal is sold other than FOB shipping point,
changes in railroad and/or barge freight rates. Sales to major customers which
exceed ten percent of total revenues are as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor Successor
------------ ---------------------------------------
Seven Months Five Month Nine Months
Ended Ended Year Ended Ended
July 31, December 31, December 31, September 30,
1996 1996 1997 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Customer A................. $15,073 $18,621 $ -- $ --
Customer B................. 23,446 16,988 51,614 29,682
Customer C................. -- -- 9,585 13,645
</TABLE>
The coal supply agreements with customers B and C expired in December 1998 and
January 1998, respectively. The coal supply agreement with customer A expired
at the end of 1996.
11. DUE TO PARENT
The Company was charged for certain corporate services rendered by MAPCO for
the seven months ended July 31, 1996 and by Alliance for the periods subsequent
to August 1, 1996. The expenses allocated to the Company primarily related to
executive management, accounting, treasury, land administration, environmental
management, legal and information and technology services. These allocations
were primarily based on the relative size of the direct mining operating costs
incurred by the respective mine locations of MAPCO
F-152
<PAGE>
MARTIKI COAL CORPORATION
A Wholly-Owned Subsidiary of MAPCO Coal Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Coal Inc., including the Company. The allocations of general and administrative
expenses were approximately $1,231,000, $932,000, $2,963,000 and $2,434,000 for
the seven months ended July 31, 1996, the five months ended December 31, 1996,
year ended December 31, 1997 and the nine months ended September 30, 1998.
Management is of the opinion that the allocations used are reasonable and
appropriate and reasonably approximate costs that would be incurred and paid to
unrelated parties for similar services.
12. SUBSEQUENT EVENT
On November 6, 1998, pursuant to a stock purchase agreement, AEI acquired all
of the outstanding common stock of the Company for $32 million.
* * * * * *
F-153
<PAGE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
We have not authorized anyone to give you any information or to make any rep-
resentations about the transactions we discuss in this Prospectus other than
those contained herein or in the documents we incorporate herein by reference.
If you are given any information or representations about these matters that
is not discussed or incorporated in this Prospectus, you must not rely on that
information. This Prospectus is not an offer to sell or a solicitation of an
offer to buy securities anywhere or to anyone where or to whom we are not per-
mitted to offer or sell securities under applicable law. The delivery of this
Prospectus offered hereby does not, under any circumstances, mean that there
has not been a change in our affairs since the date hereof. It also does not
mean that the information in this Prospectus or in the documents we incorpo-
rate herein by reference is correct after this date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
[Copy for Contents Pages to Come]..........................................
</TABLE>
---------------
Until , 1999, All dealers effecting transactions in the new Notes,
whether or not participating in this distribution, may be required to deliver
a Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
Exchange Of fer for $200,000,000
10 1/2% Senior Notes Due December 15, 2005
of
AEI Resources, Inc.
and
AEI Holding Company, Inc.,
its wholly owned subsidiary
---------------
PROSPECTUS
---------------
, 1999
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
indemnification of directors, officers, employees, and agents of the Company,
allows the advancement of costs of defending against litigation, and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees, and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute.
The Company's Certificate of Incorporation provides that no director will be
personally liable to the Company for monetary damages for any breach of
fiduciary duty by such director as a director. However, a director will be
liable, to the extent provided by applicable law, (i) for any breach of a
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) as provided in Section 174 of the DGCL, or (iv)
for any transaction from which a director derived an improper personal benefit.
The Company's Certificate of Incorporation and Bylaws also require the
Company, to the extent permitted by the DGCL and any other applicable law, to
indemnify and advance expenses to directors and executive officers with respect
to all threatened, pending or completed actions, suits or proceedings in which
the director or executive officer was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Company. The Certificate of Incorporation obligates the Company to
indemnify and advance expenses to the executive officer or director only in
connection with proceedings arising from the person's conduct in his official
capacity with the Company to the extent permitted by the DGCL, as amended from
time to time.
The Company's Bylaws allow it to purchase and maintain insurance on behalf of
a person who is or was a director, officer, employee, fiduciary or agent of the
Company, or was, at the Company's request, serving in a similar capacity for
another entity. The Company currently maintains insurance covering its
executive officers and directors.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors and executive officers of the Company pursuant to the foregoing
provisions, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The exhibits to the Registration Statement are listed in the Exhibit Index
which precedes the exhibits to this Registration Statement and is hereby
incorporated herein by reference.
(b) Financial Statement Schedules.
The financial statement schedules (1) are listed in the Exhibit Index which
immediately precedes the exhibits to this Registration Statement and is hereby
incorporated herein by reference, or (2) have been omitted because the
information required to be set forth therein is not applicable or is shown in
the financial statements or notes thereto.
II-1
<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant to
the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any
II-2
<PAGE>
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
AEI Resources, Inc.
/s/ Kevin Crutchfield
By: _________________________________
Kevin Crutchfield
President and Chief Operating
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of AEI Resources, Inc. do hereby
constitute and appoint William H. Haselhoff, Vic Grubb and John Lynch, or any
one of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated below, which said attorneys and agents, or either of them,
may deem necessary or advisable to enable the Company to comply with the
Securities Act and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President and Chief February 8, 1999
______________________________________ Operating Officer
Kevin Crutchfield (Principal Executive)
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Chairman of the Board and February 8, 1999
______________________________________ Director
Larry Addington
* Vice President/Eastern February 8, 1999
______________________________________ Operations and Director
Robert Addington
* Director February 8, 1999
______________________________________
Stonie Barker
* Director February 8, 1999
______________________________________
Stephen Addington
* Director February 8, 1999
______________________________________
Bob Anderson
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February , 1999.
AEI Holding Company, Inc.
/s/ Kevin Crutchfield
By: _________________________________
Kevin Crutchfield
President and Chief Operating
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President and Chief February , 1999
______________________________________ Operating Officer
Kevin Crutchfield (Principal Executive
Officer)
* Chief Financial Officer February , 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Senior Vice President-- February , 1999
______________________________________ Eastern Operations and a
Robert Addington Director
* Chairman of the Board and February , 1999
______________________________________ a Director
Larry Addington
* Vice Chairman and a February , 1999
______________________________________ Director
Donald P. Brown
* Director February , 1999
______________________________________
Stonie Barker
* Director February , 1999
______________________________________
Bob Anderson
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
AEI Resources Holding, Inc.
/s/ Donald P. Brown
By: _________________________________
Donald P. Brown
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald P. Brown President and Vice February 8, 1999
______________________________________ Chairman (Principal
Donald P. Brown Executive Officer)
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Chairman of the Board of February 8, 1999
______________________________________ Directors and Director
Larry Addington
* Director February 8, 1999
______________________________________
Robert Addington
* Director February 8, 1999
______________________________________
Stonie Barker
* Director February 8, 1999
______________________________________
Stephen Addington
* Director February 8, 1999
______________________________________
Bob Anderson
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment A hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized, February 8, 1999.
The Co-Registrants Listed on
Attachment A Hereto
/s/ Kevin Crutchfield
By: _________________________________
Kevin Crutchfield
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President (Principal February 8, 1999
______________________________________ Executive Officer)
Kevin Crutchfield
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Director February 8, 1999
______________________________________
Larry Addington
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-7
<PAGE>
ATTACHMENT A
Aceco, Inc.
Addington Mining, Inc.
Highland Coal, Inc.
Ikerd-Bandy Co., Inc.
Leslie Resources, Inc.
Leslie Resources Management, Inc.
Mining Technologies, Inc.
Mountain--Clay Incorporated
Pro-Land, Inc. d/b/a Kem Coal Company
River Coal Company, Inc.
Coal Ventures Holding Company, Inc.
17 West Mining, Inc.
Appalachian Realty Company
Ayrshire Land Company
CC Coal Company
Grassy Cove Coal Mining
Meadowlark, Inc.
Mega Minerals, Inc.
Mid-Vol Leasing, Inc.
Midwest Coal Sales Company
Premium Processing, Inc.
Roaring Creek Coal Company
Straight Creek Coal Resources Coal Company
Zeigler Coal Holding Company
American Development Company
Bellaire Trucking Company
Bluegrass Coal Development Company
East Kentucky Energy Corporation
Employee Benefits Management, Inc.
Encoal Corporation
EnerZ Corporation
Evergreen Mining Company
Fairview Land Company
Franklin Coal Sales Company
Heritage Mining Company
Phoenix Land Company
Premium Coal Development Company
R&F Coal Company
Sheppard River Coal Terminal Company
Turris Coal Company
Wyoming Coal Technology, Inc.
Zeigler Environmental Services Company
Zenergy, Inc.
AEI Coal Sales Company, Inc.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
Bowie Resources Limited
/s/ Keith Sieber
By: _________________________________
Keith Sieber
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Keith Sieber President (Principal February 8, 1999
______________________________________ Executive Officer)
Keith Sieber
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Director February 8, 1999
______________________________________
Larry Addington
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
Tennessee Mining, Inc.
/s/ Bernie Mason
By: _________________________________
Bernie Mason
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernie Mason President (Principal February 8, 1999
______________________________________ Executive Officer)
Bernie Mason
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* Director February 8, 1999
______________________________________
Larry Addington
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
Bentley Coal Company
Kentucky Prince Mining Company
Skyline Coal Company
By: Grassy Cove Coal Mining Company,
Roaring Creek Coal Company,
each as General Partner of each
of the entities listed above.
/s/ Kevin Crutchfield
By: _________________________________
Name: Kevin Crutchfield
Title: President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President (Principal February 8, 1999
______________________________________ Executive Officer)
Kevin Crutchfield
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
Kermit Coal Company
/s/ James Morris
By: _________________________________
James Morris
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Morris President (Principal February 8, 1999
______________________________________ Executive Officer) and
James Morris Director
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, February 8, 1999.
Nu Coal LLC
By: American Development Company,
Encoal Corporation
each as a Member
/s/ Kevin Crutchfield
By: _________________________________
Kevin Crutchifield
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President (Principal February 8, 1999
______________________________________ Executive Officer)
Kevin Crutchfield
* Chief Financial Officer February 8, 1999
______________________________________ (Principal Financial and
John Baum Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment B hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the
undersigned, thereunto duly authorized, February 8, 1999.
The Co-Registrants Listed on
Attachment B Hereto
/s/ James Campbell
By: _________________________________
James Campbell
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Campbell President (Principal February 8, 1999
______________________________________ Executive Officer) and
James Campbell Director
* Secretary and Treasurer February 8, 1999
______________________________________ (Principal Financial and
William H. Haselhoff Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-14
<PAGE>
ATTACHMENT B
West Virginia--Indiana Coal Holding Company, Inc.
Cannelton, Inc.
Cannelton Industries, Inc.
Cannelton Land Company
Cannelton Sales Company
Dunn Coal & Dock Company
Kanawha Corporation
Mountain Coal Corporation
Moutaineer Coal Development
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment C hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized, February 8, 1999.
The Co-Registrants Listed on
Attachment C Hereto
/s/ James R. Morris
By: _________________________________
James R. Morris
President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James R. Morris President (Principal February 8, 1999
______________________________________ Executive Officer) and
James R. Morris Director
* Secretary and Treasurer February 8, 1999
______________________________________ (Principal Financial and
William H. Haselhoff Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-16
<PAGE>
ATTACHMENT C
Beech Coal Company
Hayman Holdings, Inc.
Kindill Holding, Inc.
Kindill Mining, Inc.
Midwest Coal Company
Old Ben Coal Company
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement, or amendment thereto, to be signed on its
behalf by the undersigned, thereunto duly authorized, April 26, 1999.
Employee Claims Administration LLC
/s/ Kevin Crutchfield
By: _________________________________
Kevin Crutchifield
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Employee Claims Administration
LLC, do hereby constitute and appoint William H. Haselhoff, Vic Grubb and John
Lynch, or any one of them, our true and lawful attorneys and agents, to do any
and all acts and things in our name and on our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or
either of them, may deem necessary or advisable to enable the Company to comply
with the Securities Act and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto and we do
hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Crutchfield President (Principal April 26, 1999
______________________________________ Executive Officer)
Kevin Crutchfield
/s/ Vic Grubb Treasurer (Principal April 26, 1999
______________________________________ Financial and Accounting
Vic Grubb Officer)
Attorney-in-fact
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the Co-
Registrants listed on Attachment D hereto has duly caused this Registration
Statement, or amendment thereto, to be signed on its behalf by the undersigned,
thereunto duly authorized, April 26, 1999.
The Co-Registrants Listed on
Attachment D Hereto
/s/ James Campbell
By: _________________________________
James Campbell
President
POWER OF ATTORNEY
We, the undersigned directors and officers of the Co-Registrants listed on
Attachment D hereto do hereby constitute and appoint William H. Haselhoff, Vic
Grubb and John Lynch, or any one of them, our true and lawful attorneys and
agents, to do any and all acts and things in our name and on our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated below, which said attorneys and
agents, or either of them, may deem necessary or advisable to enable the
Company to comply with the Securities Act and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Campbell President (Principal April 26, 1999
______________________________________ Executive Officer) and
James Campbell sole Director
* Secretary and Treasurer April 26, 1999
______________________________________ (Principal Financial and
William H. Haselhoff Accounting Officer)
* By: /s/ Vic Grubb
______________________________________
Vic Grubb
Attorney-in-fact
</TABLE>
II-19
<PAGE>
ATTACHMENT D
Princess Beverly Coal Company
Princess Beverly Coal Holding Company, Inc.
II-20
<PAGE>
EXHIBIT INDEX
DESCRIPTION OF DOCUMENT
<TABLE>
<C> <S>
2.1* CC Coal Company Purchase of the Crockett Assets from Addington
Enterprises, Inc. dated as of June 26, 1998.
2.2 AEI Resources, Inc. Purchase of Shares of Certain Subsidiaries of
Cyprus Amax Coal Company dated as of June 29, 1998.
2.3* Stock Purchase Agreement dated as of July 10, 1998 among Coal
Ventures, Inc. and the shareholders of each of Mid-Vol, Inc., Mega
Minerals, Inc. and Premium Processing, Inc.
2.4 Agreement and Plan of Merger by and among AEI Resources, Inc., Zeigler
Acquisition Corporation and Zeigler Coal Holding Company dated as of
August 3, 1998, is incorporated by reference to Schedule 14D-1 of
Zeigler Acquisition Corporation, AEI Resources, Inc. and Larry
Addington with respect to Zeigler Coal Holding Company filed August
5, 1998.
2.5* AEI Resources, Inc. Purchase of Stock of Bowie Resources, Limited from
Mitsui Matsushima America, Inc. dated as of September 2, 1998.
2.6 Stock Purchase Agreement dated as of September 2, 1998, among West
Virginia--Indiana Coal Holding Company, Inc. and the Shareholders of
Kindill Holding, Inc.
2.7 Stock Purchase Agreement, dated as of September 2, 1998 among West
Virginia-Indiana Coal Holding Company, Inc. and the Shareholders of
Hayman Holdings, Inc.
2.8 Purchase and Sale Agreement by and among Kinder Morgan Energy
Partners, L.P., Kinder Morgan Operating L.P. "C," Mountaineer Coal
Development Company, Shipyard River Coal Terminal Company and Zeigler
Coal Holding Company dated as of December 9, 1998.
2.9** Stock Purchase Agreement dated as of December 29, 1998 among Old Ben
Coal Company, Kanawha Corporation, Kindill Mining, Inc., Beech Coal
Company, Dunn Coal & Dock Company, Mountain Coals Corporation and
Mountaineer Coal Development Company and Employers Risk Services,
Inc.
2.10 Stock Purchase Agreement among MAPCO Coal Inc. and Coal Ventures
Holding Company, Inc.
3.1(a)* Certificate of Incorporation of AEI Resources, Inc.
3.1(b)* Bylaws of AEI Resources, Inc.
3.2(a)* Certificate of Incorporation of AEI Resources Holding, Inc.
3.2(b)* Bylaws of AEI Resources Holding, Inc.
3.3(a)* Articles of Incorporation of Bowie Resources, Limited.
3.3(b) Bylaws of Bowie Resources, Limited.
3.4(a) Amended and Restated Articles of Incorporation of Ikerd-Bandy Company,
Inc.
3.4(b) Amended and Restated Bylaws of Ikerd-Bandy Co., Inc.
3.5(a) Articles of Incorporation of Tennessee Mining, Inc.
3.5(b) Bylaws of Tennessee Mining, Inc.
3.6(a)* Articles of Incorporation of Addington Mining, Inc.
3.6(b)* Bylaws of Addington Mining, Inc.
3.7(a)* Articles of Incorporation of Mining Technologies, Inc.
3.7(b)* Bylaws of Mining Technologies, Inc.
3.8(a) Amended and Restated Articles of Incorporation of Leslie Resources,
Inc.
3.8(b) Amended and Restated Bylaws of Leslie Resources, Inc.
3.9(a) Amended and Restated Articles of Incorporation of Leslie Resources
Management, Inc.
3.9(b) Amended and Restated Bylaws of Leslie Resources Management, Inc.
3.10(a) Amended and Restated Articles of Incorporation of Pro-Land, Inc.,
d/b/a Kem Coal Company.
3.10(b) Amended and Restated Bylaws of Pro-land, Inc. d/b/a Kem Coal Company.
3.11(a) Amended and Restated Articles of Incorporation of Aceco, Inc.
3.11(b) Amended and Restated Bylaws of Aceco, Inc.
3.12(a) Amended and Restated Articles of Incorporation of Mountain-Clay, Inc.
d/b/a Mountain Clay, Inc.
3.12(b) Amended and Restated Bylaws of Mountain-Clay, Inc. d/b/a Mountain
Clay, Inc.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
3.13(a) Amended and Restated Articles of Incorporation of Highland Coal, Inc.
3.13(b) Amended and Restated Bylaws of Highland Coal, Inc.
3.14(a) Amended and Restated Articles of Incorporation of River Coal Company,
Inc.
3.14(b) Amended and Restated Bylaws of River Coal Company, Inc.
3.15(a)* Certificate of Incorporation of 17 West Mining, Inc.
3.15(b)* Amended and Restated Bylaws of 17 West Mining, Inc.
3.16(a)* Articles of Incorporation of AEI Coal Sales Company, Inc.
3.16(b)* Amended and Restated Bylaws of AEI Coal Sales Company, Inc.
3.17(a)* Articles of Incorporation of Americoal Development Company.
3.17(b)* Bylaws of Americoal Development Company.
3.18(a) Articles of Incorporation of Appalachian Realty Company.
3.18(b)* Amended and Restated Bylaws of Appalachian Realty Company.
3.19(a)* Articles of Incorporation of Ayrshire Land Company.
3.19(b)* Amended and Restated Bylaws of Ayrshire Land Company.
3.20(a)* Certificate of Incorporation of Bellaire Trucking Company.
3.20(b)* Amended and Restated Bylaws of Bellaire Trucking Company.
3.21(a) Articles of Incorporation of Bluegrass Coal Development Company.
3.21(b) Amended and Restated Bylaws of Bluegrass Coal Development Company.
3.22(a)* Articles of Incorporation of CC Coal Company.
3.22(b)* Bylaws of CC Coal Company.
3.23(a)* Certificate of Incorporation of Coal Ventures Holding Company, Inc.
3.23(b)* Bylaws of Coal Ventures Holding Company, Inc.
3.24(a) Articles of Incorporation of East Kentucky Energy Corporation.
3.24(b)* Amended and Restated Bylaws of East Kentucky Energy Corporation.
3.25(a) Articles of Incorporation of Employee Benefits Management, Inc.
3.25(b) Bylaws of Employee Benefits Management, Inc.
3.26(a)* Certificate of Incorporation of Encoal Corporation.
3.26(b)* Amended and Restated Bylaws of Encoal Corporation.
3.27(a)* Certificate of Incorporation of Enerz Corporation.
3.27(b)* Amended and Restated Bylaws of Enerz Corporation.
3.28(a)* Articles of Incorporation of Evergreen Mining Company.
3.28(b)* Amended and Restated Bylaws of Evergreen Mining Company.
3.29(a)* Articles of Incorporation of Fairview Land Company.
3.29(b)* Amended and Restated Bylaws of Fairview Land Company.
3.30(a) Articles of Incorporation of Franklin Coal Sales Company.
3.30(b)* Amended and Restated Bylaws of Franklin Coal Sales Company.
3.31(a)* Certificate of Incorporation of Grassy Cove Coal Mining Company.
3.31(b)* Bylaws of Grassy Cove Coal Mining Company.
3.32(a)* Certificate of Incorporation of Heritage Mining Company.
3.32(b)* Amended and Restated Bylaws of Heritage Mining Company.
3.33(a) Articles of Incorporation of Kermit Coal Company.
3.33(b)* Amended and Restated Bylaws of Kermit Coal Company.
3.34(a) Articles of Incorporation of Meadowlark, Inc.
3.34(b)* Amended Bylaws of Meadowlark, Inc.
3.35(a)* Articles of Incorporation of Mega Minerals, Inc.
3.35(b)* Amended and Restated Bylaws of Mega Minerals, Inc.
3.36(a)* Certificate of Incorporation of Midwest Coal Sales Company.
3.36(b)* Amended and Restated Bylaws of Midwest Coal Sales Company.
3.37(a)* Articles of Incorporation of Mid-Vol Leasing, Inc.
3.37(b)* Amended and Restated Bylaws of Mid-Vol Leasing, Inc.
</TABLE>
2
<PAGE>
<TABLE>
<C> <S>
3.38(a)* Certificate of Incorporation of Phoenix Land Company.
3.38(b)* Amended and Restated Bylaws of Phoenix Land Company.
3.39(a) Articles of Incorporation of Premium Processing, Inc.
3.39(b)* Bylaws of Premium Processing, Inc.
3.40(a)* Certificate of Incorporation of Premium Coal Development Company.
3.40(b)* Amended and Restated Bylaws of Premium Coal Development Company.
3.41(a) Articles of Incorporation of R. & F. Coal Company.
3.41(b) Bylaws of R. & F. Coal Company.
3.42(a) Skyline Coal Corporation Partnership Agreement dated as of January 1,
1988 between Roaring Creek Coal Company and Grassy Cove Coal Mining
Company
3.42(b) Kentucky Prince Mining Company dated as of January 1, 1988 between
Roaring Creek Coal Company and Grassy Cove Coal Mining Company
3.42(c) Bently Coal Company Partnership Agreement dated as of January 1, 1988
between Roaring Creek Coal Company and Grassy Cove Coal Mining
Company
3.43(a) Articles of Incorporation of Shipyard River Coal Terminal Company.
3.43(b)* Amended and Restated Amended and Restated Bylaws of Shipyard River
Coal Terminal Company.
3.44(a) Articles of Incorporation of Straight Creek Coal Resources Company.
3.44(b)* Amended and Restated Amended and Restated Bylaws of Straight Creek
Coal Resources Company.
3.45(a) Articles of Incorporation of Turris Coal Company.
3.45(b)* Amended and Restated Bylaws of Turris Coal Company.
3.46(a)* Articles of Incorporation of Wyoming Coal Technology Inc.
3.46(b)* Bylaws of Wyoming Coal Technology Inc.
3.47(a) Restated Certificate of Incorporation of Zeigler Coal Holding
Company.
3.47(b) Bylaws of Zeigler Acquisition Corporation n/k/a Zeigler Coal Holding
Company.
3.48(a) Certificate of Incorporation of Zeigler Environmental Services
Company.
3.48(b)* Amended and Restated Bylaws of Zeigler Environmental Services
Company.
3.49(a) Articles of Incorporation of Zenergy, Inc.
3.49(b)* Amended and Restated Bylaws of Zenergy, Inc.
3.50(a)* Articles of Incorporation of Beech Coal Company.
3.50(b)* Amended and Restated Bylaws of Beech Coal Company.
3.51(a) Certificate of Incorporation of Cannelton, Inc.
3.51(b)* Amended and Restated Bylaws of Cannelton, Inc.
3.52(a) Articles of Incorporation of Cannelton Industries, Inc.
3.52(b)* Amended and Restated Bylaws of Cannelton Industries, Inc.
3.53(a)* Articles of Incorporation of Cannelton Land Company.
3.53(b)* Amended and Restated Bylaws of Cannelton Land Company.
3.54(a)* Articles of Incorporation of Cannelton Sales Company .
3.54(b)* Bylaws of Cannelton Sales Company.
3.55(a) Articles of Incorporation of Dunn Coal & Dock Company.
3.55(b)* Amended and Restated Bylaws of Dunn Coal & Dock Company.
3.56(a) Articles of Incorporation of Hayman Holdings, Inc.
3.56(b)* Amended and Restated Bylaws of Hayman Holdings, Inc.
3.57(a)* Articles of Incorporation of Kanawha Corporation.
3.57(b)* Amended and Restated Bylaws of Kanawha Corporation.
3.58(a) Articles of Incorporation of Kindill Holding, Inc.
3.58(b) Amended and Restated Bylaws of Kindill Holding, Inc.
3.59(a)* Articles of Incorporation of Kindill Mining, Inc.
3.59(b) Amended and Restated Bylaws of Kindill Mining, Inc.
3.60(a) Articles of Incorporation of Midwest Coal Company.
3.60(b) Amended and Restated Bylaws of Midwest Coal Company.
3.61(a) Articles of Incorporation of Mountaineer Coal Development Company.
3.61(b)* Amended and Restated Bylaws of Mountaineer Coal Development Company.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
3.62(a) Certificate of Incorporation of Mountain Coals Corporation.
3.62(b)* Amended and Restated Bylaws of Mountain Coals Corporation.
3.63(a)* Certificate of Incorporation of Old Ben Coal Company.
3.63(b)* Amended and Restated Bylaws of Old Ben Coal Company.
3.64(a) Articles of Incorporation of West Virginia-Indiana Coal Holding
Company, Inc.
3.64(b)* Bylaws of West Virginia-Indiana Coal Holding Company, Inc.
3.65(a)* Certificate of Incorporation of AEI Holding Company, Inc.
3.65(b)* Amended & Restated Bylaws of AEI Holding Company, Inc.
3.66(a) Articles of Formation of NuCoal, LLC.
3.66(b) Limited Liability Company Agreement of NuCoal, LLC.
3.67(a) Articles of Organization of Employee Claims Administration, LLC
3.67(b) Operating Agreement of Employee Claims Administration, LLC.
3.68(a) Articles of Incorporation of Princess Beverly Coal Holding Company,
Inc.
3.68(b) Bylaws of Princess Beverly Coal Holding Company, Inc.
3.69(a) Articles of Incorporation of Princess Beverly Coal Company
3.69(b) Bylaws of Princess Beverly Coal Company
3.70(a)** Articles of Organization of Bassco Valley, LLC.
3.70(b)** Operating Agreement of Bassco Valley, LLC.
4.1(a)* Registration Rights Agreement dated as of December 14, 1998 by and
among AEI Resources, Inc. and AEI Resources Holding, Inc., as
Issuers, the Subsidiary Guarantors, and Warburg Dillon Read LLC as
Dealer Manager, $200,000,000 10 1/2% Senior Notes Due 2005.
4.1(b)* $200,000,000 10 1/2% Senior Notes Due 2005 Indenture dated as of
December 14, 1998 among AEI Resources, Inc. and AEI Resources
Holding, Inc. as the Issuers, the Guarantors and IBJ Schroder Bank
& Trust Company, as Trustee.
4.1(c)* Cross reference of Trust Indenture Act to Senior Notes Indenture.
4.2(a)* Registration Rights Agreement dated as of December 14, 1998 by and
among AEI Resources, Inc., as Issuer, the named Subsidiary
Guarantors, as Guarantors and Warburg Dillon Read LLC, $150,000,000
11 1/2% Senior Subordinated Notes 2006.
4.2(b)* Up to $225,000,000 11 1/2% Senior Subordinated Notes Due 2006
Indenture dated as of December 14, 1998, among the AEI Resources,
Inc., the Issuers, the Guarantors and State Street Bank & Trust
Company, as Trustee.
4.2(c)* Cross reference of Trust Indenture Act to Senior Subordinated Notes
Indenture .
4.3* Form of Notes (included in Exhibits 4.1(b) and 4.2(b) above).
4.4 AEI Resources, Inc., as Borrower and the Guarantors, $500,000,000
Amended and Restated Senior Subordinated Credit Agreement dated as
of September 2, 1998 Amended and Restated as of December 14, 1998,
Warburg Dillon Read LLC, as Arranger and Syndication Agent, and UBS
AG, Stamford Branch as Administrative Agent
4.5 Amended and Restated Credit Agreement dated as of September 2, 1998,
amended and restated as of December 14, 1998, among AEI Resources,
Inc., as Borrower, the Guarantors party hereto Warburg, Dillon,
Read LLC as Arranger and Syndication Agent, and UBS AG, Stamford
Branch, as Administrative Agent.
5.1 Opinion of Latham & Watkins regarding the validity of the Exchange
Notes
10.1 Stock Purchase Agreement dated as of September 24, 1993, between
Addington Holding, Inc. and Pittston Acquisition Company.
10.2 Indemnity Agreement dated as of January 14, 1994 among Addington
Resources, Inc., Addington Holding Company, Inc., Pittston Minerals
Group, Inc. and Pittston Acquisition Company.
10.3 Amended and Restated Stock Purchase Agreement effective as of
December 18, 1997, among AEI Holding Company, Inc., Addington
Enterprises, Inc. and Greg Wells
10.4 Promissory Note dated January 15, 1998 in the amount of
$8,050,000.00 payable to the order of Greg Wells.
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
10.5 Employment and Consulting Agreement dated as of January 15, 1997
between Leslie Resources, Inc., AEI Holding Company, Inc. and Greg
Wells.
10.6 Asset Purchase Agreement dated as of December 18, 1997 between Mining
Technologies, Inc. and Addington Enterprises, Inc.
10.7 Assignment of Contracts dated as of January 2, 1998 between Addington
Enterprises, Inc. and Mining Technologies, Inc.
10.8 Bill of Sale, Conveyance and Assignment dated January 2, 1998 between
Mining Technologies, Inc. and Addington Enterprises, Inc.
10.9 Guaranty Agreement dated as of January 2, 1998 between AEI Holding
Company, Inc. and Addington Enterprises, Inc.
10.10 Non-Competition Agreement dated as of January 2, 1998 among Mining
Technologies, Inc., Addington Enterprises, Inc. and Larry Addington.
10.11 Stock Purchase Agreement dated as of October 17, 1997, among Addington
Enterprises, Inc., James J. Kocian, Bert I. Koenig and William N.
Rich.
10.12 Promissory Note dated October 17, 1997 in the amount of $2,600,000.00
payable to the order of Bert I. Koenig.
10.13 Promissory Note dated October 17, 1997 in the amount of $2,600,000.00
payable to the order of James J. Kocian.
10.14 Promissory Note dated October 17, 1997 in the amount of $1,300,000.00
payable to the order of William N. Rich.
10.15 Agreement dated November 6, 1997 between Task Trucking, Inc. and AEI
Holding Company, Inc.
10.16 Service Agreement dated October 22, 1997 between Mining Machinery,
Inc. and AEI Holding Company, Inc.
10.17 AEI Holding Company, Inc. Stock Option Plan.
10.18 Form of Stock Option Agreement for the AEI Holding Company, Inc.,
Stock Option Plan.
12.1** Statements Regarding Computation of Ratios.
21.1** Subsidiaries of Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2(a) Consent of Deloitte & Touche LLP (Zeigler Coal Holding Company).
23.2(b) Consent of Deloitte & Touche LLP (Kindill Holding, Inc.).
23.2(c) Consent of Deloitte & Touche LLP (Martiki Coal Corporation).
23.3* Consent of PriceWaterhouseCoopers LLP.
23.4 Consent of Faesy, Schmitt & Company, PSC.
23.5 Consent of Marshall Miller & Associates.
23.6 Consent of Weir International Mining Consultants.
23.7 Consent of Stagg Engineering Services, Inc.
23.8 Consent of Norwest Mine Services.
23.9** Consent of Latham & Watkins (included as part of its opinion filed as
Exhibit 5.1 hereto).
25.1* Statement of Eligibility of IBJ Whitehall Bank & Trust Company on Form
T-1.
25.2* Statement of Eligibility of State Street Bank and Trust Company on
Form T-1.
27.1** Financial Data Schedules (for SEC Use Only).
99.1* Form of Letter of Transmittal.
99.2** Form of Notice of Guaranteed Delivery.
99.3** Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.4** Form of Letter to Clients.
99.5** Guidelines for Certification of Taxpayer Identification Number on Form
W-9.
</TABLE>
- - --------
* Previously filed.
** To be filed by Amendment.
5
<PAGE>
- - ------------------------------------------------------------------------------
Exhibit 2.2
STOCK PURCHASE AND SALE AGREEMENT
dated as of May 28, 1998
between
CYPRUS AMAX COAL COMPANY,
a Delaware corporation,
and
AEI HOLDING COMPANY,INC.
a Delaware corporation.
- - -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................................... 1
SECTION 1.1 Definitions................................................... 1
ARTICLE II PURCHASE AND SALE; CLOSING.................................................... 14
SECTION 2.1. Certain Assets and Liabilities................................ 14
SECTION 2.2. Closing....................................................... 14
SECTION 2.3 Purchase Price; Closing Deliveries............................ 14
2.3.1 Purchase Price........................................ 14
2.3.2 Shares................................................ 15
2.3.3 Other Deliveries...................................... 16
SECTION 2.4. Allocation of the Purchase Price.............................. 17
2.4.1 Asset Acquisition Statement........................... 17
2.4.2 Tax Returns........................................... 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER..................................... 18
SECTION 3.1. Corporate Status and Authority................................ 18
SECTION 3.2. No Conflicts. etc............................................. 18
3.2.1 Charter Documents..................................... 18
3.2.2 Governmental Consents................................. 19
SECTION 3.3. Corporate and Company Status and Authority
of the Subsidiaries........................................... 19
SECTION 3.4. Ownership of the Subsidiaries................................. 19
SECTION 3.5. Title......................................................... 20
SECTION 3.6. Financial Statements.......................................... 20
SECTION 3.7. Absence of Undisclosed Liabilities............................ 21
SECTION 3.8. Assets........................................................ 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.8.1 Real Property.................................................. 21
3.8.2 Personal Property.............................................. 21
3.8.3 Intellectual Property.......................................... 22
SECTION 3.9. Material Contracts..................................................... 22
3.9.1 Schedule....................................................... 22
3.9.2 Effectiveness.................................................. 23
SECTION 3.10. Affiliate Arrangements................................................. 23
SECTION 3.11. Employee Benefits...................................................... 23
3.11.1 Employee Benefit Plans......................................... 23
3.11.2 Labor Matters.................................................. 26
3.11.3 Employees. ................................................... 26
SECTION 3.12. Governmental Authorizations, Compliance with Law....................... 26
3.12.1 Permits........................................................ 26
3.12.2 Compliance. ................................................... 27
SECTION 3.13. Litigation............................................................. 27
SECTION 3.14. Taxes.................................................................. 27
SECTION 3.15. Absence of Changes..................................................... 28
SECTION 3.16. Environmental Compliance............................................... 29
SECTION 3.17. Brokers................................................................ 30
SECTION 3.18. Insurance.............................................................. 30
SECTION 3.19. Bank Accounts.......................................................... 31
SECTION 3.20. Audits................................................................. 31
SECTION 3.21. Bonds.................................................................. 31
SECTION 3.22. Permit Blocking........................................................ 31
SECTION 3.23. Powers of Attorney..................................................... 31
SECTION 3.24. Certain Customer Matters............................................... 31
SECTION 3.25. Documents.............................................................. 31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................... 31
SECTION 4.1. Corporate Status and Authority................................... 32
SECTION 4.2. No Conflicts..................................................... 32
4.2.1 Charter Documents........................................ 32
4.2.2 Governmental Consents.................................... 32
SECTION 4.3. Litigation....................................................... 32
SECTION 4.4. Purchase for Investment.......................................... 32
SECTION 4.5. Financial Ability to Perform..................................... 33
SECTION 4.6. Brokers.......................................................... 33
SECTION 4.7. Disclosure....................................................... 33
SECTION 4.8. Permit Blocking.................................................. 33
ARTICLE V COVENANTS......................................................................... 33
SECTION 5.1. Consents. Further Assurances..................................... 33
5.1.1 Consents................................................. 33
5.1.2 Further Assurances....................................... 34
SECTION 5.2. Conduct of Operations; Access and Information.................... 34
5.2.1 Conduct of Operations.................................... 34
5.2.2 Access and Information................................... 36
5.2.3 Notification by Purchaser of Certain Matteers............ 36
SECTION 5.3. Publicity........................................................ 36
SECTION 5.4. Exclusivity...................................................... 36
SECTION 5.5. Notification by Seller of Certain Matters........................ 37
SECTION 5.6. Company Records.................................................. 37
5.6.1 Retention................................................ 37
5.6.2 Cooperation With Respect to
Examinations and Controversies........................... 37
5.6.3 Remedy for Failure to Comply............................. 37
</TABLE>
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<TABLE>
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SECTION 5.7. Disclosure Schedules; Updates............................................ 38
5.7.1 Delivery......................................................... 38
5.7.2 Special Right to Update Schedules
Within Five Business Days of
Execution of this Agreement...................................... 38
5.73 Interpretation................................................... 38
SECTION 5.8. Officers and Directors................................................... 39
5.8.1 Obligations of Seller............................................ 39
5.8.2 Obligations of Purchaser......................................... 39
SECTION 5.9 Section 338(h)(10) Election.............................................. 39
SECTION 5.10. Royalty, etc............................................................. 39
5.10.1 Production Royalty on Fee and Leased
Land as of the Closing Date...................................... 39
5.10.2 Royalty Buy-Out.................................................. 43
5.10.3 Minimum Royalty Payment on
Undeveloped Reserves: Certain Matters
Relating to the Production Royalty............................... 44
5.10.4 Audit and Inspection of Reserves................................. 45
5.10.5 Termination of Royalty and Minimum
Royalty Payments................................................. 46
5.10.6 Royalty and Undeveloped Reserves
Royalty Payable During Pendency of a Dispute..................... 46
SECTION 5.11. Taxes.................................................................... 46
5.11.1 Pre-Closing Period............................................... 46
5.11.2 Post Closing Period.............................................. 47
5.11.3 Straddle Periods................................................. 47
5.11.4 Access........................................................... 47
5.11.5 Refunds and Credits.............................................. 47
5.11.6 Seller Group Liabilities......................................... 48
5.11.7 Retention of Tax Returns......................................... 48
5.11.8 Tax Contests..................................................... 48
SECTION 5.12. Compensation and Benefits of Employees................................... 48
5.12.1 Continuation of Employment....................................... 48
5.12.2 Employee Benefit Matters......................................... 49
SECTION 5.13. HSR Act Notification..................................................... 55
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SECTION 5.14. Fees and Expenses........................................................... 55
SECTION 5.15. Guarantees.................................................................. 55
5.15.1 Replacement of Corporate Guarantees,
Indemnification after Closing....................................... 55
5.15.2 Reimbursement During Interim Period................................. 56
5.15.3 Third Party Beneficiaries........................................... 57
SECTION 5.16. Name Changes................................................................ 57
SECTION 5.17. Surety Bonds................................................................ 57
5.17.1 Replacement of Surety Bonds:
Indemnification after Closing;
Collateral; Fee; Refund of Premiums................................. 57
5.17.2 Reimbursement During Interim Period................................. 58
5.17.3 Refund of Premiums.................................................. 59
5.17.4 Cooperation for Replacement of Bonds................................ 59
5.17.5 Third Party Beneficiaries........................................... 60
SECTION 5.18. Special Provisions Relating to Financial Matters............................ 60
5.18.1 Close of Books and Records as of Balance Sheet Date................. 60
5.18.2 Financial Reports................................................... 60
5.18.3 Cash Advances....................................................... 60
5.18.4 Certain Services Following the Balance Sheet Date................... 61
5.18.5 Cash at Closing..................................................... 61
5.18.6 Post Closing Statement.............................................. 61
5.18.7 Cash Advance Adjustment, etc........................................ 62
5.18.8 Assistance in Preparation of Exchange Act Filings................... 63
5.18.9 Intercompany Balances as at the Closing............................. 63
SECTION 5.19. Insurance................................................................... 63
SECTION 5.20. Liabilities of the Subsidiaries Generally................................... 64
SECTION 5.21. Audit of Financial Statements............................................... 64
SECTION 5.22. Equipment Surety Bond....................................................... 64
SECTION 5.23. Undertaking Not to Interfere With Mine Plans................................ 64
SECTION 5.24. Permits..................................................................... 65
SECTION 5.25. Administration of Accounts.................................................. 65
5.25.1 In Trust for Purchaser.............................................. 65
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5.25.2 In Trust for Seller................................................ 65
ARTICLE VI CONDITIONS PRECEDENT OF PURCHASER.......................................................... 65
SECTION 6.1. Conditions Precedent....................................................... 65
6.1.1 Representations, Warranties and
Obligations of Seller.............................................. 65
6.1.2 Officer's Certificate.............................................. 66
6.1.3 Ancillary Agreements............................................... 66
6.1.4 Material Adverse Change............................................ 66
6.1.5 Consents........................................................... 66
6.1.6 No Injunction...................................................... 66
6.1.7 HSR Act............................................................ 66
6.1.8 Disclosure Schedules............................................... 66
6.1.9 Forms 8023......................................................... 66
6.1.10 Restructuring...................................................... 66
6.1.11 Board Approval..................................................... 67
6.1.12 Financial Statements............................................... 67
SECTION 6.2. Waiver..................................................................... 67
ARTICLE VII CONDITIONS PRECEDENT OF SELLER............................................................ 67
SECTION 7.1. Conditions Precedent....................................................... 67
7.1.1 Representations, Warranties and
Obligations of Purchaser........................................... 67
7.1.2 Officer's Certificate.............................................. 67
7.1.3 Ancillary Agreement................................................ 67
7.1.4 Consents........................................................... 67
7.1.5 No Injunction...................................................... 67
7.1.6 HSR Act............................................................ 68
7.1.7 Restructuring...................................................... 68
7.1.8 Board Approval..................................................... 68
7.1.9 Replacement Credit Support
Instruments for Scheduled Bonds.................................... 68
7.1.10 Forms 8023......................................................... 68
7.1.11 Certain Bonds...................................................... 68
SECTION 7.2. Waiver..................................................................... 68
ARTICLE VIII INDEMNIFICATION.......................................................................... 68
SECTION 8.1 Indemnity by Seller........................................................ 68
8.1.1 Excluded Liabilities............................................... 68
8.1.2 Third Party Claims................................................. 68
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8.1.3 Breach of Representation, Warranty, Etc........................... 69
SECTION 8.2. Indemnity by Purchaser.................................................... 69
8.2.1 Certain Liabilities............................................... 69
8.2.2 Third Party Claims................................................ 69
8.2.3 Breach of Representation, Warranty, Etc........................... 69
8.2.4 Post-Closing...................................................... 70
SECTION 8.3. Notification of Claims.................................................... 70
8.3.1 Timely Delivery of Claim Notice................................... 70
8.3.2 Late Delivery of Claim Notice..................................... 70
8.3.3 Paid or Settled Claims............................................ 70
SECTION 8.4. Defense of Claims......................................................... 70
SECTION 8.5. Access and Cooperation.................................................... 71
SECTION 8.6. Assessment of Claims...................................................... 71
SECTION 8.7. Limits on Indemnification................................................. 71
8.7.1 Limitations on Indemnification for
Breach of Representations and Warranties.......................... 71
8.7.2 No Limitations on Certain Indemnification Claims.................. 72
SECTION 8.8. Survival of Representations and Warranties................................ 72
SECTION 8.9. After-Tax Nature of Indemnity Payments.................................... 72
SECTION 8.10. Third Party Beneficiaries................................................. 73
ARTICLE IX TERMINATION............................................................................... 73
SECTION 9.1. Termination Events........................................................ 73
9.1.1 Breach............................................................ 73
9.1.2 Mutual Consent.................................................... 73
SECTION 9.2. Effect of Termination..................................................... 73
SECTION 9.3. Fees and Expenses; Damages................................................ 73
ARTICLE X MISCELLANEOUS.............................................................................. 73
SECTION 10.1. Remedies, Exclusivity of Representations and
Warranties; Relationship Between the Parties.............................. 73
</TABLE>
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10.1.1 Remedies.......................................................... 74
10.1.2 Exclusivity of Representations and
Warranties; Relationship Between the Parties...................... 74
SECTION 10.2. Amendment................................................................. 74
SECTION 10.3. Entire Agreement.......................................................... 74
SECTION 10.4. Notices................................................................... 74
SECTION 10.5 Severability.............................................................. 76
SECTION 10.6. Waiver; Survival.......................................................... 76
SECTION 10.7. Binding Effect; Assignment................................................ 76
SECTION 10.8. No Third Party Beneficiaries.............................................. 76
SECTION 10.9. Counterparts.............................................................. 76
SECTION 10.10. Governing Law............................................................. 76
SECTION 10.11. Consent to Jurisdiction; Waiver of Jury Trial............................. 77
10.11.1 Consent to Jurisdiction.................................. 77
10.11.2 Waiver of Punitive Damages and Jury Trial................ 77
SECTION 10.12. Mutual Right of Setoff.................................................... 78
SECTION 10.13. Interpretation and Construction of this Agreement......................... 78
</TABLE>
<PAGE>
DISCLOSURE SCHEDULES
--------------------
I Subsidiaries
II Knowledge of Purchaser
III Knowledge of Seller
IV Seller's Accounting Principles
2.1(a) Excluded Assets
2.1(b) Excluded Liabilities
3.2 No Conflicts
3.3 Equity Interests and Qualifications
3.4 Agreements regarding voting or transfer of stock of
Subsidiaries
3.6 March Balance Sheet
3.7 Undisclosed Liabilities
3.8.1 Real Property
3.8.2 Personal Property
3.9.1 Material Contracts
3.10 Affiliate Arrangements
3.11.1 Employee Benefit Plans
3.11.1(f) Proceedings with respect to Plans
3.11.1(k) Multi-employer Plans
3.11.1(l) Retirees Assigned to Combined Fund
3.11.1(m) Retirees for whom premiums are paid under Section
9712(d)(1)(A) of the Coal Act
3.11.1(n) Retirees for whom premiums are paid under Section
9712(d)(1)(B) of the Coal Act
3.11.2 Labor Matters
3.11.3 Employees
3.12.1 Permits
3.12.2 Compliance with Laws and Permits
3.13 Litigation
3.14 Taxes
3.15 Absence of Changes
3.16 Environmental Compliance
3.18 Insurance
3.19 Bank Accounts
3.20 Audits
3.21 Bonds
3.23 Powers of Attorney
4.2 No Conflicts
5.12.2(k)(ii)(A) Workers' Compensation Claims
5.12.2(k)(ii)(B) Black Lung Claims
5.15.1 Corporate Guarantees and Indemnities
5.17.1 Letters of Credit, Surety Bonds
6.1.5 Consents
8.2.1 Certain Liabilities
<PAGE>
EXHIBITS
- - --------
Exhibit A Form of Transition Services Agreement
Exhibit B Form of Equipment Sublease
Exhibit C-1 Form of Equipment Sale Agreement
Exhibit C-2 Form of Equipment Sale Agreement
Exhibit C-3 Form of Equipment Sale Agreement
Exhibit D Form of Farm Management Agreement
Exhibit E Purchaser Surety Bond
Exhibit F Equipment Surety Bond
<PAGE>
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT, dated as of ________ ___, 1998
(the "Agreement") between CYPRUS AMAX COAL COMPANY, a Delaware corporation
("Seller"), and AEI HOLDING COMPANY, INC., a Delaware corporation ("Purchaser").
WITNESSETH:
-----------
WHEREAS, Seller is, directly and indirectly through various subsidiaries,
engaged in the production, processing, exploration, storing, shipment,
transshipment, ownership, leasing, loading, unloading, marketing and sale of
coal and activities directly or indirectly relating thereto (the "Coal
Business");
WHEREAS, Seller desires to sell some, but not all, of its subsidiaries that
engage in the Coal Business, consisting of those specific direct and indirect
subsidiaries set forth on Schedule I hereto (each such subsidiary listed on
Schedule I hereto, a "Subsidiary" and, collectively, the "Subsidiaries"); and
WHEREAS, upon the terms and subject to the conditions contained herein,
Purchaser desires to purchase the Subsidiaries;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and covenants hereinafter set forth, Purchaser and Seller hereby
agree as follows:
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Definitions. Unless the context otherwise requires, the
-----------
following terms shall have the following meanings for all purposes of this
Agreement and shall be equally applicable to both the singular and the plural
forms of the terms herein defined. Certain terms defined in the text of this
Agreement similarly shall have the meanings therein given for all purposes of
this Agreement:
"Affiliate" means, with respect to any specified Person, any other
---------
Person which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such specified Person, where "control" as
used with respect to any Person shall mean the power to direct the business
and affairs of such Person, as evidenced by equity ownership of twenty-five
percent or greater, or by agreement or otherwise.
"Affiliate Plan" shall have the meaning specified in Subsection 3.11.1
--------------
hereof.
"Agreement", "this Agreement", "herein", "hereunder", "hereof",
--------- -------------- ------ --------- ------
"hereby" or other like words mean this Stock Purchase and Sale Agreement as
------
originally executed or as modified or amended pursuant to the applicable
provisions hereof.
"Allocation Arbiter" shall have the meaning specified in Subsection
------------------
2.4.2 hereof.
<PAGE>
"Amax Coal Company" shall mean Amax - Coal Company, a Delaware
-----------------
corporation.
"Amax Coal Company Shares" shall have the meaning specified in
------------------------
Subsection 2.3.2 hereof.
"Amax Coal Sales Company" shall mean Amax Coal Sales Company, a
-----------------------
Delaware corporation.
"Amax Coal Sales Company Shares" shall have the meaning specified in
------------------------------
Subsection 2.3.2 hereof.
"Ancillary Agreements" shall mean, collectively, the Transition
--------------------
Services Agreement, the Equipment Sublease, the Equipment Sale Agreements
and the Farm Management Agreements.
"Asset Acquisition Statement" shall have the meaning specified in
---------------------------
Subsection 2.4.1 hereof.
"Average Contingent Amount" shall have the meaning specified in
-------------------------
Subsection 5.17.1 hereof
"Ayrshire Land" shall mean Ayrshire Land Company, a Delaware
-------------
corporation.
"Ayrshire Land Shares" shall have the meaning specified in Subsection
--------------------
2.3.2 hereof.
"Ayrshire Mine" shall mean the Ayrshire surface coal mine and related
-------------
facilities and operations of Amax Coal Company located in the State of
Indiana.
"Balance Sheet Date" shall mean March 31, 1998.
------------------
"Base Royalty" shall have the meaning specified in Subsection 5.10.1
------------
(d) hereof.
"Beech Coal" shall mean Beech Coal Company, a Delaware corporation.
----------
"Beech Coal Shares" shall have the meaning specified in Section 2.3.2
-----------------
hereof.
"Bentley Coal" shall mean Bentley Coal Company, a general partnership
------------
organized under the laws of the State of New York.
"Black Lung Liabilities" and "Black Lung Benefits Obligations" mean
---------------------- -------------------------------
any Liability or benefit obligations related to black lung claims and
benefits under the Black Lung Benefits Act of 1972, 30 U. S.C. (S)(S) 901
et. seq., the Federal Mine Safety and Health Act of 1977, 30 U.S.C. (S)(S)
801 et. seq., the Black Lung Benefits Ref6im Act of 1977, Pub. L. No. 95-
239, 92 Stat. 95 (1978), the Black Lung Benefits Amendments of 1981, Pub.
L. No. 97-119, Title 11, 95 Stat. 1643, in each case as amended, if
applicable, and occupational pneumoconiosis,
2
<PAGE>
silicosis or other lung disease liabilities and benefits arising under
state law or regulation or any other Federal law or regulation now or
hereafter in existence.
"Black Lung Trust" shall have the meaning specified in Subsection
----------------
5.12.2 hereof.
"Business" shall mean the Coal Business as conducted by the
--------
Subsidiaries (excluding, for all purposes of this Agreement, the Excluded
Assets and Excluded Liabilities).
"Cannelton" shall mean Cannelton Inc., a Delaware corporation hereof.
---------
"Cannelton Industries" shall mean Cannelton Industries, Inc., a West
--------------------
Virginia corporation.
"Cannelton Land" shall mean Cannelton Land Company, a Delaware
--------------
corporation.
"Cannelton Sales" shall mean Cannelton Sales Company, a Delaware
---------------
corporation.
"Cannelton Shares" shall have the meaning specified in Subsection
----------------
2.3.2 hereof.
"Cash Advance Period" shall have the meaning specified in Subsection
-------------------
5.18.1
"Cash Advances" shall have the meaning specified in Subsection
-------------
5.18.3 hereof.
"Castle Gate Mine" shall mean the former Castle Gate underground
----------------
coal mine -and related facilities and operations of Amax Coal Company
located in the State of Utah.
"CERCLA and Superfund Liabilities" shall mean any and all
--------------------------------
Liabilities arising under or related to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980. 42 U.S.C. (S)(S) 9601 et.
seq., and the Superfund Amendments and Reauthorization Act of 1986, Pub. L.
99-499, 100 Stat. 1613, and any successor Federal Law or any similar state
or local Law.
"Claim Notice" shall have the meaning specified in Section 8.3.1
------------
hereof.
"Closing" shall have the meaning specified in Section 2.2 hereof.
-------
"Closing Date" shall have the meaning specified in Section 2.2 hereof.
------------
"Closing Deposit" shall have the meaning specified in Subsection
---------------
5.18.5 hereof.
"Closing Statement" shall have the meaning specified in Subsection
-----------------
5.18.6 hereof.
"Coal Act" shall mean the Coal Industry Retiree Health Benefit Act
--------
of 19 U.S.C. (S)(S) 9701 et. seq.
"Coal Business" shall have the meaning specified in the first
-------------
whereas clause hereof
3
<PAGE>
"Coal Components" shall have the meaning specified in Subsection
---------------
5.10.1(a) hereof
"Coal Reserves" shall have the meaning specified in Subsection 5.10.1
-------------
(a) hereof
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidentiality Agreement" shall mean that agreement between Seller
-------------------------
and Purchaser, dated November 21, 1997, and any supplements thereto or
amendments thereof, pertaining to the confidential treatment of information
provided by Seller to Purchaser and its representatives regarding the Coal
Business.
"Consents" shall have the meaning specified in Subsection 6.1.5
--------
hereof.
"Controlled Subs" shall have the meaning specified in Subsection
---------------
5.10.2 hereof.
"Controlling Party" shall have the meaning set forth in Section 5.11.8
-----------------
hereof
"CPI-U" shall have the meaning specified in Subsection 5.10.1(d)
-----
hereof
"Cyprus Amax's Pension Plans" shall have the meaning specified in
---------------------------
Subsection 5.12.2 hereof.
"Cyprus Cumberland" shall mean Cyprus Cumberland Coal Corporation, a
-----------------
Kentucky corporation.
"Cyprus Cumberland Shares" shall have the meaning specified in
------------------------
Subsection 2.3.2 hereof
"Cyprus Kanawha" shall mean Cyprus Kanawha Corporation, a Delaware
--------------
corporation.
"Cyprus Kanawha Shares" shall have the meaning specified in
---------------------
Subsection 2.3.2 hereof
"Cyprus Mountain" shall mean Cyprus Mountain Coals Corporation, a
---------------
Delaware corporation.
"Cyprus Mountain Shares" shall have the meaning specified in
----------------------
Subsection 2.3.2 hereof.
"Cyprus Southern Realty" shall mean Cyprus Southern Realty
----------------------
Corporation, a Kentucky corporation.
4
<PAGE>
"Cyprus Southern Realty Shares" shall have the meaning specified in
-----------------------------
Subsection 23.2 hereof.
"Deficit Amount" shall have the meaning specified in Subsection
---------------
5.18.7 hereof.
"Delta Mine" shall mean the Delta surface coal mine and related
----------
facilities and operations of Amax Coal Company located in the State of
Illinois.
"Dunn Coal & Dock" shall mean Dunn Coal & Dock Corporation. a West
----------------
Virginia corporation.
"Employee" shall have the meaning specified in Subsection 3.11.3
--------
hereof.
"Environmental Laws" means any Laws (including without limitation the
------------------
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S)(S) 9601 et. seq.; the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. 99-499, 100 Stat. 1613; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. (S) 6901; the Clean Air
Act, 42 U.S.C. (S) 7401; the Clean Water Act, 33 U.S.C. (S) 1251 et. seq.;
SMCRA; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et. seq.; and the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et. seq.), including
any plan, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved by any Governmental Authority, now or hereafter in
effect relating to the generation, production, installation, use, storage,
treatment, handling, distribution, transportation, release, threatened
release or disposal of Hazardous Materials, noise control, or 'the
protection of human health, natural resources or the environment.
"Equipment Sale Agreements" shall have the meaning specified in
-------------------------
Subsection 2.3.3 hereof.
"Equipment Sublease" shall have the meaning specified in Subsection
-------------------
2.3.3 hereof.
"Equipment Surety Bond" shall have the. meaning specified in Section
---------------------
5.22 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules, regulations and forms promulgated thereunder.
"Excluded Assets" shall have the meaning specified in Section 2.1
---------------
hereof.
"Excluded Liabilities" shall have the meaning specified in Section 2.1
--------------------
hereof.
"Farm Management Agreements" shall have the meaning specified in
--------------------------
Subsection 2.3.3 hereof.
5
<PAGE>
"Fee Coal" shall have the meaning specified in Subsection 5.10.1(a)
--------
hereof.
"Fee Land" shall have the meaning specified in Subsection 5.10.1(a)
--------
hereof.
"Final Closing Statement" shall have the meaning specified in
-----------------------
Subsection 5.18 hereof
"Final Determination" shall mean the final resolution of liability
-------------------
for any Tax for a Taxable period: (i) pursuant to IRS Form 870 or 870-AD
(or any successor forms thereto), on the date of acceptance by or on behalf
of the taxing authority, or by a comparable form under the laws of other
jurisdictions; except that a Form 870 or 870-AD or comparable form that
reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the taxing
authority to assert a further deficiency shall not constitute a Final
Determination; (ii) by a decision, judgment, decree, or other order by a
court of competent jurisdiction, which has become final and unappealable;
(iii) by a closing agreement or accepted offer in compromise under Section
7121 or 7122 of the Code (or'-'any successor provisions thereto), or
comparable agreements under the laws of other jurisdictions; (iv) by any
allowance of a refund or credit in respect of an overpayment of tax, but
only after the expiration of all periods during which such refund may be
recovered (including the way of offset) by the taxing authority; or (v) by
any other final disposition, including by mutual agreement of the parties.
"Governmental Authority" means any federal, state, local or foreign
----------------------
court, tribunal, legislative, administrative or regulatory authority or
agency.
"Grassy Cove" shall mean Grassy Cove Coal Mining Company, a Delaware
-----------
corporation.
"Grassy Cove Shares" shall have the meaning specified in Section 2.3.2
------------------
hereof.
"Hazardous Materials" mean any wastes, substances, radiation or
--------------------
materials (whether solids, liquids or gases) (a) which are hazardous,
toxic, infectious, explosive, radioactive, carcinogenic or mutagenic; (b)
which are or become defined as a "pollutants", "contaminants", "hazardous
materials", "hazardous wastes", "hazardous substances", "toxic substances",
"radioactive materials", "solid wastes" or other similar designations in,
or otherwise subject to regulation under, any Environmental Laws; (c) the
presence of which on, above or under any real property cause or threaten to
cause a nuisance pursuant to applicable statutory or common law upon such
real property or to adjacent properties; (d) without limitation, which
contain polychlorinated biphenyls (PCBs), asbestos and asbestos-containing
materials, lead-based paints, urea-formaldehyde foam insulation, and
petroleum or petroleum products (including, without limitation, crude oil
or any fraction thereof); or (e) which pose a hazard to natural resources,
human health or safety, industrial hygiene or the environment.
"Headquarters" shall refer to the headquarters offices of Seller in
------------
respect Business located in Denver, Colorado.
6
<PAGE>
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976 and the regulations and Premerger Notification and Report Form
promulgated thereunder.
"Indemnitee"shall mean any Person which may be entitled to seek
----------
indemnification pursuant to the provisions of Sections 8.1 or 8.2.
"Indemnitor" shall mean any Person which may be obligated to provide
----------
indemnification pursuant to Sections 8.1 or 8.2.
"Initial Amount" shall have the meaning specified in Subsection
---------------
2.3.1 hereof
"Interest Rate" shall mean a per annum interest rate equal to 1%
-------------
above the prime rate published in the Wall Street Journal on the Closing
-------------------
Date.
"Interim Period" shall mean the period commencing on the date hereof
--------------
and ending on the Closing Date.
"Kentucky Prince Mining" shall mean Kentucky Prince Mining Company, a
----------------------
general partnership organized under the laws of the State of New York.
"Knowledge of Purchaser", "Purchaser's Knowledge" or "Known to
---------------------- --------------------- --------
Purchaser" or other like words means the actual knowledge of the
---------
individuals set forth on Schedule II hereto, without any duty of inquiry
other than the duty to review the representations and warranties of Seller
and Purchaser contained herein as qualified by the Schedules attached
hereto.
"Knowledge of Seller", "Seller's Knowledge" or "Known to Seller" or
------------------- ------------------ ---------------
other like words means the actual knowledge of the individuals set forth on
Schedule III hereto, without any duty of inquiry other than the duty to
review Seller's representations and warranties contained herein as
qualified by the Schedules attached hereto.
"Laws" means any law, statute, code, treaty, rule, directive, plan,
----
regulation, promulgation, decree, ruling, injunction or order of any
Governmental Authority, or any common law principle, doctrine or judgment.
"Leased Coal" shall have the meaning specified in Subsection 5.10.1(a)
-----------
hereof.
"Leases" shall have the meaning specified in Subsection 5.10.1(a)
------
hereof.
"Liability" or "Liabilities" means any liability, obligation, loss
---------- -----------
or contingency, whether known or unknown, asserted or unasserted, absolute
or conditional, accrued or unaccrued, liquidated or unliquidated, and
whether due or to become due, regardless of when asserted or arising.
"Liens" shall mean all liens, claims, charges, restrictions, pledges,
-----
security interests, mortgage interests or encumbrances of any kind or
nature.
7
<PAGE>
"Loss" or "Losses" means any and all losses, costs, Liabilities,
---- ------
damages, demands, penalties, fines. settlements, response, remedial,
reclamation or inspection costs, reasonable expenses (whether or not known
or asserted prior to the date hereof), including without limitation,
interest on any amount payable to a third party as a result of the
foregoing, Liabilities on account of Taxes (including interest and
penalties thereon) and any legal. accounting, auditing, consulting, or
other expenses reasonably incurred in connection with investigating or
defending any claims, actions or Proceedings, whether or not resulting in
an' Liability; provided, however, that Losses shall be net of any insurance
proceeds received by an Indemnitee from an insurance company on account of
such Losses (after taking into account any costs incurred in obtaining such
proceeds and any increase in insurance premiums as a result of a claim with
respect to such proceeds); and provided further, however, that the term
"Losses" shall not be deemed to include lost profits, opportunity costs,
any other consequential damages or punitive damages.
"Lost Mountain Plan" shall have the meaning specified in
------------------
Subsection 5.12.2 hereof.
"March Balance Sheet" shall have the meaning specified in Section 3.6
-------------------
hereof
"Material Adverse Effect" shall mean, with respect to any Person,
-----------------------
changes in the business, assets, financial condition or results of
operations of such Person resulting in a loss therefrom in excess of
$1,000,000; provided however that, to the extent Material Adverse Effect
shall relate to more than one Person, then Material Adverse Effect shall
mean, with respect to such group of Persons, changes in the business,
assets, financial condition or results of operations of such group of
Persons (taken as a whole) resulting in a loss therefrom, in the aggregate,
in excess of $ 1,000,000.
"Material Contracts" shall have the meaning specified in Subsection
------------------
3.9.1 hereof.
"Meadowlark" shall mean Meadowlark, Inc., an Indiana corporation.
----------
"Meadowlark Shares" shall have the meaning specified in Subsection
-----------------
2.3.2 hereof.
"Minerals" shall mean Cyprus Amax Minerals Company, a Delaware
--------
corporation and ultimate parent of Seller.
"Minerals Plan" shall have the meaning specified in Subsection
-------------
3.11.1 hereof.
"Minimum Royalty Payment" shall have the meaning specified in
-----------------------
Subsection 5.10.2 hereof.
"MSHA" shall mean the Mine Safety and Health Act of 1977, as
----
amended, 30 U.S.C. (S)(S) 801 et. seq., any rule or regulation promulgated
thereunder, and any similar state or local Law.
"Multi-employer Plan" shall have the meaning specified in Subsection
-------------------
3.11.1 hereof.
8
<PAGE>
"Net Cash Advance Balance" shall have the meaning specified in
------------------------
Subsection 5.183 hereof.
"Notice Period" as applied to any Third-Party Claim for which an
-------------
Indemnitee seeks to be indemnified pursuant to this Agreement, shall mean
the period ending the earlier of the following:
(a) 45 days after the time at which the Indemnitee has
either (i) received notice of the facts giving rise to such
Third-Party Claim or (ii) commenced an active investigation
of circumstances likely to give rise to such Third-Party
Claim and, in each case, where such Indemnitee believes or
should reasonably believe that such facts or circumstances
would give rise to such Third-Party Claim for which such
Indemnitee would be entitled to indemnification pursuant to
this Agreement; and
(b) 45 days after the time at which any Third-Party Claim
against the Indemnitee has become the subject of Proceedings
before any court or tribunal, or such shorter time as would
allow the Indemnitor sufficient time to contest, on the
assumption that there is an arguable defense to such Third-
Party Claim, such Proceeding prior to any judgment or
decision thereon.
"Other Tax Returns" means any Tax Return in respect of Other Taxes.
-----------------
"Other Taxes" or "Other Tax" shall mean any Tax other than a Tax in
----------- ---------
respect of the income of any Subsidiary.
"Permits" shall have the meaning specified in Subsection 3.12.1
-------
hereof.
"Permitted Liens" shall mean (a) Liens for taxes and assessments or
---------------
governmental charges not yet due or which are being contested in good faith
and by appropriate proceedings as to which adequate reserves exist (to the
extent such reserves are required by Seller's Accounting Principles), (b)
Liens in favor of landlords, car warehousemen, mechanics, workmen and
materialmen and construction or similar arising by operation of law or
incurred in the ordinary course of business for sums n due or that are
being contested in good faith as to which adequate reserves exist (to
extent such reserves are required by Seller's Accounting Principles), (c)
Liens in re of pledges or deposits under worker's compensation laws or
similar legislation unemployment insurance or other types of social
security or to secure the performance tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance
and return of money bonds and similar obligations, (d) reflected in the
Financial Statements, (e) Liens to be discharged at or prior to Closing and
(f) rights reserved to or vested in any Governmental Authority to control
or regulate any real property or interests therein in any manner, and all
Laws of any Governmental Authority.
9
<PAGE>
"Person" means any corporation, partnership (whether general. limited
------
or otherwise), limited liability company. trust, association.
unincorporated organization. governmental entity, agency or branch or
department thereof, or any other legal entity, or any natural person.
"Personal Property" shall have the meaning specified in Subsection
-----------------
3-8.2 hereof
"Plans" shall have the meaning specified in Subsection 3.11.1 hereof.
-----
"Pre-Balance Sheet Period" shall have the meaning specified in
------------------------
Subsection 5.11.1 hereof.
"Pre-Closing Tax Period" shall have the meaning specified in
----------------------
Subsection 5.11 .1 hereof.
"Proceeding" shall mean any action, suit, claim, investigation
----------
(which, for the avoidance of doubt, shall not include any audit) or
proceeding, whether involving a court of law, administrative body,
governmental agency, arbitrator, or alternative dispute resolution
mechanism.
"Production Royalty" shall mean the "Production Royalty" payable
------------------
pursuant to and in accordance with the Royalty Deeds.
"Purchase Price" shall have the meaning specified in Section 2.3
--------------
hereof.
"Purchaser" shall have the meaning specified in the preamble hereof
---------
"Purchaser Indemnitees" shall have the meaning specified in Section
---------------------
8.1 hereof.
"Purchaser Pension Plans" shall have the meaning specified in
-----------------------
Subsection 5.12.2 hereof.
"Purchaser Surety Bond" shall have the meaning specified in
---------------------
Subsection 5.17.1 hereof.
"Purchaser's Retiree Plans" shall have the meaning specified in
-------------------------
Subsection 5.12.2 hereof.
"Purchaser's Savings Plan" shall have the meaning specified in
------------------------
Subsection 5.12.2 hereof.
"Purchaser's Welfare Plans" shall have the meaning specified in
-------------------------
Subsection 5.12.2 hereof.
"Release" means any emission. spill, seepage, leak, escape,
-------
leaching, discharge, injection, pumping, pouring, emptying, dumping,
disposal or release of Hazardous Materials
10
<PAGE>
from any source (including, without limitation, the real property and
property adjacent to such parcel) into or upon the environment. including
the air. soil. improvements. surface water, groundwater, the sewer, septic
system. storm drain, publicly owned treatment works, or waste treatment,
storage or disposal systems at. on, from, above or under such parcel of
real property or any other property at which Hazardous Materials
originating on or from such parcel of real property have been stored,
treated or disposed.
"Restructuring" shall mean the collective reference to the
-------------
transactions, actions, distributions, transfers and assignments
contemplated by Section 2.1 hereof.
"Revised Statement" shall have the meaning specified in Subsection
-----------------
2.4.1 hereof.
"Roaring Creek" shall mean Roaring Creek Coal Company, a Delaware
-------------
corporation.
"Roaring Creek Plan"shall have the meaning specified in Subsection
------------------
5.12.2 hereof.
"Roaring Creek Shares" shall have the meaning specified in Section
--------------------
2.3.2 hereof.
"Royal" shall have the meaning specified in Subsection 5.10. 1 (a)
-----
hereof
"Royalty Buy-Out Amount" shall have the meaning specified in Section
----------------------
5.10 hereof.
"Royalty Deeds" shall mean, collectively, (i) each royalty deed or
-------------
royalty agreement, dated _______________, 1998, between Ayrshire Land and
Cyprus Amax Royalty Company, (ii) each royalty deed or royalty agreement,
dated ________________, 1998, between Cyprus Cumberland and Cyprus Amax
Royalty Company, (iii) each royalty deed or royalty agreement, dated
________________, 1998, between Cyprus Kanawha and Cyprus; Amax Royalty
Company, (iv) each royalty deed or royalty agreement, dated, 1998, between
Cyprus Southern and Cyprus Amax Royalty Company, (v) each royalty deed or
royalty agreement, dated __________, 1998, between Meadowlark and Cyprus
Amax Royalty Company, (vi) each royalty deed or royalty agreement, dated
__________, 1998, between Cannelton Land and Cyprus Amax Royalty Company,
(vii) each royalty deed or royalty agreement, dated1998, between Cannelton
Industries and Cyprus Amax Royalty Company.
"SMCRA" shall mean the Surface Mining Control and Reclamation Act,
-----
as amended, 30 U.S.C. (S)(S) 1201, et. seq., any rule or regulation
promulgated thereunder, and any similar state law or regulation.
"Salaried Plan" shall have the meaning specified in Subsection
-------------
5.12.2 hereof.
"Savings Plan" shall have the meaning specified in Subsection 5.12.2
------------
hereof.
"Scheduled Bonds" shall have the meaning specified in Subsection
---------------
5.17.1 hereof.
"Section 338(h)(10) Election" shall have the meaning specified in
---------------------------
Section 5.9 hereof.
11
<PAGE>
"Securities Act" means the Securities Act of 193-31. as amended. and
--------------
the rules. regulations and forms promulgated thereunder.
"Seller" shall have the meaning specified in the preamble hereof.
------
"Seller Consolidated Group" means the consolidated group filing a
-------------------------
federal income tax return of which Seller and the Subsidiaries. among
others. are members.
"Seller Indemnitees" shall have the meaning specified in Section 8.2
------------------
hereof.
"Seller's Accounting Principles" shall mean generally accepted
------------------------------
accounting principles, consistently applied, except to the extent otherwise
provided in Schedule IV hereto.
"Seller's Welfare Plans" shall have the meaning specified in
----------------------
Subsection 5.12.2 hereof.
"Shares" shall have the meaning specified in Subsection 2.3.2
------
hereof.
"Skyline Coal" shall mean Skyline Coal Company, a partnership
------------
organized under the laws of the State of New York.
"Subsidiary" and "Subsidiaries" shall have the respective meanings
---------- ------------
specified in the second whereas clause hereof.
"Substantial Loss" shall have the meaning specified in Section 8.7
----------------
hereof.
"Substantial Third Party Claim" shall have the meaning specified in
-----------------------------
Section 8.7 hereof.
"Taxes" or "Tax" (and, with correlative meanings, "Taxable" or
----- --- -------
Taxing") means, with respect to any Person, (a) any federal, state, local,
------
provincial or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, business, occupation, premium, windfall profits,
environmental, mineral, unmined coal, abandoned mined land fee, customs,
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, ad valorem, transfer, registration, value added, advance
corporation, alternative or add-on minimum, estimated, or other tax of any
kind whatsoever, including any interest, penalty, or addition thereto,
whether or not disputed, with respect to which such Person could be held
liable; and (b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a result of (i) being
a transferee (within the meaning of section 6901 of the Code) of another
Person, or (ii) being a member of an affiliated or combined group.
"Tax Contest" shall mean. without limitation. any audit, examination,
-----------
claim, suit, action or other proceeding relating to Taxes in which an
adjustment to Taxes may be proposed, collected or assessed.
12
<PAGE>
"Tax Returns" means all federal. state, local, provincial and
-----------
foreign returns. declarations, claims for refunds, forms, statements,
reports, schedules, and information returns or statements, and any
amendments thereof (including. without limitation, any related or
supporting information or Schedule attached thereto) required to be filed
with any Taxing authority in connection with any Tax or Taxes.
"Third Party Claims" means any and all Losses which arise out of or
------------------
result from (a) any claims or actions asserted against an Indemnitee by any
Person not a party hereto, (b) any rights of any Person not a party hereto
asserted against an Indemnitee, or (c) any Liabilities of, or amounts
payable by, an Indemnitee to any Person not a party hereto arising out of
subclauses (a) or (b), including without limitation, claims or actions
asserted against an Indemnitee by any Governmental Authority on account of
Taxes; provided, however, that the term "Person" as used for purposes of
this definition of Third Party Claims shall be deemed to exclude any
Affiliate, partner, director or officer of any party hereto, or any equity
investor in Purchaser.
"Transition Services Agreement" shall have the meaning specified in
-----------------------------
Subsection 2.3.3 hereof.
"Undeveloped Reserves" mean all Coal Reserves under or on real
--------------------
property owned, leased or otherwise held by any Subsidiary as of the
Closing Date and as to which no SMCRA permit is in effect or no SMCRA
permit application has been filed for the mining of such coal reserves as
of such date.
"Undeveloped Reserves Royalty" shall mean the Production Royalty
----------------------------
payable pursuant to and in accordance with the separate Royalty Deeds and
the Royalty payable pursuant to Section 5.10.1 hereof, in each case with
respect to the production of Coal Reserves in the Undeveloped Reserves.
"Unrelated Business" shall mean all of the businesses and operations
------------------
of Minerals and its Affiliates, other than the Business.
"Wabash Mine" shall mean the Wabash surface coal mine and related
-----------
facilities and operations of Amax Coal Company located in the States of
Illinois and Indiana.
"WARN Act" means the Worker Adjustment and Retraining Notification
--------
Act of 1968, 29 U.S.C. (S) (S) 2 101 el. seq., or any similar state or
local Law.
"Workers' Compensation Liabilities" shall mean any Liabilities which
---------------------------------
are or may be imposed upon an employer (or its Affiliates) under any Laws
due to an employee claiming or having suffered or incurred any accident,
injury, disease, exposure, illness, disability or other adverse mental or
physical condition, including those Liabilities arising out of an
employee's and his beneficiaries' rights under (i) the Longshore and Harbor
Workers' Compensation Act (33 U.S.C. (S)(S) 901 et. seq.). (ii) the Indiana
Workers' Compensation and occupational Diseases Act (Indiana Code, Title
2,, Article 3), (iii) the West Virginia Workers' Compensation Act (West
Virginia Code, Chapter 2' )). (iv) the Tennessee Workers'
13
<PAGE>
Compensation Law (Tennessee Code. Title 50. Chapter 6). and (y) the
Kentucky Workers' Compensation Act (Kentucky Revised Statutes. Title 27.
Chapter 342).
"Yankeetown" shall mean Yankeetown Dock Corporation, an Indiana
----------
corporation.
ARTICLE II
PURCHASE AND SALE; CLOSING
--------------------------
SECTION 2.1. Certain Assets and Liabilities. At or prior to the Closing
------------------------------
and consummation of the purchase and sale of the Shares contemplated hereby, and
subject to the terms and conditions of this Agreement, Seller or a wholly owned
subsidiary thereof (other than the Subsidiaries) shall retain and assume, as the
case may be, pursuant to agreements and instruments (including instruments of
conveyance) reasonably acceptable to Seller and Purchaser, the assets and rights
listed on Schedule 2.1(a) hereof (collectively, the "Excluded Assets") and the
liabilities and obligations listed on Schedule 2.1(b) hereof (collectively, the
"Excluded Liabilities"). All costs and expenses incurred in connection with the
transfer to Seller or such wholly owned subsidiary of the Excluded Assets and
Excluded Liabilities as contemplated by this Section 2.1 shall be for the
account of and shall be paid by Seller, and Seller shall pay and discharge, and
indemnify Purchaser and hold Purchaser harmless from and against, all such costs
and expenses, including all transfer or stamp duty taxes, if any, due and
payable in connection with the transfer of the Excluded Assets and Excluded
Liabilities.
SECTION 2.2. Closing. The closing of the transactions contemplated by
-------
this Agreement (the "Closing") will take place at the offices of Seller, 9100
East Mineral Circle, Englewood, Colorado 80112 at 10:00 a.m. local time on the
last business day of the month in which all of the conditions to closing set
forth in Articles VI and VII have been met, or such other business day mutually
acceptable to the parties hereto following the day on which all such conditions
shall have been met (the "Closing Date"). If the Closing has not occurred by
June 30, 1998, this Agreement shall terminate as provided in Article IX
SECTION 2.3 Purchase Price: Closing Deliveries. At the Closing, the
----------------------------------
parties shall make the following deliveries:
2.3.1 Purchase Price. Against delivery of the Shares described in
--------------
Section 2.3.2, Purchaser shall deliver to Seller, by wire transfer in same day
funds to an account designated by Seller in writing at least two (2) business
days prior to the Closing Date, an amount equal to $98,000,000.00 (the "Initial
Amount"), adjusted as follows: (x) if the net working capital amount of the
---
Subsidiaries as at March 31, 1998. as set forth in Section 3.6 hereof and as
determined in accordance with the provisions of Section 3.6, is less than
$39,602,000, the amount of such deficit shall be subtracted from the Initial
Amount, and (Y) if such net working capital amount is greater than S39.602.000,
---
the amount of such excess shall be added to the Initial Amount (such
S98.000.000.00. as so increased or reduced, the "Purchase Price").
Notwithstanding anything to the contrary contained in the March Balance Sheet,
the parties hereto agree that the net working capital amount of the Subsidiaries
as at March 31, 1998 as set forth in Section 3.6 hereof shall be conclusive and
binding on the parties hereto for all purposes of the calculation of the
Purchase Price pursuant this Subsection 2.3.1. In addition, if the Closing shall
not have occurred on or prior to May
14
<PAGE>
29, 1998, at the Closing, (i) Purchaser shall pay to Seller simple interest on
the Purchase Price, at a rate per annum equal to 6%, for the period from May 30,
1998 to (but not including) the Closing Date, if any, unless the Closing shall
not have occurred on or after May 29, 1998 due to Seller's breach of its
obligations hereunder, in which case Purchaser shall have no liability for such
interest to the extent the Closing shall not have occurred on or after May 29,
1998 as a result of such breach, and (ii Seller shall pay to Purchaser simple
interest on the Net Cash Advance Balance as of the close of business on May 29,
1998 to the extent such balance, as reflected in the financial statements of
Seller provided to Purchaser pursuant to Subsection 5.18.2 hereof, consists of
an amount owing from Seller. to the Subsidiaries, at a rate per annum. equal to
6%, for the period from May 30, 1998 to (but not including) the Closing Date,
if any, unless the Closing shall not have occurred on or after May 29, 1998 due
to Purchaser's breach of its obligations hereunder, in which case Seller shall
have no liability for such interest to the extent the Closing shall not have
occurred on or after May 29, 1998 as a result of such breach. All interest paid
under this Subsection 2.3.1 shall be computed on the basis of a 360 days year,
actual days elapsed.
2.3.2 Shares. Against delivery of the Purchase Price, Seller shall
------
sell, assign, transfer and deliver to purchaser all of its right, title and
interest in and to all of the issued and outstanding shares of capital stock of
(i) Amax Coal Company (the "Amax Coal Company Shares"), (ii) Amax Coal Sales
- -----
Company (the "Amax Coal Sales Company Shares"), (iii) Ayrshire Land (the
---
"Ayrshire Land Shares"), (iv) Beech Coal (the "Beech Coal Shares"), (y)
----- -
Cannelton (the "Cannelton Shares"), (vi) Cyprus Cumberland (the "Cyprus
-----
Cumberland Shares"), (vii) Cyprus Kanawha (the "Cyprus Kanawha Shares"), (viii)
------ ------
Cyprus Mountain (the "Cyprus Mountain Shares"), (ix) Cyprus Southern Realty (the
-----
"Cyprus Southern Realty Shares"), (x) Grassy Cove (the"Grassy Cove Shares"),
-
(xi) Roaring Creek (the "Roaring Creek Shares") and (xii) Meadowlark (the
- - ----- ------
"Meadowlark Shares"; and all such shares of capital stock of each of the
aforementioned Subsidiaries, the "Shares"). In furtherance thereof, Seller shall
deliver and surrender to Purchaser at Closing the following:
(a) a stock certificate, duly endorsed in blank or with a stock
transfer power duly endorsed in blank or affixed thereto with respect to the
following:
(i) The Amax Coal Company Shares:
-
(ii) The Amax Coal Sales Company Shares;
--
(iii) the Ayrshire Land Shares;
---
(iv) the Beech Coal Shares;
--
(v) the Cannelton Shares;
-
(vi) the Cyprus Cumberland Shares;
--
(vii) the Cyprus Kanawha Shares;
---
(vii) the Cyprus Mountain Shares;
---
(ix) the Cyprus Southern Realty Shares;
--
(x) the Grassy Cove Shares;
-
(xi) the Roaring Creek Shares; and
--
(xii) the Meadowlark Shares;
---
(b) a certificate stating whether any stock transfer. stamp duty or
sales tax applicable to the sale or transfer of any of the Shares shall be due.
in which case Seller shall pay such taxes and Purchaser shall reimburse Seller
at Closing fifty percent (50%) of the amount thereof,
15
<PAGE>
(c) to the extent in the possession of Seller or any of its
Affiliates (or any agent or representative of any thereof), the corporate minute
books, stock transfer book or stock ledger, and the corporate seal for each of
Amax Coal Company, Amax. Coal Sales Company, Ayrshire Land, Beech Coal,
Cannelton, Cannelton Industries, Cannelton Land, Cannelton Sales, Cyprus
Cumberland, Cyprus Kanawha, Cyprus Mountain, Cyprus Southern Realty, Dunn Coal &
Dock, Grassy Cove, Meadowlark, Roaring Creek and Yankeetown (it being understood
that the books and records required to be delivered by Seller under this clause
(c) shall include all such extant books and records since January 1, 1994);
(d) to the extent in the possession of Seller or any of its
Affiliates (or any agent or representative of any thereof), the company minute
books and partnership records for each of Bentley Coal, Kentucky Prince Mining
and Skyline Coal (it being understood that the books and records required to be
delivered by Seller under this clause (d) shall include all such extant books
and records since January 1, 1994);
(e) long form certificates of incorporation and good standing
certified by an official of the state of incorporation for each of Am&x Coal
Company, Amax Coal Sales Company, Ayrshire Land, Beech Coal, Cannelton,
Cannelton Industries, Cannelton Land, Cannelton Sales, Cyprus Cumberland, Cyprus
Kanawha, Cyprus Mountain, Cyprus Southern Realty, Dunn Coal & Dock, Grassy Cove,
Meadowlark, Roaring Creek and Yankeetown, together with a certificate of the
Secretary or Assistant Secretary of such corporation as to its bylaws; and
(f) to the extent available from an official of any state, a
certificate of valid existence and franchise tax status by an official of the
state of organization of each of Bentley Coal, Kentucky Prince Mining and
Skyline Coal, together with a certificate of the Secretary or Assistant
Secretary of such partnership as to the due formation and good standing of such
partnership and its certificate of formation.
2.3.3 Other Deliveries. At the Closing:
----------------
(a) Seller shall deliver or cause to be delivered, as the case may
be, to Purchaser (a) an executed Transition Services Agreement, substantially in
the form of Exhibit A hereto (the "Transition Services Agreement"), pursuant to
which Seller shall provide to Purchaser after Closing certain transition
services upon the terms and conditions set forth therein, (ii) an executed
--
Sublease, substantially in the form of Exhibit B hereto (the "Equipment
Sublease"). pursuant to which Seller shall sublease to Purchaser or certain of
the Subsidiaries after Closing certain items of equipment for use in the
Business upon the terms and conditions set forth therein, (iii) executed
---
Equipment Purchase and Security Agreements. substantially in the form of
Exhibits C-1. C-2 and C-3 hereto, respectively (collectively. the "Equipment
Sale Agreements"), pursuant to which Seller shall agree to sell. and Purchaser
or certain Subsidiaries shall agree to purchase. certain items of equipment upon
the terms and conditions set forth therein. (iv) one or more executed Farm
--
Management Agreements, substantially in the form of Exhibit D hereto
(collectively, the "Farm Management Agreements"), pursuant to which Ayrshire
Land shall agree to administer certain real property held by Delta Mine Holding
Company, Wabash Mine Holding Company and Warrick Holding Company, (y) the
instruments, certificates and opinions required to be delivered by Seller
pursuant to Article VI hereof
16
<PAGE>
and (vi) such other documents, instruments and certificates as Purchaser shall
----
reasonably request for the purpose of giving effect to the transactions
contemplated hereby; and
(b) Purchaser shall deliver or cause to be delivered, as the case may
be, to Seller (a) an executed Transition Services Agreement, (ii) an executed
----
Equipment Sublease Agreement, (iii) executed Equipment Sale Agreements, (:iv)
-----
executed Farm Management Agreements, (v) the instruments, certificates and
opinions required to be delivered by Purchaser pursuant to Article VI hereof and
(vi) such other documents, instruments and certificates as Seller shall
- - ----
reasonably request for the purpose of giving effect to the transactions
contemplated hereby.
SECTION 2.4. Allocation of the Purchase Price.
---------------------------------
2.4.1 Asset Acquisition Statement. Within 60 days after the
---------------------------
Closing Date, Purchaser will provide to Seller copies of IRS Form 8023 and any
required exhibits thereto (the "Asset Acquisition Statement") with Purchaser's
proposed allocation of the Purchase Price among the assets and Liabilities of
the Subsidiaries. In connection therewith, Purchaser may obtain an independent
appraisal as to any of the assets and Liabilities of any Subsidiary at its
expense, which appraisal will be made available to Seller if requested. Within
60 days after the receipt of such Asset Acquisition Statement, Seller will
propose to Purchaser any changes to such Asset Acquisition Statement or will be
deemed to have indicated its concurrence therewith. Thereafter, Purchaser will
provide to Seller from time to time revised copies of the Asset Acquisition
Statement (each, a "Revised Statement") so as to report any matters on the Asset
Acquisition Statement that require updating. Within 30 days after the receipt of
any Revised Statement, Seller will propose to Purchaser in writing any changes
to such Revised Statement or will be deemed to have indicated its concurrence
therewith. Purchaser and Seller will endeavor in good faith to resolve any
differences with respect to the Asset Acquisition Statement or any Revised
Statement within 30 days after Purchaser's receipt of notice of suggested
changes from Seller.
2.4.2 Tax Returns. Subject to the provisions of the following
-----------
sentence of this Subsection 2.4.2, the Purchase Price will be allocated among
the assets and Liabilities of the Subsidiaries in accordance with the Asset
Acquisition Statement or, if applicable, the last Revised Statement provided by
Purchaser to Seller pursuant to Subsection 2.4.1, and subject to the
requirements of any applicable tax law or election, all Tax Returns. and reports
filed by Purchaser and Seller will be prepared consistently with such
allocation. If Seller withholds its consent to such allocation and thereafter
Purchaser and Seller are unable to resolve any differences that, in the
aggregate. are material in relation to the Purchase Price, then any remaining
disputed matters will be finally and conclusively determined by an independent
accounting firm of national standing (the "Allocation Arbiter") selected by
Purchaser and Seller, which firm will not be the regular accounting firm of
Purchaser or Seller. Promptly but not later than 10 days after its acceptance of
its appointment, the Allocation Arbiter will determine (based solely on
presentations by Seller and Purchaser and not by independent review) only those
matters in dispute and will render a written report as to the disputed matters
and the resulting allocation of the Purchase Price. which report will be
conclusive and binding upon the parties. The fees and expenses of the Allocation
Arbiter shall be shared equally by Seller and Purchaser. Purchaser and Seller
will, subject to the requirements of any applicable tax law or election, file
all Tax Returns and reports consistent with the allocation
17
<PAGE>
provided in the Asset Acquisition Statement or the last Revised Statement and,
if applicable, the determination of the Allocation Arbiter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
As of the date hereof and as of the Closing Date (except to the extent any
of the following representations and warranties relate solely to an earlier
date, in which case such representations and warranties are made as of such
earlier date), Seller represents and warrants to Purchaser and each of the
Subsidiaries as follows:
SECTION 3.1. Corporate Status and Authority. Seller is a corporation duly
------------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Seller has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and to execute and deliver this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. On the Closing
Date, the execution, delivery and performance by Seller of this Agreement and
the Ancillary Agreements have been duly authorized by the Board of Directors of
Seller, which constitutes all necessary corporate action on the part of Seller
for such authorization. Subject to the immediately preceding sentence, this
Agreement has been duly executed and delivered by Seller and constitutes the
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application referring to or affecting the enforcement of creditors' rights, or
by general equitable principles. Upon the Closing, the Ancillary Agreements
shall be duly executed and delivered by Seller and shall constitute the valid
and binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application referring to or affecting the enforcement of creditors'
rights, or by general equitable principles.
SECTION 3.2. No Conflicts. etc. Except as set forth in Schedule 3.2:
-----------------
3.2.1 Charter Documents. The execution, delivery and performance
-----------------
by Seller of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby will not result in (a) any
conflict with or violation of the certificate of incorporation or by-laws of
Seller, or of the certificate of incorporation and bylaws, or the partnership
agreement of any of the Subsidiaries, (b) any material breach or violation of or
default under, or result in the creation or imposition of any Liens under, any
statute, regulation, judgment, order or decree, or any mortgage, deed of trust,
indenture, security agreement, pledge or any other similar instrument to which
Seller or any of the Subsidiaries is a party or by which any of them or their
respective properties or assets are bound or (c) any material breach, violation
or termination of or default under any Material Contract or any material real
property leases listed on Schedule 3.8.1 except for (x) such material real
---
property leases listed on Schedule 6.1.5 hereof and (y) such other material real
property leases such breach, violation or termination of or default under shall
not result in a Material Adverse Effect upon the Subsidiaries; and
18
<PAGE>
3.2.2 Governmental Consents. No consent, approval or
---------------------
authorization of or filing with any Governmental Authority is required on the
part of Seller or any of the Subsidiaries in connection with the execution and
delivery of this Agreement and the Ancillary Agreements or the consummation of
the transactions contemplated hereby or thereby, except (a) filings required
with respect to the HSR Act, (b) such filings, consents and approvals required
in connection with the transfer to and assumption by Seller or a wholly owned
subsidiary thereof (other than the Subsidiaries) of the Excluded Assets and
Excluded Liabilities, and (c) filings, consents, change-in-ownership notices or
approvals which, if not made or obtained prior to Closing are not, individually
or in the aggregate, reasonably expected to have a Material Adverse Effect on
Seller or on the Subsidiaries.
SECTION 3.3. Corporate and Company Status and Authority of the
-------------------------------------------------
Subsidiaries. Each of the corporate Subsidiaries (a) is a corporation duly
- - ------------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite corporate power and
authority to conduct its business and to own or lease its properties, as
presently conducted, owned or leased, and (c) is duly qualified to do business
in each jurisdiction in which the nature of its business or the location of its
assets requires it to be so qualified, other than those jurisdictions in which
the failure to be so qualified is not, individually or in the aggregate,
reasonably 'expected to have a Material Adverse Effect on the Subsidiaries,
taken as a whole. Each of Bentley Coal, Kentucky Prince Mining and Skyline Coal
(i) is a partnership duly formed, validly existing and in good standing under
the laws of the jurisdiction of its formation, (ii) has all requisite
partnership power and authority to conduct its business and to own or lease its
properties, as presently conducted, owned or leased, and (iii) is duly qualified
to do business in each jurisdiction in which the nature of its business or the
location of its assets requires it to be so qualified, other than those
jurisdictions in which the failure to be so qualified is not, individually or in
the aggregate, reasonably expected to have a Material Adverse Effect on the
Subsidiaries. Schedule 3.3 lists each jurisdiction in which each Subsidiary is
qualified to be in business. No Subsidiary has any equity interest or investment
in any corporation, partnership, limited liability company, association, joint
venture or other business organization other than as set forth on Schedule 3.3.
SECTION 3.4. Ownership of the Subsidiaries. With respect to the shares
-----------------------------
of capital stock or partnership interests issued by the Subsidiaries. (a) Seller
I owns beneficially and of record all of the Shares of the Subsidiaries listed
as being directly owned by it on Schedule 33 ) in the percentages specified
therein, free and clear of any Lien other than Liens for taxes and assessments
and other governmental charges not yet due or which are being contested in good
faith and by appropriate proceedings as to which adequate reserves or insurance
exist, (b) Amax Coal Company owns beneficially and of record 60% of the issued
and outstanding shares of capital stock of Yankeetown Dock, free and clear of
any Lien other than Liens for taxes and assessments and other governmental
charges not yet due or which are being contested in good faith and by
appropriate proceedings as to which adequate reserves or insurance exist, (c)
Cannelton owns beneficially and of record all of the issued and outstanding
shares of capital stock of each of Cannelton Industries, Cannelton Sales and
Cannelton Land, and Cannelton Industries owns beneficially and of record all of
the issued and outstanding shares of capital stock of Dunn Coal & Dock, in each
case free and clear of any Lien other than Liens for taxes and assessments and
other governmental charges not yet due or which are being contested in good
faith and by appropriate proceedings as to which adequate reserves or insurance
exist, and (d) each of Roaring Creek and Grassy Cove own beneficially and of
record 50%
19
<PAGE>
of the partnership interests in each of Bentley Coal, Kentucky Prince Mining and
Skyline Coal, free and clear of any Lien other than Liens for taxes and
assessments and other governmental charges not yet due or which are being
contested in good faith and by appropriate proceedings as to which adequate
reserves or insurance exist. All such shares of capital stock or partnership
interests listed as being owned by Seller or any Subsidiary on Schedule 3.3 have
been duly authorized, validly issued and are fully paid and nonassessable. There
are no outstanding options, warrants, conversion or other rights or agreements
of any kind (except as contemplated hereby) for the purchase from, or the sale
or issuance by, Seller or any of the Subsidiaries of any shares of capital stock
or partnership interests of any of the Subsidiaries to the extent that such
shares or partnership interests are listed as being owned by Seller or any
Subsidiary on Schedule 1.3 and no authorization therefor has been given. To the
Knowledge of Seller, no ownership of Seller in 'the Shares, none of Amax Coal's
ownership interests in Yankeetown, none of Cannelton's direct or indirect
ownership interests in each of Cannelton Industries, Cannelton Sales Cannelton
Land and Dunn Coal & Dock and none of Grassy Cove's and Roaring Creek's
ownership interests in each of Bentley Coal, Kentucky Prince Mining and Skyline
Coal has ever been challenged and no Person has ever threatened to challenge
such interest. Neither Seller nor any Subsidiary is a party to any obligation
(contingent or otherwise) to buy or sell shares of capital stock or partnership
interests of the Subsidiaries, except as contemplated by this Agreement. Except
as set forth on Schedule 3.4, Seller is not a party to any agreement with
respect to the voting or transfer of the capital stock or partnership interests
of the Subsidiaries owned, either directly or indirectly, by Seller. For the
period from January 1, 1994 to the date hereof (or, if the Closing shall occur,
the Closing Date), the minute books (containing the records of meetings of the
shareholders, board of directors and any committee of the board of directors),
stock certificate books and stock transfer books of each Subsidiary are true and
correct in all material respects.
SECTION 3.5. Title. At the Closing, Purchaser will- receive good and
-----
valid title to the Shares. free and clear of any Lien, except for Liens for
taxes and assessments and other governmental charges not yet due or which are
being contested in good faith and by appropriate proceedings as to which
adequate reserves or insurance exist. Liens described in the Schedules attached
hereto, Liens that may arise from acts or omissions of Purchaser and except for
restrictions on transfer under the Securities Act.
SECTION 3.6. Financial Statements. Schedule 3.6 sets forth on a
--------------------
consolidated basis as at March 3 1, 1998 an unaudited statement of net working
capital and an unaudited balance sheet for the period then ended. together with
an unaudited income statement of the Subsidiaries for the three months ended
March 31, 1998 (the "March Balance Sheet"), all of which have been adjusted to
exclude therefrom all of the Excluded Assets and Excluded Liabilities and to
present intercompany balances between any Subsidiary and any of its Affiliates
as though they had been settled as of March 31, 1998. The March Balance Sheet
shows net working capital of the Subsidiaries determined on a consolidated basis
as at March 31, 1998 equal to $34,975,000, which amount has been computed by
subtracting current liabilities from current assets. The March Balance Sheet has
been prepared in accordance with Seller's Accounting Principles, except that the
March Balance Sheet shall include line items in respect of pro forma noncurrent
liabilities for Black Lung Benefits Obligations and post retirement obligations
other than pension obligations. The March Balance Sheet has been prepared from
the books and records of the Subsidiaries as at March 31, 1998 and includes all
material adjustments. Classification of balances between current and noncurrent
assets and
20
<PAGE>
liabilities reflected on the March Balance Sheet have been conformed to the
Subsidiaries' prior practice, with regard to asset and liability inclusion and
classification, in calculating the above net working capital amount.
SECTION 3.7. Absence of Undisclosed Liabilities. Except as set forth on
----------------------------------
Schedule 3.7, the Subsidiaries do not have any material Liabilities other than
such Liabilities as are Ci) reflected or reserved against in the March Balance
Sheet or the notes thereto, if any, (ii) set forth on the Schedules delivered
-----
hereunder or (iii) incurred since the Balance Sheet Date (A) in the ordinary
------
course of business consistent with past practices or (a) as contemplated or
permitted by this Agreement, including Liabilities arising under the Royalty
Deeds.
SECTION 3.8. Assets.
------
3.8.1 Real Property. Schedule 3.8.1 sets forth a true and complete
-------------
list (identified by physical file and legacy identification numbers) of all
material real property and leasehold interests and other material interests in
real property owned, leased or otherwise held by any Subsidiary, and such
Schedule indicates whether such real property is owned or leased or otherwise
held by such Subsidiary. Except as set forth on Schedule 3.8.1, each lease and
sublease set forth on Schedule 3.8.1 is in full force and effect as against the
Subsidiary a party thereto and, to the Knowledge of Seller, as against each
other party thereto, and there is not under any such lease or sublease any
existing breach or default by any Subsidiary, as applicable, or, to the
Knowledge of Seller, by any other party thereto, except for such breaches and
defaults which are not reasonably expected to have a Material Adverse Effect
upon the Subsidiaries. Except as set forth on Schedule 3.8.1 hereof, neither
Seller nor any Subsidiary has received written notice of any act or omission on
the part of such Subsidiary that constitutes or, with the passage of time or the
giving of notice or both, would constitute a material default under any of the
leases or subleases listed on Schedule 3.8.1 hereof except for such acts or
omissions that have been cured or would not. individually or in the aggregate.
reasonably be expected to result in a Material Adverse Effect upon the
Subsidiaries, and no Subsidiary has granted to any Person a security interest in
its leasehold interests in any lease or sublease listed on Schedule 3.8.1
hereof. To Seller's Knowledge and except as set forth on Schedule 3.8.1 hereof,
no notice of any violation of any applicable zoning or building law or ordinance
or administrative regulation ha's been received by any Subsidiary, and Seller
does not Know, or have any reasonable grounds to Know. of the threat of any such
notice. Except as set forth on Schedule 3.8.1 hereof. no condemnation proceeding
has been instituted or, to the Knowledge of Seller, is threatened with respect
to any of the real property listed on Schedule 3.8.1 hereof. To the Knowledge of
Seller, no Subsidiary has conducted mining on or from any coal reserves to which
it did not reasonably believe it had, as of the time such mining was conducted,
color of title.
3.8.2 Personal Property. All equipment, machinery, motor vehicles,
-----------------
furniture, fixtures, computer hardware and other tangible personal property
(other than coal) owned or leased by any Subsidiary that (x) in the case of any
such owned property, has a net book value as of the Balance Sheet Date of $5,000
or more or, if less, is material to the operations of the business of any
Subsidiary, or (y) in the case of any such leased property, requires aggregate
annual payments by any Subsidiary in excess of $10,000, are listed on Schedule
3.8.2 (the "Personal Property"). Except as set forth in Schedule 3.8.2, each
Subsidiary has good and valid title to the Personal Property owned by it and a
good and valid leasehold interest in all Personal Property leased by it, in each
case free
21
<PAGE>
and clear of any and all Liens except for Permitted Liens. True and complete
copies of each lease related to Personal Property requiring an aggregate payment
by any Subsidiary of $ 100,000 or more in any single year has been, or prior to
Closing will be made available and delivered, if requested, to Purchaser. At the
Closing, the Subsidiaries shall have title to or a leasehold interest in coal
mining equipment and machinery that, in the aggregate, is reasonably adequate
for the coal mining operations of the Subsidiaries as such mining operations
have been conducted during the six (6) month period preceding the Closing.
3.8.3 Intellectual Property. Other than with respect to
---------------------
intellectual property embedded in the machinery and equipment owned or leased by
the Subsidiaries or intellectual property licensed to the Subsidiaries under
"shrink-wrap" license, there is no intellectual property (including patents and
patent applications) developed by any of the Subsidiaries or by Seller for use
by the Subsidiaries, or used by the Subsidiaries, that is material to the
operations of the Business.
SECTION 3.9. Material Contracts.
-------------------
3.9.1 Schedule. Schedule 3.9.1 lists all written agreements,
--------
contracts and commitments of the following types to which any Subsidiary is a
party and which have not expired or been fully performed in accordance with its
terms, other than deeds, leases, conveyances and other documents relating to
real property, which are provided for in Section 3.8, labor or employment-
related agreements, which are provided for in Section 3.11, Permits, which are
provided for in Subsection 3.12.1 and any such agreement, contract or commitment
relating to the Excluded Assets and Excluded Liabilities (collectively, the
"Material Contracts"):
(a) Any agreement to purchase. sell or transport coal.
(b) Any agreement to supply or provide contract mining services:
(c) Any joint venture agreement, limited liability company operating
agreement or general or limited partnership agreement;
(d) Any mortgage, loan or trust indenture. loan or credit agreement.,
security agreement and other agreements and instrument relating to the borrowing
of money to the extent any Subsidiary will be liable thereunder after the
Closing;
(e) Any corporate guarantee provided directly by any Subsidiary of
any obligations of any of their respective Affiliates or any other Person;
(f) Any letter of credit, surety bond or other credit support
instrument issued by any insurance company, bank or other financial institution
for the account of any Subsidiary or as to which the assets of any Subsidiary
collateralize the reimbursement obligations in respect of such letter of credit,
surety bond or other credit support instrument;
(g) Any agreement for the (i) pending sale, lease or other
-
disposition of any real property listed on Schedule 3.8.1 and owned by any
Subsidiary, (ii) pending sublease of any real
--
22
<PAGE>
property listed on Schedule 3.8.1 and leased by any Subsidiary or (iii) pending
---
purchase or lease by any Subsidiary of any real property;
(h) Any agreement for the (i) pending sale of any Personal Property
-
listed on Schedule 3.8.2, (ii) lease to any Person of any Personal Property
--
listed on Schedule 3.8.2 or (iii) pending purchase or lease by any Subsidiary of
------
any personal property of the type listed on Schedule 3.8.2, in each case;
(i) Any lease for Personal Property requiring an aggregate payment
by any Subsidiary of $ 100,000 or more in any single year;
(j) Any agreement limiting the freedom of any Subsidiary to compete
in any line of business or in any area or with any Person to do business with
any Person; and
(k) Any other agreements, contracts and commitments having a term of
one (1) year or more which are not of a type referred to in paragraphs (a)
through 0) above which require payment or provide for the receipt by any of the
Subsidiaries after the date hereof of more than $100,000, other than standing
purchase orders or basic ordering arrangements for materials and supplies to be
used in the ordinary course of business.
3.9.2 Effectiveness. True and complete copies of all Material
-------------
Contracts have been previously made available to Purchaser. Except as set forth
on Schedule 3.9.1, each Material Contract is in full force and effect in
accordance with its terms as against the Subsidiary a party thereto and, to the
Knowledge of Seller, is valid and binding as to the other parties thereto,
except as may be limited by laws affecting bankruptcy, insolvency,
reorganization, moratorium or creditors rights generally, or by general
equitable principles. Except as set forth on Schedule 3.9.1. no Subsidiary is in
default in the payment or performance or observance of, and neither Seller nor
any Subsidiary has received written notice of any act or omission on the part of
such Subsidiary that constitutes or. with the passage of time or the giving of
notice or both. would constitute a material default under. any Material Contract
to which any of them is a party or by which any of them or their respective
properties or assets may be bound. and to Seller's Knowledge, no other party is
in default in the payment or performance or observance of any Material Contract.
SECTION 3.10. Affiliate Arrangements. Except as set forth in Schedule
----------------------
3.10, no Subsidiary will be a party to or will be bound by any contract,
agreement or other commitment, whether or not in the ordinary course of
business, with Seller or any Affiliate of Seller (other than the Subsidiaries)
or any senior executive, director or officer of Seller or any Subsidiary, other
than such contracts, agreements or other commitments (x) as are specifically
--
provided herein or are contemplated by this Agreement, including the Ancillary
Agreements and any agreement in respect of the Excluded Assets and Excluded
Liabilities, and (y) that will not be in effect following the Closing Date.
-
SECTION 3.11. Employee Benefits.
-----------------
3.11.1 Employee Benefit Plans. Schedule 3.11.1 lists all deferred
----------------------
compensation, pension, profit sharing and retirement plans, and all life or
other welfare or employee benefit insurance, incentive compensation, stock
option, severance or termination pay, hospitalization or
23
<PAGE>
other medical plan, arrangement or agreement, bonus and other employee benefit,
welfare or fringe benefit plans with respect to which contributions, premiums or
other payments are made or required by Minerals or any of its Affiliates
covering any current or former employee of any Subsidiary (the "Plans").
Schedule 3.11.1 identifies each such Plan as either a Plan maintained by any
such Affiliates (each, an "Affiliate Plan") or a Plan maintained by Minerals
(each a "Minerals Plan").
(a) Except as otherwise provided on Schedule 3.11.1, true and
complete copies of the Plans have been provided to or otherwise have been made
available to Purchaser by designating their location. Seller has notified
Purchaser of any amendments, modifications, extensions, changes in benefits or
benefit structures, or other alterations, to the Plans which are currently in
effect. Seller shall notify Purchaser of any amendments, modifications,
extensions, changes in benefits or benefit structures or other alterations to
any of the Plans which the Seller has undertaken to become effective in the
future but before the Closing, if such alteration has or is reasonably expected
to have a direct impact on the Employees;
(b) Minerals and the Subsidiaries, as the case may be, have executed,
managed and administered the Plans in compliance, in all material respects, with
all laws, rules and regulations applicable thereto, except where noncompliance
could not reasonably be expected to have a Material Adverse Effect upon the
Subsidiaries or Minerals;
(c) Each Plan which is intended to be "qualified" within the meaning
of Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service and, to the Knowledge of Seller. no event has
occurred and no condition exists which could reasonably be expected to result in
the revocation of any such determination;
(d) All contributions which are due from Minerals and the
Subsidiaries under any Plan have been paid to each such Plan or accrued in
accordance with the past practice of the Subsidiaries or Minerals, as the case
may be. All premiums. claims for benefits or other payments that are due and
which would have been paid in the normal course before the Closing Date have
been paid with respect to each Plan that is an employee welfare benefit plan (as
defined in Section 3)(1) of ERISA);
(e) None of the Subsidiaries, Minerals or any of Minerals' Affiliates
that is not a Subsidiary or, to the Knowledge of Seller, any other "disqualified
person" or "party in interest" as defined in Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively, have engaged in any transaction in
connection with any Plan that could reasonably be expected to result in the
imposition of a material penalty pursuant to Section 502(i) of ERISA, material
damages pursuant to Section 409 of ERISA, or a material tax pursuant to Section
4975(a) of the Code;
(f) Except as set forth on Schedule 3.11.1 (f), no Proceeding with
respect to any Plan (other than routine claims for benefits) is pending or, to
Seller's Knowledge, threatened which could reasonably be expected to have a
Material Adverse Effect upon the Subsidiaries;
(g) Each Plan that is a "group health plan" (as defined in Section
607(l) of ERISA and Section 5000(b)(1) of the Code) is in compliance with the
requirements of Parts 6 and 7 of
24
<PAGE>
Subtitle B of Title I of ERISA and of Section 4980B of the Code, except where
noncompliance could not reasonably be expected to have a Material Adverse Effect
upon the Subsidiaries;
(h) Neither Seller nor any Subsidiary nor, to Seller's Knowledge, any
other fiduciary (as that term is defined in Section 3(21) of ERISA)) of any Plan
subject to ERISA has any material liability for any breach of fiduciary duties
under ERISA;
(i) No Plan subject to Title IV of ERISA nor any of the related
trusts have been terminated or is or has been the subject of termination
proceedings pursuant to Title IV of ERISA. No Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA has an accumulated funding deficiency (as that
term is defined in Section 302 of ERISA and Section 412 of the Code), whether or
not waived. To the Knowledge of Seller, no event which constitutes a reportable
event (as that term is defined in Section 40431(c) of ERISA) for which the
notice requirement has not been waived by the Pension Benefit Guaranty
Corporation has occurred with respect to any Plan;
(j) The present value of all accrued benefits, as calculated for
purposes of determining the minimum required contribution under Section 302 of
ERISA, whether or not forfeitable, under each Plan that is an employee pension
benefit plan subject to Title IV of ERISA does not exceed the value of the
assets of such Plan allocable to such accrued benefits;
(k) Each Plan that is a Multi-employer plan (as defined in Section
4001(a)(3) of the Code) to which any Subsidiary is obligated to contribute
(each. a "Multi-employer Plan") is listed on Schedule 3.11.1 (k). Except as set
forth on Schedule 3.11.1 (k). all contributions required to have been made by
such Subsidiaries to any Multi-employer Plan have been made on a timely basis.
None of the Subsidiaries has been advised by any Multi-employer Plan that it has
any withdrawal liability or potential liability under Sections 4201 or 4204 of
ERISA with respect to any Multi-employer Plan, and. to Seller's Knowledge, none
of the Subsidiaries has any such withdrawal liability as of the Closing Date;
(l) Schedule 3.11.1(1) contains (i) a list of all retirees and
---
dependents Known to Seller that have been assigned to or assumed by any
Subsidiary as of the Closing Date pursuant to Section 9706 of the Coal Act and
for whom yearly premiums are being paid to the UMWA Combined Benefit Fund (the
"Combined Fund") pursuant to Section 9704 of the Coal Act and UH a list of each
pending challenge as of the Closing Date by any Subsidiary to Combined Fund
beneficiaries assigned to the such Subsidiary to the extent such challenge has
not been finally resolved;
(m) Schedule 3.11.1(m) contains a list of all retirees and dependents
Known to Seller for whom any Subsidiary as of the Closing Date is paying pre-
funding premiums to the UMWA 1992 Benefit Plan (the "1992 Plan") pursuant to
Section 9712(d)(1)(A) of the Coal Act; and
(n) Schedule 3.11.1 (n) contains a list of all retirees and
dependents Known to Seller for whom any Subsidiary as of the Closing Date is.
paying premiums to the 1992 Plan pursuant to Section 9712(d)(1)(B) of the Coal
Act.
25
<PAGE>
3.11.2 Labor Matters. Except as set forth on Schedule 3.11.2, (a)
-------------
no employee of any of the Subsidiaries is currently represented by a labor union
or other collective labor organization or association, (b) there are no
collective bargaining agreements or memoranda of understanding by which any of
the Subsidiaries are bound or applicable to any employee of any of the
Subsidiaries, (c) no material strikes, slowdowns, lockouts or work stoppages or
material labor disputes involving employees of any of the Subsidiaries are
pending, nor have any occurred since June 1, 1996, (d) to the Knowledge of
Seller, there is no union or independent organizational activity among any
employees underway at any of the Subsidiaries, (e) the Subsidiaries are not
parties to any grievance proceeding by any Employees under a collective
bargaining agreement, which grievance has been appealed to arbitration, (f) no
Subsidiary has been charged or, to Seller's Knowledge, threatened with a charge
of any unfair labor practice since January 1, 1994 that has not been resolved,
(g) no Subsidiary has committed any act in violation of the WARN Act resulting
in Liability resulting therefrom except such violations which have been resolved
and for which no Liability currently exists, (h) no Subsidiary is a party to any
written employment contract with any Employee (other than any collective
bargaining agreement), and (i) Seller, with respect to the Business, and the
Subsidiaries have complied in all material respects with all Laws relating to
the employment of labor, including any provision thereof relating to wages,
hours, collective bargaining, and the payment of social security and similar
taxes, unemployment and workers' compensation laws, and any labor relations
laws, except for violations or failures to so comply which are not. individually
or in the aggregate, reasonably expected to have a Material Adverse Effect upon
the Subsidiaries.
3.11.3 Employees. Schedule 3.11.3 provides a list as of the date
---------
hereof of each person who is an employee of any Subsidiary (including those
active employees and employees on maternity. military. disability or other
leave), and Seller shall update such list prior to Closing as close as practical
to the Closing Date. Promptly following the Closing. Purchaser shall update the
list to the Closing Date and provide a copy thereof to Seller. which updated
list shall be deemed the final and complete list of all such employees
(collectively, the "Employees"). Schedule 3.11.3) correctly reflects the salary
or hourly wage, date of employment, position of each Employee and, with respect
to hourly Employees, those such hourly Employees that are not subject to a
collective bargaining agreement, all as of the date of such Schedule. Except as
set forth on Schedule 3.13, there are no discrimination or harassment charges
(relating to sex, age, religion, national origin, ethnicity, disability or
veteran status) pending or, to the Knowledge of Seller, threatened before any
federal or state agency or authority against Seller or any of the Subsidiaries
with respect to the Employees, and to the Knowledge of Seller there is no basis
therefor. To the Knowledge of Seller, all of the information with respect to the
Plans that has been provided by Seller or its Affiliates to Purchaser, or by
Seller or its Affiliates to third parties providing goods or services to related
to the Plans, is true and accurate. To the Knowledge of Seller, all of the
employee census data provided by Seller or its Affiliates to Purchaser with
respect to FASB 106 and 112 is true and accurate.
SECTION 3.12. Governmental Authorizations, Compliance with Law.
-------------------------------------------------
3.12.1 Permits. Set forth on Schedule 3.12.1 is a list of all material
-------
licenses, permits, waivers and other governmental authorizations currently in
existence for the conduct of the assets (other than the Excluded Assets) and
operations of the Subsidiaries, including, without limitation, all coal mining
and reclamation operations as presently conducted (the "Permits"), together with
any application for any Permit. Complete and correct copies of each Permit and
Permit application have
26
<PAGE>
been, or prior to Closing will be, made available to Purchaser. The Permits
constitute all of the material permits necessary for the conduct of the coal
mining operations of the Business as such Business is conducted as of the
Closing Date. All Permits material to such coal mining operations are currently
in full force and effect, and no Permit application filed by any Subsidiary
contains an intentional or willful misstatement or omission of a material fact.
3.12.2 Compliance. Except as set forth on Schedule 3.12.2, Seller, in
----------
respect of the Business, and the Subsidiaries are in compliance with all
material Laws and Permits applicable to Seller with respect to the Business or
the Subsidiaries except for violations or failures to so comply which are not,
individually or in the aggregate, reasonably expected to result in a Material
Adverse Effect on the Subsidiaries. Except as set forth on Schedule 3.12.2,
there is not pending or, to the Knowledge of Seller, threatened any application,
petition, complaint, challenge, objection or other pleading or notice of
violation from any Governmental Authority which challenges or questions the
validity of any rights of the holder under any issued Permit (including any
Permit issued pursuant to SMCRA) or any Permit application. Except as set forth
on Schedule 3.12.2, no Proceeding by any Governmental Authority has been
instituted or, to the Knowledge of Seller, threatened or is contemplated seeking
the suspension. termination. modification. revocation. alteration or amendment
of any Permit or to declare any Permit invalid in any material respect. Except
as set forth on Schedule 3.12.2. neither Seller nor any Subsidiary has received
and written notice of noncompliance with respect to any Permit since January 1.
1995.
SECTION 3.13. Litigation. Except asset forth in Schedule 3.1-3). there is
----------
no Proceeding pending or, to the Knowledge of Seller, threatened against or
affecting Seller, with respect to the Business, or any Subsidiary or any real
property listed on Schedule 3.8.1 (i) other than such Proceedings which
individually or in the aggregate would. if adversely determined. require the
payment of damages by any Subsidiary in excess of $250,000 or, in the case of an
injunction and if not obeyed, would result in a civil fine or penalty in excess
of S250,000, or (ii) which challenges the lawfulness or validity of the
transactions contemplated by this Agreement. Schedule 3.13 sets forth a list of
each outstanding judgment, order or decree, and each injunction, of any
Governmental Authority against or affecting any Subsidiary or any of their
respective properties requiring the payment of damages in excess of $250,000 or,
in the case of an injunction and if not obeyed, would result in a civil fine or
penalty in excess of $250,000. Except as set forth on Schedule 3.13, no
Subsidiary is in material default under any such judgment, order, decree or
injunction.
SECTION 3.14. Taxes. Except as set forth in Schedule 3.14:
-----
(a) (i) Each of the Subsidiaries have (or by the Closing Date will
have) timely and duly filed with the appropriate governmental authorities all
Tax Returns required to be filed on or prior to the Closing Date or have (or by
the Closing Date will have) validly extended the time for filing such Tax
Returns to a date after the Closing Date (and all such Tax Returns were correct
and complete in all material respects), (ii) all Taxes required to be shown as
due on such Tax Returns and all Taxes required to be withheld on or prior to the
Closing Date have (or by the Closing Date will have) been timely and duly paid
or withheld. (iii) no claim or proposal for assessment, adjustment or collection
of Taxes with respect to which Seller or any of its Affiliates has received a
written notice or as to which Seller has Knowledge is being asserted against any
of the Subsidiaries, (iv) each of the Subsidiaries have established (and until
the Closing will continue to
<PAGE>
establish and maintain) on their books and records accruals in compliance with
Seller's Accounting Principles for the payment of all Taxes for which they will
be required to file Tax Returns and which are not yet due and payable as of the
Closing Date, and (v) Seller has (or by the Closing Date will have) paid or
withheld all Taxes due and payable or required to be withheld prior to or on the
Closing Date, for which any of the Subsidiaries (or their successors) may be
held liable as a member of the Seller Consolidated Group pursuant to section
1.1502-6(a) of the Treasury Regulations or as a member of any combined,
consolidated or unitary group of which Seller or any of the Subsidiaries is or
was a member pursuant to any similar provision of any state, local or foreign
law with respect to Taxes;
(b) All tax allocation or tax sharing agreements between any of the
Subsidiaries, on the one hand, and Seller or any other Person, on the other
hand, shall have been canceled on or prior to the Closing Date;
(c) No written agreement or other document extending or waiving. or
having the effect of extending or waiving. the period of assessment or
collection of any Taxes against any of the Subsidiaries. and no power of
attorney with respect to any Taxes. has been executed or filed with any
Governmental Authority-.
(d) Except with respect to any Proceeding in respect of the Excluded
Assets and Excluded Liabilities: (i) no Proceedings with respect to which Seller
or any of its Affiliates has received a written notice or as to which Seller has
Knowledge are presently pending or have been proposed against any of the
Subsidiaries with respect to any Taxes other than such Proceedings which are
not, individually or in the aggregate. reasonably expected to result in a
Material Adverse Effect upon the Subsidiaries; and (ii) no written notice
relating to any such Proceeding has been received by Seller or any of the
Subsidiaries;
(e) Except for the Seller Consolidated Group, none of the
Subsidiaries is currently a member of any affiliated, consolidated, combined or
unitary group with respect to Taxes;
(f) Since January 1, 1997, Seller has not received any written notice
from any Governmental Authority where Seller or any of the Subsidiaries
currently files Tax Returns to the effect that Seller, with respect to the
Business, or any Subsidiary may be subject to taxation by such Governmental
Authority; and
(g) None of the Subsidiaries has made, or is or may become obligated
(under any contract entered into on or before the Closing Date) to make, any
payments that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state or local income tax law).
SECTION 3.15. Absence of Changes. Except as set forth on Schedule 3.15
------------------
and except as otherwise contemplated or permitted by this Agreement, including
without limitation Section 2.1 hereof, since the Balance Sheet Date, Seller,
with respect to the Business, and each Subsidiary has conducted its operations
and maintained its assets and performed, paid and discharged its Liabilities
only in the ordinary course, consistent with past practices, and no events or
conditions have occurred or been discovered that are, individually or in the
aggregate, reasonably expected to have a Material
28
<PAGE>
Adverse Effect on the Subsidiaries. In addition, except as set forth on Schedule
3. 15 or with respect to the Excluded Assets and Excluded Liabilities or as
otherwise permitted or contemplated by the provisions of this Agreement, none of
Seller, with respect to the Business. or any of the Subsidiaries has, since the
Balance Sheet Date:
(a) Incurred any material Liabilities or obligations, except
Liabilities and obligations incurred in the ordinary course of business
consistent with past practice;
(b) Discharged or satisfied any Lien, or paid any obligation or
liability (absolute or contingent), other than liabilities due and payable in
the ordinary course of business;
(c) Paid or agreed to pay, conditionally or otherwise, any bonus,
extra compensation, pension or severance pay to any present of former
shareholders, directors, officers, agents or employees of the Subsidiaries,
except for such payments or agreements to make payments made or entered into in
the ordinary course of business consistent with past practices;
(d) Changed any accounting practice followed or employed in preparing
the March Balance Sheet.
(e) Mortgaged, pledged or subjected to any Lien any of its properties
or assets. except for Permitted Liens or any Lien not in excess of $100,000 and
which, together with all such other Liens, are not in excess of $500,000;
(f) Increased the compensation of any officer or employee, other than
(i) in the ordinary course of business and consistent with past practice (but in
no event in excess of 15% of such person's base compensation) or (ii) to comply
with applicable law;
(g) Disposed of, sold, leased, transferred or assigned, or agreed to
dispose of, sell, lease, transfer or assign, any properties or assets (other
than in the ordinary course of business consistent with past practice) having a
net book-value as of the date of such disposition in excess of $100,000;
(h) Declared, set aside or paid any dividend, distribution, or
payment on, or issued, sold, purchased or redeemed any shares of any class of
its capital stock or partnership interest or made any commitment therefor;
(i) Canceled, waived or forgiven any material debts, rights or claims
therefor other than intercompany debts as contemplated by Subsection 5.18.9
hereof-, or
(j) Entered into any transaction for the purchase or sale of goods or
services in excess of $100,000 other than in the ordinary course of business.
SECTION 3.16. Environmental Compliance. Except as described on Schedule
------------------------
1.16:
(a) Each Subsidiary (and its business, operations. assets, equipment
and real property) is in compliance with all applicable Environmental Laws,
except for violations or failures
29
<PAGE>
to comply which are not, individually or in the aggregate, reasonably expected
to result in a Material Adverse Effect upon the Subsidiaries. None of Seller,
with respect to the Business, or any Subsidiary has received any written notice
of violation, hearing, correction order, cessation order, notice of fine or
penalty, notice of proposed assessment or other written notice from any
Governmental Authority that Seller. with respect to the Business, or any
Subsidiary is not in compliance with any Environmental Laws or Permits which
relate to any matters or conditions that are not, or have not been, resolved as
of the date hereof except for such matters or conditions which, if not resolved
as of the date hereof, are not, individually or in the aggregate, reasonably
expected to result in a Material Adverse Effect upon the Subsidiaries;
(b) There have been no Releases of Hazardous Materials by any of the
Subsidiaries or their Affiliates on, in, under, over or in any way affecting the
real property owned or leased by any Subsidiary as of the date hereof, except
(i) in accordance with a valid permit or (ii) for such Releases that are not,
individually or in the aggregate, reasonably expected to result in a Material
Adverse Effect upon the Subsidiaries:
(c) None of the real property owned or leased by any Subsidiary is
used to produce, manufacture, process, generate, store, use, handle, recycle,
treat, dispose of, manage, ship or transport Hazardous Materials, other than as
customary in the normal course of coal mining operations of the type conducted
or previously conducted on such real property;
(d) To the Knowledge of Seller, none of the real property owned by any
Subsidiary and listed on Schedule 3.8.1 contains any underground storage tanks;
(e) No Subsidiary has received notice from any Governmental Authority
that such Subsidiary is a "potentially responsible party" under Section 107 of
CERCLA for any matter that has, not been resolved as of the Closing Date; and
(f) All Hazardous Materials disposed of, treated or stored by Seller
or any of its Affiliates on any real property listed on Schedule 3.8.1 have been
disposed of, treated or stored, as the case may be, in compliance in all
material respects with all applicable laws, codes and ordinances and all rules
and regulations promulgated thereunder.
SECTION 3.17. Brokers. All negotiations relating to this Agreement and
-------
the transactions contemplated hereby have been carried out without the
intervention of any person acting on behalf of Seller in such manner as to give
rise to any valid claim against Purchaser, Seller or any Subsidiary for any
brokerage or finder's commission, fee or similar compensation.
SECTION 3.18. Insurance. Schedule 3.18 hereto contains a true and
---------
complete list of all policies of fire, property and casualty, liability,
workers' compensation, business interruption and other forms of insurance
policies (other than surety or performance bond policies) in effect on the date
hereof and maintained by any Subsidiary or Seller or its Affiliates (other than
the Subsidiaries) with respect to the Business. All of such policies are in full
force and effect on the date hereof, and all premiums, assessments and other
charges required thereunder have been paid when due.
30
<PAGE>
SECTION 3.19. Bank Accounts. Schedule 3.19 contains a correct and
-------------
complete list of the names of each bank or other financial institution in which
any Subsidiary has an account (including lockbox accounts) or safe deposit box,
and the names of all persons authorized to draw thereon or to have access
thereto.
SECTION 3.20. Audits. Except as set forth on Schedule 3.20, (i) no
------
Subsidiary is currently the subject of any audit with respect to any Tax Return
filed by such Subsidiary or by any member of the Seller Consolidated Group to
the extent such Tax Return and the audit thereto relates to the Business which,
if adversely determined, could reasonably be expected to result in a Material
Adverse Effect upon the Subsidiaries, and (ii) no Subsidiary is a party to any
other audit with respect to the Material Contracts or the leases or subleases
listed on Schedule 3.8.1 which, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect upon the Subsidiaries.
SECTION 3.21. Bonds. Minerals and its Affiliates (including, prior to
-----
the Closing. the Subsidiaries) have posted all reclamation and performance bonds
required to be posted in connection with the operations of the Business except
for such bonds the failure to post are not, individually or in the aggregate,
reasonably expected to result in a Material Adverse Effect upon the
Subsidiaries. All such reclamation and performance are listed on Schedule 3 .2
1.
SECTION 3.22. Permit Blocking. Neither Seller nor any Subsidiary has
----------------
been notified (nor to the Knowledge of Seller is there any pending or threatened
notification) by the Federal Office of Surface Mining or the agency of any state
administering SMCRA that it is (i) ineligible to receive additional surface
mining permits or (ii) under investigation to determine whether its eligibility
to receive a SMCRA permit should be revoked (i.e. "permit blocked"), and to the
Knowledge of Seller there is no basis therefor.
SECTION 3.23. Powers of Attorney. Except as set forth on Schedule 3.23,
------------------
there is no executed power of attorney to which any Subsidiary is a party that
will remain in effect following the Closing Date.
SECTION 3.24. Certain Customer Matters. No customer to a coal supply
------------------------
contract listed on Schedule 3.9.1 pursuant to Subsection 3.9.1(a) hereof has
issued to Seller or any Subsidiary written notice of its intention to terminate
any such coal supply contract pursuant to an express termination right specified
in such coal supply contract.
SECTION 3.25. Documents. True, complete and correct copies of all leases
---------
and subleases listed on Schedule 3.8.1 and of all Material Contracts have been
furnished to Purchaser or its representatives or made available to Purchaser or
its representatives for inspection at the offices of Seller or its Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants; to Seller as of the date hereof and as
of the Closing Date as follows:
31
<PAGE>
SECTION 4.1. Corporate Status and Authority. Purchaser is a corporation
-------------------------------
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and to execute and deliver this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of this Agreement and the Ancillary
Agreements have been duly authorized by the Board of Directors of Purchaser,
which constitutes all necessary corporate action on the part of Purchaser for
such authorization. This Agreement has been duly executed and delivered by
Purchaser and constitutes the valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application referring to or
affecting the enforcement of creditors' rights, or by general equitable
principles. Upon the Closing, the Ancillary Agreements shall be duty executed
and delivered by Purchaser and shall constitute the valid and binding
obligations of Purchaser. enforceable against Purchaser in accordance with their
respective terms. except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization. moratorium or other laws of general
application referring to or affecting the enforcement of creditors' rights, or
by general equitable principles.
SECTION 4.2. No Conflicts. Except as set forth in Schedule 4.2:
-------------
4.2.1 Charter Documents. The execution. delivery and performance by
-----------------
Purchaser of this Agreement and the Ancillary Agreements and the consummation of
the transactions contemplated hereby and thereby will not result in (a) any
conflict with the Certificate of Incorporation or by-laws of Purchaser, or (b)
any breach or violation of or default under, or result in the creation or
imposition of any Lien under, any statute, regulation, judgment, order or
decree, or any mortgage, deed of trust, indenture, security agreement, pledge or
any other similar instrument to which Purchaser is a patty or by which Purchaser
or any of its properties or assets are bound; and
4.2.2 Governmental Consents. No consent, approval or authorization of
---------------------
or filing with any Governmental Authority is required on the part of Purchaser
in connection with the execution and delivery of this Agreement and the.
Ancillary Agreements or the consummation of the transactions contemplated hereby
and thereby, except filings required with respect to the HSR Act and such other
filings, consents or approvals which, if not made or obtained prior to Closing,
are not, individually or in the aggregate, reasonably likely to have a material
adverse effect on the ability of Purchaser to perform its obligations hereunder
or thereunder or to consummate the transactions contemplated hereby or thereby.
SECTION 4.3. Litigation. There is no claim, legal action, suit,
----------
arbitration, governmental investigations or other proceedings, nor any order,
decree or judgment, in progress, pending or in effect, or, to the Knowledge of
Purchaser, threatened, which is related to the transactions contemplated by this
Agreement or any action taken or to be taken by Purchaser pursuant to or in
connection with this Agreement.
SECTION 4.4. Purchase for Investment. Purchaser is acquiring the Shares
-----------------------
for its own account for purposes of investment and not with a view toward any
resale or distribution thereof
32
<PAGE>
except as otherwise permitted by the Securities Act and any other applicable
law. Purchaser .understands and acknowledges that the offer and sale of the
Shares as contemplated hereby have not been registered under the Securities Act,
any state "Blue Sky" law, or any applicable foreign law or regulation, and that
any subsequent transfer or offer to transfer by Purchaser or any representative
thereof of the Shares are subject to registration requirements or other
restrictions arising under such laws and regulations in the absence of an
available exemption therefrom. The stock certificates representing the Shares to
be delivered at Closing as contemplated by Section 2.3.2 hereof shall carry a
restrictive legend to such effect.
SECTION 4.5. Financial Ability to Perform. Purchaser has available to it
----------------------------
funds sufficient to enable Purchaser to deliver the Purchase Price to Seller as
contemplated by this Agreement at the Closing and perform its obligations
hereunder. including causing the issuance of the Purchaser Surety Bond
contemplated by Section 5.17.1(b) hereof and the Equipment Surety Bond
contemplated by Section 5.22 hereof.
SECTION 4.6. Brokers. All negotiations relating to this Agreement and the
-------
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of Purchaser in such manner as to give rise to
any valid claim against Seller or any Affiliate of Seller for any brokerage or
finder's commission, fee or similar compensation, except for such brokers whose
names have been disclosed in writing to Seller prior to the execution hereof and
whose fees in respect hereof shall be paid by Purchaser.
SECTION 4.7. Disclosure. None of Purchaser or its authorized
----------
representatives (including but not limited to Purchaser's non-employee
consultants) has any knowledge of any fact, event or circumstance that
constitutes (or would constitute) or indicates (or would indicate) a breach of
any representation, warranty or covenant made by Seller in this Agreement.
SECTION 4.8. Permit Blocking. Neither Purchaser nor any Affiliate
---------------
thereof has been notified (nor to the Knowledge of Purchaser is there any
pending or threatened notification) by the Federal Office of Surface Mining or
the agency of any state administering SMCRA that it is (i) ineligible to receive
surface mining permits or (ii) under investigation to determine whether its
eligibility to receive a SMCRA permit should be revoked (i.e. "permit blocked"),
and to the Knowledge of Purchaser there is no basis therefor.
ARTICLE V
COVENANTS
---------
SECTION 5.1. Consents. Further Assurances.
------------------------------
5.1.1 Consents. The parties shall promptly apply for and
--------
diligently prosecute all applications for, and shall use all reasonable efforts
promptly to obtain, such consents, authorizations and approvals from such
Governmental Authorities and third parties as shall be necessary or appropriate
to permit the consummation of the transactions contemplated by this Agreement,
and shall use all reasonable efforts to bring about the satisfaction as soon as
practicable of all the conditions contained in Article VI and VII to effect the
consummation of the transactions contemplated by this Agreement. Notwithstanding
anything to the contrary contained herein, the
33
<PAGE>
parties hereto agree that as a condition to obtaining the consent of any third
party to any coal supply contract, real property lease, personal property lease
or any other agreement to permit the consummation of the transactions
contemplated hereby, no party hereto shall have any obligation to (i) file any
lawsuit or take other legal action as against such third party with respect to
any thereof or (ii) make any amendment thereof or waive any rights thereunder if
as a result of such amendment or waiver such coal supply contract, real property
lease, personal property lease or any other agreement would contain terms and
conditions that are less favorable in any material respect than the terms and
conditions of such coal supply contract, real property lease or personal
property lease as in existence on the Closing Date.
5.1.2 Further Assurances. From time to time. each of the parties
------------------
hereto will, at their own cost and expense, execute and deliver such further
instruments and will take such other actions as Purchaser or Seller may
reasonably request in order to effectuate the purposes of this Agreement, to
carry out the terms hereof, to fully and completely convey the Business to
Purchaser and to enable Seller or its Affiliates to retain and assume, as the
case may be, the Excluded Assets and Excluded Liabilities. Without limiting the
generality of the foregoing, at any time and from time to time after the Closing
Date (a) at the request of Purchaser, Seller will execute and deliver or cause
to be executed and delivered such other instruments and take or cause to be
taken such actions as Purchaser may reasonably deem necessary in order to
consummate the transactions contemplated by this Agreement, to evidence and
effect the sale, delivery and transfer of the Shares to Purchaser, to effectuate
the purposes and intent of this Agreement and to put Purchaser in actual
possession and operating control of the business and assets of the Subsidiaries
(other than the Excluded Assets and Excluded Liabilities) and to permit
Purchaser to exercise all rights with respect thereto (including, without
limitation, rights under contracts and other arrangements as to which any
required consent of any third party shall not have previously been obtained) and
(b) at the request of Seller, Purchaser will execute and deliver such other
instruments and agreements, and take such action, as Seller may reasonably deem
necessary in order to consummate the transactions contemplated hereby (including
enabling Seller or its Affiliates to retain and assume, as the case may be, the
Excluded Assets and Excluded Liabilities) and to effectuate the purposes and
intent of this Agreement.
SECTION 5.2. Conduct of Operations; Access and Information.
----------------------------------------------
5.2.1 Conduct of Operations. From the date hereof until the Closing,
---------------------
except as otherwise permitted or contemplated by this Agreement (including
without limitation any action described below to the extent necessary or
appropriate to consummate the transactions contemplated by Section 2.1 hereof)
or as otherwise consented to by Purchaser in writing, such consent not to be
unreasonably withheld or delayed, Seller shall cause the Subsidiaries:
(a) To carry on the business and operations of the Subsidiaries in
the ordinary course consistent with past practices and use commercially
reasonable efforts to preserve intact their present organization, to keep
available the services of the present officers and employees and to preserve
intact their relationships with customers, suppliers and others having material
business dealings with each of them;
(b) To maintain their books of account and records in their usual,
regular and ordinary manner, consistent with their past practice;
34
<PAGE>
(c) To promptly make available to Purchaser copies of all filings
made by Seller with any federal, state or foreign Governmental Authority in
connection with this Agreement and the transactions contemplated hereby;
(d) Not to settle or compromise any Proceeding or threatened
Proceeding involving any of them, their assets or any real property owned or
leased by any of them if the amount at issue exceeds $50,000.00, except for any
Proceeding included among the Excluded Assets or Excluded Liabilities;
(e) Not to enter into any contract or agreement which involves total
consideration to be paid or received by any Subsidiary in excess of $50,000
other than in the ordinary course of business consistent with past practice;
(f) Not to modify, amend or terminate any Material Contract in any
material respect, waive, release, relinquish or assign any material right under
any Material Contract or other material right or claim, or cancel or forgive
any. indebtedness owed to any of them, other than, in each case, in the ordinary
course of business consistent with past practice;
(g) Not to declare or pay dividends or make other shareholder
distributions;
(h) Not to amend the articles of incorporation or by-laws or other
charter documents (including any partnership agreement) of any Subsidiary;
(i) Not to increase the compensation payable or to become payable to
any officer, director or employee of any Subsidiary, other than in the ordinary
course of business consistent with past practice or as required by law (and in
no event in excess of 15% of such individual's compensation);
(j) Not to incur or refinance any indebtedness for borrowed money in
excess of $50,000;
(k) Not to make any loans to any Person other than in the ordinary
course of business (including loans and advances to employees for business
travel);
(1) Not to sell or otherwise dispose of any assets or Liabilities of
the Subsidiaries, except in the ordinary course of business consistent with past
practice;
(m) Not to enter into any collective bargaining agreement or, except
in the ordinary course of business consistent with past practice, any other
agreement with any labor union;
(n) Not to enter into any agreement to undertake any of the actions
listed in clauses (a) through (n) above;
(o) To conduct the mining operations of the Subsidiaries in
accordance with the current mine plans except for such deviations therefrom as
are necessary or appropriate to
35
<PAGE>
compensate for mining, weather, marketing factors or other conditions or for
such other deviations as are customary based on past practice;
(p) To pay creditors and employees on a timely basis;.and
(q) To preserve the possession and control of the assets and
properties of the Subsidiaries.
5.2.2 Access and Information. Seller shall cause the
----------------------
Subsidiaries to give to Purchaser and its representatives reasonable access,
during normal business hours, to all real property owned or leased by the
Subsidiaries, to the offices of the Subsidiaries, the Headquarters, and all of
the books and records and other information related thereto and furnish such
information and documents in its or their possession as Purchaser may reasonably
request. All such information and documents obtained by Purchaser shall be
subject to the terms of the Confidentiality Agreement. Seller shall have no
obligation to disclose, and Purchaser shall not disclose, to any representative
of Purchaser any confidential information relating to Seller, the Coal Business
or any Subsidiary unless such representative shall have agreed in writing to be
bound by the terms the Confidentiality Agreement and such writing shall have
been delivered to Seller. At the request of Seller, Purchaser shall provide to
Seller copies of all environmental reports (including any Phase I or Phase II
study) conducted by or at the request of Purchaser with respect to any
Subsidiary or any assets and liabilities thereof; provided that, at the
reasonable request of Purchaser, Seller shall, as a condition to receiving any
such environmental report, execute a joint defense agreement reasonably
acceptable to Seller and Purchaser with respect to the information contained in
such study and the defense of any action relating thereto.
5.2.3 Notification by Purchaser of Certain Matters. Purchaser agrees
--------------------------------------------
to notify Seller in writing promptly upon Purchaser's or its authorized
representatives' (including, but not limited to, Purchaser's non-employee
consultants) discovery of any information by Purchaser or such authorized
representative prior to the Closing Date relating to the operations (including
the financial condition, assets and properties) of the Business or any
Subsidiary which constitutes (or would constitute) or indicates (or would
indicate) a breach of any representation, warranty or covenant of Seller
contained herein.
SECTION 5.3. Publicity. All press releases, filings and other public
---------
announcements concerning the transactions contemplated hereby will be subject to
review and approval 'by each of Seller or Purchaser, such approval not to be
unreasonably withheld. Such approval shall not be required if the Person issuing
such release, filing or public announcement reasonably believes, based on advice
of counsel, that it is required by law to do so, but in any such case, all
reasonable efforts shall be made to consult with the other party in advance of
such release, filing or announcement.
SECTION 5.4. Exclusivity. During the Interim Period, unless this
-----------
Agreement shall have been terminated pursuant to Section 9.1 in accordance with
its terms, Seller shall not and shall cause the Subsidiaries and the officers,
directors and employees of Seller and the Subsidiaries not to (i) directly or
indirectly solicit, initiate, authorize the solicitation of or enter into any
discussions with any Person other than Purchaser involving the possible
acquisition of all or part of the Business or any Subsidiary (other than the
Excluded Assets and Excluded Liabilities) and (ii) enter into any
36
<PAGE>
transaction with any Person, other than Purchaser, involving the possible
acquisition of all or part of the Business or any Subsidiary (other than the
Excluded Assets and Excluded Liabilities). Seller shall notify Purchaser of any
unsolicited offer or proposal to enter into discussions or to buy all or part of
the Business or any Subsidiary (other than the Excluded Assets and Excluded
Liabilities). and shall provide Purchaser with a copy thereof.
SECTION 5.5. Notification by Seller of Certain Matters. Throughout the
-----------------------------------------
period beginning on the date hereof and ending on earlier of the Closing Date
and the date on which this Agreement shall have terminated pursuant to Section
9.1 hereof Seller shall notify Purchaser in writing promptly upon the occurrence
of any event or development that comes to Seller's Knowledge which has had or
could reasonably expected to have a Material Adverse Effect upon any Subsidiary.
SECTION 5.6. Company Records
---------------
5.6.1 Retention. With respect to the books and records of the
---------
Subsidiaries relating to matters prior to the Closing Date, Purchaser shall
retain or cause the Subsidiaries to retain copies of all Tax Returns, related
schedules and work papers, and all material records and other documents relating
thereto existing on the date hereof or created through or with respect to
taxable periods ending on or before or including the -Closing Date, until six
months after the expiration of the statute of limitations (including extensions)
of the taxable years-to which such Tax Returns and other documents relate;
provided, however, that Purchaser shall cause any Person to whom it shall have
sold or otherwise transferred any Subsidiary (or a significant portion of the
assets of such Subsidiary) to agree to be bound by the provisions of this
Subsection 5.6.1 by written acknowledgment delivered to Seller prior to such
sale or transfer.
5.6.2 Cooperation With Respect to Examinations and Controversies.
----------------------------------------------------------
Purchaser and Seller shall use all reasonable efforts to cooperate with each
other and their respective representatives, in a prompt and timely manner, in
conjunction with any inquiry, audit, examination, investigation, dispute or
litigation involving any Tax Return relating to the Subsidiaries filed or
required to be filed by or for any Subsidiary for any taxable period beginning
before the Closing Date, and relating to any federal, state or local Taxes, Such
cooperation shall include, but not be limited to, making available to Seller or
Purchaser', as the case may be, during normal business hours, and within ten
(10) days of any reasonable request therefor, all books, records and
information, and the assistance of all officers and employees, reasonably
required in connection with any Tax inquiry, audit, examination, investigation,
dispute, litigation or any other matter.
5.6.3 Remedy for Failure to Comply. If Seller or Purchaser
----------------------------
reasonably determines that the other party is not fulfilling its obligations in
a reasonable manner under Subsection 5.6.2, then the party making such
determination shall have the right to select and appoint, at the reasonable
expense of defaulting party, an independent entity such as a nationally
recognized public accounting firm to assist such defaulting party in meeting its
obligations under Subsection 5.6.2; provided, however, that if such independent
entity concludes that such defaulting party shall have fulfilled its obligations
under Subsection 5.6.2, then such reasonable expenses shall be for the account
of and shall be paid by the party making the determination of non-compliance.
Such entity shall have complete access to all books and records and information,
and the complete cooperation of all officers and employees of Seller, Purchaser
and the Subsidiaries, as the case may be, as reasonably
37
<PAGE>
requested by the party making the determination of non-compliance.
Notwithstanding the foregoing. neither Seller nor Purchaser shall have the right
to appoint such public accounting firm until it has given written notice to the
other party of its noncompliance with the provisions of Subsection 5.6.2 and
such other party shall have failed to cure such noncompliance within 15 days.
SECTION 5.7. Disclosure Schedules; Updates.
------------------------------
5.7.1 Delivery. Concurrently with the execution hereof. Seller
--------
is delivering to Purchaser the disclosure Schedules required to be delivered by
Seller hereunder. By its execution hereof, Purchaser acknowledges that the
Schedules delivered by Seller concurrently with the execution hereof are in form
and substance acceptable to Purchaser. No later than five business days prior to
the scheduled Closing Date, Seller shall amend or supplement the Schedules with
respect to any matter which is necessary or desirable to complete, update or
correct any information contained therein in order to make the statements,
representations and warranties contained in this Agreement true and correct on
the Closing Date or on a date as close to the Closing Date as is practical.
5.7.2 Special Right to Update Schedules Within Five Business Days
-----------------------------------------------------------
o Execution of this Agreement. The parties hereto acknowledge that the
- - -----------------------------
disclosure Schedules delivered hereunder on the date of execution hereof may not
be complete as they have not been fully reviewed by all persons listed on
Schedule III hereof. Not later than five (5) business days following the
execution hereof, Seller shall, to the extent necessary in its sole judgment in
order to make the statements, representations and warranties contained herein
true, correct and complete as of the date of execution hereof, deliver to
Purchaser amendments, supplements or corrections (any such amendment, supplement
or correction, an "Update") to all disclosure Schedules delivered to Purchaser
concurrently with the execution hereof, in which case such updated disclosure
Schedules, together with all disclosure Schedules delivered by Seller
concurrently with the execution hereof, that do not require updating pursuant to
this Subsection 5.7.2, shall constitute the disclosure Schedules delivered by
Seller concurrently with the execution hereof for all purposes of this
Agreement, including determining the accuracy of Seller's representations and
warranties as of the date hereof. Purchaser shall have one (1) business day
following the end of such five (5) business day period to accept or reject any
Update, it being understood and agreed that Purchaser shall have no right to
reject any information contained in any updated disclosure Schedule to the
extent such information was set forth on the disclosure Schedules delivered
concurrently with the execution hereof. Notwithstanding anything to the contrary
contained in this Subsection 5.7.2, Purchaser shall have no right to reject any
Update described in any updated disclosure Schedule to the extent that such
Update, together with all such other Updates, shall not have a Material Adverse
Effect upon the Subsidiaries (as determined by the parties in good faith within
one (1) business day following the end of such 5 business day period). If such
Updates shall result in a Material Adverse Effect upon the Subsidiaries, or if
the parties hereto fail to agree within one (1) business day following the end
of such 5 business day period as to whether such Updates result in a Material
Adverse Effect upon the Subsidiaries, then either party may terminate this
Agreement by giving the other written notice thereof within one (1) business day
after such determination or failure to reach such agreement.
5.73 Interpretation. Matters reflected on the Schedules
--------------
delivered hereunder are not necessarily limited to matters required by this
Agreement to be reflected in such Schedules. Any such
38
<PAGE>
additional matters are set forth for informational purposes and do not
necessarily include other matters of a similar nature. A disclosure contained in
any of the Schedules delivered hereunder. which identifies information that
clearly and on its face is relevant or applicable to one or more Schedules to
this Agreement. constitutes disclosure for such other Schedules to the extent
this Agreement requires such disclosure. The exhibits and attachments to the
Schedules form an integral part of the Schedules and are incorporated by
reference for all purposes as if set forth fully therein.
SECTION 5.8. Officers and Directors.
-----------------------
5.8.1 Obligations of Seller. Contemporaneously with the Closing,
---------------------
Seller shall take such actions as shall be necessary or appropriate to cause Ux
any individual who is an employee of Seller and an officer or director of any
Subsidiary to be removed from the employ or Board of Directors (or similar
governing body) of such Subsidiary and (y) each Subsidiary that has issued a
power of attorney (or similar instrument) to any employee of such Subsidiary or
of Seller or its Affiliates to terminate such power of attorney (or similar
instrument) as of the Closing Date. As soon as practicable following the
Closing, Seller shall take such actions and file such documents as Seller shall
deem necessary or appropriate for the purpose of giving notice to all
Governmental Authorities of the termination date of such officer's or director's
relationship with the Subsidiaries.
5.8.2 Obligations of Purchaser. Contemporaneously with the
------------------------
Closing, Purchaser shall take such actions as shall be necessary or appropriate
to cause each officer of director so removed by Seller to be replaced by an
officer or director elected by Purchaser. As soon as practicable following the
Closing (but in any event not later than 5 business days following the Closing),
Purchaser shall take such actions and file such documents as shall be necessary
or appropriate for the purpose of giving notice to all governmental Authorities
of the names of each officer, director and shareholder of the Subsidiaries
(including each officer and director elected by Purchaser as provided herein)
and such other information with respect to the transactions contemplated by this
Agreement as shall be necessary or appropriate, including without limitation all
information required by any Governmental Authority with respect to such
Governmental Authorities "ownership and control" reporting requirements of the
"applicant violator system".
SECTION 5.9 Section 338(h)(10) Election. From and after the Closing,
---------------------------
Seller and Purchaser shall join together in making an election under Section
338(h)(10) of the Code (and any corresponding elections under state, local, or
foreign tax law) (collectively, a "Section 338(h)(10) Election") with respect to
the direct and indirect purchase and sale of the Subsidiaries (other than
Yankeetown, Bentley Coal, Kentucky Prince Mining Company and Skyline Coal)
hereunder. Purchaser shall indemnify and defend Seller for, and hold Seller
harmless from and against, and pay and reimburse Seller for, Purchaser's failure
to join with Seller in making the Section 338 (h)(10) Election and take such
actions in connection therewith as shall be necessary to give effect thereto.
SECTION 5.10. Royalty, etc.
------------
5.10.1 Production Royalty on Fee and Leased Land as of the Closing
-----------------------------------------------------------
Date. Subject to the provisions of this Section 5.10, Purchaser shall pay to
- - ----
Seller a royalty as follows:
39
<PAGE>
(a) Royalty. Commencing June 1, 2002 and thereafter, Purchaser
-------
shall pay to Seller a royalty (the "Royalty") on the production and sale of any
and all coal underlying (x) all real property owned by any Subsidiary as of the
-
Closing Date, whether such real property is owned in fee simple or otherwise
(all such land, the "Fee Land", and all coal underlying the Fee Land, the "Fee
Coal"), and (y) all real property held under lease or sublease by any Subsidiary
-
as of the Closing Date, together with any and all renewals, extensions,
replacements or modifications (prior to the expiration or termination of such
lease or sublease) of such leases after the Closing Date by any Subsidiary (or
assignee or successor thereof) for any reason whatsoever (all such leases, the
"Leases", and all coal underlying such leases, the "Leased Coal"; the Fee Coal
and the Leased Coal, together with the Coal Components, are collectively
referred to herein as the "Coal Reserves").
(i) With respect to the Leases, the Royalty payable
hereunder is not intended to and shall not apply to any subsequent
leasehold estate acquired by a Subsidiary (or assignee or successor
thereof) in any Leased Coal covered by a Lease, after the expiration or
termination of the current leasehold estate created by said Lease.
Notwithstanding the preceding sentence, the Purchaser and the Subsidiaries
will not take any action nor permit any omission with the intent of
allowing the early expiration or termination of the current leasehold
estate in any Leased Coal on all or a portion of a Lease, and thereafter
acquiring a subsequent leasehold estate in some or all of said Leased Coal,
in an effort to eliminate or avoid the obligations to pay Seller the
Royalty.
(ii) In addition to the Royalty payable with respect to the
Fee Coal and Leased Coal, the Royalty payable hereunder is intended to and
shall apply to any gases mixed with the Fee Coal and Leased Coal, together
with all gas, solid or liquid components derived from the Fee Coal and
Leased Coal (all such gases and components are referred to herein
collectively as the "Coal Components").
(b) Covenant Running with the Land. To the maximum extent
------------------------------
permitted by applicable law, the Royalty created by this Subsection 5.10.1 shall
be a covenant running with the Coal Reserves and Fee Land and the Leases
notwithstanding that this Agreement shall not be recorded in the real estate
records offices of any jurisdiction, it being agreed that this Subsection 5.10.1
and the Royalty payable hereunder shall be binding upon the assignees,
transferees, sublessees, trustees, receivers, creditors and all other successors
of Purchaser and its Affiliates, including the Subsidiaries, that may hold now
or in the future any interest in the Coal Reserves.
(c) Effective Date: Term. The Royalty payable hereunder shall be
--------------------
effective on the Closing Date, but shall only be due and owing for the
production of Coal Reserves from and after June 1, 2002. To the maximum extent
permitted by applicable law, the existence of and the obligation to pay the
Royalty hereunder shall be perpetual and shall apply to any all production from
the Coal Reserves from and after June 1, 2002. If the duration of the Royalty as
to all or any portion of the Coal Reserves is void in any jurisdiction for any
reason, based on any legal or equitable theory, including the rule against
perpetuities, then, in that jurisdiction only, the duration of the Royalty shall
be adjusted to the longer of (i) 40 years from the Closing Date and (ii) the
maximum duration permissible by applicable laws. In the event of any such
challenge to the duration, it is the intent of Seller and Purchaser that the
duration of the Royalty for the pertinent Coal Reserves subject to the challenge
shall be adjusted, rather than voiding, invalidating or rendering unenforceable
the
40
<PAGE>
Royalty, if possible, in order to achieve to the fullest extent possible the
intent of Seller and Purchaser.
(d) Royalty Amount and Adjustment.
-----------------------------
(i) The amount of the Royalty due and owing as of the
Closing Date shall be $0.50 per ton of all Fee Coal and Leased Coal sold
from coal production in the State of Indiana, Illinois, Ohio or California,
and shall be $0.35 per ton of all Fee Coal and Leased Coal sold from coal
production in the State of West Virginia, Kentucky or Tennessee (such per
ton amounts, the "Base Royalty"), Tonnage shall be determined by use of
certified scales, or if certified scales are not utilized or otherwise
available, then by procedures standard in the coal industry and mutually
agreed to by Seller and Purchaser. If Coal Components are produced and
sold, then the Royalty due and owing on all such Coal Components shall be
two percent (2.0%) of the gross proceeds received from the sale thereof.
Gross proceeds shall include any cash consideration, as well as the value
of any non-cash consideration received, without allowance for any
deductions of any kind or character. The two percent (2%) Royalty on Coal
Components shall not be adjusted and shall remain fixed.
(ii) Beginning on June 1, 1999, and on each June 1
thereafter, for so long as any Royalty may be due under this Subsection
5.10.1 on any Fee Coal or Leased Coal, the Royalty shall be adjusted up or
down, but never below the initial Base Royalty set forth in clause (i)
above. This annual adjustment shall be made starting June 1, 1999,
notwithstanding the fact that the Royalty is not payable except on the
production from and sale of Coal Reserves from and after June 1, 2002.
Calculation of the adjustment shall be made during May 1999, and during
each May thereafter, to be effective for all production of Fee Coal and
Leased Coal from and after the immediately following June 1. The Royalty
shall be adjusted by multiplying the Base Royalty by a fraction. The
denominator of the fraction shall always be the Consumer Price Index for
All Urban Consumers (reference base 1982-84=100), unadjusted index, all
items, as first published by the United States Department of Labor, Bureau
of Labor Statistics ("CPIU") for the month of March 1998. The numerator of
the fraction shall be the CPI-U for March of the year in which the
adjustment is being made.
(iii) In the event of any dispute regarding the calculation
of the adjustment to the Royalty as provided in subclause (ii) above,
Purchaser shall continue to pay the Royalty at the previous rate, and after
the dispute is finally resolved refunds to Purchaser, or additional Royalty
to Seller, as the case may be, shall be paid promptly, together with
interest on the amount due at the Interest Rate, compounded monthly. In the
event the reference base of the CPI-U is rebased, the CPI-U shall continue
to be used by the parties as rebased. If during any May when the Royalty is
being adjusted the CPIU for the preceding March is no longer published or
issued by a governmental authority, then Seller and Purchaser shall use
such other index as is then generally recognized and utilized for similar
determinations of purchasing power. If there is a failure to agree on the
replacement index, then the parties hereto authorize a court sitting in
equity to select the replacement index, and the provisions in this
subclause (iii) regarding payment of the Royalty pending resolution of a
dispute shall apply.
41
<PAGE>
(e) Royalty Payment on Coal Reserves.
--------------------------------
(i) The Royalty payable on the Fee Coal and Leased Coal
hereunder shall be due on the last business day each calendar month,
commencing with July 31, 2002 for each ton of Fee Coal and Leased Coal
produced and sold from the Fee Land and the Leases in the immediately
preceding calendar month, regardless of when payment by the purchaser of
such coal is actually received by Purchaser, any Subsidiary or any other
Person.
(ii) The Royalty payable on the Coal Components hereunder
shall be due on the last business day each calendar month, commencing July
31, 2002, for all Coal Components produced and sold in the preceding
calendar month, regardless of when payment by the purchaser of such Coal
Components is actually received by Purchaser, any Subsidiary or any other
Person. If Coal Components are sold to an Affiliate or a related Person of
Purchaser, or sold in any other transaction that results in the gross
proceeds therefore being less than fair market value, then the gross
proceeds therefore shall be deemed to be the fair market value of the Coal
Components. For the purposes of this Subsection, "fair market value" shall
be the same as the price received for similar Coal Components in comparable
sales that are bona fide, arms-length transactions between a willing buyer
and a willing seller, neither of which are under duress to buy or sell.
Comparable sales by Purchaser or its Affiliates in bona fide, arms length
transactions may be considered, but are not controlling, in determining
fair market value.
(f) Agreement Not to Challenge: Modification. Purchaser will
----------------------------------------
not, and will cause its Affiliates not to, either directly or indirectly
challenge or cause any challenge to the validity, scope or enforceability of all
or any portion of this Section 5.10, to the Royalty created by this Section 5.10
or to the Production Royalty created under the Royalty Deeds, or the other
rights and benefits of Seller and its Affiliates created under this Section
5.10.
(g) Royalty Set Off. It is the intention of the parties hereto
---------------
that the Royalty payable hereunder for each ton of Fee Coal or Leased Coal or
each pertinent quantity of Coal Components shall not be duplicative of the
Production Royalty payable under the Royalty Deeds. In furtherance thereof,
there shall be a credit against the Royalty due and payable by Purchaser under
this Subsection 5.10.1 in the amount of any Production Royalty that shall be
payable (and actually received) under the Royalty Deeds for the same ton of Fee
Coal or Leased Coal or the same pertinent quantity of Coal Components without
giving effect to any Person or court declaring or rendering such Royalty Deeds
invalid or unenforceable.
(h) Royalty Payable Whether any Subsidiary, or its Transferee
---------------------------------------------------------
Produces Coal or Coal Components. Subject to the provisions of Subsection
- - --------------------------------
5.10.5, Purchaser's obligation to pay the Royalty shall be unconditional and
absolute and shall be payable regardless of whether Coal Reserves shall be
produced by (i) any Subsidiary, (ii) Purchaser or any of its Affiliates, (iii)
- -- ---
any Person to whom any Subsidiary shall have sold, conveyed, leased or otherwise
transferred any of the Coal Reserves or (iv) any contract miner of the Coal
--
Reserves, whether such contract miner shall be producing Coal Reserves from the
Leases or Fee Land owned, leased or otherwise held by any Subsidiary or by any
transferee or sublessee of such Subsidiary. In furtherance thereof and for the
42
<PAGE>
avoidance of doubt, Purchaser hereby acknowledges and agrees that no sale,
lease, conveyance, transfer or other disposition of any Lease or Fee Land by any
Subsidiary shall have the effect of releasing Purchaser from its obligations to
pay the Royalty, and that such obligation shall only be discharged in accordance
with the provisions of this Section 5.10; provided however that the parties
hereto agree that no Royalty shall be payable on the production and sale of any
Coal Reserves covered by any Lease if such Lease expires or terminates by its
terms and a leasehold interest is subsequently acquired, as contemplated by
Subsection 5.10.1(a)(i) hereof.
(i) Royal Not Affected by Invalidity of Royally Deeds. Neither
-------------------------------------------------
the declaration or claim by any Person or the decision of any court that one or
more Royalty Deeds is invalid or unenforceable, in whole or in part, nor the
pendency of any Proceeding with respect to any such claim, shall render
unenforceable the Royalty payable by Purchaser hereunder, and Purchaser agrees
that it shall continue to be bound by and comply with the provisions of this
Section 5.10 in the event of any such declaration or decision.
5.10.2 Royalty Buy-Out. If, at any time following the Closing
---------------
Date, (i) any equity securities of the Purchaser shall have been sold or issued
-
in any public or private transaction (other than not more than 50% of
Purchaser's equity securities issued to Purchaser's employees pursuant to any
stock option plan or executive compensation plan), (ii) Purchaser shall have
--
sold any shares of equity securities of any directly or indirectly owned Person
in which Purchaser shall own 20% or more of the equity interests (each, a
"Controlled Sub"), (iii) any equity securities of any Controlled Sub shall have
---
been sold or issued in any public or private transaction (other than not more
than 50% of such Controlled Sub's equity securities issued to such Controlled
Sub's employees pursuant to any stock option plan or executive compensation
plan), (iv) any Controlled Sub shall have sold or otherwise transferred any
--
shares of equity securities of any of its Controlled Subs, (v) Purchaser shall
-
have sold or otherwise transferred all or substantially all of its assets, or
shall have sold or otherwise transferred a significant portion of its assets not
in the ordinary course of business, or (vi) any Controlled Sub shall have sold
--
or otherwise transferred all or substantially all of its assets, or shall have
sold or otherwise transferred a significant portion of its assets not in the
ordinary course of business, and the effect of any one or more of the
transactions described in clauses (i) through (viii), as determined on a
cumulative basis and whether in a series of related or unrelated transactions,
is that Purchaser and its Controlled Subs, taken as a whole, shall have received
aggregate proceeds therefrom (whether in the form of cash or securities
(including those not registered under the Securities Act), including without
limitation any deferred purchase price or earn-out payments) in excess of
$75,000.000, then Purchaser shall give written notice thereto to Seller and
shall promptly pay to Seller, by wire transfer of immediately available funds to
an account designated by Seller in writing, the amount by which (x) $25,000,000
-
exceeds (y) fifty-five percent (55%) of the aggregate of all payments received
-
by Seller and its Affiliates pursuant to the Royalty Deeds, the Royalty payable
pursuant to Subsection 5.10.1 hereof and the Undeveloped Reserves Royalty
payable pursuant to Subsection 5.10.3 hereof (the "Royalty Buy-Out Amount"). As
soon as practicable following receipt of the Royalty Buy-Out Amount, Seller
shall cause the Royalty Deeds to be terminated and shall take such actions as
shall be necessary, including the filing of any and all documents with any
Governmental Authority, to cause the Subsidiaries to be fully released and
discharged from all of their obligations and liabilities under the Royalty
Deeds. It is the intention of the parties hereto that any transaction not
specifically described in clauses (i) through (vi) but which is structured to
enable Purchaser to avoid its royalty buy-out obligation contemplated hereby
shall
43
<PAGE>
nonetheless be deemed to be a transaction of the type described in clauses (i)
though (vi) and the proceeds thereof shall be taken into account for the purpose
of determining whether the $75,000,000 threshold described above has been
satisfied. Purchaser shall give Seller notice of the transaction of the type
contemplated by clauses (i) through (vi) hereof which results in the aggregate
proceeds of all such transactions exceeding $25,000,000, $50,000,000 and
$75,000,000 promptly after consummation thereof by Purchaser or such Affiliate,
describing in reasonable detail the type of and parties to such transaction, the
closing date thereof and the proceeds received in connection therewith, Seller
shall have the right, upon not less than 3 days' prior written notice to
Purchaser, to inspect the books and records of Purchaser and such Affiliates
during normal business hours for the purpose of determining Purchaser's
compliance with the provisions of this Section 5.10.2 and to make copies of such
books and records, including any agreement, instrument or certificate relating
to any such transaction, as Seller shall reasonably request.
5.10.3 Minimum Royalty Payment on Undeveloped Reserves: Certain
--------------------------------------------------------
Matters Relating to the Production Royalty. After the Closing, Purchaser shall
- - ------------------------------------------
pay a minimum royalty to Seller in respect of the Undeveloped Reserves in
accordance with the following provisions:
(a) Minimum Undeveloped Reserves Royalty. Purchaser
------------------------------------
acknowledges that the Subsidiaries are obligated to pay the Production Royalty
to Seller (or one of its Affiliates) under the Royalty Deeds. In the event that
Seller shall not have received payments pursuant to Section 5.10.1 or the
Royalty Deeds attributable to the Undeveloped Reserves Royalty at least equal to
the amounts set forth below for each of the periods set forth below:
Undeveloped
Reserves Royalty Period
---------------- ------
$1,000,000 Between the Closing Date and
December 31, 2003
$2,000,000 Between the Closing Date and
December 31, 2004
$3,000,000 Between the Closing Date and
December 31, 2005
$4,000,000 Between the Closing Date and
December 31, 2006
then, Purchaser shall pay to Seller a minimum royalty payment (each, a "Minimum
Royalty Payment" and, collectively, the "Minimum Royalty Payments") equal to (i)
-
in the case of the period ending December 31, 2003, the amount by which
$1,000,000 exceeds the Undeveloped Reserves Royalty received by Seller (or its
Affiliate) under the Royalty Deeds for the period commencing from the Closing
Date and ending December 31, 2003, (ii) in the case of the year ending December
--
31, 2004, the amount by which $2,000,000 exceeds the sum of (x) the Undeveloped
-
Reserves Royalty received by Seller (or its Affiliate) for the period commencing
from the Closing Date and ending
44
<PAGE>
December 31, 2004 and (y) the amount received by Seller under subclause (i) of
-
this sentence, (iii) in the case of the year ending December 31, 2005, the
---
amount by which $3,000,000 exceeds the sum of (x) the Undeveloped Reserves
-
Royalty received by Seller (or its Affiliate) for the period commencing from the
Closing Date and ending December 31, 2005 and (y) the amount actually paid
-
Seller under subclauses (i) and (ii) of this sentence, and (iv) in the case of
--
the year ending December 31, 2006, the amount by which $4,000,000 exceeds the
sum of (x) the Undeveloped Reserves Royalty received by Seller (or its
Affiliate) for the period commencing from the Closing Date and ending December
31, 2006 and (y) the amount actually paid Seller under subclauses (i), (ii) and
-
(iii) of this sentence. Notwithstanding anything to the contrary contained in
this Subsection 5.10.3, all payments required to be made to Seller pursuant to
this subclause (a) shall be recoupable against future Undeveloped Reserves
Royalty payments. All payments required to be made by Purchaser to Seller under
this subclause (a) shall be paid not later than 30 days following the end of the
year for which such payment shall accrue by wire transfer of immediately
available funds to an account designated by Seller in writing to Purchaser.
(b) Minimum Royalty Payments Payable Whether any Subsidiary
-------------------------------------------------------
or its Transferee Produces Coal. Subject to the provisions of Subsection 5.10.5,
- - -------------------------------
Purchaser's obligation to pay the Minimum Royalty Payments shall be
unconditional and absolute and shall be payable regardless of whether coal from
the Undeveloped Reserves shall be produced by (a) any Subsidiary, (ii) Purchaser
--
or any of its Affiliates, (iii) any Person to whom any Subsidiary shall have
---
sold, conveyed, leased or otherwise transferred any of the Undeveloped Reserves
or (iv) any contract miner of the Undeveloped Reserves, whether such contract
--
miner shall be producing coal from the Undeveloped Reserves owned, leased or
otherwise held by any Subsidiary or by any transferee or sublessee of such
Subsidiary. In furtherance thereof and for the avoidance of doubt, Purchaser
hereby acknowledges and agrees that no sale, lease, conveyance, transfer or
other disposition of any Undeveloped Reserves by any Subsidiary shall have the
effect of releasing Purchaser from its obligations to pay the Minimum Royalty
Payments, and that such obligation shall only be discharged in accordance with
the provisions of this Subsection 5.10.3.
5.10.4 Audit and Inspection of Reserves. Seller and its agents
--------------------------------
shall have the right, upon not less than 3 business days' prior written notice
to Purchaser and at Seller's cost and sole expense, to (i) inspect, audit and
-
copy the books and records of Purchaser and its Affiliates during normal
business hours for the purpose of reviewing tonnage produced from the Coal
Reserves (including the Undeveloped Reserves) and such other matters relating
thereto (including any permits or pending permit applications and' financial,
land, engineering, production, sales and other books and records) or to
Purchaser's compliance with the provisions of this Section 5.10 as Seller shall
reasonably request and (ii) have access to the mines, the Coal Reserves
--
(including the Undeveloped Reserves), the Fee Land and land under Lease during
normal business hours to review coal mining activities and operations thereon or
thereunder (including all activities directly and indirectly related to the
production, processing, handling, weighing, sampling, loading or transporting of
Coal Reserves and Coal Components). Purchaser shall give Seller 15 days' advance
written notice of any pending sale, lease, conveyance, transfer or other
disposition of any Coal Reserves (including any Undeveloped Reserves) and shall
use its reasonable best to efforts to cause the transferee or lessee thereof to
agree, pursuant to an agreement in writing delivered to Seller prior to or
contemporaneously with any such sale, lease, conveyance, transfer or other
disposition, to be bound
45
<PAGE>
by the provisions of this Subsection 5.10.3. The rights granted to Seller under
this Subsection 5.10.4 shall be in addition to any rights granted to Seller (or
its Affiliate) under the Royalty Deeds.
5.10.5 Termination of Royalty and Minimum Royalty Payments.
---------------------------------------------------
Purchaser's obligations to pay the Royalty and the Minimum Royalty Payments
under Subsections 5.10.1 and 5.10.3 hereof, respectively, shall terminate
concurrently upon the earlier of (i) Purchaser's payment of the Royalty Buy-Out
-
Amount pursuant to Subsection 5.10.2 hereof and (ii) the receipt by Seller of
--
Royalty payments and Minimum Royalty Payments which, in the aggregate, total
$45,454,545.00; provided, however, that all Royalty payments and Minimum Royalty
Payments accruing in accordance with the provisions of Subsections 5.10.1 and
5.10.3 hereof, respectively, prior to the date of payment of the Royalty Buy-Out
Amount shall remain due and owing by Purchaser hereunder.
5.10.6 Royalty and Undeveloped Reserves Royalty Payable During
-------------------------------------------------------
Pendency of a Dispute. During the pendency of any dispute brought by any Person
- - ---------------------
regarding the validity, scope or enforceability of all or any portion of this
Section 5.10, Purchaser shall continue to pay the Royalty and the Minimum
Royalty Payments to Seller as provided in this Section 5.10 except to the extent
otherwise directed by a court of competent jurisdiction.
SECTION 5.11. Taxes.
-----
5.11.1 Pre-Closing Period.
------------------
(a) Income Taxes. Seller will prepare and file or cause
------------
to be prepared and filed all Tax Returns relating to income Tax for each
Subsidiary required to be filed for any Taxable period that ends on or before
the Closing Date (a "Pre-Closing Tax Period"). Seller will prepare and, if
required to do so by applicable law, deliver to Purchaser for signing and filing
any Tax Returns relating to income Tax of each Subsidiary with respect to any
Pre-Closing Tax Period (including any short or stub period) that have not been
filed prior to the Closing Date. Seller will make all payments shown thereon as
owing with respect to any such Tax Returns; provided, however, that all income
Taxes of the Subsidiaries accruing during the Cash Advance Period on the pre-tax
earnings of the Subsidiaries shall be charged, at the rate of 25% of such pre-
tax earnings, as a Cash Advance.
(b) Other Taxes. Seller will prepare and file or cause to
-----------
be prepared and filed all Other Tax Returns for each Subsidiary required to be
filed during any Pre-Closing Tax Period. Seller will make all payments shown
thereon as owing with respect to any such Other Tax Returns, provided, however,
that:
(i) to the extent of the aggregate accrual on the
March Balance Sheet for Other Taxes, all Other Taxes of a Subsidiary accrued
with respect to any Taxable period ending on or before the Balance Sheet Date (a
"Pre-Balance Sheet Date Period") and which are paid by the Seller shall be
charged as a Cash Advance; and
(ii) all Other Taxes of a Subsidiary accrued with
respect to a Taxable period other than a Pre-Balance Sheet Date Period and which
are paid by the Seller shall be charged as a Cash Advance;
46
<PAGE>
5.11.2 Post Closing Period.
-------------------
(a) Any Tax Accruing After Closing. Purchaser will
------------------------------
prepare and file or cause to be prepared and filed all Tax Returns for each
Subsidiary that are required to be filed for all Tax periods which begin on or
after the Closing Date. Purchaser will pay or cause to be paid all Taxes
required to be paid with respect to such Tax Return.
(b) Other Taxes Accruing During Pre-Closing Tax Period.
--------------------------------------------------
Purchaser shall prepare and file or cause to be prepared and filed all Other Tax
Returns for each Subsidiary that are required to be filed after the Closing Date
with respect to any Pre-Closing Tax Period. Purchaser will pay or cause to be
paid all Other Taxes required to be paid with respect to such Other Tax Returns;
provided, however, that if Purchaser pays Other Taxes pursuant to this
Subsection 5.11.2(b) with respect to a Pre-Balance Sheet Date Period, then to
the extent the sum of all such Other Taxes so paid by Purchaser exceeds the
aggregate accrual on the March Balance Sheet for Other Taxes, Seller shall
promptly reimburse Purchaser for the amount of such excess.
5.11.3 Straddle Periods. With respect to any Taxable period that
----------------
would otherwise include but not end on the Closing Date, to the extent
permissible pursuant to applicable law, Seller will, and Purchaser will cause
each Subsidiary to, (a) take all steps as are or may be reasonably necessary,
including, without limitation, the filing of elections or returns with
applicable Taxing authorities, to cause such period to end on the Closing Date;
or (b) if clause (a) is inapplicable, to the extent permitted by applicable law,
report the operations of each Subsidiary only for the portion of such period
ending on or immediately before the Closing Date in a combined, consolidated, or
unitary Tax Return filed by Seller, notwithstanding that such Taxable period
does not end on the Closing Date. If clause (b) applies to a Taxable period of a
Subsidiary, the portion of such Taxable period included in such return filed by
Seller will be treated as a Pre-Closing Tax Period described in Subsection
5.11.1; provided, however, that Purchaser shall be responsible for filing all
Tax Returns with respect to all such straddle periods. If neither clause (a)
nor (b) is applicable, then Purchaser and the Subsidiaries shall prepare and
file the appropriate Tax Returns, Purchaser shall pay any Taxes with respect
thereto, and Seller shall reimburse Purchaser for the portion of any income
Taxes shown as due and payable thereon that relate to the portion of such
straddle period that ends on the Closing Date.
5.11.4 Access. In order to assist Seller in the preparation of
------
all, Tax Returns that Seller is required to prepare pursuant to this Section
5.11. Purchaser will prepare and deliver, or cause each Subsidiary to prepare
and deliver, Seller's standard Federal and state tax return data gathering
packages relating to the Subsidiaries not later than 60 days following receipt
of such packages from Seller (or sooner, to the extent practicable). In addition
to providing such packages, Purchaser will promptly provide or cause to be
provided to Seller such other information as Seller may reasonably request
(including access to books, records and personnel) in order for the operations
of the Subsidiaries to be properly reported in such Tax Returns, for the
preparation for any Tax audit or for the prosecution or defense of any claim,
suit or proceeding relating to Taxes.
5.11.5 Refunds and Credits. Purchaser will pay or cause to be paid
-------------------
to Seller all refunds, offsets or credits (a) of Other Taxes for which there
shall not have existed any accrual on the March Balance Sheet (including any
interest thereon) received by Purchaser or any Subsidiary
47
<PAGE>
after the Closing Date and attributable to Taxes paid by Seller or any
Subsidiary that accrued with respect to any Pre-Balance Sheet Date Period and
(b) of income Taxes attributable to income Taxes paid by Seller or any
Subsidiary with respect to any Pre-Closing Tax Period. Seller will pay or cause
to be paid to Purchaser all refunds, offsets or credits of Other Taxes
(including any interest thereon) received by Seller or any Affiliate after the
Balance Sheet Date and attributable to Other Taxes paid by Seller or any
Subsidiary on behalf of any Subsidiary that accrued with respect to a period
after the Balance Sheet Date. Such payment will be made to Seller or Purchaser,
as the case may be, within 30 days after receipt of any such refund from or
allowance of such credit by the relevant Taxing authority.
5.11.6 Seller Group Liabilities. Seller will indemnify, defend and
------------------------
hold Purchaser and the Subsidiaries harmless from and against, and pay and
reimburse each of them for, any and all Liability for any Taxable period as a
result of Treasury Regulation Section 1.1502-64(or any comparable provision of
state or local Law) for Taxes of any Person, other than the Subsidiaries, which
is or has been affiliated with the Seller to the extent such Taxes are
attributable to periods in which such entity was a member of the Seller
Consolidated Group (or affiliated with Seller under such comparable provision of
foreign, state or local law).
5.11.7 Retention of Tax Returns. Seller and each other member of
------------------------
the Seller Consolidated Group shall retain, and Purchaser shall cause the
Subsidiaries to retain, all Tax Returns, schedules and work papers, and all
material records or other documents relating thereto, until the expiration of
the statute of limitations (including any waivers or tensions thereof) with
respect to the Taxable periods to which such Tax Returns and other documents
relate or until the expiration of any additional period that either Purchaser or
Seller, as the case may be, may reasonably request in writing with respect to
specifically designated material records or documents. If Seller or any other
member of the Seller Consolidated Group, or Purchaser or any of the
Subsidiaries, intends to destroy any material and relevant records or documents,
Seller or Purchaser, as the case may be, shall provide the other party with
advance notice and the opportunity to copy or take possession of such records or
documents. The parties hereto will notify each other in writing of any waivers
or extensions of the applicable statute of limitations that may affect the
period for which the foregoing records or documents must be retained.
5.11.8 Tax Contests. In the event any adjustment is made or
------------
proposed by a Taxing authority with respect to any Tax subject to this Section
5.11, the person ultimately responsible for paying any additional Tax (the
"Controlling Party"), shall have the right to contest, litigate, compromise and
settle the Tax Contest with respect thereto. The Controlling Party shall permit
the other party and the counsel of its choice to participate in any such
contest, litigation, compromise or settlement of any adjustment in such Tax
Contest. All costs, including legal and accounting expenses, of any Tax Contest
are to be borne by the party incurring such costs.
SECTION 5.12. Compensation and Benefits of Employees.
--------------------------------------
5.12.1 Continuation of Employment. Purchaser shall cause the
--------------------------
Subsidiaries to (i) continue employment for each Employee to the extent required
-
to do so under the notification provisions of the WARN Act, and (ii) abide by
--
the-provisions of the collective bargaining agreements listed on Schedule
3.11.2, including, if applicable, any obligations with respect to
48
<PAGE>
successorship in the ownership of any operations, and with respect to recall to
work rights of any individual, whether or not such individual is an active
employee at the time of Closing.
5.12.2 Employee Benefit Matters.
------------------------
(a) Salaried Plan. Effective as of the Closing, the
-------------
Employees shall cease to participate in the Retirement Plan for Salaried
Employees of Cyprus Amax Minerals Company (the "Salaried Plan") and each
Subsidiary shall cease to be a participating employer thereunder. As of the
Closing, the Employees shall be fully vested in their accrued benefits under the
Salaried Plan, determined as of the Closing. Effective as of the Closing, the
Employees shall accrue no additional benefits under the Salaried Plan and shall
accumulate no further years of service thereunder after the Closing. Such
accrued benefits shall be distributed to the Employees in accordance with the
terms of the Salaried Plan and applicable laws and regulations;
(b) Lost Mountain Plan. Effective as of the Closing, the
------------------
Employees shall cease to participate in the Retirement Plan for Hourly Employees
of Cyprus Amax Coal Company -Lost Mountain (the "Lost Mountain Plan") and each
Subsidiary shall cease to be a participating employer thereunder. As of the
Closing, the Employees shall be fully vested in their accrued benefits under the
Lost Mountain Plan, determined as of the Closing. Effective as of the Closing,
the Employees shall accrue no additional benefits under the Lost Mountain Plan
and shall accumulate no further years of service thereunder after the Closing.
Such accrued benefits shall be distributed to the Employees in accordance with
the terms of the Lost Mountain Plan and applicable laws and regulations;
(c) Roaring Creek Plan. Effective as of the Closing, the
------------------
Employees shall cease to participate in the Roaring Creek Coal Company Pension
Plan for Hourly Employees (the "Roaring Creek Plan"), and the Subsidiaries shall
cease to be a participating employer thereunder. As of the Closing, the
Employees shall be fully vested in their accrued benefits under the Roaring
Creek Plan, determined as of the Closing. Effective as of the Closing, the
Employees shall accrue no additional benefits under the Roaring Creek Plan and
shall accumulate no further years of service thereunder after the Closing. Such
accrued benefits shall be distributed to the Employees in accordance with the
terms of the Roaring Creek Plan and applicable laws and regulations;
(d) Savings Plan. Effective as of the Closing, the
------------
Employees shall cease to participate in the Cyprus Amax Minerals Company Savings
Plan and Trust (the "Savings Plan"), and each Subsidiary shall cease to be a
participating employer thereunder. As of the Closing, the Employees shall be
fully vested in their accounts under the Savings Plan. Effective as of the
Closing, no further Employee or employer contributions shall be credited to the
accounts of the Employees, except as may be required by the terms of the Savings
Plan. Account balances shall be distributed to the Employees in accordance with
the terms of the Savings Plan and applicable laws and regulations;
(e) Purchaser's Pension Plans. Effective as of Closing,
-------------------------
Purchaser shall cause the Subsidiaries to establish or become participating
employers in one or more defined benefit pension plans that qualify under
Section 401(a) of the Code. Such plans (the "Purchaser's Pension Plans") shall
cover immediately as of the Closing Date each Employee who was a participant in
49
<PAGE>
either the Lost Mountain Plan, the Roaring Creek Plan or the Salaried Plan
(collectively, "Cyprus Amax's Pension Plans") as in effect immediately prior to
the Closing. The Purchaser's Pension Plans shall credit Employees for purposes
of eligibility and vesting with years of service for employment with Minerals,
the Subsidiaries or any of their Affiliates prior to the Closing as reflected in
the records of Cyprus Amax's Pension Plans;
(f) Purchaser's Savings Plan. Effective as of the Closing, Purchaser
------------------------
Shall cause the Subsidiaries to establish or become participating employers in a
savings plan that qualifies under Sections 401(a) and 401(k) of the Code
("Purchaser's Savings Plan"). Purchaser's Savings Plan shall credit employees
for purposes of eligibility and vesting with years of service for employment
with Minerals, the Subsidiaries or any of their Affiliates as reflected in the
records of the Minerals' Savings Plans and Trust listed on Schedule 3.11.1;
(g) Purchaser's Welfare Plans. Effective as of the Closing, Purchaser
-------------------------
shall cause the Subsidiaries to establish or become participating employers in
one or more welfare benefit plans (including plans providing medical, dental,
vision care, group term life insurance and a cafeteria plan under Section 125 of
the Code with a health care spending account and a dependent care spending
account) to provide benefits to the Employees ("Purchaser's Welfare Plans").
Employees and their dependents shall commence participation in Purchaser's
Welfare Plans as of the Closing Date. Except as noted in the sentence
immediately following this sentence, all claims for benefits of Employees which
have not been paid in the normal course of business as of the Closing Date under
the Plans that are employee welfare benefit plans as defined in Section 3(l) of
ERISA (the "Seller's Welfare Plans") shall be assumed by Purchaser's Welfare
Plans, and all claims for services or benefits provided to Employees and their
dependents or survivors on and after the Closing Date shall be the sole
responsibility of Purchaser, and Seller shall have no liability for any such
claims and Purchaser shall indemnify, defend and hold harmless Seller and its
Affiliates, and pay and reimburse each of them, therefor.
With respect to the claims for benefits under Seller's Welfare Plans for legal
services, financial counseling, long term disability, dependent life insurance,
and business travel accident insurance. Seller shall indemnify, defend and hold
harmless Purchaser, and pay and reimburse Purchaser, therefor:
(h) Purchaser's Retiree Plans.
-------------------------
(i) Any individual that retires before the Closing Date,
-
provided such individual is otherwise eligible in accordance with the terms of
the Plan, shall be entitled to the benefits afforded under the then current
retiree medical Plan maintained by Minerals or the Subsidiaries. After the
Closing, Purchaser shall not be obligated to provide any retiree medical plan;
provided, however, that retiree health care benefits under plans maintained
- - -----------------
pursuant to a collective bargaining agreement shall be administered, modified or
terminated in accordance with the terms of the collective bargaining agreement
and the retiree health care plan maintained pursuant thereto.
(ii) With respect to former employees of the Subsidiaries not
--
covered by a collective bargaining agreement on the Closing Date, Purchaser
shall indemnify and defend Minerals and its Affiliates for, and hold each of
them harmless from and against, and pay and
50
<PAGE>
reimburse each of them for, all retiree medical benefit obligations and
Liabilities of each such former employee provided such former employee was
employed by such Subsidiary at its operations in the State of Kentucky or
Tennessee, including those former employees and their dependents who are
eligible to receive (or are receiving) retiree medical benefits as of the
Closing. Effective as of the Closing, Purchaser shall cause the Subsidiaries
with retirees and their dependents at current or former operations in the State
of Kentucky or Tennessee to establish or become participating employers in one
or more retiree medical plans that provide benefits comparable to those medical
benefits provided by Minerals to retirees and their dependents on the day
immediately preceding the Closing. Seller shall indemnify and defend Purchaser
and its Affiliates for, and hold each of them harmless from and against, and pay
and reimburse, each of them for, all retiree medical benefit obligations and
Liabilities of each Employee and former employee of each Subsidiary provided (A)
-
such Employee or former employee was employed by such Subsidiary at its
operations in the State of West Virginia, Illinois or Indiana, and (B) such
-
Employee or former employee separated from service with such Subsidiary prior to
the Closing Date. Notwithstanding anything to the contrary contained in this
Subsection 5.12.2(h)(ii), Seller shall have no obligation to indemnify and pay
and reimburse Purchaser or its Affiliates with respect to any retiree that works
(as an employee or contractor) for Purchaser or its Affiliates at any time after
the Closing.
(iii) With respect to Employees and former employees of the
---
Subsidiaries covered by a past or present collective bargaining agreement, for
retiree medical benefit plans maintained under collective bargaining agreements
and under Section 9711 of the Coal Act, Seller shall indemnify and defend
Purchaser and its Affiliates for, and hold each of them harmless from and
against, and pay and reimburse each of them for, all retiree medical benefit
obligations and Liabilities of each former employee of each Subsidiary who was
represented by the United Mine Workers of America at the time of his retirement
provided that such former employee ceased to be actively employed by Minerals,
the Subsidiaries or their Affiliates prior to the Closing Date. Notwithstanding
anything to the contrary contained in this Subsection 5.12.2(h)(iii), Seller
shall have no obligation to indemnify and pay and reimburse Purchaser or its
Affiliates with respect to any retiree that works (as an employee or contractor)
for Purchaser or its Affiliates at any time after the Closing:
(i) Severance Plans. Effective as of the Closing, Purchaser shall
---------------
cause the Subsidiaries to establish or become participating employers in one or
more severance pay plans comparable to that of Mineral's severance pay plan as
it applies to the Employees on the day immediately preceding the Closing.
Purchaser shall indemnify, defend and hold harmless Seller and its Affiliates
for, and pay and reimburse each of them for, any and all claims made by any
Employee for severance pay and other benefits on account of their severance
after the Closing, Purchaser has provided Seller with a list dated May 19, 1998
containing the names of twenty (20) salaried individuals that Purchaser does not
want to be employed by any Subsidiary on the Closing Date (the "Excess Staff").
If prior to the Closing Date Seller is not able to place the Excess Staff in
other positions within Seller or its Affiliates, then prior to the Closing Date
the pertinent Subsidiary shall terminate the employment of all such Excess Staff
not so placed. Seller hereby assumes and shall indemnify and defend Purchaser
and its Affiliates (including the Subsidiaries) for, and hold each of them
harmless from, and pay and reimburse each of them for, the payment of any and
all severance benefits to which the Excess Staff are entitled under the Plans;
51
<PAGE>
(j) Multi-employer Plans. Except as otherwise expressly provided in
--------------------
this Agreement, effective as of the Closing, Purchaser shall cause the
Subsidiaries to comply with and discharge all obligations and Liabilities under
or arising out of the Multi-employer Plans, including any obligations and
Liabilities arising under the labor agreements listed on Schedule 3.11.2; n
(k) Workers' Compensation and Black Lung.
------------------------------------
(i) Notwithstanding anything to the contrary under applicable
-
Law or by action of a Governmental Authority, effective as of the Closing
Date and subject to the provisions of this clause (k), Purchaser hereby
assumes and shall indemnify and defend Seller and its Affiliates for, and
hold each of them harmless from and against, and pay and reimburse each of
them for, any and all past, present or future Liabilities, Losses,
premiums, audits, assessments or other obligations relating to or arising
out of Workers' Compensation Liabilities, Black Lung Liabilities and Black
Lung Benefit Obligations in respect of the Business, including any past,
present or future employee of any Subsidiary.
(ii) Notwithstanding anything to the contrary under applicable
Law or, by action of a Governmental Authority, and notwithstanding anything to
the contrary contained in subclause (i) of this clause (k), effective as of the
Closing Date and subject to the provisions of subclause (iii) of this clause
(k), Seller hereby assumes direct liability for and shall indemnify and defend
Purchaser and the Subsidiaries for, and hold each of them harmless from and
against, and pay and reimburse each of them for, all Liabilities, Losses,
premiums, audits, assessments or other obligations relating to or arising out
of:
(A) Workers' Compensation Liabilities in respect of (1) any
-
claim filed on or prior to the Closing Date by any employee (including any
former employee) of any Subsidiary that was employed by such Subsidiary at
its operations in the State of West Virginia (unless such Subsidiary
subscribed to the West Virginia Workers' Compensation Fund), Illinois or
Indiana or by Amax Coal Company at its operations in western Kentucky, but
only to the extent such claims relate to the death of such employee or the
permanent total disability of such employee, all of which claims are
specifically set forth on Schedule 5.12.2(k)(ii)(A), and (2) any claim
-
filed by any employee of any Subsidiary (whether such claim is filed on,
prior to or after the Closing Date) to the extent such claim arises out of
such employee's employment at the Castle Gate Mine, Wabash Mine, Delta Mine
or Ayrshire Mine; and
(B) Black Lung Liabilities and Black Lung Benefit
Obligations in respect of (1) any claim filed on or prior to the Closing
-
Date by any employee (including any former employee) of any Subsidiary that
was employed by such Subsidiary at its operations in the State of West
Virginia (unless such Subsidiary subscribed to the West Virginia Workers'
Compensation Fund), Illinois or Indiana or by Amax Coal Company at its
operations in western Kentucky, but only to the extent such claim (x) has
-
been awarded by any Governmental Authority as of the Closing Date and such
award is final and nonappealable or (v) has been awarded by any
-
Governmental Authority as of the Closing Date and is the subject of a
pending Proceeding or has not been awarded by any Governmental Authority as
of the Closing Date but is the subject of a Proceeding, all of which claims
are
52
<PAGE>
specifically set forth on Schedule 5.12.2.(k)(ii)(B), and (2) any claim
-
filed by any employee of any Subsidiary (whether such claim is filed on,
prior to or after the Closing Date) to the extent such claim arises out of
such employee's employment at the Castle Gate Mine, Wabash Mine, Delta Mine
or Ayrshire Mine.
(iii) The parties hereto agree that Seller shall have no
---
liability for any Black Lung Liabilities and Black Lung Benefit Obligations
under clause (k)(ii)(B)(1) of this Section 5.12.2 for or with respect to (A) any
-
new claim that is filed after the Closing Date by any employee of any
Subsidiary, regardless of whether such employee has previously filed a claim for
which Seller has agreed to indemnify Purchaser pursuant to such clause
(k)(ii)(B)(1), (B) any claim that is filed after the Closing Date by an employee
-
of such Subsidiary if such claim constitutes the re-filing or resubmission of a
claim that has been previously denied, (C) any claim for the reopening,
expansion or modification with respect to any previously awarded claim, or (D)
any claim covered by such clause (k)(ii)(B)(1) if the employee as to which such
claim relates shall be employed by any Subsidiary for a period of twelve (12)
months or more following the Closing Date (in which case Seller shall have no
liability for such claim from and after such 12 month period).
(iv) Purchaser, for itself and its Affiliates (including, as of
--
the Closing Date, the Subsidiaries) hereby expressly acknowledges and agrees
that none of them are acquiring, as a result of the transactions contemplated
hereby, and none of the Subsidiaries are retaining, any past, present or future
rights to, interests in or ability to assert or file claims against or seek
reimbursement from the Cyprus Amax Minerals Company Black Lung Benefits Trust
(the "Black Lung Trust") or the assets thereof, and Purchaser, on behalf of
itself and each of them, hereby irrevocably and unconditionally waives, releases
and relinquishes any and all such rights, interests and claims of every kind or
character with respect to the Black Lung Trust, Purchaser shall not, and shall
cause each of its Affiliates (including, as of the Closing Date, the
Subsidiaries) and its and their respective representatives, agents, receivers,
trustees and creditors not to, make any claim against or seek reimbursement from
the Black Lung Trust or its trustee, under any circumstances whatsoever. For the
avoidance of doubt, the parties hereto agree that the Black Lung Trust is to be
an asset owned exclusively and in its entirety by Minerals for the sole and
exclusive benefit of Minerals and its Affiliates (other than the Subsidiaries).
For the purposes of this subclause (iv), all references to the Black Lung Trust
shall be deemed to include any past, present or future trust agreement,
investment agreement or other agreement or instrument directly or indirectly
relating thereto.
(v) In the event that after Closing Seller and Purchaser shall
-
in good faith disagree as to which party is responsible for a claim with respect
to any Workers' Compensation Liabilities or Black Lung Liabilities and Black
Lung Benefit Obligations, Purchaser agrees to assume the defense of such claim
during the pendency of such dispute provided Seller is in good faith proceeding
to resolve such dispute with Purchaser. Upon a determination that Seller is
responsible for such claim, then Seller shall promptly reimburse Purchaser for
all Losses incurred by Purchaser in connection therewith in accordance with the
indemnification provisions contained in Article VIII hereof, together with
simple interest thereon at the Interest Rate computed based on a 360 day year,
actual days elapsed.
53
<PAGE>
(vi) Without limiting the obligations of Purchaser under
--
Sections 5.15 and 5.17 hereof, as of the Closing Date Purchaser shall have taken
all such actions as shall be necessary to obtain and put in place for the
Subsidiaries and their respective operations all required subscriptions to state
funds, insurance, self-insurance, bonding, guarantees and other coverage of any
kind or character required to be maintained by the Subsidiaries under any
applicable Law related to Workers' Compensation Liabilities or Black Lung
Liabilities and Black Lung Benefit Obligations (collectively, the "Required
Coverages"). Except with respect to Dunn Coal & Dock (which is a subscriber to
the West Virginia Workers' Compensation Fund and as to which Purchaser shall
assume the account and remain in such fund as a successor employer), Purchaser
may select in its sole discretion the method or type of Required Coverage so
long as such Required Coverage accomplishes the intention of the parties under
this Subsection 5.12.2(k). The actions required to be taken as of the Closing
Date by Purchaser under this clause (vi) shall be sufficient, as determined in
the reasonable judgment of Seller, to ensure Seller that no Governmental
Authority shall have the right to impose any Liability or Losses on Seller or
its Affiliates after the Closing for any item or matter assumed by Purchaser
under this Subsection 5.12.2(k).
(vii) Minerals and its Affiliates, together with the Black Lung
---
Trust and any trustee or investment advisor thereof, are intended third party
beneficiaries of this Subsection 5.12.2 and shall have the right to enforce the
benefits intended to be conferred upon each of them under this Subsection 5.12.2
as though they were parties to this Agreement.
(1) Purchaser shall indemnify and defend Seller and its Affiliates
for, and hold each of them harmless from and against, and pay and reimburse each
of them for, all Liabilities related to the Subsidiaries' obligations under the
Coal Act (or any subsequently enacted statutory or regulatory liability or levy
for health and death benefits for those individuals deemed eligible
beneficiaries for purposes of the Coal Act) that become due after the Closing
Date, except for those retiree health care obligations of the Subsidiaries under
Section 9711 of the Coal Act specifically retained by Seller under subclause
(h)(iii) of this Subsection 5.12.2. Notwithstanding anything to the contrary
contained in this Subsection 5.12.2(l), during the twelve (12) month period
commencing June 15, 1998 and ending June 14, 1999, and for the three (3)
succeeding twelve ( 12) month periods (June 15, 1999 -June 14, 2000; June 15,
2000 - June 14, 2001; June 15, 2001 - June 14, 2002), should the Subsidiaries
pay in the aggregate during any such twelve (12) month period more than
$1,200,000.00 in total premiums pursuant to Sections 9712(d)(1)(A) and (B) of
the Coal Act, then Seller shall promptly reimburse to Purchaser the amount of
the excess over $1,200,000.00. After the twelve (12) month period ending June
15, 2002, this reimbursement obligation of Seller shall cease and no longer be
applicable. Should Purchaser wish to make a claim for reimbursement pursuant to
this Subsection 5.12.2(l), then it shall provide Seller with written notice and
attach supporting documentation to substantiate said premium payments in excess
of $1,200,000.00.
(m) With respect to represented, hourly Employees, their rights to
disability, payments, if any, shall be governed by the terms of any collective
bargaining agreements to which the Subsidiaries are now or hereafter a party.
With respect to salaried and non-represented hourly employees that are receiving
short term disability payments as of the Closing Date, Purchaser assumes direct
liability for, and shall indemnify and defend Seller and its Affiliates for, and
hold each of them harmless from and against, and pay and reimburse each of them
for, any and all payments due said Employees, or other Loss relating to and
arising under the terms of the Mineral's
54
<PAGE>
short term disability plan currently in place. With respect to salaried and non-
represented hourly employees that (i) are receiving long term disability
-
payments as of the Closing Date, or (ii) are receiving short term disability
--
payments as of the Closing Date, and thereafter become eligible for long term
disability in accordance with the applicable Plan, Seller assumes direct
liability for, and shall indemnify and defend Purchaser and its Affiliates for,
and hold each of them harmless from and against, and pay and reimburse each of
them for, any and all payments due said Employees, or other Loss relating to or
arising under the terms of the Minerals long term disability plan currently in
place.
(n) Except as otherwise provided in Section 5.12 of this Agreement:
(i) Seller shall indemnify and defend Purchaser and the
-
Subsidiaries for, and hold each of them harmless from and against, and pay
and reimburse each of them for, any and all claims, Liabilities, Losses,
payments, premiums, audits, assessments or other obligations relating to,
or arising out of, the Plans; and
(ii) Purchaser shall indemnify and defend Seller and its
--
Affiliates for, and hold each of them harmless from and against, and pay
and reimburse each of them for, any and all claims, Liabilities, Losses,
payments, premiums, audits, assessments or other obligations relating to,
or arising out of, the pension benefit plans, whether or not tax-qualified,
welfare benefit plans, fringe benefit plans, or any policies, procedures,
plans, funds, programs or payroll practices, including without limitation,
those maintained by Purchaser or its Affiliates, including the
Subsidiaries, on and after the Closing Date.
SECTION 5.13. HSR Act Notification. Unless the notification and report
--------------------
referred to in this sentence shall have been filed prior to the execution
hereof, Seller and Purchaser shall, as promptly as practicable, but in no event
later than ten business days after the date of this Agreement, file with the
Federal Trade Commission (the "FTC') and the Antitrust Division of the
Department of Justice (the "Antitrust Division") the notification and report
form required for the transactions contemplated hereby pursuant to the HSR Act
and request early termination of the statutory waiting period thereunder. Seller
and Purchaser shall famish to each other such necessary information and
reasonable assistance as may be requested in connection with the preparation of
any filing required to be made under the HSR Act. Seller and Purchaser shall
use all reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation and to obtain as promptly as practicable any
clearance required under the HSR Act for the transactions contemplated hereby.
SECTION 5.14. Fees and Expenses. Except as otherwise specifically
-----------------
provided in this Agreement, Seller and Purchaser shall bear their own fees and
expenses incurred in connection with this Agreement and in connection with all
obligations required to be performed by each of them under this Agreement.
SECTION 5.15. Guarantees.
----------
5.15.1 Replacement of Corporate Guarantees, Indemnification after
----------------------------------------------------------
Closing.
- - -------
55
<PAGE>
(a) Replacement of Corporate Guarantees. Purchaser shall use
-----------------------------------
commercially reasonable efforts to replace and cause Seller and its Affiliates
(other than the Subsidiaries) to be discharged from, effective as of the Closing
Date, all corporate guarantees and indemnities issued by Seller or any of its
Affiliates (other than the Subsidiaries) on behalf of any Subsidiary including,
without limitation, all corporate guarantees and indemnities set forth on
Schedule 5.15.1 (including any supplement to Schedule 5.15.1 on account of any
corporate guarantee or indemnity issued by Seller or its Affiliates (other than
the Subsidiaries) and on behalf of any Subsidiary during the Interim Period).
With respect to all such corporate guarantees and indemnities listed on Schedule
5.15.1 which are not, as of the Closing Date, replaced with corporate guarantees
or indemnities of Purchaser, Purchaser shall continue to use its commercially
reasonable efforts to replace and cause Seller and its Affiliates (other than
the Subsidiaries) to be discharged from their respective Liabilities under such
guarantees and indemnities; provided, however, that Purchaser shall have no
obligation to replace any such guarantee or indemnity (x) to the extent that
-
acceptance of such replacement guarantee or indemnity by the beneficiary thereof
shall be conditioned upon the amendment of the underlying obligation to which
such guarantee or indemnity relates or waiver by any Subsidiary of any rights in
respect of such underlying obligation and (y) as a result of such amendment or
-
waiver such underlying obligation would contain terms and conditions that are
less favorable in any material respect than the terms and conditions of such
underlying obligation as in existence on the Closing Date.
(b) Indemnification After Closing. Purchaser shall indemnify and
-----------------------------
defend Seller and its Affiliates (other than the Subsidiaries) for and hold
Seller and such Affiliates harmless from and against, and pay and reimburse
Seller and such Affiliates for, any and all Liabilities of Seller or such
Affiliates, as the case may be, in respect of any corporate guarantee or
indemnity issued by Seller or such Affiliates on behalf of any Subsidiary
(including any such corporate guarantee or indemnity set forth on Schedule
5.15.1 (or any supplement thereof)) (a) arising out of a payment by Seller or
such Affiliate under such guarantee or indemnity after the Closing Date or (ii)
--
any Proceeding arising out of or relating to such guarantee or indemnity;
provided, however, that neither Seller nor its Affiliates shall be entitled to
indemnification under this clause (b) to the extent the Liabilities in respect
of such corporate guarantee or indemnity shall arise out of or relate to the
Excluded Assets or Excluded Liabilities or to an Unrelated Business. Any payment
required to be made by Purchaser under this clause (b) shall be made within ten
(10) business days of Purchaser's receipt of written notice from Seller or such
Affiliate describing in reasonable detail the amount then due.
5.15.2 Reimbursement During Interim Period. In addition to
-----------------------------------
Purchaser's obligations under Subsection 5.15.1, effective as of the Closing
Date, Purchaser shall indemnify and defend Seller and its Affiliates (other than
the Subsidiaries) for and hold Seller and such Affiliates harmless from and
against, and pay and reimburse Seller and such Affiliates for, any and all
Liabilities of Seller or such Affiliates, as the case may be, arising out of
(ii) any payment made by Seller and such Affiliates during the Interim Period
under any corporate guarantee or indemnity issued by Seller or such Affiliates
on behalf of any Subsidiary, including without limitation any such corporate
guarantee or indemnity set forth on Schedule 5.15.1 (including any supplement to
Schedule 5.15.1 on account of any corporate guarantee or indemnity issued by
Seller or such Affiliates and on behalf of any Subsidiary during the Interim
Period) and (ii) any Proceeding relating to any such corporate guarantee or
indemnity; provided, however, that neither Seller nor its Affiliates shall be
entitled to
56
<PAGE>
indemnification under this clause (c) to the extent the Liabilities in respect
of such corporate guarantee or indemnity shall arise out of or relate to the
Excluded Assets or Excluded Liabilities or to an Unrelated Business. Seller
shall deliver written notice to Purchaser at least two (2) business days prior
to the Closing (except with respect to any payment made by Seller and such
Affiliates within two (2) business days of Closing, in which case Seller shall
deliver written notice thereof as soon as practicable prior to Closing)
describing in reasonable detail the amounts due Seller and such Affiliates under
this Subsection 5.15.2 as of the Closing Date, and Purchaser shall pay such
amount to Seller at Closing, to an account designated by Seller in writing prior
to the Closing, by wire transfer of immediately available funds.
5.15.3 Third Party Beneficiaries. All Affiliates of Seller that are
-------------------------
liable under any corporate guarantee or indemnity obligation referenced in this
Section 5.15 (other than the Subsidiaries) are intended third-party
beneficiaries of this Section 5.15 and shall have the right to enforce the
benefits intended to be conferred upon each of them under this Section 5.15 as
though they were parties to this Agreement.
SECTION 5.16. Name Changes. No later than ten (10) business days
------------
following the Closing Date, Purchaser shall amend the certificate of
incorporation or other organization document of each Subsidiary to remove the
word "Cyprus Amax," "Cyprus" or "Amax" or any similarity or reference thereto.
The new corporate or partnership name of the Subsidiaries adopted by Purchaser
shall not contain any word or words confusingly similar to "Cyprus Amax",
"Cyprus" or "Amax." No later than 90 days following the Closing Date, Purchaser
shall remove the marks and names "Cyprus Amax", "Cyprus" or "Amax" and the logo
"C" with two lions appearing therein and any other words, names or symbols
proprietary to Seller, from all tangible and intangible properties, real and
personal, acquired by Purchaser hereunder.
SECTION 5.17. Surety Bonds.
------------
5.17.1 Replacement of Surety Bonds: Indemnification after Closing;
-----------------------------------------------------------
Collateral; Fee; Refund of Premiums.
- - -----------------------------------
(a) Replacement of Surety Bonds. At the Closing, Purchaser
---------------------------
shall post a replacement letter of credit or surety bond in respect of each
letter of credit and surety bond issued for the account of Minerals or any of
its Affiliates (including the Subsidiaries) on behalf of any Subsidiary and
listed on Schedule 5.17.1 (including any supplement to Schedule 5.17.1 on
account of any letter of credit or surety bond issued for the account of
Minerals or any of its Affiliates (including the Subsidiaries) on behalf of any
Subsidiary during the Interim Period (collectively, the "Scheduled Bonds").
(b) Indemnification after Closing: Collateral. Purchaser
-----------------------------------------
shall indemnify and defend Minerals and its Affiliates for and hold Minerals and
its Affiliates harmless from and against, and pay and reimburse Minerals and its
Affiliates for, any and all Liabilities of Minerals and its Affiliates, as the
case may be, in respect of all letters of credit and surety bonds issued for the
account of Minerals and its Affiliates and on behalf of any Subsidiary (i)
arising out of a draw made by any beneficiary of such letter of credit or surety
bond after the Closing Date or (ii) any Proceeding arising out of or relating to
such letter of credit or surety bond; provided, however, that neither
-----------------
57
<PAGE>
Minerals nor its Affiliates shall be entitled to indemnification under this
Subsection 5.17.1 to the extent the Liabilities in respect of such letter of
credit or surety bond shall arise out of or relate to the Excluded Assets or
Excluded Liabilities or to an Unrelated Business. Any payment required to be
made by Purchaser under this clause (b) shall be made within ten (10) business
days of Purchaser's receipt of written notice from Minerals or such Affiliate
describing in reasonable detail the amount then due, On the Closing Date,
Purchaser shall deliver to Seller a surety bond, substantially in the form of
Exhibit E hereto and from a surety or financial institution reasonably
acceptable to Seller, as collateral security for Purchaser's obligations under
this clause (b) (the "Purchaser Surety Bond"). The Purchaser Surety Bond shall
be issued initially in the face amount equal to $15,000,000 and shall permit
Seller to make draws thereunder from time to time. In the event that Purchaser
shall have failed from time to time to make any payment required to be made by
Purchaser to Minerals or its Affiliates, as the case may be, under this clause
(b), Purchaser hereby irrevocably authorizes Seller, on behalf of itself or
Minerals or its Affiliates, as the case may be, to draw down under the Purchaser
Surety Bond in the amount then due Minerals or its Affiliates, as the case may
be, pursuant to this clause (b). Not earlier than sixty (60) days following the
Closing, and thereafter upon the expiration of each calendar month, Purchaser
shall have the right, at its option, to replace the Purchaser Surety Bond
delivered at Closing provided that (1) the replacement surety bond shall be
issued by a surety or financial institution reasonably acceptable to Seller and
shall contain terms and conditions (except as to amount) identical in all
material respects to the Purchaser Surety Bond then in effect, and (2) the
-
replacement surety bond shall be issued in a face amount equal to not less than
ten percent (10%) of the aggregate amount of all then outstanding Scheduled
Bonds (it being agreed that in no event shall such replacement surety bond be
issued in a face amount equal to less than $2,000,000), in which case such
replacement surety bond shall be deemed to be the "Purchaser Surety Bond" for
all purposes of this Section 5.17. Upon the delivery to Seller of such
replacement surety bond, Seller shall return to Purchaser for cancellation the
Purchaser Surety Bond then being replaced. A Scheduled Bond shall be deemed to
be outstanding until such time as the beneficiary thereof has provided Seller
with written documentation sufficient to cause the surety or financial
institution to fully and completely release and discharge Minerals or its
Affiliate (or any Subsidiary, if applicable) from the Scheduled Bond, and the
Scheduled Bond has been returned to Seller.
(c) Fee. With respect to all Scheduled Bonds that are not
---
replaced by Purchaser within one hundred eighty (180) days following the Closing
Date and resulting in a full and complete release of Mineral's and its
Affiliates liabilities with respect thereto, Purchaser shall pay to Seller a
monthly fee, on the average daily maximum contingent amount outstanding under
such Scheduled Bonds during the applicable month (the "Average Contingent
Amount"). The fee payable by Purchaser hereunder shall equal one-half of one
percent (0.5%) of the Average Contingent Amount. Any fee payable by Purchaser
pursuant to this clause (c) shall become due and payable on the first day
following the month (or portion thereof) in which such fee shall have accrued
and shall be computed on a per annum basis based on a 360 days year, actual days
elapsed.
5.17.2 Reimbursement During Interim Period. In addition to
-----------------------------------
Purchaser's obligations under Subsection 5.17.1, effective as of the Closing
Date, Purchaser shall indemnify and defend Minerals and its Affiliates for and
hold Minerals and its Affiliates harmless from and against, and pay and
reimburse Minerals and its Affiliates for, any and all Liabilities of Minerals
or its Affiliates (including, prior to the Closing, the Subsidiaries) arising
out of (i) any draw made by any beneficiary
-
58
<PAGE>
during the Interim Period under any letter of credit or surety bond issued for
the account of Minerals or its Affiliates (including the Subsidiaries) and on
behalf of any Subsidiary (including without limitation any letter of credit or
surety bond listed on Schedule 5.17.1 (including any supplement to Schedule
5.17.1 on account of any letter of credit or surety bond issued for the account
of Minerals or its Affiliates (including, prior to the Closing, the
Subsidiaries) and on behalf of any Subsidiary during the Interim Period) and
(ii) any Proceeding relating to or arising out of such letter of credit or
--
surety bond: provided, however, that neither Minerals nor its Affiliates shall
be entitled to indemnification under this Subsection 5.17.2 to the extent the
Liabilities in respect of such letter of credit or surety bond shall arise out
of or relate to the Excluded Assets or Excluded Liabilities or to an Unrelated
Business. Seller shall deliver written notice to Purchaser at least ten (10)
business days prior to the Closing (except with respect to any draw that shall
have occurred within ten (10) business days of Closing, in which case Seller
shall deliver written notice thereof as soon as practicable prior to Closing)
describing in reasonable detail the amounts due Minerals and its Affiliates
under this Subsection 5.17.2 as of the Closing Date, and Purchaser shall pay
such amount to Seller (on behalf of Minerals and its Affiliates) at Closing, to
an account designated by Seller in writing prior to the Closing, by wire
transfer of immediately available funds.
5.17.3 Refund of Premiums. All funds in respect of premiums that are
------------------
refunded by the issuer of any letter of credit or surety bond on ac count of the
replacement by Purchaser of such letter of credit or surety bond as provided by
clause (a) of Subsection 5.17.1 shall be for the account of Seller and its
Affiliates. Purchaser shall pay over or cause any Subsidiary to pay over to
Seller any such refunds received by any Subsidiary after the Closing promptly
upon receipt of such refunds by such Subsidiary.
5.17.4 Cooperation for Replacement of Bonds.
------------------------------------
(a) Following the Closing, the parties hereto shall cooperate
and cause their respective Affiliates to cooperate for the purpose of giving
effect to the replacement of the letters of credit and surety bonds contemplated
by this Section 5.17 and the full and complete release of Minerals' and its
Affiliates' liabilities with respect thereto. In furtherance thereof, each party
hereto shall (a) prepare and submit such documents and applications and provide
such information (including financial information) to financial institutions and
insurance companies as shall be necessary or appropriate, and (ii) cooperate
--
with such reasonable requests of the beneficiaries of all letters of credit and
surety bonds required to be replaced hereunder.
(b) The parties hereto acknowledge that some of the Scheduled
Bonds requiring replacement by Purchaser under Subsection 5.17.1 secure both
liabilities of the Subsidiaries that are not retained by Seller and, in
addition, liabilities in respect of the Excluded Assets and Excluded Liabilities
or other Liabilities retained by Seller under this Agreement, including certain
Workers' Compensation Liabilities, Black Lung Liabilities and Black Lung Benefit
Obligations retained by Seller under Subsection 5.12.2(k) hereof In such event,
the parties hereto further acknowledge that Minerals and its Affiliates may not
be released from their liability in respect of such Scheduled Bonds until both
Purchaser and Seller or their respective Affiliates deliver such credit support
instruments as are, in the aggregate, sufficient in the judgment of the
beneficiaries of such Scheduled Bonds to collateralize the obligations secured
thereby. Without limiting the generality of clause (a) of this Subsection
5.17.4, Purchaser and Seller hereby agree to
59
<PAGE>
cooperate with each other for the purpose of causing the replacement of such
Scheduled Bonds including, in the case of Seller, causing to be issued surety
bonds or other credit support instruments in respect of the Excluded Assets and
Excluded Liabilities or other Liabilities retained by Seller under this
Agreement, including certain Workers' Compensation Liabilities, Black Lung
Liabilities and Black Luna Benefit Obligations retained by Seller under
Subsection 5.12.2(k) hereof, in form and substance reasonably acceptable to the
beneficiaries of such Scheduled Bonds, in connection Purchaser's obligations to
post replacement surety bonds and letters of credit pursuant to Subsection
5.17.1 (a) hereof.
5.17.5 Third Party Beneficiaries. Minerals and all other Affiliates
-------------------------
of Seller are intended third party beneficiaries of this Section 5.17 and shall
have the right to enforce the benefits intended to be conferred upon each of
them under this Section 5.17 as though they were parties to this Agreement.
SECTION 5.18. Special Provisions Relating to Financial Matters.
------------------------------------------------
5.18.1 Close of Books and Records as of Balance Sheet Date. The
---------------------------------------------------
parties hereto agree that the Business shall be operated and conducted for the
account of Purchaser from and after April 1, 1998. In furtherance thereof,
Seller shall establish separate books and records for each Subsidiary and cause
such books and records to be maintained, commencing April 1, 1998 and ending on
the Closing Date (the "Cash Advance Period"), in accordance with Seller's
Accounting Principles. The parties hereto agree that all cash and cash
equivalents of the Subsidiaries (other than Yankeetown) as at the Balance Sheet
Date shall be for the account of and shall be retained by Seller. Purchaser and
Seller hereby agree that Seller shall have no Liability to Purchaser in
connection with the transactions contemplated hereby arising out of or resulting
from Seller's management of the operations and business of the Subsidiaries
during the Cash Advance Period except to the extent of Seller's willful
misconduct, and Purchaser hereby releases Seller from any Liability for such
management and agrees that it shall not institute any Proceeding against Seller
on account of such management of such operations and business.
5.18.2 Financial Reports. Within 25 days following the end of each
-----------------
monthly accounting period beginning with the monthly accounting period ending
April 30, 1998 (it being agreed that, with respect to any such monthly
accounting period ending prior to the execution of this Agreement, Seller shall
deliver to Purchaser the statements required by this Subsection 5.18.2 for such
month or months contemporaneously with the execution hereof provided such
monthly accounting period shall have ended 25 days prior to the execution
hereof), Seller shall deliver to Purchaser an unaudited financial report of the
Subsidiaries on a consolidated basis (excluding the Excluded Assets and Excluded
Liabilities), which report shall be prepared in accordance with Seller's
Accounting Principles and which shall include (i) a balance sheet as of the last
-
day of such monthly accounting period, (ii) an income statement for such monthly
--
accounting period and (iii) a statement showing the Net Cash Advance Balance for
---
such monthly accounting period.
5.18.3 Cash Advances. During the Cash Advance Period, all working
-------------
capital requirements of the Business shall be advanced by Seller or Minerals to
the Subsidiaries, as applicable, in the form of a cash advance (each, a "Cash
Advance" and, collectively, the "Cash Advances"). Seller shall continue to
manage the working capital requirements of the Subsidiaries
60
<PAGE>
and the cash balances maintained in Seller's, Minerals' and the Subsidiaries'
bank accounts in a manner consistent with Seller's past treasury practices and
procedures. In furtherance thereof, all receivables and other amounts received
by the Subsidiaries or by Seller or by Minerals on behalf of the Subsidiaries
(including cash deposited into any lockbox maintained by or on behalf of any
Subsidiary) shall be swept into Seller's main disbursement account and may be
used by Seller or Minerals to satisfy and discharge obligations of the
Subsidiaries, including the funding of any Cash Advance, as well as any
obligation of the Seller or applied in any other manner consistent with Seller's
past practices. The books and records of Seller or Minerals, as the case may be,
shall reflect the amount of all receivables received by Seller, Minerals or the
Subsidiaries during the Cash Advance Period and the amount of all Cash Advances
made by Seller or Minerals to or on behalf of the Subsidiaries during the Cash
Advance Period, and the net amount thereof (exclusive of any (i) receivable to
-
which Seller or its Affiliates (other than the Subsidiaries) shall be entitled
to retain in accordance with the provisions of this Agreement (including all
receivables in respect of the Excluded Assets and Excluded Liabilities) and (ii)
--
Cash Advance in respect of any Liability attributable to the Excluded Assets and
Excluded Liabilities) shall constitute the "Net Cash Advance Balance."
5.18.4 Certain Services Following the Balance Sheet Date. During
-------------------------------------------------
the Cash Advance Period, Seller and its Affiliates (other than the Subsidiaries)
shall continue to provide certain administrative and other support services to
and on behalf of the Subsidiaries consistent with past practices, including
services in respect of treasury management, accounting, maintenance and
administrative computer applications, insurance coverage and risk management,
organizational services and benefit plan administration, land administration,
capital and materials procurement, environmental and legal. All charges for such
services shall be allocated to the Subsidiaries as Cash Advances in a manner
consistent with Seller's past practices and recorded on the books and records of
Seller. Except as to the extent any such services are provided by Seller to
Purchaser after Closing pursuant to the Transition Services Agreement, Seller
and such Affiliates shall cease to provide such services to the Subsidiaries
following the Closing.
5.18.5 Cash at Closing. Contemporaneously with the Closing, Seller
---------------
shall deposit, by wire transfer of immediately available funds, an amount of
cash equal to $10,000,000.00 (such amount, the "Closing Deposit") into a bank
account designated in writing by Purchaser to Seller at least 2 business days
prior to the Closing. The Closing Deposit shall be recorded on the books and
records of Seller as a Cash Advance.
5.18.6 Post Closing Statement. Not later than 25 days following the
----------------------
Closing, Seller shall prepare and deliver to Purchaser an unaudited financial
report (the "Closing Statement") as of the Closing Date of the Subsidiaries on a
consolidated basis (excluding the Excluded Assets and Excluded Liabilities),
which report shall be prepared in accordance with Seller's Accounting Principles
and which shall include (i) a balance sheet, (ii) an income statement, and (iii)
- -- ---
a statement showing the Net Cash Advance Balance. The income statement referred
to in clause (ii) of this Subsection 5.18.6 shall be net of, and shall contain a
line item showing, the Federal and state income Taxes accruing on the pre-tax
earnings of the Subsidiaries during the Cash Advance Period, which Taxes shall
be equal to the product of 25% multiplied by the amount of such pre-tax
earnings. The aggregate amount of such income Tax accrual shall be charged to
the Subsidiaries as a Cash Advance and reflected on the books and records of
Seller. At the request of Seller. Purchaser shall
61
<PAGE>
cause the Subsidiaries at their expense to assist in the preparation of the
Closing Statement and, in furtherance thereof to perform such accounting closing
functions and procedures as shall be requested by Seller.
5.18.7 Cash Advance Adjustment, etc.
-----------------------------
(a) Determination of Net Cash Advance Balance as at the
----------------------------------------------------
Closing. Purchaser shall have 30 days following receipt of the Closing
- - -------
Statement to conduct a review of the Cash Advance statement contained therein.
Seller's determination of the Net Cash Advance Balance shall be conclusive and
binding on the parties hereto, absent manifest error (it being understood and
agreed that no Cash Advance in respect of the Excluded Assets or Excluded
Liabilities or relating to an Unrelated Business shall be included on the
Closing Statement). If Purchaser fails to raise an objection to the Net Cash
Advance Balance during such 30 days period, Purchaser shall be deemed to have
accepted the Net Cash Advance Balance as set forth in the Closing Statement. Any
objections to the Net Cash Advance Balance raised by Purchaser shall be resolved
in good faith by the parties hereto within 15 days of receipt of any timely
objection. Purchaser shall have no right to object to the methods, procedures
and principles used by Seller in determining or recording the Cash Advances. If
Seller and Purchaser cannot resolve Purchaser's objections within such 15 days
period, Seller and Purchaser shall, within 10 days following the expiration of
such 15 days period, select a mutually acceptable accounting firm to resolve
such objections. If Seller and Purchaser are unable to agree as to the selection
of such accounting firm before the expiration of such 10 days period, the
parties hereto irrevocably designate Deloitte & Touche as the accounting firm.
The selected accounting firm shall be retained jointly by Seller and Purchaser
on the condition, among other things, that it shall resolve Purchaser's
objections and provide a revised Closing Statement to Seller and Purchaser
within 30 days after its selection. The Closing Statement, as accepted by
Purchaser without objection or as revised by mutual agreement of the parties
hereto or by the accounting firm (in any such case, the "Final Closing
Statement"), shall be conclusive and binding on the parties hereto. Seller and
Purchaser shall each pay one-half of the fees and expenses of any accounting
firm retained pursuant to this Subsection 5.18.7. Purchaser shall make the
books, records and financial staff of the Subsidiaries available to Seller, its
accountants and other representatives at reasonable time and upon reasonable
request, in connection with the preparation of the Closing Statement. Each of
Seller and Purchaser shall make their books, records and financial staff, and
the books and records of the Subsidiaries, available to any accounting firm
engaged by them pursuant to this Subsection 5.18.7 for the purpose of resolving
any of Purchaser's objections to the Closing Statement.
(b) Adjustment. Promptly following the determination of the
----------
Net Cash Advance Balance, (i) if the Net Cash Advance Balance appearing on the
Final Closing Statement reflects an amount owing from Seller to the
Subsidiaries, the amount thereof shall be paid by Seller to Purchaser, and (ii)
--
if the Net Cash Advance Balance appearing on the Final Closing Statement
reflects an amount owing from the Subsidiaries to Seller, the amount thereof
(the "Deficit Amount") shall be paid by Purchaser to Seller, provided that,
solely with respect to the Deficit Amount payable by Purchaser to Seller, (x)
-
the Deficit Amount shall be paid by Purchaser in cash to the extent of the
aggregate amount of all cash and cash equivalents collected by the Subsidiaries
from and after the Closing up to the date of payment, and (y) to the extent the
-
Subsidiaries shall not have collected an amount of cash and cash equivalents
equal to the Deficit Amount, then, with respect to the balance thereof,
Purchaser shall cause to be transferred and assigned to Seller, pursuant to
documentation
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reasonably acceptable to Seller, account receivables from trade creditors of
such Subsidiaries reasonably acceptable to Seller in an amount at least equal to
such balance. Purchaser shall, and shall cause such Subsidiaries to, cooperate
with Seller and take such reasonable actions as shall be necessary or
appropriate to vest in Seller all right, title and interest in and to the
account receivables assigned to Seller pursuant to this Subsection 5.18.7 (and,
in the event any such account receivable may not be assigned and transferred to
Seller but for the consent of the debtor thereunder, which consent shall not
have been obtained. Purchaser shall cooperate with Seller and take such actions
reasonable with respect to such account receivable in the name of such
Subsidiary but for the benefit of Seller so as to provide Seller with the
economic benefits under such account receivable). Seller shall promptly return
to Purchaser the proceeds of such account receivables following receipt thereof
to the extent such proceeds exceed the balance owing to Seller hereunder.
(c) Immediately Available Funds. Any payment required to
---------------------------
be made by Purchaser or Seller pursuant to Subsection 5.18.7(b) shall be made by
wire transfer of immediately available funds to an account designated in writing
by Purchaser or Seller, as the case may be, to the other party hereto.
5.18.8 Assistance in Preparation of Exchange Act Filings. In order
-------------------------------------------------
to assist Seller in the preparation of all documents and reports required to be
filed by Seller or its Affiliates (other than the Subsidiaries) under the
Securities Act or Exchange Act with respect to any quarter ending on or prior to
the Closing Date or any quarter that would include but not end on the Closing
Date, Purchaser shall cause the Subsidiaries to prepare, at Seller's reasonable
expense, Seller's "standard C - packages" and other related data gathering
packages and to deliver such packages to Seller within the time frames required
by Seller in accordance with past practices. Purchaser will promptly provide or
cause to be provided to Seller, at Seller's reasonable expense, such other
information as Seller may request (including access to books, records and
personnel) in order for the operations of the Subsidiaries to be property
reported in such filings. Neither Purchaser nor any of the Subsidiaries shall
have any liability for the failure of any of the Subsidiaries to provide the
information or meet the time frames set forth in Subsection 5.18.8 provided
Purchaser or such Subsidiary is diligently proceeding to complete such packages.
5.18.9 Intercompany Balances as at the Closing. At or prior to the
---------------------------------------
Closing, Seller shall cause all intercompany balances as at the Closing Date and
existing between any Subsidiary and any of its Affiliates, including without
limitation intercompany balances in respect of any promissory note issued by any
Subsidiary to any of its Affiliates, to be settled such that the net amount
thereof shall be equal to $0.00.
SECTION 5.19. Insurance. The parties hereto agree that no insurance
---------
policy (other than performance and surety bonds, which are specifically governed
by Section 5.17 hereof) maintained by Seller and its Affiliates (other than the
Subsidiaries) with respect to the Business shall cover any of the Subsidiaries
or their respective assets, properties, operations and liabilities after the
Closing Date, and all benefits and coverage under each such insurance policy
shall terminate following the Closing Date. Following the Closing Date,
Purchaser shall be responsible for obtaining and maintaining any and all
insurance policies and coverages in respect of the Subsidiaries and their
respective assets, properties, operations and liabilities. The parties hereto
further agree that any and all refunds of premiums paid by Seller and its
Affiliates prior to the Closing Date under any
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insurance maintained by Seller and its Affiliates on behalf of any Subsidiary
shall be for the account of and retained by Seller.
SECTION 5.20. Liabilities of the Subsidiaries Generally. Purchaser
-----------------------------------------
hereby acknowledges and agrees that, except for the Distributed Liabilities, the
Assigned Liabilities, and such other Liabilities of the Subsidiaries that are
specifically assumed by Seller hereunder or as to which Seller has agreed to
indemnify Purchaser for, Seller shall have no obligation or liability for or
with respect to the Liabilities of the Subsidiaries and the Business, whether
accruing prior to, on or after the Closing, and Purchaser shall indemnify and
defend Seller for and hold Seller harmless from and against, and pay and
reimburse Seller for, all such Liabilities of the Subsidiaries and the Business
to the extent Seller or any of its Affiliates shall become liable therefor or
any party shall have alleged that Seller or any of its Affiliates is liable
therefor.
SECTION 5.21. Audit of Financial Statements. Prior to the Closing,
-----------------------------
Purchaser shall have engaged Price Waterhouse LLP to conduct an audit of certain
historical financial statements of the Subsidiaries, and such audit shall have
been completed prior to the Closing. Copies of such audits (and any draft
thereof) shall be delivered to Seller promptly following the completion of any
thereof. Seller shall make available to Purchaser and Price Waterhouse LLP such
books and records and cooperate with Purchaser as shall be reasonably requested
by Purchaser in connection with such audit. The costs and expenses of conducting
such audit shall be borne by Purchaser and Seller as mutually agreed in writing;
provided, however, that Seller shall have no liability for the costs and
expenses incurred by Price Waterhouse LLP in connection with conducting such
audit.
SECTION 5.22. Equipment Surety Bond. At the Closing, Purchaser shall
---------------------
deliver or cause to be delivered to Seller (or to such Affiliates of Seller that
are a party to the Equipment Sublease and the Equipment Purchase Agreements) a
surety bond, substantially in the form of Exhibit F hereto and from a surety or
financial institution reasonably acceptable to Seller, as collateral security
for Purchaser's or the Subsidiaries', as the case may be, obligations under the
Equipment Sublease and the Equipment Sale Agreements (the "Equipment Surety
Bond"). The Equipment Surety Bond shall be issued in the face amount equal to
$3,500,000 and shall permit Seller (or such Affiliates) to make draws thereunder
from time to time.
SECTION 5.23. Undertaking Not to Interfere With Mine Plans. Seller, for
--------------------------------------------
itself and its Affiliates, agrees that it will not, directly or indirectly, for
a period of 3 years after the Closing Date (i) acquire or enter into
-
negotiations for the acquisition of any interest in any land within a linear
distance of ten (10) miles from the boundary of any SMCRA Permit or application
for SMCRA Permit held or applied for by any Subsidiary as of the Closing Date
(the "Non-Interference Area"), and (ii) solicit Hoosier Rural Electric
--
Cooperative, Inc. ("Hoosier") to reopen that certain Coal Supply Agreement
between Amax Coal Sales Company and Hoosier dated March 28, 1991, as amended;
provided, however, that neither Seller nor its Affiliates shall be prohibited
from responding to any request for proposals issued or submitted by or at the
direction of Hoosier in connection with open bids for the supply of coal, and
such response shall not constitute a breach of the provisions of this Section
5.23. Notwithstanding anything to the contrary contained in this Section 5.23 ),
following the Closing Date, neither any purchaser of the equity interests or
assets of Seller or any of its Affiliates nor any Person with whom Seller or any
of its Affiliates shall merge or consolidate (regardless of whether Seller or
such Affiliate shall be the surviving entity) or enter into any joint
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venture, business combination or similar arrangement (and no joint venture
company or similar entity resulting therefrom) shall be bound by the provisions
of this Section 5.23 ).
SECTION 5.24. Permits. In the event that any of the Permits are not
-------
available for use by the Subsidiaries following the Closing of the transactions
contemplated hereby, Seller, Purchaser and the Subsidiaries shall cooperate in
any commercially reasonable arrangement designed to provide Purchaser or the
Subsidiaries, as the case may be, the benefits under such Permits until such
time as such Permit transfer or assignment has been completed, and Purchaser
hereby indemnifies and defends Seller and its Affiliates. for, and shall pay and
reimburse each of them for, any and all Losses each of them may suffer or incur
in connection with such arrangement. Not later than 30 days following the
Closing Date, Purchaser shall file all change of control notices (except to the
extent previously filed pursuant to Subsection 5.8.2 hereof) and all other
appropriate or required documentation with all appropriate Governmental
Authorities in connection with the transfer or reissuance of any Permit or the
replacement of the surety bonds and letters of credit as contemplated by Section
5.17 hereof.
SECTION 5.25. Administration of Accounts.
--------------------------
5.25.1 In Trust for Purchaser. All payments and reimbursements by
----------------------
any third party after the Closing Date in the name of or Seller to which any
Purchaser or any Subsidiary is entitled in accordance with the provisions of
this Agreement and the transactions contemplated hereby shall be held by Seller
in trust for the benefit of Purchaser and, within five (5) business days of
receipt by Seller of any such payment or reimbursement, Seller shall pay over to
Purchaser the amount of such payment or reimbursement without right of set off.
5.25.2 In Trust for Seller. All payments and reimbursements by any
-------------------
third party after the Closing Date in the name of or to Purchaser or any
Subsidiary to which Seller is entitled in accordance with the provisions of this
Agreement and the transactions contemplated hereby shall be held by Purchaser in
trust for the benefit of Seller and, within five (5) business days of receipt by
Purchaser or such Subsidiary of any such payment or reimbursement, Purchaser
shall pay over to Seller the amount of such payment or reimbursement without
right of set off.
ARTICLE VI
CONDITIONS PRECEDENT OF PURCHASER
---------------------------------
SECTION 6.1. Conditions Precedent. The obligations of Purchaser to
--------------------
consummate the transactions contemplated by this Agreement at the Closing to be
held pursuant to Article II herein shall be subject to the fulfillment, to its
reasonable satisfaction, on or prior to the Closing Date, of all of the
following conditions precedent:
6.1.1 Representations, Warranties and Obligations of Seller. The
-----------------------------------------------------
representations and warranties contained in Article III shall be true and
correct as of the date hereof, and except to the extent such representations and
warranties relate solely to an earlier date, as of the Closing Date as though
made on and as of the Closing date, provided, however, that if any such
representation and warranty is not qualified by a standard of materiality, such
representation and warranty need only be true and correct in all material
respects. Seller shall have duly performed and complied in all material
65
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respects with all agreements and covenants contained herein required to be
performed or complied with by it at or before the Closing.
6.1.2 Officer's Certificate. Seller shall have delivered to
---------------------
Purchaser a certificate, dated the Closing Date and signed by its President or a
Vice President, as to the fulfillment of the conditions set forth in Subsection
6.1.1.
6.1.3 Ancillary Agreements. Seller and the Subsidiaries shall have
--------------------
executed all Ancillary Agreements, stock powers or other instruments required to
be executed at or before Closing in connection with the transactions
contemplated hereby.
6.1.4 Material Adverse Change. Since the Balance Sheet Date, there
-----------------------
shall have been no change which has or has had a material adverse effect on the
financial condition, business, assets or results of operations of the
Subsidiaries, taken as a whole.
6.1.5 Consents. All material statutory requirements, authorizations,
--------
consents, orders or approvals from, filings with, or expirations of waiting
periods by any Governmental Authority required to be obtained to consummate the
transactions contemplated hereby and all consents of third parties listed on
Schedule 6.1.5 hereto (collectively, the "Consents") shall have been fulfilled,
filed, occurred or been obtained and delivered to the parties hereto, other than
such Consents which, if not obtained, are not reasonably expected to have a
Material Adverse Effect on the Subsidiaries.
6.1.6 No Injunction. There shall not be in effect any injunction or
-------------
other order or any statute, ruling or law issued by a court of competent
jurisdiction or Governmental Authority restraining, enjoining or prohibiting,
and no such action or Proceeding by any Governmental Authority or third Person
shall be pending before any court of competent jurisdiction or threatened in
writing to restrain, enjoin or prohibit the consummation of, or challenge the
validity or legality of, the transactions contemplated by this Agreement.
6.1.7 HSR Act. The waiting period under the HSR Act shall have
-------
expired or been terminated.
6.1.8 Disclosure Schedules. Purchaser shall have received and
--------------------
reviewed the updated Schedules referenced herein, and any updates or amendments
thereto, and the effect of any change to any Schedule delivered on the date
hereof, together with any matter disclosed in any Schedule not required to be
delivered on the date hereof but which is required to be delivered on or prior
to the Closing Date, shall not result in a Material Adverse Effect upon the
Subsidiaries.
6.1.9 Forms 8023. Seller shall have delivered an executed copy of
----------
IRS Form 8023). appropriately completed to extent practicable as of the Closing
Date, with respect to each Subsidiary referenced in Subsection 2.3.2(a) hereof.
6.1.10 Restructuring. The Restructuring shall have been completed in
-------------
all material respect's except for obtaining the consent of any Governmental
Authority to the transfer of the permits included in the Excluded Assets and
Excluded Liabilities.
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6.1.11 Board Approval. The transactions contemplated by this
--------------
Agreement shall have been approved by all necessary corporate action on the part
of Purchaser.
6.1.12 Financial Statements. Purchaser shall be satisfied, in its
--------------------
sole and absolute discretion, with the audited financial statements of the
Subsidiaries prepared by Price Waterhouse LLP as contemplated by Section 5.21
hereof.
SECTION 6.2. Waiver. Purchaser may waive in writing fulfillment of any
------
or all of the conditions set forth in Section 6.1 of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT OF SELLER
------------------------------
SECTION 7.1. Conditions Precedent. The obligations of Seller to
--------------------
consummate the transactions contemplated by this Agreement at the Closing to be
held pursuant to Article II herein shall be subject to the fulfillment, to its
reasonable satisfaction, on or prior to the Closing Date of all of the following
conditions precedent.
7.1.1 Representations, Warranties and Obligations of Purchaser. The
--------------------------------------------------------
representations and warranties contained in Article IV shall be true and correct
as of the date hereof and as of the Closing Date as through made on and as of
the Closing Date; provided, however, that if any such representation and
warranty is not qualified by a standard of materiality, such representation and
warranty need only be true and correct in all material respects. Purchaser shall
have duly performed and complied in all material respects with all agreements
contained herein required to be performed or complied with by it at or prior to
the Closing.
7.1.2 Officer's Certificate. Purchaser shall have delivered to
---------------------
Seller a certificate, dated the Closing Date and signed by a President or Vice
President, as to the fulfillment of the conditions set forth in Subsection
7.1.1.
7.1.3 Ancillary Agreement. Purchaser shall have executed all
-------------------
Ancillary Agreements, stock powers or other instruments required to be executed
at or before Closing in connection with the transactions contemplated hereby.
7.1.4 Consents. All Consents shall have been fulfilled, filed,
--------
occurred or been obtained and delivered to the parties hereto, other than such
Consents which, if not obtained, are not reasonably expected to have a Material
Adverse Effect on the Seller.
7.1.5 No Injunction. There shall not be in effect any injunction or
-------------
other order or any statute, ruling or law issued by a court of competent
jurisdiction or Governmental Authority restraining, enjoining or prohibiting,
and no such action or Proceeding by any Governmental Authority or third Person
shall be pending before any court of competent jurisdiction or threatened in
writing to restrain, enjoin or prohibit the consummation of, or challenge the
validity or legality of, the transactions contemplated by this Agreement.
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7.1.6 HSR Act. The waiting period under the HSR Act shall have
-------
expired or been terminated.
7.1.7 Restructuring. The Restructuring shall have been completed in
-------------
all material respects except for obtaining the consent of any Governmental
Authority to the transfer of the permits included in the Excluded Assets and
Excluded Liabilities.
7.1.8 Board Approval. The transactions contemplated by this
--------------
Agreement shall have been approved by all necessary corporate action on the part
of Seller.
7.1.9 Replacement Credit Support Instruments for Scheduled Bonds.
----------------------------------------------------------
Purchaser shall have delivered to Seller a letter of credit or surety bond, duly
executed by the financial institution that is the issuer thereof, in respect of,
and as replacement for, each Scheduled Bond, together with such filings,
transmittal letters, applications and other documents as shall be necessary or
as shall be reasonably requested by Seller in order to effect Mineral's and its
Affiliates' (including the Subsidiaries) release of their obligations with
respect to the Scheduled Bonds.
7.1.10 Forms 8023. Purchaser shall have delivered an executed copy
----------
of IRS Form 8023, appropriately completed to extent practicable as of the
Closing Date, with respect to each Subsidiary referenced in Subsection 2.3.2(a)
hereof.
7.1.11 Certain Bonds. Purchaser shall have delivered the Purchaser
-------------
Surety Bond and the Equipment Surety Bond.
SECTION 7.2. Waiver. Seller may waive in writing fulfillment of any or
------
all of the conditions set forth in Section 7.1 of this Agreement.
ARTICLE VIII
INDEMNIFICATION
---------------
SECTION 8.1 Indemnity by Seller. From and after the Closing, Seller
-------------------
agrees to indemnify, defend and hold harmless each of Purchaser, the
Subsidiaries and each of their Affiliates, and their respective directors,
officers, employees, agents and representatives (each of whom may be an
Indemnitee pursuant to this Section 8.1) (collectively, the "Purchaser
Indemnitees") from and against, and pay and reimburse each Such Purchaser
Indemnitee for, whether or not any of the following Losses arise out of any
Third Party Claim, the following:
8.1.1 Excluded Liabilities. Any and all Losses in respect of the
--------------------
Excluded Assets or Liabilities.
8.1.2 Third Party Claims. Any and all Third Party Claims which may
------------------
be asserted against any such Purchaser Indemnitee or which any such Purchaser
Indemnitee shall incur or suffer to the extent that such Third-Party Claims
arise out of, result from or relate to:
(a) any Excluded Assets or Excluded Liabilities; or
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(b) (i) any untrue, representation or breach of warranty of
Seller in this Agreement, or (ii) a default or breach of any covenant or
agreement made by Seller under this Agreement.
8.1.3 Breach of Representation, Warranty, Etc. Any and all Losses
---------------------------------------
which may be asserted against such Purchaser Indemnitee or which such Purchaser
Indemnitee. may incur or suffer and which arise out of, result from or relate
to:
(a) any untrue representation or breach of warranty of
Seller in this Agreement; or
(b) any default or breach of any covenant or agreement on
the part of Seller under this Agreement.
SECTION 8.2. Indemnity by Purchaser. From and after the Closing,
----------------------
Purchaser shall indemnify, defend and hold harmless Seller and its Affiliates
and their respective directors, officers, employees, agents and representatives
(each of whom may be an Indemnitee pursuant to this Section 8.2) (collectively,
the "Seller Indemnitees") from and against, and pay and reimburse each such
Seller Indemnitee for, whether or not any of the following Losses arise out of
any Third Party Claim, the following:
8.2.1 Certain Liabilities. Any and all Losses in respect of the
-------------------
matters specified on Schedule 8.2.1 hereof.
8.2.2 Third Party Claims. Any and all Third Party Claims which may
------------------
be asserted against any such Seller Indemnitee, or which any such Seller
Indemnitee shall incur or suffer to the extent that such Third Party Claims
arise out of, result from or relate to:
(a) any of the matters specified on Schedule 8.2.1 hereof;
or
(b) (i) any untrue representation or breach of warranty of
Purchaser in this Agreement, or (ii) a default or breach of any covenant or
agreement made by Purchaser in this Agreement.
8.2.3 Breach of Representation, Warranty, Etc. Any and all Losses
---------------------------------------
which may be asserted against any such Seller Indemnitee or which any such
Seller Indemnitee shall incur or suffer and which arise out of. result from or
relate to:
(a) any untrue representation or breach of warranty of
Purchaser in this Agreement; or
(b) any default or breach of any covenant or agreement on
the part of Purchaser under this Agreement.
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8.2.4 Post-Closing. Except as otherwise expressly assumed or
------------
retained by Seller hereunder, any and all Liabilities, Losses or Third Party
Claims relating to or arising out of the past, present or future operations of
the Business.
SECTION 8.3. Notification of Claims. In no case shall any Indemnitor
----------------------
under this Agreement be liable with respect to any Third Party Claim against any
Indemnitee unless the Indemnitee shall have delivered to the Indemnitor a Claim
Notice and the following conditions are satisfied:
8.3.1 Timely Delivery of Claim Notice. Except as provided in
-------------------------------
Subsections 8.3.2 or 8.3.3, no right to indemnification under this Article VIII
shall be available to an Indemnitee with respect to a Third Party Claim unless
the Indemnitee shall have delivered to the Indemnitor within the Notice Period a
notice describing in reasonable detail the facts giving rise to such Third Party
Claim (a "Claim Notice") and stating that the Indemnitee intends to seek
indemnification for such Third Party Claim from the Indemnitor pursuant to this
Article VIII.
8.3.2 Late Delivery of Claim Notice. If, in the case of a Third
-----------------------------
Party Claim, a Claim Notice is not given by the Indemnitee within the Notice
Period, the Indemnitee shall nevertheless be entitled to be indemnified under
this Article VIII except to the extent that the Indemnitor can establish that it
has been prejudiced by such time elapsed.
8.3.3 Paid or Settled Claims. If a Claim Notice is not given by
----------------------
the Indemnitee prior to the payment or settlement of a Third Party Claim, the
Indemnitee shall be entitled to be indemnified under this Article VIII only to
the extent that the Indemnitee can establish that the Indemnitor has not been
prejudiced by such payment or settlement.
SECTION 8.4. Defense of Claims. Upon receipt of a Claim Notice from an
-----------------
Indemnitee with respect to any Third Party Claim, the Indemnitor shall have the
right to assume and control the defense thereof (and any related settlement
negotiations) with counsel reasonably satisfactory to such Indemnitee and the
Indemnitee shall cooperate in all reasonable respects in such defense. The
Indemnitee shall have the right to employ separate counsel at such Indemnitee's
expense in any action or claim and to participate in the defense thereof;
provided, however, that the reasonable fees and expenses of counsel employed by
the Indemnitee shall be at the expense of the Indemnitor if such counsel is
retained pursuant to the following sentence or if the employment of such counsel
has been specifically authorized in writing by the Indemnitor. If the Indemnitor
does not notify the Indemnitee within 30 days after receipt of the Claim Notice
of its intention to assume the defense of such Third Party Claim, the Indemnitee
shall have the right to defend the claim with counsel of its choosing reasonably
satisfactory to the Indemnitor, subject to the right of the Indemnitor to assume
the defense of any claim at any time prior to settlement or final determination
thereof. Notwithstanding anything to the contrary contained in this Section 8.4,
(i) the Indemnitee shall have the right to employ separate counsel at its own
expense if there shall be available one or more defenses or one or more
counterclaims available to the Indemnitee which conflicts with one or more
defenses or one or more counterclaims available to the Indemnitor, and (:ii) the
Indemnitor shall not be entitled to control (but shall be entitled participate
at its own expense in the defense of), and the Indemnitee shall be entitled to
have sole control over, the defense or settlement of any Third Party Claim to
the extent such Third Party Claim seeks an order, injunction, non-monetary or
other
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equitable relief against the Indemnitee which, if successful, could result in a
material adverse effect upon the business, financial condition, results of
operations or assets of the Indemnitee. The Indemnitee shall send a written
notice to the Indemnitor of any proposed settlement of any claim, which
settlement the Indemnitor may reject, in its reasonable judgment, within thirty
(30) days of receipt of such notice. Failure to reject such notice within such
thirty (30) days period shall be deemed an acceptance of such notice. Purchaser
hereby agrees, on behalf of itself and, following the Closing, the Subsidiaries,
that Seller shall have the right to assume the defense of all items of
litigation included within the Excluded Assets and Excluded Liabilities, and
that counsels that have been retained to defend such items of litigation as of
the Closing Date (all of whom have been disclosed to Purchaser) are reasonably
acceptable to Purchaser.
SECTION 8.5. Access and Cooperation. After the Closing Date, Purchaser
----------------------
and Seller shall (a) each cooperate fully with the others as to all Third Party
Claims, shall make available to the others, as reasonably requested, all
information, records and documents relating to all Third-Party Claims and shall
preserve all such information, records and documents until the termination of
any Third-Party Claim, and (b) make available to the others, as reasonably
requested, personnel (including technical and scientific), agents and other
representatives who are responsible for preparing or maintaining information,
records or other documents, or who may have particular knowledge with respect to
any Third-Party Claim.
SECTION 8.6. Assessment of Claims. In the event that any of the Losses
--------------------
for which an Indemnitor is or is allegedly responsible pursuant to Sections 8.1
or 8.2 are recoverable or potentially recoverable against any third party at the
time when payment is due hereunder, following payment by the Indemnitor to the
Indemnitee for such Losses the Indemnitee shall assign any and all rights that
it may have to recover such Losses to the Indemnitor, or, if such rights are not
assignable under applicable law or otherwise, the Indemnitee shall attempt in
good faith to collect any and all Losses on account thereof from such third
party for the benefit of, and at the expense and direction of, the Indemnitor.
SECTION 8.7. Limits on Indemnification.
-------------------------
8.7.1 Limitations on Indemnification for Breach of Representations
------------------------------------------------------------
and Warranties. Purchaser Indemnitees shall not be entitled to seek payment
- - --------------
under Subsections 8.1.2(b)(i) and 8.1.3(a), and Seller Indemnitees shall not be
entitled to seek payment under Subsections 8.2.2(b)(i) and 8.2.3(a), in respect
of any specific indemnified Loss or Third- Party Claim arising from a breach of
a representation or warranty until such Loss or Third-Party Claim is equal to or
exceeds S100.000 (in either case, a "Substantial Loss" or a "Substantial Third-
Party Claim"), and not then until the aggregate total of such Substantial Losses
and Substantial Third-Party Claims under such Subsections 8.1.2(b)(i) and
8.1.3(a), or Subsections 8.2.2(b)(i) and 8.2.3(a), as applicable, exceed
S3,000,000, and then the Indemnitee(s) may seek payment and indemnity from the
Indemnitor only for such excess; provided, however, that neither the Purchaser
Indemnitees, with respect to Subsections 8.1.2(b)(i) and 8.1.3(a), nor the
Seller Indemnitees, with respect to Subsection 8.2.1(b)(i) and 8.2.3)(a), shall
be entitled to seek payment thereunder to extent the aggregate total of such
Substantial Losses and Substantial Third-Party Claims exceeds $50,000,000.
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8.7.2 No Limitations on Certain Indemnification Claims. Purchaser
------------------------------------------------
Indemnitees may seek payment and full and complete indemnity from Seller in
respect of any and all Losses or Third-Party Claims under Subsections 8.1.1,
8.1.2(a), 8.1.2(b)(ii) and 8.1.3(b), and the Seller Indemnitees may seek payment
and full, and complete indemnity from Purchaser in respect of any and all Losses
or Third-Party Claims under Subsections 8.2.1, 8.2.2(a), 8.2.2(b)(ii), 8.2.31(b)
and 8.2.4, and such indemnity shall not be subject to any dollar limitations or
cap.
SECTION 8.8. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties of the parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect thereafter,
regardless of any investigation made or to be made by or on behalf of any party
hereto, for a period of two (2) years following the Closing Date, except for the
representations and warranties (a) of Seller provided for (i) in Section 3.14,
which shall survive the Closing hereunder and continue in full force and effect
thereafter, regardless of any investigation made or to be made by or on behalf
of any party hereto, for a period ending sixty (60) days after the expiration of
the relevant statutes of limitations including any extension or waiver thereof
regarding the filing of Tax Returns and the payment of Taxes, and (ii) in
Sections 3.1, 3.2.1, 3.3, 3.4, 3.5 and 3.17, which shall survive the Closing
hereunder and continue in full force and effect thereafter, regardless of any
investigation made or to be made by or on behalf of any party hereto, without
end or termination, and (b) of Purchaser provided for in Sections 4.1, 4.2.1,
4.4 and 4.6, which shall survive the Closing hereunder and continue in full
force and effect thereafter, regardless of any investigation made or to be made
by or on behalf of any party hereto, without end or termination. Except as set
forth in this Section 8.8, after the end of such period, an Indemnitor's
obligation to an Indemnitee under this Article VIII with respect to such
representations and warranties shall expire except with respect to a matter set
forth in a Claim Notice theretofore delivered by an Indemnitee. It is further
agreed that each Purchaser Indemnitee's rights to indemnification set forth in
Subsections 8.1.1, 8.1.2(a), 8.1.2(b)(ii) and 8.1.3(b), and each Seller
Indemnitee's rights to indemnification set forth in Subsections 8.2.1, 8.2.2(a),
8.2.2(b)(ii), 8.2.3(b) and 8.2.4, shall remain in full force and effect
indefinitely.
SECTION 8.9. After-Tax Nature of Indemnity Payments. Any payment or
--------------------------------------
indemnity required to be made pursuant to Sections 8.1 or 8.2 hereof shall
include any amount necessary to hold the Indemnitee harmless on an after-tax
basis from all Taxes required to be paid with respect to the receipt of such
payment or indemnity (after taking into account any reduction in Taxes realized
by the Indemnitee as a result of the Loss giving rise to the payment or
indemnity). In determining the amount necessary to be added to any payment or
indemnity in order to accomplish the foregoing, the parties hereto agree (a) to
treat all Taxes required to be paid by, and all reductions in Tax realized by
any Indemnitee, as if such Indemnitee were subject to tax at the highest
marginal tax rates (for both federal and state, as determined on a combined
basis) applicable to such Indemnitee and (b) to treat any indemnification
payments made to Purchaser or any Subsidiary pursuant to this Agreement as an
adjustment to the Purchase Price, subject to any Final Determination with
respect to such payments, unless, subject to any Final Determination with
respect to such payments, either party or Purchaser receives a written opinion,
reasonably satisfactory in form and substance to the other party, of a law firm
with appropriate experience and expertise to the effect that it is not or is not
likely to be permissible to treat such payments in that manner on a federal,
state or local income tax return.
72
<PAGE>
SECTION 8.10. Third Party Beneficiaries. All Persons included with the
-------------------------
terms "Purchaser Indemnitees" and "Seller Indemnitees" are intended third party
beneficiaries of this Article VIII and shall have the right to enforce the
benefits intended to be conferred upon each them under this Article VIII as
though they were parties to this Agreement.
ARTICLE IX
TERMINATION
-----------
SECTION 9.1. Termination Events. Subject to the provisions of Section
------------------
9.2, this Agreement may, by written notice given at or prior to the Closing in
the manner hereinafter provided, be terminated and abandoned only as follows:
9.1.1 Breach. By either Purchaser or Seller, upon written notice, if
------
a material default or breach shall be made by the other, with respect to the due
and timely performance of any of the other party's respective covenants and
agreements contained herein, or with respect to the due compliance with any of
its respective representations and warranties contained in Article III or IV, as
applicable, and such default cannot be cured prior to Closing and has not been
waived;
9.1.2 Mutual Consent. By written mutual consent of Purchaser and
--------------
Seller; or
9.1.3 Closing. Without further action of the Parties, if the Closing
-------
shall not have occurred by close of business on June 30, 1998.
SECTION 9.2. Effect of Termination. In the event this Agreement is
---------------------
terminated pursuant to Section 9.1 herein, all further fights and obligations of
the Parties hereunder shall terminate (other than the obligations to keep
confidential information as provided in Subsection 5.2.2), and none of Purchaser
or Seller nor any of their Affiliates, nor any of the respective directors,
officers or employees shall have any liability to any of the others; it being
specifically agreed that if this Agreement is so terminated by any party because
one or more of the conditions or their respective obligations hereunder as set
forth in Articles VI and VII herein is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the rights
of the terminating party to pursue all legal remedies for breach of contract and
damages shall survive such termination and the breaching party shall be fully
liable for any and all damages, costs and expenses sustained or incurred by the
terminating party as a result of such breach.
SECTION 9.3. Fees and Expenses; Damages. Except as otherwise provided in
--------------------------
Section 9.2 herein, in the event this Agreement is terminated for any reason and
the Closing is not consummated each party shall be responsible for its own
costs, fees and expenses, including fees and expenses of its accountants,
investment advisers and counsel.
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1. Remedies, Exclusivity of Representations and Warranties;
--------------------------------------------------------
Relationship Between the Parties.
- - --------------------------------
73
<PAGE>
10.1.1 Remedies. The remedies expressly set forth in this Agreement
--------
following the Closing with respect to any breach of any representation or
warranty herein contained are the sole and exclusive remedies for any such
breach, and such remedies are intended to be non-cumulative with respect to, and
shall preclude the assertion by any party of, any other remedies which would
otherwise have been available in common law or by statute, except for any right
that may exist to seek redress for common law fraud.
10.1.2 Exclusivity of Representations and Warranties; Relationship
-----------------------------------------------------------
Between the Parties. It is the explicit intent and understanding of the parties
- - -------------------
hereto that none of the parties nor any of their respective affiliates,
representatives, advisors or agents is making any representation or warranty
whatsoever, oral or written, express or implied, other than those set forth in
this Agreement and the Ancillary Agreements and none of the parties is relying
on any statement, representation or warranty, oral or written, express or
implied, made by an other party or such other party's affiliates,
representatives, advisors or agents, except for the representations and
warranties expressly set forth in such Agreements. EXCEPT AS OTHERWISE
SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR
SUITABILITY AS TO ANY OF THE ASSETS OR LIABILITIES OF THE BUSINESS OR ANY
SUBSIDIARY AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT
IS UNDERSTOOD THAT PURCHASER TAKES THE ASSETS OF THE BUSINESS AND THE
SUBSIDIARIES "AS IS" AND "WHERE IS." Without limiting the generality of, and in
furtherance of, the immediately preceding sentences, Purchaser acknowledge that
Seller makes no representations or warranties to Purchaser regarding any
forecasts, projections, estimates, business plans or budgets heretofore
delivered to or made available to Purchaser or its affiliates, representatives,
advisors or agents in respect of future revenues, expenses or expenditures,
future results of operations (or any component thereof), future cash flows or
future financial condition (or any component thereof) of any Subsidiary. The
parties hereto agree that this is an arm's length transaction in which the
parties' undertakings and obligations are limited to the performance of their
obligations under this Agreement. Purchaser acknowledges that it is a
sophisticated investor, that it has undertaken, and that Seller has given
Purchaser such opportunities as it has requested to undertake a full
investigation of the Business (including the Subsidiaries' assets, contracts,
permits, licenses, coal reserve data and information, premises, properties,
facilities, books and records), and that it has only a contractual relationship
with Seller, based solely on the terms of this Agreement, and that there is no
special relationship of trust or reliance between Purchaser and Seller.
SECTION 10.2. Amendment. This Agreement shall not be amended or modified
---------
except by an agreement in writing duly executed by each of Purchaser and Seller.
SECTION 10.3. Entire Agreement. This Agreement, including the Exhibits
----------------
and Schedules hereto, contain all of the terms, conditions and representations
and warranties agreed upon by the parties relating to the subject matter of this
Agreement and supersede all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
respecting such subject matter.
SECTION 10.4. Notices. All notices, requests, demands and other
-------
communications made in connection with this Agreement shall be in writing and
shall be deemed to have been duly given
74
<PAGE>
(i) on the date of delivery, if personally delivered to the person identified
below, (ii) three (3) days after mailing if mailed by certified or registered
mail, postage prepaid, return receipt requested, (iii) one business day after
---
delivery to any overnight express courier service, and (iv) on the business day
--
of receipt if sent by facsimile or other customary means of telecommunication,
provided receipt thereof is orally confirmed and a copy thereof is sent in the
manner provided by clause (i) hereof, addressed as follows:
If to Purchaser:
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telephone: (606) 928-3433
Facsimile: (606) 928-0450
with a copy to:
Brown, Todd & Heyburn
2700 Lexington Financial Center
Lexington, Kentucky 40507
Attention: Paul E. Sullivan, Esq.
Telephone: (606) 231-0000
Facsimile: (606) 231-0011
If to Seller:
Cyprus Amax Coal Company
9100 East Mineral Circle
Englewood, Colorado 80155
Attention: President
Telephone: (303) 643-5846
Facsimile: (303) 643-5757
with a copy to:
Cyprus Amax Coal Company
9100 East Mineral Circle
Englewood, Colorado 80155
Attention: Greg A. Walker, Esq.
Telephone: (303) 643-5215
Facsimile: (303) 643-5181
and to:
75
<PAGE>
Steven C. Schnitzer, Esq.
Crowell & Moring LLP
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2595
Telephone: (202) 624-2500
Facsimile: (202) 628-5116
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided in this Section. Copies delivered to outside counsel shall
not constitute notice.
SECTION 10.5 Severability. If any provision of this Agreement is held to
------------
be unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to this Agreement to the
extent possible. In any event, all other provisions of this Agreement shall be
deemed valid and enforceable to the fullest extent possible.
SECTION 10.6. Waiver; Survival. Waiver of any term or condition of this
----------------
Agreement by either of the respective parties shall only be effective if in
writing and shall not be construed as a waiver of any subsequent breach or
failure of the same term or condition, or a waiver of any other term or
condition, of this Agreement. Except as otherwise specifically provided herein,
the rights and obligations of Purchaser and Seller contained herein shall
survive the Closing.
SECTION 10.7. Binding Effect; Assignment. No party to this Agreement may
--------------------------
assign or delegate, by operation of law or otherwise, all or any portion of its
rights, obligations or Liabilities under this Agreement without the prior
written consent of the other party to this Agreement, which it may withhold in
its absolute discretion; provided however that AEI Holding Company, Inc. may,
without the consent of Seller, assign all of its rights and delegate all of its
obligations hereunder to Coal Ventures, Inc., a Delaware corporation and the
owner of all of the issued and outstanding shares of capital stock of AEI
Holding Company, Inc. pursuant to an assignment and assumption reasonably
acceptable to Seller, whereupon Coal Ventures, Inc. shall be deemed to the
"Purchaser" hereunder for all purposes of this Agreement. This Agreement is
binding upon each party hereto, and upon each party's respective successors and
permitted assigns.
SECTION 10.8. No Third Party Beneficiaries. Except as otherwise provided
----------------------------
in Sections 5.12, 5.15 and 5.17 and Article VIII hereof, there are no third
party beneficiaries to this Agreement and nothing herein shall confer any rights
upon any person or entity who or which is not a party to this Agreement.
SECTION 10.9. Counterparts. This Agreement may be signed in any number
------------
of counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument, and all such counterparts together shall be
deemed to constitute an original and the same instrument.
SECTION 10.10. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the state of Delaware without giving
effect to the doctrine of conflict of laws.
76
<PAGE>
SECTION 10.11. Consent to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------
10.11.1 Consent to Jurisdiction.
-----------------------
(a) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Delaware State court or Federal court sitting in the State
of Delaware and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such Delaware State court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment of in any other manner provided by
law.
(b) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby in any Delaware State or Federal court.
Each of the parties hereto hereby irrevocably and unconditionally waives, to the
fullest extent permitted by law, the defense of any inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each of the parties hereto irrevocably consents to
service of process in the manner provided for notices in Section 10.4 hereof.
Notwithstanding the foregoing, each of the parties hereto shall have the right
to serve process in any other manner permitted by law.
10.11.2 Waiver of Punitive Damages and Jury Trial.
-----------------------------------------
(a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND
FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, CONSEQUENTIAL OR SIMILAR
DAMAGES IN ANY LAWSUIT, LITIGATION, ARBITRATION OR PROCEEDING ARISING OUT OF OR
RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (a)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
77
<PAGE>
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE WAIVERS SET FORTH IN CLAUSE (A) OF THIS
SECTION 10.11.2, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH
--
WAIVERS (III) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO
--- --
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
IN SUCH SECTION.
SECTION 10.12. Mutual Right of Setoff. In the event any party hereto
----------------------
Party") has admitted in writing an amount owing to the other party hereto (the
"Other Party") in connection with the transactions contemplated hereby and has
failed to pay such amount in accordance with this Agreement or has filed against
it a final, non-appealable judgment awarding money damages to the Other Party in
connection any Proceeding arising out of the transactions contemplated hereby
and has failed to pay such judgment in accordance with its terms, then the Other
Party may, upon 5 days written notice to the Defaulting Party, set off and
appropriate and apply any and all amounts then owing by the Other Party to the
Defaulting Party under this Agreement against and on account of such amount or
damages owing by the Defaulting Party. The rights granted to the Other Party
under this Section 10.12 shall be in addition to any other rights available to
the Other Party under this Agreement.
SECTION 10.13. Interpretation and Construction of this Agreement. The
-------------------------------------------------
definitions in this Agreement shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine or neuter form. The words
"include, "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The headings contained in this Agreement are
inserted for convenience only and shall not constitute a part hereof. All
references herein to Articles, Sections, (other than references to Sections of
the Code or other statute) and Subsections shall be deemed to be references to
Articles, Sections and Subsections of this Agreement unless the context shall
otherwise require. Unless the context shall otherwise require or provide, any
reference to any agreement or other instrument or statute or regulation is to
such agreement, instrument, statute or regulation as amended and supplemented
from time to time (and, in the case of a statute or regulation, to any successor
provision); provided, however, that no covenant herein shall be deemed to have
been breached because of a change in law or regulation issued subsequent to the
completion of the action or conduct which is the subject of the covenant. This
Agreement shall be construed in accordance with its fair meaning and shall not
be construed strictly against either party. References in this Agreement to any
Article shall include all Sections, Subsections, Paragraphs in such Article;
references in this Agreement to any Section shall include all Subsections and
Paragraphs in such Section; and references in this Agreement to any Subsection
shall include all Paragraphs in such Subsection.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed with legal and binding effect by their respective authorized
officers, in their individual capacity, as of the day and year first above
written.
78
<PAGE>
CYPRUS AMAX COAL COMPANY
By: /s/ Richard D. Mills
----------------------------------
Name: Richard D. Mills
Title: Senior VP, Development
AEI HOLDING COMPANY, INC.
By: /s/ Donald P. Brown
----------------------------------
Name: Donald P. Brown
Title: President
79
<PAGE>
Exhibit 2.4
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 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:
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
<PAGE>
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 condition 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 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
-2-
<PAGE>
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 Document 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 (an in any event within two (2)
business days after the public announcement of the terms of this Agreement) file
with the SEC and mail it 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 withdrawn, modified or amended as provided in
Section 6.09. The Company further represents the 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.
-3-
<PAGE>
(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(1) 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 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
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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 for 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"), 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 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.
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(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 consideration 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
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
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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
is such holder had exercised such Option immediately prior to Effective Time,
but only to the extent then vested and exercisable, provided that the
--------
determination of the exercisablility 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, such Dissenting 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.
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<PAGE>
(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 Partner, 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 he 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 from 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 he Paying Agent that such
tax has been paid or is not applicable. Promptly after he 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.
(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.
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<PAGE>
(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
--------------------------------------------
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
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<PAGE>
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 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
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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 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
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(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 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 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
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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 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;
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<PAGE>
(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 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.
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(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 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,
privilege, 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
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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 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 co-tenants, 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
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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 re 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 he extent applicable, any leased real
property), in each case, free and clear of all Liens.
(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 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 he
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 he 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.
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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 plans; (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 $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 $3,000,00); (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.
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(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 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
"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 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
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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 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.
----------------------
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 riot maintain or contribute to any welfare benefit plans
(as that term is defined in Section 3(l) 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
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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 ("MSA") 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) them are
no actions, suits or claims pending, other than routine claims for benefits, and
(iii) them 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, (H) the most recent determination
letter received 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 I 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 TV of
ERISA, (h) under section 302 of ERISA, (iii) under sections 412 and 4971 of the
Code, (iv) as a result of a failure
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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 TV 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.
(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 1 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 S 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
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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 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
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contaminated site list, including the national priority list under CERCLA, the
CERCLTS, 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 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 directors 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.
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(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 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 arc 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 1(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 or 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.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and wan-ant 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, 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
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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-ScotRodino 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 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 assumption
statements therein inaccurate in any material respect or that would cause the
commitment provisions 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 TV 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
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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 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:
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(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 or (i) additional Common Shares or other 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 term 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);
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<PAGE>
(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 practice;
(i) Take any action that, if taken after March 31, 1999 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 3 0, 1996, with Ralph P. 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 correction
with the sale process undertaken by the Company to identify a purchaser of the
Company that resulted in the execution of this Agreement;
(l) or 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
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<PAGE>
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 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
Purchases 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 Purchasees ability
to cause the Offer Financing Condition to be satisfied.
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<PAGE>
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 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
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<PAGE>
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 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 or 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 0 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 arrangement. 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 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
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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, a 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
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.
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<PAGE>
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 dare 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 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. ne
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<PAGE>
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 tent 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
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 Parents 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 (13) 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.
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<PAGE>
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
tern s 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 Restrictions; 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 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
fights 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
-37-
<PAGE>
Company's or Parent's assets and businesses as may be necessary to forestall
such in unction 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, (iii) 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
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);
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<PAGE>
(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 or 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 bold 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 9.01(t) 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.
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<PAGE>
(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 parry 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 herein) and the letter agreement dated March 62, 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
-40-
<PAGE>
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:
AE1 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, Kentucky 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.
Fax: 618-394-2518
Phone: 618-394-2406
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<PAGE>
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10072-4675
Attention: Glen E. Hess, P.C.
Fax: 212-446-4900
Phone: 212-446-4908
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 far 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.
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<PAGE>
ARTICLE X
DEFINITIONS
SECTION 10.0 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" 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 Share" have the meaning given thereto in
-------------------------------
the recitals hereof.
"Company" has the meaning given thereto in the first paragraph hereof.
-------
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<PAGE>
"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 Company, (ii) or any of the following officers of the Company:
Chand B. Vyas, Douglas Blackburn, Frank Barkofske and Brent Motchan, (iv) 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 an or prior to the date hereof
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<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" 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, casements, 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" as the meaning given thereto in the recitals hereof.
------
"Merger Consideration" has the meaning given thereto in Section 2.05
--------------------
hereof.
"Mining Permits" as the meaning given thereto in Section 4.14 hereof.
--------------
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<PAGE>
"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 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 Agents" 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.
-46-
<PAGE>
"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.
-------
"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 2.09(a)(1)
---------------
hereof.
"Standstill Agreement" has the meaning given thereto to in Section
--------------------
6.01 (k).
"Stockholder" each or any of Kinman Limited Partnership, Michael K.
-----------
Reilly, Chand B. Vyas, Roland E. Casati and John F. Manley, and such person
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 (S) 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.
-47-
<PAGE>
"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."
"Violation" has the meaning given them-to in Section 4.05(a) hereof.
---------
"Welfare Plans" has the meaning given thereto in Section 4.17(a)
-------------
hereof.
* * * *
-48-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its responsive officer thereunto duly authorized,
all as of the day and year first above written.
AEI RESOURCES, INC.
By:/s/ Don Brown
-----------------------------------
Name:
Title:
ZEIGLER ACQUISITION CORPORATION
By:/s/ Don Brown
-----------------------------------
Name:
Title:
ZEIGLER COAL HOLDING COMPANY
By:
-----------------------------------
Name:
Title:
-49-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its responsive officer thereunto duly authorized,
all as of the day and year first above written.
AEI RESOURCES, INC.
By:/s/ Don Brown
-----------------------------------
Name:
Title:
ZEIGLER ACQUISITION CORPORATION
By:/s/ Don Brown
-----------------------------------
Name:
Title:
ZEIGLER COAL HOLDING COMPANY
By:/s/ Illegible
-----------------------------------
Name:
Title: President & CEO
-50-
<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 (1) 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) 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 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
I-1
<PAGE>
forestall such injunction or order and to hold separate such assets and business
pending such divestiture; (ii) any proceeding brought by am administrative
agency or commission or _______ 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 I 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 Tight 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.
I-2
<PAGE>
INTRODUCTION
Reference is made to the Agreement and Plan of Merger Agreement (the
"Agreement"), dated as of August 3, 1998 among Zeigler Coal Holding Company, a
Delaware corporation (the "Company"), Coal Ventures, Inc., a Delaware
corporation ("Parent") and Zeigler Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Parent ("Purchaser"). Capitalized
terms used herein and not otherwise defined shall have the respective meanings
ascribed to such terms in the Agreement.
The following Schedules were prepared by the Company on August 3, 1998
based upon information reasonably available to the Company as of such date. The
following Schedules are subject in their entirety to revision and
supplementation following such date and at any time prior to the Closing. As
revised and supplemented, the following schedules are the "Disclosure Schedules"
referred to in the Agreement.
The Disclosure Schedules are qualified in their entirety by reference to
specific provisions of the Agreement, and are not intended to constitute, and
shall not be construed as constituting, representations or warranties of Seller
except as and to the extent provided in the Agreement. Inclusion of information
herein shall not be construed as an admission that such information is material
to the operations or financial condition of the Company or its Subsidiaries.
Matters reflected in the Disclosure Schedules may not necessarily be
limited to matters strictly required by the Agreement to be reflected in the
Disclosure Schedules. To the extent that any such additional matters are
included they are included for information purposes only. No inference should
be made that all matters of a similar nature are so included in the same or any
other Schedule.
Headings have been inserted on the sections of the Schedules for
convenience of reference only and shall not to any extent have the effect of
amending or changing the express description of the Schedules as set forth in
the Agreement. To the extent that any disclosure set forth in any particular
Schedule is applicable to the disclosure required by any other Schedule included
in the Disclosure Schedules, such disclosure shall for purposes of the Agreement
be deemed to be made on all relevant Schedules.
The information contained herein is in all events subject to the
Confidentiality Agreement.
<PAGE>
Ziegler Coal Holding Company
Agreement and Plan of Merger Schedules
Index
TAB SCHEDULE DESCRIPTION
- - --- --------------------
1 Significant Subsidiary Schedule
2 Developments Schedule
3 Owned Real Property Schedule
4 Personal Property Lease Schedule
5 Taxes Schedule
6 Litigation Schedule
7 Options Schedule
8 Contract Schedule
(i) Collective bargaining agreements & labor union contracts
(ii) Bonus, pension, profit sharing, retirement and deferred
compensation plans
(iii) Stock purchase, stock option, stock appreciation plans
(iv) Contract for employment > $250M
(v) Agreements placing liens on company's assets > $1 MM
(vi) Letters of credit and other guarantees > $1 MM
(vii) Coal sales agreements > $3 MM
(viii) Service & purchase contracts > $1 MM
(ix) Other sales contracts > $2 MM
(x) Tariff agreements & transportation agreements
(xi) Contracts limiting business engagements
(xii) Other Material Agreements
(xiii) Power and Energy Agreements
9 Intellectual Property Schedule
10 Mining Permits Schedule
11 Other Permits Schedule
12 Governmental Consents Schedule
13 Employee Benefits Schedule
14 Insurance Schedule
15 Legal Compliance Schedule
16 Environmental Compliance Schedule
17 Affiliated Transactions Schedule
18 Non-Mining Assets Schedule
19 Employee Arrangements Schedule
<PAGE>
Zeigler Coal Holding Company
Agreement and Plan of Merger Schedules
Non-Mining Assets Schedule
1. The Assets related to the business conducted by EnerZ Corporation, a
Delaware corporation, including the capital stock of such corporation.
2. The Assets related to the TEK-Coal Joint Venture ("Encoal") including
the Company's equity interest in such joint venture.
3. Any parcel or parcels of real property that are not directly used in
coal mining activities with a value not exceeding $2,million
individually or $10 million in the aggregate.
4. Phoenix Land Company is currently negotiating three transactions to
dispose of mined out properties at Old Ben Mine #24, Old Ben Mine #26
and La Myra (R&F) in return solely for the assumption of reclamation
liabilities. The aggregate liabilities to be assumed by the purchasers
is approximately of $5 million.
5. Phoenix Land Company is currently negotiating to sell 226 acres of
surface land located east of Evansville, Indiana. The anticipated
selling price is $2.0 to 2.3 million.
<PAGE>
Exhibit 2.6
STOCK PURCHASE AGREEMENT
------------------------
This is a Stock Purchase Agreement, dated September 2, 1998 (this
"Agreement"), among (i) West Virginia-Indiana Coal Holding Company, Inc., a
Delaware corporation ("Purchaser"); and (ii) Ronnie G. Dunnigan, Gary L. Barker,
the Gary Lynn Barker Trust, the Tawnya Ann Barker Trust, the Steffanie April
Francis Green Trust, the Samuel Aaron Francis Trust, Royce K. Traylor, Carl D.
Heldt, Jack C. Fowler, Daniel R. Rambo, David R. Adams and Harry W. Hearn
(collectively, the "Shareholders"), who are the Shareholders of Kindill Holding,
Inc. (the "Company").
RECITALS
--------
A. The Company is engaged in the business of mining coal in Indiana.
B. The Shareholders collectively own one hundred percent (100%) of the
issued and outstanding shares of the capital stock of the Company (the "Shares")
in the following amounts:
SHAREHOLDERS SHARES CURRENTLY OWNED
------------ ----------------------
Ronnie G. Dunnigan 3,984
Gary L. Barker 1,754
Gary Lynn Barker Trust 877
Tawnya Ann Barker Trust 877
Samuel Aaron Francis Trust 896
Steffanie April Francis Green Trust 896
Royce K. Traylor 143
Carl D. Heldt 143
Jack C. Fowler 143
Daniel R. Rambo 143
David R. Adams 72
Harry W. Hearn 72
C. The Shareholders wish to sell, and Purchaser wishes to purchase, all
of the pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall ha
-----------
following meanings:
<PAGE>
(a) "Affiliate" of any Person shall mean (i) a Person that, directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is controlled by a Person that controls, such Person; (ii) any trust or
estate in which such Person has a beneficial interest or as to which such Person
serves as a trustee or in another fiduciary capacity; and (iii) any spouse,
parent or lineal descendent of such Person. As used in this definition,
"control" shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies, whether through ownership of
securities, partnership or other ownership interests, by contract or otherwise.
(b) "Agent" shall mean Ronnie G. Dunnigan in his capacity as agent for
the Shareholders as provided in Section 12. 1 (c).
(c) "Approval" shall mean each and every authorization , approval,
consent, license, filing and registration by, with or from any nation or state
or other political subdivision thereof or by or with any regulatory or
governmental authority of any nation or state or other political subdivision
thereof or by or with any regulatory or governmental authority of any nation or
state or other political subdivision thereof or international organization, self
regulatory organization or stock exchange, necessary to authorize or permit the
execution, delivery or performance of this Agreement or any other document
contemplated hereby or for the validity enforceability hereof or thereof.
(d) "AWW" shall have the meaning given in Section 3.6
(e) "Bassco Option" shall mean the option held by Bassco Valley, LLC
to purchase unissued shares of the common stock of the Company representing
Fifty-Eight and One Tenth percent (58. 1 %) of the outstanding shares of common
stock of the Company on a fully diluted basis currently held by the
Shareholders.
(f) "Bonds" shall have the meaning given in Section 3.34(b).
(g) "Business Days" shall have the meaning given in Section 1.3(i).
(h) "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation & Liability Act, 42 USC (S)(S) 9601, et seg. and "CERCLIS" shall
------
mean the Comprehensive Environmental Response, Compensation and Liability
Information System.
(i) "Charges" shall have the meaning given in Section 3.3.
(j) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(k) "Closing Date" shall have the meaning given in Section 7.8
(l) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(m) "Controlled Group Liability" shall mean any and all liabilities
(i) under Title IV or ERISA, (ii) under Section 302 of ERISA, (iii) under
Sections 412 and 4971 of the Code, (iv)
2
<PAGE>
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, and (v) under
corresponding or similar provisions of foreign laws or regulations, other than
such liabilities that arise solely out of, or relate solely to, the Employee
Benefit Plans.
(n) "Employee Benefit Plan" shall mean any employee benefit plan,
program, policy, practices or other arrangement providing benefits to any
current or former employee, officer or director of the Company or the Subsidiary
or any beneficiary or dependent thereof that is sponsored or maintained by the
Company or the Subsidiary or to which the Company or the Subsidiary contributes
or is obligated to contribute, whether or not written, including, without
limitation, any employee welfare benefit plan within the meaning of Section 3(l)
of ERISA, any employee pension benefit plan within the meaning of Section 3(2)
of ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, program or
agreement, and "Employee Benefit Plans" means all such plans, programs,
policies, practices and arrangements, collectively.
(o) "Environmental, Mining and Safety Requirements" shall mean all
federal, state and local statutes, regulations, ordinances, permits, judicial
and administrative orders and determinations, and similar provisions having the
force and effect of law, all contractual obligations 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 clean-up of any Hazardous Substances, Oils,
Pollutants or Contaminants (as such terms are defined in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5) and any
mining wastes or byproducts.
(p) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and all regulations promulgated thereunder as in effect from
time to time.
(q) "ERISA Affiliates," with respect to any entity, trade or business
that is a member of a group described in Section 414(b), (c), (in) or (o) of the
Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or
business or that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
(r) "Financial Statements" shall have the meaning given in Section
3.7(a), copies of the Financial Statements being attached hereto as Annex
1.1(p).
(s) "GAAP" shall mean generally accepted accounting principles in
effect from time to time.
(t) "Hayman Agreement" shall mean that certain Stock Purchase
Agreement dated September 2, 1998, between Hayman Holdings, Inc. and Purchaser
pursuant to which
3
<PAGE>
Purchaser shall acquire all the outstanding capital stock of Hayman Holdings,
Inc. and thereby acquire the Bassco Option.
(u) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the regulations and Pre-merger Notification and Report Form
promulgated thereunder.
(v) "Instrument" shall mean any written agreement, contract,
arrangement, mortgage, indenture, obligation or commitment.
(w) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith; copyrights;
pending or issued registrations for any of the foregoing; patents and patent
applications; unpatented inventions; trade secrets and other confidential or
proprietary information, computer programs, processes, formulas and methods; and
all other intangible property rights of any kind.
(x) "IRS" shall mean the Internal Revenue Service.
(y) "Kindill Mining" shall mean Kindill Mining, Inc. an Indiana
corporation.
(z) "Kindill Permits" shall have the meaning given in Section
3.34(a).
(aa) "Leased Real Property" shall have the meaning given in Section
3.27(a).
(bb) "Leased Tangible Assets" shall have the meaning given in Section
3.12(b).
(cc) "Liabilities" (whether or not capitalized) shall mean all
accounts payable, notes payable, liabilities, commitments, indebtedness or
obligations of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, of the Company, or to which any property or assets of the
Company are subject.
(dd) "Licenses" shall have the meaning given in Section 3. 11.
(ee) "Loss" shall have the meaning given in Section 10-2.
(ff) "Material" (whether or not capitalized) shall include any matter
which might influence Purchaser's decision to consummate the transactions
contemplated herein.
(gg) "Material Adverse Effect" shall mean an effect, event, occurrence
or state of facts that, individually or when aggregated with other effects,
events, occurrences or states of facts, is materially adverse to (i) the assets,
business, property, results of operations, condition (financial or otherwise) or
prospects of the specified entity and its subsidiaries taken as a whole, (ii)
the ability of the specified entity to perform its obligations under this
Agreement or any of the Other Documents, or (iii) the validity or enforceability
of this Agreement or any of the Other Documents or, when used with respect to
the Company, the material rights or remedies of Purchaser thereunder (in any
capacity).
4
<PAGE>
(hh) "Mid-Year Balance Sheet" shall have the meaning given in Section
3.7(a).
(ii) "Multi-employer Plan" shall mean any "multi-employer plan" within
the meaning of Section 4001(a)(3) of ERISA.
(jj) "Notices" shall have the meaning given in Section 12.1.
(kk) "Other Documents" shall mean the Royalty Termination Agreement
and all other agreements, certificates, opinions, Instruments or documents
contemplated by, required by or referred to in, this Agreement for the
consummation of the transactions contemplated hereby.
(ll) "Owned Real Property" shall have the meaning given in Section
3.27(b).
(mm) "Owned Tangible Assets" shall have the meaning given in Section
3.12(a).
(nn) "Permitted Charges" shall mean (i) Charges for taxes and
assessments or governmental charges not yet due or which are being contested in
good faith and by appropriate proceedings and for which adequate reserves have
been established and which are accurately reflected in the Financial Statements;
(ii) Charges in favor of landlords, carriers, warehousemen, mechanics, workmen
and materialmen and construction or similar liens arising by operation of law or
incurred in the ordinary course of business for sums not yet due or that are
being contested in good faith and for which adequate reserves have been
established and which are accurately reflected in the Financial Statements;
(iii) Charges in respect of pledges or deposits under worker's compensation laws
or similar legislation, unemployment insurance or other types of social security
or to secure the performance of tenders, statutory obligations, surety and
special Bonds, bids, leases, government contracts, performance and return of
money Bonds and similar obligations, each of which is accurately reflected in
the Financial Statements; (iv) Charges reflected in the Financial Statements;
(v) Charges to be discharged at or prior to Closing; (vi) rights reserved to or
vested in any governmental authority to control or regulate any Real Property or
interests therein in any manner, and all laws of any governmental authority;
(vii) Charges related to the Debt Instruments; and (viii) with respect to real
property used or held for mining purposes, easements, rights-of-way and other
Charges typically found on real property used for mining purposes, which Charges
do not materially impair mining operations conducted on, under or upon any
parcel or parcels of such Real Property.
(oo) "Permits" shall have the meaning given in Section 3.34(a).
(pp) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(qq) "Plan" shall mean any Employee Benefit Plan other than a Multi
employer Plan.
(rr) "Purchase Price" shall have the meaning given in Section 2.2.
(ss) "Qualified Plans" shall have the meaning given in Section
3.21(c).
5
<PAGE>
(tt) "Real Property" shall mean the Owned Real Property and the
Leased Real Property, collectively.
(uu) "Related Party Transactions" shall have the meaning given in
Section 3.29(a).
(vv) "Return" shall mean any tax return, statement, report or form
(including) estimated tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to Taxes.
(ww) "Rules" shall have the meaning given in Section 11.4.
(xx) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
(yy) "Shareholders' knowledge" shall have the meaning given in
Section 12.7.
(zz) "SMCRA" shall mean the Surface Mining Control and Reclamation
Act of 1977, as amended.
(aaa) "Subsidiary" shall mean Kindill Mining and AWW, collectively.
(bbb) "Tax" or "Taxes" shall mean any income, alternative or add-on,
ad valorem, transfer, withholding, franchise, profits, license, payroll,
employment, excise, severance, stamp, occupation, premium, property, land value
increment, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever
imposed on the Company or its Subsidiary and together with any interest or any
penalty, addition to tax or additional amount imposed with respect to any
interest or any penalty, addition to tax or additional amount imposed with
respect to any of the foregoing taxes by any Taxing Authority.
(ccc) "Taxing Authority" shall mean any U.S. federal, state, local or
foreign governmental authority responsible for the imposition of any relevant
Tax.
(ddd) "Royalty Termination Agreement" shall mean the agreement among
the Company, Kindill Mining, Power Equity Sales, LLC and Sam Francis, dated
September 2, 1998, terminating the Exclusive Sales Agreement, dated October 1,
1997, among the Company, Kindill Mining and Power Equity Sales, LLC!, attached
hereto as Annex 1.1 (ddd).
(eee) "Withdrawal Liability" shall mean liability to a Multi-employer
Plan as a result of a complete or partial withdrawal from such Multi-employer
Plan.
1.2 Additional Terms. Other capitalized terms used in this Agreement but
----------------
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.
6
<PAGE>
1.3 Rules of Interpretation.
-----------------------
(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) Except as otherwise defined herein, accounting terms have the
meanings assigned to them by generally accepted accounting principles, as
applied by the accounting entity to which they refer.
(e) The words "include," "includes" and "including" are not limiting.
(f) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(g) References to any document, Instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, Instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, Instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(h) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(g) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Kentucky.
(h) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser and the Shareholders.
Accordingly, this Agreement and the Other Documents shall be deemed to be the
product of all parties thereto, and no ambiguity shall be construed in favor of
or against any party.
ARTICLE 2
PURCHASE AND SALE
-----------------
2.1 PURCHASE OF THE SHARES. Subject to the terms and conditions of this
Agreement, the Shareholders hereby agree to sell, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase, the Shares.
7
<PAGE>
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Shares shall be Three Million Eight Hundred Eight Thousand Four Hundred Twenty-
Five Dollars ($3,808,425.00), which shall be paid to the Shareholders by wire
transfer of immediately available funds.
2.3 Allocation of Purchase Price. The Shareholders agree to allocate the
----------------------------
Purchase Price with respect to the Shares among themselves as provided in
Schedule 2.3 attached hereto. The parties agree to file any and all applicable
- - ------------
Tax Returns and other required tax schedules in accordance with such allocation
and Code Section 1060 and will not adopt or otherwise assert tax positions
inconsistent therewith. The parties each shall prepare and file completed Form
8594 for the taxable year in which the Closing takes place, which form shall be
consistent with the requirements set forth in this Section 2.3.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
The Shareholders, jointly and severally, represent and warrant to Purchaser
that to the best of the knowledge of each of the Shareholders (except with
respect to the representations and warranties contained in Sections 3.1, 3.2,
3.3, 3.4, 3.5 and 3.6, which shall not be qualified with respect to the
knowledge of any Shareholder) as of the date hereof and as of the Closing Date:
3.1 Organization, Power, Authority, Etc.
-----------------------------------
(a) The Company is validly organized and existing and in good standing
under the laws of the Commonwealth of Kentucky and the Subsidiary is validly
organized and existing and in good standing under the laws of the State of
Indiana. Each of the Company and the Subsidiary is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction where the
nature of its business makes such qualification necessary except for such
failures to be so qualified as would not, individually or in the aggregate, have
a Material Adverse Effect on the Company, and it has full corporate power and
authority to own and hold under lease its property and to conduct its business
substantially as presently conducted by it, except for such failures to have
power and authority as could not reasonably be expected to have a Material
Adverse Effect on the Company. Schedule 3.01 lists the jurisdictions in which
-------------
each of the Company and the Subsidiary is qualified to do business.
(b) The corporate minute books of the Company and the Subsidiary
correctly reflect all corporate actions taken by the Company's and the
Subsidiary's directors and shareholders, and correctly record all resolutions
adopted by them. All corporate actions required of the Company and the
Subsidiary have been taken, and all reports or returns required to be filed by
the Company and the Subsidiary have been filed. Each of the Company and the
Subsidiary has full power and authority to enter into and perform its
obligations under this Agreement and each Other Document.
8
<PAGE>
3.2 Due Authorization.
-----------------
(a) The Shareholders have full right, power, authority, and capacity
to execute and deliver this Agreement and the Other Documents, and to perform
their respective obligations under this Agreement and the Other Documents.
(b) Except as set forth on Schedule 3.2, the execution, delivery and
------------
performance by the Company and the Subsidiary of this Agreement and each of the
Other Documents, as the case may be, including each of the transactions
contemplated hereby and thereby: (1) have been duly authorized by all necessary
proceedings on the part of the Company and the Subsidiary, as the case may be;
(2) do not require any Approval which has not been obtained or will not be
obtained prior to the Closing Date; (3) will not conflict with or result in any
violation of, any provision of the certificate of incorporation and by-laws (or
any equivalent organizational documents) of the Company or the Subsidiary, as
the case may be; (4) do not and will not conflict with any provision of any
Material Instrument of the Company or the Subsidiary or any present law or
governmental. regulation applicable to the Company or the Subsidiary, or their
assets, properties or operations or any court decree or order applicable to the
Company or the Subsidiary, or their assets, properties or operations; (5) do not
and will not result in or require the creation or imposition of any Charges on
any of the properties of the Company or the Subsidiary; and (6) do not require
any notices, filings or authorizations to be given, filed or obtained from any
governmental authority other than notices required under the HSR Act.
3.3 Title to Stock. The Shareholders have, and at the Closing will have,
--------------
good and marketable (legal and beneficial) title to the Shares, free and clear
of all liens, pledges, proxies, voting trusts, licenses, security interests,
easements, rights-of-way, use restrictions, options, title defects, mortgages,
claims, charges, restrictions or encumbrances of any kind or nature whatsoever
(collectively, "Charges"), and there are no outstanding purchase agreements,
options (other than the Bassco Option), warrants or other rights of any kind
whatsoever entitling any Person to purchase or acquire an interest in any of the
Shares or restricting their transfer in accordance with this Agreement. Each
Shareholder owns of record and beneficially the Shares set forth by his name in
Recital B. Upon delivery of the certificates representing the Shares, and upon
receipt of the Purchase Price, good and valid title to the Shares will pass to
Purchaser, free and clear of all Charges.
3.4 Validity, Etc. Assuming due execution as necessary by Purchaser, this
-------------
Agreement and each Other Document executed by the Shareholders, the Company or
the Subsidiary in accordance herewith constitutes the legal, valid and binding
obligations of each such Person executing such document enforceable in
accordance with its respective terms.
3.5 Capitalization of the Company.
-----------------------------
(a) As of the date hereof, the authorized capital stock of the Company
consists of thirty thousand (30,000) shares of common stock, par value ten cents
(10c) per share. There are no outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any capital stock of the Company,
(B) warrants, rights or options to subscribe for or purchase from the Company
any capital stock or any such convertible or exchangeable securities or
obligations, except
9
<PAGE>
for the Bassco Option, or (C) obligations of the Company to issue such shares,
any such convertible or exchangeable securities or obligations, or any such
warrants, rights or options. No person has preemptive or similar rights with
respect to the securities of the Company. There are no obligations of the
Company or the Subsidiary to vote or to repurchase, redeem or otherwise acquire,
or to register under the Securities Act, any shares of capital stock of the
Company or the Subsidiary.
(b) Except as set forth on Schedule 3.5, all of the outstanding
capital stock of the Company has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Shareholders, free and clear of
any Charges of any kind, there are no rights granted to or in favor of any third
party, other than the Company, to acquire any such capital stock, any additional
capital stock or any other securities of the Company (including securities
convertible into or exchangeable for capital stock), and there exists no
restriction on the payment of cash dividends by the Company.
3.6 Subsidiaries. Kindill Mining is the only direct subsidiary of the
------------
Company. Kindill Mining owns one-half of the issued and outstanding capital
stock of AWW. The other one-half interest in AWW is owned by Norfolk Southern
Railway Company, which operates and manages AWW. All of the issued and
outstanding capital stock of Kindill Mining has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company free and
clear of any Charges of any kind. All of the issued and outstanding capital
stock of AWW has been duly authorized and validly issued, is fully paid and non-
assessable and the shares of AWW which are owned by Kindill Mining are free and
clear of any Charges of any kind. There are no rights granted to or in favor of
any third party, other than the Company, to acquire any such capital stock, any
additional capital stock or any other securities in the Subsidiary (including
securities convertible into or exchangeable for capital stock), and there exists
no restriction on the payment of cash dividends by the Subsidiary. Except for
the Company's interest in Kindill Mining and Kindill Mining's interest in AWW,
neither the Company nor Kindill Mining or AWW owns or controls, directly or
indirectly, any capital stock of any other corporation or any interest in any
other Person.
3.7 Financial Statements.
--------------------
(a) The audited consolidated balance sheets of the Company as of
December 31, 1997 and 1996 and the related combined statements of operations and
cash flow of the Company for the years. then ended, and the unaudited combined
balance sheet of the Company as of June 30, 1998 (the "Mid-Year Balance Sheet")
and the statements of operations and cash flow of the Company for the six months
then ended are set forth as Annex 3.7, said unaudited statements being without
footnotes (all of such balance sheets and related statements, collectively, the
"Financial Statements"). The Financial Statements: (i) were prepared: (x) from
and in accordance with the books and records of the Company and the Subsidiary
and (y) in accordance with GAAP, consistently applied; and (ii) fairly present
the financial condition, results of operations and cash flows of the Company and
the Subsidiary at the dates and for the period to which they relate, subject, in
the case of unaudited statements, to normal year-end audit adjustments
(consisting only of normal recurring accruals).
(b) The Company was incorporated on April 25, 1997.
10
<PAGE>
(c) The reserves for future costs associated with workers'
compensation, Black Lung and unemployment compensation as stated in the
Financial Statements and in the books, records and Financial Statements of the
Company are fair and reasonable and in accordance with GAAP and the appropriate
financial accounting standards. The Company has accrued its and the
Subsidiary's obligations for retiree medical benefits in accordance with
Statement of Financial Accounting Standards No. 106.
3.8 Contingent Liabilities. Except for the guarantee of indebtedness of
----------------------
Western Leasing, Inc. to Senstar Capital Corporation, the Company and the
Subsidiary do not have any Material liabilities other than (i) as set forth on
the Financial Statements, (ii) as reflected in, reserved against or otherwise
disclosed in the Mid-Year Balance Sheet or the notes thereto, and (iii)
Liabilities and obligations which would not individually or in the aggregate
have a Material Adverse Effect on the Company.
3.9 Approvals. Except as set forth on Schedule 3.9 of the Disclosure
--------- ------------
Schedule, no approval is required to be obtained by the Company or the
Subsidiary for the consummation of the transactions contemplated by this
Agreement.
3.10 No Existing Violation, Default, Etc. Neither the Company nor the
-----------------------------------
Subsidiary is, or upon consummation of the transactions contemplated hereby will
be, in violation of (a) its certificate of incorporation, by-laws or other
organization documents, (b) except as set forth in Schedule 3.10, any applicable
-------------
law, rule, restriction, order, judgment, decree, ordinance, rule or regulation
of any governmental entity or administrative body, which violation has or could
reasonably be expected to have a Material Adverse Effect on the Company, or (c)
except as set forth in Schedule 3.10 any order, decree or judgment of any court
-------------
or governmental agency or body having jurisdiction over the Company or the
Subsidiary, which violation has or could reasonably be expected to have a
Material Adverse Effect on the Company. Except as disclosed in Schedule 3.10, no
-------------
breach or event of default or event that, with the giving of notice or the lapse
of time or both, would constitute a breach or event of default exists or, upon
the consummation by the Company of the transactions contemplated by this
Agreement, will exist under any Instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary is bound or to
which any of the properties, assets or operations of the Company or the
Subsidiary is subject, which breach or event of default, or event that, but for
the giving of notice or the lapse of time or both, would constitute a breach or
event of default, has or could reasonably be expected to have a Material Adverse
Effect on the Company.
3.11 Licenses, Etc. The Company and the Subsidiary hold, own and possess
-------------
all Material governmental, regulatory and other filings, licenses, Approvals,
registrations, Permits, consents, franchises and concessions (collectively,
"Licenses") necessary for the ownership of the property and conduct of the
businesses of the Company and the Subsidiary, as now conducted. Such Licenses
are held without any infringement upon rights of other Persons, any violation of
law or regulation or any breach of a contractual or other obligation except for
such infringements, violations or breaches as could not reasonably be expected
to have a Material Adverse Effect on the Company. None of such Licenses is being
or has been challenged or revoked and no statement of intention to challenge,
revoke or fail to renew any such License has been received by the Company or the
Subsidiary. The Company and the Subsidiary are in compliance with their
respective obligations under such Licenses,
11
<PAGE>
with such exceptions as individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect on the Company, and no event has
occurred that allows or, after notice or lapse of time or both, would allow
revocation, suspension, limitation or termination of such Licenses, except such
events as could not reasonably be expected to have a Material Adverse Effect on
the Company.
3.12 Tangible Personal Property.
--------------------------
(a) Schedule 3.12(a) sets forth a true and complete list of all the
----------------
principal items of machinery, equipment, vehicles, and other tangible personal
property now owned by the Company or the Subsidiary in their business (the
"Owned Tangible Assets"). Except as set forth on Schedule 3.12(a), as of the
----------------
Closing Date and immediately following the consummation of the transactions at
Closing, the Company, or the Subsidiary as applicable, will have good and
marketable title to all of its fixed assets, operating assets and other tangible
personal property including, without limitation, its Owned Tangible Assets, free
and clear of all Charges. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, will not result
in the creation of any Charge on any of the Owned Tangible Assets. The Owned
Tangible Assets shall be in good working order on the Closing Date, except for
normal wear and tear and deterioration associated with the operation of such
assets in the ordinary course of the Company's or the Subsidiary's business, and
are suitable for the purposes for which they are presently used.
(b) Schedule 3.12(b) sets forth a true and complete list of all the
----------------
principal items of machinery, equipment, vehicles, and other tangible personal
property now leased by each Company in its business, together with a brief
description of the principal terms of each lease (the "Leased Tangible Assets").
Except as set forth on Schedule 3.12(b), as of the Closing Date and immediately
----------------
following the consummation of the transactions at Closing, the Company, or the
Subsidiary as applicable, will have good and transferable leasehold interests in
all of its Leased Tangible Assets, in each case under valid leases enforceable
against the lessors thereunder. The execution and delivery of this Agreement,
and the consummation of the transactions contemplated by this Agreement, will
not result in the creation of any Charge on any of the Leased Tangible Assets or
result in any default under or violation of any applicable lease agreement. The
Leased Tangible Assets shall be in good working order on the Closing Date,
except for normal wear and tear and deterioration associated with the operation
of such assets in the ordinary course of the Company's or the Subsidiary's
business, and are suitable for the purposes for which they are presently used.
3.13 Sufficiency of Assets. The tangible real and personal property,
---------------------
including, without limitation, plants, buildings, structures, equipment,
machinery and vehicles, owned or leased by the Company or the Subsidiary or used
or employed by either of them in their respective business, are sufficient and
adequate to carry on their respective businesses as presently conducted.
3.14 Environmental Matters. Except as set forth in Schedule-3.14:
--------------------- -------------
(a) Without limiting Section 3. 10, except as could not reasonably be
expected to have a Material Adverse Effect on the Company, the Company and the
Subsidiary are in compliance in all respects with all Environmental, Mining and
Safety Requirements, and have filed
12
<PAGE>
all notices and compliance reports required to be filed under any Environmental,
Mining and Safety Requirements (including, without limitation, notices and
reports indicating past or present treatment, storage or disposal, or reporting
a spill or release into the environment, of any Hazardous Substances, Oils,
Pollutants or Contaminants), and (i) neither the Company nor the Subsidiary has
received any written communication or other notice from any governmental
------------
authority alleging that the Company or the Subsidiary is not in compliance, in
all material respects, with Environmental, Mining and Safety Requirements, (ii)
all contract mining activities performed on Real Property for which the Company
or the Subsidiary retains liability under Environmental, Mining and Safety
Requirements have been conducted in compliance in all material respects with all
Environmental, Mining and Safety Requirements, (iii) no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
have been filed or commenced against or otherwise given to the Company or the
Subsidiary alleging any failure so to comply, and (iv) neither the Company nor
the Subsidiary has any material contingent liability with respect to its
business in connection with any Hazardous Substances, Oils, Pollutants, or
Contaminants or under any Environmental, Mining, or Safety Requirements.
(b) The Company and the Subsidiary maintain reserves for future costs
associated with reclamation and mine closings for all Real Property (including
any formerly owned or leased Real Property for which the Company or the
Subsidiary has retained or assumed liability either contractually or by
operation of law) in accordance with GAAP and the Company's and the Subsidiary's
reclamation projects and procedures are on schedule in accordance with SMCRA, in
all material respects and are being conducted in a manner that complies with all
other legal requirements in all material respects (including those governing
bonding and financial responsibility for reclamation and all Environmental,
Mining and Safety Requirements).
(c) (i) Neither the Company nor the Subsidiary has been notified
that it is a potentially responsible party, or that any governmental authority
or other individual is seeking information in connection with or advising the
Company or the Subsidiary that it is responsible for, or potentially responsible
for, costs under Environmental, Mining and Safety Requirements, including
CERCLA, for cleanup of, or investigatory, remedial or other corrective action
required with respect to Hazardous Substances, Oils, Pollutants or Contaminants
at any Real Property or at any other location; (ii) to the knowledge of the
Company, no Real Property 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 the Subsidiary has
knowledge of any release of Hazardous Substances, Oils, Pollutants or
Contaminants in quantities requiring investigation or cleanup at any of the
Owned Real Property or Leased Real Property or at any other location.
(d) The Company has provided Purchaser with (i) all information within
its possession regarding the environmental history of the operations of the
Company and the Subsidiary, including any audits, site assessments, sampling or
test results related to Hazardous Substances, Oils, Pollutants or Contaminants,
environmental impact statements, and liability studies prepared by or for the
Company or the Subsidiary, or by any third party, including governmental
agencies or insurance companies, and (ii) a list of all material Licenses held
by the Company and the Subsidiary under Environmental, Mining and Safety
Requirements.
13
<PAGE>
(e) The Company and the Subsidiary have duly complied with, and their
respective businesses, operations, assets, equipment, leaseholds and facilities,
including, without limitation, the Real Property, are in full compliance with,
the provisions of all federal, state and local environmental, health and safety
laws, codes and ordinances, and all rules and regulations promulgated
thereunder, including, without limitation, all laws and regulations with respect
to reporting releases of Hazardous Substances and the registration, testing and
maintenance of underground storage tanks.
(f) Except in accordance with a valid License listed on Schedule 3.14,
-------------
there has been no 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 servicing the Real Property, of any
Hazardous Substance, Oil, Pollutant or Contaminant at or from any of the Real
Property.
3.15 Taxes. Except as set forth on Schedule 3.15: (a) each of the Company
----- -------------
and the Subsidiary has duly filed all reports and returns relating to federal,
state, local or foreign income Tax required to be filed by it up to and
including the date hereof; (b) each of the Company and the Subsidiary has
maintained all required records with respect to Taxes and has duly paid all
Taxes shown as due on all Returns filed by it; and (c) reserves for Taxes
reflected in the Mid-Year Balance Sheet (other than for deferred Taxes) are not
less, by a material amount, than the Taxes that are attributable to periods up
to and including the periods contemplated by the Mid-Year Balance Sheet or that
have otherwise accrued as of the date of the Mid-Year Balance Sheet; (d) there
are no Tax liens upon any property or assets of the Company or the Subsidiary,
except liens for current Taxes not yet due; (e) no deficiencies have been
proposed, asserted or assessed against the Company or the Subsidiary in writing,
and no issue has been raised by any taxing authority in writing in any
examination about which any of the officers or directors of the Company or the
Subsidiary (and employees responsible for Tax matters of the Company or is
Subsidiary) have knowledge which, by application of the same or similar
principles, reasonably could be expected to result in a deficiency for any other
period not so examined, except for any deficiency which could not reasonably be
expected to have a Material Adverse Effect on the Company; (f) with respect to
periods commencing after December 31, 1992 and ending before January 1, 1998,
neither the Company, nor the Subsidiary or any of their respective predecessors
in interest has incurred any liability for Taxes that is unpaid; (g) there are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any Taxes or Returns of the Company or the Subsidiary
for any period; (h) all Returns for the Company and the Subsidiary 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; (i) neither the Company nor the Subsidiary
has, with regard to any assets or property held, acquired or to be acquired by
it, filed a consent to the application of Section 341(f)(2) of the Code; and (j)
no amount of compensation paid by the Company or the Subsidiary in 1097 or the
part of 1998 preceding the Closing Date is non-deductible for purposes of
federal, or any applicable state or local income Tax, except for any amount
which could not reasonably be expected to have a Material Adverse Effect on the
Company.
3.16 Litigation. Except as set forth in Schedule 3.16, there is no pending
---------- -------------
action, suit, proceeding, arbitration or investigation (nor any group of
actions, suits, proceedings, arbitrations or,
14
<PAGE>
investigations arising out of the same event, transaction, occurrence or pattern
of activity by the Company or the Subsidiary) against or affecting the Company
or the Subsidiary or any of their respective properties, businesses, assets or
operations, or with respect to which the Company or the Subsidiary is
responsible by way of indemnity or otherwise, (i) that questions the validity of
this Agreement or any action to be taken pursuant to this Agreement or seeks to
impose material damages in connection with the transactions contemplated hereby,
or (ii) that could reasonably be expected to have, an adverse effect on the
Company or the Subsidiary in the amount of Two Hundred Fifty Thousand Dollars
($250,000.00) or more or that could materially affect the ability of the Company
to perform its obligations under this Agreement. Except as set forth in Schedule
---------
3.16, no such actions, suits, proceedings or investigations are threatened or
- - ----
contemplated.
3.17 Compliance with Laws.
--------------------
(a) Except as set forth on Schedule 3.17, each of the Company and the
-------------
Subsidiary 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, 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, except for such failures as would not have a Material Adverse Effect
on the Company. Neither the Company nor the 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 its
Subsidiarily as a result of any such alleged material violation.
(b) Except for acts, omissions or liabilities that could not
reasonably be expected to have a Material Adverse Effect on the Company, neither
the Company nor the Subsidiary is liable for any arrearages, taxes or penalties
with respect to any of their employees in regard to any violation or potential
violation of the Fair Labor Standards Act or regulations under such act or other
laws and regulations relating to wages, hours, labor agreements, payment of
Social Security and similar taxes, unemployment or workers' compensation
including Black Lung benefits and obligations and/or similar state laws and
regulations.
3.18 Labor Relations. Except as set forth in Schedule 3.18:
-------------
(a) The Company and the Subsidiary are in compliance in all respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, excluding Environmental,
Mining and Safety Requirements (which are addressed separately in Section 3.14),
except for such failures as could not reasonably be expected to have a Material
Adverse Effect on the Company.
(b) The Company and the Subsidiary are in compliance with all
provisions of applicable collective bargaining agreements, and arbitration,
administrative and judicial decisions interpreting and/or affecting such
agreements, except for such failures as could not reasonably be expected to have
a Material Adverse Effect on the Company.
15
<PAGE>
(c) There is no unfair labor practice charge or complaint or any other
labor employment matter against or involving the Company or the Subsidiary
pending or, to the Shareholders' knowledge, threatened before the National Labor
Relations Board or any court of law which could reasonably be expected to have a
Material Adverse Effect on the Company.
(d) There is no labor organizing activity, strike, dispute, lockout,
slowdown or stoppage actually pending or, to the Shareholders' knowledge,
threatened against the Company or the Subsidiary.
(e) There has been no certified collective bargaining representative
of the Company's or the Subsidiary's employees, no demand made to the Company or
the Subsidiary 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 the
Subsidiary's employees.
(f) 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 threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company or the Subsidiary, except for those which could not
reasonably be expected to have a Material Adverse Effect on the Company.
(g) Neither the Company nor the Subsidiary has any liability for
current or future obligations under the Industry Retiree Health Benefit Coal Act
of 1992, as amended.
3.19 Contract Miners, Truckers and Others. Schedule 3.19 contains a
------------------------------------ -------------
complete and accurate list of all Persons with whom the Company or the
Subsidiary has at any time since January 1, 1998, had any contract,
understanding or agreement (oral or written but exclusive of any employment
agreement with any hourly or salaried employees) or joint venture agreement or
partnership to perform services relating to the operations and facilities of the
Company or the Subsidiary, including, but not limited to, contracts,
understandings and/or agreements involving sludge and/or slurry, the mining of
coal, the preparation of coal, or the loading or hauling by truck, railroad,
barge or otherwise of coal or refuse in connection with any coal mining
operations. To the Shareholders' knowledge, each such person and each
subcontractor thereof has all insurance required by the terms of any agreement
between such person and the Company or the Subsidiary. Neither the Company nor
the Subsidiary or their respective Affiliates are either a common or joint
employer with respect to, or have exercised any control over the employees or
labor relations of any such person.
3.20 Contracts and Commitments.
-------------------------
(a) Except as set forth on Schedule 3.20, neither the Company nor the
-------------
Subsidiary is a party to any: (i) collective bargaining agreement or contract
with any labor union; (ii) bonus, pension, profits sharing, retirement or other
form of deferred compensation plan; (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
annual
16
<PAGE>
compensation by the Company or the Subsidiary in excess of One Hundred Thousand
Dollars ($100,000.00); (v) agreement or indenture relating., to borrowing money
in excess of Two Hundred Fifty Thousand Dollars ($250,000.00) or to mortgaging,
pledging or otherwise placing a lien on any material portion of the Company's or
the Subsidiary's assets; (vi) guaranty of any obligation for borrowed money in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00); (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 One
Hundred Thousand Dollars ($100,000.00); (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 One Million Dollars ($1,000,000.00) 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
price in excess of Two Hundred Fifty Thousand Dollars ($250,000.00); (x)
contract or group of related contracts with the same party for the sale of
products or services (other than coal sales contracts referred to in (viii)
above) under which the undelivered balance of such products or services has a
sales price in excess of Two Hundred Fifty Thousand Dollars ($250,000.00); (xi)
any agreement to acquire, by merging, consolidating with or by purchasing a
substantial equity interest in or substantial portion of the assets of, any
business or corporation, partnership or other business organization or otherwise
acquire any material assets; (xii) tariff agreements and other transportation
contracts for the shipment of coal made in the ordinary course of business; or
(xiii) contract which prohibits or following the Closing will prohibit the
Company or the Subsidiary in any material respect from freely engaging in any
business anywhere in the world.
(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 in
Schedule 3-20, together with all material amendments, waivers or other changes
- - -------------
thereto.
(c) Neither the Company nor the Subsidiary, or, to the Shareholders'
knowledge, any third party thereto, is in default, breach or violation under any
contract listed in Schedule 3.20, except for such defaults, breaches or
---------------
violations which could not reasonably be expected to have a Material Adverse
Effect on the Company.
3.21 Employee Benefits.
-----------------
(a) Schedule 3,21(a) includes a complete list of all material Employee
----------------
Benefit Plan.
(b) With respect to each Plan, the Company has delivered or made
available to Purchaser a true, correct and complete copy of: (i) each writing
constituting a part of such Plan including, without limitation, all plan
documents, employee communications, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary plan description and any material modifications thereto, if any (in each
case, whether or not required to be furnished under ERISA); (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS, if any. There are no
17
<PAGE>
amendments to any Plan that have been adopted or approved nor has the Company or
the Subsidiary undertaken to make any such amendments or to adopt or approve any
new Plan.
(c) Schedule 3.21(c) identifies each Plan that is intended to be a
----------------
"Qualified Plan" within the meaning of Section 401(a) of the Code ("Qualified
Plans"). Except as set forth in Schedule 3.21, the IRS has issued a favorable
--------------
determination letter with respect to each Qualified Plan and the related trust
that has not been revoked, and, to the Shareholders' knowledge, there are no
existing circumstances or events that have occurred that could adversely affect
the qualified status of any Qualified Plan or the related trust. No Plan is
intended to meet the requirements of Code Section 501(c)(9).
(d) All contributions required to be made to any Plan by applicable
law or regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full or,
to the extent not required to be made or paid on or before the date hereof, have
been fully reflected in the Financial Statements. Each Employee Benefit Plan
that is an employee welfare benefit plan under Section 3(l) of ERISA is either
(i) funded through an insurance company contract and is not a "welfare benefit
fund" within the meaning of Section 419 of the Code, (ii) self-insured and
considered unfunded, or (iii) a combination of (i) and (ii).
(e) With respect to each Employee Benefit Plan, the Company and the
Subsidiary have complied, and are now in compliance, in all material respects
with all provisions of ERISA, the Code and all laws and regulations applicable
to such Employee Benefit Plans and each Employee Benefit Plan has been
administered in all material respects in accordance with its terms, except where
such noncompliance could not reasonably be expected to have a Material Adverse
Effect upon the Subsidiary or the Company. To the Shareholders' knowledge, there
is not now, nor do any circumstances exist that could give rise to, any
requirement for the posting of security with respect to a Plan or the imposition
of any lien on the assets of the Company or the Subsidiary under ERISA or the
Code.
(f) No Employee Benefit Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code.
(g) Except as set forth on Schedule 3.21(g), no Employee Benefit Plan
----------------
is a Multi-employer 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"). Except as set forth on Schedule
--------
3.21(g), neither the Company, nor the Subsidiary or any of their respective
- - -------
ERISA Affiliates have, at any time during the last six years, contributed to or
been obligated to contribute to any Multi-employer Plan or Multiple Employer
Plan. Neither the Company, nor the Subsidiary or any ERISA Affiliates have
incurred any Withdrawal Liability.
(h) To the Shareholders' knowledge, there does not now exist, nor do
any circumstances exist that could result in, any Controlled Group Liability
that would be a Liability of the Company, or the Subsidiary. following the
Closing. Without limiting the generality of the foregoing, none of the Company
or the Subsidiary, their Affiliates or any ERISA Affiliate of the
18
<PAGE>
Company or the Subsidiary has engaged in any transaction described in Section
4069 or Section 4204 or 4212 of ERISA.
(i) Except as set forth on Schedule 3.21(i), the Company and the
----------------
Subsidiary have 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 Part 6 of
Title I of ERISA and at no expense to the Company or the Subsidiary.
(j) 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 an y payment or benefit to any
employee, officer or director of the Company or the Subsidiary. Without limiting
the generality of the foregoing, no amount paid or payable by the Company or the
Subsidiary in connection with the transactions contemplated hereby (either
solely as a result thereof or as a result of such transactions in conjunction
with any other event) will be an "excess parachute payment" within the meaning
of Section 280G of the Code.
(k) To the Shareholders' knowledge, none of the Company, the
Subsidiary or any other Person, including any fiduciary, has engaged in any
"prohibited transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA), which could subject any of the Employee Benefit Plans or their
related trusts, the Company, the Subsidiary, or any Person that the Company or
the Subsidiary has an obligation to indemnify, to any material tax or penalty
imposed under Section -4975 of the Code or Section 502 of ERISA.
(l) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and to the Shareholders' knowledge, no set of
circumstances exists which may reasonably give rise to a claim or lawsuit,
against the Plans, any fiduciaries thereof with respect to their duties to the
Plans or the assets of any of the trusts under any of the Plans which could
reasonably be expected to result in any material Liability of the Company or the
Subsidiary to the Department of Treasury, the Department of Labor, any Multi-
employer Plan, any Plan or any participant in a Plan.
(m) The Company, the Subsidiary, and each member of their respective
business enterprises have complied with the Worker Adjustment and Retraining
Notification Act.
(n) For purposes of this Section 3.21, the term "employee" shall be
considered to include individuals rendering personal services to the Company or
the Subsidiary as independent contractors.
3.22 Banks, Directors and Officers, Life insurance and Employees. Schedule
----------------------------------------------------------- --------
3.22 sets forth (a) a list of all banks with which the Company or the Subsidiary
- - ----
has an account, deposit, certificate of deposit, or safe deposit box along with
identifying numbers and the names of all persons authorized to draw thereon or
having access thereto; (b) the names of all incumbent directors and officers of
the Company and the Subsidiary and of all incumbent trustees and committee
members under any of the Plans (as that term is defined in Section 3.22) or
related trusts; (c) a
19
<PAGE>
description and identification of any insurance policies held or paid for by the
Company or the Subsidiary on the lives of any of their respective key employees,
officers, directors or shareholders; and (d) the names and job descriptions of
all of the Company's and the Subsidiary's employees whose total compensation
from the Company and the Subsidiary for the fiscal year ending December 31,
1998, will exceed Twenty-Five Thousand Dollars ($25,000.00), together with a
statement of the full amount paid or payable to each such person in respect of
such year, a summary of the basis on which each such person is compensated if
the basis is other than a fixed salary rate, and any changes in any of the
foregoing since December 31, 1990. Except for any currently effective collective
bargaining agreements listed on Schedule 3.26(a), no person is employed by the
Company or the Subsidiary other than at the will of the Company or the
Subsidiary for an indefinite period of time, and at the option of either the
Company or the employee, such employee's employment with the Company may be
terminated with or without cause, and with or without notice, at any time.
3.23 No Material Adverse Change. Except as set forth on Schedule 3.23,
-------------------------- -------------
since December 31, 1997, except as contemplated by this Agreement: (a) neither
the Company nor the Subsidiary has incurred any liability, guarantee or
obligation (indirect, direct or contingent), or entered into any oral or written
agreement or other transaction, that is not in the ordinary course of business
or that could reasonably be expected to be material to the Company; and (b)
there has been no Material Adverse Effect on the Company or the Subsidiary, nor
any developments that could reasonably be expected to result in a Material
Adverse Effect on the Company or the Subsidiary.
3.24 Insurance. Schedule 3.24 sets forth a list and description of all
--------- -------------
policies of fire, liability, product liability, workers compensation, health and
other forms of insurance presently in effect with respect to the Company's and
the Subsidiary's business, true and complete copies of which have previously
been made available to Purchaser. All such policies are valid, outstanding and
enforceable policies. No notice of cancellation, termination or rejection of any
material claim has been received by the Company or the Subsidiary with respect
to any such policy in the last year. The activities and operations of the
Company and the Subsidiary have been conducted in a manner so as to conform in
all material respects to all applicable provisions of such insurance policies.
The Company and the Subsidiary have been covered during the past five (5) years
(or such shorter period as the 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.
3.25 Intellectual Property Rights.
----------------------------
(a) Schedule 3.25 lists all material Intellectual Property owned or
-------------
licensed by the Company or the Subsidiary. Except as set forth on Schedule
--------
3.25, such Intellectual Property is vested in or validly granted to the Company
- - ----
or the Subsidiary free and clear of all Charges and is not restricted in any
material way. Neither the Company nor the Subsidiary has performed any act or
permitted any omission which has resulted or could reasonably be expected to
result in the cessation of the Company's or the Subsidiary's valid and
enforceable rights in such Intellectual Property. Except as set forth on
Schedule 3.25, neither the Company nor the Subsidiary has granted or is
- - -------------
obligated to grant any license, sub-license or assignment in respect to any of
such Intellectual
20
<PAGE>
Property. Neither the Company nor the Subsidiary is in breach of any license,
sublicense or assignment granted to it with respect to any such Intellectual
Property.
(b) The Company and the Subsidiary own, or have the defensible right
to use, all of the Intellectual Property used in their respective businesses as
currently conducted, except where the failure to own or have the right to use
such Intellectual Property could not reasonably be expected to have a Material
Adverse Effect on the Company.
(c) To the Shareholders' knowledge, (i) the operation of the
businesses ' of the Company and the Subsidiary do not infringe upon the
Intellectual Property rights of any other Person, and (ii) the Intellectual
Property of the Company and the Subsidiary is not infringed by the operations of
any other Person.
3.26 Proprietary Information. Prior to or in conjunction with the Closing,
-----------------------
the Shareholders shall have fully disclosed to Purchaser all customer lists,
trade secrets, processes, inventions, formulas, methods, know-how and other
proprietary information used or developed by the Company and the Subsidiary in
connection with their respective business. Neither the Company nor the
Subsidiary has disclosed or permitted the disclosure of any such proprietary
information to any other Person, and the use by the Company and the Subsidiary
of such proprietary information does not violate any other Person's proprietary
rights.
3.27 Real Property.
-------------
(a) Schedule 3.27(a) sets forth a true and complete list of all leases
----------------
and other agreements (including wheelage and right-of-way agreements) by which
the Company or the Subsidiary has a leasehold interest or other contractual
right in or to any real property, or has the right to receive income from any
third party as a result of the use or occupancy of any real property by such
third party (collectively, the "Leased Real Property"). For each Leased Real
Property, the list includes: (i) an identification of the lease, sublease or
license agreement therefor (or any other agreement with respect to the use or
occupancy thereof) and any and all amendments or modifications thereof or side
letters with respect thereto (collectively, the "Leases"); (ii) the approximate
size of the premises leased thereunder (if available); (iii) the term of the
lease, including any extension options; (iv) the use of such premises and the
nature of any improvements located thereon; (v) the recording information of any
Leases which have been recorded in the applicable real estate records offices;
and (vi) the current rental or royalty (minimum and production) rate as well as
the amount of royalty paid and subject to recoupment. Except as could not
reasonably be expected to have a Material Adverse Effect on the Company, the
Company and the Subsidiary have good and valid leasehold title to lawfully and
exclusively conduct mining operations on the Leased Real Property used for
mining purposes, free and clear of all Charges except for Permitted Charges.
Except as could not reasonably be expected to have a Material Adverse Effect on
the Company, the Company and the Subsidiary have good and marketable leasehold
title to the Leased Real Property other than the Leased Real Property used for
mining purposes, free and clear of all Charges except for Permitted Charges.
21
<PAGE>
(b) Schedule 3.27(b) sets forth a true and complete list of all real
----------------
property that the Company and the Subsidiary own in fee, whether surface or
mineral (collectively, the "Owned Real Property"; the Owned Real Property and
the Leased Real Property are, collectively, the "Real Property"). For each
parcel of Owned Real Property, the list includes: (i) the entity in which title
is vested and the deed or other Instrument by which such entity acquired title
(including the Instrument date, the recording information and, if title is
vested in more than one entity, the percentage ownership of such entity); (ii)
the approximate acreage thereof; and (iii) the use thereof and the nature of any
improvements thereon. Except as could not reasonably be expected to have a
Material Adverse Effect on the Company, the Company and the Subsidiary have good
and valid fee title to lawfully and exclusively conduct mining operations on the
Owned Real Property used for mining purposes, free and clear of all Charges
except for Permitted Charges. Except as could not reasonably be expected to have
a Material Adverse Effect on the Company, the Company and the Subsidiary have
good and marketable fee title to the Owned Real Property other than the Owned
Real Property used for mining purposes, free and clear of all Charges except for
Permitted Charges.
(c) Except as set forth on Schedule 3.27(a): (i) there is no past due
----------------
payment obligation or other material default under any of the Leases; (ii)
neither the Company nor the Subsidiary or any Shareholder has received any
notice (oral or written) of, or has knowledge of, any act, omission or condition
which constitutes a material default, or with the passage of time and/or the
giving of notice, would constitute a material default under any of the Leases;
(iii) except as could not reasonably be expected to have a Material Adverse
Effect on the Company, neither the Company nor the Subsidiary has mined any coal
that did not belong to it, nor mined any coal in such a reckless or imprudent
manner as to give rise to any material claims for Loss or waste by any lessor
under any Lease; and (iv) except as could not reasonably be expected to have a
Material Adverse Effect on the Company, the Leases are in good standing and in
full force and effect, valid and enforceable against the parties thereto in
accordance with their terms.
(d) Subject to all of the lessors listed on Schedule 3.27(a) giving
----------------
their consent to the transactions contemplated herein, the consummation of such
transactions will not constitute a default under the terms of any of the Leases.
(e) Except as set forth on Schedules 3.27(a) or (b), the Company and
------------------------
the Subsidiary are in actual and peaceful possession of: (i) the Real Property
other than the Real Property used for mining purposes; and (ii) that portion of
the Real Property used for mining purposes on which the Company or the
Subsidiary is actively conducting coal mining operations.
(f) Except as could not reasonably be expected to have a Material
Adverse Effect on the Company, no applicable zoning or building law, ordinance,
administrative regulation, urban redevelopment law, or any other law,
regulation, rule, order, decree or use restriction, prohibits or interferes
with, limits or impairs the use, operation, maintenance of or access to, or
affects the value of, the Real Property, as now used, operated or maintained by
the Company or the Subsidiary. Except as set forth on Schedules 3.27(a) or (b),
------------------------
no notice of any violation of any applicable zoning or building law, ordinance,
administrative regulation, or any other law, regulation, rule, order, decree or
use restriction has been received by the Company or the Subsidiary, and neither
the Company nor
22
<PAGE>
the Subsidiary does not know of the threat of any such notice, and no
condemnation proceeding has been instituted or is threatened with respect to any
Real Property.
(g) All parcels of land included in the Real Property are, and except
as could not reasonably be expected to have a Material Adverse Effect on the
Company, all improvements located on any parcel of Real Property are, suitable,
sufficient and appropriate in all respects for their current and contemplated
uses. Each parcel or contiguous parcels, as applicable, of Real Property is
located adjacent to roads or streets with adequate lawful ingress and egress
available between such roads or streets and such Real Property for all purposes
related to the operations of the Company and the Subsidiary. To the best of the
Shareholders' knowledge, no material portion of any Real Property lies in any
flood plain area (as defined by the U.S. Army Corps of Engineers or otherwise)
or includes any wetlands protected by any applicable law.
(h) Except as set forth in Schedules 3.27(a) or (b) and except for
------------------------
Permitted Charges, neither the Company nor the Subsidiary has granted any
outstanding options or has entered into any outstanding contracts with others
for or in connection with the sale, mortgage, pledge, hypothecation, assignment,
sublease, lease or other transfer of all or any part of the Real Property.
Except as could not reasonably be expected to have a Material Adverse Effect on
the Company, no Person or entity has any right or option to acquire, or right of
first refusal or opportunity (or any similar right) with respect to, the
interest of the Company and the Subsidiary in any Real Property.
3.28 Securities Law Matters. Neither the Company nor the Subsidiary has
----------------------
made, directly or indirectly, any offer or sale of the common shares or
securities of the same or a similar class, or taken any other action as a result
of which the offer and sale of any such common shares or securities contemplated
hereby could fail to be entitled to exemption from the registration requirements
of the Securities Act. As used herein, the terms "offer" and "sale" have the
meanings specified in Section 2(3) of the Securities Act.
3.29 Related Party Transactions.
--------------------------
(a) Except as disclosed in Schedule 3.29, neither the Company nor the
-------------
Subsidiary or any of the Shareholders, has, either directly or indirectly, a
material interest in (i) any Person that purchases from or sells, leases,
licenses or furnishes to the Company or the Subsidiary any goods, property,
technology or intellectual or other property rights or services, or has other
material business relations with the Company or the Subsidiary; or (ii) any
Person who is a party to a contract or agreement to which the Company or the
Subsidiary are also parties or by which they may be bound or affected (the
matters set forth in clauses (i) and (ii) are
[PAGES 25 AND 26 ARE MISSING]
23
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to the Shareholders as follows:
4.1 Organization. Purchaser is a corporation duly organized and validly
------------
existing under the laws. of the State of Delaware, and has full corporate power
and authority to own and lease its properties as such properties are now owned
and leased, and to conduct its business as and where its business is now
conducted.
4.2 Authority.
---------
(a) Purchaser has full right, power, authority and capacity to execute
and deliver this Agreement and the Other Documents, and to perform its
obligations under this Agreement and the Other Documents. This Agreement and
the Other Documents constitute valid and legally binding obligations of
Purchaser, enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents. the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser will not violate any provision of, result
in the breach of, cause or permit the acceleration of or result in the
termination or cancellation of: (i) any performance required by the terms of
Purchaser's articles of incorporation or bylaws; (ii) any contract, agreement,
arrangement or undertaking to which Purchaser is a party or by which it may be
bound; (iii) any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority; or (iv) any applicable law,
ordinance, rule or regulation of any governmental body.
(c) The execution, delivery, performance and consummation of the
transactions contemplated by this Agreement and the Other Documents have been
duly authorized by all requisite corporate action. All other consents,
approvals, authorizations, releases or orders required of or for Purchaser for
the authorization, execution, delivery, performance and consummation of the
transactions contemplated by, this Agreement and the Other Documents will be
obtained by the Closing.
ARTICLE 5
COVENANTS OF THE SHAREHOLDERS
-----------------------------
The Shareholders hereby covenant and agree with Purchaser that:
5.1 Consents. The Shareholders shall: (i) procure, upon reasonable terms
--------
and conditions, all consents and approvals; (ii) complete all filings,
registrations and certificates; and (iii) satisfy all other requirements
prescribed by law, including obtaining any Approval necessary under antitrust
laws, which are necessary to consummate the transactions contemplated in this
Agreement and the Other Documents.
24
<PAGE>
5.2 Post-Closing Assistance. In case at any time after the Closing any
-----------------------
further action is necessary or desirable to consummate the transactions
contemplated by this Agreement and the Other Documents, the Shareholders will
promptly take or cause to be taken such further action (including the execution
and delivery of such further Instruments and documents) as Purchaser may
reasonably request.
5.3 Cooperation. The Shareholders shall cooperate fully, completely and
-----------
promptly with Purchaser in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement and the Other
Documents.
5.4 Representations and Warranties. The Shareholders shall not cause or
------------------------------
permit any representations or warranties made in this Agreement, including,
without limitation, representations and warranties contained in Article 3 of
this Agreement, to be untrue or incomplete as of the Closing.
5.5 Publicity. Except as required by applicable law, without the prior
---------
written consent of Purchaser, none of the Shareholders shall disclose or
publish, or permit the disclosure or publication of, any information concerning
the execution and delivery of this Agreement and the Other Documents, or the
transactions contemplated by this Agreement and the Other Documents, to any
Person.
5.6 Resignations. At the Closing, the Shareholders shall cause the
------------
individuals identified as officers or directors of the Company, Kindill Mining
or the AWW to resign as officers and/or directors of the Company, Kindill Mining
and the AWW, and shall cause the Persons identified as trustees or committee
members of the Plans to resign as trustees and/or committee members of the
Plans, which resignations shall be effective immediately after the Closing.
5.7 Permits. In the event that not all of the Permits are available for
-------
use by the Company and the Subsidiary immediately following the transactions
contemplated by this Agreement, the Shareholders, Purchaser, the Company and the
Subsidiary shall cooperate in any reasonable arrangement designed to provide
Purchaser, the Company and the Subsidiary the benefits under any such Permits
until such Permits are available for use by the Company and the Subsidiary,
provided that the Company, the Subsidiary and the Purchaser shall bear all of
the expenses of so doing and shall indemnify the Shareholders for any Losses
relating thereto in accordance with Article 10.
ARTICLE 6
COVENANTS OF PURCHASER
----------------------
Purchaser covenants and agrees with the Shareholders that from the date
hereof through the Closing:
6.1 Cooperation. Purchaser shall cooperate fully, completely and promptly
-----------
with the Shareholders in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement and the Other
Documents.
25
<PAGE>
6.2 Representations and Warranties. Purchaser will not cause or permit
------------------------------
any of its representations and warranties made in this Agreement, including,
without limitation, its representations and warranties contained in Article 4 of
this Agreement, to be untrue or incomplete as of the Closing.
6.3 Publicity. Except as required by applicable law, without the prior
---------
written consent of the Shareholders, Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any Person.
6.4 Ownership and Control. As soon as practicable after the Closing, and
---------------------
in any event within thirty (30) Business Days after the Closing Date, Purchaser
shall take all necessary and appropriate action, pursuant to all applicable
statutes or regulations, to give notice to any appropriate agencies, of the
change in ownership and control of the Company resulting from the Purchase
pursuant to this Agreement.
6.5 Post-Closing Liabilities. Purchaser will cause the Company and
------------------------
Kindill Mi 1 9 to assume all of the debts, obligations and Liabilities of the
Company and Kindill Mining, as the case may be, following the Closing, and will
protect the Shareholders from and indemnify them against, such debts,
obligations and Liabilities, except in the case of any Shareholders to the
extent such Shareholders are obligated to indemnify Purchaser pursuant to
Article 10 below with respect to any such debts, obligations or Liabilities.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Shareholders contained herein shall be true on the Closing
Date, with the same effect as though made at such time, except to the extent of
changes permitted by the terms of this Agreement. The Shareholders, the Company
and the Subsidiary shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by them
prior to the Closing.
7.2 No Material Adverse Effect. No Material Adverse Effect with respect
--------------------------
to the Company shall have occurred since the date of this Agreement.
7.3 Opinion of Counsel for the Shareholders. Purchaser shall have
---------------------------------------
received an opinion from Greenebaum Doll & McDonald PLLC, counsel for the
Shareholders, dated the Closing Date, substantially in the form attached hereto
as Annex 7.3.
7.4 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated in this Agreement and
the Other Documents shall have
26
<PAGE>
been fulfilled, and all Approvals required to be obtained to permit the
consummation by Purchaser of the transactions contemplated by this Agreement and
the Other Documents, and to permit the businesses presently carried on by the
Company and the Subsidiary to continue unimpaired in all material respects
immediately following the Closing, shall have been obtained.
7.5 Ancillary Agreements. The Shareholders, the Company and the
--------------------
Subsidiary shall have executed all Other Documents, and all such executed
agreements shall have been delivered to Purchaser.
7.6 Deliveries. At or before the Closing, the Shareholders shall (i)
----------
deliver to Purchaser all Instruments necessary or otherwise reasonably requested
by Purchaser to duly and properly transfer and convey title to the Shares as
contemplated by this Agreement and (ii) make all other deliveries contemplated
in this Agreement.
7.7 Financing. Purchaser shall have arranged financing with such lenders,
---------
in such amounts, at such rates, and upon such terms as Purchaser deems, in
Purchaser's sole discretion, necessary and sufficient to consummate the
transactions contemplated in this Agreement and the Other Documents.
7.8 Closing. The Closing shall occur on or before September 2, 1998, (the
-------
"Closing Date"), unless the Closing Date is extended by the mutual written
agreement of the parties hereto.
7.9 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all third-party consents and approvals (all on terms and conditions satisfactory
to Purchaser in its sole and absolute discretion) that are necessary for: (a)
the consummation of the transactions contemplated by this Agreement and the
Other Documents; and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
any Shareholder shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
7.10 No Injunction. No injunction or order of any court or administrative
-------------
agency or Instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
7.11 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
7.12 Due Diligence. Purchaser shall be satisfied, in its sole discretion,
-------------
with the results of its due diligence of the Company and the Subsidiary and
their respective assets and Liabilities, including, without limitation: (i) all
rights, title, interests and Liabilities of the Company and the Subsidiary; (ii)
the terms and conditions of all agreements to which the Company or the
Subsidiary is a party (including but not limited to the terms and conditions of
all lease agreements under which the Company or the Subsidiary has any -
interest, especially terms authorizing Purchaser to conduct highwall mining
under such lease agreements); (iii) the mineability, quantity and quality of the
coal
27
<PAGE>
reserves of the Company and the Subsidiary; and (iv) the magnitude of the
reclamation obligations (regardless of whether such obligations are "current" or
in "deferred status ").
7.13 Board Approval. Purchaser's board of directors shall have approved
--------------
this Agreement, and the transactions contemplated hereunder.
7.14 Hayman Agreement. Purchaser shall have consummated the transactions
----------------
contemplated by the Hayman Agreement.
7.15 Fairness Opinion. Purchaser shall have received an opinion of
----------------
Rothschild Inc. that the transactions contemplated by this Agreement and the
Other Documents are fair from a financial point of view to Purchaser.
7.16 Royalty Termination Agreement. The Royalty Termination Agreement
-----------------------------
shall have been executed and delivered by all of the parties thereto in a manner
satisfactory to Purchaser.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS
---------------------------------------------
The obligations of the Shareholders to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing.
8.2 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by the Shareholders of the transactions contemplated in this
Agreement and the Other Documents shall have been fulfilled, and all Approvals
required to be obtained in order to permit the consummation by the Shareholders
of the transactions contemplated in this Agreement and the Other Documents shall
have been obtained.
8.3 Deliveries. At or before the Closing, Purchaser shall make all of its
----------
deliveries contemplated in this Agreement.
8.4 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all third-party consents and approvals that are necessary for: (a) the
consummation of the transactions contemplated by this Agreement and the Other
Documents; and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that notwithstanding the foregoing, neither Purchaser nor the
Shareholders shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
28
<PAGE>
8.5 No Injunction. No injunction or order of any court or administrative
-------------
agency or Instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
8.6 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
8.7 Closing. The Closing shall occur on or before the Closing Date, as
-------
such date may be extended by the mutual written agreement of the parties hereto.
ARTICLE 9
THE CLOSING/TERMINATION
-----------------------
9.1 Date and Place. The Closing shall be held on the Closing Date at
--------------
10:00 a.m. simultaneously in the offices of Brown, Todd & Heyburn PLLC, 2700
Lexington Financial Center, 250 West Main Street, Lexington, Kentucky 40507 and
Greenebaum Doll & McDonald PLLC, 3300 National City Tower, Louisville, Kentucky
40202, or at such other place or time on the Closing Date as the parties may
mutually agree.
9.2 Deliveries. At or before the Closing, the parties shall make all of
----------
the deliveries contemplated in this Agreement.
9.3 Termination. In the event the Closing shall not be held by the
-----------
Closing Date, as it may be extended by mutual written agreement of the parties
hereto, any party may terminate this Agreement upon written notice to the other
parties. If this Agreement is terminated pursuant to this Section 9.3, all
parties shall be released from all further obligations under this Agreement and
the Other Documents and shall have no further obligation to negotiate any such
agreements; provided, however, that termination pursuant to this Section 9.3
shall not relieve the defaulting or breaching party hereunder from any liability
to the other party hereto resulting from the default or breach hereunder of such
defaulting or breaching party occurring prior to the date of termination.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES -- INDEMNIFICATION
-------------------------------------------------------------
10.1 Survival. Each of the parties' representations, warranties, covenants
--------
and agreements (including undisclosed Liabilities) set forth in this Agreement
shall survive the Closing for a period of one (1) year, with the exception,
however; of the warranties and representations made by the Shareholders in
Section 3.3, which shall survive indefinitely.
10.2 Indemnity by the Shareholders. Subject to the limitations set forth
-----------------------------
in Section 10.5 below, each of the Shareholders shall jointly and severally
indemnify the Company, the Subsidiary and Purchaser against, and hold the
Company, the Subsidiary and Purchaser harmless from, and shall pay to the
Company, the Subsidiary or Purchaser, as applicable, the full amount of. any
loss, claim, damage, liability or expense (including reasonable attorneys' fees,
but excluding all special,
29
<PAGE>
exemplary punitive and consequential damages) (each a "Loss") resulting to the
Company, the Subsidiary or Purchaser, either directly or indirectly, from: (a)
any material inaccuracy in any representation or warranty, or any breach of any
covenant or agreement, by the Company, the Subsidiary, or the Shareholders
contained in this Agreement or in any of the Other Documents; and (b) any
liability for any fee or commission owed to a broker or other Person pursuant to
an agreement signed by the Company, the Subsidiary or the Shareholders with
respect to the transactions contemplated by this Agreement.
10.3 Indemnity by Purchaser. Purchaser shall indemnify and hold the
----------------------
Shareholders harmless from and against, and shall pay to the Shareholders the
full amount of, any Loss resulting to the Shareholders, either directly or
indirectly, from: (a) any material inaccuracy in any representation or
warranty, or any breach of any covenant or agreement, by Purchaser contained in
this Agreement or any of the Other Documents; (b) any liability for any fee or
commission owed to a broker or Other Person pursuant to an agreement signed by
Purchaser with respect to the transactions contemplated by this Agreement; and
(c) any liability of the Shareholders arising from the Shareholders' maintaining
any rights or obligations under Permits until such Permits are available for use
by the Company and the Subsidiary as contemplated by Section 5.7.
10.4 Remedies; Rights of Offset. Upon the occurrence of any event for
--------------------------
which Purchaser or any Shareholder is entitled to indemnification under this
Agreement, they shall have all the rights and remedies at law and in equity
available to them. Without limiting the foregoing, the Shareholders hereby agree
to pay promptly upon receipt of notice from the Company, the Subsidiary or
Purchaser the amounts which the Shareholders may owe to the Company, the
Subsidiary or Purchaser from time to time by reason of the provisions of this
Agreement or otherwise. If the Shareholders fail or refuse to pay any such
amounts promptly after the request of the Company, the Subsidiary or Purchaser,
then the Company, the Subsidiary and Purchaser, at their election, may offset
any such amounts against any payments due and owing to the Shareholders. The
party or parties suffering any Loss shall be obligated to take all reasonable
actions to mitigate the damages suffered with respect to the Loss.
10.5 Limitations on Indemnity Obligations.
------------------------------------
(a) The Shareholders' liability under this Article 10 shall be
limited to the following Losses incurred by Purchaser, the Company or the
Subsidiary:
(i) The Shareholders shall, in the aggregate, be liable for
Losses pursuant to this Section 10 only to the extent that the cumulative
aggregate amount of all such Losses exceeds Two Hundred Fifty Thousand Dollars
($250,000) (the "Deductible");
(ii) The aggregate amount of Losses for which each of the
Shareholders shall be liable pursuant to this Section 10 shall not exceed the
portion of the Purchase Price received by the Shareholder for his or her Shares;
(iii) The Shareholders' liability for Losses shall be net of any
insurance proceeds to which Purchaser, the Company or the Subsidiary is entitled
under any applicable
30
<PAGE>
insurance and net of any other compensatory payments received by Purchaser, the
Company or the Subsidiary, so long as doing so does not cancel or void any
insurance coverage or policy of Purchaser, the Company or the Subsidiary.
(iv) The Shareholders' liability for Losses shall be limited to
the net amount thereof after all tax benefits realized by Purchaser, the Company
or the Subsidiary in connection therewith, and the amount of indemnification
paid by the Shareholders with respect to Losses shall be deemed a reduction of
the Purchase Price received by the Shareholders for their Shares; and
(v) The trustees of trusts which are Shareholders shall have no
personal liability of any nature except for wrongful distributions to the
beneficiaries of such trusts after receipt of notice of a claim for
indemnification hereunder.
(b) Purchaser's liability under this Article 10 shall be limited to
the following Losses incurred by the Shareholders:
(i) Purchaser shall be liable for Losses pursuant to this
Section 10 only to the extent that the cumulative aggregate amount of all such
Losses exceeds the Deductible, provided, however, that Purchaser, the Company
and the Subsidiary shall be liable for all claims under Sections 6.5 and 10.3(c)
without regard to the Deductible;
(ii) The aggregate amount of Losses for which Purchaser shall be
liable pursuant to this Section 10 shall not exceed the Purchase Price; and
(iii) Purchaser's liability for Losses shall be limited to
the net amount thereof after all tax benefits realized by the Shareholders in
connection therewith.
10.6 Control of Indemnified Matters. If a third-party claim is made
------------------------------
against an indemnified party that may result in a Loss to the indemnified party,
the indemnifying party will be entitled to participate in the defense thereof,
and if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. If the
indemnifying party elects to assume the defense of such third-party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to employ
counsel, AT ITS OWN EXPENSE, SEPARATE FROM THE COUNSEL EMPLOYED BY THE
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute any third-party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third-party claim, and making employees
available on a mutually convenient and reasonable basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying party shall have assumed the defense
31
<PAGE>
of a third-party claim, the indemnified party shall not admit any liability with
respect to, or settle, compromise or discharge, such third-party claim without
the indemnifying party's prior written consent (which consent shall not be
unreasonably withheld). Notwithstanding any provision in this Section 10.6, an
indemnifying party shall have no right to participate in or in any way assume
the defense of a third-party claim if such third-party claim seeks an order,
injunction, non-monetary claim or other equitable relief against the indemnified
party.
ARTICLE 11
ARBITRATION
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholders have notified the
other in writing of such controversy, dispute or claim, shall be submitted for
arbitration in accordance with the Real Property of the American Arbitration
Association or any successor thereof. Arbitration shall take place at an
appointed time and place in Lexington, Kentucky.
11.2 Selection of Arbitrators. Purchaser and the Shareholders each shall
------------------------
select one (1) arbitrator (who shall not be counsel for such party), and the two
(2) so designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, including
but not limited to Section 12.14, the award of the arbitrators may grant any
relief that a court of general jurisdiction has authority to grant, including,
without limitation, an award of damages and/or injunctive relief, and shall
assess, in addition, the cost of the arbitration, including the reasonable fees
of the arbitrator, reasonable attorneys' fees and costs of all prevailing
parties, against all non-prevailing parties.
11.3 Temporary Injunctive Relief. Nothing herein contained shall bar the
---------------------------
right of any of the parties to seek and obtain temporary injunctive relief from
a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
11.4 Arbitration Rules. All disputes and claims shall be determined by
-----------------
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except that
such Rules shall be modified by this Agreement.
11.5 Arbitration Proceedings. All arbitral proceedings arising under, or
-----------------------
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90) days after their
32
<PAGE>
appointment. Subject to the parties' right to be treated fairly, the arbitrators
may shorten the periods of time otherwise applicable to the arbitral proceedings
under the Rules or the Federal Rules of Civil Procedure to permit the award to
be made within the time limitation set forth in the previous sentence.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Notices and Agent. All Notices under this Agreement ("Notices") shall
-----------------
be given: (i) by personal delivery; (ii) by facsimile transmission; (iii) by
registered or certified mail, postage prepaid, return receipt requested; or (iv)
by nationally recognized overnight or other express courier services, as
follows:
(a) If to Purchaser:
West Virginia - Indiana Coal Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Walter Reed
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telephone No.: (606) 231-0000
Telecopy No.: (606) 231-0011
(b) If to the Shareholders:
Ronnie G. Dunnigan, Esq.
3100 Maria Drive
Lexington, Kentucky 40516
Telephone No.: (606) 293-2786
Telecopy No.: (606) 299-5092
33
<PAGE>
With a copy to:
John H. Stites, III, Esq.
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202-3197
Telephone No.: (502) 587-3544
Telecopy No.: (502) 540-2144
All Notices shall be effective and shall be deemed delivered: (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission or
overnight courier service, on the next Business Day following dispatch of such
facsimile (providing receipt thereof is confirmed by the sending operator) or
overnight courier package; and (iii) if by mail, on the third (3rd) Business Day
after dispatch thereof. Either party may change its address by Notice to the
other party.
(c) Ronnie G. Dunnigan is hereby appointed by the other Shareholders,
and hereby agrees to act, as Agent for the Shareholders under this Agreement for
the limited purpose of receiving Notices to the Shareholders under this
Agreement from the Purchaser and providing services to the Shareholders as set
forth below in this Section. The Agent hereby agrees to deliver copies of all
Notices received from the Purchaser, the Company or the Subsidiary under this
Agreement to the Shareholders promptly upon receipt. If the Agent is unable to
deliver a copy of any notice to any Shareholder, the Agent will promptly notify
Purchaser, the Company and the Subsidiary so that they can otherwise seek to
deliver the notice. The Agent shall appoint arbitrators on behalf of the
Shareholders as provided in Section 11.2 and shall otherwise, acting with
Greenebaum Doll & McDonald PLLC as counsel to the Shareholders, oversee and
handle the investigation, defense and resolution of any claims for
indemnification against Shareholders asserted by Purchaser, the Company or the
Subsidiary, unless a majority of the Shareholders elect to otherwise defend and
handle any such claim for indemnification.
12.2 Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
12.3 Expenses. Each party shall assume its respective expenses incurred in
--------
connection with the transactions contemplated by this Agreement and the Other
Documents. The Shareholders agree that the Company has not and will not bear any
costs or expenses related to this Agreement, provided that the Company and the
Subsidiary may pay their counsel. Greenebaum Doll & McDonald PLLC, an amount not
exceeding $50,000 at the Closing for general services rendered since June 1,
1998 and for assistance to the Company and the Subsidiary in preparing the
Schedules hereto and in otherwise facilitating the transactions contemplated
under this Agreement.
12.4 Headings: Interpretation. The headings in this Agreement have been
-------------------------
included solely for ease of reference and shall not be considered in the
interpretation or construction of this
34
<PAGE>
Agreement. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, as applicable.
12.5 Annexes and Schedules. The Annexes and Schedules to this Agreement
---------------------
are incorporated herein by reference and expressly made a part hereof.
12.6 Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement and the Other Documents, and there are no representations,
warranties, understandings or agreements with respect to the subject matter
hereof other than those expressly set forth in the Agreement, the Other
Documents or an Annex or Schedule delivered in connection herewith or therewith.
No amendment, modification or other change to this Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought.
12.7 Representations and Warranties, Etc. The representations and
------------------------------------
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto. As used
in this Agreement, the term "Shareholders' knowledge." and all other references
to matters which are known by or to the Shareholders, shall refer to matters
which are known, or which with the exercise of reasonable care should have been
known, by the Shareholders after consultation with the Company's and the
Subsidiary's current corporate officers, directors, plant managers, shift
supervisors and foreman, and after their due investigation of corporate records
(except that if the Shareholders are required to make "due inquiry" with respect
to any matter, they shall make such additional inquiry as a reasonable person
would make under the circumstances).
12.8 Governing Law. This Agreement shall be governed by, and construed
-------------
and interpreted in accordance with, the laws of the Commonwealth of Kentucky.
Each party agrees that any action brought in connection with this Agreement
against another shall be filed and heard in Fayette County, Kentucky, and each
party hereby submits to the jurisdiction of the Circuit Court of Fayette County,
Kentucky, and the U.S. District Court for the Eastern District of Kentucky,
Lexington Division.
12.9 Brokers. The parties covenant and agree with one another that they
-------
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions. Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it or any of its Affiliates for any fee or other compensation due or
allegedly due that broker or other Person.
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, including by means of facsimile, each of which shall be an
original, but all of which together shall constitute one and the same
Instrument.
12.11 Benefit and Binding Effect. This Agreement shall be binding
--------------------------
upon, and shall inure to the benefit of, the Shareholders and their heirs,
personal representatives, successors and assigns,
35
<PAGE>
and Purchaser and each of its successors and assigns; provided, however, that no
party to this Agreement shall assign his or its rights or obligations hereunder
without the express written consent of the other parties, which consent shall
not be unreasonably withheld, and no party shall be released of its obligations
under this Agreement as a result of such assignment. However, notwithstanding
anything to the contrary in this Section 12.11, Purchaser may assign its rights
under this Agreement to an Affiliate of Purchaser.
12.12 Specific Performance. Subject to Article 11, the parties shall be
--------------------
entitled to specific performance, injunctive relief and other equitable relief
for breaches of the other parties' covenants and agreements, and such relief may
be awarded by the arbitrators pursuant to Article 11. Therefore, it is agreed
the parties will not, in any action to enforce this Agreement, assert that there
is an adequate remedy at law for the default under which such action or
proceeding is based.
12.13 Severability. If any provision of this Agreement or its application
------------
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
12.14 No Consequential Damages. Except as prohibited by law, each party
------------------------
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto.
PURCHASER: WEST VIRGINIA-INDIANA COAL HOLDING
COMPANY, INC.
By: /S/ Illegible
-------------------------------
Title:Vice President
----------------------------------
SHAREHOLDERS: /s/ Ronnie G. Dunnigan
----------------------------------
RONNIE G. DUNNIGAN
/s/ Gary L. Barker
----------------------------------
GARY L. BARKER
36
<PAGE>
/s/ Illegible
----------------------------------
GARY LYNN BARKER TRUST, BY TRUSTEE*
/s/Illegible
-----------------------------------
TAWNYA ANN BARKER TRUST, BY TRUSTEE**
/s/Illegible
-----------------------------------
STEFFANIE APRIL FRANCIS GREEN TRUST, BY TRUSTEE
/s/Illegible
-----------------------------------
SAMUEL AARON FRANCIS TRUST, BY TRUSTEE
/s/Illegible
-----------------------------------
ROYCE K. TRAYLOR*
/s/Illegible
-----------------------------------
CARL D. HELDT*
/s/Illegible
-----------------------------------
JACK C. FOWLER
/s/Illegible
-----------------------------------
DANIEL R. RAMBO*
/s/Illegible
-----------------------------------
DAVID R. ADAMS*
/s/Illegible
-----------------------------------
HARRY W. HEARN*
*Ronnie G. Dunnigan as attorney in fact for these Shareholders.
37
<PAGE>
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
------------------------
This is a Stock Purchase Agreement, dated September 2, 1998 (this
"Agreement"), among (i) West Virginia-Indiana Coal Holding Company, Inc., a
Delaware corporation ("Purchaser"); and (ii) Stephen Addington, George Jackson
Sparks, Robert Hatton, W. Todd Skaggs, Rhonda D. Cavender, Charles J. Helms,
Jr., Gilbert Wayne Lawrence, David A. Ison, Willie Begley, Michael P. Moore, and
Marvin Linwood Jones, who are the Shareholders (collectively, the
"Shareholders") of Hayman Holdings, Inc., a Kentucky corporation (the
"Company").
RECITALS
--------
A. The Shareholders collectively own one hundred percent (100%) of the
issued and outstanding shares of the capital stock of the Company (the "Shares")
in the following amounts:
SHAREHOLDERS SHARES CURRENTLY OWNED
------------ ----------------------
Stephen Addington 765
George Jackson Sparks 40
Robert Hatton 40
W. Todd Skaggs 40
Rhonda D. Cavender 25
Charles J. Helms, Jr. 15
Gilbert Wayne Lawrence 15
David A. Ison 15
Willie Begley 15
Michael P. Moore 15
Marvin Linwood Jones 15
B. The Shareholders wish to sell, and Purchaser wishes to purchase, all
of the Shares pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Affiliate" of any Person shall mean (i) a Person that, directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is controlled by a Person that controls, such Person; (ii) any trust or
estate in which such Person has a beneficial interest or as to which such Person
serves as a trustee or in another fiduciary capacity; and (iii) any spouse,
parent
<PAGE>
or lineal descendent of such Person. As used in this definition, "control" shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies, whether through ownership of securities,
partnership or other ownership interests, by contract or otherwise.
(b) "Agent" shall mean Charles J. Helms, Jr. in his capacity as agent
for all of the Shareholders other than Stephen Addington as provided in (S)
12.1(c).
(c) "Approval" shall mean each and every authorization, approval,
consent, license, filing and registration by, with or from any nation or state
or other political subdivision thereof or by or with any regulatory or
governmental authority of any nation or state or other political subdivision
thereof or by or with any regulatory or governmental authority of any nation or
state or other political subdivision thereof or international organization, self
regulatory organization or stock exchange, necessary to authorize or permit the
execution, delivery or performance of this Agreement or any other document
contemplated hereby or for the validity enforceability hereof or thereof.
(d) "Balance Sheet" shall have the meaning given in Section 3.7(a).
(e) "Bassco Option" shall mean the option held by the Subsidiary to
purchase unissued shares of the common stock of Kindill Holding representing
Fifty-Eight and One Tenth percent (58.1%) of the outstanding shares of common
stock of Kindill Holding on a fully diluted basis.
(f) "Bonds" shall have the meaning given in Section 3.34(b).
(g) "Business Days" shall have the meaning given in Section 1.3(i).
(h) "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation & Liability Act, 42 USC (S)(S) 9601, et seq. and "CERCLIS" shall
------
mean the Comprehensive Environmental Response, Compensation and Liability
Information System.
(i) "Charges" shall have the meaning given in Section 3.3.
(j) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(k) "Closing Date" shall have the meaning given in Section 7.8.
(l) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(m) "Controlled Group Liability" shall mean any and all liabilities
(i) under Title IV or 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, and (v) under corresponding or similar provisions of
foreign laws or regulations, other than such liabilities that arise solely out
of, or relate solely to, the Employee Benefit Plans.
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<PAGE>
(n) "Employee Benefit Plan" shall mean any employee benefit plan,
program, policy, practices or other arrangement providing benefits to any
current or former employee, officer or director of the Company or the Subsidiary
or any beneficiary or dependent thereof that is sponsored or maintained by the
Company or the Subsidiary or to which the Company or the Subsidiary contributes
or is obligated to contribute, whether or not written, including, without
limitation, any employee welfare benefit plan within the meaning of Section 3(1)
of ERISA, any employee pension benefit plan within the meaning of Section 3(2)
of ERISA (whether or not such plan is subject to ERISA) and any bonus,
incentive, deferred compensation, vacation, stock purchase, stock option,
severance, employment, change of control or fringe benefit plan, program or
agreement, and "Employee Benefit Plans" means all such plans, programs,
policies, practices and arrangements, collectively.
(o) "Environmental, Mining and Safety Requirements" shall mean all
federal, state and local statutes, regulations, ordinances, permits, judicial
and administrative orders and determinations, and similar provisions having the
force and effect of law, all contractual obligations 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 clean-up of any Hazardous Substances, Oils,
Pollutants or Contaminants (as such terms are defined in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5) and any
mining wastes or byproducts.
(p) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended and all regulations promulgated thereunder as in effect from
time to time.
(q) "ERISA Affiliates", with respect to any entity, trade or business
that is a member of a group described in Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or
business or that is a member of the same "controlled group" as the first entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
(r) "Exclusive Sales Agreement" shall mean the Exclusive Sales
Agreement, dated October 1, 1997, among Kindill Holding, Kindill Mining and
Power Equity Sales.
(s) "Financial Statements" shall have the meaning given in (S)3.7(a),
copies of the Financial Statements being attached hereto as Annex 1.1(s).
(t) "Francis Release" shall mean the Release Agreement attached
hereto as Annex 1.1(t).
(u) "GAAP" shall mean generally accepted accounting principles in
effect from time to time.
(v) "Hayman Permits" shall have the meaning given in Section 3.34.
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<PAGE>
(w) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the regulations and Premerger Notification and Report Form
promulgated thereunder.
(x) "Instrument" shall mean any written agreement, contract,
arrangement, mortgage, indenture, obligation or commitment.
(y) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith; copyrights;
pending or issued registrations for any of the foregoing; patents and patent
applications; unpatented inventions; trade secrets and other confidential or
proprietary information, computer programs, processes, formulas and methods; and
all other intangible property rights of any kind.
(z) "IRS" shall mean the Internal Revenue Service.
(aa) "Kindill Agreement" shall mean the Stock Purchase Agreement,
dated September 2, 1998, between the shareholders of Kindill Holding and
Purchaser, pursuant to which Purchaser shall acquire all of the outstanding
capital stock of Kindill Holding.
(bb) "Kindill Holding" shall mean Kindill Holding, Inc., a Kentucky
corporation.
(cc) "Kindill Mining" shall mean Kindill Mining, Inc., an Indiana
corporation.
(dd) "Leased Real Property" shall have the meaning given in Section
3.27(a).
(ee) "Leased Tangible Assets" shall have the meaning given in Section
3.12(b).
(ff) "Liabilities" (whether or not capitalized) shall mean all
accounts payable, notes payable, liabilities, commitments, indebtedness or
obligations of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, of the Company, or to which any property or assets of the
Company are subject.
(gg) "Loss" shall have the meaning given in Section 10.2.
(hh) "Material" (whether or not capitalized) shall include any matter
which might influence Purchaser's decision to consummate the transactions
contemplated herein.
(ii) "Material Adverse Effect" shall mean an effect, event, occurrence
or state of facts that, individually or aggregated with other effects, events,
occurrences or states of facts, is materially adverse to (i) the assets,
business, property, results of operations, condition (financial or otherwise) or
prospects of the specified entity and its subsidiaries taken as a whole, (ii)
the ability of the specified entity to perform its obligations under this
Agreement or any of the Other Documents, or (iii) the validity or enforceability
of this Agreement or any of the Other Documents or, when used with respect to
the Company or the Subsidiary, the material rights or remedies of Purchaser
thereunder (in any capacity).
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<PAGE>
(jj) "Multi-employer Plan" shall mean any "multi-employer plan" within
the of Section 4001(a)(3) of ERISA.
(kk) "Notices" shall have the meaning given in Section 12.1.
(ll) "Other Documents" shall mean the Power Equity Agreement, the
Francis Release and all other agreements, certificates, opinions, instruments or
documents contemplated by, required by or referred to in, this Agreement for the
consummation of the transactions contemplated hereby.
(mm) "Owned Real Property" shall have the meaning given in Section
3.27(b).
(nn) "Owned Tangible Assets" shall have the meaning given in Section
3.12(a).
(oo) "Permitted Charges" shall mean (i) Charges for taxes and
assessments or governmental charges not yet due or which are being contested in
good faith and by appropriate proceedings and for which adequate reserves have
been established and which are accurately reflected in the Financial Statements;
(ii) Charges in favor of landlords, carriers, warehousemen, mechanics, workmen
and materialmen and construction or similar liens arising by operation of law or
incurred in the ordinary course of business for sums not yet due or that are
being contested in good faith and for which adequate reserves have been
established and which are accurately reflected in the Financial Statements;
(iii) Charges in respect of pledges or deposits under worker's compensation laws
or similar legislation, unemployment insurance or other types of social security
or to secure the performance of tenders, statutory obligations, surety and
special bonds, bids, leases, government contracts, performance and return of
money bonds and similar obligations, each of which is accurately reflected in
the Financial Statements; (iv) Charges reflected in the Financial Statements;
(v) Charges to be discharged at or prior to closing; (vi) rights reserved to or
vested in any governmental authority to control or regulate any Real Property or
interests therein in any manner, and all laws of any governmental authority;
(vii) Charges related to the Debt Instruments; and (viii) with respect to real
property used or held for mining purposes, easements, rights-of-way and other
Charges typically found on real property used for mining purposes, which Charges
do not materially impair mining operations conducted on, under or upon any
parcel or parcels of such real property.
(pp) "Permits" shall have the meaning given in Section 3.34(a).
(qq) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(rr) "Plan" shall mean any Employee Benefit Plan other than a Multi-
employer Plan.
(ss) "Power Equity Agreement" shall mean the Option Agreement and
related agreements pursuant to which Kindill Holding and Kindill Mining are
acquiring from Power Equity Sales an option to terminate the Exclusive Sales
Agreement.
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<PAGE>
(tt) "Power Equity Sales" shall mean Power Equity Sales, LLC, a
Kentucky limited liability company.
(uu) "Purchase Price" shall have the meaning given in Section 2.2.
(vv) "Qualified Plans" shall have the meaning given in Section
3.21(c).
(ww) "Real Property" shall mean the Owned Real Property and the
Leased Real Property, collectively.
(xx) "Related Party Transactions shall have the meaning given in
Section 3.29(a).
(yy) "Return" shall mean any tax return, statement, report or form
(including) estimated tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to Taxes.
(zz) "Rules " shall have the meaning given in Section 11. 4.
(aaa) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder, as the same may
be amended from time to time.
(bbb) "Shareholders' knowledge" shall have the meaning given in
Section 12.7.
(ccc) "SMCRA" shall mean the Surface Mining Control and Reclamation
Act of 1977, as amended.
(ddd) "Subsidiary" shall mean Bassco Valley, LLC, a Delaware limited
liability company.
(eee) "Tax" or "Taxes" shall mean any income, alternative or add-on,
ad valorem, transfer, withholding, franchise, profits, license, payroll,
employment, excise, severance, stamp, occupation, premium, property, land value
increment, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever
imposed on the Company or the Subsidiary and together with any interest or any
penalty, addition to tax or additional amount imposed with respect to any
interest or any penalty, addition to tax or additional amount imposed with
respect to any of the foregoing taxes by any Taxing Authority.
(fff) "Taxing Authority" shall mean any U.S. federal, state, local or
foreign governmental authority responsible for the imposition of any relevant
Tax.
(ggg) "Withdrawal Liability" shall mean liability to a Multi-employer
Plan as a result of a complete or partial withdrawal from such Multi-employer
Plan.
1.2 Additional Terms. Other capitalized terms used in this Agreement but
----------------
not defined in Section 1. 1 above shall have the meanings ascribed to them
wherever such terms first appear in this
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<PAGE>
Agreement; or, if no meanings are so ascribed, the meanings customarily
associated with such terms in the coal mining industry.
1.3 Rules of Interpretation.
-----------------------
(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) Except as otherwise defined herein, accounting terms have the
meanings assigned to them by generally accepted accounting principles, as
applied by the accounting entity to which they refer.
(e) The words include, includes " and " including " are not limiting.
(f) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(g) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(h) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(i) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Kentucky.
(j) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser and the Shareholders.
Accordingly, this Agreement and the Other Documents shall be deemed to be the
product of all parties thereto, and no ambiguity shall be construed in favor of
or against any party.
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<PAGE>
ARTICLE 2
PURCHASE AND SALE
-----------------
2.1 Purchase of the Shares. Subject to the terms and conditions of this
----------------------
Agreement, the Shareholders hereby agree to sell, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase, the Shares.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
----------------
Shares shall be Four Million Six Hundred Ninety-One Thousand Five Hundred
Seventy-Five Dollars ($4,691,575), which shall be paid to the Shareholders by
wire transfer of immediately available funds in accordance with Schedule 2.2.
-------------
2.3 Allocation of Purchase Price. The Shareholders agree to allocate the
----------------------------
Purchase Price for the Shares as provided in Schedule 2.2. The parties agree to
file any and all applicable Tax Returns and other required tax schedules in
accordance with such allocation and Code Section 1060 and will not adopt or
otherwise assert tax positions inconsistent therewith. The parties each shall
prepare and file completed Form 8594 for the taxable year in which the Closing
takes place. which form shall be consistent with the requirements set forth in
this Section 2.3.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
The Shareholders, jointly and severally, represent and warrant to the
Purchaser that to the best of the knowledge of each of the Shareholders (except
with respect to the representations and warranties contained in (S)(S)3.1, 3.2,
3.3, 3.4, 3.5, and 3.6, which shall not be qualified with respect to the
knowledge of any Shareholder) as of the date hereof and as of the Closing Date:
3.1 Organization, Power, Authority, Etc.
------------------------------------
(a) Each of the Company and the Subsidiary is validly organized and
existing and in good standing under the laws of Kentucky and Delaware,
respectively. Each of the Company and the Subsidiary (i) is duly qualified to do
business and in good standing as a foreign corporation or a foreign limited
liability company, as the case may be, in each jurisdiction where the nature of
its business makes such qualification necessary except for such failures to be
so qualified as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company or the Subsidiary, and (ii) has full corporate
power and authority to own and hold under lease its property and to conduct its
business substantially as presently conducted by it, except for such failures to
have power and authority as could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary, as the case may be, Schedule
--------
3.1 lists the jurisdictions in which each of the Company and the Subsidiary is
- - ---
qualified to do business.
(b) The minute books of the Company and the Subsidiary correctly
reflect all actions taken by the Company's directors and shareholders and the
Subsidiary's members and managers in their capacity as such, and correctly
record all resolutions adopted by them. All actions required of the Company and
the Subsidiary have been taken, and all reports or returns required to
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<PAGE>
be filed by the Company and the Subsidiary have been filed. Each of the Company
and the Subsidiary has full power and authority to enter into and perform its
obligations under this Agreement and each Other Document.
3.2 Due Authorization.
-----------------
(a) The Shareholders have full right, power, authority, and capacity
to execute and deliver this Agreement and the Other Documents, and to perform
their respective obligations under this Agreement and the Other Documents.
(b) Except as set forth on Schedule 3.2, the execution, delivery and
------------
performance by the Company and the Subsidiary of this Agreement and each of the
Other Documents, as the case may be, including each of the transactions
contemplated hereby and thereby: (i) have been duly authorized by all necessary
proceedings on the part of the Company and the Subsidiary, as the case may be;
(ii) do not require any Approval which has not been obtained or will not be
obtained prior to the Closing Date; (iii) will not conflict with or result in
any violation of, any provision of the certificate of incorporation and by-laws
(or any equivalent organizational documents) of the Company or the Subsidiary,
as the case may be; (iv) do not and will not conflict with any provision of any
material Instrument of the Company or the Subsidiary or any present law or
governmental regulation applicable to the Company or the Subsidiary, or their
assets, properties or operations or any court decree or order applicable to the
Company or the Subsidiary, or their assets, properties or operations; (v) do not
and will not result in or require the creation or imposition of any Charges on
any of the properties of the Company or the Subsidiary; and (vi) do not require
any notices, filings or authorizations to be given, filed or obtained from any
governmental authority other than notices required under the HSR Act.
3.3 Title to Stock. The Shareholders have, and at the Closing will have,
----------------
good and marketable (legal and beneficial) title to the Shares, free and clear
of all liens, pledges, proxies, voting trusts, licenses, security interests,
easements, rights-of-way, use restrictions, options, title defects, mortgages,
claims, charges, restrictions or encumbrances of any kind or nature whatsoever
(collectively, "Charges"), and there are no outstanding purchase agreements,
options, warrants, or other rights of any kind whatsoever entitling any Person
to purchase or acquire an interest in any of the Shares or restricting their
transfer in accordance with this Agreement. Each Shareholder owns of record and
beneficially the Shares set forth by his name in Recital A. Upon delivery of the
certificates representing the Shares, and upon receipt of the Purchase Price,
good and valid title to the Shares will pass to Purchaser, free and clear of all
Charges.
3.4 Validity, Etc. Assuming due execution as necessary by Purchaser, this
--------------
Agreement and each Other Document executed by the Shareholders, the Company or
the Subsidiary in accordance herewith constitutes the legal, valid and binding
obligations of each such Person executing such document enforceable in
accordance with its respective terms.
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<PAGE>
3.5 Capitalization of the Company.
-----------------------------
(a) As of the date hereof, the authorized capital stock of the
Company consists of Two Thousand (2,000) shares of common stock, no par value
per share. There are no outstanding (A) securities or obligations of the Company
convertible into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the Company any
capital stock or any such convertible or exchangeable securities or obligations,
except for the Bassco Option, or (C) obligations of the Company to issue such
shares, any such convertible or exchangeable securities or obligations, or any
such warrants, rights or options. No person has preemptive or similar rights
with respect to the securities of the Company. There are no obligations of the
Company or the Subsidiary to vote or to repurchase, redeem or otherwise acquire,
or to register under the Securities Act, any shares of capital stock of the
Company or membership interests in the Subsidiary.
(b) Except as set forth on Schedule 3.5, all of the outstanding
capital stock of the Company has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Shareholders, free and clear of
any Charges of any kind, there are no rights granted to or in favor of any third
party, other than the Company, to acquire any such capital stock, any additional
capital stock or any other securities of the Company (including securities
convertible into or exchangeable for capital stock), and there exists no
restriction on the payment of cash dividends by the Company.
3.6 Subsidiary. As of the Closing, all of the membership interests of the
----------
Subsidiary will be owned by the Company free and clear of any Charges of any
kind. There are no rights granted to or in favor of any third party to acquire
any such membership interests, any additional membership interests or any other
securities of the Subsidiary (including securities convertible into or
exchangeable for membership interests), and there exists no restriction on the
payment of cash dividends by the Subsidiary. Neither the Company nor the
Subsidiary owns or controls, directly or indirectly, any capital stock of any
other corporation or any interest in any other Person, except for the Bassco
Option.
3.7 Financial Statements.
--------------------
(a) The unaudited consolidated balance sheets of the Company as of
December 31, 1997, are set forth as Schedule 3.7 (the "Balance Sheet" and the
------------
"Financial Statements"). The Financial Statements: (i) were prepared: (x) from
and in accordance with the books and records of the Company and the Subsidiary
and (y) in accordance with GAAP, consistently applied; and (ii) fairly present
the financial condition, results of operations and cash flows of the Company and
the Subsidiary at the dates and for the period to which they relate, subject, in
the case of unaudited statements, to normal year-end audit adjustments
(consisting only of normal recurring accruals).
(b) The Company was incorporated on September 17, 1996.
(c) The reserves for future costs associated with workers'
compensation, Black Lung and unemployment compensation as stated in the
Financial Statements and in the books, records and financial statements of the
Company are fair and reasonable and in accordance with
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<PAGE>
GAAP and the appropriate financial accounting standards. The Company has accrued
its and the Subsidiary's obligations for retiree medical benefits in accordance
with Statement of Financial Accounting Standards No. 106.
3.8 Contingent Liabilities. The Company and the Subsidiary do not have
----------------------
any material liabilities other than (i) as set forth on the Financial
Statements, (ii) as reflected in, reserved against or otherwise disclosed in the
Balance Sheet or the notes thereto, and (iii) liabilities and obligations which
would not individually or in the aggregate have a Material Adverse Effect on the
Company or the Subsidiary.
3.9 Approvals. Except as set forth on Schedule 3.9 of the Disclosure
--------- -------------
Schedule, no approval is required to be obtained by the Company or the
Subsidiary for the consummation of the transactions contemplated by this
Agreement.
3. 10 No Existing Violation, Default, Etc. Neither the Company nor the
------------------------------------
Subsidiary is, or upon consummation of the transactions contemplated hereby will
be, in violation of (a) its certificate of incorporation, by-laws or other
organization documents, (b) except as set forth in Schedule 3.10, any applicable
-------------
law, rule, restriction, order, judgment, decree, ordinance, rule or regulation
of any governmental entity or administrative body, which violation has or could
reasonably be expected to have a Material Adverse Effect on the Company or the
Subsidiary, or (c) except as set forth in Schedule 3.10 any order, decree or
-------------
judgment of any court or governmental agency or body having jurisdiction over
the Company or the Subsidiary, which violation has or could reasonably be
expected to have a Material Adverse Effect on the Company or the Subsidiary.
Except as disclosed in Schedule 3.10, no breach or event of default or event
---------------
that, with the giving of notice or the lapse of time or both, would constitute a
breach or event of default exists or, upon the consummation of the transactions
contemplated by this Agreement, will exist under any Instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
is bound or to which any of the properties, assets or operations of the Company
or the Subsidiary is subject, which breach or event of default, or event that,
but for the giving of notice or the lapse of time or both, would constitute a
breach or event of default, has or could reasonably be expected to have a
Material Adverse Effect on the Company or the Subsidiary.
3. 11 Licenses, Etc. The Company and the Subsidiary hold, own and possess
--------------
all material governmental, regulatory and other filings, licenses, approvals,
registrations, permits, consents, franchises and concessions (collectively,
"Licenses") necessary for the ownership of the property and conduct of the
businesses of the Company and the Subsidiary, as now conducted. Such Licenses
are held without any infringement upon rights of other Persons, any violation of
law or regulation or any breach of a contractual or other obligation except for
such infringements, violations or breaches as could not reasonably be expected
to have a Material Adverse Effect on the Company or the Subsidiary. None of such
Licenses is being or has been challenged or revoked and no statement of
intention to challenge, revoke or fail to renew any such License has been
received by the Company or the Subsidiary. The Company and the Subsidiary are in
compliance with their respective obligations under such Licenses, with such
exceptions as individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect on the Company or the Subsidiary, and no event
has occurred that allows or, after notice or lapse of time or both, would allow
revocation,
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<PAGE>
suspension, limitation or termination of such Licenses, except such events as
could not reasonably be expected to have a Material Adverse Effect on the
Company or the Subsidiary.
3.12 Tangible Personal Property.
--------------------------
(a) Schedule 3.12(a) sets forth a true and complete list of all the
----------------
principal items of machinery, equipment, vehicles, and other tangible personal
property now owned by the Company or the Subsidiary in their business (the
"Owned Tangible Assets"). Except as set forth on Schedule 3.12(a), as of the
------------------
Closing Date and immediately following the consummation of the transactions at
Closing, the Company, or the Subsidiary as applicable, will have good and
marketable title to all of its fixed assets, operating assets and other tangible
personal property including, without limitation, its Owned Tangible Assets, free
and clear of all Charges. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated by this Agreement, will not result
in the creation of any Charge on any of the Owned Tangible Assets. The Owned
Tangible Assets shall be in good working order on the Closing Date, except for
normal wear and tear and deterioration associated with the operation of such
assets in the ordinary course of the Company's or the Subsidiary's business, and
are suitable for the purposes for which they are presently used.
(b) Schedule 3.12(b) sets forth a true and complete list of all the
----------------
principal items of machinery, equipment, vehicles, and other tangible personal
property now leased by each Company in its business, together with a brief
description of the principal terms of each lease (the "Leased Tangible Assets").
Except as set forth on Schedule 3.12(b), as of the Closing Date and immediately
------------------
following the consummation of the transactions at Closing, the Company, or the
Subsidiary as applicable, will have good and transferable leasehold interests in
all of its Leased Tangible Assets, in each case under valid leases enforceable
against the lessors thereunder. The execution and delivery of this Agreement,
and the consummation of the transactions contemplated by this Agreement, will
not result in the creation of any Charge on any of the Leased Tangible Assets or
result in any default under or violation of any applicable lease agreement. The
Leased Tangible Assets shall be in good working order on the Closing, Date,
except for normal wear and tear and deterioration associated with the operation
of such assets in the ordinary course of the Company's or the Subsidiary's
business, and are suitable for the purposes for which they are presently used.
3.13 Sufficiency of Assets. The tangible real and personal property,
---------------------
including, without limitation, plants, buildings, structures, equipment,
machinery and vehicles, owned or leased by the Company or the Subsidiary or used
or employed by either of them in their respective business, are sufficient and
adequate to carry on their respective businesses as presently conducted.
3.14 Environmental Matters. Except as set forth in Schedule 3.14:
--------------------- -------------
(a) Without limiting Section 3.14, except as could not reasonably be
expected to have a Material Adverse Effect on the Company or the Subsidiary, the
Company and the Subsidiary are in compliance in all respects with all
Environmental, Mining and Safety Requirements, and have filed all notices and
compliance reports required to be filed under any Environmental, Mining and
Safety Requirements (including, without limitation, notices and reports
indicating past or present treatment, storage or disposal, or reporting a spill
or release into the environment, of any Hazardous
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<PAGE>
Substances, Oils, Pollutants or Contaminants), and (i) neither the Company nor
the Subsidiary has received any written communication or other notice from any
governmental authority alleging that the Company or the Subsidiary is not in
compliance, in all material respects, with Environmental, Mining and Safety
Requirements, (ii) all contract mining activities performed on Real Property for
which the Company or the Subsidiary retains liability under Environmental,
Mining and Safety Requirements have been conducted in compliance in all material
respects with all Environmental, Mining and Safety Requirements, (iii) no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice have been filed or commenced against or otherwise given to the
Company or the Subsidiary alleging any failure so to comply, and (iv) neither
the Company nor the Subsidiary has any material contingent liability with
respect to its business in connection with any Hazardous Substances, Oils,
Pollutants, or Contaminants or under any Environmental, Mining, or Safety
Requirements.
(b) The Company and the Subsidiary maintain reserves for future
costs associated with reclamation and mine closings for all Real Property
(including any formerly owned or leased Real Property for which the Company or
the Subsidiary has retained or assumed liability either contractually or by
operation of law) in accordance with GAAP and the Company's and the Subsidiary's
reclamation projects and procedures are on schedule in accordance with SMCRA, in
all material respects and are being conducted in a manner that complies with all
other legal requirements in all material respects (including those governing
bonding and financial responsibility for reclamation and all Environmental,
Mining and Safety Requirements).
(c) (i) Neither the Company nor the Subsidiary has been notified that
it is a potentially responsible party, or that any governmental authority or
other individual is seeking information in connection with or advising the
Company or the Subsidiary that it is responsible for, or potentially responsible
for, costs under Environmental, Mining and Safety Requirements, including
CERCLA, for cleanup of, or investigatory, remedial or other corrective action
required with respect to Hazardous Substances, Oils, Pollutants or Contaminants
at any Real Property or at any other location; (ii) to the knowledge of the
Company, no Real Property 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 the Subsidiary has
knowledge of any release of Hazardous Substances, Oils, Pollutants or
Contaminants in quantities requiring investigation or cleanup at any of the
Owned Real Property or Leased Real Property or at any other location.
(d) The Company has provided Purchaser with (i) all information
within its possession regarding the environmental history of the operations of
the Company and the Subsidiary, including any audits, site assessments, sampling
or test results related to Hazardous Substances, Oils, Pollutants or
Contaminants, environmental impact statements, and liability studies prepared by
or for the Company or the Subsidiary, or by any third party, including
governmental agencies or insurance companies, and (ii) a list of all material
Licenses held by the Company and the Subsidiary under Environmental, Mining and
Safety Requirements.
(e) The Company and the Subsidiary have duly complied with, and
their respective businesses, operations, assets, equipment, leaseholds and
facilities, including, without limitation, the Real Property, are in full
compliance with, the provisions of all federal, state and local
-13-
<PAGE>
environmental, health and safety laws, codes and ordinances, and all rules and
regulations promulgated thereunder, including, without limitation, all laws and
regulations with respect to reporting releases of Hazardous Substances and the
registration, testing and maintenance of underground storage tanks.
(f) Except in accordance with a valid License listed on Schedule
--------
3.14, there has been no 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 servicing the Real
Property, of any Hazardous Substance, Oil, Pollutant or Contaminant at or from
any of the Real Property.
3.15 Taxes. Except as set forth on Schedule 3.15: (a) each of the Company
----- -------------
and the Subsidiary has duly filed all reports and returns relating to federal,
state, local or foreign income Tax required to be filed by it up to and
including the date hereof; (b) each of the Company and the Subsidiary has
maintained all required records with respect to Taxes and has duly paid all
Taxes shown as due on all Returns filed by it; and (c) reserves for Taxes
reflected in the Balance Sheet (other than for deferred Taxes) are not less, by
a material amount, than the Taxes that are attributable to periods up to and
including the periods contemplated by the Balance Sheet or that have otherwise
accrued as of the date of the Balance Sheet; (d) there are no Tax liens upon any
property or assets of the Company or the Subsidiary, except liens for current
Taxes not yet due; (e) no deficiencies have been proposed, asserted or assessed
against the Company or the Subsidiary in writing, and no issue has been raised
by any taxing authority in writing in any examination about which any of the
officers or directors of the Company or the Subsidiary (and employees
responsible for Tax matters of the Company or is Subsidiary) have knowledge
which, by application of the same or similar principles, reasonably could be
expected to result in a deficiency for any other period not so examined, except
for any deficiency which could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary; (f) with respect to periods
commencing a after December 31, 1992 and ending before January 1, 1998, neither
the Company, nor the Subsidiary or any of their respective predecessors in
interest has incurred any liability for Taxes that is unpaid; (g) there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Taxes or Returns of the Company or the Subsidiary for any
period; (h) all Returns for the Company and the Subsidiary 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; (i) neither the Company nor the Subsidiary
has, with regard to any assets or property held, acquired or to be acquired by
it, filed a consent to the application of Section 341(f)(2) of the Code; and (j)
no amount of compensation paid by the Company or the Subsidiary in 1997 or the
part of 1998 preceding the Closing Date is non-deductible for purposes of
federal, or any applicable state or local income Tax, except for any amount
which could not reasonably be expected to have a Material Adverse Effect on the
Company or the Subsidiary.
3.16 Litigation. Except as set forth in Schedule 3.16, there is no pending
---------- -------------
action, suit, proceeding, arbitration or investigation (nor any group of
actions, suits, proceedings, arbitrations or, investigations arising out of the
same event, transaction, occurrence or pattern of activity by the Company or the
Subsidiary) against or affecting the Company or the Subsidiary or any of their
respective properties, businesses, assets or operations, or with respect to
which the Company or the
-14-
<PAGE>
Subsidiary is responsible by way of indemnity or otherwise, (i) that questions
the validity of this Agreement or any action to be taken pursuant to this
Agreement or seeks to impose material damages in connection with the
transactions contemplated hereby, or (ii) that could reasonably be expected to
have an adverse effect on the Company or the Subsidiary in the amount of Two
Hundred Fifty Thousand Dollars ($250,000.00) or more or that could materially
affect the ability of the Shareholders to perform their obligations under this
Agreement. Except as set forth in Schedule 3.16, no such actions, suits,
-------------
proceedings or investigations are threatened or contemplated.
3.17 Compliance with Laws.
---------------------
(a) Except as set forth on Schedule 3.17, each of the Company and the
---------------
Subsidiary 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, 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, except for such failures as would not have a Material Adverse Effect
on the Company or the Subsidiary. Neither the Company nor the 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 its Subsidiarily as a result of any such alleged material violation.
(b) Except for acts, omissions or liabilities that could not
reasonably be expected to have a Material Adverse Effect on the Company or the
Subsidiary, neither the Company nor the Subsidiary is liable for any arrearages,
taxes or penalties with respect to any of their employees in regard to any
violation or potential violation of the Fair Labor Standards Act or regulations
under such act or other laws and regulations relating to wages, hours, labor
agreements, payment of Social Security and similar taxes, unemployment or
workers' compensation including Black Lung benefits and obligations and/or
similar state laws and regulations.
3.18 Labor Relations. Except as set forth in Schedule 3.18:
----------------- --------------
(a) The Company and the Subsidiary are in compliance in all respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, excluding Environmental,
Mining and Safety Requirements (which are addressed separately in Section 3.18),
except for such failures as could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary.
(b) The Company and the Subsidiary are in compliance with all
provisions of applicable collective bargaining agreements, and arbitration,
administrative and judicial decisions interpreting and/or affecting such
agreements, except for such failures as could not reasonably be expected to have
a Material Adverse Effect on the Company or the Subsidiary.
(c) There is no unfair labor practice charge or complaint or any other
labor employment matter against or involving the Company or the Subsidiary
pending or, to the Shareholders' knowledge, threatened before the National Labor
Relations Board or any court of law
-15-
<PAGE>
which could reasonably be expected to have a Material Adverse Effect on the
Company or the Subsidiary.
(d) There is no labor organizing activity, strike, dispute, lockout,
slowdown or stoppage actually pending or, to the Shareholders' knowledge,
threatened against the Company or the Subsidiary.
(e) Since January 1, 1994, there has been no certified collective
bargaining representative of the Company's or the Subsidiary's employees, no
demand made to the Company or the Subsidiary 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 the Subsidiary's employees.
(f) 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 threatened before the Equal
Employment Opportunity Commission or any federal, state or local agency or court
against the Company or the Subsidiary, except for those which could not
reasonably be expected to have a Material Adverse Effect on the Company or the
Subsidiary.
(g) Neither the Company nor the Subsidiary has any liability for
current or future obligations under the Industry Retiree Health Benefit Coal Act
of 1992, as amended.
3.19 Contract Miners. Truckers and Others. Schedule 3.19 contains a
------------------------------------ -------------
complete and accurate list of all Persons with whom the Company or the
Subsidiary has at any time since January 1, 1998, had any contract,
understanding or agreement (oral or written but exclusive of any employment
agreement with any hourly or salaried employees) or joint venture agreement or
partnership to perform services relating to the operations and facilities of the
Company or the Subsidiary, including, but not limited to, contracts,
understandings and/or agreements involving sludge and/or slurry, the mining of
coal, the preparation of coal, or the loading or hauling by truck, railroad,
barge or otherwise of coal or refuse in connection with any coal 9 operations.
To the Shareholders' knowledge, each such person and each subcontractor thereof
has all insurance required by the terms of any agreement between such person and
the Company or the Subsidiary. Neither the Company nor the Subsidiary or their
respective Affiliates are either a common or joint employer with respect to, or
have exercised any control over the employees or labor relations of any such
person.
3.20 Contracts and Commitments.
-------------------------
(a) Except as set forth on Schedule 3.20, neither the Company nor the
---------------
Subsidiary is a party to any: (i) collective bargaining agreement or contract
with any labor union; (ii) bonus, pension, profits sharing, retirement or other
form of deferred compensation plan; (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
annual compensation by the Company or the Subsidiary in excess of One Hundred
Thousand Dollars ($100,000.00); (v) agreement or indenture relating to borrowing
money in excess of Two Hundred Fifty Thousand
-16-
<PAGE>
Dollars ($250,000.00) or to mortgaging, pledging or otherwise placing a lien on
any material portion of the Company's or the Subsidiary's assets; (vi) guaranty
of any obligation for borrowed money in excess of Two Hundred Fifty Thousand
Dollars ($250,000.00); (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 One Hundred Thousand Dollars ($100,000.00); (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 One Million Dollars ($1,000,000.00)
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 price in excess of Two Hundred Fifty Thousand Dollars
($250,000.00); (x) contract or group of related contracts with the same party
for the sale of products or services (other than coal sales contracts referred
to in (viii) above) under which the undelivered balance of such products or
services has a sales price in excess of Two Hundred Fifty Thousand Dollars
($250,000.00); (xi) any agreement to acquire, by merging, consolidating with. or
by purchasing a substantial equity interest in or substantial portion of the
assets of, any business or corporation, partnership or other business
organization or otherwise acquire any material assets; (xii) tariff agreements
and other transportation contracts for the shipment of coal made in the ordinary
course of business; or (xiii) contract which prohibits or following the Closing
will prohibit the Company or the Subsidiary in any material respect from. freely
engaging in any business anywhere in the world.
(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 in
Schedule 3.20, together with all material amendments, waivers or other changes
- - -------------
thereto.
(c) Neither the Company nor the Subsidiary, or, to the Shareholders'
knowledge, any third party thereto, is in default, breach or violation under any
contract listed in Schedule 3.20, except for such defaults, breaches or
-------------
violations which could not reasonably be expected to have a Material Adverse
Effect on the Company or the Subsidiary.
3.21 Employee Benefits.
-----------------
(a) Schedule 3.21(a) includes a complete list of all material Employee
----------------
Benefit Plans.
(b) With respect to each Plan, the Company has delivered or made
available re Purchaser a true, correct and complete copy of: (i) each writing
constituting a part of such Plan including, without limitation, all plan
documents, employee communications, benefit schedules, trust agreements, and
insurance contracts and other funding vehicles; (ii) the most recent Annual
Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current
summary_plan description and any material modifications thereto, if any (in each
case, whether or not required to be furnished under ERISA); (iv) the most recent
annual financial report, if any; (v) the most recent actuarial report, if any;
and (vi) the most recent determination letter from the IRS, if any are no
amendments to any Plan that have been adopted or approved nor has the Company
the Subsidiary undertaken to make any such amendments or to adopt or approve any
new Plan
-17-
<PAGE>
(c) Schedule 3.21(c) identifies each Plan that is intended to be a
----------------
"qualified plan' within the meaning of Section 401(a) of the Code ("Qualified
Plans"). Except as set forth in, Schedule 3.21, the IRS has issued a favorable
-------------
determination letter with respect to each Qualified Plan and the related trust
that has not been revoked, and, to the Shareholders' knowledge, there are no
existing circumstances or events that have occurred that could adversely affect
the qualified status of any Qualified Plan or the related trust. No [Qualified]
Plan is intended to meet the requirements of Code Section 501(c)(9).
(d) All contributions required to be made to any Plan by applicable
law of regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full or,
to the extent not required to be made or paid on before the date hereof, have
been fully reflected in the Financial Statements. Each Employ Benefit Plan that
is an employee welfare benefit plan under Section 3(1) of ERISA is either (i)
funded through an insurance company contract and is not a "welfare benefit fund"
within the meaning of Section 419 of the Code, (ii) self-insured and considered
unfunded, or (HE) a combination of (i) and (ii).
(e) With respect to each Employee Benefit Plan, the Company and The
Subsidiary have complied, and are now in compliance, in all material respects
with all provisions of ERISA, the Code and all laws and regulations applicable
to such Employee Benefit Plans and each Employee Benefit Plan has been
administered in all material respects in accordance with its terms, except where
such noncompliance could not reasonably be expected to have a Material Adverse
Effect upon the Company or the Subsidiary. To the Shareholders' knowledge, there
is not now, nor do any circumstances exist that could give rise to, any
requirement for the posting of security with respect to a Plan or the imposition
of any lien on the assets of the Company or the Subsidiary under ERISA or the
Code.
(f) No Employee Benefit Plan is subject to Title IV or Section 302 of
ERISA or Section 412 or 4971 of the Code.
(g) Except as set forth on Schedule 3.21(g), no Employee Benefit Plan
------------------
is a Multi-employer 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"). Neither the Company, nor the
Subsidiary or any of their respective ERISA Affiliates have, at any time during
the last six years, contributed to or been obligated to contribute to any Multi-
employer Plan or Multiple Employer Plan. Neither the Company, nor the Subsidiary
any ERISA Affiliates have incurred any Withdrawal Liability.
(h) To the Shareholders' knowledge, there does not now exist, nor do
any circumstances exist that could result in, any Controlled Group Liability
that would be a Liability the Company, or the Subsidiary, following the Closing.
Without limiting the generality of the foregoing, none of the Company or the
Subsidiary, their Affiliates or any ERISA Affiliate of the Company or the
Subsidiary has engaged in any transaction described in Section 4069 or Section
4204 or 4212 of ERISA.
-18-
<PAGE>
(i) Except as set forth on Schedule 3.21(i), the Company and the
----------------
Subsidiary have 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 Part 6 of
Title I of ERISA and at no expense to the Company or the Subsidiary.
(j) 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 the Subsidiary. Without limiting
the generality of the foregoing, no amount paid or payable by the Company or the
Subsidiary in connection with the transactions contemplated hereby (either
solely as a result thereof or as a result of such transactions in conjunction
with any other event) will be an "excess parachute payment" within the meaning
of Section 280G of the Code.
(k) To the Shareholders' knowledge, none of the Company, the
Subsidiary or any other Person, including any fiduciary, has engaged in any
"prohibited transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA), which could subject any of the Employee Benefit Plans or their
related trusts, the Company, the Subsidiary, or any Person that the Company or
the Subsidiary has an obligation to indemnify, to any material tax or penalty
imposed under Section 4975 of the Code or Section 502 of ERISA.
(l) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and to the Shareholders' knowledge, no set of
circumstances exists which may reasonably give rise to a claim or lawsuit,
against the Plans, any fiduciaries thereof with respect to their duties to the
Plans or the assets of any of the trusts under any of the Plans which could
reasonably be expected to result in any material Liability of the Company or the
Subsidiary to the Department of Treasury, the Department of Labor, any Multi-
employer Plan, any Plan or any participant in a Plan.
(m) The Company, the Subsidiary, and each member of their respective
business enterprises have complied with the Worker Adjustment and Retraining
Notification Act.
(n) For purposes of this Section 3.21, the term "employee" shall be
considered to include individuals rendering personal services to the Company or
the Subsidiary as independent contractors.
3.22 Banks, Directors and Officers, Life Insurance and Employees, Schedule
---------------------------------------------------------------------
3.22 sets forth (a) a list of all banks with which the Company or the Subsidiary
- - -----
has an account, deposit, certificate of deposit, or safe deposit box along with
identifying numbers and the names_of all persons authorized to draw thereon or
having access thereto; (b) the names of all incumbent directors and officers of
the Company and the Subsidiary and of all incumbent trustees and committee
members under any of the Plans (as that term is defined in Section 3.22) or
related trusts; (c) a description and identification of any insurance policies
held or paid for by the Company or the Subsidiary on the lives of any of their
respective key employees, officers, directors or shareholders, and (d) the names
and job descriptions of all of the Company's and the Subsidiary's employees
whose
-19-
<PAGE>
total compensation from the Company and the Subsidiary for the fiscal year
ending December 31, 1998, will exceed Twenty-Five Thousand Dollars ($25,000.00),
together with a statement of the full amount paid or payable to each such person
in respect of such year, a summary of the basis on which each such person is
compensated if the basis is other than a fixed salary rate, and any changes in
any of the foregoing since December 31, 1990. Except for any currently effective
collective bargaining agreements listed on Schedule 3.26(a), no person is
employed by the Company or the Subsidiary other than at the will of the Company
or the Subsidiary for an indefinite period of time, and at the option of either
the Company or the employee, such employee's employment with the Company may be
terminated with or without cause, and with or without notice, at any time.
3.23 No Material Adverse Change. Except as set forth on Schedule 3.23,
-------------------------- -------------
since December 31, 1997, except as contemplated by this Agreement: (a) neither
the Company nor the Subsidiary has incurred any liability, guarantee or
obligation (indirect, direct or contingent), or entered into any oral or written
agreement or other transaction, that is not in the ordinary course of business
or that could reasonably be expected to be material to the Company; and (b)
there has been no Material Adverse Effect on the Company or the Subsidiary, nor
any developments that could reasonably be expected to result in a Material
Adverse Effect on the Company or the Subsidiary.
3.24 Insurance. Schedule 3.24 sets forth a list and description of all
--------- -------------
policies of fire, liability, product liability, workers compensation, health and
other forms of insurance presently in effect with respect to the Company's and
the Subsidiary's business, true and complete copies of which have previously
been made available to Purchaser. All such policies are valid, outstanding and
enforceable policies. No notice of cancellation, termination or rejection of any
material claim has been received by the Company or the Subsidiary with respect
to any such policy in the last year. The activities and operations of the
Company and the Subsidiary have been conducted in a manner so as to conform in
all material respects to all applicable provisions of such insurance policies.
The Company and the Subsidiary have been covered during the past five (5) years
(or such shorter period as the 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.
3.25 Intellectual Property Rights.
-----------------------------
(a) Schedule 3.25 lists all material Intellectual Property owned or
-------------
licensed by the Company or the Subsidiary. Except as set forth on Schedule 3.25,
--------------
such Intellectual Property is vested in or validly granted to the Company or the
Subsidiary free and clear of all Charges and is not restricted in any material
way. Neither the Company nor the Subsidiary has performed any act or permitted
any omission which has resulted or could reasonably be expected to result in the
cessation of the Company's or the Subsidiary's valid and enforceable rights in
such Intellectual Property. Except as set forth on Schedule 3.21, neither the
-------------
Company nor the Subsidiary has granted or is obligated to grant any license,
sub-license or assignment in respect to any of such Intellectual Property.
Neither the Company nor the Subsidiary is in breach of any license, sublicense
or assignment granted to it with respect to any such Intellectual Property.
-20-
<PAGE>
(b) The Company and the Subsidiary own, or have the defensible right
to use. all of the Intellectual Property used in their respective businesses as
currently conducted, except where the failure to own or have the right to use
such Intellectual Property could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary.
(c) To the Shareholders' knowledge, (i) the operation of the
businesses of the Company and the Subsidiary do not infringe upon the
intellectual property rights of any other Person, and (ii) the Intellectual
Property of the Company and the Subsidiary is not infringed by the operations of
any other Person.
3.26 Proprietary Information. Prior to or in conjunction with the Closing,
-----------------------
the Shareholders shall have fully disclosed to Purchaser all customer lists,
trade secrets, processes, inventions, formulas, methods, know-how and other
proprietary information used or developed by the Company and the Subsidiary in
connection with their respective business. Neither the Company nor the
Subsidiary has disclosed or permitted the disclosure of any such proprietary
information to any other Person, and the use by the Company and the Subsidiary
of such proprietary information does not violate any other Person's proprietary
rights.
3.27 Real Property.
--------------
(a) Schedule 3.27(a) sets forth a true and complete list of all leases
-----------------
and other agreements (including wheelage and right-of-way agreements) by which
the Company or the Subsidiary has a leasehold interest or other contractual
right in or to any real property, or has the right to receive income from any
third party as a result of the use or occupancy of any real property by such
third party (collectively, the "Leased Real Property"). For each Leased Real
Property, the list includes: (i) an identification of the lease, sublease or
license agreement therefor (or any other agreement with respect to the use or
occupancy thereof) and any and all amendments or modifications thereof or side
letters with respect thereto (collectively, the "Leases"); (ii) the approximate
size of the premises leased thereunder (if available); (iii) the term of the
lease, including any extension options; (iv) the use of such premises and the
nature of any improvements located thereon; (v) the recording information of any
Leases which have been recorded in the applicable real estate records offices;
and (vi) the current rental or royalty (minimum and production) rate as well as
the amount of royalty paid and subject to recoupment. Except as could not
reasonably be expected to have a Material Adverse Effect on the Company or the
Subsidiary, the Company and the Subsidiary have good and valid leasehold title
to lawfully and exclusively conduct mining operations on the Leased Real
Property used for mining purposes, free and clear of all Charges except for
Permitted Charges. Except as could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary, the Company and the Subsidiary
have good and marketable leasehold title to the Leased Real Property other than
the Leased Real Property used for mining purposes, free and clear of all Charges
except for Permitted Charges.
(b) Schedule 3.27(b) sets forth a true and complete list of all real
----------------
property that the Company and the Subsidiary own in fee, whether surface or
mineral (collectively, the "Owned Real Property"; the Owned Real Property and
the Leased Real Property are, collectively, the "Real Property"). For each
parcel of Owned Real Property, the list includes: (i) the entity in which title
is
-21-
<PAGE>
vested and the deed or other instrument by which such entity acquired title
(including the instrument date, the recording, information and, if title is
vested in more than one entity, the percentage ownership of such entity); (ii)
the approximate acreage thereof; and (iii) the use thereof and the nature of any
improvements thereon. Except as could not reasonably be expected to have a
Material Adverse Effect on the Company or the Subsidiary, the Company and the
Subsidiary have good and valid fee title to lawfully and exclusively conduct
mining operations on the Owned Real Property used for mining purposes, free and
clear of all Charges except for Permitted Charges. Except as could not
reasonably be expected to have a Material Adverse Effect on the Company or the
Subsidiary, the Company and the Subsidiary have good and marketable fee title to
the Owned Real Property other than the Owned Real Property used for mining
purposes, free and clear of all Charges except for Permitted Charges.
(c) Except as set forth on Schedule 3.27(a): (i) there is no past due
----------------
payment obligation or other material default under any of the Leases; (ii)
neither the Company nor the Subsidiary or any Shareholder has received any
notice (oral or written) of, or has knowledge of, any act, omission or condition
which constitutes a material default, or with the passage of time and/or the
giving of notice, would constitute a material default under any of the Leases;
(iii) except as could not reasonably be expected to have a Material Adverse
Effect on the Company or the Subsidiary, neither the Company nor the Subsidiary
has mined any coal that did not belong to it, nor mined any coal in such a
reckless or imprudent manner as to give rise to any material claims for loss or
waste by any lessor under any Lease; and (iv) except as could not reasonably be
expected to have a Material Adverse Effect on the Company or the Subsidiary, the
Leases are in good standing and in full force and effect, valid and enforceable
against the parties thereto in accordance with their terms.
(d) Subject to all of the lessors listed on Schedule 3.27(a) giving
-----------------
their consent to the transactions contemplated herein, the consummation of such
transactions will not constitute a default under the terms of any of the Leases.
(e) Except as set forth on Schedules 3.27(a) or (b), the Company and
------------------------
the Subsidiary are in actual and peaceful possession of: (i) the Real Property
other than the Real Property used for mining purposes; and (ii) that portion of
the Real Property used for ' i g purposes on which the Company or the Subsidiary
is actively conducting coal mining operations.
(f) Except as could not reasonably be expected to have a Material
Adverse Effect on the Company or the Subsidiary, no applicable zoning or
building law, ordinance, administrative regulation, urban redevelopment law, or
any other law, regulation, rule, order, decree or use restriction, prohibits
or interferes with, limits or impairs the use, operation, maintenance of or
access to, or affects the value of, the Real Property, as now used, operated or
maintained by the Company or the Subsidiary. Except as set forth on Schedules
---------
3.27(a) or (b), no notice of any violation of any applicable zoning or building
- - ----------------
law, ordinance, administrative regulation, or any other law, regulation, rule,
order, decree or use restriction has been received by the Company or the
Subsidiary, and neither the Company nor the Subsidiary does not know of the
threat of any such notice, and no condemnation proceeding has been instituted or
is threatened with respect to any Real Property.
-22-
<PAGE>
(g) All parcels of land included in the Real Property are, and except
as could not reasonably be expected to have a Material Adverse Effect on the
Company or the Subsidiary, all improvements located on any parcel of Real
Property are, suitable, sufficient and appropriate in all respects for their
current and contemplated uses. Each parcel or contiguous parcels. as applicable,
of Real Property is located adjacent to roads or streets with adequate lawful
ingress and egress available between such roads or streets and such Real
Property for all purposes related to the operations of the Company and the
Subsidiary. To the best of the Shareholders' knowledge, no material portion of
any Real Property lies in any flood plain area (as defined IN the U.S. Army
Corps of Engineers or otherwise) or includes any wetlands protected by any
applicable law.
(h) Except as set forth in Schedules 3.27(a) or (b) and except for
-------------------------
Permitted Charges, neither the Company nor the Subsidiary has granted any
outstanding options or has entered into any outstanding contracts with others
for or in connection with the sale, pledge, hypothecation, assignment, sublease,
lease or other transfer of all or any part of the Real Property. Except as could
not reasonably be expected to have a Material Adverse Effect on the Company or
the Subsidiary, no Person or entity has any right or option to acquire, or right
of first refusal or opportunity (or any similar right) with respect to, the
interest of the Company and the Subsidiary in any Real Property.
3.28 Securities Law Matters. Neither the Company nor the Subsidiary has
----------------------
made, directly or indirectly, any offer or sale of the common shares or
securities of the same or a similar_class, or taken any other action as a result
of which the offer and sale of any such common shares or securities contemplated
hereby could fail to be entitled to exemption from the registration requirements
of the Securities Act. As used herein, the terms "offer" and "sale" have the
meanings specified in Section 2(3) of the Securities Act.
3.29 Related Party Transactions.
---------------------------
(a) Except as disclosed in Schedule 3.29, neither the Company nor the
-------------
Subsidiary or any of the Shareholders, has, either directly or indirectly, a
material interest in (i) any Person that purchases from or sells, leases,
licenses or furnishes to the Company or the Subsidiary any goods, property,
technology or intellectual or other property rights or services or has other
material business relations with the Company or the Subsidiary; or (ii) any
Person who is a party to a contract or agreement to which the Company or the
Subsidiary are also parties or by which they may be bound or affected (the
matters set forth in clauses (i) and (ii, are collectively "Related Party
Transactions"). A complete list of all Related Party Transactions is set forth
in Schedule 3.29.
-------------
(b) Other than as set forth in Schedule 3.29, and other than in or
-------------
through :he Company and the Subsidiary, none of the Company, the Subsidiary, the
Shareholder or any of their respective Affiliates conducts or engages in any
business related to the exploring, mining, transporting, marketing and selling
of coal.
3.30 Permit Blocking. Neither the Company nor the Subsidiary has been
---------------
notified nor expects to be notified 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 (or any comparable state statute), that it is (i)
ineligible to receive additional surface mining permits; or (ii)
-23-
<PAGE>
under investigation to determine whether its eligibility to receive such permits
should be revoked, i.e., "permit blocked," and, to the Shareholders' knowledge,
there is no basis therefor.
3.31 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or the Subsidiary, except as may exist in
customary form in loan or credit documentation with the Company's or the
Subsidiary's lenders with respect to the exercise by such creditors of rights
regarding collateral.
3.32 Notes and Accounts Receivables. Except as set forth in Schedule 3.32,
-------------------------------- --------------
all notes and accounts receivable of the Company and the Subsidiary shown on the
Current Balance Sheet or thereafter acquired by the Company and any of the
Subsidiary have been collected or are current and collectible in the ordinary
course (in the case of any such note in accordance with its terms, and in the
case of any such account within forty-five (45) days after billing) at the
aggregate recorded amounts thereof on the Company's and the Subsidiary's books,
less the bad debt reserves provided therefor on the Current Balance Sheet, as
such reserves may have been adjusted on the Company's or the Subsidiary's books
in the ordinary course of business to date. No note or account receivable of the
Company or the Subsidiary is subject to counterclaim or setoff.
3.33 Inventory. The Company's coal inventory consists solely of coal which
-----------
is usable or saleable at regular market prices in the ordinary course of the
Company's and the Subsidiary's respective businesses.
3.34 Permits and Bonds.
------------------
(a) The Company and the Subsidiary have all permits, licenses,
franchises, approvals, certificates or authorizations (collectively, the
"Permits") of any federal, state or local governmental or regulatory body
required in order to permit them to carry on their respective businesses as
presently conducted, all of which are in full force and effect, and none of
which will be adversely affected by the transactions contemplated herein. All
Permits held by the Company and the Subsidiary are listed on Schedule
--------
3.34(a)(1), (the "Hayman Permits"). No misrepresentations or willful or
negligent omissions were made of any material fact in obtaining 9C, any Hayman
Permits. No action or claim is pending, threatened or contemplated to revoke,
suspend, modify, alter, amend or terminate any Hayman Permit, or to declare any
of Hayman Permit invalid in any respect, and none of the Shareholders know of
any reason for such action. Except as set forth on Schedule 3.34(a)(2), neither
---------------------
the Company nor the Subsidiary has received any notice of noncompliance since
December 31, 1997.
(b) The Company and the Subsidiary have posted all reclamation and
performance bonds required to be posted in connection with their operations. All
reclamation and performance bonds posted by the Company and the Subsidiary in
- - ------------
connection with their operations are listed on Schedule 3.34(b)(1)
-------------------
(collectively, the "Bonds"). Except as disclosed on Schedule 3.34(b)(2): (i)
-------------------
each of the Company and the Subsidiary has properly carried out all reclamation
with respect to its coal mining and processing operations required to date by
law; and (ii) the operation of the Company's and the Subsidiary's respective
coal mining and processing operations, and the state of reclamation on all of
the Leased Real Property and Owned Real Property are "current" or in "deferred
status"
-24-
<PAGE>
regarding reclamation obligations and otherwise are in material compliance with
all applicable mining, reclamation, health and safety, zoning, land use and all
other laws and regulations (including, without limitation, all aspects of the
Federal Coal Mine Health and Safety Act of 1969, as amended, and the Federal
Mine Safety and Health Act of 1977, as amended, and similar state laws and
regulations) and in accordance with reclamation plans submitted with respect to
the Hayman Permits.
3.35 Coal Supply Agreements. Schedule 3.35 lists all coal supply agreements
---------------------- --------------
to which the Company or the Subsidiary is bound. Neither the Company nor the
Subsidiary or any of their Shareholders know, or has any reasonable ground to
know, that any customer under any coal supply contract or purchase order listed
on Schedule 3.35 has terminated or expects to terminate, other than in
--------------
accordance with the terms of such contract or purchase order, its normal
business with the Company and the Subsidiary, as a result of the transactions
contemplated by Agreement.
3.36 Completeness of Statements. No statement, schedule, annex,
--------------------------
certificate, information, representation or warranty of the Company, the
Subsidiary or any of the Shareholders contained in this Agreement, or furnished
by or on behalf of the Company, the Subsidiary or any of the Shareholders to
Purchaser or any of its representatives or agents pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary in order to make a statement contained herein or
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser represents and warrants to the Shareholders as follows:
4.1 Organization. Purchaser is a corporation duly organized and validly
------------
existing under the laws of the State of Delaware, and has full corporate power
and authority to own and lease its properties as such properties are now owned
and leased, and to conduct its business as and where its business is now
conducted.
4.2 Authority,
----------
(a) Purchaser has full right, power, authority and capacity to execute
and deliver this Agreement and the Other Documents, and to perform its
obligations under this Agreement and the Other Documents. This Agreement and the
Other Documents constitute valid and legally binding obligations of Purchaser,
enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser will not violate any provision of, result
in the breach of, cause or permit the acceleration of or result in the
termination or cancellation of: (i) any performance required by the terms of
Purchaser's articles of incorporation or bylaws; (ii) any contract, agreement,
arrangement or undertaking to which Purchaser
-25-
<PAGE>
is a party or by which it may be bound; (iii) any judgment, decree, writ,
injunction, order or award of any arbitration panel, court or governmental
authority; or (iv) any applicable law, ordinance, rule or regulation of any
governmental body.
(c) The execution, delivery, performance and consummation of the
transactions contemplated by this Agreement and the Other Documents have been
duly authorized by all requisite corporate action. All other consents,
approvals, authorizations, releases or orders required of or for Purchaser for
the authorization, execution, delivery, performance and consummation of the
transactions contemplated by, this Agreement and the Other Documents will be
obtained by the Closing.
ARTICLE 5
COVENANTS OF THE SHAREHOLDERS
-----------------------------
The Shareholders hereby covenant and agree with Purchaser that:
5.1 Consents. The Shareholders shall: (i) procure, upon reasonable terms
----------
and conditions, all consents and approvals; (ii) complete all filings,
registrations and certificates; and (iii) satisfy all other requirements
prescribed by law, including obtaining any approval necessary under antitrust
laws, which are necessary to consummate the transactions contemplated in this
Agreement and the Other Documents.
5.2 Post-Closing Assistance. In case at any time after the Closing any
-----------------------
further action is necessary or desirable to consummate the transactions
contemplated by this Agreement and the Other Documents, the Shareholders will
promptly take or cause to be taken such further action (including the execution
and delivery of such further instruments and documents) as Purchaser may
reasonably request.
5.3 Cooperation. The Shareholders shall cooperate fully, completely and
-----------
promptly with Purchaser in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement and the Other
Documents.
5.4 Representations and Warranties. The Shareholders shall not cause or
------------------------------
permit any representations or warranties made in this Agreement, including,
without limitation, representations and warranties contained in Article 3 of
this Agreement, to be untrue or incomplete as of the Closing.
5.5 Publicity. Except as required by applicable law, without the prior
---------
written consent of Purchaser, none of the Shareholders shall disclose or
publish, or permit the disclosure or publication of, any information concerning
the execution and delivery of this Agreement and the Other Documents, or the
transactions contemplated by this Agreement and the Other Documents, to any
Person.
5.6 Resignations. At the Closing, the Shareholders shall, on request of
------------
Purchaser, cause the individuals identified as officers or directors of the
Company or the Subsidiary to resign as officers and/or directors of the Company
and the Subsidiary, and shall cause the Persons identified
-26-
<PAGE>
as trustees or committee members of the Plans to resign as trustees and/or
committee members of the Plans, which resignations shall be effective
immediately after the Closing.
5.7 Permits. In the event that not all of the Permits are available for
-------
use by the Company and the Subsidiary immediately following the transactions
contemplated by this Agreement, the Shareholders, Purchaser, the Company and the
Subsidiary shall cooperate in any reasonable arrangement designed to provide
Purchaser, the Company and the Subsidiary the benefits under any such Permits
until such Permits are available for use by the Company and the Subsidiary,
provided that the Company, the Subsidiary and Purchaser will bear all of the
expenses of so doing and Purchaser will see that the Shareholders are relieved
from any liability in connection therewith as quickly as practicable after the
Closing.
ARTICLE 6
COVENANTS OF PURCHASER
----------------------
Purchaser covenants and agrees with the Shareholders that from the date
hereof through the Closing:
6.1 Cooperation. Purchaser shall cooperate fully, completely and promptly
-----------
with the Shareholders in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement and the Other
Documents.
6.2 Representations and Warranties. Purchaser will not cause or permit any
------------------------------
of its representations and warranties made in this Agreement, including, without
limitation, its representations and warranties contained in Article 4 of this
Agreement, to be untrue or incomplete as of the Closing.
6.3 Publicity. Except as required by applicable law, without the prior
---------
written consent of the Shareholders, Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any Person.
6.4 Ownership and Control. As soon as practicable after the Closing, and
---------------------
in any event within thirty (30) Business Days after the Closing Date, Purchaser
shall take all necessary and appropriate action, pursuant to all applicable
statutes or regulations, to give notice to any appropriate agencies, of the
change in ownership and control of the Company resulting from the Purchase
pursuant to this Agreement.
6.5 Post Closing Liabilities. Purchaser will cause the Company and the
------------------------
Subsidiary to pay and satisfy all of their debts, obligations and liabilities
following the Closing, and will protect the Shareholders from and indemnify them
against, such debts, obligations and liabilities, except in the case of any
Shareholders to the extent such Shareholders are obligated to indemnify the
Purchaser pursuant to Article 10 below with respect to any such debts,
obligations or liabilities.
-27-
<PAGE>
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
7.1 Representations, Warranties and Covenants. The representations and
-------------------------------------------
warranties of the Shareholders contained herein shall be true on the Closing
Date, with the same effect as though made at such time, except to the extent of
changes permitted by the terms of this Agreement. The Shareholders, the Company
and the Subsidiary shall have performed all obligations and complied with all
covenants required by this Agreement to be performed or complied with by them
prior to the Closing.
7.2 No Material Adverse Effect. No Material Adverse Effect with respect to
----------------------------
the Company or the Subsidiary shall have occurred since the date of this
Agreement.
7.3 Opinion of Counsel for the Shareholders. Purchaser shall have received
-----------------------------------------
an opinion from Greenebaum, Doll & McDonald, counsel for the Shareholders, dated
the Closing Date, substantially in the form attached hereto as Annex 7.3.
7.4 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated in this Agreement and
the Other Documents shall have been fulfilled, and all Approvals required to be
obtained to permit the consummation by Purchaser of the transactions
contemplated by this Agreement and the Other Documents, and to permit the
businesses presently carried on by the Company and the Subsidiary to continue
unimpaired in all material respects immediately following the Closing, shall
have been obtained.
7.5 Ancillary Agreements. The Shareholders, the Company and the Subsidiary
--------------------
shall have executed all Other Documents, including, without limitation, the
Power Equity Agreement and the Francis Release and all such executed agreements
shall have been delivered to Purchaser.
7.6 Deliveries. At or before the Closing, the Shareholders shall (i)
------------
deliver to Purchaser all instruments necessary or otherwise reasonably requested
by Purchaser to duly and properly transfer and convey title to the Shares as
contemplated by this Agreement and (ii) make all other deliveries contemplated
in this Agreement.
7.7 Financing. Purchaser shall have arranged financing with such lenders,
---------
in such amounts, at such rates, and upon such terms as Purchaser deems, in
Purchaser's sole discretion, necessary and sufficient to consummate the
transactions contemplated in this Agreement and the Other Documents.
7.8 Closing. The Closing shall occur on or before September 2, 1998 (the
---------
"Closing Date"), unless the Closing Date is extended by the mutual written
agreement of the parties hereto.
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<PAGE>
7.9 Third-Party Consents and Approvals. The parties shall have obtained
------------------------------------
all third party consents and approvals (all on terms and conditions satisfactory
to Purchaser in its sole and absolute discretion) that are necessary for: (a)
the consummation of the transactions contemplated by this Agreement and the
Other Documents; and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
any Shareholder shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
7.10 No In-junction. No injunction or order of any court or administrative
---------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
7.11 No Pending Action. No action, suit or other proceeding by any Person
-------------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
7.12 Due Diligence. Purchaser shall be satisfied, in its sole discretion,
---------------
with the results of its due diligence of the Company and the Subsidiary and
their respective assets and liabilities, including, without limitation: (i) all
rights, title, interests and Liabilities of the Company and the Subsidiary; (ii)
the terms and conditions of all agreements to which the Company or the
Subsidiary is a party (including but not limited to the terms and conditions of
all lease agreements_under which the Company or the Subsidiary has any interest,
especially terms authorizing Purchaser to conduct highwall mining under such
lease agreements); (iii) the mineability, quantity and quality of the coal
reserves of the Company and the Subsidiary; and (iv) the magnitude of the
reclamation obligations (regardless of whether such obligations are "current" or
in "deferred status ").
7.13 Board Approval. Purchaser's board of directors shall have approved
----------------
this Agreement, and the transactions contemplated hereunder.
7.14 Kindill Agreement. Purchaser shall have consummated the transactions
-----------------
contemplated by the Kindill Agreement.
7.15 Fairness Opinion. Purchaser shall have received an opinion of
----------------
Rothschild Inc. that the transactions contemplated by this Agreement and the
Other Documents are fair from a financial point of view to Purchaser.
7.16 Subsidiary Ownership. The Company shall have acquired one hundred
--------------------
percent (100%) of the membership interests of the Subsidiary.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS
---------------------------------------------
The obligations of the Shareholders to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:
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<PAGE>
8.1 Representations. Warranties and Covenants. The representations and
-------------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing.
8.2 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by the Shareholders of the transactions contemplated in this
Agreement and the Other Documents shall have been fulfilled, and all Approvals
required to be obtained in order to permit the consummation by the Shareholders
of the transactions contemplated in this Agreement and the Other Documents shall
have been obtained.
8.3 Deliveries. At or before the Closing, Purchaser shall make all of its
------------
deliveries contemplated in this Agreement.
8.4 Third-Party Consents and Approvals. The parties shall have obtained
------------------------------------
all third party consents and approvals that are necessary for: (a) the
consummation of the transactions contemplated by this Agreement and the Other
Documents; and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that notwithstanding the foregoing, neither Purchaser nor the
Shareholders shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
8.5 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
8.6 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
8.7 Closing. The Closing shall occur on or before the Closing Date, as
---------
such date may be extended by the mutual written agreement of the parties hereto.
ARTICLE 9
THE CLOSING/TERMINATION
-----------------------
9.1 Date and Place. The Closing shall be held on the Closing Date at 10:00
----------------
a.m. simultaneously in the offices of Brown, Todd & Heyburn PLLC, 2700 Lexington
Financial Center, 250 West Main Street, Lexington, Kentucky 40507 and Greenebaum
Doll & McDonald PLLC, 3300 National City Tower, Louisville, Kentucky 40202, or
at such other place or time on the Closing Date as the parties may mutually
agree.
9.2 Deliveries. At or before the Closing, the parties shall make all of
------------
the deliveries contemplated in this Agreement.
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<PAGE>
9.3 Termination. In the event the Closing shall not be held by the Closing
-------------
Date, as it may be extended by mutual written agreement of the parties hereto,
any party may terminate this Agreement upon written notice to the other parties.
If this Agreement is terminated pursuant to this Section 9.3, all parties shall
be released from all further obligations under this Agreement and the Other
Documents and shall have no further obligation to negotiate any such agreements;
provided, however, that termination pursuant to this Section 9.3 shall not
relieve the defaulting or breaching party hereunder from any liability to the
other party hereto resulting from the default or breach hereunder of such
defaulting or breaching party occurring prior to the date of termination.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS AND WARRANTIES -- INDEMNIFICATION
-------------------------------------------------------------
10.1 Survival. Each of the parties' representations, warranties, covenants
--------
and agreements (including undisclosed Liabilities) set forth in this Agreement
shall survive the Closing for a period of one (1) year, with the exception,
however, of the warranties and representations made by the Shareholders in
Section 3.3 which shall survive the Closing indefinitely.
10.2 Indemnity by the Shareholders. Subject to the limitations set forth in
-----------------------------
Section 10.5 below, each of the Shareholders shall jointly and severally
indemnify the Company, the Subsidiary and Purchaser against, and hold the
Company, the Subsidiary and Purchaser harmless from, and shall pay to the
Company, the Subsidiary or Purchaser, as applicable, the full amount of, any
loss, claim, damage, liability or expense (including reasonable attorneys' fees,
but excluding all special, exemplary, punitive and consequential damages) (each,
a "Loss") resulting to the Company, the Subsidiary or Purchaser, either directly
or indirectly, from: (a) any material inaccuracy in any representation or
warranty, or any breach of any covenant or agreement, by the Company, the
Subsidiary, or the Shareholders contained in this Agreement or in any of the
Other Documents; and (b) any liability for any fee or commission owed to a
broker or other Person pursuant to an agreement signed by the Company, the
Subsidiary or the Shareholders with respect to the transactions contemplated by
this Agreement.
10.3 Indemnity by Purchaser. Purchaser shall indemnify and hold the
----------------------
Shareholders harmless from and against, and shall pay to the Shareholders the
full amount of, any Loss resulting to the Shareholders, either directly or
indirectly, from: (a) any material inaccuracy in any representation or warranty,
or any breach of any covenant or agreement, by Purchaser contained in this
Agreement or any of the Other Documents; (b) any liability for any fee or
commission owed to a broker or Other Person pursuant to an agreement signed by
Purchaser with respect to the transactions contemplated by this Agreement; and
(c) any liability of the Shareholders arising from the Shareholders' maintaining
any rights or obligations under Permits until such Permits are available for use
by the Company and the Subsidiary as contemplated by Section 5.7.
10.4 Remedies Right of Offset.. Upon the occurrence of any event for which
-------------------------
Purchaser or any Shareholder is entitled to indemnification under this
Agreement, they shall have all the rights and remedies at law and in equity
available to them. Without limiting the foregoing, the Shareholders hereby agree
to pay promptly upon receipt of notice from the Company, the Subsidiary or
Purchaser the amounts which the Shareholders may owe to the Company, the
Subsidiary or Purchaser from
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<PAGE>
time to time by reason of the provisions of this Agreement or otherwise. If any
Shareholders fail or refuse to pay any such amounts promptly after the request
of the Company, the Subsidiary or Purchaser, then the Company, the Subsidiary
and Purchaser, at their election, may offset any such amounts against any
payments due and owing to such Shareholders. The party or parties suffering any
Loss shall be obligated to take all reasonable actions to mitigate the damages
suffered with respect to the Loss.
10.5 Limitations on Indemnity Obligations.
-------------------------------------
(a) The Shareholders' liability under this Article 10 shall be
limited to the following Losses incurred by Purchaser, the Company or the
Subsidiary:
(i) The Shareholders shall, in the aggregate, be liable for
Losses pursuant to this Section 10 only to the extent that the cumulative
aggregate amount of all such Losses exceeds Two Hundred Fifty Thousand Dollars
($250,000) (the "Deductible");
(ii) The aggregate amount of Losses for which each of the
Shareholders shall be liable pursuant to this Section 10 shall not exceed the
portion of the Purchase Price received by the Shareholder for his or her Shares;
(iii) The Shareholders' liability for Losses shall be net of
any insurance proceeds to which Purchaser, the Company or the Subsidiary is
entitled under any applicable insurance and net of any other compensatory
payments received by Purchaser, the Company or the Subsidiary, so long as doing
so does not cancel or void any insurance coverage or policy of Purchaser, the
Company or the Subsidiary; and
(iv) The Shareholders" liability for Losses shall be limited to
the net amount thereof after all tax benefits realized by Purchaser, the Company
or the Subsidiary in connection therewith, and the amount of indemnification
paid by Shareholders with respect to Losses shall be deemed a reduction of the
Purchase Price received by such Shareholders for their Shares.
(b) Purchaser's liability under this Article 10 shall be limited to
the following Losses incurred by the Shareholders:
(i) Purchaser shall be liable for Losses pursuant to this
Section 10 only to the extent that the cumulative aggregate amount of all such
Losses exceeds the Deductible, provided, however, that Purchaser, the Company
and the Subsidiary shall be liable for all claims under Sections 6.5 and 10.3(c)
without regard to the Deductible;
(ii) The aggregate amount of Losses for which Purchaser shall be
liable pursuant to this Section 10 shall not exceed the Purchase Price; and
(iii) Purchaser's liability for Losses shall be limited to
the net amount thereof after all tax benefits realized by the Shareholders in
connection therewith.
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<PAGE>
10.6 Control of Indemnified Matters. If a third-party claim is made against
------------------------------
an indemnified party that may result in a Loss to the indemnified party, the
indemnifying party will be entitled to participate in the defense thereof, and
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. If the
indemnifying party elects to assume the defense of such third-party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute any third-party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third-party claim, and making employees
available on a mutually convenient and reasonable basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying party shall have assumed the defense of a third-party claim,
the indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such third-party claim without the indemnifying party's
prior written consent (which consent shall not be unreasonably withheld).
Notwithstanding any provision in this Section 10.6, an indemnifying party shall
have no right to participate in or in any way assume the defense of a third-
party claim if such third-party claim seeks an order, injunction, non-monetary
claim or other equitable relief against the indemnified party.
ARTICLE 11
ARBITRATION
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholders have notified the
other in writing of such controversy, dispute or claim, shall be submitted for
arbitration in accordance with the rules of the American Arbitration Association
or any successor thereof. Arbitration shall take place at an appointed time and
place in Lexington, Kentucky.
11.2 Selection of Arbitrators. Purchaser and the Shareholders each shall
--------------------------
select one (1) arbitrator (who shall not be counsel for such party), and the two
(2) so designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, including
but not limited to (S)12.14, the award of the arbitrators may grant any relief
that a court of general jurisdiction
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<PAGE>
has authority to grant, including, without limitation, an award of damages
and/or injunctive relief, and shall assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrator, reasonable
attorneys' fees and costs of all prevailing parties, against all non-prevailing
parties.
11.3 Temporary Injunctive Relief. Nothing herein contained shall bar the
---------------------------
right of any of the parties to seek and obtain temporary injunctive relief from
a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
11.4 Arbitration Rules. All disputes and claims shall be determined by
-----------------
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except that
such Rules shall be modified by this Agreement.
11.5 Arbitration Proceedings. All arbitral proceedings arising under, or in
-----------------------
connection with, this Agreement shall be governed by the Federal Rules of Civil
Procedure. Notwithstanding the previous sentence, the arbitrators' award shall
be made no later than ninety (90) days after their appointment. Subject to the
parties' right to be treated fairly, the arbitrators may shorten the periods of
time otherwise applicable to the arbitral proceedings under the Rules or the
Federal Rules of Civil Procedure to permit the award to be made within the time
limitation set forth in the previous sentence.
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Notices. All notices under this Agreement ("Notices") shall be given:
---------
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services, as follows:
(a) If to Purchaser:
West Virginia - Indiana Coal Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Walter Reed
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
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<PAGE>
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telephone No.: (606) 231-0000
Telecopy No.: (606) 231-0011
(b) If to the Shareholders:
Stephen Addington
1500 North Big Run Road
Ashland, Kentucky 41102
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
and
Charles J. Helms, Jr.
Kindill Mining, Inc.
313 Frederica Street, Suite 301
P.O. Box 845
Owensboro, Kentucky 42302
Telephone No.: (502) 684-0363
Telecopy No.: (502) 691-9835
With a copy to:
John H. Stites, III, Esq.
Greenebaum. Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202-3197
Telephone No.: (502) 587-3544
Telecopy No.: (502) 540-2144
All Notices shall be effective and shall be deemed delivered: (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission or
overnight courier service, on the next Business Day following dispatch of such
facsimile or overnight courier package; and (iii) if by mail, on the third (3rd)
Business Day after dispatch thereof. Either party may change its address by
Notice to the other party.
(c) Charles J. Helms, Jr. is hereby appointed by the other
Shareholder other than Stephen Addington, and agrees to act, as Agent for such
Shareholders under this Agreement for the
-35-
<PAGE>
limited purpose of receiving notices to the Shareholders (other than Stephen
Addington) under this Agreement from the Purchaser and providing copies of all
notices received from the Purchaser, the Company or the Subsidiary under this
Agreement to said other Shareholders promptly upon receipt. If the Agent is
unable to deliver a copy of any notice to any Shareholder, the Agent will
promptly advise the Purchaser, the Company and the Subsidiary so that they can
otherwise seek to deliver the notice. Together with Stephen Addington, the Agent
shall appoint arbitrators on behalf of the Shareholders as provided in (S)11.2
and shall otherwise, acting with Greenebaum. Doll & McDonald PLLC as counsel to
the Shareholders, oversee and handle the investigation, defense and resolution
of any claims for indemnification against the Shareholders asserted by
Purchaser, the Company or the Subsidiary, unless Stephen Addington or a majority
of the other Shareholders elect to otherwise defend and handle any such claim
for indemnification.
12.2 Waivers. No waiver or failure to insist upon strict compliance with
---------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
12.3 Expenses. Each party shall assume its respective expenses incurred in
----------
connection with the transactions contemplated by this Agreement and the Other
Documents. The Shareholders agree that the Company has not and will not bear any
costs or expenses related to this Agreement.
12.4 Headings; Interpretation. The headings in this Agreement have been
------------------------
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, as applicable.
12.5 Annexes and Schedules. The Annexes and Schedules to this Agreement are
-----------------------
incorporated herein by reference and expressly made a part hereof.
12.6 Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement and the Other Documents, and there are no representations,
warranties, understandings or agreements with respect to the subject matter
hereof other than those expressly set forth in the Agreement, the Other
Documents or an Annex or Schedule delivered in connection herewith or therewith.
No amendment, modification or other change to this Agreement shall be
enforceable unless in writing and signed by the party against whom enforcement
is sought.
12.7 Representations and Warranties, Etc, The representations and
-------------------------------------
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto. As used
in this Agreement, the term "Shareholders' knowledge, " and all other references
to matters which are known by or to the Shareholders, shall refer to matters
which are known, or which with the exercise of reasonable care should have been
known, by the Shareholders after consultation with the Company's and the
Subsidiary's current corporate officers, directors, plant managers, shift
supervisors and foreman, and after their due investigation of corporate records
(except that if the Shareholders are required to make "due inquiry" with respect
-36-
<PAGE>
to any matter, they shall make such additional inquiry as a reasonable person
would make under the circumstances).
12.8 Governing Law. This Agreement shall be governed by, and construed and
---------------
interpreted in accordance with, the laws of the Commonwealth of Kentucky. Each
party agrees that any action brought in connection with this Agreement against
another shall be filed and heard in Fayette County, Kentucky, and each party
hereby submits to the jurisdiction of the Circuit Court of Fayette County,
Kentucky, and the U.S. District Court for the Eastern District of Kentucky,
Lexington Division.
12.9 Brokers. The parties covenant and agree with one another that they
---------
have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions. Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it or any of its Affiliates for any fee or other compensation due or
allegedly due that broker or other Person.
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, including by means of facsimile, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
12.11 Benefit and Binding Effect. This Agreement shall be binding upon, and
--------------------------
shall inure to the benefit of, the Shareholders and their heirs, personal
representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld,
and no party shall be released of its obligations under this Agreement as a
result of such assignment. However, notwithstanding anything to the contrary in
this Section 12. 11, Purchaser may assign its rights under this Agreement to an
Affiliate of Purchaser.
12.12 Specific Performance. Subject to Article 11, the parties shall be
---------------------
entitled to specific performance, injunctive relief and other equitable relief
for breaches of the other parties' covenants and agreements, and such relief may
be awarded by the arbitrators pursuant to Article 11. Therefore, it is agreed
the parties will not, in any action to enforce this Agreement, assert that there
is an adequate remedy at law for the default under which such action or
proceeding is based.
12.13 Severability. If any provision of this Agreement or its application
--------------
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
-37-
<PAGE>
12.14 No Consequential Damages. Except as prohibited by law, each party
-------------------------
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date set forth in the preamble hereto.
PURCHASER: WEST VIRGINIA-INDIANA COAL
HOLDING COMPANY, INC.
By: /s/ Illegible
-------------
Title: Vice President
--------------
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<PAGE>
SHAREHOLDERS: /s/ Charles J. Helm, Jr.
------------------------
STEPHEN ADDINGTON*
/s/ Charles J. Helm, Jr.
------------------------
GEORGE JACKSON SPARKS*
/s/ Charles J. Helm, Jr.
------------------------
ROBERT HATTON*
/s/ Charles J. Helm, Jr.
------------------------
W. TODD SKAGGS*
/s/ Charles J. Helm, Jr.
------------------------
RHONDA D. GAVENDER*
/s/ Charles J. Helm, Jr.
------------------------
CHARLES J. HELMS, JR.
/s/ Charles J. Helm, Jr.
------------------------
GILBERT WAYNE LAWERENCE*
/s/ Charles J. Helm, Jr.
------------------------
DAVID A. ISON*
/s/ Charles J. Helm, Jr.
------------------------
WILLIE BEGLEY*
/s/ Charles J. Helm, Jr.
------------------------
MICHAEL P. MOORE*
/s/ Charles J. Helm, Jr.
------------------------
MARVIN LINWOOD JONES*
*Charles J. Helms, Jr. as attorney in fact for these Shareholders.
-39-
<PAGE>
EXHIBIT 2.8
PURCHASE AND SALE AGREEMENT
BY AND AMONG
KINDER MORGAN ENERGY PARTNERS, L.P.,
KINDER MORGAN OPERATIONS L.P. "C",
MOUNTAINEER COAL DEVELOPMENT COMPANY,
SHIPYARD RIVER COAL TERMINAL COMPANY
AND
ZEIGLER COAL HOLDING COMPANY
December 9, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets........................................ 1
1.2 Retained Assets.................................................... 3
1.3 Post-Closing Liabilities........................................... 4
1.4 Pre-Closing Liabilities............................................ 4
1.5 Nonassignable Licenses, Contracts and Leases....................... 5
1.6 Purchase Price..................................................... 6
1.7 Price Allocation................................................... 6
1.8 Taxes; Apportionments; Post-Closing Adjustments.................... 6
1.9 Time and Place of Closing.......................................... 7
1.10 Execution and Delivery of Documents of Title....................... 7
ARTICLE II - REPRESENTATIONS OF THE SELLERS AND THE SHAREHOLDER
2.1 Organization....................................................... 8
2.2 Execution and Delivery............................................. 8
2.3 Authority.......................................................... 8
2.4 No Conflicts....................................................... 8
2.5 Governmental Approvals and Filings................................. 9
2.6 Books and Records.................................................. 9
2.7 Financial Statement................................................ 9
2.8 Absence of Changes................................................. 10
2.9 No Undisclosed Liabilities......................................... 11
2.10 Taxes.............................................................. 12
2.11 Legal Proceedings.................................................. 12
2.12 Compliance With Laws and Orders.................................... 13
2.13 Benefit Plans/ERISA................................................ 13
2.14 Real Property...................................................... 13
2.15 Tangible Personal Property; Purchased Asset........................ 15
2.16 Intellectual Property Rights....................................... 16
2.17 Contracts.......................................................... 16
2.18 Licenses........................................................... 17
2.19 Insurance.......................................................... 18
2.20 Affiliate Transactions............................................. 18
2.21 Employees; Labor Relations......................................... 19
2.22 Environmental Matters.............................................. 19
2.23 Substantial Customers.............................................. 20
2.24 No Powers of Attorney.............................................. 20
2.25 Solvency........................................................... 20
2.26 Government Contracts............................................... 20
</TABLE>
<PAGE>
ARTICLE III- REPRESENTATIONS AND WARRANTIES
OF THE BUYER AND THE PARENT
<TABLE>
<CAPTION>
<S> <C>
3.1 Organization....................................................... 21
3.2 Execution and Delivery............................................. 21
3.3 Authority.......................................................... 21
3.4 No Conflicts....................................................... 22
3.5 Governmental Approvals and Filings................................. 22
3.6 Financial Ability to Perform....................................... 22
ARTICLE IV - CONDITIONS TO CLOSING
4.1 Conditions to Obligation of the Buyer to Close..................... 22
4.2 Conditions to Obligations of the Sellers and the
Shareholder to Close............................................... 25
ARTICLE V - COVENANTS
5.1 Conduct of the Terminals Pending the Acquisition................... 26
5.2 Books and Records; Access and Information.......................... 27
5.3 Notification of Certain Matter..................................... 28
5.4 Confidentiality.................................................... 28
5.5 Cooperation by the Parties......................................... 28
5.6 Antitrust Notification............................................. 29
5.7 The Sellers' Employees............................................. 30
5.8 Compliance with Agreements Regarding Industrial Revenue Bonds...... 30
5.9 Product Inventory.................................................. 31
ARTICLE VI- INDEMNIFICATION
6.1 Indemnification by the Sellers and the Shareholder................. 31
6.2 Indemnification by the Buyer and the Parent........................ 32
6.3 Procedures for Indemnification..................................... 33
6.4 Survival........................................................... 34
6.5 Limitations on Indemnification..................................... 34
6.6 Payment of Damages................................................. 35
ARTICLE VII - TERMINATION
7.1 Termination........................................................ 35
7.2 Effect of Termination.............................................. 36
ARTICLE VIII - MISCELLANEOUS
8.1 Expenses........................................................... 36
8.2 Notices............................................................ 36
8.3 Amendments......................................................... 37
8.4 Waiver............................................................. 37
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.5 Public Announcements............................................... 37
8.6 Head............................................................... 38
8.7 Nonassignability................................................... 38
8.8 Parties in Interest................................................ 38
8.9 Counterparts....................................................... 38
8.10 Governing Law; Consent to Jurisdiction............................. 38
8.11 Severability....................................................... 38
8.12 Entire Agreement................................................... 39
8.13 Arbitration........................................................ 39
</TABLE>
<PAGE>
PURCHASE AND SALE AGREEMENT
Purchase and Sale Agreement (the "Agreement'), dated as of December 9,
1998, by and among Kinder Morgan Energy Partners, L.P. (the "Parent"), Kinder
Morgan Operating L.P. "C", a Delaware limited partnership (the "Buyer"),
Mountaineer Coal Development Company, a West Virginia corporation
("Mountaineer"), Shipyard River Coal Terminal Company, a South Carolina
corporation ("SRCT", and with Mountaineer, the "Sellers"), and Zeigler Coal
Holding Company, a Delaware corporation (the "Shareholder").
RECITALS
WHEREAS, the boards of directors of the Buyer, the Sellers, the Parent and
the Shareholder have determined that it is in their respective best interests
for (i) Mountaineer to sell to the Buyer and for the Buyer to buy from
Mountaineer certain assets (the "Pier IX Terminal") and (ii) SRCT to sell to the
Buyer and for the Buyer to buy from SRCT certain assets (the "Shipyard River
Terminal") on the terms and conditions contained in this Agreement (the
"Acquisition");
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Acquisition;
NOW THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements set forth herein, the Sellers, the Shareholder and the
Buyer agree as follows.
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets. Upon the terms and subject to the
---------------------------
conditions contained in this Agreement, at the Closing, the Sellers shall sell,
assign, transfer and convey to the Buyer, and the Buyer shall purchase, acquire
and accept from the Sellers the assets of the Sellers described below, free and
clear of all Liens except Permitted Liens, (the "Purchased Assets"):
(a) the Pier IX Terminal and the Shipyard River Terminal (together, the
"Terminals") and all tangible assets, personal property, fixtures and
equipment (the "Tangible Property") specifically listed in Section 1.1(a)
of the Disclosure Schedule, along with all Tangible Property located on the
Real Property on the date hereof or used primarily in the operation of the
Terminals; (excluding, however, any assets listed in Section 1.2(c) of the
Disclosure Schedule);
(b) good and indefeasible fee simple title in and to those tracts or
parcels of land described in Section 1.1(b) of the Disclosure Schedule
hereto together with (i) all of the interest of the Sellers in any land in
the beds of any public streets or public roads in front of or adjoining
indicated portions of such land; (ii) any easements or rights-of-way
appurtenant to such land and all water, wastewater, sewer, sanitary sewer
and other utility rights related to such land; (iii) any reversionary
rights attributable thereto; (iv) subject to Section 1.2(k), all claims or
<PAGE>
demands whatsoever of the Sellers either in law or in equity in or to such
land except to the extent provided otherwise in this Agreement or in any
document executed herewith; (v) all buildings, improvements, fixtures,
storage tanks, pipelines, (along with all physical facilities used in
connection with the ownership or operation of such pipelines, including all
valves, meters, measurement stations, and equipment), electrical
facilities, storage and shipping facilities and other fixed assets and
personalty owned by the Sellers annexed, affixed or attached to such land,
in each case insofar as such real property relates to either Terminal; and
(vi) all of the Sellers' rights and interests in all personal property and
physical facilities used in connection with the ownership or operation of
the electrical facilities used in the Terminals including, without
limitation, all transformers, power lines, meters, rectifiers, busbars,
housings, circuit breakers and all other fixtures and equipment of every
type and description used in connection therewith (collectively, the "Owner
Real Property");
(c) all of the Sellers' rights and interest in all leases of real property
set forth in Schedule 1.1(c) of the Disclosure Schedule and all leases of
real property by the Sellers relating to the Terminals within five (5)
miles of the Owned Real Property (the "Assigned Leases"). The real
property subject to the Assigned Leases shall be referred to as the "Leased
Real Property"; and with the Owned Real Property shall be referred to as
the "Real Property";
(d) all of the Sellers' rights and interest in and to the Contracts set
forth in Section 1.1(d) of the Disclosure Schedule or used exclusively in
the operation of the Terminals (the "Assigned Contracts");
(e) any and all of the Sellers' books and records exclusively relating to
the Terminals (the "Assigned Books and Records"), excluding, by way of
clarification and not limitation, any Books and Records of the Sellers
which relate exclusively to (i) organizational or governance proceedings of
the Sellers, (ii) the Retained Assets, or (iii) the Pre-Closing
Liabilities;
(f) all of the Sellers' goodwill exclusively related to the Terminals;
(g) all of the Sellers' rights and interest in and to the Intellectual
Property set forth in Section 1.1(g) of the Disclosure Schedule;
(h) subject to Section 1.5, all Licenses used in the operation of the
Terminals or set forth in Section 1.1(h) of the Disclosure Schedule, to the
extent such Licenses are transferable to the Buyer (the "Assigned
Licenses");
(i) all of the Sellers' rights and interest in present and future
insurance proceeds which may be payable under the insurance policies listed
in Section 2.21 of the Disclosure Schedule insofar as such proceeds are
payable in connection with any event or events occurring subsequent to the
date hereof and affecting the Purchased Assets described in Section 1.1(a),
(b) or (c);
(k) any additional assets that fall within the categories listed above
from time to time acquired primarily for use by the Terminals in the
ordinary course of business between the
2
<PAGE>
date hereof and the Closing Date, except for such property as may be used,
sold, consumed or disposed of by the Sellers in the ordinary course of
business prior to the Closing Date and in compliance with the terms and
conditions of this Agreement.
To the extent that any Purchased Assets of the Sellers primarily related to the
Terminals are intended to be transferred to Buyer pursuant to the language of
this Section 1.1 but are not listed the language of this Section 1.1 shall be
controlling and such Purchased Assets nonetheless shall be transferred to Buyer
for all purposes.
1.2 Retained Assets. The Sellers will retain ownership of all assets other
---------------
than the Purchased Assets, including, without limitation, the following
(collectively, the "Retained Assets"):
(a) the Sellers' Books and Records other than those set forth in Section
1.1(e) above;
(b) each Contract, Lease or License set forth in Section 1.2(b) of the
Disclosure Schedule or which requires the consent to assignment by a Person
other than the Sellers and which consents are not obtained on or before the
Closing Date;
(c) the personal items and equipment and furnishings unrelated to the
Terminals as set forth in Section 1.2(c) of the Disclosure Schedule;
(d) policies of insurance, fidelity, surety or similar bonds and the
coverage afforded thereby;
(e) the Sellers' rights under this Agreement;
(f) accounts receivable of the Terminals accrued prior to the Closing
Date;
(g) choses in action relating to the Terminals arising prior to the
Closing Date;
(h) cash and cash equivalents relating to the Terminals determined as of
the Closing Date;
(i) claims for refunds or reductions regarding any Tax paid or payable
relating to the Terminals or their operations prior to the Closing Date,
and whether payable by cash, credit or otherwise;
(j) all of the Sellers' rights and interest in and to the Intellectual
Property set forth in Section 1.2(j) of the Disclosure Schedule; and
(k) all claims or demands of the Sellers whatsoever relating to periods
prior to the Closing, either in law or in equity, in or to the Real
Property, except to the extent such claim or demand is a Purchased Asset
specifically set forth in Section 1.1.
1.3 Post-Closing Liabilities. Subject to the terms and conditions of this
------------------------
Agreement, or Closing, the Buyer will assume and agree to pay, perform and
discharge when due all Liabilities
3
<PAGE>
(other than those for which the Sellers and the Shareholder are specifically
indemnifying the Buyer hereunder) which pertain to the ownership, operation or
conduct of the Terminals or Purchased Assets arising from any acts, omissions,
events, conditions or circumstances occurring after the Closing (the "Post-
Closing Liabilities").
1.4 Pre-Closing Liabilities. It is expressly understood and agreed that
-----------------------
the Buyer shall not be obligated to pay, perform or discharge, and the Sellers
shall retain, any and all Liabilities, of the Sellers (the "Pre-Closing
Liabilities"), whether or not (except as indicated below and subject to Section
1.3 above) such Liabilities were incurred before or after the Closing and
whether or not such Liabilities have been disclosed to the Buyer, including,
without limitation, Liabilities listed below, but excluding, however, the Post-
Closing Liabilities:
(a) Liabilities relating to indebtedness for borrowed money whether or not
such liabilities are reflected on the Financial Statements;
(b) Liabilities resulting from, constituting or relating to a breach of
any of the representations, warranties, covenants or agreements of the
Sellers or the Shareholder under this Agreement;
(c) Liabilities for federal, state, local, foreign and all other Taxes
incurred or relating to periods prior to the Closing, including Taxes
incurred in respect of or measured by the income of the Sellers earned on
or realized prior to the Closing.
(d) Liabilities for all environmental, ecological, natural resource,
health, safety, products liability (except as specifically referred to
herein) or other Claims, conditions or obligations pertaining to the
Terminals or the Purchased Assets which relate to time periods,
circumstances or events occurring prior to the Closing, including, without
limitation, any and all Losses (i) resulting from or arising out of any
Environmental Action that relates to any violations of Environmental Laws
or Environmental Permits prior to the Closing, or (ii) incurred as a result
of the presence of any Hazardous Materials at, in, on, under or around any
of the Purchased Assets prior to the Closing, or the disposal of any
Hazardous Materials generated in connection with the Terminals, prior to
the Closing (including, without limitation, any investigation, monitoring,
containment, remediation, cleanup or removal thereof after the Closing);
(e) Liabilities for warranty claims, quality-related claims or other
similar claims arising out of or relating to events or circumstances prior
to the Closing;
(f) Liabilities based on any actual or alleged tortuous or illegal conduct
by or on behalf of the Sellers;
(g) Liabilities incurred by the Sellers in connection with the
negotiation, execution or performance of this Agreement, including, without
limitation, all legal, accounting, brokers', finders' and other
professional fees and expenses;
4
<PAGE>
(h) Liabilities incurred by the Sellers after the Closing Date;
(i) Liabilities with respect to any of the Sellers' employees (and
employees of their Affiliates), including, without limitation, salaries,
termination costs, accrued vacation and Liabilities under the Plans, all in
any way relating to (i) events occurring prior to the Closing or (ii) the
employment of employees by either Seller or their respective Affiliates
regardless of when any Claim relating to any such Liabilities may arise;
(j) Liabilities, including any Liability pursuant to any Claim, litigation
or proceeding (other than those for which either Seller or the Shareholder
are being indemnified by Buyer hereunder), which pertain to (i) contractual
or other obligations of the Sellers or (ii) the ownership, operation or
conduct of the Terminals or Purchased Assets, in each case arising from any
acts, omissions, events, conditions or circumstances occurring on or before
the Closing;
(k) Liabilities relating to the Real Property and/or any agreements,
easements, rights of way or other restrictions encumbering the Real
Property arising out of or relating to events or circumstances prior to the
Closing; and
(l) Subject to Section 5.8 hereof, Liabilities relating to the Bonds, as
defined in Section 5.8 hereof.
1.5 Nonassignable Licenses, Contracts and Leases. If any Licenses,
--------------------------------------------
Contracts or Leases are not by their respective terms assignable, the Sellers
and the Shareholder agree to use their reasonable best efforts to obtain, or
cause to be obtained, prior to the Closing Date, any written consents necessary
to convey to the Buyer the benefit thereof, provided, however, that, other than
with respect to consents required pursuant to Section 4.1(j), neither the
Sellers nor the Shareholder shall be required to pay any remuneration to any
third party in exchange for such party's consent or execution of a waiver or to
file any lawsuit or other action to obtain such consent or waiver. The Buyer
shall cooperate with the Sellers and the Shareholder, in such manner as may be
reasonably requested, in connection therewith, including without limitation,
discussions and negotiations with all Persons with the authority to grant or
withhold consent. To the extent that any such consents cannot be obtained, the
Sellers, the Shareholder and the Buyer will use their reasonable best efforts to
take such actions as may be possible without violation or breach of any such
nonassignable Assigned Licenses, Assigned Contracts or Assigned Leases to
effectively grant the Buyer the economic benefits of such Assigned Licenses,
Assigned Contracts and Assigned Leases.
1.6 Purchase Price. At the Closing, the Buyer shall pay to the Sellers
--------------
Thirty-five Million Dollars ($35,000,000.00) (the "Purchase Price"), which
Purchase Price shall be remitted by the Buyer to the Sellers in cash payable by
wire transfer of immediately available funds. The Purchase Price shall be
divided between the Sellers as agreed to by the parties on or prior to the
Closing or as soon thereafter as is reasonably possible.
1.7 Price Allocation. The Sellers and the Buyer agree to allocate the
----------------
Purchase Price for the Purchased Assets in accordance with the residual method
described in the Treasury Regulations
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promulgated under Section 338(b)(5) of the Code, as amended (the "Price
Allocation"). The Sellers and the Buyer further agree to comply with all filing,
notice and reporting requirements described in Section 1060 of the Code and the
temporary Treasury Regulations promulgated thereunder. The Sellers and the Buyer
mutually agree to use their reasonable best efforts to agree to the Price
Allocation to be detailed (i) in Section 1.7 of the Disclosure Schedule to be
completed at Closing, and (ii) on the Form 8594 jointly completed and separately
filed with their respective income tax returns for the tax year in which the
Closing occurs. The failure to agree on the Price Allocation, however, shall not
constitute a default or breach of this Agreement by either party hereto. The
parties further agree that they will report the federal, state, municipal,
foreign and local and other tax consequences of the purchase and sale hereunder
in a manner consistent with the Price Allocation, and, if agreed upon, that they
will not take any position inconsistent therewith. If the Sellers and the Buyer
are unable to agree upon a Price Allocation within five (5) days after Closing,
any remaining disputed matters with respect to such Price Allocation will be
finally and conclusively determined by an independent accounting firm of
national standing (the "Allocation Arbiter") selected by the Buyer and the
Sellers, which firm will not be the regular accounting firm of the Buyer, either
Seller or the Shareholder. Promptly, but not later than ten (10) days after its
acceptance of its appointment, the Allocation Arbiter will determine (based
solely on presentations by the Buyer and the Sellers and not by independent
review) only those matters in dispute and will render a written report as to the
disputed matters and the resulting allocation of the Purchase Price, which
report will be conclusive and binding upon the parties. The fees and expenses of
the Allocation Arbiter shall be paid equally by the Buyer, on the one hand, and
the Sellers and the Shareholder on the other. The Buyer and the Sellers will,
subject to the requirements of any applicable tax law or election, file all Tax
Returns and reports consistent with the allocation provided in the determination
of the Allocation Arbiter.
1.8 Taxes; Apportionments; Post-Closing Adjustments. All duty or
-----------------------------------------------
recording costs imposed on the transfer of the Purchased Assets to the Buyer
shall be paid by the Buyer. All sales and transfer taxes imposed on the
transfer of the Purchased Assets shall be paid equally by the Buyer and the
Party, on the one hand, and the Sellers and the Shareholder on the other. The
parties hereto shall agree on the amount of any sales and transfer taxes payable
as a result of the purchase and sale of the Purchased Assets, and if the parties
hereto are able to agree on such amount prior to the Closing, a credit shall be
made against the Purchase Price to reflect the Sellers' and the Shareholder's
fifty percent share of such taxes. In the event the parties are unable to agree
on the amount of such taxes prior to the Closing, they shall do so as soon
thereafter as is practicable, and the Sellers and the Shareholder shall pay
their fifty percent share to the Buyer as soon thereafter as is practicable. In
either event, the Buyer in turn will pay the amount calculated by the parties to
relevant taxing authorities, it being agreed that the parties shall share any
amounts by which the amount calculated hereunder differs from the amounts
actually paid to relevant taxing authorities. At the Closing, the following
items, to the extent they relate to the Purchased Assets and except as otherwise
provided for in this Agreement, shall be apportioned as of 11:50 p.m. on the day
preceding the Closing Date: property taxes, utility charges and other state,
county and municipal taxes and assessments and charges, advances to employees,
rents, prepayments from customers, prepayments to suppliers and other
prepayments and expenses under any of the Assigned Contracts, Assigned Leases or
Assigned Licenses; and such other items as are customarily apportioned in
connection with the sale of similar property, all such items prior to such time
being for the account of the Sellers and all such items after such time being
the account of the Buyer. At the Closing, the Sellers or the Buyer, as the case
may
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be, shall deliver to the other a check or wire transfer for the net amount owing
under this Section 1.8. If any such items cannot accurately be apportioned at
the Closing or prior thereto, or if it is later determined that such
apportionment at Closing was not accurate, such items shall be apportioned or
reapportioned, as the case may be, as soon as practicable after the Closing Date
or the date on which the apportionment error is discovered, as applicable, but
in no event more than one hundred twenty (120) days after the Closing Date. Any
amounts received by, or other consideration given to, the Buyer (or its
Affiliates) after the Closing with respect to either any Retained Asset or the
conduct of the Terminals prior to the Closing shall be held by the Buyer in
trust for the Sellers until promptly paid to the Sellers. Likewise, any amounts
received by, or other consideration given to, the Sellers (or their Affiliates)
after the Closing with respect to either any Purchased Asset or the conduct of
the Terminals after the Closing shall be held by the Sellers in trust for the
Buyer until promptly paid to the Buyer.
1.9 Time and Place of Closing. The closing of the transactions described
-------------------------
in this Article I (the "Closing") shall take place at the offices of Kinder
Morgan Energy Partners, L.P., 1301 McKinney, Suite 3450, Houston, TX 77010 at
10:00 a.m. on December __, 1998, or at such other place or time as the parties
hereto may agree. The date and time at which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
1.10 Execution and Delivery of Documents of Title. At the Closing, the
--------------------------------------------
Sellers and the Buyer shall execute and deliver a Bill of Sale in form
reasonably agreed upon by the parties hereto (the "Bill of Sale"). In addition,
the Sellers will execute and deliver to the Buyer such special warranty deeds,
conveyances, certificates of title, assignments, assurances and other
instruments and documents as the Buyer and/or the Title Company (as hereinafter
defined) may reasonably request in order to effect the sale, conveyance, and
transfer of the Purchased Assets from the Sellers to the Buyer. Such instruments
and documents shall be sufficient to convey to the Buyer good and merchantable
title in all of the Purchased Assets, free and clear of any Liens other than
Permitted Liens. The Sellers will, from time to time after the Closing Date,
take such additional actions and execute and deliver such further documents as
the Buyer may reasonably request in order more effectively to sell, transfer and
convey the Purchased Assets to the Buyer and to place the Buyer in position to
operate and control all of the Purchased Assets.
ARTICLE II
REPRESENTATIONS OF THE SELLERS AND THE SHAREHOLDER
In order to induce the Buyer and the Parent to enter into this Agreement,
the Sellers and the Shareholder, jointly and severally, make the representations
and warranties set forth below which are true, correct and complete an the date
hereof (unless specified in such representation or warranty to be true, correct
and complete only as of the Closing) and shall be true, correct and complete as
of the Closing. Except as set forth in those sections of the Disclosure
Schedule corresponding to the sections below:
2.1 Organization. Each Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of its state of incorporation.
Each Seller has full power, authority and capacity to execute and deliver this
Agreement and the Related Agreements to which it is a party and
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to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
2.2 Execution and Delivery. The execution, delivery and performance of
----------------------
this Agreement and the Related Agreements by the Sellers and the Shareholder and
the consummation of the transactions contemplated hereby and thereby, have been
duly authorized and approved by the Board of Directors of each Seller and the
Shareholder, and no other corporate action on the part of either Seller or the
Shareholder is necessary to authorize the execution, delivery and performance of
this Agreement and the Related Agreements by the Sellers and the Shareholder and
the consummation of the transactions contemplated hereby and thereby. This
Agreement has been duly and validly executed and delivered by each Seller and
the Shareholder and constitutes, and upon the execution and delivery by the
Sellers of the Related Agreements, the Related Agreements will constitute,
legal, valid and binding obligations of the Sellers and the Shareholder, as the
case may be, enforceable against each of them in accordance with their terms,
assuming valid execution and delivery of this Agreement and the Related
Agreements by the Buyer and the Parent, and except as enforceability may be
limited by bankruptcy, insolvency, reorganizations, moratorium or other Laws
affecting creditors' rights generally.
2.3 Authority. Mountaineer has full corporate power and authority to
---------
conduct the operations of the Pier DC Terminal is and to the extent now
conducted and to own, use and lease the Purchased Assets related to the Pier IX
Terminal. SRCT has full corporate power and authority to conduct the operations
of the Shipyard River Terminal as and to the extent now conducted and to own,
use and lease the Purchased Assets related to the Shipyard River Terminal. The
name of each director and officer of each Seller on the date hereof, and the
position with the Sellers held by each, are listed in Section 2.3 of the
Disclosure Schedule. The Sellers have, prior to the execution of this
Agreement, delivered to the Buyer true and complete copies of their respective
articles or certificate of incorporation and bylaws as in effect on the date
hereof.
2.4 No Conflicts. the execution and delivery by the Sellers and the
------------
Shareholder of this Agreement and the Related Agreements, the performance of
their respective obligations under this Agreement and such Related Agreements
and the consummation of the transactions contemplated hereby and thereby do not
and will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of their respective articles of organization or
by-laws.
(b) subject to obtaining the consents, approvals and actions, making the
filings and giving the notices disclosed in Section 2.4(c) of the
Disclosure Schedule, conflict with cr result in a violation or breach of
any term or provision of any License, Law or Order applicable to either
Seller, the Shareholder or any of the Purchased Assets; or
(c) except as disclosed in Section 2.4(c) of the Disclosure Schedule, (i)
conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require
either Seller or the Shareholder to obtain any consent, approval or action
of, make any filing with or give any notice to any Person is a result or
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under the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any Person any additional rights or
entitlement to increased, additional accelerated or guaranteed payments
under, or (vi) result in the creation or imposition of any Lien upon either
Seller or any of the Purchased Assets under any Assigned Contract, Assigned
Lease or Assigned License.
2.5 Governmental Approvals and Filings. Except as set forth in Section
----------------------------------
2.5 of the Disclosure Schedule, no consent, approval or action of, filing with
or notice to any Governmental or Regulatory Authority on the part of either
Seller or the Shareholder is required in connection with the execution, delivery
and performance of this Agreement or any of the Related Agreements or the
consummation of the transactions contemplated hereby or thereby.
2.6 Books and Records. To the knowledge of the Sellers and the
-----------------
Shareholder, the Assigned Books and Records of the Sellers as made available to
the Buyer prior to the execution of this Agreement are true and complete, and
the summaries of any minute books and other similar records of the Sellers
relating to the Terminals and provided to the Buyer contain a true and complete
record, in all material respects, of all action taken with respect to the
Terminals and all meetings, and by written consent, of the board of directors
and committees of the board of directors of the Sellers. The Sellers and the
Shareholder have made reasonable efforts to locate and make available to the
Buyer those portions of the books and records of the Sellers insofar as they
exclusively relate to the Purchased Assets. The Sellers do not have any of the
Assigned Books and Records recorded, stored, maintained, operated or otherwise
wholly or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of either Seller or an Affiliate.
2.7 Financial Statement
-------------------
(a) Prior to the execution of this Agreement, the Sellers have delivered to
the Buyer and complete copies of the following financial statements, each
relating solely to the Purchased Assets: (i) a balance sheet as of, and an
income statement for the year ended December 31, 1997 and (ii) a balance
sheet as of, and an income statement for the nine months ended, September
30, 1998 (the " Financial Statements") which are attached hereto as Section
2.7(a) of the Disclosure Schedule.
(b) Except as set forth in the notes thereto, the Financial Statements have
been prepared in accordance with GAAP and fairly present in all material
respects the financial condition and results of operations of the Purchased
Assets as of the respective dates thereof and for the respective periods
covered thereby.
(c) Prior to the execution of this Agreement, the Shareholder has delivered
to the Buyer the balance sheet as of, and income statement for the period
ended, October 31, 1998 of the Shareholder, which are attached hereto as
Section 2.7(c) of the Disclosure Schedule. Since the date of such
financial statements, the Shareholder has not incurred any Indebtedness,
nor
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has it suffered or otherwise incurred any material adverse change on its
business, assets or financial condition.
2.8 Absence of Changes. Except for the execution and delivery of this
------------------
Agreement and the transactions to take place pursuant hereto on or prior to the
Closing Date, since September 30, 1998, and except as set forth in Section 2.8
of the Disclosure Schedule there has not been any change, event or development
which, individually or together with other such events, could reasonably be
expected to have a Material Adverse Effect on either Terminal or the Purchased
Assets. Without limiting the foregoing. except as set forth in Section 2.8 of
the Disclosure Schedule, there has not occurred between the Financial Statement
Date and the date hereof.
(a) any declaration, setting aside or payment of any dividend or other
distribution involving any Purchased Asset in respect of the capital stock
of either Seller;
(b) any increase in the salary, wages or other compensation of any officer,
employee or consultant of either Seller with respect to the Purchased
Assets whose annual salary is, or after giving effect to such change would
be, Fifty Thousand Dollars ($50,000.00) or more; (ii) with respect to the
Purchased Assets, any establishment or modification of salary ranges,
guidelines or similar provisions in respect of any Plan, employment-related
Contract or other employee compensation arrangement; or (iii) any adoption,
entering into or becoming bound by any Plan, employment-related Contract or
collective bargaining agreement, or amendment, modification or termination
(partial or complete) of any Plan, employment-related Contract or
collective bargaining agreement, except to the extent required by
applicable Law;
(c) any physical damage, destruction or other casualty loss (whether or not
covered by insurance) affecting any of the Purchased Assets in an aggregate
amount exceeding Fifty Thousand Dollars ($50,000.00), individually, or Two
Hundred Fifty Thousand Dollars (S250,000.00) in the aggregate;
(d) any write-off or write-down, or any determination to write off or write
down, any of the Purchased Assets in an amount exceeding Fifty Thousand
Dollars (S50,000.00) individually or Two Hundred Thousand Dollars
(S200,000.00) in the aggregate;
(e) any incurrence of a Lien (other than a Permitted Lien) on any Purchased
Asset;
(f) except as would not adversely affect the ability of any party hereto to
consummate the transactions contemplated hereby, any (i) amendment of the
articles or certificate of incorporation or by-laws of either Seller, (ii)
recapitalization, reorganization, liquidation or dissolution of either
Seller or (iii) merger or other business combination involving either
Seller;
(g) any entering into, or material amendment, modification, termination
(partial or complete) or granting of a waiver under or giving any consent
with respect to any Material Assigned Contract or Assigned Lease or any
material Assigned License;
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(h) with respect to the operation of the Terminals, any capital
expenditures or commitments for additions to property, plant or equipment
of the Sellers constituting capital assets in an aggregate amount exceeding
Two Hundred Thousand Dollars ($200,000.00) individually or One Million
Dollars ($I,000,000.00) in the aggregate;
(i) any commencement or termination by either Seller of any line of
business conducted at the Terminals;
(j) with respect to the operation of the Terminals, any transaction by
either Seller with any officer, director or Affiliate of such Seller (i)
outside the ordinary course of business and not consistent with past
practice or (ii) other than on an arm's-length basis;
(k) any other material transaction involving or development affecting the
Purchased Assets outside the ordinary course of business consistent with
past practice, or
(l) any entering into a Contract to do or engage in any of the foregoing
after the data hereof
2.9 No Undisclosed Liabilities. Except as reflected or reserved against
--------------------------
in the balance sheet included in the Financial Statements or in the notes
thereto, there are no Liabilities against relating to or affecting the Purchased
Assets, other than Liabilities: (a) incurred in the ordinary course of business
consistent with past practice; (b) which, individually or in the aggregate, are
not material to the Purchased Assets; (c) under the Sellers' contracts; (d)
otherwise expressly disclosed in the Disclosure Schedule; or (e) in respect of
warranty obligations and general liability claims.
2.10 Taxes. All Tax Returns for all taxable years or periods that end
-----
on or before the Closing Date and, with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year or period ending on and including the Closing Date "Pre-Closing Period"),
which are required to be filed by or with respect to the Sellers have been or
will be filed when due in a timely fashion and such Tax Returns as filed are or
will accurate in all material respects. There are no exemptions with respect to
the Real Property such that any change in land ownership would result in
subsequent or additional assessments. All Taxes owed by the Sellers have been
paid (whether or not shown on any Tax Return). Except for any extensions or
waivers that may exist in connection with the disputes listed on Section 2.11 of
the Disclosure Schedule, there are no agreements for the extension or waiver of
the time for assessment of any Taxes relating to either Seller for any period
prior to the Closing, and neither has been requested to enter into any such
agreement or waiver. No Claim has ever been made by any authority in any
jurisdiction where either Seller does not file Tax Returns that it is or may be
subject to the imposition of any Tax by that jurisdiction. The Sellers have
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, consultant, independent
contractor, creditor, stockholder or other third party. To the knowledge of the
Sellers or the Shareholder, there is no dispute or claim concerning any
liability for Taxes of either Seller). Except for any extensions or waivers
that may exist in connection with the disputes listed on the Disclosure
Schedule, neither Seller has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency. The unpaid taxes of the Sellers (i) did not, as of the
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date of the Monthly Financial Statements, exceed the reserve for Tax liabilities
(other than any reserve for deferred Taxes established to reflect differences
between book and tax income) set forth on the face of the Financial Statements
(other than in any notes thereto) and (ii) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Sellers in filing in Tax Returns. Neither Seller
is now a party to any Tax allocation or sharing agreement that could result in
any liability to the Buyer. Neither Seller has ever been a party to such an
agreement that could, to the knowledge of the Sellers or the Shareholder, result
in any Liability to the Buyer. The Pier IX Terminal, in the case of the Pier IX
Terminal Company, and the Shipyard River Terminal, in the case of SRCT, has been
accounted for as a separate division, of the indicated Seller. None of the
Purchased Assets is property which is required to be treated as being owned by
any other person pursuant to the "safe harbor lease" provisions cf former Code
Section 168(f)(8). None of the Purchased Assets is "tax-exempt use property"'
within the meaning of Code Section 168(h).
2.11 Legal Proceedings. Except as disclosed in Section 2.11 of the
-----------------
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(a) there are no Actions or Proceedings pending or, to the knowledge of
either Seller or the Shareholder, threatened against, relating to or
affecting either Seller or the Purchased Assets which (i) could reasonably
be expected to result in the issuance of an Order restraining, enjoining or
otherwise prohibiting or making illegal the consummation of any of the
transactions contemplated by this Agreement or any of the Related
Agreements, or (ii) could reasonably be expected to result in (A) any
injunction or other equitable relief against such Seller that would
interfere in any material respect with the business or operations of the
Terminals or (B) Losses by either Seller with respect to the Purchased
Assets, individually or in the aggregate with Losses in respect of other
such Actions or Proceedings, exceeding One Hundred Thousand Dollars
($100,000.00).
(b) with respect to the Purchased Assets, there are no Claims or, to the
knowledge: either Seller or the Shareholder, facts, conditions or
circumstances that could reasonably be expected to give rise to any Action
or Proceeding that would be required to be disclosed pursuant to clause (a)
above; and
(c) there are no Orders outstanding against either Seller with respect to
the Purchased Assets which provide for injunctive relief, or with respect
to monetary damages exceed One Hundred Thousand Dollars ($100,000.00).
2.12 Compliance With Laws and Orders. Neither Seller is, and neither
-------------------------------
Seller has, at any time within the last five (5) years, been, and has not
received any notice that it is or has any time within the last five (5) years
been, in violation of or in default under any Law, Assigned License or Order
applicable to the Sellers in connection with any of the Purchased Assets, exempt
as would not reasonably be expected to have a Material Adverse Effect on either
of the Terminals.
2.13 Benefit Plans/ERISA.
-------------------
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(a) Each profit sharing, 401(k), disability, medical, dental, severance
pay, vacation pay, sick pay, stock purchase, stock option, deferred
compensation, incentive compensation, fringe benefit, stay-with-bonus,
change of control agreement or other employee benefit plan, program, or
agreement, including without limitation any employee benefit plan as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), which is maintained or contributed to by either
Seller or any organization which is a member of a controlled group of
organizations within the meaning of Code Sections 414(b), (c), (m) or (o)
of which either Seller is a member (the "Controlled Group") or under which
either Seller or any member of the Controlled, Group has any liability or
contingent liability, and which cover the employees of the Terminals, shall
hereinafter be known as the "Plans."
(b) There are no material liabilities, breaches, violations or defaults
under any Plan which would subject the Purchased Assets or the Buyer to any
tans, penalties or other liabilities.
(c) Except as disclosed in Section 2.13 of the Disclosure Schedule, none of
the Plans is or has been subject to Title IV of ERISA. Except as disclosed
in Section 2.13 of the Disclosure Schedule, none of either Seller or any
entity required to be aggregated with either Seller for purposes of Section
414 of the Code or Section 4001 of ERISA his ever maintained, contributed
to, or had any liability for any employee pension benefit plan (as defined
in Section 3(2) of ERISA) that is or has been subject to Title IV of ERISA.
2.14 Real Property.
-------------
(a) Section 1.1(b) of the Disclosure Schedule lists and describes briefly
all Real Property owned by the Sellers and related to the Purchased Assets.
With respect to each such parcel of Real Property: (i) the Sellers have
good and marketable title to the Real Property, free and clear of any Lien
except for Permitted Liens; (ii) there are no pending or, to the knowledge
of either Seller or the Shareholder, threatened, condemnation proceedings,
lawsuits, or administrative actions relating to the Real Property; (iii)
the legal description for Real Property contained in the deed thereof
describes such Real Property fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels
of land, are not in violation of applicable setback requirements, zoning
laws, and ordinances (and, to the knowledge of the Sellers and the
Shareholder, none of the Real Property or buildings or improvements thereon
are subject to "permitted non-conforming use" or "permitted non-conforming
structure" classification), and do not encroach on any easement which may
burden the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, except as is set forth on
Section 2.14(a) of the Disclosure Schedule, the property is not located
within any flood plain or subject to any similar type restriction for which
any material Assigned Licenses have not been obtained and access to the
property is provided by paved public right of way with adequate curb cuts
available; and (iv) except as set forth in Section 2.14
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(a) of the Disclosure Schedule, there are no Leases, subleases, Licenses,
concessions cr other agreements, written or oral, granting to any party or
parties the right of use of occupancy of any portion of the Real Property.
(b) Section 1.1(c) of the Disclosure Schedule contains a true and correct
list of each parcel of Real Property leased by Sellers that is used by
either Terminal. Seller has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in such Leases, except for
assignments, transfers, conveyances, mortgages, deeds of trust cr other
encumbrances which will be released prior to Closing. To the knowledge of
the Sellers and the Shareholder, the Sellers have adequate rights of
ingress and egress respect to the Real Property listed in Section 2.15(b)
of the Disclosure Schedule and a3, buildings, structures, facilities,
fixtures and other improvements thereon. None of such Real Property,
buildings, structures, facilities, fixtures or other improvements, or the
current use thereof, contravenes or violates any building or zoning Law,
or, to the knowledge of the Sellers and the Shareholder, any
administrative, occupational safety and health or other applicable Law, in
each case, in any material respect (whether or not permitted on the basis
of prior nonconforming use, waiver or variance).
(c) Each lease referred to in Section 2.14(b) above is a legal, valid and
binding agreement enforceable in accordance with its terms against each of
the Seller party thereto and, to the knowledge of the Sellers and the
Shareholder, each other Person that is a party thereto, and neither Seller
is in, and neither Seller has received notice of any, default (cr any
condition or event which, after notice or lapse of time or both, would
constitute a default) thereunder. To the knowledge of the Sellers and the
Shareholder, neither Seller nor any other party to any Assigned Lease is in
breach or default, and no event has occurred which, with notice or lapse of
time, could reasonably be expected to constitute such a material breach or
material default or permit termination, modification cr acceleration under
such Assigned Lease.
(d) The Sellers have delivered or made available to the Buyer prior to the
execution of this Agreement (or will deliver to the Buyer prior to the
Closing) true and complete copies of (i) all deeds, leases, mortgages,
deeds of trust, certificates of occupancy, title insurance policies, title
reports, surveys, easements, rights of way, restrictions and similar
documents, and all amendments thereof, with respect to the Real Property
owned by the Sellers and (ii) all leases (including any amendments and
renewal letters).
(e) Except as set forth in Section 1.1(c) of the Disclosure Schedule, there
are no tenants or other parties in possession of any Real Property included
in the Purchased Assets. No Person has any right to purchase, or holds any
right of first refusal to purchase, such properties; and
(f) To the knowledge of the Sellers and the Shareholder, all public
utilities, including without limitation, water and wastewater, have been
extended to a boundary line of each tract of the Real Property through
adjoining public streets, or if they pass through adjoining private land,
do so in accordance with validly existing easements permitting such use,
and all installation and connection charges necessary to use such public
utilities have been paid in full.
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All facilities located an the Real Property are supplied with utilities and
other services, including gas, electricity, water, telephone, sanitary
sewer, and storm sewer as are necessary for their current use, all of which
services are in accordance with all applicable laws, ordinances, rules and
regulations and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefiting the Real Property.
2.15 Tangible Personal Property; Purchased Asset.
-------------------------------------------
(a) Except for dispositions and acquisitions of assets in the ordinary
course of business, the Purchased Assets include all of the assets
historically used in the operation of the Terminals. The Sellers are in
possession of and have good title to, or have valid leasehold interests in
or valid rights under Contract to use, all Tangible Property included in
the Purchased Assets, including all tangible personal property reflected on
the balance sheet included in the Financial Statements and tangible
personal property acquired since the Financial Statement Date, other than
property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free
and clear of all Liens, other than Permitted Liens and Liens disclosed in
Section 2.15 of the Disclosure Schedule and its use complies in all
material respects with all applicable Laws and Orders.
(b) No equity interest in any Person is included in the Purchased Assets.
Neither the Purchased Assets nor any portion thereof comprises all or
substantially all of the assets of either Seller.
2.16 Intellectual Property Rights. The Sellers have interests in or
----------------------------
use only the Intellectual Property disclosed in Sections 1.1(g) and 1.2(j) of
the Disclosure Schedule, each of which the Sellers either have all right, title
and interest in or a valid and binding right under Contract to use. To the
knowledge of the Sellers and the Shareholder, the Sellers have the right to use
the Intellectual Property disclosed in Section 1.1(g) of the Disclosure
Schedule. There are no restrictions on the direct or indirect transfer of any
Contract, or any interest therein, held by the Sellers in respect of such
Intellectual Property. Since January 1, 1997, the Sellers have taken reasonable
security measures to protect the secrecy, confidentiality and value of its trade
secrets. With respect to the Terminals, neither Seller is, and neither Seller
has received any notice that it is, in default (or with the giving of notice or
lapse of time or both, would be in default) under any Contract to use such
Intellectual Property. To the knowledge of the Sellers and the Shareholder, no
such Intellectual Property is being infringed by any other Person. Neither
Seller has received notice that it is infringing any Intellectual Property of
any other Person, no Claim is pending or has been made to such effect that has
not been resolved, and, to the knowledge of the Sellers and the Shareholder,
neither Seller is infringing any Intellectual Property of any other person with
respect to the Terminals.
2.17 Contracts.
---------
(a) The Sellers or the Shareholder have delivered to the Buyer all Assigned
Contracts, and have made available to the Buyer all contracts related to
the Terminals. Section 2.17(a) of the Disclosure Schedule (with paragraph
references corresponding to those set forth below)
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contains a true and complete list of all. Assigned Contracts (true and
complete copies of which, together with all amendments and supplements
thereto and all waivers of any terms thereof have been delivered to the
Buyer prior to the execution of this Agreement) of the following types
(the"Material Assigned Contracts"):
(i) (A) all Material Assigned Contracts (excluding Plans) providing
for a commitment of employment or consultation services for a specified or
unspecified term or otherwise relating to employment or the termination of
employment; and (B) any written or unwritten representations, commitments,
promises, communications or courses of conduct (excluding Plans) and any
such Assigned Contracts referred to in clause (A) involving an obligation
of the Sellers to make payments in any year, other than with respect to
salary or incentive compensation payments in the ordinary course of
business, to any employee exceeding Fifty Thousand Dollars ($50,000.00);
(ii) (A) all Assigned Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of either Seller
to engage in any business activity or compete with any Person or
prohibiting or limiting the ability of any Person to compete with either
Seller,
(iii) all Contracts relating to Indebtedness of either Seller which
relate to the Purchased Assets;
(iv) all Assigned Contracts with distributors, dealers,
manufacturer's representatives, sales agencies or franchisees;
(v) all Assigned Contracts relating to the future disposition or
acquisition of any assets relating to the Terminals, other than
dispositions or acquisitions in the ordinary course of business consistent
with past practice;
(vi) all Assigned Contracts between either Seller, on the one hand,
and any Affiliate an the other hand, which shall survive the Closing;
(vii) all collective bargaining or similar labor Contracts which are
Assigned Contracts;
(viii) all Assigned Contracts that (A) contain provisions calling for
the sale or purchase of raw materials products or services at prices that
vary from the market prices of such raw materials, products and services
generally prevailing in customary third party markets; (B) include "take or
pay," "meet or release" "most favored nations" or similar pricing and
delivery arrangements;
(ix) all Assigned Contracts relating to preferential access to any
facility located at the Terminals; and
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(x) all other Assigned Contracts (other than Plans and Assigned
Leases) that (A) involve the payment or potential payment, pursuant to the
terms of any such Contract, by or to either Seller of more than One Hundred
Fifty Thousand Dollar ($150,000.00) annually and (B) cannot be terminated
within thirty (30) days after giving notice of termination without
resulting in any material cost or penalty to either Seller.
(b) Each Material Assigned Contract is in full force and effect and,
assuming valid execution and delivery of such Material Assigned Contract by
the other parties thereto, constitutes legal, valid and binding obligations
of such Seller, enforceable against such Seller in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting creditors' rights
generally; and except as disclosed in Section 2.17(b) of the Disclosure
Schedule, neither the Sellers nor, to the knowledge of the Sellers and the
Shareholder, any other party to such Contract is, or has received notice
that it is in violation or breach of or default under any such Contract (or
with notice or lapse of time or both, would be in violation or breach of or
default under any such Contract) in any material respect.
2.18 Licenses. Section 1.1(h) of the Disclosure Schedule contains a true
--------
and complete list of all material Licenses and pending applications for material
Licenses required or used in the operation of the Terminals, setting forth the
grantor, the grantee, the function and the expiration and renewal date of each.
Prior to the execution of this Agreement, the Sellers have delivered to the
Buyer true and complete copies of all such Assigned Licenses. Except as
disclosed in Section 2.19 of the Disclosure Schedule:
(a) the Sellers own or validly hold all material Assigned Licenses.
(b) each Assigned License is valid, binding and in full force and effect
and transferable to the Buyer in accordance with this Agreement;
(c) neither Seller is, and neither Seller has received any written notice
that it is, in default (or with the giving of notice or lapse of time or
both, would be in default) under any Assigned License; and
(d) to the knowledge of either Seller or the Shareholder, there has been no
indication that Assigned License may be issued, renewed, modified or
revoked on terms or conditions that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse on either Terminal.
2.19 Insurance. Section 2.19 of the Disclosure Schedule contains a true
---------
and complete list (including the names of the insurers and the names of the
Persons to whom such policies have been issued) of all liability, property and
workers' compensation, insurance policies currently in effect that insure the
Terminals operations or employees working at or for the Terminals or affect or
relate to the ownership, use or operation of any of the Purchased Assets and
that (a) have been issued to either Seller or (b) have been issued to any Person
(other than the Sellers) for the benefit of either Seller. Each policy listed in
Section 2.19 of the Disclosure Schedule is, to the knowledge of the Sellers and
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the Shareholder, valid and binding and in full force and effect. All premium due
under such policies have been paid, and neither Seller has received any written
notice of cancellation or termination in respect of any such policy or is in
default thereunder.
2.20 Affiliate Transactions.
----------------------
(a) Except as set forth in Section 2.20 of the Disclosure Schedule, with
respect to the Purchased Assets, (i) there are no intercompany Liabilities
between either Seller, on the one hand, and any Affiliate, on the other,
which shall survive the Closing, (ii) no Affiliate provides or causes to be
provided any assets, services or facilities to either Seller, (iii) neither
Seller provides or causes to be provided any assets, services or facilities
to any such Affiliate and (iv) neither Seller beneficially owns, directly
or indirectly, any Investment Assets issued by any such Affiliate.
(b) Since the Financial Statement Date, and with respect to the Purchased
Assets, all settlements of intercompany Liabilities between either Seller,
on the one hand, and any Affiliate on the other, have been made, and all
allocations of intercompany expenses have been applied in the ordinary
course of business consistent with past practices.
2.21 Employees; Labor Relations. With respect to the Purchased Assets.
--------------------------
(a) no employee of either Seller working at either Terminal is presently a
member of a collective bargaining unit, and, to the knowledge of either
Seller or the Shareholder, there are no threatened or contemplated attempts
to organize for collective bargaining purposes any of the employees of
either Seller, (b) no unfair labor practice complaint or sex, age, race or
other discrimination claim has been brought during the last five (5) years
against either Seller before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any other Governmental or Regulatory
Authority and (c) since January 1, 1997, there has been no work stoppage,
strike or, to the knowledge of either Seller or the Shareholder, other
concerted action by such employees. During that period, the Sellers have
complied in all material respects with all applicable Laws relating to the
employment of labor, including, without limitation those relating to wages,
hours and collective bargaining.
2.22 Environmental Matters. With respect to the Purchased Assets.
---------------------
(a) Except as disclosed in Section 2.22 of the Disclosure Schedule, the
ownership, us-e and operation by the Sellers and, to the knowledge of the
Sellers and the Shareholder, all past owners and operators of the Terminals
have been, are and will be on the Closing Date, in compliance with all
Environmental Laws, and no Environmental Action has been filed, commenced
or threatened with or against any of them for failure to so comply.
(b) Except as would not have a Material Adverse Effect on the Purchased
Assets, the Sellers have made timely applications for and received all
Environmental Permits required to allow them to conduct their operations,
such Environmental Permits are valid and in effect, and the Sellers are in
compliance with such Environmental Permits.
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(c) The Sellers have never disposed o& sent or arranged for the
transportation of Hazardous Materials at or to a site, or owned or operated
a site, which, pursuant to CERCLA or any similar or analogous state law,
has been placed or is proposed to be placed (by the United State
Environmental Protection Agency (the "EPA") or similar state authority) to
be an the "National Priorities List", as in effect as of the Closing date,
of hazardous waste sites or any similar state list.
(d) To the knowledge of the Sellers and the Shareholder (i) neither Seller
has been identified by the United States Environmental Protection Agency or
similar state authority as a potentially responsible party under CERCLA or
any similar or analogous state law with respect to any hazardous waste
sites; (ii) no Hazardous Material which has been generated, transported or
disposed of by or on behalf of either Seller has been found at any site
which a Person has conducted or has ordered that either Seller conduct a
remedial investigation, removal or other investigation, removal or other
response action pursuant to any Environmental Law; or (iii) neither Seller
is or shall be a named party to any Environmental Action arising out of any
Person's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Materials.
(e) Section 2.22 of the Disclosure Schedule lists all underground storage
tanks located at the Real Property included in the Purchased Assets.
(f) Except as set forth an Section 2.22 of the Disclosure Schedule, since
January 1, 1997, or to the knowledge of the Sellers or the Shareholder
prior to such date, there have been no Releases, or, to the knowledge of
the Sellers and the Shareholder, threatened Releases that are or at any
time were likely to occur, of Hazardous Materials on, upon, into or from
the Real Property, except in compliance with Environmental Laws, or except
as could not reasonably be expected to have a Material Adverse Effect.
(g) Except as set forth on Section 2.22 of the Disclosure Schedule, to the
knowledge of the Sellers and the Shareholder, there have been and are no
Releases on, upon, from or in any real property within a one-mile radius of
the Real Property, which, through the soil, groundwater or surface water
have come, or could reasonably be expected to come, to be located on, upon
or under the Real Property, except in compliance with Environmental Laws or
except as could not reasonably be expected to have a Material Adverse
Effect.
2.23 Substantial Customers.
---------------------
(a) Section 2.23(a) of the Disclosure Schedule lists the five (5) largest
customers of each Terminal, on the basis of projected revenues for services
provided in 1998.
(b) No such customer has ceased or materially reduced its use of the
services of either Terminal since the Financial Statement Date or, to the
knowledge of either Seller or the Shareholder, has threatened to cease or
materially reduce such purchases, use, sales or provision of services after
the date hereof.
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(c) Except for relationships with Affiliates, with respect to the Purchased
Assets, neither Seller (nor any director, officer or employee of such
Seller) possesses, directly or indirectly, any financial interest in any
corporation, firm, association or business organization which is a
supplier, customer, lessor, lessee or competitor of either Seller.
2.24 No Powers of Attorney. As of the Closing, neither Seller will have
---------------------
any powers of attorney or comparable delegations of authority outstanding with
respect to any Purchased Asset.
2.25 Solvency. Neither Seller is entering into this Agreement with actual
--------
intent to hinder, delay or defraud creditors.
2.26 Government Contracts. Neither Seller, with respect to the Purchased
--------------------
Assets.
(a) has any Contracts with any agency of the Government of the United
States involving any information, technology or data which is classified
under Executive Order 12356 of April 2, 1982; or
(b) has any products or services (including research and development) with
respect to which such Seller (1) is a supplier, direct or indirect, to any
of the military services of the United States or the Department of Defense,
other than the United States Coast Guard, except the supply to individuals
of such military in their individual capacity, or (ii) has technology which
has or could have military applications.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE PARENT
In order to induce the Sellers and the Shareholder to enter into this
Agreement, the Buyer and the Parent make the representations and warranties set
forth below which are true, correct and complete on the date hereof and shall be
true correct and complete as of the Closing. Except as set forth in those
sections of the Disclosure Schedule corresponding to the sections below:
3.1 Organization. The Buyer is a limited partnership duly organized,
------------
validly existing and in good standing under the laws on the State of Delaware.
The Buyer has full power, authority and capacity to execute and deliver this
Agreement and the Related Agreements and to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby.
3.2 Execution and Delivery. The execution, delivery and performance of
this Agreement and the Related Agreements by the Buyer and the Parent and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized and approved by the board of directors of the general partner of the
Buyer and the Parent, and no other action on the part of the Buyer or the Parent
is necessary to authorize the execution, delivery and performance of this
Agreement and the Related Agreements by the Buyer and the Parent and the
consummation of the transactions contemplated hereby and thereby. This Agreement
has been duly and validly executed and delivered
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by the Buyer and the Parent and constitutes, and upon the and delivery by the
Buyer of the Related Agreements, the Related Agreements will constitute, legal,
valid and binding obligations of the Buyer and the Parent, as the case may be,
enforceable against the Buyer and the Parent in accordance with their terms,
assuming valid execution and delivery of this Agreement and the Related
Agreements by the Sellers and the Shareholder, and except as enforceability may
be limited by bankruptcy, insolvency, reorganizations, moratorium or other Laws
affecting creditors' rights generally.
3.3 Authority. The Buyer has full corporate power and authority to its
---------
business as and to the extent now conducted and to own, use and lease its Assets
and Properties. The Buyer his, prior to the execution of this Agreement,
delivered to the Sellers true and complete copies of the Certificate of Limited
Partnership and Agreement of Limited Partnership of the Buyer as in effect on
the date hereof. Upon Closing, the Buyer will be duly qualified, licensed or
admitted to do Business and is in good standing in those jurisdictions specified
in Section 3.3 of the Disclosure Schedule.
3.4 No Conflicts. The execution and delivery by the Buyer and the Parent
------------
of this Agreement and the Related Agreements, the performance of their
respective obligations under this Agreement and such Related Agreements and the
consummation of the transactions contemplated hereby and thereby do not and will
not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of their respective Certificates of Limited
Partnership or Agreements of Limited Partnership of the Buyer;
(b) subject to obtaining the consents, approvals and actions, making the
filings and giving, the notices disclosed in Section 3.4(c) of the
Disclosure Schedule, conflict with or result in a violation or breach of
any term or provision of any Law or Order applicable to the Buyer, the
Parent or any of their respective assets or properties; or
(c) except as disclosed in Section 3.4(c) of the Disclosure Schedule, (i)
conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require
the Buyer or the Parent to obtain any consent approval or action of, make
any filing with or give any notice to any Person as a result or under the
terms of, (iv) result in or give to any Person any right of termination
cancellation, acceleration or modification in or with respect to, (v)
result in or give to any Person any additional rights or entitlement to
increased, additional accelerated or guaranteed payments under, or (vi)
result in the creation or imposition of any Lien upon the Buyer or the
Parent or any of their respective assets or properties under any Contract
or License to which the Buyer or the Parent is a party or by which any of
the Buyer's or Parent's assets or properties is bound.
3.5 Governmental Approvals and Filings. Except as disclosed in Section
----------------------------------
3.5 of the Disclosure Schedule, no consent, approval or action of, fifing with
or notice to any Governmental or Regulatory Authority an the part of the Buyer
is required in connection with the execution delivery and performance of this
Agreement or any of the Related Agreements or the consummation of the
transactions contemplated hereby or thereby.
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3.6 Financial Ability to Perform. The Buyer has available to it funds
----------------------------
sufficient to enable the Buyer to deliver the Purchase Price to the Sellers as
contemplated by this Agreement at the Closing and perform its obligations
hereunder.
ARTICLE IV
CONDITIONS TO CLOSING
4.1 Conditions to Obligation of the Buyer to Close. The obligation of the
----------------------------------------------
Buyer to effect the closing of the transactions contemplated by this Agreement
is subject to the satisfaction prior to or at the Closing of the following
conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Sellers and the Shareholder under this Agreement shall be true and
correct in all material respects as of the Closing Date with the same
effect as though made on and as of the Closing Date; provided, however,
that the representations and warranties of the Sellers and the Shareholder
contained in Section 2.17 shall be deemed to be true and correct in all
material respects so long as (i) the aggregate amount of all Assigned
Contracts which were not disclosed to or made available to the Buyer prior
to the date hereof does not exceed Fifty Thousand Dollars ($50,000.00), or
(ii) any Assigned Contract which was not delivered to the Buyer is not
otherwise material to the conduct of the operations of either Terminal.
(b) Observance and Performance. The Sellers and the Shareholder shall have
--------------------------
performed and complied with all covenants and agreements required by this
Agreement to be performed and complied with by them prior to or as of the
Closing Date, including the execution and delivery of the Related
Agreements.
(c) No Adverse Change. There shall have occurred no event or events which
-----------------
individually or in the aggregate would constitute a Material Adverse Effect
an the Purchased Assets since the Financial Statement Date.
(d) Officer's and Shareholder's Certificate. The Sellers and the
---------------------------------------
Shareholder shall have delivered to the Buyer a certificate, dated the
Closing Date, executed by the President cf each Seller and an officer of
the Shareholder, and certifying to the satisfaction of the conditions
specified in Sections 4.1(a), (b), (c) and (h) hereof.
(e) Consents of Third Parties. The Sellers and the Shareholder shall have
-------------------------
delivered to the Buyer duly executed copies of those consents and
assignments listed in Section 4.1(e) of the Disclosure Schedule.
Additionally, any financing statement terminations shall have been filed as
necessary to remove any liens or security interests applicable to the Real
Property.
(f) Legal Opinion. The Buyer shall have received an opinion, dated the
-------------
Closing Date, from Brown, Todd & Heyburn PLLC, counsel to the Sellers, in
such form reasonably agreed upon by the parties hereto and such legal
opinions with respect to the Bonds as may reasonably request.
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(g) Closing Documents. The Buyer shall have received such further
-----------------
instruments and documents, normal and customary for transactions such as
those contemplated by this Agreement as may be reasonably required for the
Buyer to consummate the transactions contemplated hereby.
(h) No Legal Actions. No Governmental or Regulatory Authority shall have
----------------
issued an order not subsequently vacated, restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by
this Agreement. No Person shall have instituted an action or proceeding
which shall not have been previously dismissed or otherwise settled seeking
to restrain, enjoin or prohibit the consummation of the transactions
contemplated by this Agreement or seeking damages with respect thereto.
(i) Proceeding. All corporate and other proceedings and actions taken in
----------
connection with the transactions contemplated hereby and all certificates
and opinions mentioned herein or incident to any such transaction shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
(j) Title Policies. The Sellers shall have provided to the Buyer (i) a
--------------
commitment for an ALTA Form B-1987 title policy issued by Lawyer's Title
Insurance Corporation or First American Title Insurance Corporation (each a
"Title Company") with respect to the Real Property insuring title of the
Real Property (and specifically insuring as an insured parcel any easements
benefiting the Real Property) to be in the Buyer as of the Closing Date,
subject only to those exceptions approved by the Buyer in writing prior to
the Closing which do not have a material adverse effect on the value of the
Real Property or Buyer's contemplated use of the Real Property and/or the
Terminals and (ii) legible (to the extent reasonably possible) copies of
the title exception documents referenced in the commitments with respect
thereto. At the Closing the Sellers, shall provide to the Buyer ALTA title
policies (the "Title Policies") insuring the Real Property (and
specifically insuring as an insured parcel any easements benefiting the
Real Property) subject only to those exceptions approved by the Buyer in
writing prior to the Closing which do not have a material adverse effect on
the value of the Real Property or Buyer's contemplated use of the Real
Property and/or the Terminals in the aggregate amount of Thirty Five
Million Dollars ($35,000,000.00) issued by the Title Companies. The Title
Policies, the down dates of the Title Policies and any endorsements
reasonably requested by the Buyer shall be in forms and in amounts and from
issuers reasonably satisfactory to the Buyer. Within(60) days after
Closing, the Sellers shall obtain and deliver to the Buyer, at the Sellers'
sale cost and expense, surveys of the Real Property as are necessary to
enable the Title Company to down date the Title Policies within one hundred
twenty (120) days after Closing, delete the survey exception from the Title
Policies (or otherwise provide a survey endorsement), delete any exceptions
which initially appeared on the Title Policies but which are revealed by a
survey to not encumber or adversely affect the Real Property on its current
or substantially similar use (regardless of whether the Buyer previously
approved the same) and provide (without obligation to provide any letters
of credit, bonds or other secured indemnities) such other affirmative
insurance or other endorsements, to the extent such are available at
commercially reasonable rates (it being agreed that the inability to
provide such affirmative insurance or other endorsements at
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commercially reasonable rates shall not affect the indemnification
obligations of the Sellers and the Shareholder under Article VI of this
Agreement) as the Buyer reasonably may request based upon its review of the
surveys; such surveys shall be certified to the Buyer with a certificate
acceptable to the Buyer, shall be prepared in accordance with current with
current ALTA Minimum Detail Requirements for Land Surveys and shall not
disclose any material survey defect or encroachment which has not been
cured or insured over on the down dates of the Title Policies. The cost of
the policy premiums, endorsements and down dates shall be paid for by the
Sellers. The Sellers shall deliver to Buyer and the Title Companies any
further affidavits, agreements and assurances necessary to issue the Title
Policies. Time obligations of Sellers under this Section 4.16) shall
survive the Closing.
(k) Inventory. The product inventory referenced in Section 5.9 hereof
---------
shall have been completed.
(l) Real-Property Consents and Information. As soon as is practicable
--------------------------------------
after the date hereof, the Sellers and the Shareholder shall have delivered
to the Buyer such information and documents relating to the Real Property
as the Buyer reasonably may request in order to evaluate any restrictions,
easements and other interests relating to the Real Property. Within 2
business days of delivery to the Buyer of all documents reasonably
requested, the Buyer shall communicate to the Sellers those consents and/or
assignments under such documents as are reasonably material to the conduct
of each Terminal which the Buyer shall require to be delivered prior to the
Closing, and as a condition to the Buyer's obligations to effect the
Closing, the Buyer shall have received such consents and assignments.
4.2 Conditions to Obligations of the Sellers and the Shareholder to Close.
---------------------------------------------------------------------
The obligations of the Sellers and the Shareholder to affect the closing of the
transactions contemplated by this Agreement are subject to the satisfaction
prior to or at the Closing of the following conditions:
(a) Representations and Warranties. The representations and warranties of
------------------------------
the Buyer under this Agreement shall be true and correct. in all material
respects as of the Closing Date with the same effect as though made an and
as of the Closing Date.
(b) Observance and Performance. The Buyer shall have performed and
--------------------------
compiled with all covenants and agreements required by this Agreement to be
performed and completed with by it prior to or as of the Closing Date,
including the execution and delivery of the Related Agreements.
(c) Officer's Certificate. The Buyer shall have delivered to the Sellers
---------------------
and the Shareholder a certificate, dated the Closing Date, executed by an
officer of the Buyer and certifying to the satisfaction of the conditions
specified in Sections 4.2 (a), (b) and (e) hereof.
(d) Legal Opinion. The Sellers and the Shareholder shall have received an
-------------
opinion, dated the Closing Date, from Bracewell & Patterson, L.L.P, counsel
to the Buyer, in the form reasonably agreed upon by the parties hereto.
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(e) No Legal Actions. No Governmental or Regulatory Authority shall have
----------------
issued an order, not subsequently vacated, restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by
this Agreement. No person, firm, corporation or governmental agency shall
have instituted an action or proceeding which shall not have been
previously dismissed seeking to restrain, enjoin or prohibit the
consummation of the transactions contemplated by this Agreement or seeking
damages with respect thereto.
(f) Closing Documents. The Sellers shall have received such further
-----------------
instruments and documents, normal and customary for transactions such as
those contemplated by this Agreement, as may be reasonably required for the
Sellers to consummate the transactions contemplated hereby.
(g) Proceedings. All corporate and other proceedings and actions taken in
-----------
connection with the transactions contemplated hereby and all certificates
and opinions mentioned herein or incident to any such transaction shall be
reasonably satisfactory in form and substance to the Sellers, the
Shareholder and their counsel.
(h) Inventory. The product inventory referenced in Section 5.9 hereof
---------
shall have been completed.
ARTICLE V
COVENANTS
5.1 Conduct of the Terminals Pending the Acquisition. The Sellers and the
------------------------------------------------
Shareholder agree that, from the date hereof until Closing, except to the went
that the Buyer shall. otherwise consent in writing:
(a) the Sellers shall (i) operate the Terminals in the ordinary course of
business consistent with past practice, and with respect to the Purchased
Assets, except as otherwise set forth in the Disclosure Schedule, use their
respective reasonable best efforts to preserve intact their respective
present business organizations and relationships with persons having
business relationships with them; (ii) maintain all, of the Purchased
Assets in substantially the same condition as such Purchased Assets exist
on the date hereof, ordinary wear and tear excepted; (iii) insure all of
the Purchased Assets in such amounts and of such kinds comparable to that
in effect on the date hereof, to the extent available at current premiums;
(iv) maintain the Books and Records in the usual, regular and ordinary
manner, on a basis consistent with past practice; and (v) not execute or
permit any easement, restriction, lease or other encumbrance of any nature
with respect to the Real Property.
(b) no amendment shall be made to the articles or certificate of
incorporation or the Bylaws of either Seller in any manner which would
adversely affect the consummation of the transactions contemplated hereby;
(c) neither Seller shall issue any capital stock, nor shall it grant any
Option in any manner which would adversely affect the consummation of the
transactions contemplated hereby,
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(d) there shall not be any declaration or payment of any dividend or other
distribution in respect to the capital stock of either Seller insofar as
such distribution would include or involve Purchased Assets;
(e) neither Seller shall, (i) other than in the ordinary course of
business, with respect to the Purchased Assets, enter into any employment
contract or consulting agreement or make any offer of employment to any
persons or offer to engage any person as a consultant, or (U) other than
pursuant to any written Contract, increase the wages, salary, fees or other
compensation of any person(s) presently employed or rendering any
service(s) at the Terminals;
(f) except in the ordinary course of business, neither Seller shall enter
into, materially amend or renew, or waive or release any rights of material
value under, any Material Assigned Contract (including Real Property and
capital leases and contracts for the purchase and/or sale of capital
equipment), Assigned Lease or Assigned License;
(g) neither Seller shall take any action, directly or indirectly, to
negotiate or discuss with any Person or entity, or solicit from any person
or entity, any offer or indication of interest regarding (i) any sale,
transfer or disposition of Purchased Assets other than in the ordinary
course of business, or (ii) except as would not adversely affect the
consummation of the transactions contemplated hereby, (A) any merger or
consolidation of either Seller with any Person other than the Buyer, (B)
any equity or debt investment in either Seller by any Person other than the
Buyer, or (C) any sale or transfer by the shareholders of either Seller of
its capital stock;
(h) the Sellers shall not sell, transfer or dispose of any of the Purchased
Assets other than obsolete equipment or other assets sold, transferred or
disposed of in the ordinary course of business; provided, however, that any
sale, transfer or disposition of any Purchased Assets in the ordinary
course of business shall not exceed a value of more than Two Hundred
Thousand Dollars ($200,000.00) in the aggregate;
(i) the Sellers shall not grant any Lien (except a Permitted Lien) on any
of the Purchased Assets or allow any such Lien (except a Permitted Lien) to
occur or to be created;
(j) except in the ordinary course of business, the Sellers shall not
acquire any tangible properties or assets relating to the Terminals; and
(k) the Sellers shall not incur any Liability, guaranty or obligation
(fixed or contingent) relating to the Terminals other than in the ordinary
course of business.
5.2 Books and Records; Access and Information. From the date of this
-----------------------------------------
Agreement until the Closing, the Sellers and the Shareholder shall give to the
Buyer, its officers and representatives reasonable access to the premises, books
and records of the Sellers relating to the Purchased Assets, and provide the
Buyer with such financial and operating data and other information with respect
to the Terminals as it shall from time to time reasonably request, including,
without limitation, all interim
26
<PAGE>
financial data as soon as it becomes available; provided, however, that any such
investigation shall be conducted in such manner as not to interfere unreasonably
with the operation of the Terminals.
5.3 Notification of Certain Matter. Subsequent to the date of this
------------------------------
Agreement and on or prior to the Closing, the Sellers and the Shareholder, on
the one hand, and the Buyer on the other, shall each promptly notify the other
of:
(a) the receipt of any notice of, or other communication relating to, a
default or event which, with notice or lapse of time or both, would become
a default under any Material Assigned Contract;
(b) the receipt of any notice or other communication from any third party
whose consent or approval is or may be required in connection with the
transactions contemplated by this Agreement, denying such consent or
approval;
(c) the receipt of any notice or other communication from any Governmental
or Regulatory Authority in connection with the transactions contemplated
hereby;
(d) any event or events which individually or in the aggregate would have
a Material Adverse Effect on the Purchased Assets; or
(e) any condition or fact which would not permit either of them to satisfy
a condition to the others obligation to effect the transactions
contemplated hereby, or any event or condition known to or discovered by
them, as applicable, which if it existed on the date of this Agreement or
on the Closing Date, would result in any of the representations and
warranties of the applicable party contained herein being untrue in any
material respect.
5.4 Confidentiality. Each of the parties hereto agrees that it shall, and
---------------
shall cause its subsidiaries and the officers, employees and authorized
representatives of each of them to hold in strict confidence all data and
information obtained by them from the other parties hereto (unless such
information is required to be disclosed in legal or administrative proceedings)
and shall not, and shall ensure that such subsidiaries, directors, officers,
employees and authorized representatives do not, disclose such information to
others without the prior written consent of the party from which such data or
information was obtained. In the event of the termination of this Agreement,
each of the parties will return or destroy all documents, work papers and other
materials (including all copies made thereof) obtained pursuant hereto.
5.5 Cooperation by the Parties.
--------------------------
(a) Consents. The parties hereto shall use their reasonable best efforts
--------
(which shall include such best efforts up to and after the Closing) to
cooperate with each other to secure all necessary consents, approvals,
authorizations, exemptions and waivers from third parties (including
consents and assignments under those agreements listed on Section 2.4(c) of
the Disclosure Schedule) as shall be required in order to enable the
parties to effect the transactions contemplated hereby, and the parties
hereto shall otherwise use their reasonable
27
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best efforts to cause the consummation of such transactions in accordance
with the terms and conditions hereof and to cause all conditions contained
in this Agreement over which each of them respectively has control to be
satisfied; provided, however, that nothing contained herein shall require
the parties to pay any remuneration in order to obtain such consents or to
file a lawsuit or other action to obtain such consents. To the extent the
Title Policies are not finalized prior to Closing as agreed by the Sellers
and the Buyer, the Sellers and the Shareholder covenant to promptly comply
with the terms of Section 4.10) after Closing.
(b) Cooperation with Respect to Examinations and Controversies. The Buyer
----------------------------------------------------------
and the Sellers shall use all reasonable efforts to cooperate with each
other and their respective representatives, in a prompt and timely manner,
in conjunction with any inquiry, audit, examination, investigation, dispute
or litigation involving any Tax Return (collectively, the "Tax Disputes")
relating to the Purchased Assets and relating to any federal, state or
local Taxes (i) filed or required to be filed by or for the Sellers for any
taxable period beginning before the Closing Date, or (ii) filed or required
to be filed by or for the Buyer for any taxable period ending after the
Closing Date. Notwithstanding anything to the contrary herein, the Sellers
shall retain control of any Tax Dispute to the extent such Tax Dispute
arises out of or is related to events or circumstances prior to the Closing
and the Buyer shall retain control of any Tax Dispute to the extent such
Tax Dispute arises out of or is related to events or circumstances after
the Closing. Such cooperation shall include, but not be limited to,
reasonable access to the Terminals, making available to one another during
normal business hours, and within ten (10) days of any reasonable request
therefor, all books, records and information and the assistance of all
officers and employees., reasonably required in connection with any Tax
inquiry, audit, examination, investigation, dispute, litigation or any
other matter. The parties hereto agree to conduct any investigation or
examination hereunder without causing any material interference or
disruption of the operations of the business of any other party hereto or
their Affiliates. The Sellers will retain, until the expiration of the
applicable statutes of limitations (including any extensions thereof)
copies of all Tax Returns, supporting work schedules and other records
relating to Taxes for all taxable years or periods (or portions thereof)
ending on or prior to the Closing Date.
5.6 Antitrust Notification. The Buyer and the Sellers (or the "Ultimate
----------------------
Parent Entity or Entities" (as defined in the HSR Act) of the Sellers) have
filed with the United State Federal Trade Commission (the "FTC") and the United
States Department of Justice (the "DOJ") their portion of the notification and
report form required for the transactions contemplated hereby and any
supplemental information requested in connection therewith pursuant to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act) in substantial
compliance with the requirements of the HSR Act. Each party shall furnish to
the other such necessary information and reasonable assistance as such other
party may reasonably request in connection with its preparation of any
supplemental filing or submission which is necessary under the HSR Act. Each
party shall keep the other apprised of the status of any communications with,
and inquiries cr requests for additional information from, the FTC or the DOJ
and shall comply with any such inquiry or request. Each party shall use its
best efforts to obtain any clearance required under the HSR Act for the purchase
and sale of the Purchased Assets. The parties have requested an early
termination of the waiting period
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provided by Section 7A(b)(1) of the Clayton Act and Section 803.10(b) of the
pre-merger notification rules.
5.7 The Sellers' Employees. The Sellers have provided to the Buyer as of
----------------------
the date hereof a list of employees of the Sellers associated with the Terminals
setting forth the status of such employees and their compensation, who will be
full-time, active employees on the Closing Date, including those on temporary
leave for jury duty, family and short-term medical leave, vacation or military
duty. For purposes of this Section 5.7, Jeff Nues shall be considered as an
employee of the Sellers, though he is actually employed by one of their
corporate affiliates. The Buyer shall provide to the Sellers at least five (5)
days prior to the Closing Date a list of such employees to whom the Buyer will
offer employment (the "Employee List"). Employees of the Sellers who accept
offers of employment with the Buyer and become employees of the Buyer prior to
the Closing shall be referred to herein as "Transferred Employees." Employees
of the Sellers not offered employment or who decline employment, and Transferred
Employees who do not report for work with the Buyer shall remain the
responsibility of the Sellers. Except as expressly provided otherwise, herein,
the terms of the Transferred Employees' employment shall be upon such terms and
conditions as the Buyer, in its sole discretion, shall determine. The Buyer
shall count and credit each Transferred Employee's years of service with the
Sellers for purposes, of eligibility to participate in any benefits generally
available to the Buyer's employees. This provision shall not be construed to
create any third party beneficiaries nor to vest any rights in parties other
than those signatories to this Agreement.
5.8 Compliance with Agreements Regarding Industrial Revenue Bonds.
-------------------------------------------------------------
(a) In connection with the Sellers' existing obligations with respect to
the Industrial Revenue Refunding Bonds, Series 1997, issued by Charleston
County, South Carolina to finance the Shipyard River Terminal, and the
Port Facility Refunding Revenue Bonds, Series 1997, issued by Peninsula
Ports Authority of Virginia to finance the Pier IX Terminal (collectively,
the "Bonds"), the Buyer agrees to the following, for as long as the Buyer
shall operate the applicable Terminal:
(i) notwithstanding Section 3.8(b) below, the Buyer shall not
operate the Pier IX Terminal or the Shipyard River Terminal in a manner
inconsistent with their current operations.
(ii) the Buyer shall maintain, or cause to be maintained, the
Terminals and keep, or cause to be kept, the Terminals insured (by third
parry insurance, self-insurance or otherwise) against loss in accordance
with customary industry practices;
(iii) with respect to each Terminal, the Buyer shall take all steps
necessary to comply with the covenants set forth in this Section 5.8 for so
long as the Bonds applicable to such Terminal, or any substitutes therefor
or refinancing thereof, remain outstanding;
(iv) the Buyer shall, upon request of the Sellers, provide periodic
certification, in form and substance reasonably satisfactory to the
Sellers, that it is in compliance with the covenants set forth in this
Section 5.8.
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(b) The provisions of this Section 5.8(a) are subject to the following
limitations: Subject to Section 5.8(i) above, if because of any force
majeure the Buyer is unable in whole or in part to carry out the agreements
of the Buyer listed in Section 5.8(a), the Buyer shall not be deemed in
default by reason of not carrying out said agreements during the
continuance of such inability so long as the Buyer shall make reasonable
effort to remedy with all reasonable dispatch the cause or causes
preventing it from carry out its agreements. The term "force majeure" as
used herein shall mean the following: Acts of God, strikes, lockouts or
other industrial disturbances; acts of public enemies; orders of any kind
of the Government of the United States or of the State or any of their
departments, agencies or officials, or any civil or military authority;
insurrections; riots; epidemics; landslides; earthquakes; fire; hurricanes;
storms; floods; washouts; droughts; tornadoes; arrests; restraint of
government and people; civil disturbances; explosions, breakage or accident
to machinery; partial or entire failure of utilities; or any other cause or
event not reasonably within the control of the Buyer, it being agreed that
the settlement of strikes, lockouts and other industrial disturbances shall
be entirely within the discretion of the Buyer, and the Buyer shall not be
required to make settlement of strikes, lockouts and other industrial
disturbances by acceding to the demands of the opposing party or parties
with such course is in the judgment of the Buyer unfavorable to the Buyer.
(c) Prior to the sale or other transfer of either Terminal, the Buyer will
require that any successor operator of the transferred Terminal agree in
writing to be bound by the obligations of this Section 5.8.
5.9 Product Inventory. Prior to the Closing, the parties hereto shall
-----------------
cooperate in performing and completing (or having performed and completed) an
assessment or inventory (the "Inventory") of the volume of products located at
each Terminal for terminaling or storage services. The cost of such Inventory
shall be borne equally the Sellers and the Shareholder, on the one hand, and the
Buyer and the Parent on the other. If the parties are unable to agree on the
Inventory, an independent consultant or expert shall be retained (with the cost
shared equally by the Buyers and the Parent, on the one hand, and the Sellers
and the Shareholder on the other) to conduct the Inventory. To the extent the
results of the Inventory reflect any product losses compared to the inventory of
product which, according to the records of the Terminals, should be located at
the Terminals, the Purchase Price shall be reduced to compensate the Buyer for
the shortfall.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Sellers and the Shareholder. The Sellers and
--------------------------------------------------
the Shareholder, jointly and severally, hereby agree to indemnify and hold
harmless the Buyer and its Affiliates (the "Buyer Indemnitees") from and after
the Closing Date from and against all damages, including penalties arising
pursuant to any statute, losses, deficiencies, costs, expenses, obligations,
fines, expenditures, Claims and liabilities, including reasonable counsel fees
and reasonable expenses of investigation, defending and prosecuting litigation
(but excluding consequential, punitive or exemplary damages other than any such
damages paid by or owing from the Buyer or the Parent or
30
<PAGE>
to any third party) (collectively, the "Losses"), suffered by the Buyer
Indemnitees as a result of, caused by, arising out of, or in any way relating to
and with respect to any of the following:
(a) any misrepresentation or breach of warranty on the part of either
Seller or the Shareholder under this Agreement (including the Disclosure
Schedule) or any Related Agreement furnished or to be furnished to the
Buyer by either Seller or the Shareholder pursuant to the terms of this
Agreement;
(b) any non-fulfillment of any covenant or agreement on the pan of either
Seller or the Shareholder under this Agreement; and
(c) the Pre-Closing Liabilities;
(d) any matters revealed by (i) surveys of the Real Property which are
delivered to Buyer by the Sellers after Closing; (ii) the down dates of the
Title Policies required by Section 4.1(j) hereof, or (iii) title exception
documents delivered to Buyer by Seller after the date hereof to the extent
that any of the foregoing have a material adverse effect on the value of
the Real Property or the contemplated use thereof by the Buyer,
(e) any of the representations and warranties of the Sellers under Section
2.14 hereof being found to be untrue, incomplete or inaccurate in any
material respect;
(f) any breach by the Sellers or failure by the Sellers to perform their
obligations under Section 4.10(j) hereof, and
(g) failure of the Sellers to obtain any consents required to transfer the
Real Property to the Buyer, including without limitation all consents
(other than consents required pursuant to documents delivered to the Buyer
prior to Closing) necessary to transfer to the Buyer easements and rights
of way benefiting the Real Property, to the extent that failure to obtain
such consents has a material adverse effect on the value of the Real
Property or the contemplated use thereof by the Buyer.
6.2 Indemnification by the Buyer and the Parent. The Buyer and the
-------------------------------------------
Parent, jointly and severally, hereby agree to indemnify and hold harmless the
Sellers, the Shareholder and their Affiliates (the "Seller Indemnities") from
and after the Closing Date from and against all Losses suffered by the Seller
Indemnitees as a result of, caused by, arising out of, or in any way relating to
and with respect to any of the following:
(a) any misrepresentation or breach of warranty on the part of the Buyer
or the Parent under this Agreement (including the Disclosure Schedule) or
any Related Agreement furnished or to be furnished to the Sellers or the
Shareholder by the Buyer or the Parent pursuant to the terms of this
Agreement;
(b) any non-fulfillment of any covenant or agreement an the part of the
Buyer or the Parent under this Agreement; and
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(c) the Post-Closing Liabilities.
6.3 Procedures for Indemnification.
------------------------------
(a) If there occurs an event which either party asserts is an
indemnifiable event pursuant to Section 6.1 or 6.2, the party seeking
indemnification (the "Indemnitee") shall provide notice (the "Notice of
Claim") to the other party or parties obligated to provide indemnification
(the "Indemnifying Party") promptly. Providing the Notice of Claim shall be
a condition precedent to any liability of the Indemnifying Party hereunder,
and the failure to provide prompt notice as provided herein will relieve
the Indemnifying Party of its obligations hereunder only to the extent that
such failure prejudices the Indemnifying Party hereunder. In case any such
action shall be brought against any Indemnitee and it shall provide a
Notice of Claim to the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnitee and, after notice from the
Indemnifying Party to such Indemnitee of such election so to assume the
defense thereof the Indemnifying Party shall not be liable to the
Indemnitee hereunder for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by the Indemnitee, in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnitee agrees to cooperate fully with the
Indemnifying Party and its counsel in the defense against any such asserted
liability. In any event, the Indemnitee shall have the right to participate
at its own expense in the defense of such asserted liability. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnitee, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the release from all liability in respect to
such claim or litigation. The Indemnifying Party agrees to afford the
Indemnitee and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including any Governmental
and Regulatory Authority, asserting any claim against the Indemnitee or
conferences with representatives of or counsel for such persons. In no
event shall the Indemnifying Party, without the consent of the Indemnitee,
settle any claim on terms which provide for (i) a criminal sanction against
the Indemnitee or (ii) injunctive relief materially and adversely affecting
the Indemnitee.
(b) Upon receipt of a Notice of Claim, the Indemnifying Party shall have
twenty (20) calendar days to contest its indemnification obligation with
respect to such claim, or the amount thereof, by written notice to the
Indemnitee (the "Contest Notice"); provided, however, that if, at the time
a Notice of Claim is submitted to the Indemnifying Party the amount of the
Loss in respect thereof has not yet been determined, such twenty (20) day
period shall not commence until a further written notice (the "Notice of
Liability") has been sent or delivered by the Indemnified Party to the
Indemnifying Party setting forth the amount of the Loss incurred by the
Indemnified Party that was the subject of the earlier Notice of Claim. Such
Contest Notice shall specify the reasons or bases for the objection of the
Indemnifying Party to the claim, and if the objection relates to the amount
of the Loss asserted, the amount, if any, which the Indemnifying Party,
believes is due the Indemnified Party. If no such Contest Notice is given
with such twenty (20) day period, the obligation
32
<PAGE>
of the Indemnifying Party to pay the Indemnified Party the amount of the
Loss set forth in the Notice of Claim or subsequent Notice of Loss, shall
be deemed established and accepted by the Indemnifying Party.
(c) If the Indemnifying Party fags to assume the defense of such Claim or,
having assumed the defense and settlement of such Claim, fails reasonably
to contest such Claim in good faith, the Indemnitee, without waiving its
right to indemnification, may assume, a: the cost of the Indemnifying
Party, the defense and settlement of such Claim; provided however, that (i)
the Indemnifying Party shall be permitted to join in the defense and
settlement of such Claim and to employ counsel at its own expense, (ii) the
Indemnifying Party shall cooperate with the Indemnitee in the defense and
settlement of such Claim in any manner reasonably requested by the
Indemnitee, and (iii) the Indemnitee shall not settle such Claim without
soliciting the views of the Indemnifying Party and giving them due
consideration.
6.4 Survival.
--------
(a) The liability of the Sellers and the Shareholder for their
indemnification obligations arising under this Agreement shall be limited
to claims for which a Buyer Indemnitee delivers written notice to the
Sellers or the Shareholder on or before the second, anniversary date of the
Closing Date; provided, however that any indemnification obligation
relating to (i) Taxes shall be limited to claims for which a Buyer
Indemnitee delivers written notice to the Sellers or the Shareholder on or
before the expiration of any statute of limitations, (ii) title to the
Purchased Assets shall not be limited as to time, and (iii) Pre-Closing
Liabilities shall not be limited as to time.
(b) The liability of the Buyer and the Parent for the Buyer's and the
Parent's indemnification obligations arising out of Section 6.2 shall be
limited to claims for which a Seller Indemnitee delivers written notice to
the Buyer on or before the third anniversary date of the Closing Date;
provided, however, that any indemnification obligation relating to (i)
Post-Closing Liabilities and (ii) the Buyers and the Parent's obligations
under Section 5.8 shall not be limited as to time.
6.5 Limitations on Indemnification. No Indemnifying Party hereto shall be
------------------------------
liable to indemnify for Losses under Article VI hereof unless the aggregate
amount of Losses for which such Indemnifying Party would, but for the provisions
of this Section 6.5, be liable to indemnify exceeds, on an aggregate basis, One
Hundred Thousand Dollars ($100,000.00); provided, however, that such threshold
shall not apply to matters related to title to the Purchased Assets, Pre-Closing
Liabilities, Post-Closing Liabilities, Taxes or any of the matters described in
Section 5.8, 6.1(d), Section 6.1(e), 6.1(f) or 6.1(g) hereof. Notwithstanding
anything in this Agreement to the contrary, the maximum indemnification
liability of the Sellers and the Shareholder, on the one hand; and the Buyer and
the Parent on the other, shall not exceed Twelve Million Six Hundred Thirty-
eight Thousand Dollars ($12,638,000.00) in the aggregate, provided that such
limitations shall not apply to matters related to title to the Purchased Assets,
Pre-Closing Liabilities or any of the matters described in Section 6.1(d),
6.1(e), 6.1(f) or 6.1(g) hereof, in the case of the Sellers and the Shareholder,
or Post-Closing
33
<PAGE>
Liabilities or the obligations of the Buyer contained in Section 5.8 hereof, in
the case of the Buyer and the Parent.
6.6 Payment of Damages. The Indemnifying Party shall pay to the
------------------
Indemnified Party in immediately available funds any amounts to which the
Indemnified Party may become entitled by reason of the provisions of this
Agreement subject to offset for any insurance proceeds actually received by the
Indemnified Party, such payment to be made within five days after any such
amounts are finally determined either by mutual agreement of the parties hereto
or pursuant to the final judgment of in arbitrator. The availability of
insurance proceeds shall not delay or postpone any indemnification payment
required hereunder. If the Indemnified Party both collects any such insurance
proceeds and receives a payment from the Indemnifying Party hereunder, and the
sum of such proceeds and payment is in excess of the amount payable with respect
to the matter that it's the subject of the indemnity, then the Indemnified Party
shall, promptly refund to the Indemnifying Party the amount of such excess, if
permitted by the applicable insurance policy(ies). Except as otherwise provided
in the preceding sentence, the Indemnified Party's receipt of any such insurance
proceeds shall not eliminate or reduce the obligations of the Indemnifying Party
or the rights of the Indemnified Party hereunder.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) by mutual consent of the Buyer and the Sellers;
(b) by either the Sellers or the Buyer after December 15, 1998 (or such
later date as the Closing has been extended by mutual agreement of the
parties hereto) if the Closing has not occurred by such date, provided that
as of such date neither the Sellers, on one hand, and the Buyer, on the
other, is in default under this Agreement; or
(c) by either the Buyer, on the one hand, or the Sellers on the other,
without prejudice to other rights and remedies which the terminating party
may have (provided the terminating party is not otherwise in material
default or breach of this Agreement, or has not failed or refused to close
without justification hereunder), if the other party shall (i) materially
fail to perform its covenants or agreements contained herein required to be
performed on or prior to the Closing Date, or (ii) materially breach or
have breached any of its representations or warranties contained herein;
provided, however, that in the case of clause (i) or (ii), the defaulting
party shall have a period of ten (10) days following written notice from
the non-defaulting party to cure any breach of this Agreement, if such
breach is curable.
7.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement by either the Buyer or the Sellers, as provided above, this Agreement
shall thereafter become void except as provided in Sections 5.4, 8.1, 8.2 and
8.10 hereof and except that any such termination shall be
34
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without prejudice to the rights of any party hereto arising out of the willful
breach by any other party of any covenant or agreement contained in this
Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses. Whether or not the transactions contemplated hereby arm
--------
consummated, all costs and expenses (including without limitation the fees and
expenses of investment bankers, attorneys and accountants) incurred in
connection with this Agreement and transactions contemplated hereby shall be
borne by the Buyer, in the case of costs and expenses incurred by the Buyer, by
the Sellers in the case of costs and expenses incurred by the Sellers.
8.2 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duty given if given) by hand delivery, transmitted by
telegram, telex or telecopy or mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
(a) If to the Buyer to:
c/o Kinder Morgan Energy Partners, L.P.
1301 McKinney, Suite 3450
Houston, Texas 77010
Attention: Richard D. Kinder
Telephone: (713) 844-9551
Telecopy: (713) 844-9570
with a copy to:
Bracewell & Patterson
711 Louisiana Street
Houston, Texas 77002
Attention: David L. Ronn, Esq.
Telephone: (713) 221-1352
Telecopy: (713) 221-1212
(b) If to the Sellers to:
Zeigler Coal Holding Company
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: President
Telephone: (800) 234-3433
Telecopy: (606) 928-0450
with a copy to:
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Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Attention: Paul E. Sullivan, Esq.
Telephone: (606) 231-0000
Telecopy: (606) 231-0011
Notice given by personal delivery, courier service or mail shall be effective
upon actual receipt. Notice given by telecopier shall be confirmed by
appropriate answer back and shall be effective actual receipt if received during
the recipient's normal business hours, or at the beginning of the recipient's
next business day after receipt if not received during the recipient's normal
business hours. Any party may change any address to which Notice is to be given
to it by giving Notice as provided above of such change of address.
8.3 Amendments. No supplement, modification or waiver of this Agreement
----------
shall binding unless executed in writing by the party to be bound thereby.
8.4 Waiver. At any time prior to the Closing, the Buyer or the Sellers
------
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, waive any inaccuracies in the representations
and warranties of the other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the obligations of the
other party or any of the conditions to its own obligations contained herein to
the extent permitted by law. Any agreement on the part of the Buyer, on the one
hand, and the Sellers on the other to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of the
Buyer and the Sellers. The failure of a party to exercise any right remedy
shall not be deemed or constitute a waiver of such right or remedy in the
future. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (regardless of whether
similar), nor shall any such waiver constitute a continuing waiver unless
otherwise expressly provided.
8.5 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, such
consent not to be unreasonably withheld. With respect to any public statement
of 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 of a reasonable opportunity to review the contents of
such statement.
8.6 Head. The headings contained in this Agreement are for reference
----
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.7 Nonassignability. This Agreement shall not be assigned by operation
----------------
of law or otherwise without the prior written consent of all parties hereto;
provided, however, that the parties
36
<PAGE>
specifically consent to (a) an assignment by the Buyer to Kinder Morgan Bulk
Terminals, Inc. and (b) an assignment by the Sellers and/or the Shareholder to
an Affiliate.
8.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of the parties hereto and their successors and permitted
assigns, and nothing in this Agreement, expressed or implied, is intended to
confer upon any other person any rights or remedies of any nature under or by
reason of this Agreement.
8.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be deemed to constitute an original and shall
become effective when one or more have been signed by each of the parties
hereto.
8.10 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
governed by and construed and enforced in accordance with the laws of the State
of Delaware, without regard to its conflicts of law rules. Subject to Section
8.13, each of the parties hereto agrees that action or proceeding brought to
enforce the rights or obligations of any party hereto under this agreement may
be commenced and maintained in any court of competent jurisdiction located im
the State of Delaware, and that any Delaware State court or Federal court
sitting in the State of Delaware shall have non-exclusive jurisdiction over any
such action, suit or proceeding brought by any of the parties hereto. Each of
the parties hereto further agrees that process may be served upon it by
certified mail, return receipt requested, addressed as more generally provided
in Section 8.2 hereof, and consents to the exercise of jurisdiction over it and
its properties with respect to any action, suit or proceeding arising out of or
in connection with this Agreement or the transactions contemplated hereby or the
enforcement of any rights under this Agreement.
8.11 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable. In such
case, the parties hereto shall promptly meet and negotiate substitute provisions
for those rendered or declared illegal or unenforceable so as to preserve nearly
as possible the contemplated economic effects of the transactions contemplated
hereby.
8.12 Entire Agreement. This Agreement and the exhibits and schedules
----------------
hereto and the Related Agreements constitute the entire agreement among the
parties hereto and supersede all prior agreements and understandings oral or
written, among the parties hereto with respect to three subject matter hereof
and thereof There are no warranties, representations or other agreements between
the parties in connection with the subject matter hereof except as set forth
specifically herein or contemplated hereby.
8.13 Arbitration.
-----------
37
<PAGE>
(a) The parties hereby agree that all controversies which may arise among
the parties concerning any construction, performance or breach of this
Agreement or the Related Agreements which has not been resolved within
twenty (20) days after either the Buyer or the Sellers have notified the
other in writing of such controversy, dispute or claim shall be settled by
arbitration administered by the American Arbitration Association or any
successor thereof under its Commercial Arbitration rules (the "Rules") in
effect on the date hereof, except as such Rules may be modified by the
Agreement.
(b) The Buyer and the Sellers each shall select one (1) arbitrator (who
shall not be counsel for such party), and the two (2) so designated shall
select a third arbitrator. If either party shall fail to designate an
arbitrator within seven (7) calendar days after arbitration is requested,
or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then
such arbitrator shall be selected by the AAA or any successor thereto upon
application of either party. Judgment upon any award of the majority of
arbitrators shall be binding and shall be entered in a court of competent
jurisdiction. Subject to the provisions of thus Agreement, including but
not limited to Section 8.17, the award of the arbitrators may grant any
relief that a court of general jurisdiction has authority to grant,
including, without limitation, an award of damages and/or injunctive
relief, and shall assess, in addition, the cost of the arbitration,
including the reasonable fees of the arbitrator, reasonable attorneys' fees
and costs of all prevailing parties, against all non-prevailing, parties.
(c) Nothing herein contained shall bar the right of any of the parties to
seek and obtain temporary injunctive relief from a court of competent
jurisdiction in accordance with applicable law against threatened conduct
that will cause loss or damage, pending completion of the arbitration, and
the prevailing party therein shall be entitled to an award of its
reasonable attorneys' fees and costs.
(d) The arbitration shall take place at a mutually agreeable site in
Wilmington, Delaware.
[PAGES 41 AND 42 MISSING]
"Books and Records" means all documents instruments, papers, books and
records, books of account, files and data (including customer and supplier
lists), catalogs, brochures, sales literature, promotional material,
certificates and other documents used in or associated with the conduct of the
Terminals or the ownership of the Purchased Assets, including without limitation
financial statements, Tax Returns, ledgers, minute books, copies of Contracts,
Licenses and Permits, operating data and environmental studies and plans.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. (S) 9601 et seq.).
"Claim" means any action, suit, proceeding, hearing, investigation,
litigation, charge, complaint, claim, Environmental Action or demand of which
either Seller has received written notice.
38
<PAGE>
"Closing" has the meaning set forth in Section 1.9.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Contract" means any agreement, lease, evidence of Indebtedness, mortgage,
indenture, security agreement or other contract (whether written or oral).
"Disclosure Schedule" means the schedules attached hereto and incorporated
herein by reference of the Sellers, the Shareholder, the Buyer and the Parent as
appropriate in the context and as referenced throughout this Agreement.
"Environmental Action" means any administrative, regulatory or judicial
action, suit, demand, claim, notice of non-compliance or violation,
investigation, request for information, proceeding, consent order or consent
agreement by any Person relating in any way to any Environmental Law or any
Environmental Permit.
"Environmental Laws" means any applicable federal, state or local law,
statute, rule, regulation or ordinance in effect on the date of this Agreement
relating to the environment, human health or safety, pollution or other
environmental degradation or Hazardous Materials.
"Environmental Permit" means any permit, approval, identification number,
certificate, registration, license or other authorization required under any
Environmental Law.
"Financial Statement Date" means September 30, 1998.
"Financial Statements" has the meaning set forth in Section 2.7(a).
"GAAP" means generally accepted accounting principles consistently applied
(as such term is used in the American Institute of Certified Public Accountants
Professional Standards) as of the date of the Financial Statements.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Materials" means (a) petroleum or petroleum products, fractions,
derivatives or additives, natural or synthetic gas, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls and radon gas, (b) any substances
defined as or included in the definition of "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "extremely hazardous substances,"
"restricted hazardous wastes," "toxic substances," toxic chemicals or "toxic
pollutants," "contaminants," or "pollutants" or words of similar import under
any Environmental Law, (c)
39
<PAGE>
radioactive materials, substances and waste, and radiation, and (d) any other
substance exposure to which is regulated under any Environmental Law.
"Indebtedness" of any Person means any obligations of such Person (a) for
borrowed money, (b) evidenced by notes, bonds, indentures or similar
instruments, (c) for the deferred purchase price of goods and services (other
than trade payables incurred in the ordinary course of business), (d) under
capital leases and (e) in the nature of guarantees of the obligations ascribed
in clauses (a) through (d) above of any other Person.
"Intellectual Property" means all patents, copyright registrations,
trademark and service mark registrations, applications for any of the foregoing,
and whether or not registered, all designs, copyrights, trademarks, service
marks, trade names, secret formulae, trade secrets, secret, processes, computer
programs, and confidential information, including all rights to any such
property which is owned by and licensed from others and any goodwill associated
with any of the above.
"Investment Assets" means all debentures, notes and other evidence of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnership, mortgage loans and other
investment or portfolio assets owned of record or beneficially by the Sellers
and issued by any Person other than the Sellers (other than trade receivables
generated in the ordinary course of business).
"Knowledge of the Buyer," "the Buyer's Knowledge," "Known to the Buyer" or
other like words mean the actual knowledge of the individuals set forth in
Section 9.1 of the Disclosure Schedule, without any duty of inquiry other than
the duty to review the representations and warranties of the Sellers, the
Shareholder and the Buyer contained herein as qualified by the Disclosure
Schedule.
"Knowledge of the Sellers and the Shareholder," "the Sellers' or the
Shareholder's Knowledge," "Known to the Sellers or the Shareholder," or other
like words mean the knowledge of the individuals set forth in Section 9.1 of the
Disclosure Schedule without duty of inquiry other than the duty to review the
Sellers' and the Shareholder's representations and warranties contained herein
as qualified by the Disclosure Schedule.
"Laws" means all laws, statutes, rules, regulations, ordinances and other
pronouncements in effect on the date of this Agreement having the effect of law
of the United States, any foreign country or any domestic or foreign state,
county, city or other political subdivision or of any Governmental or Regulatory
Authority and "Laws" includes, without Limitation, all Environmental Laws.
"Liabilities" means all Indebtedness and other liabilities and obligations
to pay, perform or discharge any costs, expenses and obligations of a Person
(whether known, unknown, absolute, accrued, contingent, fixed or otherwise or
whether due or to become due) and all costs, expenses and obligations related to
any of the foregoing.
40
<PAGE>
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises, Environmental Permits and
sm-lar consents granted or issued by any Person and are associated with or
necessary to operate the Purchased Assets or the Terminals.
"Liens" means any mortgage, pledge, assessment, security interest, lease,
lien, adverse claims, levy, charge, option, right of first refusal, charges,
debentures, indentures, deeds of trust, easements, rights-of-way, restrictions,
encroachments, licenses, Leases, Permits, security agreements, or other
encumbrance of any kind and other restrictions or limitations on the use or
ownership of real or personal property or irregularities in title thereto or any
conditional sale Contract, title retention Contract or other Contract to give
any of the foregoing.
"Losses" has the meaning set forth in Section 6.1.
"Material Adverse Effect" means with respect any Person, changes in the
business, assets, financial condition or results of operations of such Person
resulting in a loss therefrom in excess of Five Hundred Thousand Dollars
($500,000.00); provided that, to the extent Material Adverse Effect shall relate
to more than one Person, the such term shall mean, with respect to such group of
Persons, changes in the business, assets, financial condition or Five Hundred
Thousand Dollars ($500,000.00).
"Option" with respect to any person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (a) purchase or otherwise receive or be issued any shares of
capital stock of such person or any security of any kind convertible into or
exchangeable or exercisable for any shares of capital stock of such Person or
(b) receive or exercise any benefits or rights similar to any rights enjoyed by
or accruing to the holder of shares of capital stock of such Person, including
any rights to participate in the equity, or
income of such Person or to participate in or direct the election of any
directors or officers of such Person or the manner in which any shares of
capital stock of such Person are voted.
"Order" means any write, judgment, degree, injunction, or similar order of
any Governmental or Regulatory Authority (in each such case whether preliminary
or final).
"Permitted Lien" means (a) any Lien for Taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (b) liens in favor of
landlords, carriers, warehousesmen, mechanics, workmen and materialmen and
statutory construction or similar liens arising by operation of law or incurred
in the ordinary course of business for sums not yet due or that are being
contested in good faith as to which adequate reserves exist (to the extent such
reserves are required by GAAP), (c) water rights or claims or title to water,
whether or not shown by the public records, (d) any Lien created by the Buyer,
(e) any Liens which will be related or discharged as of or before Closing, (f)
liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, unemployment insurance or other types of social security
or to secure the performance and return of money bonds and similar obligations,
(g) rights reserved to or vested in any Governmental Authority to control or
regulate any real property or interests therein in any manner, and all Laws of
any Governmental Authority, (h) matters of title respect the Real Property shown
on the Title
41
<PAGE>
Policies, and (i) unrecorded easements, permits and other restrictions or
limitations on the use of the Real Property subject to such Lien(s) or the use
of the Real Property and/or the Terminals.
"Persons" means any natural person, corporation, general partnership,
limited partnership proprietorship, other business organization, trust, union,
association of Governmental or Regulatory Authority.
"Plans" has the meaning set forth in Section 2.13(a).
"Real Property" has the meaning set forth in Section 1.1(b).
"Related Agreements" means the Bill of Sale, substantially in the form of
Exhibit A hereto, and any other agreement, certificate or similar document
executed pursuant to this Agreement.
"Release" means any release, issuance, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment or into or out of
any property, including the movement of Hazardous Materials through the air,
soil, surface water, ground water or property other than as specifically
authorized by (and then only to the extent in compliance with) all Environmental
Laws and Environmental Permits.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules, regulations and interpretations of the Securities and Exchange Commission
thereunder, all as shall be in effect at the time.
"Taxes" means any and all taxes, fees, levies, duties, tariffs, import and
other charges, imposed by any taxing authority, together with any related
interest, penalties or other additions to tax, or additional amounts imposed by
any taxing authority, and without limiting the generality of the foregoing,
shall include net income alternative or add-on minimum tax, gross income, gross
receipts, sales, use ad valorem, value added, franchise, profits, license,
transfer, recording, escheat, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profit, environmental,
custom duty, or other tax, governmental fee or other like assessment or charge
of any kind whatsoever.
"Tax Return" means all returns, reports and forms required to be filed with
respect to Taxes.
9.2 Other Terms. Other terms may be defined elsewhere in the text of this
-----------
Agreement and shall have the meaning indicated throughout this Agreement.
9.3 Other Definitional Provisions.
-----------------------------
(a) The words "hereof," "herein" and "hereunder," and words of similar
import, when used in this Agreement, shall refer to this Agreement as a
whole and not any particular provision of this Agreement.
42
<PAGE>
(b) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) The terms defined in the neuter or masculine gender shall include the
feminine, neuter and masculine genders, unless the context clearly
indicates otherwise.
(d) For purposes of this Agreement, "ordinary course of business" shall
include, without limitation, spot service agreements and negotiating
contract renewals consistent with past practices.
43
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the Buyer and the Sellers on the date first
above written.
BUYER:
KINDER MORGAN OPERATING L.P. "C"
By: Kinder Morgan G.P., Inc.
its general partner
By: /s/
Name:
Title:
PARENT:
KINDER MORGAN ENERGY PARTNER, L.P.
By: Kinder Morgan G.P., Inc.
its general partner
By: /s/
Name:
Title:
47
<PAGE>
SELLERS:
MOUNTAINEER COAL DEVELOPMENT COMPANY
By: /s/ William H. Haselhoff
Name: Sec./Treas.
Title:
SHIPYARD RIVER COAL TERMINAL COMPANY
By: /s/ Vic Grubb
Name: Vic Grubb
Title: Treasurer
SHAREHOLDER:
ZEIGLER COAL HOLDING COMPANY
By: /s/ Vic Grubb
Name: Vic Grubb
Title: Treasurer
48
<PAGE>
SELLER:
MOUNTAINEER COAL DEVELOPMENT
COMPANY
By: /s/ Vic Grubb
-------------------------------
Name: Vic Grubb
Title: Treasurer
SHIPYARD RIVER COAL TERMINAL
COMPANY
By: /s/ Vic Grubb
-------------------------------
Name: Vic Grubb
Title: Treasurer
SHAREHOLDER:
ZIEGLER COAL HOLDING COMPANY
By:________________________________
Name:
Title:
49
<PAGE>
Exhibit 3.3(b)
BYLAWS
------
OF
--
BOWIE RESOURCES LIMITED
-----------------------
(a Colorado Corporation)
ARTICLE I
---------
Offices
-------
1. Business Offices. The Corporation may have one or more offices at
----------------
such place or places within or without the State of Colorado as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
2. Principal Office. The initial principal office of the Corporation
----------------
shall be as set forth in the Articles of Incorporation. The Board of Directors,
from time to time, may change the principal office of the Corporation.
3. Registered Office. The registered office of the Corporation shall be
-----------------
as set forth in the Articles of Incorporation, unless changed as provided by the
provisions of the Colorado Business Corporation Act, as it may be amended from
time to time (the "Act").
ARTICLE II
----------
Shareholders' Meetings
----------------------
1. Annual Meetings. The annual meetings of shareholders for the election
---------------
of directors to succeed those whose terms expire and for the transaction of such
other business as may come before the meeting shall be held each year of the
first Tuesday in November at 10:00 a.m., local time
<PAGE>
at the place of the meeting fixed by the Board of Directors, or, if not so
fixed, the principal office designated in the Articles of Incorporation, or at
such other time to be fixed each year by the Board of Directors not less than 20
days prior to such meeting. If the day so fixed for such annual meeting shall be
a legal holiday at the place of the meeting, then such meeting shall be held on
the next succeeding business day at the same hour.
2. Special Meetings. Special meetings of shareholders for any purpose or
----------------
purposes, unless otherwise prescribed by statute or by the Articles of
Incorporation, may be called at any time by the President or by the Board of
Directors and shall be called by the President or the Secretary upon the request
(which shall state the purpose or purposes therefor) of a majority of the Board
of Directors or of the holders of shares representing not less than ten percent
of all votes entitled to be cast on any issue proposed to be considered at the
meeting. The record date for determining the shareholders entitled to demand a
special meeting is the date of the earliest of any of the demands pursuant to
which the meeting is called, or the date that is 60 days before the date the
first of which demands is received, whichever is later. Business transacted at
any special meeting of shareholders shall be limited to the purpose or purposes
stated in the notice.
3. Place of Special Meetings. Special meetings of shareholders shall be
-------------------------
held at such place or places, within or without the State of Colorado, as may be
determined by the Board of Directors and designated in the notice of the
meeting, or, if no place is so determined and designated in the notice, the
place of the shareholders' meetings shall be the principal office of the
Corporation.
4. Notice of Meetings. Not less than 10 nor more than 60 days prior to
------------------
each annual or special meeting of shareholders, written notice of the meeting
shall be personally delivered to, or deposited in the United States mail,
postage prepaid and directed to, each shareholder entitled to vote at such
meeting; provided, however, that if the authorized shares of the Corporation are
proposed
<PAGE>
to be increased, at least 30 days' notice in like manner shall be given; and
provided, further, that if other or different notice is required by the Act (as
in the case of the sale, lease or exchange of the Corporation's assets other
than in the usual and regular course of business, or the merger, consolidation
or dissolution of the Corporation) the provisions of the Act shall govern.
Notice to a shareholder of record, if mailed, shall be deemed delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at the address of such shareholder appearing in the stock transfer
books of the Corporation. If three successive letters mailed to the last known
address of any shareholder of record are returned as undeliverable, no further
notices to such shareholder shall be necessary until another address for such
shareholder is made known to the Corporation. The notice of any meeting shall
state the place, day and hour of the meeting. The notice of a special meeting
shall, in addition, stat the meeting's purposes.
5. Shareholders' List. A complete record of the shareholders entitled to
------------------
vote at such meeting (or an adjourned meeting described in Section 9 of this
Article II) arranged by voting groups and, within each voting group, in
alphabetical order, showing the address of each shareholder and the number of
shares registered in the name of each, shall be prepared by the officer or agent
of the Corporation who has charge of the stock transfer books of the
Corporation. The shareholders' list shall be available for inspection by any
shareholder beginning on the earlier of ten days before the meeting or two days
after notice is given and continuing through the meeting and any adjournment
thereof, subject to the requirements of Article 116 of the Act. Such record
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and subject to inspection for any purpose germane to the
meeting by any shareholder who may be present.
6. Organization. The President or, in the President's absence, any Vice
------------
President shall call meetings of shareholders to order and act as chairperson of
such meetings. In the absence of said
<PAGE>
officers, any shareholder entitled to vote at the meeting, or any proxy of any
such shareholder, may call the meeting to order and a chair person shall be
elected by a majority of the shareholders present and entitled to vote at the
meeting. The Secretary or any Assistant Secretary of the Corporation or any
person appointed by the chairperson may act as secretary of such meetings.
7. Agenda and Procedure. The Board of Directors shall have the
--------------------
responsibility of establishing an agenda for each meeting of shareholders,
subject to the rights of shareholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not included
within the agenda. The chairperson shall be charged with the orderly conduct of
all meetings of shareholders.
8. Quorum. Shares entitled to vote as a separate voting group may take
------
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. A majority of the votes entitled to be cast on the
matter by the voting group constitutes a quorum of that voting group for action
on that matter. In the absence of a quorum at any shareholder's meeting, a
majority of the shareholders present in person or represented by proxy and
entitled to vote at the meeting may adjourn the meeting from time to time for a
period not to exceed 120 days from the original date of the meeting without
further notice (except as provided in Section 9 of this Article II) until a
quorum shall be present or represented.
9. Adjournment. When a meeting is for any reason adjourned to another
-----------
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 120
days from the date of the original meeting, or if after the adjournment a new
record date is fixed for
<PAGE>
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
10. Voting.
------
(a) Except as provided in the Articles of Incorporation, at every
meeting of shareholders, or with respect to corporate action which may be taken
without a meeting, every shareholder shall be entitled to one vote for each
share of stock having voting power held of record by such shareholder on the
record date designated therefor pursuant to Section 3 of Article XI of these
Bylaws (or the record date established pursuant to statute in the absence of
such designation); provided, however, that the cumulative system of voting for
the election of directors is not allowed.
(b) a shareholder may vote the shareholder's shares in person or by
proxy. a person may appoint a proxy in person or through an attorney-in-fact
and such appointment may transmitted by telegram, teletype, or other written
statement of the appointment permitted by the Act. The appointment is effective
for eleven months unless a different period is expressly provided in the
appointment form. An appointment shall be revocable unless coupled with an
interest including the appointment of any of the following: (1) a pledgee; (2) a
person who purchased or agreed to purchase the shares; (3) a creditor of the
Corporation who extended credit to the Corporation under terms requiring the
appointment; (4) an employee of the Corporation whose employment contract
requires the appointment; or (5) a party to a voting trust agreement.
(c) The voting rights of fiduciaries, beneficiaries, pledgers,
pledgees and joint, common and other multiple owners of shares of stock shall be
as provided from time to time by the Act and any other applicable law.
<PAGE>
(d) Shares of the Corporation held of record by another corporation
may be voted by such officer, agent or proxy as the bylaws of such other
corporation may prescribe, or, in the absence of such provision, as the Board of
Directors of such corporation may determine.
(e) When a quorum is present at any meeting of shareholders, a
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on the matter, unless
the question is one upon which by express provision of a statute, or the
Articles of Incorporation, or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision on such
question.
11. Inspectors. The chairperson of the meeting may at any time appoint
----------
two or more inspectors to serve at a meeting of the shareholders. Such
inspectors shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the questions
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for an against the questions presented. The voting inspectors need not be
shareholders of the Corporation, and any director or officer of the Corporation
may be an inspector on any question other than a vote for or against such
director's or officer's election to any position with the Corporation or on any
other question in which such officer or director may be directly interested.
12. Meeting by Telecommunication. If and only if permitted by the Board
----------------------------
of Directors, any or all of the shareholders may participate in an annual or
special shareholders' meeting by, or the meeting may be conducted through the
use of, any means of communication by which all persons participating in the
meeting may hear each other during the meeting. If the board of Directors
determines to allow shareholders to participate in a shareholders' meeting by
telecommunication, the
<PAGE>
Board shall establish the terms and conditions under which shareholders may
participate by such means and cause the notice of the meeting to contain such
terms and conditions. Only shareholders who comply with the terms and conditions
indicated in such notice shall be entitled to so participate by
telecommunications in the shareholders' meeting. A shareholder participating in
a meeting by telecommunications in compliance with the terms and conditions
established by the Board of Directors is deemed to be present in person at the
meeting.
ARTICLE III
------------
Board of Directors
1. Election and Tenure. The business and affairs of the Corporation
-------------------
shall be managed by a Board of Directors who shall be elected at the annual
meetings of shareholders or special meetings called for that purpose. In an
election of directors, that number of candidates equaling the number of
directors to be elected having the highest number of votes cast in favor of
their election shall be elected to the Board of Directors. Each director shall
be elected to serve and to hold office until the next succeeding annual meeting
and until such director's successor shall be elected and shall qualify, or until
such director's earlier death, resignation or removal.
2. Number of Qualifications. The initial Board of Directors shall
------------------------
consist of one member. The number of directors may be increased or decreased
from time to time any may be increased or decreased by resolution adopted by the
Board of Directors, but no decrease shall have the effect of shortening the term
of any director. Directors must be natural persons at least eighteen years of
age but need not be shareholders or residents of the State of Colorado.
3. Annual Meetings. As soon as practicable after each annual election
---------------
of directors, the Board of Directors shall meet for the purpose of organization,
election of officers and the transaction of any other business.
<PAGE>
4. Regular Meetings. Regular meetings of the Board of Directors shall
----------------
be held at such time or times as may be determined by the Board of Directors and
specified in the notice of such meetings.
5. Special Meetings. Special meetings of the Board of Directors may be
----------------
called by the President and shall be called by the President or the Secretary on
the written request of any two directors.
6. Place of Meetings. Any meeting of the Board of Directors may be held
-----------------
at such place or places either within or without the State of Colorado as shall
from time to time be determined by the Board of Directors and as shall be
designated in the notice of the meeting.
7. Notice of Meetings. Notice of each meeting of directors, whether
------------------
annual, regular or special, shall be given to each director. If such notice is
given either (a) by personally delivering written notice to a director or (b) by
personally telephoning such director, it shall be so given at least two days
prior to the meeting. If such notice is given either (1) by depositing a
written notice in the United States mail, postage prepaid, or (2) by facsimile
transmission, in all cases directed to such director at that person's residence
or place of business, it shall be so given at least four days prior to the
meeting. The notice shall state the place, date and hour thereof, but need not,
unless otherwise required by the Act, state the purposes of the meeting.
8. Quorum. A majority of the number of directors fixed by or in
------
accordance with Section 2 of this Article III shall constitute a quorum at all
meetings of the Board of Directors, and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. In the absence of a quorum at any such meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice, other than announcement at the meeting, until a quorum shall be present.
<PAGE>
9. Organization, Agenda and Procedure. The President, or in the
----------------------------------
President's absence, any director chosen by a majority of the directors present,
shall act as chairperson of the meetings of the Board of Directors. The
Secretary, any Assistant Secretary, or any other person appointed by the
chairperson shall act as secretary of each meeting of the Board of Directors.
The agenda of the procedure for such meetings shall be as determined by the
Board of Directors.
10. Resignation. Any director of the Corporation may resign at any time
-----------
by giving written resignation notice to the Board of Directors, the President,
any Vice President or the Secretary of the Corporation. Such resignation shall
take effect at the date of receipt of such notice or at any later time specified
therein and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective, unless it so provides.
A director who resigns may deliver to the Secretary of State for filing a
statement to that effect.
11. Removal. Except as otherwise provided in the Articles of
-------
Incorporation or in these Bylaws, any director may be removed, either with or
without cause, at any time, by the affirmative vote of the holders of a majority
of the issued and outstanding shares of stock entitled to vote for the election
of directors of the Corporation at a special meeting of the shareholders called
and held for such purpose; provided, however, that if less than the entire Board
of Directors is to be removed, and if cumulative voting of shares in the
election of directors is allowed, a director may not be removed if the votes
cast against such director's removal would be sufficient to elect such director
if such votes were cumulatively voted for such director at an election of the
entire Board of Directors. A vacancy in the Board of Directors caused by any
such removal may be filled by the Corporation's shareholders at such meeting or,
if the shareholders at such meeting shall fail to fill such vacancy, by the
Board of Directors as provided in Section 12 of this Article III.
<PAGE>
12. Vacancies. Except as provided in Section 11 of this Article III, any
---------
vacancy occurring for any reason in the Board of Directors may be filled by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors or by an election by the shareholders. Any
directorship to be filled by reason of an increase in the number of directors
shall be filled by the affirmative vote of a majority of the directors then in
office or by an election of the shareholders. A director elected to fill a
vacancy shall be elected for the unexpired term of such director's predecessor
in office and shall hold office until the expiration of such term and until a
successor shall be elected and shall qualify or until such director's earlier
death, resignation or removal. A director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of shareholders and until a successor shall be elected and shall
qualify, or until such director's earlier death, resignation or removal. If the
vacant directorship was held by a director elected by a voting group of
shareholders and one or more of the remaining directors were elected by the same
voting group, only such directors are entitled to vote to fill the vacancy if it
is filled by directors, and they may do so by the affirmative vote of a majority
of such directors remaining in office; the vacancy shall be filled by the vote
of the holders of shares of that voting group that is entitled to fill such
vacancy if it is filled by the shareholders.
13. Executive and Other Committees. The Board of Directors, by resolution
------------------------------
adopted by a majority of the number of directors fixed by or in accordance with
Section 2 of this Article III, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in the resolution and except as otherwise prescribed by statute, shall have and
may exercise all of the authority of the Board of Directors in the management of
the Corporation. Rules governing the procedures for meetings of executive or
other committees shall be as established by the Board of Directors or by such
committee. Notwithstanding the foregoing,
<PAGE>
no committee shall: (a) authorize distributions; (b) approve or propose to
shareholders action that the Act requires to be approved by shareholders; (c)
fill vacancies on the board of directors or on any of its committees; (d) amend
the Articles of Incorporation; (e) adopt, amend, or repeal these Bylaws; (f)
approve a plan of merger not requiring shareholder approval; (g) authorize or
approve acquisition of shares, except according to a formula or method
prescribed by the Board of Directors; or (h) authorize or approve the issuance
or sale of shares, or a contract for the sale of shares, or determine the
designation and relative rights, preferences, and limitations of a class or
series of shares; except that the Board of Directors may authorize a committee
or an officer to do so within limits specifically prescribed by the Board of
Directors.
14. Compensation of Directors. Each director may be allowed such amount
-------------------------
per annum or such fixed sum for attendance at meetings of the Board of
Directors, executive or other committee, as may be from time to time fixed by
resolution of the Board of Directors, together with reimbursement for the
reasonable and necessary expenses incurred by such director in connection with
the performance of such director's duties. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity or any of its subsidiaries in any other capacity and receiving proper
compensation therefor.
ARTICLE IV
----------
Waiver of Notice by Shareholders and Directors and Action
---------------------------------------------------------
of Shareholders and Directors by Consent
----------------------------------------
1. Waiver of Notice. A shareholder may waive any notice required by the
----------------
Act or by the Articles of Incorporation or these Bylaws, and a director may
waive any notice of a directors meeting, whether before or after the date or
time stated in the notice as the date or time when any action will occur or has
occurred. The waiver shall be in writing, be signed by the shareholder or
director
<PAGE>
entitled to the notice, and be delivered to the Corporation for inclusion in the
minutes or filing with the corporate records, but such delivery and filing shall
not be conditions of the effectiveness of the waiver. Attendance of a
shareholder or the attendance or participation by a director at a meeting waives
objection to lack of required notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting, or the director, at the
beginning of the meeting or promptly upon his or her later arrival, objects to
holding the meeting or transacting business at the meeting because of lack of
notice or defective notice, and, in the case of a director, does not thereafter
vote for or assent to action taken at the meeting, and waives objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the meeting notice, or of a matter without
special notice required by the Act, the Articles of Incorporation, or these
Bylaws, unless the shareholder or director objects to considering the matter
when it is presented and, in the case of a director, does not thereafter vote
for or assent to action taken at the meeting with respect to such purpose.
2. Action Without a Meeting. Unless the Articles of Incorporation
------------------------
require that such action be taken at a shareholders' meeting, any action
required or required to be taken at a meeting of the shareholders, directors or
members of an executive or other committee may be taken without a meeting if all
shareholders entitled to vote with respect to the subject matter, or all
directors or all members of an executive or other committee, as the case may be,
give written consent to the specific action taken. The record date for
determining shareholders entitled to take action without a meeting is the date
upon which a writing upon which the action is to be taken is first received by
the Corporation. Action taken without a meeting shall be effective: in the
case of an action of shareholders, as of the date the last writing necessary to
effect the action is received by the Corporation unless all writings necessary
to effect the action specify a later date, in which case the
<PAGE>
later date shall be the date of the action; in the case of other actions, action
is taken when the last director signs a writing describing the action taken
unless before such time the Secretary has received a written revocation of the
consent of any other director, and any action so taken shall be effective at the
time taken unless the directors specify a different effective date.
3. Meetings by Telephone. One or more members of the Board of Directors
---------------------
or any committee designated by the Board of Directors may hold or participate in
a meeting of the Board of Directors or such committee through the use of any
means of communication by which all persons participating can hear each other at
the same time.
ARTICLE V
---------
Officers
--------
1. Election and Tenure. The officers of the Corporation shall consist of
-------------------
a President, a Secretary and Treasurer, each of whom shall be appointed annually
by the Board of Directors. The Board of Directors may also designate and
appoint such other officers and assistant officers as may be deemed necessary.
The Board of Directors may delegate to any such officer the power to appoint or
remove subordinate officers, agents or employees. Any two or more offices may
be held by the same person. Each officer so appointed shall continue in office
until a successor shall be appointed and shall qualify, or until the officer's
earlier death, resignation or removal. Each officer shall be a natural person
who is eighteen years of age or older.
2. Resignation, Removal and Vacancies. Any officer may resign at any
----------------------------------
time by giving written notice of resignation to the Board of Directors or the
President. Such resignation shall take effect when the notice is received by
the Corporation unless the notice specifies a later date, and acceptance of the
resignation shall not be necessary to render such resignation effective. Any
officer may at any time be removed by the affirmative vote of a majority of the
number of directors fixed by
<PAGE>
or in accordance with Section 2 of Article III of these Bylaws, or by an
executive committee of the Board of Directors. If any office becomes vacant for
any reason, the vacancy may be filled by the Board of Directors. An officer
appointed to fill a vacancy shall be appointed for the unexpired term of such
officer's predecessor in office and shall continue in office until a successor
shall be elected or appointed and shall qualify, or until such officer's earlier
death, resignation or removal. The appointment of an officer shall not itself
create contract rights in favor of the officer, and the removal of an officer
does not affect the officer's contract rights, if any, with the Corporation and
the resignation of an officer does not affect the Corporation's contract rights,
if any, with the officer.
3. President. The President shall be the chief executive officer of the
---------
Corporation. The President shall preside at meetings of the shareholders; shall
have general and active management of the business of the Corporation; shall see
that all orders and resolutions of the Board of Directors are carried into
effect; and shall perform all duties as may from time to time be assigned by the
Board of Directors.
4. Vice Presidents. The Vice Presidents, if any, shall perform such
---------------
duties and possess such powers as from time to time may be assigned to them by
the Board of Directors or the President. In the absence of the President or in
the event of the inability or refusal of the President to act, the Vice
President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of the election or appointment of the Vice
Presidents) shall perform the duties of the President and when so performing
shall have all the powers of and be subject to all the restrictions upon the
President.
5. Secretary. The Secretary shall perform such duties and shall have
---------
such powers as may from time to time be assigned by the Board of Directors or
the President. In addition, the Secretary
<PAGE>
shall perform such duties and have such powers as are incident to the office of
Secretary including, without limitation, the duty and power to give notice of
all meetings of shareholders and the Board of Directors, the preparation and
maintenance of minutes of the directors' and shareholders' meetings and other
records and information required to be kept by the Corporation under Article XI
and for authenticating records of the Corporation, and to be custodian of the
corporate seal and to affix and attest to the same on documents, the execution
of which on behalf of the Corporation is authorized by these Bylaws or by the
action of the Board of Directors.
6. Treasurer. The Treasurer shall perform such duties and shall have
---------
such powers as may from time to time be assigned by the Board of Directors or
the President. In addition, the Treasurer shall perform such duties and have
such powers as are incident to the office of Treasurer including, without
limitation, the duty and power to keep and be responsible for all funds and
securities of the Corporation, to deposit funds of the Corporation in
depositories selected in accordance with these Bylaws, to disburse such funds as
ordered by the Board of Directors, making proper accounts thereof, and to render
as required by the Board of Directors statements of all such transactions as
Treasurer and of the financial condition of the Corporation.
7. Assistant Secretaries and Assistant Treasurers. The Assistant
----------------------------------------------
Secretaries and Assistant Treasurers, if any, shall perform such duties as shall
be assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors. In the absence, inability or refusal to
act of the Secretary or the Treasurer, the Assistant Secretaries or Assistant
Treasurers, respectively, in the order designated by the Board of Directors, or
in the absence of any designation, then in the order of their election or
appointment, shall perform the duties and exercise the powers of the Secretary
or Treasurer, as the case may be.
<PAGE>
8. Bond of Officers. The Board of Directors may require any officer to
----------------
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for such terms and conditions as
the Board of Directors may specify, including without limitation for the
faithful performance of such officer's duties and for the restoration to the
Corporation of any property belonging to the Corporation in such officer's
possession or under the control of such officer.
9. Salaries. Officers of the Corporation shall be entitled to such
--------
salaries, emoluments, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.
ARTICLE VI
-----------
Indemnification
---------------
1. Indemnification. To the extent permitted or required by the Act and
---------------
any other applicable law, if any director or officer of the Corporation is made
a party to or is involved in any proceeding because such person is or was a
director or officer of the Corporation, the Corporation shall (a) indemnify such
person from and against any liability, including but not limited to expenses of
investigation and preparation, expenses in connection with appearance as a
witness and fees and disbursements of counsel, accountants or other experts,
incurred by such person in such proceeding, and (b) advance to such person
expenses incurred in such proceeding. The Corporation may in its discretion,
but is not obligated in any way to, indemnify and advance expenses to an
employee or agent of the Corporation to the same extent as to a director or
officer, and the Corporation may indemnify an employee, fiduciary, or agent of
the Corporation to a greater extent than expressly permitted herein for officers
and directors, provided such indemnification is not in violation of public
policy.
<PAGE>
2. Provisions Not Exclusive. The foregoing provisions for
------------------------
indemnification and advancement of expenses are not exclusive, and the
Corporation may at its discretion provide for indemnification or advancement of
expenses in a resolution of its shareholders or directors, in a contract or in
its Articles of Incorporation.
3. Effect of Modification of Act. Any repeal or modification of the
-----------------------------
foregoing provisions of this Article for indemnification or advancement of
expenses shall not affect adversely any right or protection stated in such
provisions with respect to any act or omission occurring prior to the time of
such repeal or modification. If any provision of this Article or any part
thereof shall be held to be prohibited by or invalid under applicable law, such
provision or part thereof shall be deemed amended to accomplish the objectives
of the provision or part thereof as originally written to the fullest extent
permitted by law and all other provisions or parts shall remain in full force
and effect.
4. Definitions. As used in this Article, the following terms have the
-----------
following meanings:
(a) Act. When used with reference to an act or omission occurring
---
prior to the effectiveness if any amendment to the Act after the effectiveness
of the adoption of this Article, the term "Act" shall include such amendment
only to the extent that the amendment permits a Corporation to provide broader
indemnification rights than the Act permitted prior to the amendment.
(b) Corporation. The term "Corporation" includes any domestic or
-----------
foreign entity that is a predecessor of the Corporation by reason of a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.
(c) Director or Officer. A "director" or "officer" is an individual
-------------------
who is or was a director or officer of the Corporation or an individual who,
while a director or officer of the Corporation, is or was serving at the
Corporation's request as a director, officer, partner, trustee, employee,
fiduciary, or agent of another domestic or foreign corporation or other person
or of an
<PAGE>
employee benefit plan. A director of officer is considered to be serving an
employee benefit plan at the Corporation's request if his or her duties to the
Corporation also impose duties on, or otherwise involve services by, the
director or officer to the plan or to participants in or beneficiaries of the
plan. The terms "director" or "officer" include, unless the context requires
otherwise, the estate or personal representative of a director, or officer, as
applicable.
(d) Liability. The term "liability" means the obligation incurred
---------
with respect to a proceeding to pay a judgment, settlement, penalty, fine
(including any excise tax assessed with respect to an employee benefit plan), or
reasonable expenses.
(e) Proceeding. The term "proceeding" means any threatened, pending
----------
or completed action, suit, or proceeding whether civil, criminal, administrative
or investigative, and whether formal or informal.
5. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while a director, officer, employee,
fiduciary, or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the Corporation would
have power to indemnify the person against the same liability under the Act.
Any such insurance may be procured from any insurance company designated by the
Board of Directors, whether such insurance company is formed under the laws of
this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the Corporation has an equity or any
other interest through stock ownership or otherwise.
<PAGE>
6. Expenses as a Witness. The Corporation may pay or reimburse expenses
---------------------
incurred by a director, officer, employee, fiduciary, or agent in connection
with an appearance as a witness in a proceeding at a time when he or she has not
been made a named defendant or respondent in the proceeding.
7. Notice to Shareholders. If the Corporation indemnifies or advances
----------------------
expenses to a director under this Article in connection with a proceeding by or
in the right of the Corporation, the Corporation shall give written notice of
the indemnification or advance to the shareholders with or before the notice of
the next shareholders' meeting. If the next shareholder action is taken without
a meeting at the instigation of the Board of Directors, such notice shall be
given to the shareholders at or before the time the first shareholder signs a
writing consenting to such action.
ARTICLE VII
------------
Execution of Instruments; Loans; Checks and Endorsements;
---------------------------------------------------------
Deposits; Proxies
-----------------
1. Execution of Instruments. The President or Vice President shall have
------------------------
the power to execute and deliver on behalf of and in the name of the Corporation
any instrument requiring the signature of an officer of the Corporation, except
as otherwise provided in these Bylaws or when the execution and delivery of the
instrument shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. Unless authorized to do so by these Bylaws
or by the Board of Directors, no officer, agent or employee shall have any power
or authority to bind the Corporation in any way, to pledge its credit or to
render it liable pecuniarily for any purpose or in any amount.
2. Borrowing. No loan shall be contracted on behalf of the Corporation,
---------
and no evidence of indebtedness shall be issued, endorsed or accepted in its
name, unless authorized by the Board of
<PAGE>
Directors or a committee designated by the Board of Directors so to act. Such
authority may be general or confined to specific instances. When so authorized,
an officer may (a) effect loans at any time for the Corporation from any bank or
other entity and for such loans may execute and deliver promissory notes or
other evidences of indebtedness of the Corporation; and (b) mortgage, pledge or
otherwise encumber any real or personal property, or any interest therein, owned
or held by the Corporation as security for the payment of any loans or
obligation of this Corporation, and to that end may execute and deliver for the
Corporation such instruments as may be necessary or proper in connection with
such transaction.
3. Loans to Directors, Officers and Employees. The Corporation may lend
------------------------------------------
money to, guarantee the obligations of and otherwise assist directors, officers
and employees of the Corporation, or directors of another corporation of which
the Corporation owns a majority of the voting stock, only upon compliance with
the requirements of the Act.
4. Checks and Endorsements. All checks, drafts or other orders for the
-----------------------
payment of money, obligations, notes or other evidences of indebtedness, bills
of lading, warehouse receipts, trade acceptances and other such instruments
shall be signed or endorsed for the Corporation by such officers or agents of
the Corporation as shall from time to time be determined by resolution of the
Board of Directors, which resolution may provide for the use of facsimile
signatures.
5. Deposits. All funds of the Corporation not otherwise employed shall
--------
be deposited from time to time to the Corporation's credit in such banks or
other depositories as shall from time to time be determined by resolution of the
Board of Directors, which resolution may specify the officers or agents of the
Corporation who shall have the power, and the manner in which such power shall
be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the Corporation or its order.
<PAGE>
6. Proxies. Unless otherwise provided by resolution adopted by the Board
-------
of Directors, the President or any Vice President: (a) may from time to time
appoint one or more agents of the Corporation, in the name and on behalf of the
Corporation, (i) to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, association
or other entity whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or other entity; (b) may instruct the person so
appointed as to the manner of casting such votes or giving such consent; and (c)
may execute or cause to be executed in the name and on behalf of the Corporation
and under its corporate seal, or otherwise, all such written proxies or other
instruments as may be deemed necessary or proper.
ARTICLE VIII
-------------
Shares of Stock
---------------
1. Certificates of Stock. The shares of the Corporation may but need not
---------------------
be represented by certificates. Unless the Act or another law expressly
provides otherwise, the fact that the shares are not represented by certificates
shall have no effect on the rights and obligations of the shareholders. If the
shares are represented by certificates, such certificates shall be designated by
the Board of Directors; provided, however, that where such certificate is signed
or countersigned by a transfer agent or registrar (both of which may be the
Corporation itself or any employee of the Corporation) the signatures of such
officers of the Corporation may be in facsimile form. In case any officer of
the Corporation who shall have signed, or whose facsimile signature shall have
been placed on, any certificate shall cease for any reason to be such officer
before such certificate shall have been issued or delivered by the Corporation,
such certificate may nevertheless be issued and delivered by the Corporation as
though the person who signed such certificate, or whose facsimile signature
shall
<PAGE>
have been placed thereon, had not ceased to be such officer of the Corporation.
Every certificate representing shares issued by the Corporation shall state the
number of shares owned by the holder in the Corporation, shall designate the
class of stock to which such shares belong, and shall otherwise be in such form
as is required by law and as the Board of Directors shall prescribe.
2. Shares Without Certificates. The Board of Directors may authorize the
---------------------------
issuance of any class or series of shares of the Corporation without
certificates. Such authorization shall not affect shares already represented by
certificates until they are surrendered to the Corporation. Within a reasonable
time following the issue or transfer of shares without certificates, the
Corporation shall send the shareholder a complete written statement of the
information required on certificates by the Act.
3. Record. A record shall be kept of the name of each person or entity
------
holding the stock represented by each certificate for shares of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancellation, the date of cancellation. The person
or other entity in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof, and thus a holder of record of
such shares of stock, for all purposes as regards the Corporation.
4. Transfer of Stock. Transfers of shares of the stock of the
-----------------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by such registered holder's attorney thereunto authorized,
and on the surrender of the certificate or certificates for such shares properly
endorsed.
5. Transfer Agents and Registrars; Regulations. The Board of Directors
-------------------------------------------
may appoint one or more transfer agents or registrars with respect to shares of
the stock of the Corporation. The Board of Directors may make such rules and
regulations as it may deem expedient and as are not
<PAGE>
inconsistent with these Bylaws, concerning the issue, transfer and registration
of certificates for shares of the stock of the Corporation.
6. Lost, Destroyed or Mutilated Certificates. In case of the alleged
-----------------------------------------
loss, destruction or mutilation of a certificate representing stock of the
Corporation, a new certificate may be issued in place thereof, in such manner
and upon such terms and conditions as the Board of Directors may prescribe, and
shall be issued in such situations as required by the Act.
ARTICLE IX
-----------
Corporate Seal
--------------
The corporate seal shall be in the form approved by resolution of the Board
of Directors. Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any other manner reproduced. The impression of the
seal may be made and attested by either the Secretary or any Assistant Secretary
for the authentication of contracts or other papers requiring the seal.
ARTICLE X
----------
Fiscal Year
-----------
The fiscal year of the Corporation shall be the year established by the
Board of Directors.
ARTICLE XI
-----------
Corporate Books and Records
---------------------------
1. Corporate Books. The books and records of the Corporation may be kept
---------------
within or without the State of Colorado at such place or places as may be from
time to time designated by the Board of Directors.
2. Addresses of Shareholders. Each shareholder shall furnish to the
-------------------------
Secretary of the Corporation or the Corporation's transfer agent an address to
which notices from the Corporation, including notices of meetings, may be
directed and if any shareholder shall fail so to designate such
<PAGE>
an address, it shall be sufficient for any such notice to be directed to such
shareholder at such shareholder's address last known to the Secretary or
transfer agent.
3. Fixing Record Date. The Board of Directors may fix in advance a date
------------------
as a record date for the determination of the shareholders entitled to a notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent (or dissent) to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action. Such record date shall not be
more than 50 nor less than 10 days before the date of such meeting, nor more
than 10 days prior to any other action to which the same relates. Only such
shareholders as shall be shareholders of record on the date so fixed shall be so
entitled with respect to the matter to which the same relates. If the Board of
Directors shall not fix a record date as above provided, and if the Board of
Directors shall not for such purpose close the transfer books as provided by
statute, then the record date shall be established by statute in such cases made
and provided.
4. Inspection of Books and Records. Any person who has been a holder of
-------------------------------
record of shares of the Corporation (or of voting trust certificates
representing such shares) for at least three months immediately preceding such
holder's demand or who is the holder of record of, or the holder of record of
voting trust certificates representing, at least five percent of all outstanding
shares of the Corporation, has the right, upon written demand stating the
purpose thereof, to examine, in person or by agent or attorney, at any
reasonable time and for any proper purpose, the Corporation's books and records
of account, minutes and record of holders of shares (and of voting trust
certificates therefor) and to make extracts therefrom.
<PAGE>
5. Distribution of Financial Statements. Upon the written request of any
------------------------------------
shareholder of the Corporation, the Corporation shall mail to such shareholder
its last annual and most recently published financial statement.
6. Audits of Books and Accounts. The Corporation's books and accounts
----------------------------
shall be audited at such times and by such auditors as shall be specified and
designated by resolution of the Board of Directors.
ARTICLE XII
------------
Emergency Bylaws and Actions
----------------------------
Subject to repeal or change by action of the shareholders, the Board of
Directors may adopt emergency by laws and exercise other powers in accordance
with and pursuant to the provisions of the Act.
ARTICLE XIII
-------------
Amendments
----------
Unless the Articles of Incorporation or a particular Bylaw reserves the
right to amend by the Bylaw to the shareholder, and subject to repeal or change
by action of the shareholders, the power to alter, amend or repeal these Bylaws
or adopt new bylaws shall be vested in the Board of Directors. The shareholders
may also amend or repeal these Bylaws or adopt new Bylaws.
<PAGE>
BYLAWS
OF
BOWIE RESOURCES LIMITED
(A Colorado Corporation)
Effective as of November 4, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Offices.................................................... 1
1. Business Offices........................................... 1
2. Principal Office........................................... 1
3. Registered Office.......................................... 1
ARTICLE II Shareholders' Meetings..................................... 1
1. Annual Meetings............................................ 1
2. Special Meetings........................................... 2
3. Place of Special Meetings.................................. 2
4. Notice of Meetings......................................... 2
5. Shareholders' List......................................... 3
6. Organization............................................... 3
7. Agenda and Procedure....................................... 4
8. Quorum..................................................... 4
9. Adjournment................................................ 4
10. Voting..................................................... 4
11. Inspectors................................................. 6
12. Meeting by Telecommunication............................... 6
ARTICLE III Board of Directors......................................... 7
1. Election and Tenure........................................ 7
2. Number of Qualifications................................... 7
3. Annual Meetings............................................ 7
4. Regular Meetings........................................... 7
5. Special Meetings........................................... 8
6. Place of Meetings.......................................... 8
7. Notice of Meetings......................................... 8
8. Quorum..................................................... 8
9. Organization, Agenda and Procedure......................... 8
10. Resignation................................................ 9
11. Removal.................................................... 9
12. Vacancies.................................................. 9
13. Executive and Other Committees............................. 10
14. Compensation of Directors.................................. 11
ARTICLE IV Waiver of Notice by Shareholders and Directors and Action
of Shareholders and Directors by Consent................... 11
1. Waiver of Notice........................................... 11
2. Action Without a Meeting................................... 12
3. Meetings by Telephone...................................... 13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE V Officers................................................... 13
1. Election and Tenure........................................ 13
2. Resignation, Removal and Vacancies......................... 13
3. President.................................................. 14
4. Vice Presidents............................................ 14
5. Secretary.................................................. 14
6. Treasurer.................................................. 15
7. Assistant Secretaries and Assistant Treasurers............. 15
8. Bond of Officers........................................... 15
9. Salaries................................................... 16
ARTICLE VI Indemnification............................................ 16
1. Indemnification............................................ 16
2. Provisions Not Exclusive................................... 16
3. Effect of Modification of Act.............................. 17
4. Definitions................................................ 17
5. Insurance.................................................. 18
6. Expenses as a Witness...................................... 18
7. Notice to Shareholders..................................... 19
ARTICLE VII Execution of Instruments; Loans; Checks and Endorsements;
Deposits; Proxies.......................................... 19
1. Execution of Instruments................................... 19
2. Borrowing.................................................. 19
3. Loans to Directors, Officers and Employees................. 20
4. Checks and Endorsements.................................... 20
5. Deposits................................................... 20
6. Proxies.................................................... 21
ARTICLE VIII Shares of Stock............................................ 21
1. Certificates of Stock...................................... 21
2. Shares Without Certificates................................ 22
3. Record..................................................... 22
4. Transfer of Stock.......................................... 22
5. Transfer Agents and Registrars; Regulations................ 22
6. Lost, Destroyed or Mutilated Certificates.................. 23
ARTICLE IX Corporate Seal............................................. 23
ARTICLE X Fiscal Year................................................ 23
ARTICLE XI Corporate Books and Records................................ 23
1. Corporate Books............................................ 23
2. Addresses of Shareholders.................................. 23
3. Fixing Record Date......................................... 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4. Inspection of Books and Records............................ 24
5. Distribution of Financial Statements....................... 25
6. Audits of Books and Accounts............................... 25
ARTICLE XII Emergency Bylaws and Actions............................... 25
ARTICLE XIII Amendments................................................. 25
</TABLE>
<PAGE>
Exhibit 3.4(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF IKERD-BANDY COMPANY, INC.
Pursuant to the provisions of KRS 271A.299, et. seq. _____ the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that the name of the corporation in Ikerd-Bandy Company, Inc., and the
following designated amendments to the Articles of Incorporation were adopted by
the shareholders of the corporation on November 15, 1985, in the manner
prescribed by the Kentucky Business Corporation Act.
KNOW ALL MEN BY THESE PRESENTS:
That we Frank Ikerd, Jr., Edsel Bandy and Jerry S. Ikerd, of Pineville,
Bell County, Kentucky, do associate to form a corporation under the laws of the
State of Kentucky.
Article I. The corporation hereby proposed to be organized shall be named
---------
and known as the Ikerd-Bandy Company, Inc., by which name it may contract and be
contracted with, sue and be sued.
Article II. The principal office and place of business of said corporation
----------
shall be Walnut Street, Pineville, Bell County, Kentucky.
Article III. The nature of the business proposed to be transacted,
-----------
promoted and carried on by said corporation shall be formed for the purpose of
all types and manners of mining coal and dealing in coal, coke and kindred
products, and the doing of all things necessary and incident thereto; with power
to purchase, sell and lease suitable mineral land and other real estate for the
transaction of its business; and the transaction of any or all lawful business
-------------------------------------------------
for which corporations may be incorporated under Chapter 271A of the Kentucky
- - -----------------------------------------------------------------------------
Revised Statutes.
- - ----------------
1
<PAGE>
Article IV. The capital stock of the company shall be $56,200.00 which
----------
shall be represented by one million shares of no par common stock. The
--------------------------------------------------------------
shareholders of the corporation shall be entitled to no preemptive rights to
- - ----------------------------------------------------------------------------
acquire additional shares of common stock.
- - -----------------------------------------
Article V. [deleted]
---------
Article VI. The corporation shall commence business as soon as practicable
----------
after these Articles are filed in the County Clerk's office of Bell County, and
in the office of the Secretary of State of Kentucky, and after 50% of the
capital stock of said corporation has been in good faith subscribed, and all
such subscriptions certified to the Secretary of State of Kentucky. The
duration of the corporation shall be perpetual.
Article VII. The affairs and business of the corporation shall be
-----------
conducted by a Board of Directors elected by the shareholders. The Board of
Directors shall have power to make all such Bylaws and rules to regulate the
business and affairs of the corporation as will not be inconsistent with the
provisions of these Articles of Incorporation or the laws of Kentucky.
Article VIII. [deleted]
------------
Article IX. The private property of the stockholders shall not be subject
----------
to the payment of the debts of the corporation.
Article X. Robert R.R. Boone, attorney of Pikeville, Kentucky, is
---------
designated agent for process of this corporation.
Except for the designated amendments, the foregoing Restated Articles of
Incorporation correctly set forth without change the corresponding provisions of
the Articles of Incorporation as heretofore amended, and the Restated Articles
of Incorporation together with the designated amendments supersede the original
Articles of Incorporation and all amendments thereto.
2
<PAGE>
The number of shares of the corporation outstanding at the time of such
adoption was 24.5; and the number of shares entitled to vote thereon was 24.5.
The number of shares voted for such amendment was 24.5; and the number of
shares voted against such amendment was zero.
The corporation shall issue or cause to be issued to the persons lawfully
entitled thereto, 3,333.34 of such new authorized capital stock of the
corporation of the same class and without par value for each one share of
present outstanding capital stock of the corporation held by them upon the
surrender of the certificates for share of such present outstanding capital
stock.
The amendment to the Articles of Incorporation whereby the authorized
capital stock of the corporation is increased to number one million shares of
common no par value stock shall not change the amount of stated capital which
shall remain at $56,200.00.
Dated November 15, 1985.
IKERD-BANDY COMPANY, INC.
By: /s/ ILLEGIBLE
------------------
President
By: /s/ ILLEGIBLE
------------------
Secretary
3
<PAGE>
COMMONWEALTH OF KENTUCKY )
COUNTY OF FAYETTE )
I, the undersigned Notary Public in and for the Commonwealth an County
aforesaid, do hereby certify that Frank Ikerd, Jr. as President and J.J. Kocian
as Secretary personally appeared before me, and after having been duly sworn,
declared and acknowledged and verified the foregoing Amended and Restated
Articles of Incorporation of Ikerd-brady Company Inc. as of the 15th day of Nov,
1985.
My commission expires: 5/23/88
-------
Patricia E. Hart
----------------
Notary Public
THIS INSTRUMENT WAS PREPARED BY:
Joe Terry
- - ----------------------
Wyatt, Tarrant & Combs
1100 Kincaid Towers
Lexington, Kentucky 40507
(606) 233-2012
4
<PAGE>
ARTICLES OF AMENDMENT
TO THE RESTATED
ARTICLES OF INCORPORATION
OF
IKERD-BANDY CO., INC.
Pursuant to the provisions of KRS 271A.305, the undersigned corporation
executes these Articles of Amendment to its Articles of Incorporation:
FIRST: The name of the corporation is Ikerd-Bandy Company, Inc.
SECOND: The following amendment to the Restated Articles of Incorporation
were adopted by the shareholders of the corporation on November 20, 1986 in the
manner prescribed by the Kentucky Business Corporation Act:
ARTICLE I: The Corporation hereby proposed to be organized shall be
named and known as the IKERD-BANDY CO.,INC., by which name it may
--------------------
contract and be contracted with, sue and be sued.
THIRD: The number of shares of the corporation outstanding at the time of
such adoption was 81,668; and the number of shares entitled to vote thereon was
81,668.
FOURTH: The number of shares voted for such amendment was 81,668; and the
number of shares voted against such amendment was none.
Dated November 20, 1986.
IKERD-BANDY CO.,INC.
By: /s/ ILLEGIBLE
-------------
President
By: /s/ ILLEGIBLE
-------------
Secretary
1
<PAGE>
COMMONWELTH OF KENTUCKY )
) :SS
COUNTY OF PULASKI )
I, a notary public, do hereby certify that on this ____ day of November,
1986, James personally, appeared before me, who being duly sworn, declared that
he is the President of Ikerd-Bandy Co., Inc., that he signed the foregoing
document as President of the corporation, and that the Statements contained
herein are true.
My commission expires: May 17, 1989
------------
Doris F. Crump
--------------
Notary Public
COMMONWELTH OF KENTUCKY )
) :SS
COUNTY OF PULASKI )
I, a notary public, do hereby certify that on this ____ day of November,
1986, _______________personally, appeared before me, who being duly sworn,
declared that he is the Secretary of Ikerd-Bandy Co., Inc., that he signed the
foregoing document as [Check this] of the corporation, and that the Statements
contained herein are true.
My commission expires: May 17, 1989
------------
Doris F. Crump
--------------
Notary Public
THIS INSTRUMENT PREPARED BY:
/s/ ILLEGIBLE
- - ----------------------
WYATT, TARRANT & COMBS
1100 Kincaid Towers
Lexington, Kentucky 40507
(606) 233-2012
2
<PAGE>
STATEMENT OF
CANCELLATION OF REACQUIRED SHARES
OF
IKERD-BANDY CO., INC.
Pursuant to the provisions of KRS 271A.343, the undersigned
corporation executes the following Statement of Cancellation, by resolution of
its board of directors, of shares of the corporation reacquired by it, other
than redeemable shares redeemed or purchased.
FIRST: The name of the corporation is Ikerd-Bandy Co., Inc.
SECOND: The number of reacquired shares other corporation canceled by
resolution duly adopted by the board of directors of the corporation on
September 30, 1987, is:
Common Stock 918,332 shares
THIRD: The aggregate number of issued shares of the corporation after
giving effect to such cancellation is:
Common Stock
(Immediately upon cancellation) 81,666 shares
FOURTH: The amount of the stated capital of the corporation after giving
effect to such cancellation is Fifty-six Thousand Two Hundred Dollars
($56,200.00).
Dated as of October 1, 1987.
IKERD-BANDY CO., INC.
By: /s/ William
-----------
President
By: /s/ ILLEGIBLE
-------------
Secretary
1
<PAGE>
COMMONWELTH OF KENTUCKY )
) :SS
COUNTY OF PULASKI )
I, a notary public, do hereby certify that on this 1/st/ day of October,
1987, _______________personally, appeared before me, who being duly sworn,
declared that he is the President of Ikerd-Bandy Co., Inc., that he signed the
foregoing document as President of the corporation, and that the Statements
contained herein are true.
My commission expires: May 17, 1989
------------
Doris F. Crump
--------------
Notary Public
COMMONWELTH OF KENTUCKY )
) :SS
COUNTY OF PULASKI )
I, a notary public, do hereby certify that on this 1 day of October,
1987, _______________personally, appeared before me, who being duly sworn,
declared that he is the Secretary of Ikerd-Bandy Co., Inc., that he signed the
foregoing document as Secretary of the corporation, and that the Statements
contained herein are true.
My commission expires: May 17, 1989
------------
Doris F. Crump
--------------
Notary Public
PREPARED BY:
/s/ ILLEGIBLE
- - ----------------------
WYATT, TARRANT & COMBS
Lexington Financial Center
250 West Main Street
Lexington, Kentucky 40507
(606) 233-2012
2
<PAGE>
Exhibit 3.4(b)
AMENDED AND RESTATED
BYLAWS
OF
IKERD-BANDY CO, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Code of
Regulations adopted by the Board of Directors of IKERD-BANDY CO., INC. (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated
______________________, 1998.
/s/John Lynch
-------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
IKERD-BANDY CO., INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have majority of the voting power of the shares represented at such meeting
and entitled to vote in the election.
<PAGE>
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in form
as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.5(a)
ARTICLES OF INCORPORATION
OF
TENNESSEE MINING, INC.
The undersigned incorporator executes these Articles of Incorporation for
the purpose of forming and hereby forms a corporation under the laws of the
Commonwealth of Kentucky in accordance with the following provisions:
ARTICLE I
The name of the corporation is Tennessee Mining, Inc.
ARTICLE II
The number of shares the corporation is authorized to issue is 1,000 shares
of common stock, no par value per share.
ARTICLE III
The street address of the corporation's initial registered office is 2800
Citizens Plaza, Louisville, Kentucky 40202. The name of the corporation's
initial registered agent at that office is WT&C Corporation Services, Inc.
ARTICLE IV
The mailing address of the corporation's principal office is 1500 North Big
Run Road, Ashland, Kentucky 41102.
ARTICLE V
The mailing address of the incorporator is Kevin J. Hable, 2800 Citizens
Plaza, Louisville, Kentucky 40202.
ARTICLE VI
No director shall be personally liable to the corporation or its
shareholders for monetary damages for breach of his duties as a director except
to the extent that the applicable law from time to time in effect shall provide
that such liability may not be eliminated or limited. Neither the amendment not
repeal of this Article shall affect the liability of any director of the
corporation with respect to any act or failure to act which occurred prior to
such amendment or repeal.
This Article VI is not intended to eliminate any protection to be taken at
a shareholders' meeting may be taken without prior notice (except as otherwise
provided by law) if the action is taken
<PAGE>
by shareholders representing less than 80% (or such higher percentage as may be
required by law) of the votes entitled to be cast. Prompt notice of the taking
of any action by shareholders without a meeting by less than unanimous consent
shall be given to those shareholders entitled to vote on the action who have not
consented in writing.
Dated this 7/th/ day of March, 1996.
/s/ Kevin Hable
-------------------------------------
Kevin J. Hable, Incorporator
This Instrument Prepared by:
/s/ Kevin Hable
- - ------------------------------
Kevin J. Hable
WYATT, TARRANT & COMBS
2800 Citizens Plaza
Louisville, Kentucky 40202
(502) 562-7232
<PAGE>
Exhibit 3.5(b)
BYLAWS OF
TENNESSEE MINING, INC.
ARTICLE I
---------
OFFICES
-------
The principal office of the corporation shall be located at Ashland,
Kentucky. The corporation may have such other offices, either within or without
the Commonwealth of Kentucky, as the business of the corporation may require
from time to time.
ARTICLE II
----------
SHAREHOLDERS MEETINGS AND RECORD DATES
--------------------------------------
Section 1. Annual Meeting. The annual meeting of the shareholders shall
--------------
be held on the date and at the time fixed by resolution the board of directors,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting.
Section 2. Special Meetings. Special meetings of the shareholders may be
----------------
called by the president, by a majority of the members of the board of directors
or by the holders of not less than one-third of all the shares entitled to vote
at the meeting.
Section 3. Place of Meeting. The board of directors may designate any
----------------
place within or without the Commonwealth of Kentucky as the place of meeting for
any annual meeting or for any special meeting called by the board of directors.
If no designation is made, or if a special meeting be called by other
than the board of directors, the place of meeting shall be the principal office
of the corporation, except as otherwise provided in Section 5 of this Article.
Section 4. Notice of Meetings. Written notice stating the place, day and
------------------
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, either personally or by
telegraph, teletype or other form of wire or wireless communication or by mail
or private carrier, by or at the direction of the president, or the secretary ,
or the officer of persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail in a sealed envelope
addressed to the shareholder at his address as it appears on the records of the
corporation, with first class postage thereon prepaid.
Section 5. Meeting of all Shareholders. If all of the shareholders shall
---------------------------
meet at any time and place, either within or without the Commonwealth of
Kentucky, and consent to the holding of a meeting, such meeting shall be valid
without call or notice, and at such meeting any corporate action may be taken.
<PAGE>
Section 6. Fixing of Record Date. If no record date is fixed for the
---------------------
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
first date on which notice of the meeting is mailed or the date on which the
resolution of the board of directors declaring such dividend, the first date on
which notice of the meeting is mailed or the date on which the resolution of the
board of directors declaring such dividend is adopted, as the case may be, shall
be the record date for such determination of shareholders. When a determination
of shareholders entitled to vote at any meeting of shareholders has been made as
provided herein, such determination shall apply to any adjournment thereof
unless the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting, in which case the board shall fix a new record
date.
Section 7. Voting Lists and Share Ledger. The secretary shall prepare a
-----------------------------
complete list of the shareholders entitled to notice of any meeting, or any
adjournment thereof, arranged by voting group (and within each voting group by
class or series of shares) with the address of and the number of shares held by
each shareholder, which list, for a period of five business days prior to any
meeting and continuing through the meeting, shall be kept on file at the
principal office of the corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list shall be
produced and kept open a the meeting and shall be subject to the inspection of
any shareholder during the meeting and any adjournment thereof. The original
share ledger or stock transfer book, or a duplicate thereof kept in this State,
shall be prima facie evidence as to the shareholders entitled to examine such
-----------
list or share ledger or stock transfer book, or the shareholders entitled to
vote at any meeting of shareholders or to receive any dividend.
Section 8. Quorum. A majority of the outstanding shares entitled to vote,
------
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. The shareholders present at a duly organized meeting can continue
to do business for the remainder of the meeting and for any adjournment thereof
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, unless a new record date is or must be set for that adjourned meeting.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
-------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting.
Section 10. Informal Action by Shareholders. Any action required or
-------------------------------
permitted to be taken at a meeting of the shareholders may be taken without a
meeting and without prior notice if one or more consents in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof and delivered to the
corporation for inclusion in the minutes or filing with the corporate records.
In addition, so long as permitted by the corporation's articles of
incorporation, any action, except the election of directors, required or
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice (except as otherwise provided by law) if one or more
consents in writing, setting forth the action so taken, shall be signed by
shareholders representing not less than 80% (or such higher percentage as may be
required by law) of the votes entitled to be cast and delivered to the
corporation for inclusion in the minutes of filing with the corporate records.
Prompt notice of the taking of any action by shareholders without a meeting by
less than unanimous consent shall be given to those shareholders entitled to
vote on the action who have not consented in writing.
<PAGE>
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
--------------
shall be managed under the direction of a board of directors.
Section 2. Number and Tenure. A variable range of between one member (the
-----------------
minimum) and ten members (the maximum) is established for the size of the board
of directors. The number of directors may be fixed or changed from time to
time, within the minimum and maximum, by resolution of the shareholders or by
resolution of the board of directors, provided, however, that, after shares are
issued, only the shareholders may change the range for the size of the board of
directors or change from a variable range board to a fixed number of directors.
Each director shall hold office for a term expiring at the next annual
shareholders' meeting following his or her election; provided that, despite the
expiration of a director's term, the director shall continue to serve until his
or her successor shall have been elected and qualifies for the office or until
there is a decrease in the number of directors.
Section 3. Regular Meetings. A regular meeting of the board of directors
----------------
shall be held without other notice than this Bylaw, immediately after, and at
the same place as, the annual meeting of shareholders. The board of directors
may provide, by resolution, the time and place, either within or without the
Commonwealth of Kentucky, for the holding of additional regular meetings without
other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of directors
----------------
may be called by or at the request of the president or any one director. The
person or persons authorized to call special meetings of the board of directors
may fix any place, either within or without the Commonwealth of Kentucky, as the
place for holding any special meeting of the board of directors called by them.
Section 5. Notice. Notice of any special meeting shall be given at least
------
two (2) days prior thereto by written notice delivered personally, mailed or
telegrammed to each director at his business address. If mailed, such notice
shall be deemed to be delivered five (5) days after its deposit in the United
States mail in a sealed envelope so addressed, with first class postage thereon
prepaid. If notice be given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to this telegraph company. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, unless the director
at the beginning of the meeting (or promptly upon his arrival) objects to the
transaction of any business at the meeting and does not thereafter vote for or
assent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the board of directors shall constitute
------
a quorum for the transaction of business at any meeting of the board of
directors, provided that if less than a majority of the directors are present at
said meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the directors
----------------
present at a meeting at which a quorum is present shall be the act of the board
of directors.
Section 8. Vacancies. Any vacancy occurring in the board of directors may
---------
be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the board of directors.
<PAGE>
A director elected to fill a vacancy shall serve until the next shareholders'
meeting at which directors are elected.
Section 9. Committees. The board of directors shall have authority to
----------
establish such committees as it may consider necessary or convenient for the
conduct of its business. The board of directors may establish an executive
committee in accordance with and subject to the restrictions set out in the
statutes of the Commonwealth of Kentucky.
Section 10. Informal Action. Any action required or permitted to be taken
---------------
at a meeting of the board of directors, or any action which may be taken at a
meeting of the board of directors or of a committee, may be taken without a
meeting if a consent, in writing, setting forth the action so taken shall be
signed by all of the directors, or all of the members of the committee, as the
case may be, and included in minutes or filed with the corporate records. Such
consent shall have the same effect as a unanimous vote.
In addition to the foregoing, any action, except the election of
directors, required or permitted to be taken at a shareholders' meeting may be
taken without a meeting and without prior notice (except as otherwise provided
by law) if the action is taken by shareholders representing not less than 80%
(or such higher percentage as may be required by law) of the votes entitled to
be cast. Prompt notice of the taking of any action by shareholders without a
meeting by less than unanimous consent shall be given to those shareholders
entitled to vote on the action who have not consented in writing.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Classes. The officers of the corporation shall be a president,
-------
a secretary, and such other officers, as may be provided by the board of
directors and elected in accordance with the provisions of this article.
Section 2. Election and Term of Office. The officers of the corporation
---------------------------
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Vacancies may be filled or new offices
created and filled at any meeting of the board of directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have been removed
from office in the manner hereinafter provided.
Section 3. Removal. Any officer elected by the board of directors may be
-------
removed by the board of directors, with or without cause, whenever in its
judgment the best interest of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contractual rights.
Section 4. President. The president shall be the chief executive officer
---------
of the corporation and shall, in general, supervise and control all of the
business and affairs of the corporation. The president shall perform all duties
normally incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.
<PAGE>
Section 5. Secretary. The secretary shall [a] keep the minutes of the
---------
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; [b] see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; [c] be
custodian of the corporate records and stock transfer books of the corporation;
and, [d] in general, perform all duties normally incident to the office of
secretary and such other duties as from time to time may be assigned by the
president or by the board of directors.
Section 6. Vice President. If the office of vice president is filled by
--------------
the board of directors, the vice president shall perform the duties of the
president in the absence of the president or in the event of his inability or
refusal to act, and, when so acting, shall have all the powers of and be subject
to all the restriction upon the president. The vice president shall perform
such other duties as from time to time may be assigned by the president or by
the board of directors.
Section 7. Treasurer. If the office of treasurer is filled by the board
---------
of directors, the treasurer shall be the chief financial officer of the
corporation and shall perform all duties normally incident to the office of
treasurer and such other duties as from time to time may be assigned by the
president or by the board of directors.
ARTICLE V
---------
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts and Agreements. The board of directors may authorize
------------------------
any officer or officers, agent or agents, to enter into any contract or
agreement or execute and deliver any instruments in the name of and on behalf of
the corporation, and such authority may be general or confined to specific
instances.
Section 2. Loans. No loans shall be contracted on behalf of the
-----
corporation, an no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, Orders, Etc.. All checks, drafts or other
----------------------------
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents, of the corporation and in such manner as shall from time to
time be determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies, or other depositories as the board of directors may
select.
ARTICLE VI
----------
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares of
-----------------------
the corporation shall be in such form as may be determined by the board of
directors. Such certificates shall be signed by the president or vice president
and by the secretary or an assistant secretary and may be sealed with the seal
of the corporation or a facsimile thereof. All certificates surrendered to the
corporation for transfer shall be canceled,
<PAGE>
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, destroyed or mutilated certificate, a new certificate may be
issued therefor upon such terms and indemnity to the corporation as the board of
directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
------------------
shall be made only on the books of the corporation by the registered holder
thereof or by his attorney authorized by power of attorney duly executed and
filed with the secretary of the corporation, and on surrender for cancellation
of the certificates for such shares. The person in whose name shares stand on
the books of the corporation shall be deemed the owner thereof for all purposes
as regards the corporation.
ARTICLE VII
-----------
FISCAL YEAR
-----------
The fiscal year of the corporation shall be the calendar year.
ARTICLE VIII
------------
WAIVER OF NOTICE
----------------
Whenever any notice whatever is required to be given under the
provisions of these Bylaws, or under the provisions of the Articles of
Incorporation, or under the provisions of the corporation laws of the
Commonwealth of Kentucky, waiver thereof in writing, signed by the persons,
entitled to such notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of such notice.
ARTICLE IX
----------
INDEMNIFICATION OF OFFICERS AND DIRECTORS
-----------------------------------------
The corporation shall indemnify any person who is or was a director of
the corporation and may, as determined by the board of directors, indemnify any
person who is or was an officer or employee of the corporation, from any and all
judgments, settlements, penalties, fines and reasonable expenses that may be
incurred by or imposed against him in connection with any claims,
investigations, proceedings and/or litigation arising out of or relating to any
acts or omissions by him in his capacity as a director or officer or employee
of, or as trustee of any employee benefit plan maintained by, the corporation,
other than acts or omissions not in good faith or which involve intentional
misconduct or are known to him to be a violation of law or for any transaction
from which he derived an improper personal benefit, and except as otherwise
prohibited by Kentucky or Federal law. The right or privilege of
indemnification, as the case may be, granted hereunder shall include the payment
of reasonable expenses incurred in advance of the final disposition of a claim,
investigation, proceeding or litigation subject to the receipt by the
corporation of a written undertaking of the person requesting such payment that
he will repay such amounts if it is finally determined by a court of competent
jurisdiction that he is not entitled to indemnification under this bylaw.
<PAGE>
ARTICLE X
---------
AMENDMENT OF BYLAWS
-------------------
The board of directors may alter, amend or rescind these bylaws,
subject to the rights of the shareholders to repeal or modify such actions.
<PAGE>
Exhibit 3.8(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LESLIE RESOURCES, INC.
Pursuant to the provisions of KRS 271B.10.010, et seq., the undersigned
corporation executes these Restates and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by
the sole shareholder of the corporation on January 15, 1998, in the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be Leslie Resources, Inc.
--------------
2. Authorized Shares. The Corporation shall have authority to issue One
------------------
Hundred (100) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
----------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of the
Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action or required or
-----------------------------------------
permitted to be taken at a shareholder's meeting may be taken without a meeting
and without prior notice if the action is taken be shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
of proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director of executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any rights to which
directors and executive
<PAGE>
officers may be entitled under any agreement, vote of shareholders or
disinterested directors, or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation of its
shareholders;
(ii) Act or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 20; and the number of shares to vote thereon was 20.
The number of shares voted for such amendment was 20; and the number of
shares voted against such amendment was zero.
LESLIE RESOURCES, INC.
By: /s/John Lynch
--------------------------------
John Lynch, Secretary
Date: 1/30/98
-----------------------------
<PAGE>
Exhibit 3.8(b)
AMENDED AND RESTATED
BYLAWS
OF
LESLIE RESOURCES, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of LESLIE RESOURCES, INC. (the "Corporation")
by a Written Action by Shareholder in Lieu of Meeting, dated January 15, 1998.
/s/John Lynch
----------------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
LESLIE RESOURCES, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
LESLIE RESOURCES, INC.
ARTICLE I
The registered or statutory office of the Corporation is at 1021 Tori
Drive, Hazard, Kentucky 41701. The registered agent of the corporation at such
office is Greg Wells.
ARTICLE II
SHAREHOLDERS' MEETINGS
----------------------
The annual meeting of shareholders shall be held at the corporation's
office in Hazard, Kentucky. Annual meetings shall be held at 1:00 p.m. on May 1
of each year, unless a holiday, and then on the next business day.
ARTICLE III
DIRECTORS
---------
(A) The number of directors shall be not less than one nor more than five.
(B) A regular meeting of the board of directors shall be held without
notice immediately following the annual meeting of shareholders and at the same
place.
ARTICLE IV
OFFICER
-------
(A) The officers of the corporation shall be a president, a secretary, and
such other officers as may be appointed by the board of directors, who shall be
elected at the regular meeting of the board of directors held after the annual
meeting, of shareholders for a term to be specified by the Board, and who shall
hold office only so long as they are satisfactory to the board of directors.
(B) The president shall be the principal executive officer of the
corporation to put into effect the decisions of the board of directors. Subject
to such decisions, he or she shall supervise and control the business and
affairs of the corporation. The president shall preside at meetings of the
shareholders and directors and shall also sign stock certificates on behalf of
the corporation.
(C) Subject to any specific assignments of duties made by the board of
directors, the vice president, secretary, and any other officers shall act under
the direction of the president. The vice president (if any) shall perform the
duties of the president when the president is absent or unable to
<PAGE>
act. The secretary shall prepare and keep minutes of the meetings of the
shareholders and the directors and shall have general charge of the stock
records of the corporation. The secretary shall also sign stock certificates on
behalf of the corporation. The treasurer (if any) shall have custody of the
funds of the corporation and keep its financial records, all of which duties
shall be performed by the president if there is no treasurer appointed by the
board of directors.
ARTICLE V
MISCELLANEOUS
-------------
The board of directors may authorize any officer or agent to enter into any
contract or to execute any instrument for the corporation. Such authority may be
general or be confined to specific instances.
-2-
<PAGE>
Exhibit 3.9(b)
AMENDED AND RESTATED
BYLAWS
OF
LESLIE RESOURCES MANAGEMENT, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of LESLIE RESOURCES MANAGEMENT, INC. (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated
December 2, 1998.
/s/ John Lynch
--------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
LESLIE RESOURCES MANAGEMENT, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.10(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PRO-LAND, INC.
Pursuant to the provisions of KRS 271B.10.010 et seq., the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by the
sole shareholder of the corporation on January 15, 1998. In the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be Pro-Land, Inc.
--------------
2. Authorized Shares. The Corporation shall have authority to issue One
-----------------
Thousand (1,000) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of
the Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders meeting may be taken without a meeting
and without prior notice of the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and
<PAGE>
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7(a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
(ii) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law.
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 400; and the number of shares entitled to vote thereon was 400.
The number of shares voted for such amendment was 400 and the number of
shares voted against such amendment was zero.
PRO-LAND, INC.
By: /s/John Lynch
----------------------------------------
John Lynch, Secretary
-2-
<PAGE>
Exhibit 3.10(b)
AMENDED AND RESTATED
BYLAWS
OF
PRO-LAND, INC. D/B/A KEM COAL COMPANY
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of PRO-LAND, INC. D/B/A KEM COAL COMPANY (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated
January 15, 1998.
/s/John Lynch
---------------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PRO-LAND, INC. D/B/A KEM COAL COMPANY
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.11(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ACECO, INC.
Pursuant to the provisions of KRS 271B.10.010 et seq., the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by the
sole shareholder of the corporation on January 15, 1998. In the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be Aceco, Inc.
--------------
2. Authorized Shares. The Corporation shall have authority to issue One
-----------------
Thousand (1,000) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of
the Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders meeting may be taken without a meeting
and without prior notice of the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and
<PAGE>
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7(a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
(ii) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law.
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 1,000; and the number of shares entitled to vote thereon was 1,000.
The number of shares voted for such amendment was 1,000 and the number of
shares voted against such amendment was zero.
ACECO, INC.
By: /s/John Lynch
-------------------------------------
John Lynch, Secretary
-2-
<PAGE>
Exhibit 3.11(b)
AMENDED AND RESTATED
BYLAWS
OF
ACECO, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of ACECO, INC. (the "Corporation") by a
Written Action by Shareholder in Lieu of Meeting, dated January 15, 1998.
/s/John Lynch
---------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ACECO, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.12(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MOUNTAIN-CLAY, INCORPORATED
Pursuant to the provisions of KRS 271B.10.010 et seq., the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by the
sole shareholder of the corporation on January 15, 1998. In the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be Mountain-Clay,
--------------
Incorporated.
2. Authorized Shares. The Corporation shall have authority to issue Two
-----------------
Thousand (2,000) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of
the Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders meeting may be taken without a meeting
and without prior notice of the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and
<PAGE>
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7(a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
(ii) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law.
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 810; and the number of shares entitled to vote thereon was 810.
The number of shares voted for such amendment was 810 and the number of
shares voted against such amendment was zero.
MOUNTAIN-CLAY, INC.
By:/s/ John Lynch
-------------------------
John Lynch, Secretary
-2-
<PAGE>
Exhibit 3.12(b)
AMENDED AND RESTATED
BYLAWS
OF
MOUNTAIN-CLAY, INCORPORATED D/B/A MOUNTAIN CLAY, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of MOUNTAIN-CLAY, INCORPORATED D/B/A MOUNTAIN
CLAY, INC. (the "Corporation") by a Written Action by Shareholder in Lieu of
Meeting, dated _____________, 19__.
/s/ John Lynch
------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
MOUNTAIN-CLAY, INCORPORATED D/B/A MOUNTAIN CLAY, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.13(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HIGHLAND COAL, INC.
Pursuant to the provisions of KRS 271B.10.010 et seq., the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by the
sole shareholder of the corporation on January 15, 1998. In the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be Highland Coal, Inc.
--------------
2. Authorized Shares. The Corporation shall have authority to issue One
-----------------
Thousand (1,000) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of
the Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders meeting may be taken without a meeting
and without prior notice of the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and
<PAGE>
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7(a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
(ii) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law.
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 1,000; and the number of shares entitled to vote thereon was 1,000.
The number of shares voted for such amendment was 1,000 and the number of
shares voted against such amendment was zero.
HIGHLAND COAL, INC.
By: /s/ John Lynch
-----------------------------------
John Lynch, Secretary
-2-
<PAGE>
Exhibit 3.13(b)
AMENDED AND RESTATED
BYLAWS
OF
HIGHLAND COAL, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of HIGHLAND COAL, INC. (the "Corporation") by
a Written Action by Shareholder in Lieu of Meeting, dated December 2, 1998.
/s/ John Lynch
-------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
HIGHLAND COAL, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.14(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
RIVER COAL COMPANY, INC.
Pursuant to the provisions of KRS 271B.10.010 et seq., the undersigned
corporation executes these Restated and Amended Articles of Incorporation and
states that each and every article is being amended, the text of which
amendments are set forth below. The undersigned corporation further states that
the following Amended and Restated Articles of Incorporation were adopted by the
sole shareholder of the corporation on January 15, 1998. In the manner
prescribed by the Kentucky Business Corporation Act.
1. Corporate Name. The Corporation's name shall be River Coal Company,
--------------
Inc.
2. Authorized Shares. The Corporation shall have authority to issue
-----------------
Forty (40) shares of no par value common stock.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
registered office shall be 109 Broadway, Hazard, Kentucky 41701. The name of
the Corporation's registered agent at that office shall be Ronald G. Combs.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders meeting may be taken without a meeting
and without prior notice of the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors which shall require the
written consent of all the shareholders entitled to vote in the election. Notice
of the taking of any action by shareholders without a meeting by less than
unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suits
or proceedings in which that person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and advance
expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and
<PAGE>
executive officers may be entitled under any agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation may indemnify and advance
expenses to any employee or agent to the fullest extent permitted by law.
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7(a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
(i) Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
(ii) Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law.
(iii) Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act as amended from time to
time); or
(iv) Any transaction from which the director derived an improper
personal benefit.
These Amended and Restated Articles of Incorporation supercede the original
Articles of Incorporation and all amendments thereto.
The number of shares of the corporation outstanding at the time of such
adoption was 40; and the number of shares entitled to vote thereon was 40.
The number of shares voted for such amendment was 40 and the number of
shares voted against such amendment was zero.
RIVER COAL COMPANY, INC.
By: _____________________
John Lynch, Secretary
-2-
<PAGE>
Date _________________________
STATE OF KENTUCKY
COUNTY OF BOYD
I, the undersigned Notary Public in and for the Commonwealth and County
aforesaid, do hereby certify that John Lynch as Secretary personally appeared
before me, and after having been duly sworn, declared and acknowledged and
verified the foregoing Amended and Restated Articles of Incorporation of River
Coal Company, Inc. as of the _______ day of January, 1998.
My Commission expires:__________________
___________________________________
NOTARY PUBLIC, STATE AT LARGE
KENTUCKY
Prepared by:
- - ---------------------------
Thomas C. Walker
BROWN, TODD & HEYBURN, PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
(606) 231-0000
-3-
<PAGE>
Exhibit 3.14(b)
AMENDED AND RESTATED
BYLAWS
OF
RIVER COAL COMPANY, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of RIVER COAL COMPANY, INC. (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated
January 15, 1998.
/s/ John Lynch
------------------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
RIVER COAL COMPANY, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.18(a)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CYPRUS SOUTHERN REALTY CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Cyprus Southern Realty Corporation.
2. The Articles of Incorporation of the Corporation are hereby amended by
changing the first Article thereof so that, as amended, said Article shall read
as follows:
"First: The name of the corporation is "Appalachian Realty Company."
3. The Amendment of the Articles of Incorporation herein certified has
been duly adopted in accordance with the provisions of KRS 271B.7-040 and KRS
271B.8-210 of the Kentucky Business Corporation Act. This Amendment of the
Articles of Incorporation herein certified was adopted on June 29, 1998 by
unanimous written action of the Board of Directors by unanimous written action
of the sole shareholder on June 29, 1998.
Signed and attested this the 30/th/ day of June, 1998.
CYPRUS SOUTHERN REALTY CORPORATION
BY: /s/ William H. Haselholf
-------------------------------------
TITLE: Vice President of Administration
----------------------------------
Attest:
By: /s/ Illegible
-----------------
Title: Treasurer
--------------
<PAGE>
Exhibit 3.21(a)
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
PARAGON COAL INTERNATIONAL, INC.
A DELAWARE CORPORATION
INTO
BLUEGRASS COAL DEVELOPMENT COMPANY
A DELAWARE CORPORATION
The undersigned Corporation organized and existing under the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the name and state of the incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
Paragon Coal International, Inc. Delaware
Bluegrass Coal Development Company Delaware
SECOND: Bluegrass Coal Development Company owns 100% of the outstanding
stock of Paragon Coal International, Inc.
THIRD: That the Board of Directors of Bluegrass Coal Development Company
adopted as of May 23, 1997 the following resolutions pursuant to which Paragon
Coal International, Inc. is merged with and into Bluegrass Coal Development
Company in accordance with Section 253(a) of the General Corporation Law of the
State of Delaware:
WHEREAS it is deemed advisable and in the best interests of the
Corporation that Paragon Coal International, Inc. ("Paragon"), a direct
wholly-owned subsidiary of the Corporation, be merged with and into the
Corporation
NOW THEREFORE, BE IT:
RESOLVED, that Paragon be merged with and into the Corporation and
that the Corporation assume all of Paragon's obligations, all in accordance
with Section 253 of the General Corporation Law of the State of Delaware;
Page 1
<PAGE>
RESOLVED, that the Certificate of Ownership and Merger merging Paragon
with and into the Corporation to be filed with the Secretary of State of
Delaware (the "Merger Certificate"), be, and it hereby is, authorized and
approved in all respects; and
RESOLVED, that the officers of the Corporation be, and they hereby
are, authorized and directed to execute and file the Merger Certificate and
to take any and all actions necessary to effectuate the merger described in
the foregoing resolutions.
FOURTH: That the name of the surviving corporation of the merger is
Bluegrass Coal Development Company.
FIFTH: The surviving corporation may be served with process in the State of
Delaware in any proceeding for enforcement of any obligation of Delaware, as
well as for any enforcement of any obligation of the surviving corporation
arising from the merger, and it does hereby irrevocably appoint the Secretary of
State of the State of Delaware as its agent to accept service of process or any
such suit or other proceeding. The address to which a copy of such process shall
be mailed by the Secretary of State of Delaware is 50 Jerome Lane, Fairview
Heights, Illinois 62208 until the surviving shall have hereafter designated in
writing to the said Secretary of State a different address for such purpose.
Bluegrass Coal Development Company
By: /s/ C.K. Lane
----------------------
Name: C.K. Lane
-------------------
Title: President
------------------
Dated: May 23, 1997
Page 2
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SHELL MINING COMPANY
The undersigned, being the Vice President and Secretary, respectively, of
Shell Mining Company, a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation") do
hereby certify as follows:
1. That the Sole Director of the Corporation pursuant to a
Written Consent and in accordance with Sections 141(f) and 242 of the
General Corporation Law of the State of Delaware, adopted the
resolution set forth below proposing an amendment to the Certificate
of Incorporation of the Corporation (the "Amendment") and further
directed that the Amendment be submitted to the stockholders of the
Corporation entitled to vote thereon for their consideration and
approval:
RESOLVED, that the Certificate of Incorporation of the
Corporation be amended by deleting Article First and creating a new
Article First to read as follows (the "Amendment"):
"FIRST: The name of the corporation is SMC MINING COMPANY
(hereinafter called "the Corporation" or "this Corporation")."
2. That the Sole Stockholder of the Corporation, by written consent,
approved and adopted the Amendment in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the Vice President and Secretary
hereinabove named, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to the General Corporation Law of the State of
Delaware, under penalties of perjury do each hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein
Page 3
<PAGE>
are true, and accordingly have hereunto signed this Certificate of Amendment to
Certificate of Incorporation this 23 day of November, 1992.
By: /s/ Brent Motchan
---------------------
Brent Motchan
Vice President
ATTEST:
By: /s/ Michael Kafoury
--------------------
Michael Kafoury
Secretary
Page 4
<PAGE>
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
SHELL MINING COMPANY
Adopted in accordance with the provisions of
Section 242 of the General Corporation Law the State of Delaware
The undersigned officers of Shell mining Company, a corporation existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
as follows:
FIRST: The Certificate of Incorporation of the corporation (the
"Certificate of Incorporation") is hereby amended by deleting ARTICLE
THIRD in its entirety and substituting in lieu of a new ARTICLE THIRD
as follows:
"THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
the State of Delaware."
SECOND: That the Board of Directors of the Corporation, in accordance
with Sections 141 (f) and 242 of the General Corporation Law of the State
of Delaware, duly adopted the foregoing amendment to the Certificate of
Incorporation of the Corporation by unanimous written consent.
THIRD: That the Sale Stockholder of the Corporation, in accordance with
Sections 228 (c) and 242 of the General Corporation Law of the State of
Delaware, approved the foregoing amendment to the Certificate of
Incorporation of the Corporation by unanimous written consent.
IN WITNESS WHEREOF, the undersigned being the President and Secretary for
the purpose of amending the Certificate of Incorporation of the corporation
pursuant to the General Corporation Law of the State of Delaware, under
penalties of perjury do each hereby declare and
Page 5
<PAGE>
certify that this is the act and deed of the Corporation and the facts stated
herein are true, and accordingly have hereunto signed this Certificate of
Amendment of the Certificate of Incorporation as of this 10 day of November,
1992.
SHELL MINING COMPANY
By: /s/ ILLEGIBLE
-------------
Title: President
---------
ATTEST:
By /s/ ILLEGIBLE
-------------
Title Secretary
---------
Page 6
<PAGE>
CERTIFICATE OF CHANGE OF
LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation" is:
SHELL MINING COMPANY
2. The registered office of the corporation within the State of Delaware is
hereby changed to 32 Loockerman Square, Suite L-100, City of Dover, 19901,
County of Kent.
3. The registered agent of the corporation within the State of Delaware is
hereby changed to The Prentice-Hall Corporation System, Inc., the business
Office of which is identical with the registered office of the corporation
as hereby changed.
4. The corporation has authorized the change hereinbefore set forth by
resolution of its Board of Directors.
Signed on January 3, 1990
/s/ J.L. Mahaffey
------------------------
J.L. Mahaffey, President
Attest:
/s/ S.J. Paul
- - ----------------------
S.J. Paul, Secretary
Page 7
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
SEAWAY II COAL COMPANY
INTO
SHELL MINING COMPANY
SHELL MINING COMPANY, a corporation organized and existing under the laws
of Delaware,
DOES HEREBY CERTIFY:
FIRST: That this corporation was incorporated on the 17/th/ day of October,
1983, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this corporation owns one hundred percentum of the
outstanding shares of stock of SEAWAY II COAL COMPANY, a corporation
incorporated on the 1/st/ day of August, 1979, pursuant to the General
Corporation Law of the State of Delaware .
THIRD: That this corporation, by the following resolutions of its Board of
Directors, duly adopted by written unanimous consent of all of the Directors of
the Board effective the 30 day of August, 1985 determined to and did merge into
itself said SEAWAY II COAL COMPANY:
RESOLVED, That the Board of Directors deems it expedient, advantageous
and in the best interests of the Corporation that Seaway II Coal Company be
merged, pursuant to the provisions of Sections 253 of Title 8 of the
Delaware Code, with and into the Corporation, as the surviving
corporation, thereby effecting the vesting in the Corporation of all the
property, rights, privileges, powers, franchises and all other interests of
Seaway II Coal Company and the assumption by the Corporation of all the
obligations of Seaway II Coal Company.
RESOLVED, That the Corporation and Seaway II Coal Company,a
corporation organized on the 1/st/ day of August, 1979, under the General
Corporation Law of the State of Delaware, merge with and into the
Corporation, as the surviving corporation, and assume all of the
obligations of said Seaway II Coal Company, that,
Page 8
<PAGE>
for such purposes, the President and the Secretary or Assistant Secretary
of this Corporation be, and they hereby are, authorized to execute in the
name of this Corporation and under its corporate seat, and to acknowledge,
in accordance with Section 103 of the General Corporation Law of the State
of Delaware, a Certificate of Ownership and Merger certifying the ownership
by this Corporation of all the outstanding shares of the stock of said
Seaway II Coal Company, and setting forth a copy of this resolution and the
date of the adoption thereof, that the said officers of this Corporation
be, and they hereby are, authorized to cause said Certificate of Ownership
and Merger, when executed and acknowledged, as authorized in this
resolution, to be filed in the office of the Secretary of State of the
State of Delaware and to cause a certified copy thereof to be recorded in
the office of the Recorder of Deeds of the County of New Castle, Delaware;
that, effective upon the filing and recording as aforesaid of said
Certificate of Ownership and Merger, said Seaway II Coal Company shall be
merged with and into, and its property, in, and its liabilities and
obligations shall be assumed by, this Corporation, and that the officers of
this Corporation be, and they hereby are, authorized to do all other acts
and things whatsoever, whether within or without the State of Delaware,
which may be or become in any manner necessary or desirable to effectuate
this resolution and said merger.
RESOLVED, That the officers of the Corporation be,and they hereby are,
authorized to execute and deliver, in the name and on behalf of the
Corporation, and under its corporate seal or otherwise, any and all such
other deeds, documents and instruments, and to take any and all such other
action and do any and all such other things, as they may deem necessary or
appropriate to carry out the transactions hereinabove referred to or to
effectuate the foregoing resolutions.
FOURTH: Anything herein or elsewhere to the contrary notwithstanding, this
merger may be terminated and abandoned by the board of directors of SHELL
MINING COMPANY at any time prior to the date of filing the merger with the
Secretary of State.
Page 9
<PAGE>
IN WITNESS WHEREOF, said SHELL MINING COMPANY has caused this certificate
to be signed by Jack L. Mahaffey, its President, and attested by S. R.
Natenberg, its Secretary, this 30th day of August, 1985.
SHELL MINING COMPANY
By: /s/ Illegible
------------------------
President
ATTEST:
/s/ Illegible
- - --------------------
Secretary
Page 10
<PAGE>
STATE OF TEXAS )
) SS:
COUNTY OF HARRIS )
BEFORE ME, A Notary Public in and for Harris County, Texas, on this day
personally appeared Jack L. Mahaffey known to me to be the person and officer
whose name is subscribed to the foregoing Certificate of Ownership and Merger,
and having been by me first duly sworn, declared that the same was the act and
deed of said Quazite Corporation, a corporation; and that he executed the same
as the act and deed of such corporation for the purposes and consideration
therein expressed and that the facts stated therein are true.
GIVEN under my hand and seal of office this 30/th/ day of August, 1985.
/s/ Linda Cheryl Smedley
--------------------------------------
Notary Public in and for
Harris County, Texas
Page 11
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
SHELL MINING COMPANY
SHELL MINING COMPANY a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is SHELL MINING COMPANY and the name under
which the corporation was originally incorporated is SHELL MINING COMPANY.
The date of filing its original Certificate of Incorporation with the
Secretary of State was October 17, 1983.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation in its
entirety.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:
CERTIFICATE OF INCORPORATION
OF
SHELL MINING COMPANY
FIRST: The name of the corporation is SPELL MINING COMPANY
(hereinafter called "the Corporation" or "this Corporation").
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
THIRD: The business purposes of the Corporation are to
engage in the exploration for, development, mining, production,
purchasing, transportation, washing, treating, refining, and
marketing of coal, oil shale, gold, silver, crude oil, natural
gas and any other minerals or natural resources or the products
therefrom; to own and hold, directly or indirectly, equity or
other securities or interests in
Page 12
<PAGE>
corporations, partnerships or other associations or ventures
engaged in one or more of the above activities to acquire and
employ such property as necessary and to make and enter into such
contracts and agreements as appropriate in respect to the
foregoing; and, in furtherance of such business purposes, to
engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The election of directors need not be by written
ballot unless the By-Laws of the Corporation shall so provide.
FIFTH: The total number of shares of stock which the
Corporation shall have authority to issue is Ten Thousand
(10,000) shares of common stock, and the par value of each such
share is one dollar ($1.00).
SIXTH: The Board of Directors of the Corporation in
exercising its powers in the furtherance of the above stated
business purposes, shall direct the management of the business
and the conduct of the affairs of the Corporation by
establishment of policies, procedures, and controls which shall
govern the conduct of the Corporation and which shall preserve
the separate legal identity of the Corporation.
SEVENTH: A director of this Corporation, or any person
serving as a director of another corporation at the request of
this Corporation, shall not be personally liable to this
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to this Corporation (or
such other corporation) or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing Violation of law, (iii) under Section 174
of the Delaware General Corpora tion Law, or (iv) for any
transaction from which the director derived an improper personal
benefit.
This Corporation shall have the authority to the full extent
not prohibited by law, as provided in the By-Laws of this
Corporation or otherwise authorized by the Board of Directors or
by the stockholders of this Corporation, to indemnify any per son
who is or was a director, officer, employee or agent of this
Corporation or is or was serving at the request of this
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise or entity from and against any and all
expenses, liabilities or losses asserted against, or incurred by
any such person in any such capacity, or arising out of his
status as such; and the indemnification authorized herein shall
not be deemed exclusive of any other rights to which those
indemnified may be entitled under any By-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another
capacity while holding
Page 13
<PAGE>
such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and adminis trators of such a
person.
This Corporation shall have the authority to the full extent
not prohibited by law, as provided In the By-Laws of this
Corporation or otherwise authorized by the Board of Directors or
by the stockholders of this Corporation, to purchase and main
tain insurance in any form from any affiliated or other insurance
company and to use other arrangements (including, without
limitation, trust funds, security interests, or surety
arrangements) to protect itself or any person who is or was a
director, officer, employee or agent of this Corporation or
serving at the request of this Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
or entity against any expense, liability or loss asserted
against, or incurred by any such person in any such capacity, or
arising out of his status as such, whether or not this
Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General
Corporation Law.
4. This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said SHELL MINING COMPANY has caused this certificate
to be signed by JACK L. MAHAFFEY its PRESIDENT and attested by S. J. PAUL, its
SECRETARY, this 14th day of February, 1989.
SHELL MINING COMPANY
By: /s/ Illegible
----------------------------
President
Page 14
<PAGE>
(CORPORATE SEAL)
ATTEST:
/s/ Illegible
- - ---------------------------
Secretary
Page 15
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SHELL MINING COMPANY
FIRST: The name of the corporation is SHELL MINING COMPANY (hereinafter
called "the Corporation" or "this Corporation").
SECOND: The address of its registered office in the State of Delaware is
100 West Tenth Street, in the City of Wilmington, County of New Castle The name
of its registered agent at such address is The Corporation Trust Company.
THIRD: The business purposes of the Corporation are to engage in the
exploration for, development, mining, production, purchasing, transportation,
washing, treating, refining, and marketing of coal, oil shale, gold, silver,
crude oil, natural gas and any other minerals or natural resources or the
products therefrom; to own and hold, directly or indirectly, equity or other
securities or interests in corporations, partnerships or other associations or
ventures engaged in one or more of the above activities; to acquire and employ
such property as necessary and to make and enter into such contracts and
agreements as appropriate in respect to the foregoing; and, in furtherance of
such business purposes, to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is ten thousand (10,000) shares of common stock, and the
par value of each such share is one dollar ($1.00).
FIFTH: The name and mailing address of the incorporator is,
Page 16
<PAGE>
NAME MAILING ADDRESS
---- ---------------
SHELL OIL COMPANY P. 0. Box 2463
Houston, TX 77001
SIXTH: The Board of Directors of the Corporation in exercising its powers,
in furtherance of the above stated business purposes, shall direct the
management of the business and conduct the affairs of the Corporation by
establishment of policies, procedures, and controls which shall pertain to the
conduct of the Corporation and which shall preserve the separate legal identity
of the Corporation and, further, which shall be compatible with the purposes,
policies, and respective separate legal identity of affiliated corporations.
THE UNDERSIGNED, being the incorporator hereinabove named for the purpose
of forming a corporation pursuant to the General Corporation Law of Delaware,
does make this certificate, hereby declaring and certifying that this is its act
and deed and the facts herein stated are true, and accordingly has hereunto set
its hand and seal this day of October, 1983.
SHELL MINING COMPANY
By: /s/ Illegible
---------------------------------
Executive Vice President
(CORPORATE SEAL)
ATTEST:
/s/ Illegible
- - ------------------------
Assistant Secretary
Page 17
<PAGE>
(STATE OF TEXAS )
) SS:
COUNTY OF HARRIS )
BEFORE ME, A Notary Public in and for Harris County, Texas, on this day
personally appeared C. L. Blackburn, known to me to be the person and officer
whose name is subscribed to the foregoing Certificate of Incorporation, and
having been by me first duly sworn, declared that the same was the act and deed
of said SHELL OIL COMPANY, a corporation; and that he executed the same as the
act and deed of such corporation for the purposes and consideration therein
expressed and that the facts stated therein are true.
GIVEN under my hand and seal of office this 13 day of October, 1983.
/s/ Illegible
-----------------------------
Notary Public in and for
the State of Texas
Page 18
<PAGE>
Exhibit 3.24(a)
ARTICLES OF INCORPORATION
OF
EAST KENTUCKY ENERGY CORPORATION
The undersigned Incorporator has executed these Articles of
Incorporation for the purpose of forming and does hereby form a corporation
under the laws of the Commonwealth of Kentucky in accordance with the following
provisions:
I.
The name of the Corporation is East Kentucky Energy Corporation.
II.
The duration of the Corporation shall be perpetual.
III.
The purposes for which the Corporation is organized are to engage in
any business enterprise which the Board of Directors may from time to time deem
beneficial, profitable, and in the best interest of the Corporation, and to do
all other things deemed by the Board of Directors to be necessary or desirable
in connection with any of the Corporation's business; including, without
limitation, to mine, process, buy and sell coal of various grades and sizes and
generally to trade and deal in coal and coal byproducts and to engage in
transactions incidental to such business. The Corporation shall have all the
powers conferred upon a corporation organized under the provisions of Chapter
271A of the Kentucky Revised Statutes, and shall have all the powers necessary,
proper, convenient or desirable in order to fulfill and further the purposes of
the Corporation.
IV.
The number of shares that the Corporation shall have authority to
issue shall be One Thousand Shares (1,000) of the par value of Ten Dollars
($10.00) each.
<PAGE>
V.
The address of the initial registered office of the Corporation shall
be c/o IMEC, Inc., State Highway 40, (P.O. Box 423), Inex, Martin County,
Kentucky 41224, and the initial registered agent located at that address shall
be O.B. Bucklen.
VI.
The number of Directors constituting the initial Board of Directors
shall be three (3), and the names and addresses of the persons who are to serve
as the initial Directors are as follows:
1. E. Morgan Massey
Third Floor, Massey Bldg.
4th & Main Street
Richmond, Virginia 23219
2. Wm. Blair Massey
Third Floor, Massey Bldg.
4th & Main Streets
Richmond, Virginia 23219
3. O. B. Bucklen
c/o IMEC, Inc.
State Highway 40
(P.O. Box 426)
Inez, Martin County, Ky 41224
VII.
The name and address o fthe Incorporator is Stewart E. Connor, 2800
Citizens Plaza, Louisville, Kentucky 40202.
Signed by the Incorporator at Louisville, Kentucky, this 28th day of
August, 1974.
/s/ Stewart E. Conner
----------------------------------
Stewart E. Conner, Incorporator
<PAGE>
Exhibit 3.25(a)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EMPLOYEE BENEFITS MANAGEMENT, INC.
This Amended and Restated Certificate of Incorporation (this "Certificate
of Incorporation") amends, restates and integrates the Certificate of
Incorporation of Employee Benefits Management, Inc. The original Certificate of
Incorporation was filed with the Secretary of State of Delaware on May 14, 1997
in the name of Zeigler Property Development Company and was amended on December
8, 1998 to amend the name to Employee Benefits Management, Inc. This
Certificate of Incorporation has been duly adopted in accordance with the
provisions of (S)(S)242 and 245 of the General Corporation Law of the State of
Delaware, as amended from time to time (the "DGCL").
ARTICLE 1: NAME
The name of the corporation shall be EMPLOYEE BENEFITS MANAGEMENT, INC.
(the "Corporation").
ARTICLE 2: REGISTERED OFFICE AND REGISTERED AGENT
The Corporation's registered office in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE 3: PURPOSE
The nature of the business or purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
DGCL.
ARTICLE 4: CAPITALIZATION
1. Total Stock. The total number of shares of stock which the
-----------
Corporation shall have authority to issue is one thousand one hundred seventy-
six (1,176) shares, one thousand (1,000) of which are to be designated as the
Class A Common Stock of the Corporation (the "Class A Common Stock"), and one
hundred seventy-six (176) of which are to be designated as the Class B Common
Stock of the Corporation (the "Class B Common Stock") (collectively, the "Common
Stock"), each having a par value of $0.01 per share. The shares of Class A
Common Stock and Class B Common Stock may be issued from time to time for such
consideration and upon such terms as the Board of Directors of the Corporation
(the "Board of Directors") may determine from time to time.
2. Dividends. When, as and if dividends or other distributions are
---------
declared by the Board of Directors on the Common Stock out of funds legally
available for such purpose, whether payable
<PAGE>
in case, in property or in securities of the Corporation, the holders of all
Class A Common Stock and Class B Common Stock shall be entitled to share
ratably, in proportion to the total number of shares of stock held by each
holder, in all dividends paid or distributions made with respect to the stock;
provided, however, that if dividends or distributions are declared that are
payable in shares of, in subscription or other rights to acquire shares of, or
securities convertible into or exchangeable for shares of, stock, the dividends
or distributions payable in shares of, in subscription or other rights to
acquire shares of, or securities convertible into or exchangeable for shares of,
any particular class of stock shall be payable only to holders of such stock.
3. Voting Rights. Except for the election of directors, all voting
-------------
rights shall be vested solely in the holders of the Class A Common Stock. At
the election of the directors, the holders of the Class B Common Stock shall be
entitled as a class to elect one (1) of the six (6) directors of the
Corporation, and the holders of the Class A Common Stock shall be entitled to
elect the remaining five (5) directors.
4. Consolidation or Merger. Neither the consolidation or merger of the
-----------------------
Corporation, nor the lease or conveyance of all or substantially all of its
assets, shall be deemed a liquidation, dissolution or winding up of the affairs
of the Corporation within the meaning of this Article.
5. Dissolution, liquidation, winding up. In the event of a voluntary or
------------------------------------
involuntary liquidation, dissolution, or winding up of the Corporation, (a) the
holders of Class B Common Stock shall be entitled to receive out of the assets
of the Corporation, whether those assets are capital or surplus of any nature,
an amount per share equal to the lesser of (i) 15% of the amount of the total
payment or distribution to the holders of Common Stock divided by the total
number of shares of Class B Common Stock outstanding on the date of such
liquidation, dissolution, or winding up, and (ii) the Redemption Value (as
defined below), as determined in accordance with Article 5 (except that for such
purpose "Call Date" shall be taken to mean the date of such liquidation,
dissolution, or winding up); and (iii) the holders of Class A Common Stock shall
be entitled to receive, ratably, all remaining assets of the Corporation.
ARTICLE 5: REDEMPTION OF STOCK
1. Limitation on Redemption of Common Stock. So long as Class B Common
----------------------------------------
Stock is issued and outstanding, the Corporation shall not redeem or acquire any
issued and outstanding Class A Common Stock.
2. Redemption of Class B Common Stock by Corporation. The Corporation
-------------------------------------------------
may redeem shares of Class B Common Stock, in whole or in part, at any time or
from time to time on or after January 1, 2008, for cash or other immediately
available funds, at a price per share (the "Call Price"), equal to the product
of (a) 1.05 and (b) the Redemption Value to the extent that the Corporation
shall have funds legally available for such payment. From and after the date
fixed for redemption (the "Call Date"), unless default shall be made by the
Corporation in providing funds sufficient for such redemption, such shares of
Class B Common Stock will no longer be outstanding and all rights in respect of
such shares of Class B Common Stock shall cease, except the right to receive the
Call Price. If less than all of the outstanding shares of Class B Common Stock
are to be redeemed, the
2
<PAGE>
Corporation shall redeem a portion of the shares of Class B Common Stock of each
holder pro rata based on the number of shares of Class B Common Stock held by
each holder and the Corporation shall execute and deliver to each such holder a
new certificate for the unredeemed shares of Class B Common Stock.
3. Notice of Redemption by Corporation. Notice of redemption must be
-----------------------------------
given to the holders of Class B Common Stock at the addresses shown on the books
of the Corporation not less than thirty (30) days nor more than sixty (60) days
prior to the Call Date. Each such notice shall state: (i) the Call Date; (ii)
the total number of shares of Class B Common Stock to be redeemed and, if fewer
than all of the issued and outstanding shares of Class B Common Stock are to be
redeemed, the number of such shares of Class B Common Stock to be redeemed from
each holder; (iii) the Call Price; and (iv) the place or places where
certificates for such shares of Class B Common Stock are to be surrendered for
payment of the Call Price. Upon surrender of the certificate for any shares of
Class B Common Stock so called for redemption (property endorsed or assigned for
transfer, if the Board of Directors shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation on the Call Date.
4. Redemption of Class B Common Stock Upon Request of Holders. The
----------------------------------------------------------
Corporation shall redeem shares of Class B Common Stock, in whole or in part, at
any time or from time to time for cash or other immediately available funds, at
a price per share (the "Put Price") equal to the Redemption Value, to the extent
that the Corporation shall have funds legally available for such payment, upon
written request for such redemption having been made by any holder thereof on or
after the occurrence of any of the following events: (a) the passage of July 1,
2007; or (b) with respect to AEI Resources Holding, Inc. (the ultimate parent
corporation, hereinafter referred to as "AEI"), the happening of any of the
following events (a "Change of Control"): (i) any person or entity, including a
"group," as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
other than AEI or a wholly owned subsidiary thereof becomes the beneficial owner
of AEI's securities constituting more than 50% of the outstanding securities of
AEI that may be cast for the election of directors of AEI (other than as a
result of an issuance of securities initiated by AEI in the ordinary course of
business); or (ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions less than a
majority of the combined voting power of the then outstanding securities of AEI
or any successor corporation or entity after such transaction are held in the
aggregate by the holders of AEI's securities entitled to vote generally in the
election of directors of AEI immediately prior to such transaction; provided,
however, that, with respect to clause (b) of this Section 4, such holder shall
not have the right to request or require the Corporation to redeem such holder's
Class B Common Stock unless such redemption is in compliance with all applicable
covenants contained in the Corporation's indentures, credit facilities or
agreements and other agreements relating to the extension of credit or lending
of funds to the Corporation. Such written request must be given by such holder
to the Corporation not less than thirty (30) days nor more than sixty (60) days
prior to the date specified in the notice for redemption (the "Put Date"). Each
such request shall state that Put Date and the total number of shares of Class B
common Stock to be redeemed. Upon receipt of such written request, the
Corporation shall notify said holder, not more than fifteen (15) days
thereafter, of the Put Price and the place or places where certificates for such
shares of Class B Common Stock are to be surrendered for payment of the
Redemption Value. Upon
3
<PAGE>
surrender of the certificate for any shares of Class B Common Stock so requested
for redemption (properly endorsed or assigned for transfer, if the Board of
Directors shall so require and the notice shall so state), such shares shall be
redeemed by the Corporation on the Put Date. From and after the Put Date, unless
default shall be made by the Corporation in providing funds sufficient for such
redemption, such shares of Class B Common Stock will no longer be deemed to be
outstanding and all rights in respect of such shares of Class B Common Stock
shall cease, except the right to receive the Put Price.
5. Redemption Value. The Redemption Value shall be equal to (a) the
----------------
lesser of (i) 15% of the Net Worth (hereafter defined) of the Corporation,
determined from the balance sheet of the Corporation (the "Redemption Balance
Sheet") as of the last day of the calendar month immediately preceding the month
in which the notice of redemption is sent or received by the Corporation (the
"Balance Sheet Date"), and (ii) Seven Million Dollars ($7,000,000), divided by
(b) the total number of shares of Class B Common Stock of the Corporation
outstanding on the Balance Sheet Date.
The term "Net Worth" shall mean the sum of all items included in
determining total assets as shown on the asset side of the Redemption Balance
Sheet, less the sum of all items included in determining total liabilities as
shown on the liability side of the Redemption Balance Sheet, except that no
current or deferred tax asset or liability shall be included in the computation
of Net Worth. The method of accounting for the Corporation shall utilize the
same practices, procedures, and conventions used by AEI with respect to all
consolidated subsidiaries thereof, except that in determining the liability for
post-retirement medical costs and related expenses, a discount rate of seven and
one-quarter percent (7.25%) shall be used. Such practices, procedures, and
conventions shall include, but not be limited to, determining the liabilities of
the Corporation attributable to the Corporation's assumption of, or
indemnification for, certain post-retirement medical costs and related expenses
of AEI by adjusting the accrual on the balance sheet from time to time to
reflect, among other things, any changes in estimates of accrued liability that
the Corporation, in accordance with normal practices, procedures, and
conventions used by AEI with respect to all consolidated subsidiaries thereof,
determines to be appropriate.
Prior to the Put Date or Call Date, as applicable, any holder of Class B
Common Stock whose shares are being redeemed shall have reasonable access at
reasonable times to the books and records of the Corporation which support the
Redemption Balance Sheet. If prior to the Put Date or Call Date, as applicable,
holders of a majority of all then outstanding Class B Common Stock send to the
Corporation written objection to the value of the assets or liabilities set
forth in the Redemption Balance Sheet, then (i) the Net Worth will be determined
by an arbitrator either agreed to in writing by the holders of a majority of all
then outstanding Class B Common Stock and the Corporation, or, in the absence of
such agreement, selected by lot from among the five largest nationally
recognized accounting firms at that time (excluding, however, any firm which is
then the regular outside accounting firm of the Corporation or any holder of a
majority of all then outstanding Class B Common Stock), and (ii) the Put Date or
Call Date, as applicable, shall be delayed until the tenth (10th) business day
after the arbitrator sends its determination of Net Worth to the Corporation and
each holder of Class B Common Stock. The arbitrator's determination of Net
Worth shall be binding on the Corporation and the holders of the Class B Common
Stock. The holders of the Class B Common Stock shall pay the cost of such
arbitrator, except that, in the event the arbitrator's
------
4
<PAGE>
determination of Net Worth exceeds by more than twenty percent (20%) the
Corporation's determination of New Worth, the Corporation shall pay the cost of
such arbitrator.
ARTICLE 6: DURATION
The Corporation shall have perpetual existence.
ARTICLE 7: STOCKHOLDER PROPERTY
This private property of the Corporation's stockholders shall not be
subject to the payment of corporate debts to any extent whatever, and shall be
exempt from corporate liability.
ARTICLE 8: POWERS OF BOARD OF DIRECTORS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized, to the extent such authorization
is not prohibited by the DGCL:
a. To make, alter, amend, and rescind the Bylaws (the "Bylaws") of the
Corporation.
b. To set apart out of any of the available funds of the Corporation such
reserves for proper purposes as the Board of Directors may deem expedient, and
to abolish any such reserves.
c. To determine the use and distribution of any surplus and net profits.
d. To authorize and cause to be executed and delivered, without limit as
to amount, mortgages and instruments of pledge of, and other instruments
creating liens upon, the real and personal property of the Corporation.
e. From time to time, to determine whether and to what extent and at what
times and places and under what conditions and regulations the accounts and
books of the Corporation (other than the stock ledger) shall be open to the
inspection of the stockholders of the Corporation, and no such stockholder shall
have the right to inspect any account or book or document of the Corporation,
except as conferred by statute, or authorized by the directors or by a
resolution of the stockholders of the Corporation.
f. By resolution or resolutions, passed by a majority of the Board, to
designate one or more committees, each committee to consist of two or more
directors of the Corporation, which, to the extent provided in said resolution
or resolutions or in the Bylaws of the Corporations, shall have and may exercise
the powers of the Board of Directors in the management of the business and
affairs of the Corporation, and may have the power to authorize the seal of the
Corporation to be affixed to all papers which may require it.
g. When and as authorized by the affirmative vote of the holders of a
majority of the Common Stock issued and outstanding having voting powers given
at a stockholders' meeting duly called for that purpose, or when authorized by
the written consent of the holders of a majority of the
5
<PAGE>
voting Common Stock issued and outstanding, the Board of Directors shall have
power and authority to sell, lease or exchange all of the property and assets of
the Corporation, including its goodwill, upon such terms and conditions and for
such considerations, which may be in whole or in part shares of stock in, and/or
other securities of, any other corporation or corporations as the Board of
Directors shall deem expedient and for the best interest of the Corporation.
h. To authorize and direct the payment of dividends and the making of
other distributions by the Corporation in respect of shares of the issued and
outstanding Class A Common Stock and Class B Common stock at such times, in such
amounts and forms, from such sources and upon such terms and conditions as it
may, in its sole and absolute discretion, from time to time determine, subject
only to the restrictions, limitations, conditions and requirements imposed by
the DGCL and by this Certificate of Incorporation. Except with respect to
distributions payable to holders of Class B Common Stock in the event of a
liquidation, dissolution or winding up of the affairs of the Corporation
pursuant to Article 4, Section 5 above, no holder of Class B Common Stock shall
have the right to bring suit against the Corporation, the Board of Directors or
any individual director seeking the payment of a dividend or the making of other
distributions by the Corporation, any such right being waived by each holder of
Class B Common Stock.
The Corporation may, in its Bylaws, confer powers and authority upon its
Board of Directors in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon it by statute.
ARTICLE 9: CONFLICTS OF INTEREST
Except as otherwise provided by the DGCL, no contract or other transaction
between the Corporation and any other corporation and no act of the Corporation
shall in any way be affected or invalidated by the fact that any of the
directors of the Corporation are pecuniarily or otherwise interested in, or are
directors of such other corporation.
ARTICLE 10: LOCATION OF MEETINGS AND BOOKS
The stockholders and Board of Directors shall have the power to hold their
meetings and to keep the books of the Corporation (except such as are required
by the laws of Delaware to be kept in Delaware) and documents and papers of the
Corporation outside the State of Delaware and have one or more offices within or
without the State of Delaware at such places as may be designated from time to
time by the Board of Directors.
ARTICLE 11: BOARD OF DIRECTORS
1. Number. The Board of Directors shall consist of six directors and
------
such directors shall be divided into two classes. One class shall consist of
five directors (the "Class A Directors") and only holders of Class A Common
Stock shall be entitled to vote for the election or removal of Class A
Directors. The second class of directors shall consist of one director (the
"Class B Director") and only holders of Class B Common Stock shall be entitled
to vote for the election or removal of the Class B Director. The directors need
not be shareholders.
6
<PAGE>
2. Vacancies. Any vacancies on the Board of Directors among the Class A
---------
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by a majority vote of the
remaining Class A Directors then in office, or if there shall be no Class A
Directors remaining, by vote of the holders of Class A Common Stock at the next
annual or special stockholders meeting. Any vacancy on the Board of Directors
of the Class B Director resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by vote of
the holders of Class B Common Stock at the next annual or special stockholders
meeting.
ARTICLE 12: INDEMNIFICATION
1. Personal Liability. A director of the Corporation shall not be
------------------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the Corporation, and with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of laws, (iii) under Section 145
or 174 of the DGCL, or (iv) for any transaction from which the director derived
an improper personal benefit.
2. Extent of Indemnification. Each director or officer of the
-------------------------
Corporation who was or is made a party or is threatened to be made a party or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
or she, or a person of whom he or she is the legal representative, is or was a
director of officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such Proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, (but, in the case of any amendment to the DGCL
after the filing date of the Certificate of Incorporation, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director or officer, and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
Section 3 of this Article 12, the Corporation shall indemnify any such director
or officer seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such director or officer only if such Proceeding (or part
thereof) was authorized by the Board of Directors. The right to indemnification
conferred in this Section 2 shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any such
Proceeding in advance of its final disposition; provided, however, that, if the
DGCL requires, the payment of such other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding,
7
<PAGE>
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section 2 or otherwise. The Corporation may, be action of
the Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
3. Payment. If a claim under Section 2 of this Article 12 is not paid in
-------
full by the Corporation within 30 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the DGCL for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such Directors, the Corporation's independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including the Board of
Directors, the Corporation's independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
4. Exclusivity of Remedy. The right to indemnification and the payment
---------------------
of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Article 12 shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Certificate of Incorporation or the Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
5. Insurance. The Corporation shall maintain insurance, at its expense,
---------
to protect itself and any director or officer of the Corporation against any
expense, liability or loss referenced by this Article 12, whether or not the
Corporation would have the power to indemnify its officers or directors against
such expense, liability or loss under the DGCL.
ARTICLE 13: SUPER MAJORITY FOR AMENDMENT
No amendment of this Certificate of Incorporation requiring a vote of the
shareholders under the DGCL shall be effective unless approved by holders of
seventy-five percent (75%) of the Class A Common Stock then issued and
outstanding and holders of seventy-five percent (75%) of the Class B Common
Stock then issued and outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be signed by John Lynch, its Secretary, this 11/th/ day of
December, 1998.
8
<PAGE>
EMPLOYEE BENEFITS MANAGEMENT, INC.
By: /s/ John Lynch
--------------
John Lynch, Secretary
9
<PAGE>
EXHIBIT 3-25(B)
SECOND AMENDED AND RESTATED
BYLAWS OF
EMPLOYEE BENEFITS MANAGEMENT, INC.
I certify that the following Second Amended and Restated Bylaws, consisting
of 13 pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Director of EMPLOYEE BENEFITS MANAGEMENT, INC. (the
"Corporation") by a Written Action by Sole Director in Lieu of Meeting, dated
December 14, 1998.
/s/ John Lynch
----------------------------------------
John Lynch Secretary
<PAGE>
SECOND AMENDED AND RESTATED
BYLAWS OF
EMPLOYEE BENEFITS MANAGEMENT, INC.
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation
required by the General Corporation Laws of the State of Delaware to be
maintained in Delaware shall be the registered office named in the charter
documents of the Corporation (the "Certificate of Incorporation"), or such other
office as may be designated from time to time by the Board of Directors of the
Corporation (the "Board of Directors") in the manner provided by law.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the state of Delaware as the Board of
Directors may from time to time determine that the business of the Corporation
may require.
ARTICLE 2
STOCKHOLDERS
SECTION 2.1 PLACE OF MEETINGS. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the state of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
SECTION 2.2 QUORUM; ADJOURNMENT OF MEETINGS, Unless otherwise required
by law or provided in the Certificate of Incorporation or these Bylaws:
(a) the holders of a majority of the stock issued and outstanding and
entitled to vote, present in person or represented by proxy, shall constitute
a quorum at any meeting of stockholders for the transaction of business;
(b) in all matters other than the election of directors, the affirmative
vote of the holders of a majority of such stock so present or represented at
an), meeting of stockholders at which a quorum is present shall constitute the
act of the stockholders; and
(c) where a separate vote by a class or classes is required on a
particular matter, a majority of the outstanding shares of such class or classes
entitled to vote on such matter, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter and the affirmative vote of the majority of the shares of such class
or classes present in person or represented by proxy at the meeting shall be the
act of such class.
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The stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum subject to the provisions of clauses
(b) and (c) above.
Nothwithstanding the other provisions of the Certificate of Incorporation
or these Bylaws, the chairman of the meeting or the holders of a majority of the
issued and outstanding stock, present in person or represented by proxy and
entitled to vote, at any meeting of stockholders whether or not a quorum is
present, shall have the power to adjourn. Such meeting from time to time,
without any notice other than announcement at the meeting of the time and place
of the holding of the adjourned meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 2.3 ANNUAL MEETINGS. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of Delaware), on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within 13 months after the last
annual meeting of stockholders.
SECTION 2.4 SPECIAL MEETINGS. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the President, by a majority of
the Board of Directors, or by a majority of the executive committee (if any), at
such time and at such place as may be stated in the notice of the meeting.
Business transacted at a special meeting shall be confined to the purpose(s)
stated in the notice of such meeting.
SECTION 2.5 RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a date as the record date
for any such determination of stockholders, which record date shall not precede
the date on which the resolutions fixing the record date are adopted and which
record date shall not be more than 60 days nor less than ten days before the
date of such meeting of stockholders.
If the Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, if, in accordance with Section
7.3 of these Bylaws, notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. The record date for determining
stockholders for any other purpose (other than the consenting to corporate
action in writing without a meeting)
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shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of Delaware or at its principal place of business. If the Board of
Directors does not fix the record date, and prior action by the Board of
Directors is necessary, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting... shall be at the
close of business oil the day oil which the Board of Directors adopts the
resolution taking such prior action.
SECTION 2.6 NOTICE. Written notice of the place. date and hour of all
meetings. and in case of a special meeting, the purpose or purposes for which
the meeting is called. shall be given by or at the direction of the President,
the Secretary or the other person(s) calling the meeting to each stockholder
entitled to vote thereat not less than 2 nor more than 60 days before the date
of the meeting. Such notice may be delivered personally, by mail, or by
facsimile. If mailed, notice is deemed given three (3) days after it is
deposited in the United States mail, postage prepaid, (one (1) day if deposited
with a nationally recognized overnight carrier) directed to the stockholder at
such stockholder's address as it appears on the records of the Corporation.
SECTION 2.7 STOCKHOLDER LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days before the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The stockholder list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.8 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who
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shall decide all questions touching upon the qualification of voters, the
validity of the proxies, and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the chairman of the
meeting, in which event such inspector or inspectors shall decide all such
questions.
No proxy shall be valid after three years after its date, unless the proxy
provides for a longer period. Each proxy shall be revocable unless expressly
provided therein to be irrevocable and coupled with an interest sufficient in
law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred. or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
SECTION 2.9 VOTING; ELECTION; INSPECTORS. Unless otherwise required by
law or provided in the Certificate of Incorporation, each stockholder shall on
each matter submitted to a vote at a meeting of stockholders have one vote for
each share of the stock entitled to vote which is registered in his name on the
record date for the meeting. For the purposes hereof. each election to fill a
directorship shall constitute a separate matter. Shares registered in the name
of another corporation. domestic or foreign, may be voted by such officer, agent
or proxy as the bylaws (or comparable body) of such corporation may determine.
Share registered in the name of a deceased person may be voted by the executor
or administrator of such person's estate. either in person or by proxy.
All voting, except as otherwise required by the Certificate of
Incorporation or by law, may be by a voice vote; provided, however, that upon
request of the chairman of the meeting or upon demand therefor by stockholders
holding a majority of the issued and outstanding stock present in person or by
proxy at any meeting a stock vote shall be taken. Every stock vote shall be
taken by written ballots, each of which shall state the name of the stockholder
or proxy voting and such other information as may be required under the
procedure established for the meeting.
At any meeting at which a vote is taken by written ballots, the chairman of
the meeting may appoint one or more inspectors. each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation, cumulative
voting for the
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election of directors shall be prohibited.
SECTION 2.10 CONDUCT OF MEETINGS. The meetings of the stockholders shall
be presided over by the President, or if the President is absent, by a chairman
elected at the meeting. The Secretary of the Corporation, if present, shall act
as secretary of such meetings, or, if the Secretary is not present, an Assistant
Secretary shall so act; if the Assistant Secretary is absent, then a secretary
shall be appointed by the chairman of the meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as is required to maintain order.
SECTION 2.11 TREASURY STOCK. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
SECTION 2.12 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these Bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the state of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail. return
receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent. and no written consent shall be effective to take the
corporate action referred to therein unless, within 60 days after the earliest
dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of Delaware, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
Prompt notice of the taking of action by the Corporation without a meeting
by less than a unanimous written consent shall be given by the Secretary to
those stockholders who have not consented in writing.
ARTICLE 3
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BOARD OF DIRECTORS
SECTION 3.1 POWER; NUMBER; TERM OF OFFICE. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the Certificate of
Incorporation, the Board of Directors may exercise all the powers of the
Corporation.
The number of directors which shall constitute the whole Board of Directors
shall be six. Each director shall hold office for the term for which such
director is elected, and until such director's successor shall have been
elected and qualified or until such director's earlier death, resignation, or
removal.
Unless otherwise provided in the Certificate of Incorporation, directors
need not be stockholders nor residents of the state of Delaware.
SECTION 3.2 QUORUM; VOTING. Unless otherwise provided in the Certificate
of Incorporation, a majority of the total number of directors shall constitute a
quorum for the transaction of business of the Board of Directors and the vote of
a majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 3.3 PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may hold
their meetings and may have an office and keep the books of the Corporation,
except as otherwise provide by law, in such place or places, within or without
the state of Delaware, as the Board of Directors may from time to time
determine. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
President (should the President be a director), or by the Board of Directors.
SECTION 3.4 FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held next after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
SECTION 3.5 REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as shall be designated from time to time
by the President (should the President be a director). Notice of such regular
meetings shall be given as required for special meetings.
SECTION 3.6 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President (should the President be a director) or, on the
written request of any two directors, by the Secretary, in each case on at least
24 hours personal, written, telegraphic, or faxed notice to each director. Such
notice, or any waiver thereof pursuant to Section 7.3 below, need not state the
purpose or purposes of such meeting, except as may otherwise be required by
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law or provided for in the Certificate of Incorporation or these Bylaws.
Meetings may be held at any time without notice if all the directors are present
or if those not present waive notice of the meeting in writing.
SECTION 3.7 REMOVAL. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of such directors.
SECTION 3.8 VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Any
vacancies of the Board of Directors among the Class A Directors resulting from
death, resignation, retirement, disqualification, removal from office, increase
in the number of directors or other cause shall be filled by a majority vote of
the remaining Class A Directors then in office, although less than a quorum, or
by a sole remaining Class A Director, of if there shall be no Class A Directors
remaining, by vote of the holders of Class A Common Stock at the next annual or
special stockholders meeting. Any vacancy on the Board of Directors of the Class
B Director resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by a vote of the holders of
Class B Common Stock at the next annual or special stockholders meeting.
SECTION 3.9 COMPENSATION. The Board of Directors shall have the
authority to fix the compensation of directors. Until such time as the Board of
Directors establishes a policy regarding compensation, no compensation shall be
paid to directors and members of standing committees, if any, for their services
in such capacities; provided, however, that they shall be reimbursed for all
reasonable expenses incurred in attending and returning from meetings of the
Board of Directors.
SECTION 3.10 ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee designated by the Board of Directors may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of the state of Delaware.
Unless otherwise restricted by the Certificate of Incorporation, subject to
the requirement for notice of meetings, members of the Board of Directors, or
members of any committee designated by the Board of Directors, may participate
in a meeting of such Board of Directors or committee, as the case may be, by
means of a conference telephone connection or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
SECTION 3.11 APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
STOCKHOLDERS. The
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Board of Directors in its discretion may submit any act or contract for approval
or ratification at any annual meeting of the stockholders, or at any special
meeting of the stockholders called for the purpose of considering any such act
or contract, and any act or contract that shall be approved or be ratified by
the vote of the stockholders holding a majority of the issued and outstanding
shares of stock of the Corporation entitled to vote and present in person or by
proxy at such meeting (provided that a quorum is present) shall be as valid and
as binding upon the Corporation and upon all the stockholders as if it has been
approved or ratified by every stockholder of the Corporation. In addition, any
such act or contract may be approved or ratified by the written consent of
stockholders holding a majority of the issued and outstanding Shares of capital
stock of the Corporation entitled to vote, and such consent shall be as valid
and binding upon the Corporation and upon all the stockholders as if it had been
approved or ratified by every stockholder of the Corporation.
ARTICLE 4
COMMITTEES
SECTION 4.1 DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, with
each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may, exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing these Bylaws or adopting new Bylaws for the Corporation. Any such
designated committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. In addition to the above, such committee or
committees shall have such other powers and limitations of authority as may be
determined from time to time by the Board of Directors.
SECTION 4.2 PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article IV shall keep regular minutes of its actions and
proceedings in a book provided for that purpose, shall fix its own rules or
procedures, and shall meet at such times and at such place or places as may be
provided by such rules, or by such committee or the Board of Directors. Should a
committee fail to fix its own rules, the provisions of the Bylaws, pertaining to
the calling of meetings and conduct of business by the Board of Directors, shall
apply as nearly as may be possible. At every meeting of any such committee, the
presence of a majority of all the members thereof shall constitute a quorum,
except as provided in Section 4.3 below, and the affirmative vote of a majority
of the members present shall, be necessary for the adoption by it of any
resolution.
SECTION 4.3 SUBSTITUTION AND REMOVAL OF MEMBERS; VACANCIES. The Board of
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Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
ARTICLE 5
OFFICERS
SECTION 5.1 NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a President, one or more Vice Presidents (any one or more
of whom may be designated Executive Vice President or Senior Vice President), a
Treasurer, a Secretary, and such other officers as the Board of Directors may
from time to time elect or appoint (including, but not limited to, one or more
Assistant Secretaries and one or more Assistant Treasurers). Each officer shall
hold office until such officer's successor shall be duly elected and shall
qualify or until such officer's death or until such officer shall resign or
shall have been removed. Any number of offices may be held by the same person,
unless the Certificate of Incorporation provides otherwise.
SECTION 5.2 POWERS AND DUTIES OF THE PRESIDENT. Subject to the control
of the Board of Directors and the Executive Committee (if any), the President
shall have general executive charge, management and control of the properties,
business and operations of the Corporation with all such powers as may be
reasonably incident to such responsibilities; may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the name
of the Corporation and sign all certificates for shares of capital stock of the
Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned by the
Board of Directors.
SECTION 5.3 VICE PRESIDENTS. Each Vice President shall at all times
possess the power to sign all certificates, contracts and other instruments of
the Corporation, except as otherwise limited in writing by the President. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors or the President.
SECTION 5.4 SECRETARY. The Secretary shall at all times possess the
power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the President; shall keep
the minutes of all meetings of the Board of Directors, committees of the Board
of Directors and the stockholders, in books provided for that purpose; shall
attend to the giving and serving of all notices; may in the name of the
Corporation affix the seal of the Corporation to all contracts and attest the
affixation of the seal of the Corporation thereto; may sign with the other
appointed officers all certificates for shares of capital stock of the
Corporation; shall have charge of the certificate books, transfer books and
stock ledgers, and such
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other books and papers as the Board of Directors may direct, all of which shall
at all reasonable times be open to inspection of any director upon application
at the office of the Corporation during business hours; shall have such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors or the President; and shall
in general perform all acts incident to the office of Secretary, subject to the
control of the Board of Directors and the President.
SECTION 5.5 ASSISTANT SECRETARIES. Each Assistant Secretary shall at all
times possess the power to sign all certificates, contracts and other
instruments of the Corporation, except as otherwise limited in writing by the
President; and shall have the usual powers and duties pertaining to such office,
together with such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to an Assistant Secretary by the Board of
Directors, the President, or the Secretary. The Assistant Secretaries shall
exercise the powers of the Secretary during that officer's absence or inability
or refusal to act.
SECTION 5.6 TREASURER. The Treasurer shall at all times possess the
power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the President; shall have
responsibility for the custody and control of all funds and securities of the
Corporation; and shall have such other powers and duties as designated in these
Bylaws and as from time to time may be assigned to the Treasurer by the Board of
Directors or the President.
SECTION 5.7 ASSISTANT TREASURERS. Each Assistant Treasurer shall at all
times possess the power to sign all certificates, contracts and other
instruments of the Corporation, except as otherwise limited in writing by the
President; and shall have the usual powers and duties pertaining to such office,
together with such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to each Assistant Treasurer by the Board of
Directors, the President, or the Treasurer. The Assistant Treasurers shall
exercise the powers of the Treasurer during that officer's absence or inability
or refusal to act.
SECTION 5.8 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATION.
Unless otherwise directed by the Board of Directors, either the President, the
Secretary or the Treasurer shall have the power to vote and otherwise act on
behalf of the Corporation, in person or by proxy, at any meeting of security
holders of or with respect to any action of security holders of any corporation
in which the Corporation may hold securities and otherwise to exercise any and
all rights and powers which the Corporation may possess by reason of its
ownership of securities in such other corporation.
SECTION 5.9 DELEGATION. For any reason that the Board of Directors may
deem sufficient, the Board of Directors, may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board of Directors
shall be effected from time to time by resolution.
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ARTICLE 6
CAPITAL STOCK
SECTION 6.1 CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Certificate of Incorporation, as shall be approved
by the Board of Directors. Every holder of stock represented by certificates
shall be entitled to have a certificate signed by or in the name of the
Corporation by the President or a Vice President and the Secretary, or an
Assistant Secretary, or the Treasurer, or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any or all of the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed upon
any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
SECTION 6.2 TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.3 OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of
Delaware.
SECTION 6.4 REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
SECTION 6.5 LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate already issued by it which is alleged to have
been lost, stolen or destroyed and may require the
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owner of such certificate or such owner's legal representative to give bond,
with surety sufficient to indemnify the Corporation and each transfer agent and
registrar against any and all losses or claims which may arise by reason of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate in the place of the one so lost, stolen or destroyed.
ARTICLE 7
MISCELLANEOUS PROVISIONS
SECTION 7.1 FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January of each year.
SECTION 7.2 CORPORATE SEAL. The corporate seal shall be circular in form
and shall have inscribed thereon the name of the Corporation and the state of
its incorporation, which seal shall be in the charge of the Secretary and shall
be affixed to certificates of stock, debentures, bonds, and other documents, in
accordance with the direction of the Board of Directors or a committee thereof,
and as may be required by law; however, the Secretary may, if the Secretary
deems it expedient, have a facsimile of the corporate seal inscribed on any such
certificates of stock, debentures, bonds, contract or other documents.
Duplicates of the seal may be kept for use by any Assistant Secretary.
SECTION 7.3 NOTICE AND WAIVER OF NOTICE. Whenever any notice is required
to be given by law, the Certificate of Incorporation or under the provisions of
these Bylaws, said notice shall be deemed to be sufficient if given (a) by
telegraphic, cable or wireless transmission (including by telecopy or facsimile
transmission) or (b) by deposit of the same in a post office box or by delivery
to an overnight courier service company in a sealed prepaid wrapper addressed to
the person entitled thereto at such person's post office address, as it appears
on the records of the Corporation, and such notice shall be deemed to have been
given on the day of such transmission or mailing or delivery to courier, as the
case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, Board of Directors, or members
of a committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
SECTION 7.4 FACSIMILE SIGNATURES. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
-12-
<PAGE>
SECTION 7.5 RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6 APPLICATION OF BYLAWS. If any of these Bylaws is or may be
in conflict with any law of the United States. of the state of Delaware or of
any other governmental body or power having jurisdiction over this Corporation,
or over the subject matter to which such provision of these Bylaws applies, or
may apply, such provision of these Bylaws shall be inoperative to the extent
only that the operation thereof unavoidably conflicts with such law, and shall
in all other respects be in full force and effect.
ARTICLE 8
AMENDMENTS
The Board of Directors shall have the power to adopt, amend, and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors.
-13-
<PAGE>
EXHIBIT 3.30(A)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "BP COAL (USA) INC.", CHANGING ITS NAME FROM "BP COAL (USA) INC." TO
"FRANKLIN COAL SALES COMPANY", FILED IN THIS OFFICE ON THE SEVENTH DAY OF MAY,
A.D. 1990, AT 3 O'CLOCK P.M.
/s/ Edward J. Freel
------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9453991
DATE: 12-10-98
1
<PAGE>
CERTIFICATE OF INCORPORATION
OF
BP NORTH AMERICA EXPLORATION INDONESIA INC.
FIRST. The name of the corporation is BP NORTH AMERICA EXPLORATION
INDONESIA, INC.
SECOND. The address of the corporation's registered office in the State of
Delaware is No. 100 West Tenth Street in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The total number of shares which the corporation shall have
authority to issue is 1,000 shares of Common Stock, and the par value of each of
such shares is $1.00.
FIFTH. The name and mailing address of the incorporator is Vincent J.
Farago, 620 Fifth Avenue, New York, New York 10020.
SIXTH. The board of directors of the corporation is expressly authorized
to adopt, amend or repeal by-laws of the corporation.
SEVENTH. Elections of directors need not be by written ballot except and to
the extent provided in the by-laws of the corporation .
IN WITNESS WHEREOF, I have signed this certificate of incorporation this
3rd day of May, 1982.
/s/ Vincent J. Farago
-----------------------------
Vincent J. Farago
2
<PAGE>
Attested by E. J. Moriarty, its Secretary, this 7 May, 1990.
BP COAL (USA) INC.
/s/ C. J. Kaptur
------------------------------
C. J. Kaptur, Vice President
ATTEST:
/s/ E. J. Moriarty
- - -----------------------------------
E. J. Moriarty, Secretary
3
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
____________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "BP COAL AMERICA INC.", CHANGING ITS NAME FROM "BP COAL AMERICA INC." TO BP
COAL (USA) INC", FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF JANUARY, A.D.
1989, AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9453990
DATE: 12-10-98
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * * * * * * *
BP Coal America Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That in lieu of a meeting and in accordance with provisions of
Section 228 of the General Corporation Law of the State of Delaware, the
stockholder has, by written consent, adopted the following amendment to the
Certificate of Incorporation:
"RESOLVED, that the Certificate of Incorporation of the Company be, and the
same hereby is, amended by deleting in its entirety Article FIRST thereof
and inserting in lieu thereof a new Article FIRST reading as follows:
FIRST: The name of the corporation is BP Coal (USA) Inc.; and
FURTHER RESOLVED, that the Chairman, any Vice Chairman, the President, or
any Vice President and the Secretary or Assistant Secretary of the Company
be, and each hereby is, authorized and directed to execute a Certificate of
Amendment of Certificate of Incorporation of the Company setting forth the
foregoing resolution adopting an amended Article FIRST and to cause such
certificate to be filed with the Secretary of State of Delaware and
recorded with the Recorder of Deeds of New Castle County.
SECOND: That the foregoing amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware.
THIRD: That the effective date of this Certificate of Amendment shall be
January 31, 1989 at 8:30 a.m.
* * * * * * * * * *
5
<PAGE>
IN WITNESS WHEREOF, BP Coal America Inc. has caused this Certificate to be
signed by G. J. Dunn, its Vice President and attested by P. S. Gibbs, its
Assistant Secretary, this 20th day of January, 1989.
BP Coal America Inc.
/s/ G. J. Dunn
---------------------------------
G. J. Dunn, Vice President
ATTEST:
/s/ P. S. Gibbs
- - ------------------------------------
P. S. Gibbs, Assistant Secretary
6
<PAGE>
Exhibit 3.33(a)
AGREEMENT OF INCORPORATION
I. The undersigned agree to become a corporation by the name of:
KERMIT COAL COMPANY
II. The principal Office or Place of Business of said Corporation will be
located in Kermit District, in County of Mingo and State of West Virginia. Its
chief works will be located at the same place.
III. The objects for which this Corporation is formed are as follows:
(a) To engage in the mining, producing, buying, handling, manufacturing
and selling of coal, and the products and by-products thereof.
(b) To purchase, lease, or otherwise acquire, hold, sell, convey, or lease
to others and dispose of, real estate and personal property and interests
therein, of whatever nature and wheresoever situate, for any purpose.
(c) To buy, own, hold and sell the stocks, bonds and securities of other
corporations.
(d) To do and perform any and all other such things as may be requisite,
necessary, incidental or germane to all or any of the purposes and objects
hereinbefore set forth.
IV. The amount of_____ authorized capital stock of said corporation shall
be Five Thousand and no/100 dollars, which shall be divided into 5,000 shares of
the par value of Ten and no/100 dollars each.
The amount of capital stock which it will commence business is Fifty
Thousand and no/100 Dollars. (50,000) being One Hundred (100) shares of the par
value of Ten and no/100 Dollars ($10.00) each.
<PAGE>
V. The name and post office addresses of the incorporators and the number
of stock subscribed for by each are as follows:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
NAME P.O. Address No. of No. of Shares of Total No.
Shares of Preferred Stock of Shares
Common Stock
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aaron M. Damron Kermit, West Virginia 80 80
- - --------------------------------------------------------------------------------
Ellen M. Damron Kermit, West Virginia 10 10
- - --------------------------------------------------------------------------------
Elias Damron Kermit, West Virginia 10 10
- - --------------------------------------------------------------------------------
</TABLE>
WE THE UNDERSIGNED, for the purpose of forming a corporation under the laws
of the State of West Virginia do make and file this Agreement and we have
accordingly hereunto set our respective hands this ____ day of November, 1968.
/s/ Aaron M. Damron
----------------------
(Aaron M. Damron)
/s/ Ellen M. Damron
----------------------
(Ellen M. Damron)
/s/ Elias Damron
----------------------
(Elias Damron)
STATE OF WEST VIRGINIA
COUNTY OF MINGO
[ILLEGIBLE]
<PAGE>
Exhibit 3.34(a)
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
MEADOWLARK FARMS, INC.
- - --------------------------------------------------------------------------------
I, EDWIN J. SIMCOX, Secretary of State of Indiana, hereby certify that
Articles of Amendment for the above Corporation have been filed in the form
prescribed by my office, prepared and signed in duplicate in accordance with
Chapter Four of the Indiana General Corporation Act (IC 23-1-4). THE NAME OF
THE CORPORATION IS AMENDED AS FOLLOWS:
MEADOWLARK INC.
---------------
NOW, THEREFORE, upon due examination, I find that the Articles of Amendment
conform to law, and have endorsed my approval upon the duplicate copies of such
Articles; that all fees have been paid as required by law; that one copy of such
Articles has been filed in my office; and that the remaining copy of such
Articles bearing the endorsement of my approval and filing has been returned by
me to the Corporation.
In Witness Whereof, I have hereunto set my hand and affixed
the seal of the State of Indiana, at the City of
Indianapolis, this 5/th/ day of March, 1986
/s/ Edwin J. Simcox
-----------------------------------------------------------
EDWIN J. SIMCOX, Secretary of State
By_________________________________________________________
<PAGE>
Deputy
<PAGE>
ARTICLES OF AMENDMENT
---------------------
OF THE
------
ARTICLES OF INCORPORATION
-------------------------
OF
--
MEADOWLARK FARMS, INC.
- - --------------------------------------------------------------------------------
The undersigned officers of Meadowlark Farms, Inc.
----------------------------------------------
(hereinafter referred to as the Corporation") existing pursuant to the
provisions of the Indiana General Corporation Act, as amended (hereinafter
referred to as the "Act"), desiring to give notice of corporate action
effectuating amendment of certain provisions of its Articles of Incorporation,
certify the following facts:
ARTICLE I
---------
TEXT OF THE AMENDMENT
---------------------
The exact text of Article 1.
-------------------------------------------------
of the Articles of Incorporation of the Corporation, as amended (hereinafter
referred to as the "Amendments"), now is as follows:
The name of this corporation shall be Meadowlark Inc.
ARTICLE II
----------
MANNER OF ADOPTION AND VOTE
---------------------------
SECTION 1. ACTION BY DIRECTORS (SELECT APPROPRIATE PARAGRAPH).
- - --------------------------------------------------------------
(a) The Board of Directors of the Corporation, at a meeting thereof, duly
called, constituted and held on_______________ , 19_____ , at which a quorum of
such Board of Directors was present, duly adopted a resolution proposing to the
Shareholders of the Corporation entitled to vote in respect the Amendments that
the provisions and terms of Article _________________of its Articles of
Incorporation be
<PAGE>
amended so as to read as set for the in the Amendments; and called a meeting of
such shareholders, to be held __________________, 19_____, to adopt or reject
the Amendments, unless the same were so approved prior to such date by unanimous
written consent.
(b) By written consent executed on December 18, 1985, signed by all of the
members of the Board of Directors of the Corporation, a resolution was adopted
proposing to the Shareholders of the Corporation entitled to vote in respect of
the Amendments, that the provisions and terms of Articles of its Articles of
Incorporation be amended so as to read as set forth in the Amendments.
Section 2. Action by Shareholders (select appropriate paragraph).
----------------------------------------------------------------
(a) The Shareholders of the Corporation entitled to vote in respect of the
Amendments, at a meeting thereof, duly called, constituted and held on
_______________________________, 19__________, at which ________________________
________________________________________________________________________________
________________________________________________________________________________
were present in person or by proxy, adopted the Amendments.
The holders of the following classes of shares were entitled to vote as a
class in respect of the Amendments:
(1)
(2)
(3)
The number of shares entitled to vote in respect of the Amendments, the
number of shares voted in favor of the adoption of the Amendments, and the
number of shares voted against such adoption are as follows:
<TABLE>
<CAPTION>
Total Shares Entitled to Vote as a Class
(as listed immediately above)
----------------------------
<S> <C> <C> <C> <C>
(1) (2) (3)
Shares entitled to vote: ______ ______ ______ ______
Shares voted in favor: ______ ______ ______ ______
Shares voted against: ______ ______ ______ ______
</TABLE>
(b) By written consent executed on December 18, 1985, signed by the holders
of all shares of the Corporation, being all of the shares of the Corporation
entitled to vote in respect of the Amendments, the Shareholders adopted the
Amendments.
<PAGE>
Section 3. Compliance with Legal Requirements.
----------------------------------------------
The manner of the adoption of the Amendments, and the vote by which they
were adopted, constitute full legal compliance with the provisions of the Act,
the Articles of Incorporation, and the By-Laws of the Corporation.
ARTICLE III
-----------
STATEMENT OF CHANGES MADE WITH RESPECT TO ANY INCREASE IN THE NUMBER OF SHARES
- - ------------------------------------------------------------------------------
HERETOFORE AUTHORIZED
---------------------
Aggregate Number of Shares
Previously Authorized __________________
Increase __________________
Aggregate Number of Shares
To Be Authorized After Effect of This Amendment ___________________
(No changes made with respect to shares)
IN WITNESS WHEREOF, the undersigned officers execute these Articles of Amendment
of the Articles of Incorporation of the Corporation, and certify to the truth of
the facts herein stated, this 20/th/ day of December, 1985.
/s/ David George Ball /s/ Raymond J. Cook
- - ------------------------------------ ---------------------------------------
(Written Signature) (Written Signature)
DAVID GEORGE BALL RAYMOND J. COOK
- - ------------------------------------ ---------------------------------------
(Printed Signature) (Printed Signature)
Meadowlark Farms, Inc. Meadowlark Farms, Inc.
- - ------------------------------------ ---------------------------------------
(Name of Corporation) (Name of Corporation)
STATE OF CONNECTICUT )
)
COUNTY OF FAIRFIELD )
I, the undersigned, a Notary Public duly commissioned to take
acknowledgments and administer oaths in the State of Connecticut, certify that
David George Ball, the Vice President, and Raymond J. Cooke, the Assistant
Secretary of Meadowlark Farms, Inc. the officers executing the
<PAGE>
foregoing Articles of Amendment of the Articles of Incorporation, personally
appeared before me, acknowledged the execution thereof, and swore to the truth
of the facts therein stated.
Witness my hand and Notarial Seal this 20/th/ day of December, 1985.
/s/ Patricia A. Driscoll
----------------------------------------------
(Written Signature)
PATRICIA A. DRISCOLL
----------------------------------------------
(Printed Signature)
My Commission Expires: Notary Public
- - ------------------------------------------
This instrument was prepared by Raymond J. Cooke, Attorney at Law, 200 Park
Avenue, New York, New York 10017.
<PAGE>
STATE OF INDIANA
OFFICE OF THE SECRETARY OF STATE
RUE J. ALEXANDER, SECRETARY OF STATE
To Whom These Presents Come, Greeting:
Whereas, there has been presented to me at this office Articles of
Incorporation in triplicate for Meadowlark Farms, Inc. showing capital stock as
----------------------
follows:
1000 SHARES HAVING A PAR VALUE OF $10.00 EACH
Said Articles of Incorporation having been prepared and signed in accordance
with "An Act concerning domestic and foreign corporations for profit, providing
penalties for the violation hereof, and repealing all laws or parts of laws in
conflict herewith," approved March 16, 1929, and Acts supplemental thereto.
Whereas, upon due examination, I find that they conform to law:
Now, therefore, I hereby certify that I have this day endorsed my approval
upon the triplicate copies of Articles so presented, and, having received the
fees required bylaw, in the sum of $11.50 have filed one copy of the Articles in
this office and returned two copies bearing the endorsement of my approval to
the incorporators, or their representatives.
In Witness Whereof, I have hereunto set my
hand and affixed the seal of the State of
Indiana, at the City of Indianapolis, this
29/th/ day of November, 1945.
Rue J. Alexander
------------------------------
Secretary of State
By____________________________
Deputy
<PAGE>
-A-
Articles of Incorporation
of
Meadowlark Farms, Inc.
- - --------------------------------------------------------------------------------
The undersigned, being three or more natural persons of lawful age, at
least a majority of whom are citizens of the United States, do hereby adopt the
following articles of incorporation, representing beforehand to the Secretary of
State of the State of Indiana and all persons whom it may concern, that
subscription lists for subscriptions to the shares of the capital stock of the
above named corporation for which certificate of incorporation is hereby applied
for, have heretofore been opened in accordance with law and that subscriptions
to the shares of the corporation have been obtained in an amount not less than
One Thousand ($1,000) Dollars.
Be it further remembered that the following Articles of Incorporation and
all matters heretofore done or hereafter to be done are in accordance with "An
Act concerning domestic and foreign corporations for profit, providing penalties
for the violation hereof, and repealing all laws or parts of laws in conflict
herewith," approved March 16, 1929, and all acts amendatory thereof and
supplemental thereto.
1. The name of this corporation shall be Meadowlark Farms, Inc.
----------------------------
2. The purpose or purposes for which it is formed are as follows:
To carry on and conduct in all if its branches (either as principal or as
manager or agent for others) a general farm business, including______culture,
dairying, animal husbandry, etc., and other businesses and act______ related
thereto, or to the utilization, conservation, reclamation ______ improvement of
lands, ranges or other real property or rights therein, and to ______ and turn
them into account, so as to yield the produce, or carry on other activities, or
recover natural resources, including gas, oil and other minerals; to produce,
purchases, sell and deal in the products of any such land of any business of the
corporation; and generally to do everything in furtherance of the purposes for
which it is organized. To buy, sell, lease, manage, divide, and improve real
estate; to conduct a general real estate brokerage business; to manufacture,
produce and deal in goods, wares and merchandise; to purchase, lease or
otherwise acquire, manage and develop real estate or any rights therein,
including ,mineral, oil and gas rights and to deal in and with the same.
The business or purpose of the corporation is from time to time do any one
or more of the acts and things hereinabove set forth, and it shall have power to
conduct and carry on its said business, or any part thereof, and to have one or
more officers, and to exercise any or all ___corporate powers and rights, in the
State of Indiana, and in the various other states, territories, colonies and
dependencies of the United States in the District of Columbia, and in all PR
Pharmaceuticals any foreign countries.
3. The period during which it is to continue as a corporation is
perpetual.
- - ----------
<PAGE>
4. The post office address of its principal office is
_____________________ Street, Sullivan(City) Sullivan (County) Indiana (State).
The name of its resident agent is R.P. Koenig. The post office address of its
resident agent is 105 South Meridian Street, Indianapolis (City) Marion (County)
Indiana (State).
<PAGE>
-B-
5. The total number of shares into which its authorized capital stock is
to be divided is one thousand (1,000) shares consisting of shares as follows:
1000 shares having a par value of $10.00
- - ----- -----
No shares without par value.
- - --
<PAGE>
-C-
6. (If the shares are to be divided into classes or kinds the
designations of the different classes, the number and par value, if any, of the
shares of each class, and either (a) a statement of the relative rights,
preferences, limitations and restrictions of each class, or (b) a provision
expressly vesting authority in the board of directors, subject to such
restrictions as may be provided, to determine the relative rights, preferences,
limitations and restrictions (other than voting rights) of each class by
resolution or resolutions adopted prior to the issuance of any of the shares of
such class; and, if the shares of any class are to be issuable in series,
descriptions of the several series, and either (a) a statement of the relative
rights, preferences, limitations and restrictions of each series, or (b) a
provision expressly vesting authority in the board of directors, subject to such
restrictions as may be provided, to determine the relative rights, preferences,
limitations and restrictions (other than voting rights) of each series by
resolution or resolutions adopted prior to the issuance of any of the shares of
such series.)
Indicate here: None - - All shares shall be common stock.
<PAGE>
-D-
7. (If the shares are to be divided into classes or kinds, a statement of
the voting rights and powers, if any, of the shares of each class, and of each
series if the shares of any class are to be issuable in series, including the
extent, if any, to which the shares of each such class and series shall be
entitled to vote on question of merger, consolidation and the sale of all or of
substantially all of the assets of the corporation.)
Indicate here: The shares are not to be divided into classes; all shares are
common stock.
<PAGE>
-E-
8. The amount of paid in capital with which this corporation will begin
business is $1,000.00. (This must not be less that $500.00.)
9. The number of directors of this corporation shall be five (5). (This
must be an exact number and cannot be stated in the alternative.)
10. The names and addresses of the first board of directors are as
follows:
<TABLE>
<CAPTION>
NAME STREET CITY COUNTY STATE
- - ---- ------ ---- ------ -----
<S> <C> <C> <C> <C>
Pierre F. Goodrich Electric Bldg., Indianapolis, Marion, Indiana
Albert M. Campbell Electric Bldg., Indianapolis, Marion, Indiana
J.B.F. Melville Danville, Vermillion Illinois
Robert P. Koenig Carmel, Indiana
G.Don Sullivan 105 So. Meridian Indianapolis Marion Indiana
</TABLE>
<PAGE>
-F-
11. The names and post office address of the incorporators are as follows:
<TABLE>
<CAPTION>
NAME STREET CITY COUNTY STATE
- - ---- ------ ---- ------ -----
<S> <C> <C> <C> <C>
Pierre F. Goodrich Electric Bldg. Indianapolis Marion Indiana
Albert M. Campbell Electric Bldg. Indianapolis Marion Indiana
Robert P. Koenig Carmel Indiana
</TABLE>
<PAGE>
-G-
12. (Any other provisions, consistent with the laws of this state, for the
regulations of the business and conduct of the affairs of the corporations, and
creating, defining, limiting or regulating the powers of the corporation, of the
directors or of the shareholders or any class or classes of shareholders.)
Indicate here:
The Board of Directors shall have power, without the assent or vote of the
stockholders, to make, alter, amend and repeal the By-Laws of the Corporation;
to determine and vary the amount to be reserved as working capital before the
payment of dividends, and to determine the disposition of net profits over the
capital of the Corporation.
The Board of Directors shall have power, without the assent or vote of the
stockholders, to authorize and cause to be executed mortgages and liens upon
real and personal property of the Corporation, including after-acquired
property. The Corporation may enter into contracts or transact business with
one or more of its directors, or any corporation in which its directors are
stockholders, directors or officers, such contract or transaction shall not be
invalidated or affected by the fact that such director or directors have or may
have interests therein which are or might be adverse to the interests shall be
liable to the Corporation or to any stockholder or creditor thereof, or to any
other person for any loss incurred by reason thereof, nor shall such director be
accountable for any gains; provided that such contract or transaction, at the
time it was entered into, shall have been reasonable and upon terms that were
fair at the time, and that full disclosure of all of the relevant facts,
including the interests of such director, shall have been made to the Board of
Directors before any vote is taken on any such proposition.
Any meeting of the stockholders or directors of the Corporation
whether annual, regular or special, may be held either within or without annual,
regular or special, may be held either within or without the State of Indiana
and if held within the State of Indiana need not be held at the principal office
of the Corporation.
<PAGE>
-H-
INCORPORATORS SIGN HERE
/s/ Pierre E. Goodrich
- - ------------------------------------ _______________________________________
____________________________________ _______________________________________
/s/ Albert M. Camobell
- - ------------------------------------ _______________________________________
____________________________________ _______________________________________
/s/ Robert P. Koenig
- - ------------------------------------ _______________________________________
____________________________________ _______________________________________
____________________________________ _______________________________________
- - --------------------------------------------------------------------------------
STATE OF INDIANA )
)SS:
COUNTY OF MARION )
THE THREE LINES BELOW ARE FOR INSERTION OF
NAMES BY NOTARY
Before me. /s/ Illegible , a Notary Public in and for said County and
-------------------
State, personally appeared:
Pierre F. Goodrich
------------------------------------
Albert M. Campbell
------------------------------------
Robert P. Koenig
------------------------------------
(SEAL) and severally acknowledged the execution of the
foregoing articles of Incorporation.
WITNESS my hand and notarial seal this 29/th/
day of November 1945.
____________________________________
Notary Public
My commission expires September 11,1949.
(Articles of incorporation must be prepared and signed in triplicate
in the form prescribed by the Secretary of State, by all of the incorporators
and acknowledged by at least three of them before a Notary Public, and shall be
presented in triplicate to the Secretary of State at his office accompanied by
the fees prescribed by law.)
<PAGE>
NOTICE OF CHANGE OF PRINCIPAL OFFICE
AND RESIDENT AGENT
OF
MEADOWLARK FARMS, INC.
STATE OF INDIANA )
)ss:
COUNTY OF MARION )
The undersigned J.W. Morgan President and W.D. Waldschmidt, Asst. Secretary,
respectively, of MEADOWLARK FARMS, INC. (hereinafter referred to as the
"Corporation"), organized on November 29, 1945, pursuant to the provisions of
the Indiana General Corporation Act, as amended (hereinafter referred to as the
"Act"), desiring to give notice of corporate action effectuating the change of
principal office and resident agent hereby certify the following facts:
1. The principal office and resident agent of the corporation have been
changed so that the statement originally certified in Article IV of the Articles
of Incorporation of the Corporation, as affected by previous similar changes, if
any, now is as follows:
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation is 105
South Meridian Street, Indianapolis, Marion County, Indiana and the name and
post-office address of its Resident Agent in charge of such office is James W.
Morgan, 105 South Meridian Street, Indianapolis, Marion County, Indiana.
2. The change certified in this Notice was authorized pursuant to a
resolution adopted by the Board of Directors of the Corporation at a meeting
thereof duly called, constituted and held, at which a quorum of such Board of
Directors was present.
<PAGE>
NOTICE OF CHANGE OF PRINCIPAL OFFICE
AND RESIDENT AGENT
OF
MEADOWLARK FARMS, INC.
STATE OF INDIANA )
)ss:
COUNTY OF MARION )
The undersigned Vice President and Asst. Secretary, respectively, of MEADOWLARK
FARMS, INC. (hereinafter referred to as the "Corporation"), organized on
November 29, 1945, pursuant to the provisions of the Indiana General Corporation
Act, as amended (hereinafter referred to as the "Act"), desiring to give notice
of corporate action effectuating the change of Resident agent hereby certify the
following facts:
1. The Resident Agent of the corporation has been changed so that the
statement originally certified in Article IV of the Articles of Incorporation of
the Corporation, as affected by previous similar changes, if any, now is as
follows:
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post-office address of the principal office of the Corporation is 105
South Meridian Street, Indianapolis, Marion County, Indiana and the name and
post-office address of its Resident Agent in charge of such office is Norman E.
Kelb, 105 South Meridian Street, Indianapolis, Marion County, Indiana.
2. The change certified in this Notice was authorized pursuant to a
resolution adopted by the Board of Directors of the Corporation at a meeting
thereof duly called, constituted and held, at which a quorum of such Board of
Directors was present.
<PAGE>
IN WITNESS WHEREOF, the undersigned officers execute these Articles of Amendment
of the Articles of Incorporation of the Corporation, and certify to the truth of
the facts herein stated, this 16/th/ day of May, 1957.
/s/ Albert M. Campbell /s/ M.E. Lohmann
- - ------------------------------ -----------------------------------
(Written Signature) (Written Signature)
Albert M. Campbell M.E. Lohmann
- - ------------------------------ -----------------------------------
(Printed Signature) (Printed Signature)
Meadowlark Farms, Inc. Meadowlark Farms, Inc.
- - ------------------------------ -----------------------------------
(Name of Corporation) (Name of Corporation)
STATE OF INDIANA )
)
COUNTY OF MARION )
I, the undersigned, a Notary Public duly commissioned to take
acknowledgments and administer oaths in the State of Indiana, certify that
Albert M. Campbell, Vice President and H.E. Lohmann, the Assistant Secretary of
Meadowlark Farms, Inc. the officers executing the foregoing Articles of
Amendment of the Articles of Incorporation, personally appeared before me,
acknowledged the execution thereof, and swore to the truth of the facts therein
stated.
Witness my hand and Notarial Seal this 16/th/ day of May, 1957.
/s/ Alberta R. Meyer
---------------------------------
(Written Signature)
Alberta R. Meyer
---------------------------------
(Printed Signature)
My Commission Expires: Notary Public
September 29, 1957
- - -----------------------------------
<PAGE>
ARTICLES OF INCORPORATION EXHIBIT 3.39(A)
OF
PREMIUM PROCESSING, INC.
I.
The name of this corporation shall be Premium Processing, Inc.
II.
The period of duration for which this corporation shall exist shall be
perpetual.
III.
The purposes for which this corporation is organized are as follows: To
establish, erect, construct, purchase, lease or otherwise acquire, and to hold,
use, equip, maintain, own and/or operate a coal handling, shipping, processing,
loading and/or mining business and/or any other establishments of like kind and
description; to engage in all activities, to render all services, and to buy,
sell, use, handle and deal in all supplies, apparatus, equipment, accessories,
materials, products and merchandise, incidental or related thereto and for use
therein; to employ persons as necessary and collect compensation for services
rendered; to do any or all things incidental, necessary, suitable, convenient or
proper for the accomplishment of all the purposes, objects, powers and business
of the Corporation; and to do or transact any or all lawful business for which
Corporations may be incorporated under the laws of the state of West Virginia.
IV.
The address of the principal office of the Corporation is:
P.O. Box 1104
Princeton, WV 24740
-1-
<PAGE>
The name and address of the person to whom shall be sent notice of process
served upon is:
Timothy D. Boggess
1617 North Walker Street
Princeton, WV 24740
The number of Directors constituting the initial Board of Directors shall
be two (2) in number and their names and addresses of the persons who are to
serve as directors until the first annual meeting of shareholders or until their
successors are elected and shall qualify are as follows:
Timothy D. Boggess
1617 North Walker Street
Princeton, WV 24740
Gina D. Boggess
P.O. Box 5014
Princeton, WV 24740
VI.
The name and address of the incorporator of this Corporation is as follows:
Timothy D. Boggess
c/o WILLS & SADLER
1617 North Walker Street
Princeton, WV 24740
VII.
The amount of total authorized capital stock of said corporation shall be
$1,000.00
The Corporation shall have only one class of common stock. The aggregate
number of shares which the Corporation shall have authority to issue and the par
value per share are as follows:
Class and Series Number of Shares Par Value
Common 100 $10.00
-2-
<PAGE>
VIII.
Further provisions for the regulation of the internal affairs of the
Corporation are contained in the Bylaws of the Corporation.
I, the undersigned, for the purpose of forming a corporation under the laws
of the State of West Virginia, do make these Articles of Incorporation, and I
have accordingly hereto set forth this the 10 day of May, 1996.
/s/ Timothy D. Boggess
-----------------------------------
Timothy D. Boggess
STATE OF WEST VIRGINIA
COUNTY OF MERCER, TO WIT:
I, the undersigned, a Notary Public within and for the County and State
aforesaid, do hereby certify that TIMOTHY D. BOGGESS, whose name is signed to
the foregoing writing, has this day personally appeared before me and
acknowledged the same in my said County and State.
Given under my hand this 10 day of May, 1996.
My commission expires: January 9, 2002.
/s/ Eileen M. Thorne
-----------------------------------
NOTARY PUBLIC
(SEAL)
These Articles of Incorporation
Were Prepared by:
William J. Sadler, Esquire
WILLS & SADLER
1617 North Walker Street
Princeton, WV 24740
-3-
<PAGE>
Exhibit 3.41(a)
ARTICLES OF INCORPORATION
- OF -
R. & F. COAL COMPANY
- - --------------------------------------------------------------------------------
(Name of Corporation)
The undersigned, a majority of whom are citizens of the United States,
desiring to form a corporation, for profit, under Sections 170L01 et seq. of the
Revised Code of Ohio, do hereby certify:
FIRST. The name of said corporation shall be R. & F. COAL COMPANY
SECOND. The place in Ohio where its principal office is to be located is
Village of Cadiz, Harrison County.
THIRD. The purposes for which it is formed are: To engage in the mining
of coal and other minerals and to own, control, sell and deal generally in coal
and coal lands, coal mining plants, machinery and equipment, coal mining and
other mineral rights, privileged, franchises and easements;
To acquire by purchase, lease or otherwise, coal deposits, coal seams, coal
lands and mineral rights, privileges, easements and franchises for the mining,
operation, removal and marketing of said products and to search, prospect and
explore for coals and other minerals, and to mine and produce the same and to
operate, develop and work coal and other mines;
To purchase, own, control, erect, construct, operate and maintain coal
tipples, power plants, derricks, side tracks, shovels, draglines, trucks and
other fixtures and equipment convenient, necessary and useful in and for the
operation of coal or other mines, or the transportation, treatment, removal,
storage, shipment, delivery or marketing of coal or other minerals;
To borrow or raise money without limit, and upon any terms for any purpose
of this corporation or of any corporation, association, firm or syndicate in
which this corporation is interested or having business or property which this
corporation determines to finance, promote or becomes interested in; to issue,
execute, sell and pledge bonds, notes, securities and other obligations and to
secure the same by deed of trust, mortgage or otherwise; to subscribe or cause
to be subscribed for and to purchase and otherwise acquire, invest or deal in,
hold, sell, assign, transfer, mortgage, pledge, exchange, distribute and
otherwise dispose of the whole or any part of the trust, debentures, securities,
obligations, evidence of indebtedness or ownership, notes, good will, assets and
property of any and every kind, or any part thereof, of any other corporation or
corporations, association or associations now or hereafter existing and to
similarly deal with securities issued by associations or individuals.
To purchase, hold, sell and transfer the shares of its own capital stock
provided it shall not use any funds or property for the purchase of its own
shares of capital stock when such use would
<PAGE>
cause any impairment of its capital; and provided further, that shares of its
own capital stock belonging to it shall not be voted upon directly or indirectly
while so owned;
To accept in payment of its contracts, services and products, notes, bonds,
corporate stock and other property and have the right to sell, lease, mortgage,
pledge, transfer and otherwise dispose of the same; and in general to do any and
all other acts and things convenient, appropriate or necessary to be done and
performed for the proper execution and promotion of the business aforesaid;
To do any and all things necessary, suitable and proper for the
accomplishment of any of the purposes or for the attainment of any of the
objects or for the exercise of any of the powers herein set forth, whether
specified or not; to do each and all things above set forth to the same extent
and as fully as natural persons might do or could do in the State of Ohio, or in
any other State, Country or place;
The foregoing clauses shall be construed both as objects and powers; and it
is hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this
Corporation.
FOURTH. The number of shares which the corporation is authorized to have
outstanding is one thousand (1,000), all of which shall be without par value.
FIFTH. The amount of stated capital with which the corporation shall
begin business is Five Hundred Dollars ($500.00).
IN WITNESS WHEREOF, We have hereunto subscribed our names this 2nd day of
September, 1958.
R. & F. COAL COMPANY
-------------------------------
(Name of Corporation)
/s/ Fred E. Roedger
-------------------------------
Fred E. Roedger
/s/ Edward D. Mosser
--------------------------------
Edward D. Mosser
/s/ Birney R. Pettay
--------------------------------
Birney R. Pettay
(Incorporation offices should be typed or
printed beneath signatures)
<PAGE>
N.E. Articles will be returned unless accompanied by form designating statutory
agent. See Section 1701.07 Revised Code of Ohio.
Original Appointment of Agent
The undersigned being at least a majority of the incorporators of R. & F.
COAL COMPANY hereby appoint Edward D. Mosser, a natural person resident in the
county in which the corporation has its principal office,
________________________________________________________________________________
________________________________________________________________________________
strike out phrase not applicable), upon which any process, notice or demand
required or permitted by statute to be served upon the corporation may be
served. His complete address is Luther Building, Market Street, Cadiz, Harrison
County, Ohio.
R. & F. COAL COMPANY
-----------------------------
/s/ Birney R. Pettay
-----------------------------
Birney R. Pettay
/s/ Fred E. Roedger
-----------------------------
Fred E. Roedger
_____________________________
_____________________________
(Incorporators names should be typed or printed beneath signatures)
Cadiz, Ohio
-----------------------------
September 2, 1958
-----------------------------
R. & F. COAL COMPANY
- - ------------------------
(Name of Corporation)
Gentlemen: I hereby accept appointment as agent of your corporation upon
whom process, ____ notices or demands may be served.
/s/ Edward D. Mosser
-----------------------------
(Signature of Agent)
By __________________________
(Signature of Officer Signing and Title)
<PAGE>
Remarks: All articles of incorporation must be accompanied by an original
appointment of agent. There is no filing fee for this appointment.
<PAGE>
Exhibit 3.41(A)
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION
OF
R. & F. COAL COMPANY
Adopted in accordance with the provisions
of Section 1701.72 of the General Corporation Law of
the State of Ohio
The undersigned officers of R. & F. Coal Company, a corporation existing
under the laws of the State of Ohio (the "Corporation"), do hereby certify as
follows:
FIRST: The Articles of Incorporation of the Corporation (the "Articles of
Incorporation") is hereby amended by deleting ARTICLE THIRD in its entirety
and substituting in lieu thereof a new ARTICLE THIRD as follows:
"THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Ohio."
SECOND: That the Board of Directors of the Corporation, in accordance with
Section 1701.54 of the General Corporation Law of the State of Ohio, duly
adopted the foregoing amendment to the Articles of Incorporation of the
Corporation by unanimous written consent.
THIRD: That the Sole Stockholder of the Corporation, in accordance with
Section 1701.54 of the General Corporation Law of the State of Ohio,
approved the foregoing amendment to the Articles of Incorporation of the
Corporation by unanimous written consent.
IN WITNESS WHEREOF, the undersigned being the President and Asst.
Secretary, for the purpose of amending the Articles of Incorporation of the
Corporation pursuant to the General Corporation Law of the State of Ohio, under
penalties of perjury do each hereby declare and certify that this is the act and
deed of the Corporation and the facts stated herein are true, and accordingly
have hereunto signed this Articles of Amendment of the Articles of Incorporation
as of this 10th day of November, 1992.
R. & F. COAL COMPANY
By: /s/ Illegible
-------------------
Title: President
ATTEST:
By /s/ Illegible
--------------
<PAGE>
Title: Asst. Secretary
<PAGE>
Exhibit 3.41(b)
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
R.& F. COAL COMPANY
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Code of
Regulations adopted by the Board of Directors of R.& F. Coal Company (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated
September 2, 1998.
___________________________
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
R.& F. COAL COMPANY
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
-------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have majority of the voting power of the shares represented at such meeting
and entitled to vote in the election.
<PAGE>
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or
the President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions and
(c) Have such other duties and powers as the Board of Directors or
the President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in form
as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
EXHIBIT 3.42(A)
SKYLINE COAL CORPORATION
PARTNERSHIP AGREEMENT
dated
as of January 1, 1988
between
ROARING CREEK COAL COMPANY
and
GRASSY COVE COAL MINING COMPANY
<PAGE>
PARTNERSHIP AGREEMENT
THIS AGREEMENT, dated as of January 1, 1988, by and between Roaring Creek
Coal Company, a Delaware corporation and a wholly-owned subsidiary of AMAX Inc.
("Roaring Creek"), and Grassy Cove Coal Mining Company, a Delaware corporation
and an indirect wholly-owned subsidiary of Petrofina S.A. ("Grassy Cove").
WITNESSETH:
WHEREAS, Roaring Creek and Grassy Cove and their respective Affiliates are
the joint owners of certain properties, equipment and operations for the
production of coal in the State of Tennessee (the "Skyline Operations"); and
WHEREAS, the parties hereto have entered into this Agreement to form a
partnership to conduct certain business related to the Skyline Operations.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement terms defined above
-----------
have the meanings set forth above and the following terms have the following
meanings:
"Accounting Procedure" means the Accounting Procedure attached as Exhibit
A.
"Act" means the Uniform Partnership Act of the State of New York, as
amended from time to time, and any successor statutes.
"Act of the Partners" means an act taken by the Executive Committee of the
Partnership in accordance with Section 5.2.
"Affiliate" of any Partner means any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly
controls, is controlled by, or is in common control with, a Partner and for
purposes of Section 11.2 specifically includes any joint venture or
partnership in which such Partner has an interest of at least 50 percent.
For purposes of the preceding sentence, "control" means possession,
directly or indirectly, of the power to elect a majority of the Board of
Directors or other governing body to a direct or cause direction of
management and policies through ownership of voting securities, contract,
voting trust or otherwise.
"Agreement" means this Partnership Agreement, as amended from time to time,
together with the Exhibits hereto.
<PAGE>
"Appalachia" means the area encompassed by and including Pennsylvania, West
Virginia, Eastern Kentucky (as generally understood in the coal industry),
Tennessee, Maryland, Ohio, Virginia and Alabama, U.S.A.
"Budget" for any Year means a plan in reasonable detail, including dates
and places, of Operations carrying out the purposes of the Partnership to
be conducted during such Year, together with such forecasts or projections
as its Operations for subsequent periods as may be appropriate and a
detailed estimate of all costs to be incurred by the Partnership during or
with respect to such Year and other cash items with respect to the plan of
Operation for such period, and shall include items setting forth
anticipated revenue, and reserve for contingencies and itemized
expenditures for capital items, and a schedule of the estimated time of
expenditure and receipt of revenue.
"Business Day" means any day other than a day on which banks in New York
City are closed.
"Coal Property" means any fee, surface or mineral estate in Appalachia
purchased, leased or then held, by a Partner or any Affiliate with the
primary intention of exploring for or developing or recovering coal, or any
property of interest in Appalachia with respect to which any Partner or an
Affiliate is then actually exploring or developing or recovering coal.
"Code" means the Internal Revenue Code of 1986, as amended.
"Executive Committee" means the Executive Committee of the Partnership
established under Article V.
"Major Partner" means a Partner having (together with its Affiliates a
Partnership interest at least equal to 25 percent.
"Management Services Agreement" means the Management Services Agreement
dated as of the date hereof between the Partnership and FINAMAX, as amended
from time to time, or any replacement management services agreement with
any manager.
"Net Losses" means the excess of partnership expenses over partnership
revenues as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Net Profits" means the excess of partnership revenues over partnership
expenses as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Operations" means the activities of the Partnership implementing the
purposes set forth in Section 2.4.
2
<PAGE>
"Partner" means Roaring Creek or Grassy Cove and "Partners" means both
Roaring Creek and Grassy Cove and in each case includes any successor of
either or both.
"Partnership Item" has the meaning set forth in Section 6231(a)(3) of the
Code or any successor provision.
"Partnership" means the Partnership between the Partners established by the
Agreement.
"Partnership Interest" has the meaning set forth in Section 2.6.
"Prime Rate" means the rate of interest publicly announced from time to
time in New York City by Bank of America as its prime rate.
"Tax Matters Partner" has the meaning set forth in Section 6231(a)(7) of
the Code or any successor provisions.
All references to money in this Agreement are references to amounts in
United States dollars.
ARTICLE II
The Partnership
---------------
Section 2.1 Establishment of Partnership. Roaring Creek and Grassy Cove
----------------------------
hereby enter into and form a general partnership under the Act for the purposes
set forth in this Article II. The rights and obligations of the Partners and
the administration of the Partnership will be governed by the terms of this
Agreement. The existence and business of the Partnership shall not be affected
by the withdrawal of any Partner and the parties shall continue as partners of a
partnership under this Agreement until the Partnership terminates pursuant to
Article X hereof.
Section 2.2 Name. The name of the Partnership shall be Skyline Coal
----
Corporation. The name may be changed by agreement of all the Partners. The
Partners shall execute and cause to be filed any assumed or fictitious name
certificates required to be filed in connection with the formation and
activities of the partnership.
Section 2.3 Offices. The principal place of business of the Partnership
-------
shall be at such location as the Executive Committee shall select. The
Partnership shall also maintain offices at such other locations as the Executive
Committee may from time to time select.
Section 2.4 Purposes and Certain Powers. The purposes of the
---------------------------
Partnerships shall be:
(a) purchase and selling coal, whether for its own account or
for the account of others;
3
<PAGE>
(b) conducting exploration and mining activities on its behalf
or for other coal producers and purchasers;
(c) identifying and evaluating new properties for the Tennessee
Operations and new business opportunities for the
Partnership;
(d) purchasing equipment and facilities for its own use or for
lease or sublease to contractors who bind themselves to
contracts with the Partnership;
(e) contracting with contractors or contract miners for
performance of mining work;
(f) acquiring coal properties for development and mining; and
(g) engaging in activities necessary, appropriate or incidental
to any of the foregoing purposes.
The Partnership shall have the power to do any act and thing and to enter into
any contract incidental to, or necessary, proper, desirable or advisable for the
accomplishment or attainment of any purpose of the Partnership set form in this
Agreement.
Section 2.5 Scope of Partners' Authority. Except as otherwise
----------------------------
specifically provided in this Agreement or agreed to in writing by all the
Partners, the Partner shall have any authority to act for, or to assume any
obligation for responsibility on behalf of, or to bind, any other Partner or the
Partnership. Each Partner shall indemnify and hold harmless each other Partner
and its directors, officers, employees and representatives, from and against any
and all losses, claims, damages and liabilities arising out of any act or of any
assumption of any obligation or responsibility by any such Partner or any of its
directors, officers, employees or representatives, done or undertaken or
apparently done or undertaken on behalf of such other Partner, other than
pursuant to and in accordance with the authorization granted herein or by
further express agreement of the Partners.
Section 2.6 Partnership Interests. Each Partner's initial percentage
---------------------
interest in the Partnership and the Net Profits and Net Losses of the
Partnership (its "Partnership Interest") shall be 50 percent, and thereafter
shall be subject to adjustment by agreement of the Partners or by assignment,
sale or transfer as herein provided.
Section 2.7 Competition. Nothing in this Agreement shall prevent a
-----------
Partner at any time and without notice to or agreement by the other Partner or
the Partnership from engaging in any business activities of any character which
are neither conducted in, nor conducted with respect to property located in
Appalachia, whether or not the Partnership is then doing business outside
Appalachia, or from engaging in any business activities conducted in, or with
respect to property located in Appalachia, which are not related to the coal
business in Appalachia.
4
<PAGE>
ARTICLE III
Representations and Warranties
------------------------------
Section 3.1 Representations and Warranties of Roaring Creek. Roaring
-----------------------------------------------
Creek represents and warrants to Grassy Cove that:
(a) Roaring Creek is a corporation duly incorporated and in good
standing in Delaware;
(b) Roaring Creek has full power and authority to enter into and
perform this Agreement and, as a Partner of the Partnership,
to execute and deliver the Management Services Agreement and
the execution, delivery and performance of this Agreement
and all transactions contemplated hereby and, as a Partner
of the Partnership, the execution and delivery of the
Management Services Agreement have been duly authorized and
approved by all necessary action of its Board of Directors
and this Agreement is the valid and binding agreement of
Roaring Creek and the Management Services Agreement are each
valid and binding agreements of it as a Partner in the
Partnership; and
(c) the execution, delivery and performance by Roaring Creek of
this Agreement and, as a Partner of the Partnership, the
Management Services Agreement do not and will not conflict
with or constitute a violation of any judgment, order,
decree, other agreement or arrangement to which Roaring
Creek or any Affiliate thereof is a party or by which any of
them is bounding or require the approval, consent or
authorization of any Federal, State or local authority.
Section 3.2 Representations and Warranties of Grassy Cove. Grassy Cove
---------------------------------------------
represents and warrants to Roaring Creek that:
(a) Grassy Cove is a corporation duly incorporated and in good
standing in Delaware;
(b) Grassy Cove has full power and authority to enter into and
perform this Agreement and, as a Partner of the Partnership,
to execute and deliver the Management Services Agreement and
the execution, delivery and performance of this Agreement
and all transactions contemplated hereby and, as a Partner
of the Partnership, the execution and delivery of the
Management Services Agreement have been duly authorized and
approved by all necessary action of its Board of Directors
and this Agreement is the valid and binding agreement of
Roaring Creek and the Management Services Agreement are each
valid and binding agreements of it as a Partner in the
Partnership; and
5
<PAGE>
(c) the execution, delivery and performance by Grassy Cove of
this Agreement and, as a Partner of the Partnership, the
Management Services Agreement do not and will not conflict
with or constitute a violation of any judgment, order,
decree, other agreement or arrangement to which Grassy Cove
or any Affiliate thereof is a party or by which any of them
is bounding or require the approval, consent or
authorization of any Federal, State or local authority.
ARTICLE IV
Contributions
-------------
Section 4.1 Initial Contributions. Roaring Creek and Grassy Cove hereby
---------------------
each contribute to the capital of the Partnership their respective interest in
certain mining equipment, real estate, other assets, and liabilities as are
conveyed by bills of sale and assignments to the Partnership dated this same
date, and the benefits of all coal sales and brokerage efforts with respect to
Appalachia coal and any resulting goodwill, directly or indirectly, developed by
Roaring Creek and Grassy Cove or their Affiliates.
Section 4.2 Cash Contributions For Capital Expenditures and Operating
---------------------------------------------------------
Expenses. The Partners shall from time to time contribute in proportion to
- - --------
their respective Partnership Interests such amounts of cash to the capital of
the Partnership as shall be necessary in order to pay amounts contemplated by
the Budget.
Section 4.3 Cash Calls. The Partnership shall determine the cash
----------
requirements of the Partnership for the expenditures, business and programs
contemplated by the Budget in effect at that time pursuant to Section 5.6 and
issue calls to the Partners, from time to time upon at least ten Business Days'
notice. The contributions of amounts for the following month from the Partners
in proportion to their Partnership Interests. In order to assist the Partner in
planning for cash calls, the Partnership shall provide the Partners on or prior
to the first day of each calendar month with its estimate of the amount and
timing of cash calls for the next three succeeding calendar months, but if
necessary the Partnership may make cash calls in excess of those estimated for
any month. Each Partner agrees to provide the amounts required by any cash
calls issued by the Partnership in accordance with the provisions of this
Section 4.3 by the third Business Day prior to the first day of the calendar
month for which such amounts are requested. A Partner shall be required to
contribute cash or pay expenses in excess of amounts set forth in an approved
Budget or later ratified by the Partnership, except the expenditures in excess
of the Budget in amounts which do not exceed ten percent of the amount budgeted
for any one item; provided, that aggregate excess expenditures do not exceed
--------
five percent of the entire Budget and provided, further no such excess
-------- -------
expenditure shall be made for any item as to which a contingency amount is
included in the Budget or in excess in the aggregate of any general contingency
amount included in the Budget.
Section 4.4 Interest on Capital Contributions. No interest shall be
---------------------------------
paid by the Partnership on any capital contributed by the Partners to the
Partnership.
6
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Section 4.5 Investment of Contributions. As and when requested by the
---------------------------
Executive Committee, the Partnership shall invest its surplus funds in (i)
obligations constituting full faith and credit obligations of the United States
(ii) deposits in any branch of any commercial bank organized under the laws of
the United States or any state thereof having capital and surplus of at least
$50 million, or (iii) prime commercial paper of any corporation organized under
the laws of the United States or any state thereof or any combination thereof,
provided in each case the period of maturity on the date of acquisition of any
such obligation, deposit or commercial paper shall not exceed 90 days. The
Partnership may also invest in such other investments as shall be approved by
the Partnership. Any income earned on such investments shall belong to the
Partnership.
Section 4.6 Failure to Make Contribution. If either Partner fails in
----------------------------
its obligation to make any payment or contribution of any amount required
hereunder to the Partnership, such obligation shall constitute indebtedness from
such Partner to the Partnership and shall bear interest payable to the
Partnership from the date any such amount was due until the earlier of the date
on which such Partner pays such indebtedness in full or the other Partner elects
to make payment as described in the fourth sentence of this Section, at a rate
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners), provided, that the rate of
--------
interest shall in no event exceed the maximum amount permitted by applicable
law. Such interest shall not be treated as a capital contribution by either
Partner. In addition, the Partnership may recover reasonable attorneys' fees
incurred in recovering the amount of such debt and interest from the defaulting
Partner and any other damages suffered as a result and such failure to make such
payment or contribution. In addition to the right of the Partnership to recover
such indebtedness and interest, the other Partner may, but shall not be required
to, make such payment or contribution (without any interest thereof) to the
Partnership on behalf of the defaulting Partner. Any such payment or
contribution shall constitute a loan to the defaulting Partner from the other
Partner and shall bear interest from the date such payment was made at a rate
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners), provided that the rate of
interest shall in no event exceed the maximum amount permitted by applicable
law. Such loan shall be payable on demand, together with accrued interest, and
may be prepaid, in whole or in part, together with interest accrued on the
portion so prepaid, at a time without penalty and the Partner making such loan
may at any time recover from the defaulting Partner reasonable attorneys' fees
and any other damages suffered as a result of the defaulting Partner's failure
to make any payment or contribution.
ARTICLE V
Management and Operations
-------------------------
Section 5.1 Elective Committee. The Partners hereby establish an
------------------
Executive Committee to approve Budgets and Operations and to determine
operations, policies, objectives, procedures, methods and actions under this
Agreement. The Executive Committee shall consist of three members. Each
initial Partner shall have the right to appoint one such member until and unless
one of such Partners transfers all or part of its Partnership Interest, and one
such member shall be the
7
<PAGE>
General Manager of FINAMAX. If all or part of the Partnership Interest are
transferred, the transferor and transferee shall agree on the method of
selection and the members previously appointed by such transferor, except that
each Major Partner shall have the right to appoint at least one such member.
Each Partner may appoint one or more alternates to act in the absence of a
regular member appointed by it. Any alternate so acting shall be deemed a
member. Appointments shall be made or changed by notice to the other Partner.
Section 5.2 Decision. Each Partner represented on the Executive
--------
Committee, acting through its appointed member, shall have one vote per one
percent of Partnership Interest on the Executive Committee. As long as each
initial Partner (together with its Affiliates) has a Partnership Interest equal
to 40 percent or more, all decisions of the Executive Committee shall be by
unanimous decision of the initial Partners. At such time as any initial Partner
(together with its Affiliates) has a Partnership Interest of less than 40
percent, all decision shall be adopted by vote of partners having an aggregate
of more than 50 percent of the total Partnership Interests then outstanding;
provided that the consent of each initial Partner who is also a Major Partner
- - --------
shall be required in connection with the following matters.
(i) any decision to take or refrain from taking any action which would
cause a material breach or the termination of any material contract
by which the Partnership or such Partners are bound;
(ii) settlement by the Partnership of any legal proceeding or claim
against the Partnership involving the payment by the Partnership of
any amount in excess of $50,000;
(iii) approval of any Budget of the Partnership or any material changes
thereto or any material agreement to be entered into by the
Partnership or any material changes thereto;
(iv) the appointment of any president, determination of tasks to be done
by a president, execution of any agreement with any president or any
material amendment to this Agreement or any contract with a
president; and
(v) any other matter which such Partners agree in writing shall require
the consent of each such Partner.
Section 5.3 Meetings. The Executive Committee shall hold regular
--------
meetings as frequently as it determines to be necessary, which shall be called
by the Partner designed at the last preceding meeting. Either Partner may call
a special meeting upon five Business Days' notice to the other Partner. All
meetings shall be held at such location in the United States as may be specified
in any notice of a meeting. In case of emergency, reasonable notice of a
special meeting shall suffice. There shall be a quorum if one member
representing each Partner represented on the Executive Committee is present.
Each notice of a special meeting shall specify the matters to be considered at
such meeting but any matter may be considered with the consent of all members of
the Executive Committee. The
8
<PAGE>
minutes of such meeting, which shall be prepared by a Partner designated at such
meeting, shall be, when signed by each Major Partner, the official record of the
decisions made by the Executive Committee and shall be binding on the Partners.
All costs of attending such meetings shall be paid for by the Partners
individually.
Section 5.4 Action Without Meeting. In lieu of meetings, the Executive
----------------------
Committee may hold telephone conferences, so long as all decisions are
immediately confirmed in writing by the Partners whose consent was required to
make the decision.
Section 5.5 Matters Requiring Approval. Subject to the provision of
--------------------------
Section 5.2, the Executive Committee shall have exclusive authority to adopt
Budgets and to determine all management matters related to the Partnership.
Section 5.6 Budgets.
-------
(b) For any period during which no Budget has been duly adopted
by the Executive Committee, the Executive Committee shall be
deemed to have approved, and, without any further act of any
Partner being required, the Partners shall be bound by, a
Budget consisting of the following items;
(i) for the first calendar year during which no Budget is
so approved, expenditures for items other than
capital, expenditures in amounts equal to the amounts
approved in the last Budget duly approved by the
Executive Committee without regard to this
subsection;
(ii) such additional operating or capital expenditure
items as the Executive Committee shall unanimously
approve; and
(iii) such additional expenditures in such amounts and at
such times as may be necessary in the reasonable good
faith judgment of any Major Partner in order to avoid
any default by the Partnership under any contract or
agreement by which the Partnership whether directly
or as agent, is bound.
(c) Any Budget may be amended at any time by vote of the Executive
Committee in accordance with Section 5.2.
Section 5.7 Interim Budgets. For any period during which no Budget has
---------------
been duly adopted by the Executive Committee, the Executive Committee shall be
deemed to have approved, and, without any further act of any Partner being
required, the Partners shall be bound by a Budget consisting of the following
items:
9
<PAGE>
(a) for the calendar year during which no Budget has been adopted,
Operations and expenditures for items other than capital expenditures of a type,
to the extent and in amounts equal to the amounts approved in the last Budget
duly approved by the Executive Committee without regard to this Section;
(b) such Operations and operating or capital expenditure items as the
Executive Committee shall unanimously approve; and
(c) such Operations and additional operating or capital expenditures in
such amounts and at such times as may be necessary in the reasonable good faith
judgment of any Major Partner in order to maintain the Operations or to avoid
any default by the Partnership or any Partner under any contract or agreement by
which they are bound.
Section 5.8 Officers. The Executive Committee shall have the right to
--------
appoint officers for such Partnership offices as it deems necessary, including
but not limited to, the offices of president, vice-president, secretary, and
treasurer. Except with respect to the approval of the Budget, the Executive
Committee shall have the right to delegate to the Partnership officers such
authority and responsibility concerning the management and operation of the
Partnership as the Executive Committee deems appropriate. Such delegation of
authority to Partnership officers shall be by unanimous resolution adopted by
the Executive Committee and set forth in the regular minutes of business. Any
third party dealing or contracting with the Partnership through its officers
pursuant to a resolution of the Executive Committee shall have the right to rely
on the expressed provisions of such resolution without regard to the
appropriateness of the act of delegation.
ARTICLE VI
Allocation of Profits and Losses
--------------------------------
Section 6.1 Profits and Losses. Net Profits and Net Losses of the
------------------
Partnership shall be allocated to the Partners in proportion to their
Partnership interests.
Section 6.2 Allocation of Distributions Subsequent to Assignment. The
----------------------------------------------------
Net Profits and Net Losses of the Partnership attributable to any interest in
the Partnership acquired by reason of the assignment of the interest or
substitution of a Partner with respect to that interest and any distributions
made with respect thereto shall be allocated between the assignor and the
assignee and set forth in a document delivered to the other Partner and the
Manager. If no such agreement between the assignor and the assignee is
delivered to the other Partner and the Manager all Net Profits and Net Losses
accruing prior to the effective date of such assignment or substitution and all
distributions with respect thereto shall be allocated or distributed to the
assignor and all other profits, losses and distributions shall be allocated or
distributed to the assignee. Such partner and the manager shall not be liable
to the assignor or the assignee as long as allocations and distributions are
made in good faith on such basis.
10
<PAGE>
Section 6.3 Capital Accounts. A capital account shall be maintained for
----------------
each Partner. A Partner's capital account shall be credited with (i) the amount
of cash paid and the fair market value of property contributed to the
Partnership as capital contributions, and (ii) the share of partnership income
or gains allocable to such account, and shall be debited with (x) the share of
partnership deduction or losses allocable to such account and (y) the amounts of
any distributions made to such Partner with respect to such account. The
initial capital accounts of the Partners shall be equal. Additionally, a
separate capital account shall be maintained for each Partner on the same basis
as previously set forth in this Section 6.3 but substituting the tax basis for
the fair market value of property contributed to or distributions from the
Partnership and basing depreciation calculations on such tax basis.
ARTICLE VII
Accounting
----------
Section 7.1 Books and Records; Accounting Policies. The books and
--------------------------------------
records of the Partnership shall be maintained on an accrual basis in accordance
with the United States generally accepted accounting principles and with the
Accounting Procedure. Such books and records shall be adequate to permit the
preparation of complete financial statements and the filing of tax returns by
the Partners and the Partnership.
Section 7.2 Audit. Unless waived by the Executive Committee, the
-----
accounts of the Partnership shall be audited as of the end of each calendar year
by Coopers & Lybrand or any other nationally recognized firm of certified public
accountants unanimously selected by the Partners. Any Partner shall be entitled
(either directly or through any designated representative) at any time during
normal business hours and without any need for prior notice to examine and make
copies of the books and records of the Partnership.
ARTICLE VIII
Tax Considerations
------------------
Section 8.1 Taxable Year. The Partnership's taxable year shall be the
------------
calendar year.
Section 8.2 Elections. Neither the Partnership nor any Partner shall
---------
elect at any time to be excluded from any of the provisions of Subchapter K of
the Code. Any other election required or allowed to be made by the Partnership
shall be made by an Act of the Partners, except that the Partners hereby agree
for Federal income tax purposes.
(a) to keep the books of the Partnership on an accrual basis;
and
11
<PAGE>
(b) that all tax election shall be made with the intent of
maximizing deductions in the current year to the extent
permissible under law unless all Partners agree otherwise.
Section 8.3 Allocations. For Federal income tax purposes the
-----------
distributive share of each Partner in each item of Partnership income, gain,
loss, deduction or credit shall be allocated to and among the Partners according
to the same percentages and provisions herein governing the Partners sharing of
profits and losses.
Section 8.4 Tax Returns. The Tax Matters Partner (or, in designated
-----------
instances, the Partnership, if all Partners agree) shall prepare, or cause to be
prepared, Federal, state and local income, and other tax returns of the
Partnership and shall file such returns, which shall be satisfactory in form and
substance to each Partner and other entity that was a Partner during the tax
year for which such return is filed, with the Internal Revenue Service and with
the appropriate state and local taxing authorities.
Section 8.5 Tax Matters Partner. A Tax Matters Partner of the
-------------------
Partnership shall take no action as Tax Matters Partner unless all Major
Partners and other entities that were Major Partners during the tax year with
respect to which such action is to be taken shall have unanimously agreed that
that action shall be taken and a Tax Matters Partner shall give to the other
Partners prompt notification (without regard to any time period allowed by the
Code for any such notification) of any communication from or action by the
Internal Revenue Service with respect to the partnership or any Partnership Item
of the Partnership. The Tax Matters Partner for the Partnership is hereby
designated to be Roaring Creek.
ARTICLE IX
Distributions
-------------
Section 9.1 Capital. Except as otherwise provided herein, capital,
-------
whether cash or property, may not be distributed by or withdrawn from the
Partnership without the consent of each Major Partner.
Section 9.2 Excess Cash. To the extent that the cash available in the
-----------
bank accounts of the Partnership at the close of business on the twentieth
calendar day of each month exceeds the anticipated cash requirements of the
Partnership for such month and the next month, such cash shall be distributed on
such day first to repay any loan made by any Partner or the Partnership pursuant
to Section 4.6 and second to the Partners in proportion to their respective
Partnership Interests as of the last day of the preceding month.
ARTICLE X
Dissolution and Purchase Rights
-------------------------------
12
<PAGE>
Section 10.1 Dissolution. The Partnership may be dissolved only as
-----------
follows:
(a) by written agreement of all Major Partners;
(b) upon delivery of notice to the other Partners by any
Partner, if a Major Partner has transferred all or any
portion of its Partnership Interest in violation of Article
XI and such violation has remained uncured for at least 60
days after notice of such violation by such Partner to the
transferring Partner; or
(c) upon delivery of notice by any Partner, if the Partner to
whom such notice is directed (the "defaulting Partner") (x)
has failed to make a contribution of, or contributed
aggregating $50,000 or more in accordance with the
provisions of Article IV hereof and such failure to pay has
not been cured by the nondefaulting Partner and has
continued for a period of 30 days after notice thereof to
the defaulting Partner from the nondefaulting Partner or (y)
has failed to repay within two Business Days after demand
any loan made by the nondefaulting Partner to the defaulting
Partner pursuant to Section 4.6.
Section 10.2 Distributions Upon Liquidation. (a) Except as set forth in
------------------------------
paragraph (b) below, upon any dissolution of the Partnership, the assets of the
Partnership shall thereupon be liquidated and the proceeds from such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payments of debts and liabilities of the
Partnership and the expenses of such liquidation and
of any loans made by the Partnership or any Partner
pursuant to Section 4.6;
(ii) to the setting up of any reserves which are
reasonably necessary (in the reasonable judgment of
any Major Partner or, in the case of any dissolution
pursuant to Section 10.1(a), in the reasonable
judgment of the nondefaulting Partner) for any
contingent or unforeseen liabilities of the
Partnership; and
(iii) if the balances of the capital account of the
Partners at the time of the initial distribution are
not in proportion to their respective Partnership
Interests, to the Partner whose capital accounts is
proportionately excessive to the extent of such
excess and until such balances are in such proportion
and thereafter and in any other event to the Partners
in proportion to their respective Partnership
Interests; provided, however, that any Partner whose
-------- -------
balance in the capital account is a negative amount
shall contribute to the Partnership in cash the
amount of that negative balance.
13
<PAGE>
In connection with any liquidation of the assets of the Partnership, each
Partner shall have the right to bid on any asset on an equal basis as third
parties, it being the intent hereof that upon liquidation the activities of the
Partnership shall be wound down, the assets of the Partnership shall be reduced
to cash and such cash shall be distributed as set forth in this Section 10.2.
(b) if Roaring Creek would otherwise be entitled to give notice of the
dissolution of the Partnership under Section 10.1(b) or 10.1(c) or,
Roaring Creek may elect, in lieu of giving such notice, to notify
Grassy Cove that it will acquire the Partnership Interest of Grassy
Cove and its Affiliates pursuant to Section 10.3 hereof. If Grassy
Cove would otherwise be entitled to give notice of the dissolution of
the Partnership in accordance with Section 10.1(b) or 10.1(c), Grassy
Cove may elect, in lieu of giving such notice, to notify Roaring Creek
that it will acquire the Partnership Interest of Roaring Creek and its
Affiliates pursuant to Section 10.3 hereof. In any such case, the
Partners may execute such instruments of amendment, assignment and
consent as may be required or advisable.
Section 10.3 Buy-Out. Any Partner that elects pursuant to Section
-------
10.2(b) (the "Purchasing Partner") to purchase the Partnership Interests of any
other Partner and its Affiliates (collectively, the "Selling Partner") shall
exercise its election to acquire such Partnership Interests by notice to the
Selling Partner setting forth such election and the grounds upon which such
Partner is entitled to make such election, and the date (which shall not be
earlier than 90 nor later than 120 days after the date such notice is given)
upon which such Partnership Interests shall be transferred from the Selling
Partner to the Purchasing Partner. The Selling Partner shall be bound by the
provisions of the notice relating to such election. The purchase price for such
transfer shall be the book value of the Partnership Interests to be purchased,
without giving effect to good will, but including the present value (discounted
at a rate equal to the average of the Prime Rate for each of the two preceding
years plus five percent) of the then existing ongoing sales brokerage or other
contracts of the Partnership. Such present value shall be determined by either
John T. Boyd Company or Pittsburgh, Pennsylvania, Gates Engineering Company of
Beckley, West Virginia, or Paul Weir Company of Chicago, Illinois. The Selling
Partner and the Purchasing Partner shall each eliminate one of such firms and
the remaining firm shall be requested to make a determination of such present
value. The expenses of such determination shall be paid by the Partnership.
The purchase price shall be payable , at the option of the Purchasing Partner,
in cash on the date of transfer of the Partnership Interests, or within five
years thereafter in equal annual installments payable on the date of such
transfer and thereafter on each succeeding anniversary of such date, together
with interest from the date of such transfer on any unpaid portion of the
purchase price at a rate equal to the Prime Rate plus one percent, provided that
the rate of interest shall in no event exceed the maximum amount permitted by
applicable law and that the Purchasing Partner shall be entitled to offset
against such purchase price any amounts owed to it by the Selling Partner
pursuant to Section 4.6. The Partnership Interests to be acquired by the
Purchasing Partner shall include all of the Selling Partner's rights and
interest under this Agreement. The transfer of Partnership Interests to the
Purchasing Partner pursuant to this Section 10.3 shall relieve the Selling
Partner of all obligations to the Partnership or to the Purchasing Partner other
than for those resulting from events occurring prior to the effective date of
such transfer. The Selling
14
<PAGE>
Partner agrees, from time to time at the request of the Purchasing Partner, at
or after the date of such transfer, to execute and deliver such instruments of
conveyance, assignment, transfer and consent as may be required or advisable for
the effective conveyance and transfer of any of the business, properties, name,
good will, assets and rights included in such Partnership Interests.
Section 10.4. continuing Responsibilities. Notwithstanding any amendment
---------------------------
or termination of this Agreement or dissolution of the Partnership, and subject
to the provisions of this Agreement, each Partner shall remain liable for, and
shall, to the extent that they have not theretofore been paid and discharged and
to the extent that any reserves created upon the dissolution of the Partnership
shall be insufficient therefor, pay, when due, its proportionate interest (based
on a percentage amount equivalent to its Partnership Interests at the time of
its dissolution) of, all liabilities of the Partnership, including without
limitation, all liabilities (i) assumed or incurred by the Partnership prior to
the time of its dissolution or (ii) arising thereafter as a result of the
conduct of the business of the liquidation or sale of all of the assets of the
Partnership.
Section 10.5. Right to Redress. The provisions of this Article X are not
----------------
intended to set forth the exclusive remedies available if any Partners shall be
in default under this Agreement and shall be in addition to each and every other
remedy now or hereafter existing. A Partner may institute legal action against
the other Partner in its own name or that of the Partnership if such other
Partner is in default under this Agreement with no consent required on the part
of such defaulting Partners.
ARTICLE XI
Transfer of Interests
---------------------
Section 11.1. General. Prior to the fifth anniversary of the date of this
-------
Agreement, no Partner shall have the right to assign, transfer, convey, pledge
or otherwise dispose of any or all of its Partnership Interests. Thereafter no
such assignment, transfer, conveyance, pledge or disposition shall be made
except with the prior consent of the other Partner (which shall not be
unreasonably withheld. The transferring Partner shall remain liable hereunder
for the good and punctual performance of its pre-transfer Partnership Interests
of obligations and liabilities (no matter when arising) arising out of
operations of the Partnership prior to such transfer and, in case of any
transfer to an Affiliate of the transferring Partner, shall remain liable
hereunder to the extent such Partner would have been, or such Affiliate is,
liable hereunder as though no such transfer had been made. The transferring
Partner and the transferee shall bear all tax consequences and shall reimburse
all other reasonable out-of-pocket expenses of any Major Partner in connection
with the transfer and the transferee, as of the effective date of the transfer,
shall have agreed in writing in a form satisfactory to the other Partners to be
bound by this Agreement (including this Article XI) to the same extent as the
transferring Partner. Any transfer not made in compliance with this Article XI
shall be null and void.
15
<PAGE>
Section 11.2. Assignment to an Affiliate. Section 11.3 and the first
--------------------------
sentence of Section 11.1 shall not apply to, and no consent of any Partner shall
be required for, an assignment of all or any portion of the Partner's
Partnership Interests to an Affiliate of the assignor.
Section 11.3. Preemptive Right. (a) Except as otherwise provided in
----------------
Section 11.4, if a Partner desires to convey, assign or transfer all or any part
of its Partnership Interest, the other Partner shall have a preemptive right to
acquire such Partnership Interests as provided in this Section 11.3.
(b) A Partner intending to transfer all or any part of its Partnership
Interest shall promptly notify the other Partner of such intent. The
notice shall identify the proposed transferee and shall state the
price (which shall be payable in cash only) and all other material,
terms and conditions of the intended transfer. The other Partner
shall have 90 days from the date such notice is delivered to notify
the transferring Partner whether it elects to acquire the offered
interest at the same price and on the same terms and conditions as set
forth in the notice. It if does so elect, the transfer shall be
consummated promptly after notice of such election is delivered to the
transferring Partner.
(c) If the Partner entitled to purchase hereunder fails to so elect within
the period provided for in Section 11.3(b), the transferring Partner
shall have 90 days following the expiration of such period to
consummation the transfer to the proposed transferred at a price and
on terms no less favorable to the transferring Partner than those set
forth in the notice required in Section 11.3(b).
(d) If the transferring Partner fails to consummate the transfer to the
proposed transferee within the period set forth in Section 11.3(c),
the preemptive right of the other Partner with respect to any
disposition of such Partnership Interest shall be revived. Any
subsequent proposal to transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Section 11.3.
Section 11.4. Exceptions to Preemptive Right. Section 11.3 shall not
------------------------------
apply to any transfer occurring by operation of law in a corporate merger,
consolidation, amalgamation or reorganization of a Partner in which the
surviving entity possesses all of the stock or all of the property rights and
interests, and is subject to all of the liabilities and obligations of that
Partner or to the grant by a Partner of a security interest in any portion of
its Partnership Interest pursuant to the second paragraph of Section 11.1.
Section 11.5. Instruments of Assignment. Whenever any Partnership
-------------------------
Interest is transferred to any entity which thereby becomes a Partner, the other
Partner agrees to execute an appropriate instrument admitting such entity.
16
<PAGE>
Section 11.6. More Than Two Partners. Without limiting the rights of any
----------------------
Partner under Section 11.1, it, after giving effect to any transfer of
Partnership Interests in accordance with this Article X, there would be more
than two Partners, Section 4.6, Section 10.2(b), Section 10.3 and Section 11.3
shall be amended, effective the date of such transfer, as appropriate to reflect
the increased number of Partners and all references to Partner or Partners shall
be deemed to refer to or include such additional Partner where the context
requires.
ARTICLE XII
Insurance
---------
Section 12.1. Insurance. The Partnership shall maintain
---------
(i) Coverage which shall comply with all applicable state and federal
workers' compensation and occupational disease laws and which shall
encompass all employees of the Partnership. These policies shall
also provide for employers' liability in the amount of not less than
$1,500,000 (see section on comprehensive general liability).
(ii) Comprehensive general liability insurance against claims arising out
of the operations of the Partnership with limits of not less than $2
million per occurrence, $4 million in the aggregate. Policy shall
include stop gap employers' liability endorsement, should coverage
for same be omitted from workers' compensation policies.
(iii) Automobile bodily injury and property damage liability covering
automobiles owned, non-owned, or leased by the Partnership or the
Manager in connection with the Operations of the Partnership. Limits
of liability shall be not less than $2 million per occurrence, $4
million in the aggregate.
(iv) Umbrella liability coverage in the amount of not less than $50
million, in the name of the Partner or in the name of each Partner,
) providing excess coverage for employer's liability, comprehensive
general liability, automobile liability, and limited named perils
pollution).
(v) Insurance against physical loss or damage to real and personal
property owned by the Partnership by fire, explosion and other
hazards or casualties. Such coverage shall have limits not less than
the fair market value of the insured assets, subject to a deductible
not exceeding $1 million.
(vi) Insurance to compensate for business interruption losses, if such
coverage is economically attainable.
17
<PAGE>
(vii) And other such insurances as are customarily maintained in the
business (including but not limited to fidelity, environmental
impairment, directors and officers, etc.).
ARTICLE XIII
Acquisitions Within Appalachia
------------------------------
Section 13.1. General. Any interest or option to acquire any interest in
-------
Coal Properties in Appalachia acquired or held during the term of this Agreement
by or on behalf of a Partner or any Affiliate shall, except as otherwise
provided in this Article or agreed to by the Partners, be included in the
Partnership and shall be subject to the terms and provisions of this Agreement.
Section 13.2. Intention of Parties. It is the intention of the Partners
--------------------
that, except if it is necessary to act quickly in acquiring Coal Properties and
consultation among the Partners is not practicable or if a Partner does not
elect to accept the interest pursuant to Section 13.4, Coal Properties be
acquired by the Partners in the Partnership name and not through the procedures
described in Section 13.3, 13.4, and 13.5.
Section 13.3. Notice to Nonacquiring Partner. If it is not practicable to
------------------------------
acquire Coal Properties in the Partnership name as contemplated by Section 13.2,
within 14 days after the acquisition by any Partner or its affiliate of any
interest or the option to acquire any interest in Coal Properties, the acquiring
Partner shall notify the other Partner of such acquisition. Such notice shall
describe in detail the acquisition, the real property and minerals covered
thereby, the cost thereof, and the reasons why the acquiring Partner believes
that the acquisition of the interest is in the best interests of the Partners
under this Agreement. The acquiring Partner shall also make any and all other
information concerning the acquired interest available to the other Partner.
Section 13.4. Option Exercise. If, within 90 days after receiving the
---------------
acquiring Partner's notice pursuant to Section 13.3, the other Partner notifies
the acquiring Partner of its election to accept the acquisition in the
Partnership name, the acquiring Partner or Affiliate shall convey to the
Partnership, be deed or by deed or by assignment of lease in form acceptable to
the other Partner, such acquired interest. The acquired interest shall become a
part of the Partnership for all purposes of this Agreement immediately upon
notice of such other Partner's election to accept such. Such other Partner
shall promptly pay to the acquiring Partner its proportionate share of the
latter's actual out-of-pocket acquisition costs and shall assume its
proportionate share of any indebtedness incurred in making such acquisition.
Section 13.5. Option Not Exercised. If the other Partner does not give
--------------------
such notice within the 90-day period set forth in Section 13.4, neither it nor
the Partnership shall have any interest in the acquired interest, and the
acquired interest shall not be a part of the Partnership, shall not be
considered Coal Property and shall not be subject to this Agreement.
18
<PAGE>
Section 13.6. Stock Acquisitions. If any Partner acquires, or proposes to
------------------
acquire, any interest in Coal Property through the acquisition of stock in a
company in which such interest and related assets represent less than 50 percent
of the fair market value of all assets of such company, such acquisition or
proposed acquisition shall be subject to this Article XIII only if reasonably
practicable and if such interest and related assets can reasonably be offered to
a Partner and held in partnership subject to this Agreement.
ARTICLE XIV
General Provisions
------------------
Section 14.1. Information. The Partnership shall from time to time
-----------
provide each Partner with such information and records as such Partner may
reasonably request.
Section 14.2. Confidentiality. Even Partner and the Partnership shall use
----------------
their best efforts to assure that all information disclosed to them in
connection with the business of the Partnership and not otherwise generally
available shall be kept confidential and shall not be revealed without the
consent of the Partners to anyone other than to directors, employees,
accountants and representatives of the Partnership, the Partners and their
Affiliates or in connection with filings required by law with government
agencies or courts. If such information is revealed to such persons, each
Partner and the Partnership agree to use their best efforts to have such persons
keep such information confidential.
Section 14.3. Notices. Notices, payments and other required
-------
communications to the Partners or the Partnership shall be in writing or by
telex with acknowledgment of receipt and shall be effective (i) when delivered
during normal business hours to the party to be given such notice, election or
consent at the address designated by it for such delivery, (ii) five Business
Days after such notice, election or consent shall have been deposited in the
United States mails, certified or registered with return receipt requested and
postage thereon fully prepaid, addressed to such address or (iii) on the
calendar day following the day such notice, election or consent shall have been
transmitted by telecopy, telex or telegram, fully prepaid, to such address or
telephone number, whichever shall first occur. Until otherwise specified by
notice to the other Partner, the addresses and telephone numbers for any such
notice, election or consent shall be:
If to Roaring Creek:
Roaring Creek coal company
251 N. Illinois Street
Post Office Box 967
Indianapolis, Indiana 46206-0967
Attention: vice President, Law & Governmental Affairs
Telex: 276163
Telecopier: 317-266-3429
19
<PAGE>
If to Grassy Cove
Grassy Cove Coal Mining Company
c/o American Petrofina, Incorporated
Fina Plaza
8350 North Central Expressway
Post office Box 2159
Dallas, Texas 75206
Attention: Vice President
Telex: 0730138
Rapifax: 214-750-2798
With a copy to:
Petrofina S.A.
52 Rue de l'Industrie
1040 Brussels, Belgium
Attention: Manager, Coal Operations
Telex: PFINAB 846 21556
Rapifax: 322-2339191
If to the Partnership:
Skyline coal Corporation
HCR Box 308
Dunlap, Ikins, Tennessee 37327
Attention: President
Telecopier: 615-949-4070
Any notice delivered to any Partner or to the Partnership shall be given to
all other Partners and the Partnership as nearly simultaneously as is
practicable.
Section 14.4. Waiver. The failure of a Partner to insist on the strict
------
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit he Partner's right thereafter to enforce any provision
or exercise any right.
Section 14.5 Modification. No waiver under modification of or amendment
------------
to this Agreement shall be valid unless made in writing and duly exercised by
the requisite number of Partners.
20
<PAGE>
Section 14.6 Further Assurances. Each of the Partners agrees that it
------------------
shall from time to time take such actions and execute such additional
instruments as may be reasonably necessary to carry out the purposes of this
Agreement.
Section 14.7 Governing Law. This Agreement shall be governed by the Laws
-------------
of the State of New York and shall be construed in accordance with the Act.
Section 14.8 Consent to Jurisdiction: Service of Process. Subject to
--------------------------------------------
Section 14.9, each of the Partners: (a) irrevocably submits to the jurisdiction
of any New York State or Federal court sitting in The city of New York over any
suit, action or proceeding arising out of or relating to this Agreement or the
operations of the Partnership; (b) irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have to the
laying of the venue of any such suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum; (c) hereby appoints CT
Corporation System its authorized agent to accept and acknowledge service of any
and processes which may be served in any suit, action or proceeding of the
nature referred to in this Section 14.8 and consents to process being served in
any such suit, action or proceeding upon CT Corporation System in any manner or
by the mailing of a copy thereof by registered or certified air mail, postage
prepaid, return receipt requested, to such Partner's address specified in
Section 14.3; and (d) agrees that such service (i) shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to it. Nothing in
this Section 14.8 shall affect the right of any Partner to serve process in any
manner permitted by law or limit the right of any Partner to serve process in
any manner permitted by law or limit the right of any Partner to bring
proceedings against any other Partner in the courts of any jurisdiction or
jurisdictions. Each Partner will, no later than 30 days after the date of this
Agreement, take any action necessary to make the preceding appointment effective
and will deliver to the other Partner a copy of acceptance of appointment of CT
Corporation System.
Section 14.9 Settlement of Disputes and Arbitration. The Partners
--------------------------------------
recognize that disagreements between them could result in an impasse. The
Partners further recognize that such an impasse resulting from disagreement with
respect to Budgets and certain other major decisions would have an adverse
effect upon Operations. Accordingly, the Partners have agreed upon the
mechanisms set forth in this Section 14.9 pending resolution of such
disagreements.
If the Partners are unable to resolve disputes, Roaring Creek and Grassy
Cove will, prior to referring any matter to arbitration pursuant to this Section
14.9 or Section 2.4 of the Accounting Procedure, in the first instance refer the
dispute to top level executives of AMAX Inc. a New York corporation, and
Petrofina S.A., a Belgian corporation, respectively, who are not members of the
Executive Committee or the FINAMAX Management Committee, and if such executive
officers do not resolve the dispute within 30 days of referral, either Partner
may refer such matter to arbitration as provided herein or in Section 2.4, as
the case may be. Any dispute or difference which may arise between the Partners
solely with respect to the meaning or interpretation of any provision of this
21
<PAGE>
Agreement, other than disputes or differences with respect to accounting matters
described in and subject to Section 2.4 of the Accounting Procedure, shall be
finally settled by arbitration in accordance with the regulations of the
American Arbitration Association. Either Partner may serve written demand on the
other Partner that any such dispute be settled by arbitration within 30 days of
the date of such written demand, the Partner serving such demand shall deliver
to the other Partner a written designation of an arbitrator. The other Partner
shall, within 30 days after receipt of such designation , deliver to the first
partner a written designation of an arbitrator selected by such other Partner.
The two arbitrators so designated shall designate a third arbitrator mutually
acceptable to them, but if the two arbitrators are unable within 15 days to
agree upon a third arbitrator, of if the other Partner or the two arbitrators
shall fail to designate an arbitrator within 30 days after the designation of an
arbitrator by the first Partner, the first Partner may apply to the American
Arbitration Association for the appointment by such Association of such second
or third arbitrator in accordance with its rules and regulations. If such
experience is, in the judgment of the Major Partners, relevant to the question
to be arbitrated, the arbitrators appointed by each Partner and the American
Arbitration Association shall be persons experienced in the coal business.
The Partners agree to be conclusively bound by the decision or report of
arbitrators designated in accordance with the preceding paragraph and Section
2.4 of the Accounting Procedure.
Section 14.10 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, and which together shall
constitute but one agreement.
Section 14.11 Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any part or set of circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to any other party or set of circumstances shall not be affected unless the
invalidity of such provision substantially impairs the benefits of the remaining
provisions or the realization of the agreements of the parties expressed herein.
Section 14.12 Miscellaneous. This Agreement supersedes any other
-------------
agreement dated prior to the date hereof, including the Heads of Agreement,
between the Partners or their Affiliates with respect to the subject matter of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Partnership
Agreement to be executed by their duly authorized representatives as of the date
first above written.
Roaring Creek Coal Company
By: /s/ Illegible
Its: left blank
Grassy Cove Coal Mining Company
22
<PAGE>
By: /s/ Illegible
Its: Vice President
23
<PAGE>
EXHIBIT A
---------
ACCOUNTING PROCEDURES
ARTICLE I
---------
Definitions
-----------
Terms used herein and defined in the Partnership Agreement have the meaning
set forth therein and the following terms have the following meanings:
"Agreement" means the Partnership Agreement;
"Section" means a section of this Accounting Procedure, unless otherwise
specified.
ARTICLE II
----------
General Provisions
------------------
Section 2.1 Books, Records and Accounts: Audits
------------------------------------
The Partnership shall maintain, or cause to be maintained, true and correct
books, records and accounts for the Partnership in accordance with the terms of
the Partnership Agreement and with United States generally accepted accounting
principles. All revenues and costs shall be recognized on an accrual basis.
Such books, records and accounts shall include but not be limited to a complete
set of double-entry books, consisting of appropriate asset accounts, liability
accounts, capital accounts (i.e., Partners' equity accounts), and income and
expense accounts. They shall be used to record all revenues, income, costs,
expenses, receipts, disbursements, and other transactions of the Partnership,
including the brokering and purchase and disposition of coal. Appropriate
records, such as weigh tickets and engineering surveys, shall be maintained to
verify the amount of production, coal purchases and shipments. The books,
records and accounts shall be retained for three years, or such additional
periods as may be required by the Internal Revenue Code.
The Partnership books, records and accounts shall be audited annually as
provided in Section 7.2 of the Partnership Agreement. The results thereof shall
be delivered to each Partner within 120 days of the end of the calendar year.
24
<PAGE>
All written exceptions to and claims upon the partnership for discrepancies
disclosed by any audit shall be made within sixty (60) days following completion
of such audit and delivery of the results thereto to the Partners.
At any time during normal business hours and without any need for prior
notice, any Partner shall be entitled (through either internal auditors or
another designated representative) to examine and make copies of the books and
records maintained by the Partnership.
Section 2.2 Internal Accounting Control
---------------------------
The Partnership shall maintain or cause to be maintained systems of
internal accounting control, including organization, supervision, procedures and
records which are sufficient to provide reasonable assurance that:
(a) All transactions are properly authorized;
(b) All transactions are properly recorded on a timely basis to permit (1)
preparation of financial statements and related footnotes in accordance
with United States generally accepted accounting principles, (2)
preparation of tax returns in accordance with the IRS Code and other
applicable statutes, and (3) to maintain accountability for assets;
(c) All assets are adequately safeguarded and all liabilities are
recognized and discharged on a timely basis;
(d) Recorded balances are periodically substantiated.
Section 2.3 Reports and Information
-----------------------
Within twenty (20) calendar days after the end of each calendar month the
Partnership Executive Committee shall be furnished a report as to the operating
and financial results of FINAMAX Coal Company for the month and year-to-date,
with comparisons to the adopted budget.
Such financial information as is required for each partner to record their
pro rate portion of the Partnership's financial results shall be furnished
monthly to each Partner on a timely basis. This financial information will
normally consist of a statement of financial position, an income statement, and
a schedule of capital expenditures, as well as other financial data reasonably
requested by each Partner.
Each Partner shall be furnished such forecast, budget and other information
as may be reasonably required to allow the preparation of financial projections,
tax returns and other required reports.
25
<PAGE>
Section 2.4 Arbitration
-----------
Any dispute or difference which may arise between the Partners with respect
to the meaning, interpretation or application of the Accounting Procedure or
with respect to any other accounting matter shall be finally settled by Coopers
& Lybrand, or any other firm of certified public accountants selected by the
Partnership Executive Committee. If Coopers & Lybrand or such firm has been
consulted by either Partner regarding the matter in dispute, such firm shall
select any other firm of certified public accountants to act in its stead.
Section 2.5 Cash Accounts
-------------
The Partnership shall maintain or cause to be maintained such bank accounts
as are approved by the Partnership Executive Committee.
26
<PAGE>
AMENDMENT TO PARTNERSHIP AGREEMENT
THIS AMENDMENT TO PARTNERSHIP AGREEMENT, dated to be effected as of January
1, 1988, by and between ROARING CREEK COAL COMPANY, a Delaware corporation
("Roaring Creek"), and GRASSY COVE COAL MINING COMPANY, a Delaware corporation
("Grassy Cove").
WITNESSETH:
WHEREAS, Roaring Creek and Grassy Cove entered into a Partnership Agreement
dated as of January 1, 1988 to form a partnership to conduct certain business
related to the Skyline Operations; and
WHEREAS, the parties hereto wish to amend the name of the Partnership
established by said Partnership Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as
follows:
1. As provided in Article II, Section 2.2, the parties hereby agree to change
the name of the Partnership from Skyline Coal Corporation to Skyline Coal
Company, to be effective retroactively to January 1, 1988.
2. All other terms and provisions of the Partnership Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Partnership
Agreement to be executed by their duly authorized representatives as of the
effective date of the original Partnership Agreement.
GRASSY COVE COAL MINING COMPANY
By: /s/ Gerald Malys
----------------------------------
Name: Gerald Malys
Its: Senior Vice President
ROARING CREEK COAL COMPANY
By:/s/ Frank J. Wood
----------------------------------
Name: Frank J. Wood
Its: Vice President and Controller
27
<PAGE>
SKYLINE COAL COMPANY
FIRST AMENDMENT TO
PARTNERSHIP AGREEMENT
THIS FIRST AMENDMENT TO PARTNERSHIP AGREEMENT, dated as of September 2,
1998, by and between Roaring Creek Coal Company, a Delaware corporation
("Roaring Creek"), and Grassy Cove Coal Mining Company, a Delaware corporation
("Grassy Cove").
WITNESSETH:
WHEREAS, Roaring Creek and Grassy Cove are the joint owners of certain
properties, equipment and operations for the production of coal in the
Commonwealth of Kentucky (the "Skyline Operations"); and
WHEREAS, on or about January 1, 1988, the parties hereto entered into a
Partnership Agreement to conduct certain business related to the Skyline
Operations (the "Partnership Agreement").
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
Section 2.2 of the Partnership Agreement be amended to read as
follows:
"2.2 Name. The name of the Partnership shall
be Skyline Coal Company. The name may be
changed by agreement of all the Partners. The
Partners shall execute and cause to be filed
any assumed or fictitious name certificates
required to be filed in connection with the
formation and activities of the partnership."
All other terms and conditions of the Agreement shall continue in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Partnership Agreement to be executed by their duly authorized representatives as
of the date first above written.
28
<PAGE>
ROARING CREEK COAL COMPANY
BY: /s/ DP Brown
TITLE: President
GRASSY COVE COAL MINING COMPANY
BY: /s/ DP Brown
TITLE: President
29
<PAGE>
EXHIBIT 3.42(B)
(KENTUCKY PRINCE MINING COMPANY)
PARTNERSHIP AGREEMENT
dated
as of January 1, 1988
between
ROARING CREEK COAL COMPANY
and
GRASSY COVE COAL MINING COMPANY
<PAGE>
PARTNERSHIP AGREEMENT
THIS AGREEMENT, dated as of January 1, 1988, by and between Roaring Creek
Coal Company, a Delaware corporation and a wholly-owned subsidiary of AMAX Inc.
("Roaring Creek"), and Grassy Cove Coal Mining Company, a Delaware corporation
and an indirect wholly-owned subsidiary of Petrofina S.A. ("Grassy Cove").
WITNESSETH:
WHEREAS, Roaring Creek and Grassy Cove and their respective Affiliates are
the joint owners of certain properties, equipment and operations for the
production of coal in the Commonwealth of Kentucky (the "Kentucky Prince
Operations"); and
WHEREAS, the parties hereto have entered into this Agreement to form a
partnership to conduct certain business related to the Kentucky Prince
Operation.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement terms defined above
-----------
have the meanings set forth above and the following terms have the following
meanings:
"Accounting Procedure" means the Accounting Procedure attached as Exhibit
A.
"Act" means the Uniform Partnership Act of the State of New York, as
amended from time to time, and any successor statutes.
"Act of the Partners" means an act taken by the Executive Committee of the
Partnership in accordance with Section 5.2.
"Affiliate" of any Partner means any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly
controls, is controlled by, or is in common control with, a partner and for
purposes of Section 11.2 specifically includes any joint venture or
partnership in which such Partner has an interest of at least 50 percent.
For purposes of the preceding sentence, "control" means possession,
directly or indirectly, of the power to elect a majority of the Board of
Directors or other governing body or to direct or cause direction of
management and policies through ownership of voting securities, contract,
voting trust or otherwise.
"Agreement" means this Partnership Agreement, as amended from time to time,
together with the Exhibits hereto.
<PAGE>
"Appalachia" means the area encompassed by and including Pennsylvania, West
Virginia, Eastern Kentucky (as generally understood in the coal industry),
Tennessee, Maryland, Ohio, Virginia and Alabama, U.S.A.
"Budget" for any year means a plan in reasonable detail, including dates
and places, of Operations carrying out the purposes of the Partnership to
be conducted during such year, together with such forecasts or projections
as to Operations for subsequent periods as may be appropriate and a
detailed estimate of all costs to be incurred by the Partnership during or
with respect to such year and other cash items with respect to the plan of
Operations for such period, and shall include items setting forth
anticipated revenue, any reserve for contingencies and itemized
expenditures for capital items, and a schedule of the estimated time of
expenditures and receipt of revenue.
"Business Day" means any day other than a day on which banks in New York
City are closed.
"Coal Property" means any fee, surface or mineral estate in Appalachia
purchased, leased or then held, by a Partner or any Affiliate with the
primary intention of exploring for or developing or recovering coal, or any
property or interest in Appalachia with respect to which any Partner or an
Affiliate is then actually exploring or developing or recovering coal.
"Code" means the Internal Revenue Code of 1986, as amended.
"Executive Committee" means the Executive Committee of the Partnership
established under Article V.
"Major Partner" means a Partner having (together with its Affiliates) a
Partnership interest at least equal to 25 percent.
"Management Services Agreement" means the Management Services Agreement
dated as of the date hereof between the Partnership and FINAMAX, as amended
from time to time, or any replacement management services agreement with
any Manager.
"Net Losses" means the excess of partnership expenses over partnership
revenues as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Net Profits" means the excess of partnership revenues over partnership
expenses as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Operations" means the activities of the Partnership implementing the
purposes set forth in Section 2.4.
2
<PAGE>
"Partner" means Roaring Creek or Grassy Cove and "Partners" means both
Roaring Creek and Grassy Cove and in each case includes any successor of
either or both.
"Partnership Item" has the meaning set forth in Section 6231(a)(3) of the
Code or any successor provision.
"Partnership" means the Partnership between the Partners established by
this Agreement.
"Partnership Interest" has the meaning set forth in Section 2.6.
"Prime Rate" means the rate of interest publicly announced from time to
time in New York City by Bank of America as its prime rate.
"Tax Matters Partner" has the meaning set forth in Section 6231(a)(7) of
the Code or any successor provisions.
All references to money in this Agreement are references to amounts in
United States dollars.
ARTICLE II
The Partnership
---------------
Section 2.1. Establishment of Partnership. Roaring Creek and Grassy Cove
----------------------------
hereby enter into and form a general partnership under the Act for the purposes
set forth in this Article II. The rights and obligations of the Partners and the
administration of the Partnership will be governed by the terms of this
Agreement. The existence and business of the Partnership shall not be affected
by the withdrawal of any Partner and the parties shall continue as partners of a
partnership under this Agreement until the Partnership terminates pursuant to
Article X hereof.
Section 2.2. Name. The name of the Partnership shall be Skyline Coal
----
Corporation. The name may be changed by agreement of all the Partners. The
Partners shall execute and cause to be filed any assumed or fictitious name
certificates required to be filed in connection with the formation and
activities of the Partnership.
Section 2.3. Offices. The principal place of business of the Partnership
-------
shall be at such location as the Executive Committee shall select. The
Partnership shall also maintain offices at such other locations as the Executive
Committee may from time to time select.
Section 2.4 Purposes and Certain Powers. The purposes of the Partnership
---------------------------
shall be:
(a) purchasing and selling coal, whether for its own account or for the
account of others;
3
<PAGE>
(b) conducting exploration and mining activities on its behalf or for
other coal producers and purchasers;
(c) identifying and evaluating new properties for the Kentucky Operations
and new business opportunities for the Partnership;
(d) purchasing equipment and facilities for its own use or for lease or
sublease to contractors who bind themselves to contracts with the
Partnership;
(e) contracting with contractors or contract miners for performance of
mining work;
(f) acquiring coal properties for development and mining; and
(g) engaging in activities necessary, appropriate or incidental to any of
the foregoing purposes.
The Partnership shall have the power to do any act and thing and to enter into
any contract incidental to, or necessary, proper, desirable or advisable for,
the accomplishment or attainment of any purpose of the Partnership set forth in
this Agreement.
Section 2.5. Scope of Partners' Authority. Except as otherwise
----------------------------
specifically provided in this Agreement or agreed to in writing by all of the
Partners, no Partner shall have any authority to act for, or to assume any
obligation or responsibility on behalf of, or to bind, any other Partner or the
Partnership. Each Partner shall indemnify and hold harmless each other Partner
and its directors, officers, employees and representatives, from and against any
and all losses, claims, damages and liabilities arising out of any act of or any
assumption of any obligation or responsibility by any such Partner or any of its
directors, officers, employees or representatives, done or undertaken or
apparently done or undertaken on behalf of such other Partner, other than
pursuant to and in accordance with the authorization granted herein or by
further express agreement of the Partners.
Section 2.6. Partnership Interests. Each Partner's initial percentage
---------------------
interest in the Partnership and the Net Profits and Net Losses of the
Partnership (its "Partnership Interest") shall be 50 percent, and thereafter
shall be subject to adjustment by agreement of the Partners or by assignment,
sale or transfer as herein provided.
Section 2.7. Competition. Nothing in this Agreement shall prevent a
-----------
Partner at any time and without notice to or agreement by the other Partner or
the Partnership from engaging in any business activities of any character which
are neither conducted in, nor conducted with respect to property located in,
Appalachia, whether or not the Partnership is then doing business outside
Appalachia, or from engaging in any business activities conducted in, or with
respect to property located in, Appalachia, which are not related to the coal
business in Appalachia.
ARTICLE III
4
<PAGE>
Representations and Warranties
------------------------------
Section 3.1. Representations and Warranties of Roaring Creek. Roaring
-----------------------------------------------
Creek represents and warrants to Grassy Cove that:
(a) Roaring Creek is a corporation duly incorporated and in good standing
in Delaware;
(b) Roaring Creek has full power and authority to enter into and perform
this Agreement and, as a Partner of the Partnership, to execute and
deliver the Management Services Agreement and the execution, delivery
and performance of this Agreement and all transactions contemplated
hereby and, as a Partner of the Partnership, the execution and
delivery of the Management Services Agreement have been duly
authorized and approved by all necessary action of its Board of
Directors and this Agreement is the valid and binding agreement of
Roaring Creek and the Management Services Agreement are each valid and
binding agreements of it as a Partner in the Partnership; and
(c) the execution, delivery and performance by Roaring Creek of this
Agreement and, as a Partner of the Partnership, the Management
Services Agreement do not and will not conflict with or constitute a
violation of any judgment, order, decree, other agreement or
arrangement to which Roaring Creek or any Affiliate thereof is a party
or by which any of them is bound or require the approval, consent or
authorization of any Federal, State or local authority.
Section 3.2 Representations and Warranties of Grassy Cove. Grassy Cove
---------------------------------------------
represents and warrants to Roaring Creek that:
(a) Grassy Cove is a corporation duly incorporated and in good standing in
Delaware;
(b) Grassy Cove has full power and authority to enter into and perform
this Agreement and, as a Partner of the Partnership, to execute and
deliver the Management Services Agreement and the execution, delivery
and performance of this Agreement and all transactions contemplated
hereby and, as a Partner of the Partnership, the execution and
delivery of the Management Services Agreement have been duly
authorized and approved by all necessary action of it Board of
Directors and this Agreement is the valid and binding agreement of
Grassy Cove and the Management Services Agreement are each valid and
binding agreements of it as a Partner in the Partnership; and
(c) the execution, delivery and performance by Grassy Cove of this
Agreement and, as a Partner of the Partnership, the Management
Services Agreement do not and will not conflict with or constitute a
violation of any judgment, order, decree, other agreement or
arrangement to which Grassy Cove or any Affiliate thereof is a party
or by which
5
<PAGE>
any of them is bound or require the approval, consent or authorization
of any Federal, State or local authority.
ARTICLE IV
Contributors
------------
Section 4.1. Initial Contributions. Roaring Creek and Grassy Cove hereby
---------------------
each contribute to the capital of the Partnership their respective interests in
certain mining equipment, real estate, other assets, and liabilities as are
conveyed by bills of sale and assignments to the Partnership dated this same
date, and the benefits of all coal sales and brokerage efforts with respect to
Appalachian coal and any resulting goodwill, directly or indirectly, developed
by Roaring Creek and Grassy Cove or their Affiliates.
Section 4.2. Cash Contributions For Capital Expenditures and Operating
---------------------------------------------------------
Expenses. The Partners shall from time to time contribute in proportion to
- - --------
their respective Partnership interests such amounts of cash to the capital of
the Partnership as shall be necessary in order to pay amounts contemplated by
the Budget.
Section 4.3. Cash Calls. The Partnership shall determine the cash
----------
requirements of the Partnership for the expenditures, business and programs
contemplated by the Budget in effect at that time pursuant to Section 5.6 and
issue calls to the Partners, from time to time upon at least ten Business Days'
notice, for contributions of amounts for the following month from the Partners
in proportion to their Partnership interests. In order to assist the Partners in
planning for cash calls, the Partnership shall provide the Partners on or prior
to the first day of each calendar month with its estimate of the amount and
timing of cash calls for the next three succeeding calendar months, but if
necessary the Partnership may make cash calls in excess of those estimated for
any month. Each Partner agrees to provide the amounts required by any cash calls
issued by the Partnership in accordance with the provisions of this Section 4.3
by the third Business Day prior to the first day of the calendar month for which
such amounts are requested. No Partner shall be required to contribute cash or
pay expenses in excess of amounts set forth in an approved Budget or later
ratified by the Partnership, except for expenditures in excess of the Budget in
amounts which do not exceed ten percent of the amount budgeted for any one item;
provided, that aggregate excess expenditures do not exceed five percent of the
- - --------
the entire Budget and provided, further, no such excess expenditure shall be
-------- -------
for any item as to which a contingency amount is included in the Budget or in
excess in the aggregate of any general contingency amount included in the
Budget.
Section 4.4. Interest on Capital Contributions. No interest shall be paid
---------------------------------
by the Partnership on any capital contributed by the Partners to the
Partnership.
Section 4.5. Investment of Contributions. As and when requested by the
---------------------------
Executive Committee, the Partnership shall invest its surplus funds in ____
obligations constituting full faith and credit obligations of the United States,
___ deposits in any branch of any commercial bank organized
6
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under the laws of the United States or any state thereof having capital and
surplus of at least $50 million, or (iii) prime commercial paper of any
corporation organized under the laws of the United States or any state thereof
or any combination thereof, provided in each case the period of maturity on the
date of acquisition of any such obligation, deposit or commercial paper shall
not exceed 90 days. The Partnership may also invest in such other investments as
shall be approved by the Partners. Any income earned on such investments shall
belong to the Partnership.
Section 4.6. Failure to Make Contributions. If either Partner fails in
-----------------------------
its obligation to make any payment or contribution of any amount required
hereunder to the Partnership, such obligation shall constitute indebtedness from
such Partner to the Partnership and shall bear interest payable to the
Partnership from the date any such amount was due until the earlier of the date
on which such Partner pays such indebtedness in full or the other Partner elects
to make payment as described in the fourth sentence of this Section, at a rate
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners), provided, that the rate of
--------
interest shall in no event exceed the maximum amount permitted by applicable
law. Such interest shall not be treated as a capital contribution by either
Partner. In addition, the Partnership may recover reasonable attorneys' fees
incurred in recovering the amount of such debt and interest from the defaulting
Partner and any other damages suffered as a result of such failure to make such
payment or contribution. In addition to the right of the Partnership to recover
such indebtedness and interest, the other Partner may, but shall not be required
to, make such payment or contribution (without any interest thereon) to the
Partnership on behalf of the defaulting Partner. Any such payment or
contribution shall constitute a loan to the defaulting Partner from the other
Partner and shall bear interest from the date such payment was made at a rate
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners), provided that the rate of
interest shall in no event exceed the maximum amount permitted by applicable
law. Such loan shall be payable on demand, together with accrued interest, and
may be prepaid, in whole or in part, together with interest accrued on the
portion so prepaid, at any time without penalty and the Partner making such loan
may at any time recover from the defaulting Partner reasonable attorneys' fees
and any other damages suffered as a result of the defaulting Partner's failure
to make any payment or contribution.
ARTICLE V
Management and Operations
-------------------------
Section 5.1. Executive Committee. The Partners hereby establish an
-------------------
Executive Committee to approve Budgets and Operations and to determine overall
policies, objectives, procedures, methods and actions under this Agreement. The
Executive Committee shall consist of three members. Each initial Partner shall
have the right to appoint one such member until and unless one of such Partners
transfers all or part of its Partnership Interest, an done such member shall be
the General Manager of FINAMAX. If all or part of a Partnership Interest is
transferred, the transferor and transferee shall agree on the method of
selection of the members previously appointed by such transferor, except that
each Major Partner shall have the right to appoint at least one such member.
7
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Each Partner may appoint one or more alternates to act in the absence of a
regular member appointed by it. Any alternate so acting shall be deemed a
member. Appointments shall be made or changed by notice to the other Partner.
Section 5.2. Decision. Each Partner represented on the Executive
--------
Committee, acting through its appointed member, shall have one vote per one
percent of Partnership Interest on the Executive Committee. As long as each
initial Partner (together with its Affiliates) has a Partnership Interest equal
to 40 percent or more, all decisions of the Executive Committee shall be by
unanimous decision of the initial Partners. At such time as any initial Partner
(together with its Affiliates) has a Partnership Interest of less than 40
percent, all decisions shall be adopted by vote of Partners having an aggregate
of more than 50 percent of the total Partnership Interests then outstanding;
provided that the consent of each initial Partner who is also a Major Partner
- - --------
shall be required in connection with the following matters:
(i) any decision to take or refrain from taking any action which would
cause a material breach or the termination of any material contract
by which the Partnership or such Partners are bound;
(ii) settlement by the Partnership of any legal proceeding or claim
against the Partnership involving the payment by the Partnership of
any amount in excess of $50,000;
(iii) approval of any Budget of the Partnership or any material changes
thereto or any material agreement to be entered into by the
Partnership or any material changes thereto;
(iv) the appointment of any president, determination of tasks to be done
by a president, execution of any agreement with any president or
any material amendment to this Agreement or any contract with a
president; and
(v) any other matter which such Partners agree in writing shall require
the consent of each such Partner.
Section 5.3. Meetings. The Executive Committee shall hold regular
--------
meetings as frequently as it determines to be necessary, which shall be called
by the Partner designated at the last preceding meeting. Either Partner may call
a special meeting upon five Business Days' notice to the other Partner. All
meetings shall be held at such location in the United States as may be specified
in any notice of a meeting. In case of emergency, reasonable notice of a special
meeting shall suffice. There shall be a quorum if one member representing each
Partner represented on the Executive Committee is present. Each notice of a
special meeting shall specify the matters to be considered at such meeting but
any matter may be considered with the consent of all members of the Executive
Committee. The minutes of such meeting, which shall be prepared by a Partner
designated at such meeting, shall be, when signed by each Major Partner, the
official record of the decisions made by the Executive
8
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Committee and shall be binding on the Partners. All costs of attending such
meetings shall be paid for by the Partners individually.
Section 5.4. Action Without Meeting. In lieu of meetings, the Executive
----------------------
Committee may hold telephone conferences, so long as all decisions are
immediately confirmed in writing by the Partners whose consent was required to
make the decision.
Section 5.5. Matters Requiring Approval. Subject to the proviso in
--------------------------
Section 5.2, the Executive Committee shall have exclusive authority to adopt
Budgets and to determine all management matters related to the Partnership.
Section 5.6. Budgets. (a) On or prior to September 1 of each calendar
-------
year commencing on or after January 1, 1984, the Partnership shall prepare a
proposed Budget for the following calendar year. The proposed Budget shall be
considered at a meeting of the Executive Committee held during the last three
months of the calendar year. If no Budget is approved at such meeting, the
Partners shall cause a special meeting of the Executive Committee to be held to
consider further and approve a Budget.
(b) For any period during which no Budget has been duly adopted by the
Executive Committee, the Executive Committee shall be deemed to have
approved, and, without any further act of any Partner being required,
the Partners shall be bound by, a Budget consisting of the following
items:
(i) for the first calendar year during which no Budget is so
approved, expenditures for items other than capital
expenditures in amounts equal to the amounts approved in the
last Budget duly approved by the Executive Committee without
regard to this subsection;
(ii) such additional operating or capital expenditure items as the
Executive Committee shall unanimously approve; and
(iii) such additional expenditures in such amounts and at such times
as may be necessary in the reasonable good faith judgment of
any Major Partner in order to avoid any default by the
Partnership under any contract or agreement by which the
Partnership, whether directly or as agent, is bound.
(c) Any Budget may be amended at any time by vote of the Executive
Committee in accordance with Section 5.2.
Section 5.7. Interim Budgets. For any period during which no Budget has
---------------
been duly adopted by the Executive Committee, the Executive Committee shall be
deemed to have approved, and, without any further act of any Partner being
required, the Partners shall be bound by a Budget consisting of the following
items:
9
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(a) for the calendar year during which no Budget has been adopted,
Operations and expenditures for items other than capital expenditures of a type,
to the extent and in amounts equal to the amounts approved in the last Budget
duly approved by the Executive Committee without regard to this Section;
(b) such Operations and operating or capital expenditure items as the
Executive Committee shall unanimously approve; and
(c) such Operations and additional operating or capital expenditures in
such amounts and at such times as may be necessary in the reasonable good faith
judgment of any Major Partner in order to maintain the Operations or to avoid
any default by the Partnership or any Partner under any contract or agreement by
which they are bound.
Section 5.8. Officers. The Executive Committee shall have the right to
--------
appoint officers for such Partnership offices as it deems necessary, including,
but not limited to, the offices of president, vice-president, secretary, and
treasurer. Except with respect to the approval of the Budget, the Executive
Committee shall have the right to delegate to the Partnership officers such
authority and responsibility concerning the management and operation of the
Partnership as the Executive Committee deems appropriate. Such delegation of
authority to Partnership officers shall be by unanimous resolution adopted by
the Executive Committee and set forth in the regular minutes of business. Any
third party dealing or contracting with the Partnership through its officers
pursuant to a resolution of the Executive Committee shall have the right to rely
on the expressed provisions of such resolution without regard to the
appropriateness of the act of delegation.
ARTICLE VI
Allocation of Profits and Losses
--------------------------------
Section 6.1. Profits and Losses. Net Profits and Net Losses of the
------------------
Partnership shall be allocated to the Partners in proportion to their
Partnership Interests.
Section 6.2. Allocation of Distributions Subsequent to Assignment. The
----------------------------------------------------
Net Profits and Net Losses of the Partnership attributable to any interest in
the Partnership acquired by reason of the assignment of the interest or
substitution of a Partner with respect to that interest and any distributions
made with respect thereto shall be allocated between the assignor and the
assignee and set forth in a document delivered to the other Partner and the
Manager. If no such agreement between the assignor and the assignee is delivered
to the other Partner and the Manager all Net Profits and Net Losses accruing
prior to the effective date of such assignment or substitution and all
distributions with respect thereto shall be allocated or distributed to the
assignor and all other profits, losses and distributions shall be allocated or
distributed to the assignee. Such Partner and the Manager shall not be liable to
the assignor or the assignee as long as allocations and distributions are made
in good faith on such basis.
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Section 6.3. Capital Accounts. A capital account shall be maintained for
----------------
each Partner. A Partner's capital account shall be credited with (i) the amount
of cash paid and the fair market value of property contributed to the
Partnership as capital contributions and (ii) the share of Partnership income or
gains allocable to such account, and shall be debited with (x) the share of
Partnership deductions or losses allocable to such account and (y) the amounts
of any distributions made to such Partner with respect to such account. The
initial capital accounts of the Partners shall be equal. Additionally, a
separate capital account shall be maintained for each Partner on the same basis
as previously set forth in this Section 6.3 but substituting the tax basis for
the fair market value of property contributed to or distributions from the
Partnership and basing depreciation calculations on such tax basis.
ARTICLE VII
Accounting
----------
Section 7.1. Books and Records; Accounting Policies. The books and
--------------------------------------
records of the Partnership shall be maintained on an accrual basis in accordance
with United States generally accepted accounting principles and with the
Accounting Procedure. Such books and records shall be adequate to permit the
preparation of complete financial statements and the filing of tax returns by
the Partners and the Partnership.
Section 7.2. Audit. Unless waived by the Executive Committee, the
-----
accounts of the Partnership shall be audited as of the end of each calendar year
by Coopers & Lybrand or any other nationally recognized firm of certified public
accountants unanimously selected by the Partners. Any Partner shall be entitled
(either directly or through any designated representative) at any time during
normal business hours and without any need for prior notice to examine and make
copies of the books and records of the Partnership.
ARTICLE VIII
Tax Considerations
------------------
Section 8.1. Taxable Year. The Partnership's taxable year shall be the
------------
calendar year.
Section 8.2. Elections. Neither the Partnership nor any Partner shall
---------
elect at any time to be excluded from any of the provisions of Subchapter K of
the Code. Any other election required or allowed to be made by the Partnership
shall be made by an Act of the Partners, except that the Partners hereby agree
for Federal income tax purposes:
(a) to keep the books of the Partnership on an accrual basis; and
(b) that all tax election shall be made with the intent of maximizing
deductions in the current year to the extent permissible under law,
unless all Partners agree otherwise.
11
<PAGE>
Section 8.3. Allocations. For Federal income tax purposes the
-----------
distributive share of each Partner in each item of Partnership income, gain,
loss, deduction or credit shall be allocated to and among the Partners according
to the same percentages and provisions herein governing the Partners' sharing of
profits and losses.
Section 8.4. Tax Returns. The Tax Matters Partner (or, in designated
-----------
instances, the Partnership, if all Partners agree) shall prepare, or cause to be
prepared, Federal, state and local income, and other, tax returns of the
Partnership and shall file such returns, which shall be satisfactory in form and
substance to each Partner and other entity that was a Partner during the tax
year for which such return is filed, with the Internal Revenue Service and with
the appropriate state and local taxing authorities.
Section 8.5. Tax Matters Partner. A Tax Matters Partner of the
-------------------
Partnership shall take no action as Tax Matters Partner unless all Major
Partners and other entities that were Major Partners during the tax year with
respect to which such action is to be taken shall have unanimously agreed that
that action shall be taken, and a Tax Matters Partner shall give to the other
Partners prompt notification (without regard to any time period allowed by the
Code for any such notification) of any communication from or action by the
Internal Revenue Service with respect to the Partnership or any Partnership Item
of the Partnership. The Tax Matters Partner for the Partnership is hereby
designated to be Roaring Creek.
ARTICLE IX
Distributions
-------------
Section 9.1. Capital. Except as otherwise provided herein, capital,
-------
whether cash or property, may not be distributed by or withdrawn from the
Partnership without the consent of each Major Partner.
Section 9.2. Excess Cash. To the extent that the cash available in the
-----------
bank accounts of the Partnership at the close of business on the twentieth
calendar day of each month exceeds the anticipated cash requirements of the
Partnership for such month and the next month, such cash shall be distributed on
such day first, to repay any loan made by any Partner or the Partnership
pursuant to Section 4.6 and second to the Partners in proportion to their
respective Partnership Interests as of the last day of the preceding month.
ARTICLE X
Dissolution and Purchase Rights
-------------------------------
Section 10.1. Dissolution. The Partnership may be dissolved only as
-----------
follows:
(a) By written agreement of all Major Partners;
12
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(b) Upon delivery of notice to the other Partners by any Partner, if a
Major Partner has transferred all or any portion of its Partnership
Interest in violation of Article XI and such violation has remained
uncured for at least 60 days after notice of such violation by such
Partner to the transferring Partner; or
(c) Upon delivery of notice by any Partner, if the Partner to whom such
notice is directed (the "defaulting Partner") (x) has failed to make a
contribution or, or contributions aggregating, $50,000 or more in
accordance with the provisions of Article IV hereof and such failure
to pay has not been cured by the nondefaulting Partner and has
continued for a period of 30 days after notice thereof to the
defaulting Partner from the nondefaulting Partner or (y) has failed to
repay within two Business Days after demand any loan made by the
nondefaulting Partner to the defaulting Partner pursuant to Section
4.6.
Section 10.2. Distributions Upon Liquidation. (a) Except as set forth in
------------------------------
paragraph (b) below, upon any dissolution of the Partnership, the assets of the
Partnership shall thereupon be liquidated and the proceeds from such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payments of debts and liabilities of the Partnership and
the expenses of such liquidation and of any loans made by the
Partnership or any Partner pursuant to Section 4.6;
(ii) to the setting up of any reserves which are reasonably necessary
(in the reasonable judgment of any Major Partner or, in the case
of any dissolution pursuant to Section 10.1(c), in the
reasonable judgment of the nondefaulting Partner) for any
contingent or unforeseen liabilities of the Partnership; and
(iii) if the balances of the capital account of the Partners at the
time of the initial distribution are not in proportion to their
respective Partnership Interests, to the Partner whose capital
account is proportionately excessive to the extent of such
excess and until such balances are in such proportion and
thereafter and in any other event to the Partners in proportion
to their respective Partnership Interests; provided, however,
-------- -------
that any Partner whose balance in the capital account is a
negative amount shall contribute to the Partnership in cash the
amount of that negative balance.
In connection with any liquidation of the assets of the Partnership, each
Partner shall have the right to bid on any asset on an equal basis as third
parties, it being the intent hereof that upon liquidation the activities of the
Partnership shall be wound down, the assets of the Partnership shall be reduced
to cash and such cash shall be distributed as set forth in this Section 10.2.
13
<PAGE>
(b) If Roaring Creek would otherwise be entitled to give notice of the
dissolution of the Partnership under Section 10.1(b) or 10.1(c),
Roaring Creek may elect, in lieu of giving such notice, to notify
Grassy Cove that it will acquire the Partnership Interest of Grassy
Cove and its Affiliates pursuant to Section 10.3 hereof. If Grassy
Cove would otherwise be entitled to give notice of the dissolution of
the Partnership in accordance with Section 10.1(b) or 10.1(c), Grassy
Cove may elect, in lieu of giving such notice, to notify Roaring Creek
that it will acquire the Partnership Interest of Roaring Creek and its
Affiliates pursuant to Section 10.3 hereof. In any such case, the
Partners shall execute such instruments of amendment, assignment and
consent as may be required or advisable.
Section 10.3. Buy-Out. Any Partner that elects pursuant to Section
-------
10.__(b) (the Purchasing Partner") to purchase the Partnership Interests of any
other Partner and its Affiliates (collectively, the "Selling Partner") shall
exercise its election to acquire such Partnership Interests by notice to the
Selling Partner setting forth such election and the grounds upon which such
Partner is entitled to make such election, and the date (which shall not be
earlier than 90 nor later than 120 days after the date such notice is given)
upon which such Partnership Interest shall be transferred from the Selling
Partner to the Purchasing Partner. The Selling Partner shall be bound by the
provisions of the notice relating to such date. The purchase price for such
transfer shall be the book value of the Partnership Interests to be purchased,
without giving effect to good will, but including the present value (discounted
at a rate equal to the average of the Prime Rate for each of the two preceding
years plus five percent) of the then existing ongoing sales, brokerage or other
contracts of the Partnership. Such present value shall be determined by either
John T. Boyd Company or Pittsburgh, Pennsylvania, Ga____ Engineering Company of
Beckley, West Virginia, or Paul Weir Company of Chicago, Illinois. The Selling
Partner and the Purchasing Partner shall each eliminate one of such firms and
the remaining firm shall be requested to make a determination of such present
value. The expenses of such determination shall be paid by the Partnership.
The purchase price shall be payable, at the option of the Purchasing Partner, in
cash on the date of transfer of the Partnership Interest, or within five years
thereafter in equal annual installments payable on the date of such transfer and
thereafter on each succeeding anniversary of such date, together with interest
equal to the Prime Rate plus one percent, provided that the rate of interest
shall in no event exceed the maximum amount permitted by applicable law and that
the Purchasing Partner shall be entitled to offset against such purchase price
any amounts owed to it by the Selling Partner pursuant to Section 4.6. The
Partnership Interest to be acquired by the Purchasing Partner shall include all
of the Selling Partner's rights and interest under this Agreement. The transfer
of Partnership Interests to the Purchasing Partner pursuant to this Section 10.3
shall relieve the Selling Partner of all obligations to the Partnership or to
the Purchasing Partner other than for those resulting from events occurring
prior to the effective date of such transfer. The Selling Partner agrees, from
time to time at the request of the Purchasing Partner, at or after the date of
such transfer, to execute and deliver such instruments of conveyance,
assignment, transfer and consent as may be required or advisable for the
effective conveyance and transfer of any of the business, properties, name, good
will, assets and rights included in such Partnership Interest.
14
<PAGE>
Section 10.4. Continuing Responsibilities. Notwithstanding any amendment
---------------------------
or termination of this Agreement or dissolution of the Partnership, and subject
to the provisions of this Agreement, each Partner shall remain liable for, and
shall, to the extent that they have not theretofore been paid and discharged and
to the extent that any reserves created upon the dissolution of the Partnership
shall be insufficient therefor, pay, when due, its proportionate interest (based
on a percentage amount equivalent to its Partnership Interest at the time of
such dissolution) of, all liabilities of the Partnership, including without
limitation, all liabilities (i) assumed or incurred by the Partnership prior to
the time of its dissolution or (ii) arising thereafter as a result of the
conduct of the business of the Partnership prior to the dissolution of the
Partnership and the completion of any liquidation or sale of all of the assets
of the Partnership.
Section 10.5. Right to Redress. The provisions of this Article X are not
----------------
intended to set forth the exclusive remedies available if any Partners shall be
in default under this Agreement and shall be in addition to each and every other
remedy now or hereafter existing. A Partner may institute legal action against
the other Partner in its own name or that of the Partnership if such other
Partner is in default under this Agreement with no consent required on the part
of such defaulting Partner.
ARTICLE XI
Transfer of Interest
--------------------
Section 11.1. General. Prior to the fifth anniversary of the date of this
-------
Agreement, no Partner shall have the right to assign, transfer, convey, pledge
or otherwise dispose of any or all of its Partnership Interest. Thereafter no
such assignment, transfer, conveyance, pledge or disposition shall be made
except with the prior consent of the other Partner (which shall not be
unreasonably withheld). The transferring Partner shall remain liable hereunder
for the good and punctual performance of its pre-transfer Partnership Interest
of obligations and liabilities (no matter when arising) arising out of
operations of the Partnership prior to such transfer and, in case of any
transfer to an Affiliate of the transferring Partner, shall remain liable
hereunder to the extent such Partner would have been, or such Affiliate is,
liable hereunder as though no such transfer had been made. The transferring
Partner and the transferee shall all tax consequences and shall reimburse all
other reasonable out-of-pocket expenses of any Major Partner in connection with
the transfer and the transferee, as of the effective date of the transfer, shall
have agreed in writing in a form satisfactory to the other Partners to be bound
by this Agreement (including this Article XI) to the same extent as the
transferring Partner. Any transfer not made in compliance with this Article XI
shall be null and void.
Section 11.2. Assignment to an Affiliate. Section 11.3 and the first
--------------------------
sentence of Section 11.1 shall not apply to, and no consent of any Partner shall
be required for, an assignment of all or any portion of a Partner's Partnership
Interests to an Affiliate of the assignor.
Section 11.3. Preemptive Right.
----------------
15
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(a) Except as otherwise provided in Section 11.4, if a Partner desires to
convey, assign or transfer all or any part of its Partnership
Interest, the other Partner shall have a preemptive right to acquire
such Partnership Interest as provided in this Section 11.3.
(b) A Partner intending to transfer all or any part of its Partnership
Interest shall promptly notify the other Partner of such intent. The
notice shall identify the proposed transferee and shall state the
price (which shall be payable in cash only) and all other material
terms and conditions of the intended transfer. The other Partner
shall have 90 days from the date such notice is delivered to notify
the transferring Partner whether it elects to acquire the offered
interest at the same price and on the same terms and conditions as set
forth in the notice. If it does so elect, the transfer shall be
consummated promptly after notice of such election is delivered to the
transferring Partner.
(c) If the Partner entitled to purchase hereunder fails to so elect within
the period provided for in Section 11.3(b), the transferring Partner
shall have 90 days following the expiration of such period to
consummate the transfer to the proposed transferee at a price and on
terms no less favorable to the transferring Partner than those set
forth in the notice required in Section 11.3(b).
(d) If the transferring Partner fails to consummate the transfer to the
proposed transferee within the period set forth in Section 11.3(c),
the preemptive right of the other Partner with respect to any
disposition of such Partnership Interest shall be revived. Any
subsequent proposal to transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Section 11.3.
Section 11.4. Exceptions to Preemptive Right. Section 11.3 shall not
------------------------------
apply to any transfer occurring by operation of law in a corporate merger,
consolidation, amalgamation or reorganization of a Partner in which the
surviving entity possesses all of the stock or all of the property rights and
interests, and is subject to all of the liabilities and obligations of that
Partner or to the grant by a Partner of a security interest in any portion of
its Partnership Interest pursuant to the second paragraph of Section 11.1.
Section 11.5. Instruments of Assignment. Whenever any Partnership
-------------------------
Interest is transferred to any entity which thereby becomes a Partner, the other
Partner agrees to execute an appropriate instrument admitting such entity.
Section 11.6. More Than Two Partners. Without limiting the rights of any
----------------------
Partner under Section 11.1, if, after giving effect to any transfer of
Partnership Interests in accordance with this Article XI there would be more
than two Partners, Section 4.6, Section 10.2(b), Section 10.3 and Section 11.3
shall be amended, effective the date of such transfer, as appropriate to reflect
the increased number of Partners and all references to Partner or Partners shall
be deemed to refer to or include such additional Partner where the context
requires.
16
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ARTICLE XII
Insurance
---------
Section 12.1. Insurance. The Partnership shall maintain:
---------
(a) Coverage which shall comply with all applicable state and federal
workers' compensation and occupational disease laws and which shall
encompass all employees of the Partnership. These policies shall also
provide for employers' liability in the amount of not less than
$1,500,000 (see section on comprehensive general liability).
(b) Comprehensive general liability insurance against claims arising out
of the operations of the Partnership with limits of not less than $2
million per occurrence, $4 million in the aggregate. Policy shall
include stop gap employers' liability endorsement, should coverage for
same be omitted from workers' compensation policies.
(c) Automobile bodily injury and property damage liability covering
automobiles owned, non-owned, or leased by the Partnership or the
Manager in connection with the Operations of the Partnership. Limits
of liability shall be not less than $2 million per occurrence, $4
million in the aggregate.
(d) Umbrella liability coverage in the amount of not less than $50
million, in the name of the Partner or in the name of each Partner,
(providing excess coverage for employer's liability, comprehensive
general liability, automobile liability, and limited named perils
pollution).
(e) Insurance against physical loss or damage to real and personal
property owned by the Partnership by fire, explosion and other hazards
or casualties. Such overage shall have limits not less than the fair
market value of the insured assets, subject to a deductible not
exceeding $1 million.
(f) Insurance to compensate for business interruption losses, if such
coverage is economically attainable.
(g) And other such insurances as are customarily maintained in the
business (including but not limited to fidelity, environmental
impairment, directors and officers, etc.).
ARTICLE XIII
ACQUISITIONS WITHIN APPALACHIA
------------------------------
Section 13.1. General. Any interest or option to acquire any interest in
-------
Coal Properties in Appalachia acquired or held during the term of this Agreement
by or on behalf of a Partner or any
17
<PAGE>
Affiliate shall, except as otherwise provided in this Article or agreed to by
the Partners, be included in the Partnership and shall be subject to the terms
and provisions of this Agreement.
Section 13.2. Intention of Parties. It is the intention of the Partners
--------------------
that, except if it is necessary to act quickly in acquiring Coal Properties and
consultation among the Partners is not practicable or if a Partner does not
elect to accept the interest pursuant to Section 13.4, Coal Properties be
acquired by the Partners in the Partnership name and not through the procedures
described in Section 13.3, 13.4, and 13.5.
Section 13.3. Notice to Nonacquiring Partner. If it is not practicable to
------------------------------
acquire Coal Properties in the Partnership name as contemplated in Section 13.2,
within 14 days after the acquisition by any Partner or its affiliate of any
interest or the option to acquire any interest in Coal Properties, the acquiring
Partner shall notify the other Partner of such acquisition. Such notice shall
describe in detail the acquisition, the real property and minerals covered
thereby, the cost thereof, and the reasons why the acquiring Partner believes
that the acquisition of the interest is in the best interests of the Partners
under this Agreement. The acquiring Partner shall also make any and all other
information concerning the acquired interest available to the other Partner.
Section 13.4. Option Exercised. If, within 90 days after receiving the
----------------
acquiring Partner's notice pursuant to Section 13.3, the other Partner notifies
the acquiring Partner of its election to accept the acquisition in the
Partnership name, the acquiring Partner or Affiliate shall convey to the
Partnership, by deed or by assignment of lease in form acceptable to the other
Partner, such acquired interest. The acquired interest shall become a part of
the Partnership for all purposes of this Agreement immediately upon notice of
such other Partner's election to accept such. Such other Partner shall promptly
pay to the acquiring Partner its proportionate share of the latter's actual out-
of-pocket acquisition costs and shall assume its proportionate share of any
indebtedness incurred in making such acquisition.
Section 13.5. Option Not Exercised. If the other Partner does not give
--------------------
such notice within the 90-day period set forth in Section 13.4, neither it nor
the Partnership shall have any interest in the acquired interest, and the
acquired interest shall not be a part of the Partnership, shall not be
considered Coal Property and shall not be subject to this Agreement.
Section 13.6. Stock Acquisitions. If any Partner acquires, or proposes to
------------------
acquire, any interest in Coal Property through the acquisition of stock in a
company in which such interest and related assets represent less than 50 percent
of the fair market value of all assets of such company, such acquisition or
proposed acquisition shall be subject to this Article XIII only if reasonably
practicable and if such interest and related assets can reasonably be offered to
a Partner and held in partnership subject to this Agreement.
ARTICLE XIV
General Provisions
------------------
18
<PAGE>
Section 14.1. Information. The Partnership shall from time to time
-----------
provide each Partner with such information and records as such Partner may
reasonably request.
Section 14.2. Confidentiality. Each partner and the Partnership shall use
---------------
their best efforts to assure that all information disclosed to them in
connection with the business of the Partnership and not otherwise generally
available shall be kept confidential and shall not be revealed without the
consent of the Partners to anyone other than to directors, employees,
accountants and representatives of the Partnership, the Partners and their
Affiliates or in connection with filings required by law with government
agencies or courts. If such information is revealed to such persons, each
Partner and the Partnership agree to use their best efforts to have such persons
keep such information confidential.
Section 14.3. Notices. Notices, payments and other required
-------
communications to the Partners or the Partnership shall be in writing or by
telex with acknowledgment of receipt and shall be effective (i) when delivered
during normal business hours to the party to be given such notice, election or
consent at the address designated by it for such delivery, (ii) five Business
Days after such notice, election or consent shall have been deposited in the
United States mails, certified or registered with return receipt requested and
postage thereon fully prepaid, addressed to such address or (iii) on the
calendar day following the day such notice, election or consent shall have been
transmitted by telecopy, telex or telegram, fully prepaid, to such address or
telephone number, whichever shall first occur. Until otherwise specified by
notice to the other Partner, the addresses and telephone numbers for any such
notice, election or consent shall be:
If to Roaring Creek:
Roaring Creek Coal Company
251 N. Illinois Street
Post Office Box 967
Indianapolis, Indiana 46206-0967
Attn: Vice President, Law & Governmental Affairs
Telex: 276163
Telecopier: 317-266-3429
If to Grassy Cove:
Grassy Cove Coal Mining Company
c/o American Petrofina, Incorporated
Fina Plaza
8350 North Central Expressway
Post Office Box 2159
Dallas, Texas 75206
Attn: Vice President
Telex: 0730138
19
<PAGE>
Rapifax: 214-750-2798
With a copy to:
Petrofina, S.A.
52 Rue de l'Industrie
1040 Brussels, Belgium
Attn: Manager, Coal Operations
Telex: PFINAB 846 21556
Rapifax: 322-2339191
If to the Partnership:
Kentucky Prince Mining Company
P.O. Box 680
Hazard, Kentucky 41701
Attn: President
Telephone: 606-439-2366
Any notice delivered to any Partner or to the Partnership shall be given to all
other Partners and the Partnership as nearly simultaneously as is practicable.
Section 14.4. Waiver. The failure of a Partner to insist on the strict
------
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit the Partner's right thereafter to enforce any provision
or exercise any right.
Section 14.5. Modification. No waiver under, modification of or amendment
------------
to this Agreement shall be valid unless made in writing and duly executed by the
requisite number of Partners.
Section 14.6. Further Assurances. Each of the Partners agrees that it
------------------
shall from time to time take such actions and execute such additional
instruments as may be reasonably necessary to carry out the purposes of this
Agreement.
Section 14.7. Governing Law. This Agreement shall be governed by the Laws
-------------
of the State of New York and shall be construed in accordance with the Act.
Section 14.8. Consent to Jurisdiction; Service of Process. Subject to
-------------------------------------------
Section 14.9, each of the Partners:
20
<PAGE>
(a) irrevocably submits to the jurisdiction of any New York State or
Federal court sitting in The City of New York over any suit, action or
proceeding arising out of or relating to this Agreement or the
operations of the Partnership;
(b) irrevocably waives, to the fullest extent permitted by law, any
objection which it may have or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in such a court
and any claim that any such suit, action or proceeding brought in such
a court has been brought in an inconvenient forum;
(c) hereby appoints CT Corporation System its authorized agent to accept
and acknowledge service of any and processes which may be served in
any suit, action or proceeding of the nature referred to in this
Section 14.8 and consent to process being served in any such suit,
action or proceeding upon CT Corporation System in any manner or by
the mailing of a copy thereof by registered or certified air mail,
postage prepaid, return receipt requested, to such Partner's address
specified in Section 14.3; and
(d) agrees that such service
(i) shall be deemed in every respect effective service of process
upon it in any such suit, action or proceeding and
(ii) shall, to the fullest extent permitted by law, be taken and held
to be valid personal service upon and personal delivery to it.
Nothing in this Section 14.8 shall affect the right of any
Partner to service process in any manner permitted by law or
limit the right of any Partner to bring proceedings against any
other Partner in the courts of any jurisdiction or
jurisdictions. Each Partner will, no later than 30 days after
the date of this Agreement, take any action necessary to make
the preceding appointment effective and will deliver to the
other Partner a copy of acceptance of appointment of CT
Corporation System.
Section 14.9. Settlement of Disputes and Arbitration. The Partners
--------------------------------------
recognize that disagreements between them could result in an impasse. The
Partners further recognize that such an impasse resulting from disagreement with
respect to Budgets and certain other major decisions would have an adverse
effect upon Operations. Accordingly, the Partners have agreed upon the
mechanisms set forth in this Section 14.9 pending resolution of such
disagreements.
If the Partners are unable to resolve disputes, Roaring Creek and Grassy
Cove will, prior to referring any matter to arbitration pursuant to this Section
14.9 or Section 2.4 of the Accounting Procedure, in the first instance refer the
dispute to top level executive of AMAX Inc. a New York corporation, and
Petrofina S.A., a Belgian corporation, respectively, who are not members of the
Executive Committee or the FINAMAX Management Committee, and if such executive
officers do not resolve the dispute within 30 days of referral, either Partner
may refer such matter to arbitration
21
<PAGE>
as provided herein or in Section 2.4, as the case may be. Any dispute or
difference which may arise between the Partners solely with respect to the
meaning or interpretation of any provision of this Agreement other than disputes
or differences with respect to accounting matters described in and subject to
Section 2.4 of the Accounting Procedure, shall be finally settled by arbitration
in accordance with the regulations of the American Arbitration Association.
Either Partner may serve written demand on the other Partner that any such
dispute be settled by arbitration within 30 days of the date of such written
demand, the Partner serving such demand shall deliver to the other Partner a
written designation of an arbitrator. The other Partner shall, within 30 days
after receipt of such designation, deliver to the first Partner a written
designation of an arbitrator selected by such other Partner. The two arbitrators
so designated shall designate a third arbitrator mutually acceptable to them,
but if the two arbitrators are unable within 15 days to agree upon a third
arbitrator, or if the other Partner or the two arbitrators shall fail to
designate an arbitrator within 30 days after the designation of an arbitrator by
the first Partner, the first Partner may apply to the American Arbitration
Association for the appointment by such Association of such second or third
arbitrator in accordance with its rules and regulations. If such experience is,
in the judgment of the Major partners, relevant to the question to be
arbitrated, the arbitrators appointed by each Partner and the American
Arbitration Association shall be persons experienced in the coal business.
The Partners agree to be conclusively bound by the decision or report of
arbitrators designated in accordance with the preceding paragraph and Section
2.4 of the Accounting Procedure.
Section 14.10. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, and which together shall
constitute but one agreement.
Section 14.11. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any party or set of circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to any other party or set of circumstances shall not be affected unless the
invalidity of such provision substantially impairs the benefits of the remaining
provision or the realization of the agreements of the parties expressed herein.
Section 14.12. Miscellaneous. This Agreement supersedes any other
-------------
agreement dated prior to the date hereof, including the Heads of Agreement,
between the Partners or their Affiliates with respect to the subject matter of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Partnership
Agreement to be executed by their duly authorized representatives as of the date
first above written.
Roaring Creek Coal Company
By: /s/ Illegible
----------------------------------------
Title: ____________________________________
22
<PAGE>
Grassy Cove Coal Mining Company
By: /s/ Illegible
-----------------------------------
Title: Vice President
--------------------------------
23
<PAGE>
EXHIBIT A
---------
Accounting Procedures
ARTICLE I
Definitions
-----------
Terms used herein and defined in the Partnership Agreement have the meaning
set forth therein and the following terms have the following meanings:
"Agreement" means the Partnership Agreement;
"Section" means a section of this Accounting Procedure, unless otherwise
specified.
ARTICLE II
General Provisions
------------------
Section 2.1. Books, Records and Accounts; Audits.
-----------------------------------
The Partnership shall maintain, or cause to be maintained, true and correct
books, records and accounts for the Partnership in accordance with the terms of
the Partnership Agreement and with United States generally accepted accounting
principles. All revenues and costs shall be recognized on an accrual basis.
Such books, records and accounts shall include but not be limited to a complete
set of double-entry books, consisting of appropriate asset accounts, liability
accounts, capital accounts (i.e., Partners' equity accounts), and income and
expense accounts. They shall be used to record all revenues, income, costs,
expenses, receipts, disbursements and other transactions of the Partnership,
including the brokering and purchase and disposition of coal. Appropriate
records, such as weigh tickets and engineering surveys, shall be maintained to
verify the amount of production, coal purchases and shipments. The books,
records and accounts shall be retained for three years, or such additional
periods as may be required by the Internal Revenue Code.
The Partnership books, records and accounts shall be audited annually as
provided in Section 7.2 of the Partnership Agreement. The results thereof shall
be delivered to each Partner within 120 days of the end of the calendar year.
All written exceptions to and claims upon the partnership for discrepancies
disclosed by any audit shall be made within sixty (60) days following completion
of such audit and delivery of the results thereto to the Partners.
i
<PAGE>
At any time during normal business hours and without any need for prior
notice, any Partner shall be entitled (through either internal auditors or
another designated representative) to examine and make copies of the books and
records maintained by the Partnership.
Section 2.2. Internal Accounting Control.
---------------------------
The Partnership shall maintain or cause to be maintained systems of
internal accounting control, including organization, supervision, procedures and
records which are sufficient to provide reasonable assurance that:
(a) All transactions are properly authorized;
(b) All transactions are properly recorded on a timely basis to permit (1)
preparation of financial statements and related footnotes in
accordance with United States generally accepted accounting
principles, (2) preparation of tax returns in accordance with the IRS
Code and other applicable statutes, and (3) to maintain accountability
for assets;
(c) All assets are adequately safeguarded and all liabilities are
recognized and discharged on a timely basis;
(d) Recorded balances are periodically substantiated.
Section 2.3. Reports and Information.
-----------------------
Within twenty (20) calendar days after the end of each calendar month the
Partnership Executive Committee shall be furnished a report as to the operating
and financial results of FINAMAX Coal Company for the month and year-to-date,
with comparisons to the adopted budget.
Such financial information as is required for each partner to record their
pro rata portion of the Partnership's financial results shall be furnished
monthly to each Partner on a timely basis. This financial information will
normally consist of a statement of financial position, an income statement, and
a schedule of capital expenditures, as well as other financial data reasonably
required by each Partner.
Each Partner shall be furnished such forecast, budget and other information
as may be reasonably required to allow the preparation of financial projections,
tax returns and other required reports.
Section 2.4. Arbitration.
-----------
Any dispute or difference which may arise between the Partners with respect
to the meaning, interpretations or application of the Accounting Procedure or
with respect to any other accounting matter shall be finally settled by Coopers
& Lybrand, or any other firm of certified public accountants
ii
<PAGE>
selected by the Partnership Executive Committee. If Coopers & Lybrand or such
firm has been consulted by either Partner regarding the matter in dispute, such
firm shall select any other firm of certified public accountants to act in its
stead.
Section 2.5. Cash Accounts.
-------------
The Partnership shall maintain or cause to be maintained such bank accounts
as are approved by the Partnership Executive Committee.
iii
<PAGE>
Exhibit 3.42(c)
(BENTLEY COAL COMPANY)
PARTNERSHIP AGREEMENT
dated
as of January 1, 1998
between
ROARING CREEK COAL COMPANY
and
GRASSY COVE COAL MINING COMPANY
<PAGE>
PARTNERSHIP AGREEMENT
THIS AGREEMENT, dated as of January 1, 1998, by and between Roaring Creek
Coal Company, a Delaware corporation and a wholly-owned subsidiary of AMAX Inc.
("Roaring Creek"), and Grassy Cove Coal Mining Company, a Delaware corporation
and an indirect wholly-owned subsidiary of Petrolina S.A. ("Grassy Cove").
WITNESSETH:
WHEREAS, Roaring Creek and Grassy Cove and their respective Affiliates are
the joint owners of certain properties, equipment and operations for the
production of coal in the State of West Virginia (the "Bentley Operations"); and
WHEREAS, the parties hereto have entered into this Agreement to form a
partnership to conduct certain business related to the Bentley Operations.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement terms defined above
-----------
have the meanings set forth above and the following terms have the following
meanings:
"Accounting Procedure" means the Accounting Procedure attached as Exhibit
A.
"Act" means the Uniform Partnership Act of the State of New York, as
amended from time to time, and any successor statutes.
"Act of the Partners" means an act taken by the Executive Committee of the
Partnership in accordance with Section 5.2.
"Affiliate" of any Partner means any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly
controls, is controlled by, or is in common control with, a Partner and for
purposes of Section 11.2 specifically includes any joint venture or
partnership in which such Partner has an interest of at least 50 percent.
For purposes of the preceding sentence, "control" means possession,
directly or indirectly, of the power to elect a majority of the Board of
Directors or other governing body or to direct or cause direction of
management and policies through ownership of voting securities, contract,
voting trust or otherwise.
"Agreement" means this Partnership Agreement, as amended from time to time,
together with the Exhibits hereto.
<PAGE>
"Appalachia" means the area encompassed by and including Pennsylvania,
West Virginia, Eastern Kentucky (as generally understood in the coal
industry, Tennessee, Maryland, Ohio, Virginia and Alabama, U.S.A.
Budget" for any Year means a plan in reasonable detail, including dates and
places, of Operations carrying out the purposes of the Partnership, to be
conducted during such Year, together with such forecasts or projections as
to Operations for subsequent periods as may be appropriate and a detailed
estimate of all costs to be incurred by the Partnership during or with
respect to such Year and other cash items with respect to the plan of
Operation for such period, and shall include items setting forth
anticipated revenue, any reserve for contingencies and itemized
expenditures for capital items, and a schedule of the estimated time of
expenditures and receipt of revenue.
"Business Day" means any day other than a day on which banks in new York
City are closed.
Coal Property" means any fee, surface or mineral estate in Appalachia
purchased, leased or then held, by a Partner or any Affiliate with the
primary intention of exploring for or developing or recovering coal, ro any
property or interest in Appalachia with respect to which any Partner or an
Affiliate is then actually exploring or developing or recovering coal.
"Code" means the internal Revenue Code of 1986, as amended.
"Executive Committee" means the Executive Committee of the Partnership
established under Article V.
"Major Partner" means a Partner having (together with its Affiliates, a
Partnership interest at least equal to 25 percent.
"Management Services Agreement" means the Management Services Agreement
dated as of the date hereof between the Partnership and FINAMAX, as amended
from time to time, or any replacement management services agreement with
any Manager.
"Net Losses" means the excess of partnership expenses over partnership
revenues as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Net Profits" means the excess of partnership revenues over partnership
expenses as periodically determined on an accrual basis in accordance with
generally accepted accounting principles.
"Operations" means the activities of the Partnership implementing he
purposes set forth in Section 2.4.
2
<PAGE>
"Partner" means Roaring Creek or Grassy Cove and "Partners" means both
Roaring Creek and Grassy Cove and in each case includes any successor of
either or both.
"Partnership Item" has the meaning set forth in Section 6231(a)(3) of the
Code or any successor provision.
"Partnership" means the Partnership between he Partners established by this
Agreement.
'Partnership Interest" has the meaning set forth in Section 2.6.
"Prime Rate" means the rate of interest publicly announced from time to
time in New York City by Bank of America as its prime rate.
"Tax Maters Partner" has the meaning set forth in Section 6231(a)(7) of the
Code of any successor provisions.
All references to money in this Agreement are references to amounts in
United States dollars.
ARTICLE II
The Partnership
---------------
Section 2.1. Establishment of Partnership. Roaring Creek and Grassy Cove
----------------------------
hereby enter into and form a general partnership under the Act for the purposes
set forth in this Article II. The rights and obligations of the Partners and
the administration of the partnership will be governed by the terms of this
Agreement. The existence and business of the Partnership shall not be affected
by the withdrawal of any Partner and the parties shall continue as partners of a
partnership under this Agreement until the Partnership terminates pursuant to
Article X hereof.
Section 2.2. Name. The name of the Partnership shall be Bentley Coal
----
Company. The name may be changed by agreement of all the Partners. The
Partners shall execute and cause to be filed any assumed or fictitious name
certificates required to be filed in connection with the formation and
activities of the partnership.
Section 2.3. Offices. The principal place of business of the Partnership
-------
shall be at such location as the Executive Committee shall select. The
Partnership shall also maintain offices at such other locations as the Executive
Committee may from time to time select.
Section 2.4. Purposes and Certain Powers. The purposes of the
---------------------------
Partnership shall be:
a) purchasing and selling coal, whether for its own account or for the
account of others;
b) conducting exploration and mining activities on its behalf or for
other coal producers and purchasers;
3
<PAGE>
c) identifying and evaluating new properties for the West Virginia
Operations and new business opportunities for the Partnership;
d) purchasing equipment and facilities for its own use or for lease or
sublease to contractors who are themselves to contracts with the
Partnership;
e) contracting with contractors or contract miners for performance of
mining work;
f) acquiring coal properties for development and mining; and
g) engaging in activities necessary, appropriate or incidental to any of
the foregoing purposes.
The Partnership shall have the power to do any act and thing and to enter into
any contract incidental to, or necessary, proper, desirable or advisable for,
the accomplishment or attainment of any purpose of the Partnership set forth in
this Agreement.
Section 2.5. Scope of Partners' Authority. Except as otherwise
----------------------------
specifically provided in this Agreement or agreed to in writing by all of the
Partners, no Partner shall have any authority to act for, or to assume any
obligation or responsibility on behalf of, or to bind, any other Partner or the
Partnership. Each Partner shall indemnify and hold harmless each other Partner
and its directors, officers, employees and representatives, from and against any
and all losses, claims, damages and liabilities arising out of any act of or any
assumption of any obligation or responsibility by any such Partner or any of its
directors, officers, employees or representatives, done or undertaken or
apparently done or undertaken on behalf of such other Partner, other than
pursuant to and in accordance with the authorization granted herein or by
further express agreement of the Partners.
Section 2.6. Partnership Interests. Each Partner's initial percentage
---------------------
interest in the Partnership and the Net Profits and Net Losses of the
Partnership (the "Partnership Interest") shall be 50 percent, and thereafter
shall be subject to adjustments by agreement of the Partners or by assignment,
sale or transfer as therein provided.
Section 2.7. Competition. Nothing in this Agreement shall prevent a
-----------
Partner at any time and without notice to or agreement by the other Partner or
the Partnership from engaging in any business activities of any character which
are neither conducted in, nor conducted with respect to property located in,
Appalachia, whether or not the Partnership is then doing business outside
Appalachia, or from engaging in any business activities conducted in, or with
respect to property located in, Appalachia, which are not related to the coal
business in Appalachia.
4
<PAGE>
ARTICLE III
Representations and Warranties
------------------------------
Section 3.1. Representations and Warranties of Roaring Creek. Roaring
-----------------------------------------------
Creek represents and warrants to Grassy Cove that:
(a) Roaring Creek is a corporation duly incorporated and in good
standing in Delaware;
(b) Roaring Creek has full power and authority to enter into and
perform this Agreement and, as a Partner of the Partnership, to
execute and deliver the Management Services Agreement and the
execution, delivery and performance of this Agreement and all
transactions contemplated hereby and, as a Partner of the
Partnership, the execution and delivery of the Management
Services Agreement have been duly authorized and approved by all
necessary action of its Board of Directors and this Agreement is
the valid and binding agreement of Roaring Creek and the
Management Services Agreement are each valid and binding
agreements of it as a Partner in the Partnership; and
(c) the execution, delivery and performance by Roaring Creek of this
Agreement and, as a Partnership of the Partnership, the
Management Services Agreement do not and will not conflict with
or constitute a violation of any judgment, order, decree, other
agreement or arrangement to which Roaring Creek or any Affiliate
thereof is a party or by which any of them is bound or require
the approval, consent or authorization of any Federal, State or
local authority.
Section 3.2 Representations and Warranties of Grassy Cove. Grassy
---------------------------------------------
Cove represents and warrants to Roaring Creek that:
(a) Grassy Cove is a corporation duly incorporated and in good
stranding in Delaware;
(b) Grassy Cove has full power and authority to enter into and
perform this Agreement and, as a Partner of the Partnership, to
execute and deliver the Management Services Agreement and the
execution, delivery and performance of this Agreement and all
transactions contemplated hereby and, as a Partner of the
Partnership, the execution and delivery of the Management
Services Agreement have been duly authorized and approved by all
necessary action of its Board of Directors and this Agreement is
the valid and binding agreement of Grassy Cove and the
Management Services Agreement are each valid and binding
agreements of it as a Partners in the Partnership; and
(c) the execution, delivery and performance by Grassy Cove of this
Agreement and, as a Partner of the Partnership, the Management
Services Agreement do not and will not conflict with or
constitute a violation of any judgment, order, decree, other
agreement
5
<PAGE>
or arrangement to which Grassy Cove or any Affiliate thereof is a part
or by which any of them is bound or require the approval, consent or
authorization of any Federal, State or Local authority.
ARTICLE IV
Contributions
-------------
Section 4.1. Initial Contributions. Roaring Creek and Grassy Cove hereby
---------------------
each contribute to the capital of the Partnership their respective interests in
certain mining equipment, real estate, other assets, and liabilities as are
conveyed by bills of sale and assignments to the Partnership dated this same
date, and the benefits of all coal sales and brokerage efforts with respect to
Appalachian area, and any resulting goodwill, directly or indirectly, developed
by Roaring Creek and Grassy Cove or their Affiliates.
Section 4.2. Cash Contributions For Capital, Expenditures and Operating
----------------------------------------------------------
Expenses. The Partners shall from time to time contribute in proportion to
- - --------
their respective Partnership interests such amounts of cash to he capital of the
Partnership as shall be necessary in order pay amounts contemplated by the
Budget.
Section 4.3. Cash Calls. The Partnership shall determine the cash
----------
requirements of the Partnership for the expenditures, business and programs
contemplated by the Budget in effect at that time pursuant to Section 5.6 and
issue calls to the Partners, from time to time upon at least ten Business Days'
notice, and contributions of amounts for the following month from the Partners
in proportion to their Partnership interests. In order to assist the Partners
in planning for cash calls, the Partnership shall provide the Partners on or
prior to the first day of each calendar month with its estimate of the amount
and the timing of cash calls for the next three succeeding calendar months, but
if necessary the Partnership may make cash calls in excess of those estimated
for any month. Each Partner agrees to provide the amounts required by any cash
calls issued by the Partnership in accordance with the provisions of this
Section 4.3 by the third Business Day prior to the first day of the calendar
month for which such amounts are requested. The Partner shall be required to
contribute cash or pay expenses in excess of amounts set forth in an approved
Budget or later ratified by the Partnership, except for expenditures in excess
of the Budget in amounts which do not exceed ten percent of the amount budgeted
for any one item; provided, that aggregate excess expenditures do not exceed
--------
five percent of the entire Budget; and provided, further, no such excess
-------- -------
expenditure shall be made for any item as to which a contingency amount is
included in the Budget or in excess in the aggregate of any general contingency
amount included in the Budget.
Section 4.4. Interest on Capital Contributions. No interest shall be
---------------------------------
paid in the Partnership on any capital contributed by the Partners to the
Partnership.
Section 4.5 Investment of Contributions. As and when requested by the
---------------------------
Executive Committee, the Partnership shall invest its surplus funds in
_____________ obligations constituting full faith and credit obligations of the
United States, __________ deposits in any branch of any
6
<PAGE>
commercial bank organized under the laws of the United States or any state
thereof having capital and surplus of at least $50 Million, or (iii) prime
commercial paper of any corporation organized under the laws of the United
States or any state thereof or any combination thereof, provided in each case
the period of material on the case of acquisition of any such obligation,
deposit or commercial paper shall not exceed 90 days. The Partnership may also
invest in such other investments as shall be approved by the Partners. Any
income earned on such investments shall belong to the Partnership.
Section 4.6. Failure to Make Contributions. If either Partner fails in
-----------------------------
its obligation to make any payment or contribution of any amount required
hereunder to the Partnership, such obligation shall constitute indebtedness from
such Partner to the Partnership and shall bear interest payable to the
Partnership from the date such amount was due until the earlier of the date on
which such Partner pays such indebtedness in full or the other Partner elects to
make payment as described in the fourth sentence of this Section, at a rate
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners), provided, that the rate of
--------
interest shall in no event exceed the maximum amount permitted by applicable
law. Such interest shall not be treated as a capital contribution by either
Partner. In addition, the Partnership may recover reasonable attorneys' fees
incurred in recovering the amount of such debt and interest from the defaulting
partner and any other damages suffered as a result of such failure to make such
payment or contribution. In addition to the right of the Partnership to recover
such indebtedness and interest, the other Partner may, _____ shall not be
required to, make such payment or contribution (without any interest thereon) to
the Partnership on behalf of the default Partner. Any such payment or
contribution shall constitute a loan to the defaulting Partner from the other
equal to the sum of the Prime Rate plus four percent (or at such other rate as
shall be established by an Act of the Partners, provided that the rate of
interest shall ____ be payable on demand, together with accrued interest, and
may be prepaid, in time without penalty and the Partner making such loan may at
any time recover from the defaulting Partner, reasonable attorneys' fees and any
other damages suffered as a result of the defaulting Partner's failure to make
any payment or contribution.
ARTICLE V
Management and Operations
-------------------------
Section 5.1 Executive Committee. The Partners hereby establish an
-------------------
Executive Committee to approve Budgets and Operations and to determine other
policies, objectives, procedures, methods and actions under this Agreement. The
Executive Committee shall consist of three members. Each initial Partner shall
have the right to appoint one such member until and unless one of such Partners
transfers all or part of its Partnership interest and one such member shall be
the General Manager of FINAMAX. If all or part of a Partnership interest is
transferred, the transferor and transferee shall agree on method of selection of
the members previously appointed by such transferor, except that each major
partner shall have the right to appoint at least one such member. Each Partner
may appoint one or more alternates to act in the absence of a regular member
appointed by it. Any alternate so acting shall be deemed a member.
Appointments shall be made or changed by notice to the other Partner.
7
<PAGE>
Section 5.2 Design. Each Partner represented on the Executive
------
Committee, acting through its appointed member, shall have one vote per one
percent of Partnership Interest on the Executive Committee. As long as each
initial Partner (together with its Affiliates) has a partnership Interest equal
to 40 percent or more, all decisions of the Executive Committee shall be by
unanimous decision of the initial Partners. At such time as any initial Partner
(together with its Affiliates) has a Partnership having an aggregate of more
than 50 percent of the total partnership Interests then outstanding; provided
--------
that the consent of each initial Partner who is also a Major Partner shall be
required in connection with the following matters:
(i) any decision to take or refrain from taking any action which would
cause a material breach or the termination of any material contract
by which the Partnership or such Partners are bound;
(ii) settlement by the Partnership of any legal proceeding or claim
against the Partnership involving the payment by the Partnership of
any amount in excess of $50,000;
(iii) approval of any Budget of the Partnership or any material changes
thereto or any material agreement to be entered into by the
Partnership or any material changes thereto;
(iv) the appointment of any president, determination of tasks to be done
by a president, execution of any agreement with any president or any
material amendment to this Agreement or any contract with a
president; and
(v) any other matter which such Partners agree in writing shall require
the consent of each such Partner.
Section 5.3 Meetings. The Executive Committee shall hold regular
--------
meetings as frequently as it determines to be necessary, which shall be called
by the Partner designated at the last preceding meeting. Either Partner may
call a special meeting upon five Business Days' notice to the other Partner.
All meetings shall be held at such location in the United States as may be
specified in any notice of a meeting. In case of emergency, reasonable notice
of a special meeting shall suffice. There shall be a quorum if one member
representing each Partner represented on the Executive Committee is present.
Each notice of a special meeting shall specify the matters to be considered at
such meeting but any matter may be considered with the consent of all members of
the Executive Committee. The minutes of such meeting, which shall be prepared
by a partner designated at such meeting, shall be, when signed by each Major
Partner, the official record of the decisions made by the Executive Committee
and shall be binding on the Partners. All costs of attending such meetings
shall be paid for by the Partners individually.
Section 5.4 Action Without Meeting. In lieu of meetings, the Executive
----------------------
Committee may hold telephone conferences, so long as all decisions are
immediately confirmed in writing by the Partners whose consent was required to
make the decision.
8
<PAGE>
Section 5.5 Matters Requiring Approval. Subject to the proviso in
--------------------------
Section 5.2, the Executive Committee shall have exclusive authority to accept
Budgets and to determine all management matters related to the Partnership.
Section 5.6 Budgets. (a) On or prior to September __ of each calendar
-------
year commencing on or after January 1, 1984, the Partnership shall prepare a
proposed Budget for the following calendar year. The proposed Budget shall be
considered at a meeting of the Executive Committee held during the last three
months of the calendar year. If no Budget is approved at such meeting, the
Partners shall cause a special meeting of the Executive Committee to be held to
consider further and approve a Budget.
(b) For any period during which no Budget has been duly adopted by the
Executive Committee, the Executive Committee shall be deemed to have
approved, and, without any further act of any Partner being required,
the Partners shall be bound by, a Budget consisting of the following
items:
(i) for the first calendar year during which no Budget is so
approved, expenditures for items other than capital expenditures
in amounts equal to the amounts approved in the last Budget duly
approved by the Executive Committee without regard to this
subsection;
(ii) such additional operating or capital expenditure items as the
Executive Committee shall unanimously approve; and
(iii) such additional expenditures in such amounts and at such times as
may be necessary in the reasonable good faith judgment of any
Major Partner in order to avoid any default by the Partnership
under any contract or agreement by which the Partnership, whether
directly or as agent, is bound.
(c) Any Budget may be amended at any time by vote of the Executive
Committee in accordance with Section 5.2.
Section 5.7 Interim Budgets. For any period during which no Budget has
---------------
been duly adopted by the Executive Committee, the Executive Committee shall be
deemed to have approved, and, without any further act of any Partner being
required, the Partners shall be bound by a Budget consisting of the following
items:
(a) for the calendar year during which no Budget has been adopted,
Operations and expenditures for items other than capital expenditures of a type,
to the extent and in amounts equal to the amounts approved ___ the last Budget
duly approved by the Executive Committee without regard to this Section:
(b) such Operations and operating or capital expenditure items as the
Executive Committee shall unanimously approve; and
9
<PAGE>
(c) such Operations and additional operating or capital expenditures in
such amounts and at such times as may be necessary in the reasonable good faith
judgment of any Major Partner in order to maintain the Operations or to avoid
any default by the Partnership or any Partner under any contract or agreement by
which they are bound.
Section 5.8 Officers. The Executive Committee shall have the right to
--------
appoint officers for such Partnership offices as it deems necessary, including,
but not limited to, the offices of president, vice-president, secretary, and
treasurer. Except with respect to the approval of the Budget, the Executive
Committee shall have the right to delegate to the Partnership officers such
authority and responsibility concerning the management and operation of the
Partnership as the Executive Committee deems appropriate. Such delegation of
authority to Partnership officers shall be by unanimous resolution adopted by
the Executive Committee and set forth in the regular minutes of business. Any
third party dealing or contracting with the Partnership through its officers
pursuant to a resolution of the Executive Committee shall have the right to rely
on the expressed provisions of such resolution without regard to the
appropriateness of the act of delegation.
ARTICLE VI
Allocation of Profits and Losses
--------------------------------
Section 6.1 Profits and Losses. Net Profits and Net Losses of the
------------------
Partnership shall be allocated to the Partners in proportion to their
Partnership Interests.
Section 6.2 Allocation of Distributors Subsequent to Assignment. The
---------------------------------------------------
Net Profits and Net Losses of the Partnership attributable to any interest in
the Partnership acquired by reason of the assignment of the interest or
substitution of a Partner with respect to that interest and any distributions
made with respect thereto shall be allocated between the assignor and the
assignee and set forth in a document delivered to the other Partner and the
Manager. If no such agreement between the assignor and the assignee is
delivered to the other Partner and the Manager all Net Profits and Net Losses
accruing prior to the effective date of such assignment or substitution and all
distributions with respect thereto shall be allocated or distributed to the
assignor and all other profits, losses and distributions shall be allocated or
distributed to the assignee. Such partner and the Manager shall not be liable
to the assignor or the assignee as long as allocations and distributions are
made in good faith on such basis.
Section 6.3 Capital Accounts. A capital account shall be maintained for
----------------
each Partner. A Partner capital account shall be credited with (i) the amount
of cash paid and the fair market value of property contributed to the
Partnership as capital contributions and (ii) the share of partnership income or
gains allocable to such account, and shall be debited with (x) the share of
Partnership deductions or losses allocable to such account and (y) the amounts
of any distributions made to such Partner with respect to such account. The
initial capital accounts of the Partners shall be equal. Additionally, a
separate capital account shall be maintained for each Partner on the same basis
as previously set forth in this Section 6.3 but substituting the tax basis for
the fair market value of
10
<PAGE>
properly contributed to or distributions from the Partnership and basing
depreciation calculations on such tax basis.
ARTICLE VII
Accounting
----------
Section 7.1 Books and Records: Accounting Policies. The books and
---------------------------------------
records of the Partnership shall be maintained on an accrual basis in accordance
with United States generally accepted accounting principles and with the
Accounting Procedure. Such books and records shall be adequate to permit the
preparation of complete financial statements and the filing of tax returns by
the Partners and the Partnership.
Section 7.2 Audit. Unless waived by the Executive Committee, the
-----
accounts of the Partnership shall be audited as of the end of each calendar year
by Coopers & Lybrand or any other nationally recognized firm of certified public
accountants unanimously selected by the Partners. Any Partner shall be entitled
(either directly or through any designated representative) at any time during
normal business hours and without any need for prior notice to examine and make
copies of the books and records of the Partnership.
ARTICLE VIII
Tax Considerations
------------------
Section 8.1 Taxable Year. The Partnership's taxable year shall be the
------------
calendar year.
Section 8.2 Elections. Neither the Partnership nor any Partner shall
---------
elect at any time to be excluded from any of the provisions of Subchapter K of
the Code. Any other election required or allowed to be made by the Partnership
shall be made by an Act of the Partners, except that the Partners hereby agree
for Federal income tax purposes:
(a) to keep the books of the Partnership on ac accrual basis; and
(b) that all tax election shall be made with the intent of maximizing
deductions in the current year to the extent permissible under law,
unless all Partners agree otherwise.
Section 8.3 Allocations. For Federal income tax purposes the
-----------
distributive share of each Partner in each item of Partnership income, gain,
loss, deduction or credit shall be allocated to and among the Partners according
to the same percentages and provisions herein governing the Partners sharing of
profits and losses.
Section 8.4 Tax Returns. The Tax Matters Partner (or, in designated
-----------
instances, the Partnership, if all Partners agree) shall prepare, or cause to be
prepared, Federal, state and local income, and other tax returns of the
Partnership and shall file such returns, which shall be satisfactory
11
<PAGE>
in form and substance to each Partner and other entity that was a Partner during
the tax year for which such return is filed, with the Internal Revenue Service
and with the appropriate sate and local taxing authorities.
Section 8.5 Tax Matters Partner. A Tax Matters Partner of the
-------------------
Partnership shall take no action as Tax Matters Partner unless all major
Partners and other entities that were Major Partners during the tax year with
respect to which such action is to be taken shall have unanimously agreed that
that action shall be taken, and a Tax Matters Partner shall give to the other
Partners prompt notification (without regard to any time period allowed by the
Code for any such notification) of any communication from or action by the
Internal Revenue Service with respect to the Partnership or any Partnership Item
of the Partnership. The Tax Matters Partner for the Partnership is hereby
designated to be Roaring Creek.
ARTICLE IX
Distributions
-------------
Section 9.1 Capital. Except as otherwise provided herein, capital,
-------
whether cash or property, may not be distributed by or withdrawn from the
Partnership without the consent of each Major Partner.
Section 9.2 Excess Cash. To the extent that the cash available in the
-----------
bank accounts of the Partnership at the close of business on the twentieth
calendar day of each month exceeds the anticipated cash requirements of the
Partnership for such month and the next month, such cash shall be distributed on
such day first, to repay any loan made by any Partner or the Partnership
pursuant to Section 4.6 and second to the Partners in proportion to their
respective Partnership Interests as of the last day of the preceding month.
ARTICLE X
Dissolution and Purchase Rights
-------------------------------
Section 10.1 Dissolution. The Partnership may be dissolved only as
-----------
follows:
(a) By written agreement of all Major Partners;
(b) Upon delivery of notice to the other Partners by any Partner, if a
Major Partner has transferred all or any portion of its Partnership
Interest in violation of Article X: and such violation has remained
_______ for at least 60 days after notice of such violation by such
Partner to the transferring Partner; or
(c) Upon delivery of notice by any Partner, if the Partner to whom such
notice is directed (the "defaulting Partner") (x) has failed to make a
contribution of, or contributions aggregating $30,000 or more in
accordance with the provisions of Article IV hereof
12
<PAGE>
and such failure to pay has not been cured by the nondefaulting Partner and
has continued for a period of 30 days after notice thereof to the
defaulting Partner from the nondefaulting Partner or (y) has failed to
repay within two Business Days after demand any loan made by the
nondefaulting Partner to the defaulting Partner pursuant to Section 6.6.
Section 10.2 Distributions Upon Liquidation. (a) Except as set forth in
------------------------------
paragraph (b) below, upon any dissolution of the Partnership, the assets of the
Partnership shall thereupon be liquidated and the proceeds from such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payments of debts and liabilities of the Partnership and
the expenses of such liquidation and of any loans made by the
Partnership or any Partner pursuant to Section 4.6;
(ii) to the setting up of any reserves which are reasonably
necessary (in the reasonable judgment of any Major Partner or,
in the case of any dissolution pursuant to Section 10.1(c), in
the reasonable judgment of the nondefaulting Partner) for any
contingent or unforeseen liabilities of the Partnership; and
(iii) if the balances of the capital account of the Partners at the
time of the initial distribution are not in proportion to their
respective Partnership Interests, to the Partner whose capital
account is proportionately excessive to the extent of such
excess and until such balances are in such proportion and
thereafter and in any other event to the Partners in proportion
to their respective Partnership Interests;
provided, however, that any Partner whose balance in the
-------- -------
capital account is a negative amount shall contribute to the
Partnership in cash the amount of that negative balance.
In connection with any liquidation of the assets of the Partnership, each
Partner shall have the right to bid on any asset on an equal basis as third
parties, it being the intent hereof that upon liquidation the activities of the
Partnership shall be wound down, the assets of the Partnership shall be reduced
to cash and such cash shall be distributed as set forth in this Section 10.2.
(b) If Roaring Creek would otherwise be entitled to give notice of the
dissolution of the Partnership under Section 10.1(b) or 10.1(c),
Roaring Creek may elect, in lieu of giving such notice, to notify
Grassy Cove that it will acquire the Partnership Interest of Grassy
Cove and its Affiliates pursuant to Section 10.3 hereof. If Grassy Cove
would otherwise be entitled to give notice of the dissolution of the
Partnership in accordance with Section 10.1(b) or 10.1(c), Grassy Cove
may elect, in lieu of giving such notice, to notify Roaring Creek that
it will acquire the Partnership Interest of Roaring Creek and its
Affiliates pursuant to Section 10.3 hereof. In any such case, the
Partners shall execute such instruments of amendment, assignment and
consent as may be required or advisable.
13
<PAGE>
Section 10.3 Buy-Out. Any Partner that elects pursuant to Section ___
-------
(the Purchasing Partner") to purchase the Partnership Interests of any other
Partner and its Affiliates (collectively, the "Selling Partner") shall exercise
its election to acquire such Partnership Interests by notice to the Selling
Partner setting forth such election and the grounds upon which such Partner is
entitled to make such election, and the date (which shall not be earlier than 90
nor later than 120 days after the date such notice is given) upon which such
Partnership Interest shall be transferred from the Selling Partner to the
Purchasing Partner. The Selling Partner shall be bound by the provisions of the
notice relating to such date. The purchase price for such transfer shall be the
book value of the Partnership Interests to be purchased, without giving effect
to good will, but including the present value (discounted at a rate equal to the
average of the Prime Rate for _____of the two preceding years plus five percent)
of the then existing ongoing sales, brokerage or other contracts of the
Partnership. Such present value shall be determined by either John T. Boyd
Company or Pittsburgh, Pennsylvania, _____Engineering Company of Beckley, West
Virginia, or Paul Weir Company of Chicago, Illinois. The Selling Partner and the
Purchasing Partner shall each eliminate one of such firms and the remaining firm
shall be requested to make a determination of such present value. The expenses
of such determination shall be paid by the Partnership. The purchase price
shall be payable, at the option of the Purchasing Partner, in cash on the date
of transfer of the Partnership Interest, or within five years thereafter in
equal annual installments payable on the date of such _______ and thereafter on
each succeeding anniversary of such date, together with interest from the date
of such transfer on any unpaid portion of the purchase price at a rate equal to
the Prime Rate plus one percent, provided that the rate of interest shall in no
event exceed the maximum amount permitted by applicable law and that the
Purchasing Partner shall be entitled to offset against such purchase price any
amounts owed to it by the Selling Partner pursuant to Section 6.5. The
Partnership Interest to be acquired by the Purchasing Partner shall include all
of the _______ Partner's rights and interest under this Agreement. The transfer
of Partnership Interests to the Purchasing Partner pursuant to this Section 10.3
shall relieve the Selling Partner of all obligations to the Partnership or to
the Purchasing Partner other than for those resulting from events occurring
prior to the effective date of such transfer. The Selling Partner agrees, from
time to time at the request of the Purchasing Partner, at or after the date of
such transfer, to execute and _____ such instruments of conveyance, assignment,
transfer and consent as may be required or advisable for the effective
conveyance and transfer of any of the business, properties, name, good will,
assets and rights included in such Partnership Interest.
Section 10.4 Continuing Responsibilities. Notwithstanding any amendment
---------------------------
or termination of this Agreement or dissolution of the Partnership and subject
to the provisions of this Agreement, each Partner shall remain _____ for, and
_______ the extent that they have not theretofore been paid and discharged and
to the extent that any reserves created upon the dissolution of the Partnership
shall be insufficient therefore, pay, when due, its proportionate interest
(based on the percentage amount equivalent to its Partnership Interest at the
time of such dissolution) of, all liabilities of the Partnership, including
without limitation, the liabilities (i) assumed or incurred by the Partnership
prior to the time of the dissolution or (ii) arising thereafter as a result of
the conduct of the business of the Partnership prior to the dissolution of the
Partnership and the completion of any liquidation or sale of all of the assets
of the Partnership.
14
<PAGE>
Section 10.5 Right to Redress. The provisions of this Article X are not
----------------
intended to set forth the exclusive remedies available if any Partners shall be
in default under this Agreement and shall be in addition to each and every other
remedy now or hereafter existing. A Partner may institute legal action against
the other Partner in its own name or that of the Partnership if such other
Partner is in default under this Agreement with no consent required on the part
of such defaulting Partner.
ARTICLE XI
Transfer of Interest
--------------------
Section 11.1 General. Prior to the fifth anniversary of the date of this
-------
Agreement, no Partner shall have the right to assign, transfer, convey, pledge
or otherwise dispose of any or all of its Partnership Interest. Thereafter no
such assignment, transfer, conveyance, pledge or disposition shall be made
except with the prior consent of the other Partner (which shall not be
unreasonably withheld. the transferring Partner shall remain liable hereunder
for the good and ______ performance of its pre-transfer Partnership Interest of
________ and liabilities (no matter when arising) arising out of operations of
the Partnership prior to such transfer and, in case of any transfer to an
Affiliate of the transferring Partner, shall remain liable hereunder to the
extent such Partner would have been, or such Affiliate is, liable hereunder as
though no such transfer had been made. The transferring Partner and the
transferee shall bear all tax consequences and shall reimburse all other
reasonable out-of-pocket expenses of any Major Partner in connection with the
transfer and the transferee, as of the effective date of the transfer, shall
have agreed in writing in a form satisfactory to the other Partners to be bound
by this Agreement (including this Article XI) t the same extent as the
transferring Partner. Any transfer not made in compliance with this Article XI
shall be null and void.
Section 11.2 Assignment to an Affiliate. Section 11.3 and the first
--------------------------
sentence of Section 11.1 shall not apply to, and no consent of any Partner shall
be required for, as assignment of all or any portion of a Partner's Partnership
Interests to an Affiliate of the assignor.
Section 11.3 Preemotive Right. (a) Except as otherwise provided in
----------------
Section 11.4, if a Partner desires to convey, assign or transfer all or any part
of its Partnership Interest, the other Partner shall have a preemptive right to
acquire such Partnership Interest as provided in this Section 11.3.
(b) A Partner intending to transfer all or any part of its Partnership
Interest shall promptly notify the other Partner of such intent. This
notice shall identify the proposed transferee and shall state the ____
(which shall be payable in cash only ) and all other material terms and
conditions of the intended transfer. The other Partner shall have ___
days from the date such notice is delivered to notify the transferring
partner whether it elects to acquire the offered interest at the same
price and on the same terms and conditions as set forth in the notice.
If it does so elect, the transfer shall be consummated promptly after
notice of such election is received to the transferring Partner.
15
<PAGE>
(c) If the Partner entitled to purchase hereunder fails to so elect within
the period provided for in Section 11.3(a), the transferring Partner
shall have 90 days following the expiration of such period to
consummate the transfer to the proposed transferee at a price and on
terms no less favorable to the transferring Partner than those set
forth in the notice required in Section 11.3(b).
(d) If the transferring Partner fails to consummate the transfer to the
proposed transferee within the period set forth in Section 11.3(c), the
preemptive right of the other Partner with respect to any disposition
of such Partnership Interest shall be ______. any subsequent proposal
to transfer such interest shall be conducted in accordance with all of
the procedures set forth in this Section 11.3.
Section 11.4 Exceptions to Preemptive Right. Section 11.3 shall not
------------------------------
apply to any transfer occurring by operation of law in a corporate merger,
consolidation, amalgamation or reorganization of a Partner in which the
surviving entity possesses all of the stock or all of the property rights and
interests, and is subject to all of the liabilities and obligations of that
partner or to the grant by a Partner of a security interest in any portion of
its Partnership Interest pursuant to the second paragraph of Section ____.
Section 11.5 Instruments of Assignment. Whenever any Partnership
-------------------------
Interest is transferred to any entity which thereby becomes a Partner, the other
Partner agrees to execute an appropriate instrument admitting such entity.
Section 11.6 More Than two Partners. Without limiting the rights of any
----------------------
Partner under Section 11.1, if, after giving effect to any transfer of
Partnership Interests in accordance with this Article XI there would be more
than two Partners, Section 4.6, Section 10.2(b), Section 10.3 and Section 11.3
shall be amended, effective the date of such transfer, as appropriate to reflect
the increased number of Partners and all references to Partner or Partners shall
be deemed to refer to or include such additional Partner where the context
requires.
ARTICLE XII
Insurance
---------
Section 12.1 Insurance. The Partnership shall maintain:
---------
(i) Coverage which shall comply with all applicable state and federal
workers' compensation and occupational disease laws and which shall
encompass all employees of the Partnership. These policies shall also
provide for employers' liability in the amount of not less than
$1,500,000 (see section on comprehensive general liability).
(ii) Comprehensive general liability insurance against claims arising out
of the operations of the Partnership with limits of not less than $2
million per occurrence, $4 million in
16
<PAGE>
the aggregate. Policy shall include _____ gap employers' liability
endorsement, should coverage for same be omitted from workers'
compensation policies.
(iii) Automobile bodily injury and property damage liability covering
automobiles owned, non-owned, or leased by the Partnership or the
Manager in connection with the Operations of the Partnership. Limits
of liability shall be not less then $2 million per occurrence, $4
million in the aggregate.
(iv) Umbrella liability coverage in the amount of not less than $50
million, in the name of the Partner or in the name of each Partner,
(providing excess coverage for employer's liability, comprehensive
general liability, automobile liability, and limited named perils
pollution).
(v) Insurance against physical loss or damage to real and personal
property owned by the Partnership by fire, explosion and other
hazards or casualties. Such coverage shall have limits not less than
the fair market value of the insured assets, subject to a deductible
not exceeding $1 million.
(vi) Insurance to compensate for business interruption losses, if such
coverage is economically attainable.
(vii) And other such insurances as are customarily maintained in the
business (including but not limited to fidelity, environmental
impairment, directors and officers, etc.).
ARTICLE XIII
ACQUISITIONS WITHIN APPALACHIA
------------------------------
Section 13.1 General. Any interest or option to acquire any interest in
-------
Coal Properties in Appalachia acquired or held during the term of this Agreement
by or on behalf of a Partner or any Affiliate shall, except as otherwise
provided in this Article or agreed to by the Partners, be included in the
Partnership and shall be subject to the terms and provisions of this Agreement.
Section 13.2 Intention of Parties. It is the intention of the Partners
--------------------
that, except if it is necessary to act quickly in acquiring Coal Properties and
consultation among the Partners is not practicable or if a Partner does not
elect to accept the interest pursuant to Section 13.4, Coal Properties be
acquired by the Partners in the Partnership name and not through the procedures
described in Section 13.3, 13.4, and 13.5.
Section 13.3 Notice to Nonacquiring Partner. If it is not practicable to
------------------------------
acquire Coal Properties in the Partnership name as contemplated by Section 13.2,
within 14 days after the acquisition by any Partner or its affiliates of any
interest or the option to acquire any interest in Coal Properties, the acquiring
Partner shall notify the other Partner of such acquisition. Such notice shall
17
<PAGE>
describe in detail the acquisition, the real property and minerals covered
thereby, the cost thereof, and the reasons why the acquiring Partner believes
that the acquisition of the interest is in the best interests of the Partners
under this Agreement. The acquiring partner shall also make any and all other
information concerning the acquired interest available to the other Partner.
Section 13.4 Option Exercised. If, within 90 days after receiving the
----------------
acquiring Partner's notice pursuant to Section 13.3, the other Partner notifies
the acquiring Partner of its election to accept the acquisition in the
Partnership name, the acquiring Partner or Affiliate shall convey to the
Partnership, be deed or by assignment of lease in form acceptable to the other
Partner, such acquired interest. The acquired interest shall become a part of
the Partnership for all purposes of this Agreement immediately upon notice of
such other Partners election to accept such. Such other Partner shall promptly
pay to the acquiring Partner its proportionate share of the latter's accrual
out-of-pocket acquisition costs and shall assume its proportionate share of any
indebtedness incurred in making such acquisition.
Section 13.5 Option Not Exercised. If the other Partner does not give
--------------------
such notice within the 90-day period set forth in Section 13.4, neither it nor
the Partnership shall have any interest in the acquired interest, and the
acquired interest shall not be a part of the Partnership, shall not be
considered Coal Property and shall not be subject to this Agreement.
Section 13.6 Stock Acquisitions. If any Partner acquires, or proposes to
------------------
acquire, any interest in Coal Property through the acquisition of stock in a
company in which such interest and related assets represent less than 50 percent
of the fair market value of all assets of such company, such acquisition or
proposed acquisition shall be subject to this Article XIII only if reasonably
practicable and if such interest and related assets can reasonably be offered to
a Partner and held in partnership subject of this Agreement.
ARTICLE XIV
General Provisions
------------------
Section 14.1 Information. The Partnership shall from time to time
-----------
provide each Partner with such information and records as such Partner may
reasonably request.
Section 14.2 Confidentiality. Each Partner and the Partnership shall use
---------------
their best efforts to assure that all information disclosed to them in
connection with the business of the Partnership and not otherwise generally
available shall be kept confidential and shall not be revealed without the
consent of the Partners to anyone other than to directors, employees,
accountants and representatives of the Partnership, the Partners and their
Affiliates or in connection with filings required by law with government
agencies or courts. If such information is revealed to such persons, each
Partner and the Partnership agree to use their best efforts to have such persons
keep such information confidential.
Section 14.3 Notices. Notices, payments and other required
-------
communications to the Partners or the Partnership shall be in writing or by
telex with acknowledgment of receipt and shall be effective
18
<PAGE>
(i) when delivered during normal business hours to the party to be given such
notice, election or consent at the address designated by it for such delivery,
(ii) five Business Days after such notice, election or consent shall have been
deposited in the United States mails, certified or registered with return
receipt requested and postage thereon fully prepaid, addressed to such address
or (iii) on the calendar day following the day such notice, election or consent
shall have been transmitted by telecopy, telex or telegram, fully prepaid, to
such address or telephone number, whichever shall first occur. Until otherwise
specified by notice to the other Partner, the addresses and telephone numbers
for any such notice, election or consent shall be:
If to Roaring Creek:
Roaring Creek Coal Company
251 N. Illinois Street
Post Office Box 967
Indianapolis, Indiana 46206-0967
Attention: Vice President, Law & Governmental Affairs
Telex: 276163
Telecopier: 317-266-3429
If to Grassy Cove:
Grassy Cove Coal Mining Company
c/o American Petrofina, Incorporated
Fina Plaza
8350 North Central Expressway
Post Office Box 2159
Dallas, Texas 75206
Attention: Vice President
Telex: 0730138
Rapifax: 214-750-2798
With a copy to:
Petrofina S.A.
52 Rue de Industrie
1040 Brussels, Belgium
Attention: Manager, Coal Operations
Telex: PFINAS 846 21556
Rapifax: 322-2339191
If to the Partnership:
Bentley Coal Company
Hyer Building
19
<PAGE>
1500 Harrison Avenue
Elkins, West Virginia 26241
Attention: President
Telecopier:
Any notice delivered to any Partner or to the Partnership shall be given to
all other Partners and the Partnership as nearly simultaneously as is
practicable.
Section 14.4 Waiver. The failure of a Partner to insist on the strict
------
performance of any provision of this Agreement or to exercise any right, power
or remedy upon a breach hereof shall not constitute a waiver of any provision of
this Agreement or limit the Partner's right thereafter to enforce any provision
or exercise any right.
Section 14.5 Modification. No waiver under, modification of or amendment
------------
to this Agreement shall be valid unless made in writing and duly executed by the
requisite number of Partners.
Section 14.6 Further Assurances. Each of the Partners agrees that it
------------------
shall from time to time take such actions and execute such additional
instruments as may be reasonably necessary to carry out the purposes of this
Agreement.
Section 14.7 Governing Law. This Agreement shall be governed by the Laws
-------------
of the State of New York and shall be construed in accordance with the Act.
Section 14.8 Consent to Jurisdiction: Service of Process. Subject to
--------------------------------------------
Section 14.9, each of the Partners: (a) irrevocably submits to the jurisdiction
of any New York State or Federal court sitting in The City of New York over any
suit, action or proceeding arising out of or relating to this Agreement or the
operations of the Partnership; (b) irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have to the
laying of the venue of any suck suit, action or proceeding brought in such a
court and any claim that any such suit, action or proceeding brought in such a
court has been brought in an inconvenient forum; (c) hereby appoints CT
Corporation System its automated agent to accept and acknowledge service of any
and processes which may be served if any suit, action or proceeding of the
nature referred to in this Section 14.8 and consents to process being served in
any such suit, action or proceeding upon CT Corporation System in any manner or
by the mailing of a copy thereof by registered or certified air mail, postage
prepaid, return receipt requested, to such Partner's address specified in
Section 14.3; and (c) agrees that such service (i) shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding and (ii) shall, to the fullest extent permitted by law, be taken and
held to be valid personal service upon and personal delivery to it. Nothing in
this Section 14.8 shall affect the right of any Partner to serve process in any
manner permitted by law or limit the right of any partner to bring proceedings
against any other Partner in the courts of any jurisdiction or jurisdictions.
Each Partner will, no later than 30 days after the date of this Agreement, take
any action necessary to make the preceding appointment effective and will
deliver to the other Partner a copy of acceptance of appointment of CT
Corporation System.
20
<PAGE>
Section 14.9 Settlement of Disputes and Arbitration. The Partners
--------------------------------------
recognize that disagreements between them could result in an impasse. the
Partners further recognize that such an impasse resulting from disagreement with
respect to Budgets and certain other major decisions would have an adverse
effect upon Operations. Accordingly, the Partners have agreed upon the _______
____ form in this Section 14.9 pending resolution of such disagreements.
If the Partners are unable to resolve disputes, Roaring Creek and Grassy
Cove will, prior to referring any matter to arbitration pursuant to this Section
14.9 or Section 2.4 of the Accounting Procedure, in the first instance refer the
dispute to top level executives of AMAX Inc. a New York corporation, and
Petrofina S.A., a Belgian corporation, respectively, who are not members of the
Executive Committee or the FINAMAX Management Committee, and if such executive
officers do not resolve the dispute within 30 days of referral, either Partner
may refer such matter to arbitration as provided herein or in Section 2.4, as
the case may be. Any dispute or difference which may arise between the Partners
solely with respect to the meaning or interpretation of any provision of this
Agreement, other than disputes or differences with respect to accounting matters
described in and subject to Section 2.4 of the Accounting Procedure, shall be
finally settled by arbitration in accordance with the regulations of the
American Arbitration Association. Either Partner may serve written demand on
the other Partner that any such dispute be settled by arbitration within 30 days
of the date of such written demand, the Partner serving such demand shall
deliver to the other Partner a written designation of an arbitrator. The other
Partner shall, within 30 days after receipt of such designation, deliver to the
first Partner a written designation of an arbitrator selected by such other
Partner. The two arbitrators so designated shall designate a third arbitrator
mutually acceptable to them, but if the two arbitrators are unable within 15
days to agree upon a third arbitrator, or if the other Partner or the two
arbitrators shall fail to designate an arbitrator within 30 days after the
designation of an arbitrator by the first Partner, the first Partner may apply
to the American Arbitration Association for the appointment by such Association
of such second or third arbitrator in accordance with its rules and regulations.
If such experience is, in the judgment of the Major Partners, relevant to the
question to be arbitrated, the arbitrators appointed by each Partner and
________ American Arbitration Association shall be persons experienced in the
coal business.
The Partners agreed to be conclusively bound by the decision or report of
arbitrators designated in accordance with the preceding paragraph and Section
2.4 of the Accounting Procedure.
Section 14.10. Counterparts. This Agreement may be signed in any number
------------
of counterparts, each of which shall be an original, and which together shall
constitute but one agreement.
Section 14.11. Severability. If any provision of this Agreement or the
------------
application of any provision hereof to any party or set of circumstances is held
invalid, the remainder of this Agreement and the application of such provision
to any other party or set of circumstances shall not be affected unless the
invalidity of such provision substantially impairs the benefits of the remaining
provisions or the realization of the agreements of the parties expressed herein.
21
<PAGE>
Section 14.12. Miscellaneous. This Agreement supersedes any other
-------------
agreement dated prior to the date hereof, including the _______ of Agreement,
between the Partners or their Affiliates with respect to the subject matter of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Partnership
Agreement to be executed by their duly authorized representatives as of the date
first above written.
Roaring Creek Coal Company
By: /s/ Illegible
--------------------------------
Its:_______________________________
Grassy Cove Coal Mining Company
By: /s/ Illegible
--------------------------------
Its: Vice President
-------------------------------
22
<PAGE>
EXHIBIT A
---------
ACCOUNTING PROCEDURES
ARTICLE I
---------
Definitions
-----------
Terms used herein and defined in the Partnership Agreement have the meaning
set forth therein and the following terms have the following meanings:
"Agreement" means Partnership Agreement;
"Section" means a section of this Accounting Procedure, unless otherwise
specified.
ARTICLE II
----------
General Provisions
------------------
Section 2.1. Books, Records and Accounts; Audits
-----------------------------------
The Partnership shall maintain, or cause to be maintained, true and correct
books, records and accounts for the Partnership in accordance with the terms of
the Partnership Agreement and with United States generally accepted accounting
principles. All revenues and costs shall be recognized on an accrual basis.
Such books, records and accounts shall include but not be limited to a complete
set of double-entry books, consisting of appropriate asset accounts, liability
accounts, capital accounts (i.e., Partners' equity accounts), and income and
expense accounts. They shall be used to record all revenues, income, costs,
expenses, receipts, disbursements, and other transactions of the Partnership,
including the brokering and purchase and disposition of coal. Appropriate
records, such as weigh tickets and engineering surveys, shall be maintained to
verify the amount of production, coal purchases and shipments. The books,
records and accounts shall be retained for three years, or such additional
periods as may be required by the Internal Revenue Code.
The Partnership books, records and accounts shall be audited annually as
provided in Section 7.2 of the Partnership Agreement. The results thereof shall
be delivered to each Partner within 120 days of the end of the calendar year.
All written exceptions to and claims upon the partnership for discrepancies
disclosed by any audit shall be made within sixty (60) days following completion
of such audit and delivery of the results thereto to the Partners.
23
<PAGE>
At any time during normal business hours and without any need for prior
notice, any Partner shall be entitled (through either internal auditors or
another designated representative) to examine and make copies of the books and
records maintained by the Partnership.
Section 2.2. Internal Accounting Control
---------------------------
The Partnership shall maintain or cause to be maintained systems of
internal accounting control, including organization, supervision, procedures and
records which are sufficient to provide reasonable assurance that:
(a) All transactions are properly authorized;
(b) All transactions are properly recorded on a timely basis to permit (1)
preparation of financial statements and related footnotes in accordance
with United States generally accepted accounting principles, (2)
preparation of tax returns in accordance with the IRS Code and other
applicable statutes, and (3) to maintain accountability for assets;
(c) All assets are adequately safeguarded and all liabilities are
recognized and discharged on a timely basis;
(d) Recorded balances are periodically substantiated.
Section 2.3. Reports and Information
-----------------------
Within twenty (20) calendar days after the end of each calendar month the
Partnership Executive Committee shall be furnished a report as to the operating
and financial results of FINAMAX Coal Company for the month and year-to-date,
with comparisons to the adopted budget.
Such financial information as is required for each partner to record their
pro rata portion of the Partnership's financial results shall be furnished
monthly to each Partner on a timely basis. This financial information will
normally consist of a statement of financial position, an income statement, and
a schedule of capital expenditures, as well as other financial data reasonably
requested by each Partner.
Each Partner shall be furnished such forecast, budget and other information
as may be reasonably required to allow the preparation of financial
projections, tax returns and other required reports.
Section 2.4. Arbitration
-----------
Any dispute or difference which may arise between the Partners with respect
to the meaning, interpretation or application of the Accounting Procedure or
with respect to any other accounting matter shall be finally settled by Coopers
& Lybrand, or any other firm of certified public accountants selected by the
Partnership Executive Committee. If Coopers & Lybrand or such firm has been
24
<PAGE>
consulted by either Partner regarding the matter in dispute, such firm shall
select any other firm of certified public accountants to act in its stead.
Section 2.5. Cash Accounts
-------------
The Partnership shall maintain or cause to be maintained such bank accounts
as are approved by the Partnership Executive Committee.
25
<PAGE>
Exhibit 3.43(a)
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF MERGER
OF SHARE EXCHANGE
Pursuant to (S)33-11-105 of the 1976 South Carolina Code, as amended, the
undersigned as the surviving corporation in a merger or the acquiring
corporation in a share exchange, as the case may be, hereby submits the
following information:
1. The name of the surviving or acquiring corporation is Shipyard River Coal
Terminal Company.
2. Attached hereto and made a part hereof is a copy of the Plan or Merger or
Share Exchange (see (S)(S)33-11-101 (merger ) 33-11-102 (share exchange),
33-11-104 (merger of subsidiary into parent) 33-11-107 (merger or share
exchange with a foreign corporation), and 33-11-108 (merger of a parent
corporation into one of its subsidiaries).
3. Complete the following information to the extent it is relevant with
respect to each corporation which is a party to the transaction:
(a) Name of the corporation Shipyard River Coal Terminal Company
Complete either (1) or (2), whichever is applicable:
(1) [ ] Shareholder approval of the merger or stock exchange was not
required (See (S)(S)33-11-103(h), 33-11-104(a), and 33-11-
108(a)).
(2) [X] The Plan of Merger or Share Exchange was duly approved by
shareholders of the corporation as follows:
<TABLE>
<CAPTION>
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the meeting For Against
- - ------------------ ----------------- ------------------ ----------------- --- --------
<S> <C> <C> <C> <C> <C>
Common Stock 100 100 100 100 0
</TABLE>
*NOTE: Pursuant to the Section 33-11-106(a)(3)(ii), the corporation can
alternatively state the total number of undisputed shares cast for the
amendment by each voting group together with a statement that the
number cast for the amendment by each voting group was sufficient for
approval by that voting group.
<PAGE>
(b) Name of the corporation: Basin Resources, Inc.
Complete either (1) or (2), whichever is applicable:
(1) [ ] Shareholder approval of the merger or stock exchange was not
required (See (S)(S)33-11-103(h), 33-11-104(a), and 33-11-
108(a)).
(2) [X] The Plan of Merger or Share Exchange was duly approved by
shareholders of the corporation as follows:
<TABLE>
<CAPTION>
Number of Number of Number of Votes Number of Undisputed*
Voting Outstanding Votes Entitled Represented at Shares Voted
Group Shares to be Cast the meeting For Against
- - ------------------ ----------------- ------------------ ----------------- --- -------
<S> <C> <C> <C> <C> <C>
Common Stock 100 100 100 100 0
</TABLE>
*NOTE: Pursuant to the Section 33-11-106(a)(3)(ii), the corporation can
alternatively state the total number of undisputed shares cast for the
amendment by each voting group together with a statement that the
number cast for the amendment by each voting group was sufficient for
approval by that voting group.
4. Unless a delayed date is specified, the effective date of this document
shall be the date it is accepted for filling by the Secretary of State
(See (S)(S)33-1-230(b)):
DATE: December 8, 1994 Shipyard River Coal Terminal Company
By: /s/ Illegible
(Signature and Office)
FILING INSTRUCTIONS
1. Two copies of this form, the original and either a duplicate original or
a conformed copy, must be filed.
2. Filing Fee (payable to the Secretary of State at the time of filing of
this document.)
Filing Fee $ 10.00
Filing Tax 100.00
3. TWO COPIES OF TH E PLAN OF MERGER OR SHARE EXCHANGE MUST BE FILED WITH
THIS FORM AS AN ATTACHMENT.
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger dated as of December 8, 1994,
between Basin Resources, Inc., a Delaware corporation ("Basin"), and Shipyard
River Coal Terminal Company, a South Carolina corporation ("Shipyard"), (Basin
and Shipyard collectively shall be the "Constituent Corporations") (the
"Agreement").
WHEREAS, Basin is a corporation duly organized and existing under the
laws of the State of Delaware with an authorized capital stock of 100 shares of
common stock, with a par value of $0.01 per share, (the "Basin Common Stock") of
which 100 shares of the Basin Common Stock are issued and outstanding as of the
date of this Agreement;
WHEREAS, Shipyard is a corporation duly organized and existing under
the laws of the State of South Carolina with an authorized capital stock of 100
shares of common stock, with a par value of $10.00 per share, (the "Shipyard
Common Stock") of which 100 shares of the Shipyard Common Stock are issued and
outstanding as of the date of this Agreement;
WHEREAS, the respective board of directors of each of the Constituent
Corporations have determined that it is in each of their best interests to
effect certain exchanges and other transactions described in this agreement,
that Basin merge with and into Shipyard with Shipyard being the surviving
corporation, and that the directors and stockholders of each of the Constituent
corporations have approved the merger on the terms and conditions set forth
herein in accordance with the applicable provisions of the laws of the State of
South Carolina;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby agree that, in accordance with the
applicable statutes of the State of South Carolina, Basin shall be merged into
Shipyard, with Shipyard being the surviving corporation, and that the terms and
conditions of such merger (the "Merger"), the mode of carrying it into effect
and the manner and basis of converting the shares effected by the Merger shall
be as follows:
1. THE MERGER. Upon the terms and conditions hereinafter set forth and in
----------
accordance with the Business Corporation Act of South Carolina, on the day of
the Effective Time, Basin shall be merged with and into Shipyard and thereupon
the separate existence of Basin shall cease, and Shipyard, as the surviving
corporation (the "Surviving Corporation"), shall continue to exist under and be
governed by the Business Corporation Act of the State of South Carolina.
1. FILING. Basin and Shipyard will cause the Articles of Merger, in
------
compliance with the provisions of applicable law to be executed and filed
with the Secretary of State of South Carolina (the "Articles of Merger").
2. EFFECTIVE DATE OF MERGER. The Merger shall become effective
------------------------
immediately upon the filing of the Articles of Merger with the Secretary of
State of South Carolina (the "Effective Time").
<PAGE>
3. CERTIFICATE OF INCORPORATION AND BY-LAWS. At the Effective Time, the
----------------------------------------
Certificate of Incorporation of Shipyard shall be the Certificate of
Incorporation of the Surviving Corporation. The by-laws of Shipyard shall
be the by-laws of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. The persons who are directors of Shipyard
----------------------
immediately prior to the Effective time shall, after the Effective Time,
serve as the directors of the
<PAGE>
EXHIBIT 3.44(A)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CYPRUS CUMBERLAND COAL CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Cyprus Cumberland Coal Corporation.
2. The Articles of Incorporation of the Corporation are hereby amended by
changing the first Article thereof so that as amended, said Article shall read
as follows:
FIRST: The name of the corporation is: Straight Creek Coal
Resources Company.
3. The Amendment of the Articles of Incorporation herein certified has
been duly adopted in accordance with the provisions of KRS 271B.7-040 and KRS
271B.8-210 of the Kentucky Business Corporation Act. This Amendment of the
Articles of Incorporation herein certified was adopted on the 29, 1998 by
unanimous written action of the Board of Directors and written action of the
sole shareholder on June 28, 1998.
4. The effective date of the Amendment herein certified shall be the date
of filing.
Signed and attested this the 30/th/ day of June, 1998.
CYPRUS CUMBERLAND CORPORATION
BY: /s/ Illegible
----------------------------------
TITLE: Vice President of Administration
---------------------------------
Attested
By: /s/ Illegible
-----------------------
<PAGE>
Title:_______________
<PAGE>
Exhibit 3.45(a)
CERTIFICATE OF INCORPORATION
OF
TURIS COAL COMPANY
* * * * * * * * * * * * * * * * * * * *
FIRST: The name of the corporation is:
TURIS COAL COMPANY
SECOND: The address of its registered office in the State of Delaware is
No. 100 West Tenth Street, in the City of Wilmington, County of New Castle. The
name of its registered agent as such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
are:
(1) To acquire, purchase, lease, option, own, sell, and mortgage coal lands
or supposed coal lands or mineral estates; to buy, lease and sell real estate or
interests therein; to prospect for, explore for, develop, produce, mine, and
market coal and other minerals or mineral products, own, control, erect,
construct, operate and maintain coal mining plants, machinery, buildings and
equipment for the operation of coal or other mines, and for the transportation,
treatment, removal, storage, shipment, delivery or marketing of coal or other
minerals; to construct and operate railways and tramways for mining and
transporting coal; to build and lease houses for the use of miners and others,
including the purchase and sale of same;
(2) To enter into, make, perform and carry out contracts of any kind for
any lawful purpose with respect to the conducting and financing of the
operations of the corporation;
(3) To do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes, the attainment of any of the objects or
the exercise of any of the powers herein set forth, either alone or in
conjunction with other corporations, firms or individuals, and either as
principals or agents, and to do
<PAGE>
every other act or acts, thing or things, incidental or appurtenant to or
growing out of or connected with the above mentioned objects, purposes or
powers.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is one thousand (1,000) shares of Common Stock with a
par value of one dollar ($1.00) per share.
FIFTH: The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
SHELL OIL COMPANY One Shell Plaza
P.O. Box 2463
Houston, TX 77001
SIXTH: In addition to the powers conferred by the laws of the State of
Delaware, the Board of Directors shall have the power from time to time to make,
alter, amend and repeal the By-Laws of the corporation, subject to the power of
the holders of the Common Stock to alter or repeal the By-Laws made by the Board
of Directors.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is its act and deed and the facts herein stated are true, and accordingly has
hereunto set its hand and seel this 11th day of August, 1980.
SHELL OIL COMPANY
(CORPORATE SEAL)
By ___________________________
Executive Vice President
ATTEST:
<PAGE>
/s/ Illegible
- - ---------------------
Assistant Secretary
STATE OF TEXAS )
)SS:
COUNTY OF HARRIS )
BEFORE ME, A Notary Public in and for Harris County, Texas, on this day
personally appeared C. L. Blackburn known to me to be the person and officer
whose name is subscribed to the foregoing Certificate of Incorporation, and
acknowledged to me that the same was the act and deed of said SHELL OIL COMPANY,
a corporation and that he executed the same as the act and deed of such
corporation for the purposes and consideration therein expressed and that the
facts stated therein are true.
GIVEN under my hand and seal of office this 11th day of July, 1980.
/s/ Illegible
---------------------
Notary Public in and for
Harris County, Texas
<PAGE>
Exhibit 3.45(a)
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
TURRIS COAL COMPANY
Adopted in accordance with the provisions
of Section 242 of the General Corporation Law of
the State of Delaware
The undersigned officers of Turris Coal Company, a corporation existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
as follows:
FIRST: The Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation") is hereby amended by deleting ARTICLE THIRD
in its entirety and substituting in lieu thereof a new ARTICLE THIRD as
follows:
"THIRD. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the
State of Delaware."
SECOND: That the Board of Directors of the Corporation, in accordance with
Sections 141(f) and 242 of the General Corporation Law of the State of
Delaware, duly adopted the foregoing amendment to the Certificate of
Incorporation of the Corporation by unanimous written consent.
THIRD: That the Sole Stockholder of the Corporation, in accordance with
Sections 228(c)and 242 of the General Corporation Law of the State of
Delaware, approved the foregoing amendment to the Certificate of
Incorporation of the Corporation by unanimous consent.
IN WITNESS WHEREOF, the undersigned being the President and Secretary for
--------- ---------
the purpose of amending the Certificate of Incorporation of the Corporation
pursuant to the General Corporation Law of the State of Delaware, under
penalties of perjury do each hereby declare and certify that this is the act and
deed of the Corporation and the facts stated herein are true, and accordingly
have hereunto signed this Certificate of Amendment of the Certificate of
Incorporation as of this 10th day of November, 1992.
----
TURRIS COAL COMPANY
By: /s/ ILLEGIBLE
--------------
President
ATTEST
By: /s/ ILLEGIBLE
--------------
<PAGE>
Secretary
<PAGE>
EXHIBIT 3.45(a)
CERTIFICATE OF AMENDMENT
------------------------
TO CERTIFICATE OF INCORPORATION
-------------------------------
Pursuant to the provisions of Section 241 of the General Corporation Law of
the State of Delaware, the undersigned corporation does hereby certify as
follows:
FIRST: Turris Coal Company was duly incorporated under the laws of
Delaware by Certificate of Incorporation filed with the Secretary of State of
the State of Delaware on August 15, 1980.
SECOND: The Company has not received any payment for any of its stock.
THIRD: By Unanimous Action dated September 4, 1980, the Directors of the
Company, pursuant to the provisions of Section 241 of the General Corporation
Law of the State of Delaware, duly adopted an amendment to its Certificate of
Incorporation became effective, so that, as amended, Article First of said
Certificate of Incorporation reads as follows:
"FIRST: The name of the Corporation is
TURRIS COAL COMPANY"
THE UNDERSIGNED, for the purposes of effecting the foregoing amendment,
makes this Certificate, hereby declaring and certifying that this is its act and
deed and the facts herein stated are true, and accordingly has hereunto set its
hand and seal this 23 day of September, 1980.
TURRIS COAL COMPANY
By: /s/ ILLEGIBLE
--------------
Attest:
/s/ ILLEGIBLE
- - -------------------
Assistant Secretary
<PAGE>
Exhibit 3.47(a)
State of Delaware
Office of the Secretary of State PAGE 1
___________________________
I, EDWARD J. FREEL, SECRETARY OF THE STATE OF STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "ZEIGLER COAL HOLDING COMPANY", FILED IN THIS OFFICE ON THE
THIRTIETH DAY OF JANUARY, A.D. 1985, AT 12 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9429647
DATE: 11-30-98
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
ZEIGLER COAL HOLDING COMPANY
The name of the corporation is Zeigler Coal Holding Company and the
corporation's original Certificate of Incorporation was filed with the Secretary
of State of Delaware on December 28, 1983. This Amended and Restated Certificate
of Incorporation (the "Amendment") was duly adopted in accordance with the
provisions of Section 228, 242 and 245 of the General Corporation Law of
Delaware.
ARTICLE FIRST
The name of the Company is Zeigler Coal Holding Company.
ARTICLE SECOND
The address of its registered office in the State of Delaware is 306 South
State Street, in the City of Dover, County of Kent. The name of its registered
agent at such address is United States Corporation Company.
ARTICLE THIRD
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE FOURTH
The total number of shares of stock which the Company has the authority to
issue is 1,705,000 shares consisting of (1) 665,000 of preferred stock, par
value $.10 per share (the "preferred Stock"), and (2) 1,040,000 shares of common
stock, par value $.01 per share (the "Common Stock").
With the effectiveness of this Amendment, each share of issued and
outstanding common stock, $1.00 par value per share, shall be exchanged for an
aggregate of 7.0263 shares of fully paid and nonassessable shares of Common
Stock; and further resolved, as soon as practicable hereafter, each holder of
record of presently issued and outstanding Common Stock shall deliver the
Certificate representing such shares, properly endorsed for transfer, and
thereupon such shares shall be deemed cancelled, retired and eliminated and
shall
-2-
<PAGE>
receive, in exchange for his cancelled certificate, a certificate representing
the shares of Common Stock for which the cancelled shares have been exchanged.
In connection with the exchange, the capital of the corporation shall be an
amount equal to the aggregate par value of the shares of the Corporation issued
and outstanding and the excess of the Corporation's total net assets over the
amount so determined to be capital shall be surplus.
PREFERRED STOCK
---------------
The 665,000 shares of Preferred Stock shall have the following rights,
limitations and preferences:
Part 1. Dividends.
---------
When and as declared by the Company's board of directors and to the extent
permitted under the General Corporation Law of Delaware, the holders of the
Preferred Stock will be entitled to receive preferential dividends as provided
in this part 1 and no more. Such dividends will be payable on April 1 of each
year commencing April 1, 1986 ("Dividend Payment Date") to holders of record on
the prior March 15 in an amount per share equal to, but not in excess of, the
lesser of (i) $1.00 or (ii) the result of dividing the "Earnings" (as
hereinafter defined) by the number of shares of Preferred Stock which are issued
and outstanding on such March 15. To the extent that any dividend that would be
payable on any Dividend Payment Date under the preceding sentence is not paid on
such date, then from and after such Dividend Payment Date such unpaid amount
shall cumulate and be payable at such time or times as the board of directors
may determine. Dividends not payable because of insufficient Earnings in any
fiscal year shall not cumulate. The term "Earnings" shall mean the consolidated
net income of the Company and its subsidiaries for the fiscal year immediately
preceding the Dividend Payment Date, determined in accordance with generally
accepted accounting principles. The determination of Earnings shall be made by
the board of directors and such determination shall be binding and conclusive
for all purposes of this Certificate of Incorporation. No dividends may be
declared or paid on any Junior Securities if at such time there are any unpaid
cumulated dividends on the Preferred Stock.
Part 2. Liquidation.
-----------
Upon any liquidation, dissolution or winding up of the Company, the holders
of Preferred Stock will be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Shares outstanding plus any unpaid cumulated
dividends on such Shares through the most recent Dividend Payment Date and the
holders of Preferred Stock will not be entitled to any further payment. If upon
any such liquidation, dissolution or winding up of the Company, the Company's
assets to be distributed among the holders of the Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid, then the entire _____ to be distributed will be
distributed ratably among such holders based upon the aggregate Liquidation
Value, plus any unpaid cumulated dividends through the most recent Dividend
Payment Date, of the Preferred Stock held by each such holder. The Company will
mail written notice of such liquidation, dissolution of winding up, not less
than 30 days prior to the payment date stated therein, to each record holder of
Preferred Stock. Neither the consolidation or merger of the Company into or with
any other corporation or corporations, not the sale or transfers by the Company
of all or any part of its assets, not the reduction of the capital stock of the
Company, will be deemed to be a liquidation, dissolution or winding up of the
Company within the meaning of this part 2.
-3-
<PAGE>
Part 3. Redemption.
----------
3A. Scheduled Redemption. At least 60 days prior to July 1 of each
--------------------
of the years 1990 through the year in which all of the shares of Preferred Stock
are redeemed by the Company ("Scheduled Redemption Date"), the Company will
deliver a notice (the "Redemption Request") to each holder of Preferred Stock
setting forth the amount of the Redemption Pool applicable to such Redemption
Date. The "Redemption Pool" will be determined by the Company's board of
directors in its sole discretion, but in any event will be not less than the
lesser of (i) $1.5 million or (ii) 25% of the Company's Earnings for
the fiscal year preceding such Scheduled Redemption Date. Within 20 days of the
date of mailing of the Redemption Request, each holder of Preferred Stock will
notify the Company of the number of his or her shares of Preferred Stock which
such holder desires to have redeemed by the Company. The failure by any holder
to notify the Company within such 20 day period will constitute notice by such
holder to the Company that such holder has elected to have no shares of
Preferred Stock redeemed by the Company. On the Scheduled Redemption Date, all
shares of Preferred Stock for which redemption has been requested to the extent
that funds are available for such redemption in the Redemption Pool. If the
amount in the Redemption Pool is greater than the amount required to redeem all
shares for which redemption has been requested, the Company will use the funds
remaining in the Redemption Pool to redeem on such Scheduled Redemption Date
additional shares of Preferred Stock selected on such basis as the board of
directors deems fair. If the amount in the Redemption Pool is insufficient to
redeem all of the shares of Preferred Stock to be redeemed on such Scheduled
Redemption Date will be selected from among the shares held by holders
requesting redemption on such basis as the Company's board of directors deems
fair. In determining the method for selecting shares for redemption, the board
of directors may consider the tax consequences to the holders of Preferred Stock
whose shares are to be redeemed. Not less than 20 days prior to the Scheduled
Redemption Date, the Company will send a redemption notice to each holder of
Preferred Stock whose shares will be redeemed on such Scheduled Redemption Date
specifying the number of shares to be redeemed from such holder.
3B. Optional Redemptions. The Company may at any time redeem on such
---------------------
date as the board of directors may specify (the "Optional Redemption Date") all
or any portion of the Preferred Stock then outstanding at a price per share
equal to the redemption Price. No Redemption pursuant to this paragraph 3B may
be made for less than 25,000 shares of Preferred Stock (or such lesser number of
shares of Preferred Stock then outstanding). The amount of funds used to redeem
shares pursuant to this paragraph 3B may in the discretion of the board of
directors be offset to reduce any Redemption Pool with respect to any Scheduled
Redemption under paragraph 3A.
3C. Redemption Price. For each share which is to be redeemed under
----------------
paragraph 3A or 3B the Company will be obligated on the Scheduled Redemption
date of the Optional Redemption Date (as the case may be) to pay to the holder
thereof (upon surrender by such holder at the Company's principal office or
other place designated by the Company of the certificate representing such
share) an amount (the "Redemption Price") equal to the Liquidation Value
thereof, plus unpaid cumulated dividends through the most recent Dividend
Payment Date.
3D. Notice of Optional Redemption. The Company will mail written
-----------------------------
notice to each holder whose shares are to be redeemed pursuant to paragraph 3B
not less than 30 days prior to the date on which such redemption is to be made.
Such notice shall specify the Optional Redemption Date and the shares to be
redeemed on such date. In case fewer than the total number of shares represented
by any certificate are redeemed, shares will be issued to the holder
-4-
<PAGE>
thereof without cost to such holder within 30 days after surrender of the
certificate representing the redeemed shares.
3E. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The shares of Preferred Stock to be redeemed on any Optional
- - --------
Redemption Date will be selected on such basis as the board of directors deems
fair, provided that the board of directors may take into consideration any
adverse tax consequences to the holders.
3F. Dividends After Redemption Date. No share called for redemption
-------------------------------
is entitled to any dividends accruing after the Optional Redemption Date or
Scheduled Redemption Date (as the case may be) if the Redemption Price of such
share is paid or deposited for payment on or prior to such Optional Redemption
Date or Scheduled Redemption Date. On such Optional Redemption Date or Scheduled
Redemption Date (as the case may be) all rights of the holder of such share will
cease, and such share will not be deemed to be outstanding.
3G. Redeemed or Otherwise Acquired Shares. Any shares of Preferred
-------------------------------------
Stock which are redeemed or otherwise acquired by the Company will be canceled
and will not be reissued, sold or transferred.
Part 4. Voting Rights.
-------------
The Company will not issue any shares of stock, or securities convertible
into or exchangeable for stock of time Company, which is senior in right to
receive dividends or has a liquidation preference over the Preferred Stock,
without time affirmative vote or consent of the holders of not less than two-
thirds of the issued and outstanding shares of Preferred Stock. Except as
provided in this Part 4, in Part 6 below or required by law, the Preferred Stock
will have no voting rights.
Part 5. Definitions.
------------
"Junior Securities" means any of the Company's equity securities other
-----------------
than the Preferred Stock.
"Liquidation Value" of any Share of Preferred Stock as of any particular
-----------------
date will be equal to $10.
Part 6. Amendment and Waiver.
--------------------
No amendment, modification or waiver will be binding or effective with
respect to any provision of this section defining the rights, preferences and
terms of the Preferred Stock without the prior written consent of the holders of
at least 95% of the Preferred Stock outstanding at the time such action is
taken.
COMMON STOCK
------------
Each outstanding share of Common Stock shall be entitled to one vote upon
any matter submitted to a vote of stockholders.
-5-
<PAGE>
GENERAL PROVISIONS
------------------
1. Registration of Transfer.
------------------------
The Company will keep at its principal office a register for the
registration of Preferred Stock and Common Stock. Upon the surrender of any
certificate representing Preferred Stock or Common Stock at such place, the
Company will, at the request of the record holder of such certificate, execute
and deliver (at the Company's expense) a new certificate or certificates in
exchange therefore representing in the aggregate the number of shares
represented by the surrender certificate. Such new certificates will be
registered in the name of the transferee of the shares represented by the
surrendered certificate, will represent a number of shares from the
surrendered certificate to which the transferee is entitled and will be
substantially identical in form to the surrendered certificate.
2. Replacement.
-----------
Upon receipt of evidence reasonably satisfactory to the Company (an
affidavit of the registered holder will be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Preferred Stock or Common Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is an institutional investor its own agreement will
be satisfactory), or, in the case of any such mutilation upon surrender of such
certificate, the Company will (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the number of
shares represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate.
3. Notices.
-------
All notices or other communications referred to herein will be in writing
and will be delivered by registered or certified mail, return receipt requested,
postage prepaid and will be deemed to have been given when so mailed (i) to the
Company, at its principal executive offices and (ii) to any stockholder, at such
holder's address as it appears in the stock records of the Company (unless
otherwise indicated by any such holder).
ARTICLE FIFTH
The name and mailing address of the incorporator are as follows:
Name Mailing Address
---- ---------------
Glen E. Hess 200 East Randolph Drive
Suite 5700
Chicago, Illinois 60601
-6-
<PAGE>
ARTICLE SIXTH
The Company is to have perpetual existence.
ARTICLE SEVENTH
The holders of the Common Stock, by such vote as may be set forth in the
bylaws or as otherwise agreed among such stockholders, are authorized to make,
alter or repeal the bylaws of the Company.
ARTICLE EIGHTH
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Company may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the board of directors or in the bylaws of the Company.
Election of directors need not be by written ballot unless the bylaws of the
Company so provide.
ARTICLE NINTH
The Company may not consolidate with or merge into any other corporation,
sell all or substantially all of the assets of the Company, liquidate, dissolve,
engage in a reorganization or reclassification without the affirmative vote or
consent of the holders of not less than (i) on or prior to January 31, 1990, 80%
of the issued and outstanding shares of Common Stock of the Company, and (ii)
after January 31, 1990, a majority of the issued and outstanding shares of
Common Stock of the Company.
ARTICLE TENTH
The provisions of the Certificate of Incorporation may be amended, altered,
changed or repealed at any time by the vote or consent of he holders of not less
than a majority of the then issued and outstanding shares of Common Stock of the
Company provided that (i) no amendment, alteration, change or repeal shall
affect the rights of the holders of Preferred Stock set forth in Part 4 and Part
6 of the provisions defining the rights, preferences and terms of the Preferred
Stock without the approval or consent of the holders of at lease 95% of the
shares of Preferred Stock then outstanding, (ii) no amendment, alteration,
change or repeal shall alter the respective voting rights of the Company's
classes of stock without he affirmative vote or consent of he holders of not
less than 75% of the issued and outstanding shares of Common Stock of the
Company and (iii) Article Ninth may only be amended, altered, changed or
repealed by the vote or consent of not less than 80% of the issued and
outstanding shares of Common Stock of the Company.
-7-
<PAGE>
IN WITNESS WHEREOF, we have signed this Restated Certificate of
Incorporation this 2 day of January, 1985.
/s/ Michael K. Reilly
----------------------------
Michael K. Reilly, President
ATTEST:
/s/ Glen E. Hess
- - ----------------
Glen E. Hess,
Assistant Secretary
-8-
<PAGE>
EXHIBIT 3.47(B)
BYLAWS
OF
ZEIGLER ACQUISITION CORPORATION
I certify that the following Bylaws, consisting of four pages, each of
which I have initialed for identification, are the Bylaws adopted by the sole
Director of Zeigler Acquisition Corporation (the "Corporation") by a Written
Action by Sole Director in Lieu of Meeting, dated July 27, 1998.
/s/ John Lynch
------------------------------
John Lynch, Secretary
<PAGE>
BYLAWS
OF
ZEIGLER ACQUISITION CORPORATION
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have majority of the voting power of the shares represented at such meeting
and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
-2-
<PAGE>
2.3 Unless waived as permitted by the Delaware General Corporation Law,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least
forty-eight hours before the time of the meeting or (ii) mailed to each director
at his last known address at least ninety-six hours before the time of the
meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors. The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or
chosen by an officer or officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders of
the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such powers and duties as the Board of Directors may assign
to him.
-3-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or
the President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or
the President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-4-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-5-
<PAGE>
Exhibit 3.48(a)
CERTIFICATE OF INCORPORATION
OF
ZEIGLER ENVIRONMENTAL SERVICES COMPANY
ARTICLE ONE
-----------
The name of the corporation Zeigler Environmental Services Company
(hereinafter called the "Corporation").
ARTICLE TWO
-----------
The address of the Corporation's registered office in the state of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805, in the City of Wilmington
County of New Castle. The name of its registered agent at such address is
Corporation Service Company.
ARTICLE THREE
-------------
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
------------
The total number of shares which the Corporation shall have the authority
to issue is One Thousand (1,000) shares, all of which shall be shares of Common
Stock, par value $.01 per share.
ARTICLE FIVE
------------
The name and mailing of the incorporator are as follows:
Name Address
---- -------
Eileen M. Carrig c/o Kirkland & Ellis
153 East 53/rd/ Street
39/th/ Floor
New York, NY 10022
ARTICLE SIX
-----------
The directors shall have the power to adopt, amend or repeal By-Laws,
except as may otherwise be provided in the By-Laws.
<PAGE>
ARTICLE SEVEN
-------------
The personal liability of the directors of the Corporation is hereby
eliminated to the fullest extent permitted by Paragraph (7) of Subsection (b) of
Section 102 of the General Corporation Law of the State of Delaware, as the same
may be amended or supplemented.
ARTICLE EIGHT
-------------
The corporation express elects not to be governed by Section 203 of the
General Corporation Law of the State of Delaware.
ARTICLE NINE
------------
The Corporation reserves the right to amend or repeal any provisions
contained in this Certificate of Incorporation from time to time and at any time
in the manner now or hereafter prescribed by the laws of the State of Delaware,
and all rights conferred upon stockholders and directors are granted subject to
such reservations.
I, the undersigned, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation in pursuance of the General Corporation Law of
the State of Delaware, do make and file this Certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set my hand this 20/th/ day of February, 1996.
/s/ Eileen M. Carrig
----------------------------------------
Eileen M. Carrig
Sole Incorporator
<PAGE>
EXHIBIT 3.49(a)
CERTIFICATE OF CORRECTION
TO CERTIFICATE OF INCORPORATION
OF
BLACK BEAR MINING CO.
* * * * *
Pursuant to (S)103 (f) of the
General Corporation Law of the State of Delaware
* * * * *
The undersigned being the sole incorporator of Black Bear Ming Co., a
corporation organized under and by virtue of the laws of the State of Delaware
DOES HEREBY CERTIFY:
1. The name of the corporation (hereinafter called the "Corporation") is
Black Bear Mining Co.
2. The Certificate of Incorporation, which was filed with the Secretary
of State of Delaware on May 13, 1992, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows: The
name of the corporation as referred to in the heading and ARTICLE ONE.
4. The portions of the instrument in corrected form are as follows:
CERTIFICATE OF INCORPORATION
OF
BLACK BEAR MINING COMPANY
and
ARTICLE ONE
The name of the corporation is Black Bear Mining Company.
Signed on June 9, 1992.
Black Bear Mining, Co.,
a Delaware corporation
/s/ Thaddine G. Gomez
-----------------------
Thaddine G. Gomez
Sole Incorporator
<PAGE>
EXHIBIT 3.49(a)
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
BLACK BEAR MINING COMPANY
The undersigned, Michael D. Bauersachs and Kevin L. Yocum, being the
President and Secretary, respectively, of Black Bear Mining Company, a
corporation and existing under and by virtue of the General Corporation Law of
the State of Delaware (the "Corporation"), do hereby certify as follows:
1. That the Directors of the Corporation pursuant to a Written Consent and
in accordance with Sections 141(f) and 242 of the General Corporation Law
of the State of Delaware, adopted the resolution set forth below proposing
an amendment to the Certificate of Incorporation of the Corporation (the
"Amendment") and further directed that the Amendment be submitted to the
stockholders of the Corporation entitled to vote thereon for their
consideration and approval.
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by deleting Article First and creating a new Article First to read
as following (the "Amendment"):
"FIRST: The name of the corporation is Zenergy, Inc. (hereinafter
called "the Corporation" or "this Corporation")."
2. That the Sole Stockholder of the Corporation, by written consent,
approved and adopted the Amendment in accordance with Sections 228 and 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, being the President and Secretary
hereinabove named, for the purpose of amending the Certificate of Incorporation
of the Corporation pursuant to the General Corporation Law of the State of
Delaware, under penalties of perjury do each hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are
true, and accordingly have hereunto signed this Certificate of Amendment to
Certificate of Incorporation this 12th day of June, 1996.
By: /s/ Michael D. Bauersachs
-------------------------
Michael D. Bauersachs
President
ATTEST:
/s/ Kevin L. Yocum
- - -------------------------
Kevin L. Yocum, Secretary
<PAGE>
EXHIBIT 3.51(a)
CERTIFICATE OF INCORPORATION
OF
CANNELTON INC.
1. The name of the corporation is:
Cannelton Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is the
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares shall be One Hundred Dollars ($100) amounting in the aggregate to One
Hundred Thousand Dollars ($100,000.00).
5. The board of directors is authorized to make, alter or repeal the by-
laws of the corporation. Election of directors need not be by written ballot.
6. To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, a director of
the corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as director. Any repeal or
modification of this Article shall not adversely affect any right or protection
of an existing director at the time of such repeal or modification.
7. The name and mailing address of the incorporator is:
Raymond. J. Cooke
AMAX Inc.
200 Park Avenue
33/rd/ Floor
New York, NY 10166
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, thereby declaring and certifying that this
is my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 18/th/ day of November, 1991.
<PAGE>
/s/ Raymond J. Cooke
Raymond J. Cooke
<PAGE>
Exhibit 3.52(a)
RESTATED CHARTER OF
CANNELTON INDUSTRIES, INC.
I.
The name of this corporation shall be: CANNELTON INDUSTRIES, INC.
II.
The principal office or place of business of said corporation will be
located in Cannelton, in the County of Kanawha, and State of West Virginia. Its
chief works will be located in various magisterial districts in Kanawha County
and Fayette County, West Virginia, and elsewhere within and without said state
and the United States.
III.
The objects for which this corporation is formed are as follows:
(1) To mine, make, manufacture, produce, prepare, process, purchase or
otherwise acquire, and to hold, use, sell, import, export, or otherwise trade or
deal in and with, coal and other minerals, steel and steel products, goods,
wares, products, merchandise, machines, machinery, appliances and apparatus of
every kind, nature and description, and, in general, to engage or participate in
any mining, manufacturing or other business of any kind or character whatsoever,
including, but not by way of limitation, importing, exporting, mining,
quarrying, producing, farming, agriculture, forestry, construction, management,
advisory, mercantile, financial or investment business, any business engaged in
rendering any manner of services and any business of buying, selling, leasing or
dealing in properties of any and all kinds, whether any such business is located
in the United States of America or any foreign country, and whether or not
related to, conducive to, incidental to, or in any way connected with, the
foregoing business.
(2) To engage in research, exploration, laboratory and development work
relating to any material, substance, compound or mixture now known or which may
hereafter be know, discovered or developed and to perfect, develop, manufacture,
use, apply and generally to deal in and with any such material, substance,
compound or mixture.
(3) To purchase, lease or otherwise acquire, to hold, own, use, develop,
maintain, manage and operate, to sell, transfer, lease, assign, convey, exchange
or otherwise turn to account or dispose of and, generally, to deal in and with,
personal and real property, tangible or intangible, of every kind and
description, wheresoever situated, and any and all rights, concessions,
interests and privileges therein.
<PAGE>
(4) To adopt, apply for, obtain, register, purchase, lease or otherwise
acquire, to maintain, protect, hold, use, own, exercise, develop, manufacture
under, operate and introduce and to sell and grant licenses or other rights in
respect of, assign or otherwise dispose of, turn to account, or in any manner
deal with, and contract with reference to, any trademarks, trade names, patents,
patent rights, concessions, franchises, designs, copyrights and distinctive
marks and rights analogous thereto and inventions, devices, improvements,
processes, recipes, formulae and the like, including, but not by way of
limitation, such thereof as may be covered by, used in connection with, or
secured or received under, Letters Patent of the United States of America or
elsewhere, and any licenses and rights in respect thereof, in connection
therewith or appertaining thereto.
(5) To purchase or otherwise acquire and to hold, pledge, sell, exchange or
otherwise dispose of securities (which term includes any shares of stock, bonds,
debentures, notes, mortgages or other obligations and any certificates, receipts
or other instruments representing rights to receive, purchase or subscribe for
the name of representing any other rights or interests therein or in any
property or assets) created or issued by any person, firm, association,
corporation or government or subdivision, agency or instrumentality thereof; to
make payment therefor in any lawful manner; and to exercise, as owner or holder
thereof, any and all rights, powers and privileges in respect thereof.
(6) To make, enter into, perform and carry out contracts of every kind and
description with any person, firm, association, corporation or government or
subdivision, agency or instrumentality thereof, to endorse or guarantee the
payment of principal, interest or dividends upon, and to guarantee the
performance of sinking fund or other obligations of, any securities or the
payment of a certain amount per share in liquidation of the capital stock of any
other corporation; and to guarantee in any way permitted by law the performance
of any of the contracts or other undertakings of any person, firm, association,
corporation or government or subdivision, agency or instrumentality thereof.
(7) To acquire by purchase, exchange or otherwise, all, or any part of, or
any interest in, the properties, assets, business and good will of any one or
more persons, firms, associations or corporations heretofore or hereafter
engaged in any business whatsoever; to pay for the same in cash, property or its
own or other securities; to hold, operate, lease, reorganize, liquidate, sell or
in any manner dispose of the whole or any part thereof; to assume or guarantee,
in connection therewith, the performance of any liabilities, obligations or
contracts of such persons, firms, associations or corporations; and to conduct
the whole or any part of any business thus acquired.
(8) To lend its uninvested funds from time to time to such extent, to such
persons, firms, associations, corporations or governments or subdivisions,
agencies or instrumentalities thereof, and on such terms and on such security,
if any, as the Board of Directors of the corporation (hereinafter called the
Board of Directors) may determine.
(9) To borrow money for any of the purposes of the corporation, from time
to time, and without limit as to amount; to issue and sell from time to time its
own securities in such amounts, on such terms and conditions, for such purposes
and for such considerations, as may
<PAGE>
now be or hereafter shall be permitted by the laws of the State of West
Virginia; and to secure such securities by mortgage upon, or the pledge of, or
the conveyance or assignment in trust of, the whole or any part of the
properties, assets, business and good will of the corporation then owned or
thereafter acquired.
(10) To promote, organize, manage, aid or assist, financially or otherwise,
persons, firms, associations or corporations engaged in any business whatsoever;
and to assume or underwrite the performance of all or any of their obligations.
(11) To organize or cause to be organized under the laws of the State of
West Virginia, any other state or states of the United States of America, the
District of Columbia, any territory, dependency, colony or possession of the
United States of America or of any foreign country, a corporation or
corporations for the purpose of transacting, promoting or carrying on any or all
objects or purposes for which the corporation is organized; to dissolve, wind
up, liquidate, merge or consolidate any such corporation or corporations or to
cause the same to be dissolved, wound up, liquidated, merged or consolidated;
and, subject to the laws of the State of West Virginia, to consolidate or merge
with or are one or more other corporations organized under the laws of the State
of West Virginia or under the laws of any other state or states in the United
States of America, the District of Columbia, any territory, dependency, colony
or possession of the United States of America or of any foreign country if the
laws under which said other corporation or corporations are formed shall permit
such consolidation or merger.
(12) To conduct its business in any and all of its branches and maintain
offices both within and without the State of West Virginia, in any and all
states of the United States, in the District of Columbia, in any or all
territories, dependencies and in foreign countries.
(13) To such extent as a business corporation organized under the general
corporation laws of the State of West Virginia may now or hereafter lawfully do,
to do, either as principal or agent or partner and either alone or through
subsidiaries or in connection with other persons, firms, associations or
corporations, all and everything necessary, suitable, convenient or proper for,
or in connection with, or incident to, the accomplishment of any of the purposes
or the attainment of any one or more of the objects herein enumerated or
designed directly or indirectly to promote the interests of the corporation or
to enhance the value of its properties; and in general to do any and all things
and exercise any and all powers, rights and privileges which a business
corporation may now or hereafter be organized or authorized to do or to exercise
under the laws of the State of West Virginia.
(14) Whenever the context permits, the following provisions shall govern
the construction of the paragraphs of these purposes: No specified enumeration
shall be construed as restricting in any way any general language; any word,
whether in the singular or plural shall be construed to mean both the singular
or plural; any phrase in the conjunctive or in the disjunctive shall include
both the conjunctive and disjunctive; the mention of the whole shall include any
part or parts; any one or more or all of the purposes set forth may be pursued
from time to time and whenever deemed desirable; verbs in the present of future
tense shall be construed to include both the present and future tenses or either
of them.
<PAGE>
IV.
The amount of the total authorized capital stock of said corporation shall
be One Million Dollars ($1,000,000.00), which shall be divided into ten thousand
shares of the par value of One Hundred Dollars ($100.00) each.
No stockholder of the corporation shall, because of his ownership of stock,
have a preemptive or other right to purchase, subscribe for, or take any part of
any stock of this corporation, or any part of the options, warrants, notes,
debentures, bonds, or other securities convertible into or carrying options or
warrants to purchase stock of this corporation issued, optioned, or sold by it.
Any part of the capital stock and any part of the options, warrants, notes,
debentures, bonds, or other securities convertible into or carrying options or
warrants to purchase stock of the corporation authorized by this amended and
restated charter or by future amendments thereto, may at any time be issued,
optioned for sale, and sold or disposed of by the corporation pursuant to a
resolution of its Board of Directors to such persons and upon such terms as may
to such Board seem proner without first offering such stock or securities or any
part thereof to existing stockholders.
When as a result of a stock dividend, stock split, merger, or otherwise, a
shareholder shall be entitled to receive a fraction of a share of stock, the
corporation may, at its option, either (a) issue such fractional share, (b) pay
in lieu of such fractional interest an amount in cash equal to the current
market value of such fractional interest, to the nearest one-hundredth of a
share, as determined by the Board of Directors, or (c) issue scrip of the
corporation in respect of such fractional interest, to the nearest one-hundredth
of a share. Such scrip shall be nondividend-bearing and nonvoting, shall be
exchangeable in combination with other similar scrip for the number of full
shares represented thereby, shall be issued in such denominations and in such
form, shall expire after such reasonable time (which shall be not less than two
years from the date of issue), may or may not contain such provisions for sale
for the account of the holders of such scrip of shares for which such scrip is
changeable, and shall be subject to such other terms and provisions, if any, as
the Board of Directors may from time to time determine prior to the issue
thereof.
V.
The existence of this corporation is to be perpetual.
VI.
The Board of Directors shall have power, without stockholder action:
(1) To make Bylaws for the corporation, and to amend, alter
or repeat any Bylaws; but any Bylaws made by the directors
may be altered, amended, or repealed by the stockholders at
any meeting.
<PAGE>
(2) To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve or reserves.
(3) To issue and dispose of any of the authorized and
unissued shares of stock of the corporation, including
fractional shares, and create optional rights to purchase or
subscribe for shares of stock of the corporation; such stock
may be issued and disposed of for such consideration,
including cash, property or services or any combination
thereof, and to such persons, firms and corporations, and
such optional rights may be created, and warrants, options
or other evidence of such rights issued, on such terms, for
such consideration, and in such manner, as may be determined
by resolution adopted by said Board of Directors, subject to
any provisions of law then applicable.
(4) To assume and have the entire control and management of
the corporation, its property and services.
The powers and authorities herein conferred upon the Board of Directors are
in furtherance and not in limitation of those conferred by the laws of the State
of West Virginia. In addition to the powers and authorities herein or by
statute expressly conferred upon it, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or done by the
corporation, subject, nevertheless, to the provisions of the laws of the State
of West Virginia, of this amended and restated charter and of the Bylaws of the
corporation.
VII.
To the extent that such right may validly be reserved under Section 43 and
other applicable sections of Article 1, Chapter 31 of the Code of West Virginia,
1931, as amended, the corporation hereby reserves the right at any time and
from time to time to amend, alter, change and repeal any provision contained in
this amended and restated charter and any amendments thereto by the affirmative
vote of a majority of the validly issued and outstanding capital stock of this
corporation, and to add to or insert in those articles of incorporation by a
like vote any provisions authorized by the laws of the State of West Virginia.
VIII.
This corporation is authorized to hold not more than thirty thousand
(30,000) acres of land in the State of West Virginia.
The amendments herein contained and the restated charter as amended were
prepared by the firm of Jackson, Kelly, Holt & O'Farrell, 1601 Kanawha Valley
Building, Charleston, West Virginia.
<PAGE>
Given under my hand and the seal of this corporation the _______ day of
June, 1972.
/s/ Paul Morton
Paul Morton, President
<PAGE>
WHEREFORE, I do declare said Restated Charter as set fort above is
authorized by law and is in effect from the date hereof.
Given under my hand and the Great Seal of the said State, at the City of
Charleston, this SIXTEENTH day of JUNE, 1972.
/s/ John D. Rockefeller, IV
-----------------------------
Secretary of State
<PAGE>
CANNELTON INDUSTRIES, INC., A CORPORATION
CERTIFICATE OF RESTATED CHARTER
-------------------------------
INCLUDING CHARTER AMENDMENTS
----------------------------
I, PAUL MORTON, President of Cannelton Industries, Inc., a corporation,
created and organized under the general corporation laws of the State of West
Virginia, do hereby certify to the Secretary of State of West Virginia that:
At a special meeting of the stockholders of Cannelton Industries, Inc.,
properly called and held after notice properly given, in accordance with the
laws of the State of West Virginia, the charter of the company and the bylaws of
the corporation, in the executive office of the company at Cannelton, West
Virginia, on the 22nd day of June, 1972, at which meeting all of the issued and
outstanding common capital stock of the corporation (being the only class of
authorized stock outstanding), being represented by the holders thereof in
person or by proxy and voting for the following restatement resolution (which
includes amendments not previously made or certified to the Secretary of State
of West Virginia the same was duly and regularly adopted and passed with the
assent of all stockholders, the consent of whom is required under Chapter 31,
Article 1 of the West Virginia Code, 1931, as amended, for the making of the
charter amendments contained in the following restatement resolution, to-wit:
<PAGE>
RESTATEMENT RESOLUTION (INCLUDING AMENDMENTS TO THE
CHARTER OF CANNELTON INDUSTRIES, INC. NOT PREVIOUSLY
MADE OR CERTIFIED TO THE SECRETARY OF STATE OF THE
STATE OF WEST VIRGINIA UNDER SECTION 7a, ARTICLE 1,
CHAPTER 31 OF THE CODE OF WEST VIRGINIA, 1931, AS
AMENDED
---------------------------------------------------------------------------
RESTATED that:
1. This resolution is adopted under the authority of Section 31, Article
1, Chapter 31, of the Code of West Virginia, as amended:
2. The name of this corporation, before adoption of the charter
amendments hereafter made, is CANNELTON INDUSTRIES, INC.:
3. The name under which this corporation was originally formed was
Cannelton Coal and Coke Company;
4. The original charter of this corporation was issued by the Secretary
of State of West Virginia on May 31, 1910;
5. The certificate of incorporation of this corporation is recorded in
Kanawha County, West Virginia;
6. The current authorized capital stock of this corporation is
$1,000,000.00, divided into 10,000 shares, each with a par value of $100.00.
7. In the restated charter of this corporation which follows, Articles VI
and VII are charter amendments of a comprehensive and broad nature and, without
limiting the generality of the foregoing, make the following changes in the
charter among others:
(a) Article VI vests powers in the Board of Directors to make, amend,
alter or repeal bylaws, to set aside reserves, to issue stock and other
securities, and optional rights, for such consideration, to such persons and in
such manner as may be determined by the Board and generally to exercise all
control and management of the corporation;
(b) Article VII reserves the right, to the extent such right may be
validly reserved, to amend any provision contained in the amended and restated
charter by the affirmative vote of a majority of the validly issued and
outstanding capital stock of the corporation and to add to the charter by a like
vote any provisions authorized by law;
8. Article VIII is amended to make clear that the corporation may hold
more than 30,000 acres of land by complying with Chapter 11, Article 12, Section
75 of the Code of West Virginia, as amended, or other applicable statute enacted
hereafter.
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION
CANNELTON INDUSTRIES, INC.
Pursuant to the provisions of Section 31, Article 1, Chapter 31of the Code
of West Virginia, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation.
First: The name of the corporation is Cannelton Industries, Inc.
Second: The following Amendment of the Articles of Incorporation was
adopted by the shareholders of the corporation on September 10, 1987 in the
manner prescribed by Section 107, Article 1, Chapter 31 of the Code of West
Virginia:
RESOLVED, That the Articles of Amendment of the
corporation be amended to increase the authorized capital stock
from One Million Dollars ($1,000,000) being Ten Thousand (10,000)
shares of a par value of One Hundred dollars ($100) per share to
Three Million Dollars ($3,000,000) being Thirty Thousand (30,000)
shares of a par value of One Hundred Dollars ($100) per share.
Third: The number of shares of the corporation outstanding at the time of
such adoption was 9,300 and the number of shares entitled to vote thereon was
9,500.
Fourth: The number of shares voted for such Amendment was 9,500 and the
number of shares voted against such Amendment was 0.
Dated: September 10, 1987.
CANNELTON INDUSTRIES, INC.
By /s/ A. S. Pack
-----------------------
A. S. Pack
President
By /s/ W. C. Miller, II
-----------------------
W. C. Miller, II
Secretary
<PAGE>
I, Ken Hechler, Secretary of State of the
State of West Virginia, hereby certify that
the following is a true and correct copy of the articles of merger of:
RELIABLE SUPPLY COMPANY, A WEST VIRGINIA CORPORATION AND
CANNELTON INDUSTRIES, INC., A WEST VIRGINIA CORPORATION DULY
SIGNED AND VERIFIED PURSUANT TO THE PROVISIONS OF SECTION 119,
ARTICLE 1, CHAPTER 31 OF THE CODE OF WEST VIRGINIA, 1931, AS
AMENDED, HAVE BEEN RECEIVED AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY, I HEREBY ISSUE THIS CERTIFICATE OF MERGER, MERGING
RELIABLE SUPPLY COMPANY WITH AND INTO CANNELTON INDUSTRIES, INC.,
THE SURVIVOR, AND ATTACH A DUPLICATE ORIGINAL OF SAID ARTICLES OF
MERGER AS APPEARS FROM THE RECORDS OF MY SAID OFFICE.
Given under my hand and the
Great Seal of the State of
West Virginia, on this
Thirty-First day of
December, 1987
/s/ Ken Hechler
---------------------
Secretary of State
<PAGE>
ARTICLES OF MERGER
OF
RELIABLE SUPPLY COMPANY
AND
CANNELTON INDUSTRIES, INC.
Pursuant to the provisions of Section 119, Article 1, Chapter 31 of the
Code of West Virginia, Reliable Supply Company and Cannelton Industries, Inc.,
both corporations organized under the laws of the State of West Virginia, adopt
the following Articles of merger for the purpose of merging Reliable Supply
Company with and into Cannelton Industries, Inc., with Cannelton Industries,
Inc. being the corporation surviving the merger.
FIRST: The following Plan of Merger was adopted by the Board of Directors
of Cannelton Industries, Inc. by an unanimous vote and in the manner prescribed
by Section 119, Article 1, Chapter 31 of the Code of West Virginia:
PLAN OF MERGER
OF
RELIABLE SUPPLY COMPANY
INTO
CANNELTON INDUSTRIES, INC.
1. Reliable Supply Company, a wholly owned subsidiary of Cannelton
Industries, Inc. and a corporation organized, existing and in good standing
under the laws of the State of West Virginia ("Subsidiary"), shall be merged
with and into Cannelton Industries, Inc., the sole shareholder of Reliable
Supply Company and a corporation organized, existing and in good standing under
the laws of the State of West Virginia ("Surviving Corporation"), pursuant to
Chapter 31, Article 1, Section 119 of the Code of West Virginia, as amended.
2. Contemporaneously with, and incident to, the merger, all the shares of
the issued and outstanding stock of the Subsidiary shall be surrendered and
cancelled; and, in exchange for the stock of the Subsidiary cancelled in the
merger, the Subsidiary shall transfer all assets, obligations and liabilities of
the Subsidiary to the Surviving Corporation.
3. The proper officers of the Surviving Corporation are authorized and
directed to execute on behalf of said Surviving Corporation Articles of Merger
merging the Subsidiary into the
<PAGE>
Surviving Corporation and to file the same in the office of the Secretary of
State of the State of West Virginia and such other public offices as may be
required or deemed appropriate.
4. The proper officers of the Subsidiary shall execute and duly
acknowledge on behalf of the Subsidiary, such confirmatory deed or deeds of all
the corporation's real estate or other property reflecting the conveyance and
transfer thereof to the Surviving Corporation, which documents shall be duly
recorded, all as provided by Chapter 31, Article 1, Section 37 of the Code of
West Virginia and other applicable provisions of law.
5. The proper officers of the Subsidiary and Surviving Corporation shall
execute such other confirmatory instruments evidencing the transfer of all
assets and properties of the Subsidiary to the Surviving Corporation or
evidencing such other actions and things in connection therewith as they shall
deem appropriate and make such certifications, take such other actions and do
such other things as may be necessary or convenient to accomplish the purposes
of this plan.
6. The charter, bylaws, officers and directors of Cannelton Industries,
Inc. shall be the charter, bylaws, officers and directors of the Surviving
Corporation.
7. The merger shall be effective December 31, 1987.
SECOND: The subsidiary has a single outstanding class of common stock.
The number of authorized shares is one hundred. The Surviving Corporation owns
all one hundred issued and outstanding shares of the Subsidiary stock.
THIRD: The sole shareholder of the Subsidiary, the Surviving Corporation,
waived the mailing of the Plan of Merger.
Dated: December 31, 1987.
(SEAL) CANNELTON INDUSTRIES, INC.
By /s/ A. S. Pack
-------------------------
Its President
By /s/ William C. Miller, II
--------------------------
Its Secretary
<PAGE>
STATE OF WEST VIRGINIA,
COUNTY OF KANAWHA, to-wit:
I, ______________________, a Notary Public, do hereby certify that on this
10th day of September, 1987, personally appeared before me Allen S. Pack, who,
being by me first duly sworn, declared that he is President of Cannelton
Industries, Inc., that he signed the foregoing document as President of the
corporation, and that the statements contained therein are true.
My commission expires _____________________________
_____________________________
Notary Public
STATE OF WEST VIRGINIA,
COUNTY OF KANAWHA, to-wit:
I, ______________________, a Notary Public, do hereby certify that on this
10th day of September, 1987, personally appeared before me William C. Miller,
II, who, being by me first duly sworn, declared that he is President of
Cannelton Industries, Inc., that he signed the foregoing document as President
of the corporation, and that the statements contained therein are true.
My commission expires _____________________________
_____________________________
Notary Public
<PAGE>
Exhibit 3.55(a)
ARTICLES OF INCORPORATION
OF
DUNN COAL & DOCK COMPANY
The undersigned, acting as incorporator of a corporation under Section 27,
Article 1, Chapter 31 of the Code of West Virginia adopts the following Articles
of Incorporation for such corporation , FILED IN DUPLICATE:
------------------
I. The undersigned agrees to become a corporation by the name of DUNN
COAL & DOCK COMPANY.
II. The address of the principal office of said corporation will be
located at 315 70/th/ Street, in the City of Charleston, in the County of
Kanawha, and State of West Virginia 25304.
III. The purpose or purposes for which this corporation is formed are as
follows:
To transact any or all lawful business for which corporations may be
incorporated under the corporation laws of the State of West Virginia.
IV. Shareholders shall have full preemptive rights to acquire unissued or
treasury shares, whether already authorized or hereinafter authorized, of any or
all classes or securities convertible into such shares or carrying a right to
subscribe to or acquire such shares.
V. Provisions for the regulation of the internal affairs of the
corporation are:
The Corporation shall indemnify existing and former employees, officers,
and ,members of the board of directors of the Corporation to the extent allowed
by the laws of the State of West Virginia or as more particularly described in
the By-Laws of the Corporation from time to time.
VI. The amount of the total authorized capital stock of said corporation
shall be Five Thousand Dollars ($5,000.00), which shall be divided into One
Hundred (100) shares of the par value of Fifty Dollars ($50.00) each.
<PAGE>
VII. The full name and address of the incorporator is:
NAME ADDRESS
- - ---- -------
H. Craig Slaughter 1600 Laidley Tower
P.O. Box 553
Charleston, WV 25322
VIII. The existence of this corporation is to be perpetual.
IX. No person to whom notice or process may be sent has been
designated.
X. The number of directors constituting the initial board of directors
of the corporation is one and the name and address of the person who shall serve
as director until the first annual meeting of shareholders or until his
successor is elected and shall qualify is:
NAME ADDRESS
- - ---- -------
Allen S. Pack 315 70/th/ Street
Charleston, WV 25304
THE UNDERSIGNED, for the purpose of forming a corporation under the laws of
the State of West Virginia, does make and file this Articles of Incorporation,
and I have accordingly hereto set my hand this 5/th/ day of August, 1987.
/s/ H. Craig Slaughter
--------------------------------
H. Craig Slaughter
Articles of Incorporation prepared by:
JACKSON, KELLY, HOLT & FARRELL
1600 Laidley Tower
P.O. Box 553
Charleston, West Virginia 25322
<PAGE>
Exhibit 3.56(a)
ARTICLES OF INCORPORATION
OF
MAXWELL HOLDINGS, INC.
The undersigned incorporator, Kevin J. Hable, executes these Articles
of Incorporation for the purpose of forming and does hereby form a corporation
under the laws of the Commonwealth of Kentucky in accordance with the following
provisions:
Article I
---------
The name of the corporation is Maxwell Holdings, Inc.
Article II
----------
The number of shares the corporation is authorized to issue is 2,000
shares of common stock, no par value per share.
Article III
-----------
The street address of the corporation's initial registered office is
2800 Citizens Plaza, Louisville, Kentucky 40202. The name of the corporation's
initial registered agent at that office is Kevin Hable.
Article IV
----------
The mailing address of the corporations's principal office is 5440
Medley Road, Owensboro, Kentucky 42301.
Article V
---------
The name and mailing address of the incorporator are Kevin J. Hable,
2800 Citizens Plaza, Louisville, Kentucky 40202.
Article VI
----------
The business and affairs of the corporation are to be conducted by a
Board of Directors, the number to be set in the manner provided in the bylaws.
Article VII
-----------
<PAGE>
No director shall be personally liable to the corporation or its
shareholders for monetary damages for breach of his duties as a director except
to the extent that the applicable law from time to time in effect shall provide
that such liability may not be eliminated or limited.
If the Kentucky Revised Statutes are hereafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Kentucky Revised
Statutes, as so amended. Any repeal or modification of this Article VII by the
shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification. This Article VII shall continue to be applicable with respect
to any breach of duties by a director of the corporation as a director
notwithstanding that such director thereafter ceases to be a director and shall
inure to the personal benefit of such director's heirs, executors and
administrators.
This Article VII is not intended to eliminate or limit any protection
otherwise available to the directors of the corporation.
Article VIII
------------
Any action, except the election of directors, required or permitted to
be taken at a shareholders' meeting may be taken without a meeting and without
prior notice (except as otherwise provided by law) if the action is taken by
shareholders representing not less than 80% (or such higher percentage as nay be
required by law) of the votes entitled to be cast. Prompt notice of the taking
of any action by shareholders without a meeting by less than unanimous consent
shall be given to those shareholders entitled to vote on the action who have not
consented in writing.
Dated this 13th day of September, 1996.
/s/ Kevin J. Hable
--------------------------------
Kevin J. Hable, Incorporator
This Instrument Prepared by:
/s/ Kevin J. Hable
- - --------------------------
Kevin J. Hable
WYATT, TARRANT & COMBS
2800 Citizens Plaza
Louisville, Ky 40202
(502) 562-7232
<PAGE>
Exhibit 3.56(a)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MAXWELL HOLDINGS, INC.
Pursuant to the provisions of KRS 271B.10-060. Articles of Amendment to
the Articles of Incorporation of Maxwell Holdings, Inc. (the "Corporation") are
hereby adopted:
FIRST: The name of the Corporation is Maxwell Holdings, Inc.
SECOND: Article I is amended in its entirety to read as follows:
Article I
---------
Name
----
The name of the Corporation is Hayman Holdings, Inc.
THIRD: The above-described amendment was adopted by the board of
directors on September 26, 1996 without shareholder action.
Shareholder action was not required for adoption of this
amendment.
FOURTH: This amendment does not provide for an exchange, reclassification
or cancellation of issued shares of stock of the Corporation, nor
does it effect a change in the amount of stated capital.
Dated: September 26, 1996
MAXWELL HOLDINGS, INC.
By: /s/ Charles J. Helms, Jr.
-------------------------------------
Charles J. Helms, Jr.
President
<PAGE>
Exhibit 3.58(a)
ARTICLES OF INCORPORATION
OF
KINDILL HOLDING, INC.
The undersigned, acting as incorporator of a corporation under the Kentucky
Business Corporation Act (the "Act"), adopts the following Articles of
Incorporation for such corporation:
ARTICLE I
Name
----
The name of the Corporation is Kindill Holding, Inc.
ARTICLE II
Purpose
-------
The purposes for which the Corporation is organized are:
(a) To engage in any or all lawful business for which corporations may be
incorporated under the Kentucky Business Corporation Act, and to exercise any
and all powers that corporations may now or hereafter exercise under the
Kentucky Business Corporation Act, whether or not specifically enumerated
herein;
(b) To act as a holding company for one or more companies engaged in the
business of mining, processing, shipping, marketing and selling coal and any and
all related activities;
(c) To provide services and engage in activities supporting and
facilitating the operations of its subsidiaries and affiliated companies;
(d) To sue and be sued, complain and defend in its corporate name;
(e) To make and amend by-laws, not inconsistent with these Articles of
Incorporation or with the laws of the Commonwealth of Kentucky. for managing the
business and regulating the affairs of the Corporation;
(f) To purchase, receive, lease or otherwise acquire, and own, hold,
improve, use and otherwise deal with, real or personal property, or any legal or
equitable interest in property, wherever located;
(g) To sell, convey, mortgage, pledge, lease, exchange and otherwise
dispose of all or any part of its property;
<PAGE>
(h) To purchase, receive, subscribe for or otherwise acquire; own, hold,
vote, use, sell, mortgage, lend, pledge or otherwise dispose of, and deal in and
with shares or other interests in, or obligations of, any other entity;
(i) To make contracts and guarantees, incur liabilities, borrow money,
issue its notes, bonds and other obligations (which may be convertible into or
include the option to purchase other securities of the Corporation), and secure
any of its obligations by mortgage or pledge or any of its property, franchises,
or income;
(j) To lend money, invest and reinvest its funds and receive and hold real
and personal property as security for repayment;
(k) To be a promoter, partner, member, associate or manager of any
partnership, joint venture, trust or other entity;
(l) To elect directors and appoint officers, employees and agents of the
Corporation, define their duties, fix their compensation and lend them money and
credit;
(m) To pay pensions and establish pension plans, pension trusts, profit
sharing plans, share bonus plans, share option plans and benefit or incentive
plans for any or all of its current or former directors, officers, employees and
agents;
(n) To such extent as a corporation organized under the Kentucky Business
Corporation Act of the Kentucky Revised Statutes may now or hereafter lawfully
do, as principal or agent, alone or in connection with other corporations, firms
or individuals, to do all and everything necessary, suitable, convenient or
proper for, or in connection with, or incident to, the accomplishment of any of
the purposes, or the attainment of any one or more of the objects herein
enumerated, or designed directly or indirectly to promote the interests of the
Corporation, or to enhance the value of its properties; and in general to do any
and all things and exercise any and all powers, rights and privileges which a
corporation may now or hereafter be organized to do, or to exercise under the
Kentucky Business Corporation Act or under any laws amendatory thereof,
supplemental thereto, or substituted therefor; and to do any or all of the
things hereinabove set forth to the same extent as natural persons might or
could do.
The foregoing clauses shall be construed as powers, as well as objects and
purposes, and the matters expressed in each clause shall, unless herein
otherwise expressly provided, be in nowise limited by reference to or inference
from the terms of any other clause, but shall be regarded as independent
purposes and powers, and the enumeration of specific purposes and powers shall
not be construed to limit or restrict in any manner the general powers of the
Corporation nor the meaning of the general terms used in describing any such
purposes and powers; nor shall the expression of one thing be deemed to exclude
another not expressed, although it may be of like nature.
<PAGE>
ARTICLE III
Shares
------
The total number os hares which the Corporation is authorized to issue is
1,000 shares of Common Stock, having a par value of $.10 per share. The Common
Stock shall have one vote per share, shall have all the voting power of the
Corporation, shall be entitled to receive the net assets of the Corporation upon
dissolution, and shall be without distinction as to powers, preferences and
rights.
ARTICLE IV
Number of Directors;
Distributions and Redemptions
-----------------------------
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation managed under the direction of, its
Board of Directors. The number of directors shall be fixed by resolution of the
Board of Directors from time to time, subject to the applicable provisions of
the Act and the Corporation's Bylaws.
The Board of Directors of the Corporation, to the extent not prohibited by
law, shall have the power to cause the Corporation to repurchase its own shares
and shall have the power to cause the Corporation to make distributions, from
time to time, to the Corporation's shareholders.
ARTICLE V
Initial Directors
-----------------
The number of directors constituting the initial Board of Directors is one
(1), such person to serve until the first annual meeting of the shareholders and
until such person's successor in office is elected and shall qualify. The name
and mailing address of the person who is to serve as the initial director are as
follows:
Ronnie J. Dunnigan
771 Corporate Drive, #900
Lexington, KY 40503
ARTICLE VI
Registered Office; Registered Agent
-----------------------------------
The street address of the initial registered office of the Corporation is
3300 National City Tower, 101 South Fifth Street, Louisville, Kentucky 40202,
and the name of its initial registered agent at such office is 3300 Corporation.
<PAGE>
ARTICLE VII
Principal Office
----------------
The mailing address of the principal office of the Corporation is 801
Frederica Street, #301, Owensboro, KY 42301.
ARTICLE VIII
Incorporator
------------
John H. Stites, III, whose mailing address is 3300 National City Tower, 101
South Fifth Street, Louisville, Kentucky 40202, is the sole incorporator of the
Corporation.
ARTICLE IX
Indemnification of Directors and Officers
-----------------------------------------
To the fullest extent permitted by, and in accordance with the provisions
of, the Act, the Corporation shall indemnify each director or officer of the
Corporation against reasonable expenses (including reasonable attorneys' fees),
judgments, taxes, penalties, fines (including any excise tax assessed with
respect to an employee benefit plan) and amounts paid in settlement
(collectively "Liability"), incurred by such person in connection with defending
any threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative, and whether formal or informal) to
which such person is, or is threatened to be made, a party because such person
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, member, employee or
agent of another domestic or foreign corporation, partnership, limited liability
company, joint venture, trust or other enterprise, including service with
respect to employee benefit plans. A director or officer shall be considered to
be serving an employee benefit plan at the Corporation's request if such
person's duties to the Corporation also impose duties on or otherwise involve
services by such person to the plan or to participants in or beneficiaries of
the plan. To the fullest extent authorized or permitted by, and in accordance
with the provisions of, the Act, the Corporation shall pay or reimburse
reasonable expenses (including reasonable attorneys' fees) incurred by a
director or officer who is a party to a proceeding in advance of final
disposition of such proceeding.
The indemnification against Liability and advancement of expenses provided
by, or granted pursuant to, this Article IX shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement may be
entitled under the Bylaws or any agreement, action of shareholders or
disinterested directors or otherwise, both as to action in their official
capacity and as to action in another capacity while holding such office of the
Corporation, shall continue as to a person who has ceased to be a director or
officer of the Corporation, and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Any repeal or modification of this Article IX by the Board of Directors or
shareholders of the
<PAGE>
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation under this Article IX with respect to any act or
omission occurring prior to the time of such repeal or modification.
ARTICLE X
Elimination of Certain Liability of Directors
---------------------------------------------
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of such person's
duties as a director; provided, however, that this provision shall not eliminate
or limit the liability of a director for the following: (i) for any transaction
in which the director's personal financial interest is in conflict with the
financial interests of the Corporation or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or are known
to the director to be a violation of law; (iii) for any vote for or asset to an
unlawful distribution to shareholders as prohibited under KRS 271B.8-330; or
(iv) for any transaction from which the director derived an improper personal
benefit. This Article X shall continue to be applicable with respect to any
such breach of duties by a director of the Corporation as a director
notwithstanding that such director thereafter ceases to be a director and shall
inure to the personal benefit of such person's heirs, executors and
administrators.
ARTICLE XI
Action by Shareholders Without Meeting
--------------------------------------
Any action required or permitted to be taken at a shareholders' meeting may
be taken without a meeting if shareholders representing at least 80% of the
votes entitled to be cast at such meeting consent to such action in a writing
that complies with the relevant provisions of the Act; provided, however, that
the election of directors may be effected without a meeting only if shareholders
representing 100% of the votes entitled to be cast so consent in such a writing.
ARTICLE XII
Special Meetings of Shareholders
--------------------------------
The Corporation shall hold a special meeting of shareholders if the holders
of at least thirty percent (30%) of all votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting, sign, date, and
deliver to the Corporation's officer who has the responsibility of preparing
minutes of the directors and shareholders' meetings and for authenticating
records of the Corporation, one (1) or more written demands for the meeting
describing the purpose of purposes for which it is to be held.
<PAGE>
ARTICLE XIII
Severability of Provisions
--------------------------
If any provision of these Articles of Incorporation, or its application to
any person or circumstances, is held invalid by a court of competent
jurisdiction, the invalidity shall not affect other provisions or applications
of these Articles of Incorporation that can be given effect without the invalid
provision or application, and to this end the provisions of these Articles of
Incorporation are severable.
IN TESTIMONY WHEREOF, witness the signature of the sole incorporator, this
24/th/ day of April, 1997.
By: /s/ John H. Stites, III
-------------------------------------
John H. Stites, III,
Incorporator
This instrument prepared by:
/s/ John H. Stites, III
- - -----------------------------------
John H. Stites, III
Greenebaum Doll & McDonald PLLC
3300 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
(502) 587-3544
<PAGE>
Exhibit 3.58(b)
AMENDED AND RESTATED
BYLAWS
OF
KINDILL HOLDING, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of KINDILL HOLDING, INC. (the "Corporation") by
a Written Action by Sole Shareholder in Lieu of Meeting, dated September 2,
1998.
/s/ Ken Meadows
--------------------------
Ken Meadows, Secretary
<PAGE>
PAGE MISSING HERE
<PAGE>
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting, of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors. The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.59(b)
AMENDED AND RESTATED
BYLAWS
OF
KINDILL MINING, INC.
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the Board of Directors of KINDILL MINING, INC. (the "Corporation") by
a Written Action by Shareholder in Lieu of Meeting, dated September 2, 1998.
/s/ John Lynch
----------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
KINDILL MINING, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have a majority of the voting power of the shares represented at such
meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
Exhibit 3.60(a)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
AMAX COAL COMPANY
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Amax Coal Company.
2. The Articles of Incorporation of the Corporation are hereby amended by
changing the first Article thereof so that, as amended, said Article shall read
as follows:
"1. The name of the corporation is: Midwest Coal Company."
3. The Amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 228 and 242 of
the General Corporation Law of the State of Delaware.
4. The effective date of the Amendment herein certified shall be the date
of filing.
Dated this the 29/th/ day of June, 1998.
AMAX COAL COMPANY
BY: /s/ Scott Dyer
--------------------
TITLE: Vice President
----------------
<PAGE>
Exhibit 3.60(b)
AMENDED AND RESTATED
BYLAWS
OF
MIDWEST COAL COMPANY
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Code of
Regulations adopted by the Board of Directors of MIDWEST COAL COMPANY (the
"Corporation") by a Written Action by Shareholder in Lieu of Meeting, dated June
29, 1998.
/s/ John Lynch
-----------------------------
John Lynch, Secretary
<PAGE>
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
MIDWEST COAL COMPANY
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(i) are present in person or by proxy at a meeting held to elect directors and
(ii) have majority of the voting power of the shares represented at such meeting
and entitled to vote in the election.
<PAGE>
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place and purpose of each meeting of the directors shall be
either (i) telephoned or personally delivered to each director at least forty-
eight hours before the time of the meeting or (ii) mailed to each director at
his last known address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Secretary and a Treasurer,
all of whom shall be elected by the Board of Directors. The Corporation may also
have such assistant officers as the Board of Directors may deem necessary, all
of whom shall be elected by the Board of Directors or chosen by an officer or
officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and
of the Board of Directors,
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
-2-
<PAGE>
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
4.1 Shares of the Corporation shall be represented by certificates in form
as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
-3-
<PAGE>
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-4-
<PAGE>
EXHIBIT 3.61(A)
AGREEMENT OF INCORPORATION
I. The undersigned agree to become a corporation by the name of:
Marrowbone Development Company
II. The principal Office or Place of Business of said Corporation will be
located at:
4/th/ & Main St., P.O. Box 26765 in the city of Richmond and State of
Virginia Zip 23261. Its chief works will be located in Kermit, Mingo County,
West Virginia.
III. The objects for which this Corporation is formed are as follows:
1. To buy, acquire, own, hold, sell, explore, develop, mine and operate lands,
including coal and mineral-bearing lands, and interests, estates, franchises
therein, and to lease or rent the same from or to other persons, firms or
corporations.
2. To construct, buy, own, hold, sell, use, operate, and rent or lease the
same from or to others, any all buildings, structures, improvements, machinery,
equipment, plants, and facilities for the exploration, removal, treatment,
handling, hauling, storage, transportation, distribution, sale and exchange of
coal and other minerals, and by-products and derivatives manufactured or
produced therefrom.
3. To buy, sell, deal in, and act as producer, wholesaler, jobber,
distributor, retailer, factor, and agent in the production, handling, storage,
distribution, and sale of coal, coke, other minerals, and by-products and
derivatives manufactured or produced therefrom.
4. To buy, own, hold, operate, lease or rent from or to others, sell and
dispose of establishments and enterprises for the handling, purchasing, storage,
distribution, and sale as wholesaler, retailer, jobber, distributor, and factor,
of general and various kinds and classes of merchandise and commodities.
5. To buy, own, hold, control, improve, pledge, mortgage, lease, sell, convey,
exchange, and otherwise acquire, deal in, and dispose of any and all articles or
kinds of personal property, or any rights, interest, or estate therein, as
owner, broker, agent or factor.
6. Generally to buy, own, hold, control, pledge, hypothecate, sell, convey,
exchange, and otherwise deal in stocks, bonds, notes, mortgages, certificates of
interest, evidence of ownership, evidences of indebtedness, and every other kind
and form of security, or any right, interest or estate therein, either as owner,
broker, agent or factor, pursuant to all requirements of law.
7. To conduct any general and special brokerage agency, and commission
business for others in the purchase, sale, management, or disposal of real and
personal property of all kinds, or any right, interest or estate therein, and to
negotiate secured or unsecured loans for others, and to act as fiscal
<PAGE>
agent for others in the same manner and to the same extent that an individual
might do or act in the conduct of any lawful business.
8. To borrow money, and issue evidences of indebtedness and to secure the
payment of same by depositing, pledging, mortgaging, or otherwise encumbering
any real or personal property, or any right, interest or estate therein, whether
direct with the lenders, or in trust, or otherwise.
9. To buy, acquire, hold, own, use, sell, rent, and lease to and from others,
grant, convey, mortgage, and encumber real and personal property and franchise,
rights, interests, and estates therein.
10. To do and perform any and all of such acts, things, and deeds that may be
reasonably germane to or reasonably necessary or convenient in the exercise of
any of the foregoing express powers.
The amount of the authorized capital stock of said corporation shall be Five
Thousand Dollars___________________ 500 shares of the par value of Ten Dollars
each.
The amount of capital stock with which it will commence business is One Thousand
Dollars ($1,000) being One Hundred shares of the par value of Ten Dollars
($10.00) each.
<PAGE>
V.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
Name Address No. of Shares Common No. of Shares Total No. of Shares
Stock Preferred Stock
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel A. Carrell P.O. Box 1535 50 -0- 50
Richmond, Virginia 23200
- - --------------------------------------------------------------------------------------------------------------------------------
Thurston R. Moore P.O. Box 1535 25 -0- 25
Richmond, Virginia 23200
- - --------------------------------------------------------------------------------------------------------------------------------
Charles H. Cuthbert, Jr. P.O. Box 1535 25 -0- 25
Richmond, Virginia 23200
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
VI.
<PAGE>
WE THE UNDERSIGNED, for the purpose of forming a Corporation under the laws
of the State of West Virginia do make and file this Agreement and we have
accordingly hereunto set our respective hands this 23/rd/ day of June, 1975.
/s/
------------------------------------
(Daniel A. Carrell)
/s/
------------------------------------
(Thurston R. Moore)
/s/
------------------------------------
(Charles H. Cuthbert, Jr.)
Edward M. Payne, III
Pile, Payne, Scherer & Brown
Law Building
Beckley, West Virginia 25801
CERTIFICATES
[unreadable]
State of Virginia, City of Richmond, to wit:
I, /s/ Illegible , a Notary Public in and for the County and State
-----------------
aforesaid, hereby certify that:
Daniel A. Carrell
Thurston R. Moore
Charles H. Cuthbert, Jr.
whose names are signed to the foregoing agreement bearing date on the 23/rd/ day
of June, 1975 this day personally appeared before me in my said county and
severally acknowledged their signatures to the same.
Given under my hand and official seal this 23/rd/ day of June, 1975.
(SEAL) /s/ Illegible
------------------------------------
Notary Public
SECRETARY OF STATE
AMENDMENT SCREEN
CORP NAME: MARROWBONE DEVELOPMENT COMPANY
<PAGE>
CODE DATE AMENDMENT
11/19/1992 AMENDMENT: TO THE ARTICLES OF INCORPORATION.
<PAGE>
ARTICLES OF AMENDMENT OF THE
ARTICLES OF INCORPORATION OF
MARROWBONE DEVELOPMENT COMPANY
Adopted in accordance with the provisions
of Section 31-1-109 of the West Virginia Corporation Act
The undersigned officers of Marrowbone Development Company, a corporation
existing under the laws of the State of West Virginia, do hereby certify as
follows:
FIRST: The name of the corporation is Marrowbone Development Company (the
"Corporation").
SECOND: The following amendment to Article III, of the Articles of
Incorporation of the Corporation (the "Articles of Incorporation") was
adopted by the board of directors and sole stockholder of the Corporation
in accordance with Section 31-1-73 of the West Virginia Corporation Act, by
unanimous written consent.
"III. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the West Virginia
Corporation Act."
THIRD: The number of shares of the Corporation outstanding at the time of
such adoption was 100 and the number of shares entitled to vote was 100.
FOURTH: The designation and number of outstanding shares of each class
entitled to vote, as a class were 100 shares of common stock.
FIFTH: The number of Shares voted for such amendment was 100 and the
number of shares voted against was 0.
SIXTH: The number of shares of each class entitled to vote as a class
voted for such amendment was 100 shares of voting common stock and against
such amendment was 0.
IN WITNESS WHEREOF, the undersigned being the president and Asst.
Secretary, have hereunto signed these Articles of Amendment of the Articles of
Incorporation as of this 10/th/ day of November, 1992.
MARROWBONE DEVELOPMENT COMPANY
By: /s/ Illegible
----------------------------------
Title: President
<PAGE>
Exhibit 3.62(a)
CERTIFICATE OF INCORPORATION
OF
MOUNTAIN COALS, INC.
FIRST: The name of the Corporation is Mountain Coals, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is No. 100 West Tenth Street, in the City of Wilmington,
County of New Castle, and the name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Ten Thousand (10,000) shares of the par value of one
dollar ($1,00) each, to be designated Common Stock.
FIFTH: The name and mailing address of the incorporator is James F.
Hughey, Jr., 600 North 18th Street, Birmingham, Alabama 35203.
SIXTH: The powers of the incorporator shall terminate upon the filing of
this Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as the directors until the first annual meeting of
stockholders or until their successors are elected and qualify are as follows:
Name Mailing Address
- - ---- ---------------
John M. Harbert, III P.O. Box 1297
Birmingham, Alabama 35201
Edwin M. Dixon P.O. Box 1297
Birmingham, Alabama 35201
<PAGE>
William H. Rossman P.O. Box 1297
Birmingham, Alabama 35201
SEVENTH: Election of directors need not be by ballot except and to the
extent provided in the By-Laws. In furtherance and not in limitation of the
powers conferred by the laws of the State of Delaware, and consistently with
such laws, the Board of Directors is expressly authorized to make, alter, amend
or repeal the By-Laws of the Corporation, subject to the power of the holders of
stock having voting power thereon to alter, amend or repeal the By-Laws made by
the Board of Directors. The Corporation may in its By-Laws confer powers upon
its directors in addition to the foregoing and in addition to the powers and
authority expressly conferred upon them by the laws of the State of Delaware.
EIGHTH: The directors in their discretion may submit any contract or
other transaction or act for approval or ratification by the stockholders by
written consent or at any meeting of the stockholders, and any contract or other
transaction or act that shall be approved or be ratified by the written consent
of the holders of a majority of the outstanding stock of the Corporation
entitled to vote with respect to such approval or ratification or by the vote of
the holders of a majority of the stock of the Corporation which is represented
in person or by proxy at such meeting and entitled to vote thereat (provided
that a lawful quorum of stockholders be there represented in person or by proxy)
shall be as valid and as binding upon the Corporation and upon all of the
stockholders of the Corporation, as though it had been approved or ratified by
every stockholder of the Corporation.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts hereinabove stated are true, and
accordingly have hereunto set my hand this 2nd day of November, 1976.
/s/ James F. Hughey, Jr.
------------------------
JAMES F. HUGHEY, JR.
<PAGE>
Exhibit 3.62(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MOUNTAIN COALS, INC.
--------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Mountain Coals, Inc.
2. The Certificate of Incorporation of the Corporation is hereby amended
by striking out the entire Article FIRST thereof and by substituting in lieu of
said Article the following new Article:
"FIRST: The name of the corporation is CYPRUS MOUNTAIN COALS
CORPORATION."
3. The Amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 228 and 242 of
the General Corporation Law of the State of Delaware.
4. The effective date of the Amendment herein certified shall be the date
of filing.
Signed and attested to on June 5, 1987.
/s/ Chester B. Stone, Jr.
-------------------------
Chester B. Stone, Jr.
Executive Vice President
ATTEST:
/s/ Deborah J. Friedman
- - -----------------------
Deborah J. Friedman
Assistant Secretary
<PAGE>
Exhibit 3.62(a)
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CYPRUS MOUNTAIN COALS CORPORATION
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Cyprus Mountain Coals Corporation.
2. The Articles of Incorporation of the Corporation are hereby amended by
changing the first Article thereof so that, as amended, said Article shall read
as follows:
"FIRST" The name of the corporation is: Mountain Coals Corporation."
3. The Amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Section 228 and 242 of
the General Corporation Law of the State of Delaware.
4. The effective date of the Amendment herein certified shall be the date
of filing.
Signed and attested this the _____ day of June, 1998.
CYPRUS MOUNTAIN COALS CORPORATION
BY: /s/ Scott Dyer
----------------------
TITLE: Vice President
---------------------
<PAGE>
Exhibit 3.64(a)
CERTIFICATE OF INCORPORATION
OF
WEST VIRGINIA-INDIANA COAL HOLDING COMPANY, INC.
* * * * *
1. The name of the corporation is West Virginia-Indiana Coal Holding
Company, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted us
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000) and the par value of each of such
shares is Zero Dollars and One Cent ($0.01) amounting in the aggregate to Ten
Dollars and No Cents ($10.00).
5. The board of directors is authorized to make, alter or repeal the by-
laws of the corporation. Election of directors need not be by written ballot.
6. The name and mailing address of the sole incorporator is:
M.A. Brzoska
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
7. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
8. The corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 5/th/ day of June, 1998.
<PAGE>
/s/ M. A. Brzoska
----------------
Sole Incorporator
M.A. Brzoska
-2-
<PAGE>
EXHIBIT 3.66(a)
CERTIFICATE OF FORMATION
OF
NUCOAL, LLC
This Certificate of Formation of NuCoal, LLC (the "LLC") has been duly
executed and is being filed by the undersigned, as an authorized person, to form
a limited liability company under the Delaware Limited Liability Act (6 Del C
-----
(S) 18-101, et seq)
------
FIRST. The name of the limited liability company formed is NuCoal, LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is c/o Corporation Service Company, 1013 Centre Road, Wilmington, New
Castle County, Delaware 19805.
THIRD. The name and address of the registered agent for service of process
on the LLC in the State of Delaware is Corporation Service Company, 1013 Centre
Road, Wilmington, New Castle County, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of
Formation as of this 23/rd/ day of December, 1996.
/s/ Eileen M. Carrig
--------------------
Eileen M. Carrig
Authorized Person
<PAGE>
EXHIBIT 3.66(b)
LIMITED LIABILITY COMPANY AGREEMENT
OF
NUCOAL, LLC
This Limited Liability Company Agreement (the "Agreement") is entered into
by and between Encoal Corporation, a Delaware corporation ("ENCOAL"), and
Americoal Development Company, a Delaware corporation ("ADC"), as members
(collectively the "Members").
The Members hereby form a limited liability company pursuant to and in
accordance with the Delaware Limited Liability Company Act (6 Del. C. (S) 18.01-
-------
101, et seq.), as amended from time to time (the "Act"), approve the Company's
------
certificate of formation and agree as follows:
1. Name. The name of the limited liability company formed hereby is
----
NuCoal, LLC (the "Company").
2. Purpose. The Company is formed for the object and purpose of
-------
developing commercial LFC facilities and of engaging in any lawful act or
activity for which limited liability companies may be formed under the Act and
engaging in any and all activities necessary or incidental to the foregoing.
3. Members. The names and mailing addresses of the Members are as
-------
follows:
Name Address
---- -------
American Development Company 50 Jerome Lane
Fairview Heights, Illinois 62208
Encoal Corporation 50 Jerome Lane
Fairview Heights, Illinois 62208
4. Powers. The management of the Company shall be vested in the Members
------
acting by unanimous written consent. No Member shall have the power to bind the
Company without the written consent of the other Member. Without limiting the
foregoing, the unanimous consent of each of the Members shall be required to
admit any additional members and to take any action required or permitted to be
taken by the Company.
5. Tax Elections. The Taxable Year shall be the Calendar Year or such
-------------
other fiscal year as agreed to in writing by the Members. Each Member shall
upon request supply the information necessary to give proper effect to such
election.
6. Dissolution. The Company shall dissolve, and its affairs shall be
-----------
wound up upon the first to occur of the following: (a) December 31, 2036, (b)
the written consent of all the Members, (c) the death, retirement, resignation,
expulsion, insolvency, bankruptcy or dissolution of a Member,
<PAGE>
or the occurrence of any other event which terminates the continued membership
of a Member in the Company unless the business of the Company is continued by
consent of the remaining member(s) within 90 days following the occurrence of
any such event, or (d) the entry of a decree of judicial dissolution under
Section 18-802 of the Act.
7. Capital Contributions. The Members will make, as required for the
---------------------
business of the Company, initial capital contributions as set forth on Exhibit A
hereto and will make such additional capital contributions to the Company from
time to time as determined by mutual agreement of the Members.
8. Allocation of Profits and Losses. The Company's profits and losses
--------------------------------
shall be allocated among the Members in proportion to their Membership
Percentages set forth on Exhibit A hereto.
9. Distributions. Distributions shall be made to the Members only at the
-------------
times and in the aggregate amounts determined by the Members. Such
distributions shall be allocated among the Members in the same proportion as
their then capital account balances.
10. Assignments. A Member may not assign in whole or in part its limited
-----------
liability company interest without the written consent of the other Member,
which consent may be granted or withheld in its sole and absolute discretion
provided that a Member may assign or be assigned any interest hereunder to a
wholly-owned subsidiary or from a parent corporation of which it is a wholly-
owned subsidiary.
11. Liability of Members to Third Parties. Except as otherwise provided
-------------------------------------
in the Act, no Member shall be obligated personally for any debt, obligation, or
liability of the Company solely by reason of being a Member of the Company.
12. Effectiveness. This Agreement shall become effective upon the filing
-------------
of the Certificate with the Secretary of State of Delaware.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have duly executed this Limited Liability Company Agreement as of the 23/rd/ day
of December, 1996.
ENCOAL CORPORATION AMERICOAL DEVELOPMENT COMPANY
By: /s/ Illegible By: /s/ Illegible
----------------------------------- -----------------------------------
Its: _________________________________ Its: _________________________________
-2-
<PAGE>
Exhibit A
Initial Contributions
---------------------
Member Contribution
------ ------------
Encoal Corporation $1,000.00
Americoal Development Company $1,000.00
Membership Percentages
----------------------
Member Membership Percentage as of Effective Date
------ ------------------------------------------
Encoal Corporation 50%
Americoal Development Company 50%
<PAGE>
EXHIBIT 3.67(a)
ARTICLES OF AMENDMENT
OF A LIMITED LIABILITY COMPANY
FORMED UNDER THE LAWS OF THE STATE OF GEORGIA
(Under Section 14-11-210 of the Georgia Limited Liability Company Act)
To the Secretary of State
State of Georgia
FIRST: The name of the limited liability company (the "company") is
Energy Resources, LLC.
SECOND: The date the articles of organization of the company were
filed in the Office of the Secretary of State of the State of Georgia is
December 18, 1997.
THIRD: The amendment to the articles of organization of the company
is as follows:
The name of the limited liability company (the "company") is Employee
Claims Administration, LLC.
Executed on March 1, 1999.
Coal Ventures Holding Company, Inc.,
sole Member
By:/s/Illegible
Title____________________________
<PAGE>
Secretary of State
Corporation Division
Suite 315, West Tower
2 Martin Luther King Jr. Dr.
Atlanta, Georgia 30334-1530
CONTROL NUMBER: 9744648
EFFECTIVE DATE: 12/18/1997
COUNTY: FULTON
REFERENCE: 0010
PRINT DATE: 12/24/1997
FORM NUMBER: 356
JEFF JEFFERSON
2700 LEXINGTON FINANCIAL CENTER
LEXINGTON KY 40507
CERTIFICATE OF ORGANIZATION
I Lewis A. Massey, the Secretary of State of the State of Georgia, do hereby
certify under the seal of my office that
ENERGY RESOURCES, LLS
A GEORGIA LIMITED LIABILITY COMPANY
has been duly organized under the laws of the State of Georgia on the effective
date stated above by filing of articles of organization in the office of the
Secretary of State and by the paying of fees as provided by Title 14 of the
Official Code of Georgia Annotated.
WITNESS my hand and official seal in the city of Atlanta and the State of
Georgia on the date set forth above.
<PAGE>
/s/ Lewis A. Massey
-------------------
LEWIS A. MASSEY
SECRETARY OF STATE
ARTICLES OF ORGANIZATION
FOR
ENERGY RESOURCES, LLC
The undersigned hereby forms a Georgia limited liability company pursuant
to the Georgia Limited Liability Company Act as follows.
1. The name of the limited liability company (the"company") shall be
Energy Resources, LLC.
2. The street address of the Company's initial registered office shall be
1201 Peachtree Street, Atlanta, Fulton County, Georgia 30361. The name of the
Company's initial registered agent at that office shall be CT Corporation
System.
/s/ Jeff Jefferson
Jeff Jefferson, Organizer
<PAGE>
Exhibit 3.67(b)
AMENDED AND RESTATED
OPERATING AGREEMENT
FOR
ENERGY RESOURCES, LLC
This is an Amended and Restated Operating Agreement dated as of January 4,
1999, between Coal Ventures Holding Company, Inc., Harold Sergent and any Person
who subsequently becomes a member of the Company, as reflected on any Amendment
to Annex A to this Agreement (each a "Member" and collectively, the "Members").
Article 1 - Formation
---------
The Members have formed a limited liability company (the "Company")
pursuant to the Georgia Limited Liability Company Act, effective as of the
filing of the Company's Articles of Organization with the Georgia Secretary of
State. The Members hereby ratify and approve the filing of the Company's
Articles of Organization, the receipt of the form of which each Member hereby
acknowledges. The Manager shall from time to time execute or cause to be
executed all such certificates or other documents or cause to be done all such
filing, recording, publishing or other acts as may be necessary or appropriate
to comply with the requirements for the formation and operation of a limited
liability company under the Act. The rights and duties of the Manager and the
Members shall be as provided in the Act, except as modified by this Agreement.
Article 2 - Name
----
The business of the Company shall be conducted under the name "Energy
Resources, LLC."
Article 3 - Definitions
-----------
The following terms and phrases used in this Agreement shall have the
following meanings:
"Act" shall mean the Georgia Limited Liability Company Act, Georgia Code
Ann. (S)(S) 14-11-100 through 14-11-1109.
"Affiliate" or a Person "affiliated with" a Member, a partner or member of
any Member, or other specified Person (collectively referred to as the
"Specified Person") shall mean (i) a Person that directly, or indirectly through
one or more intermediaries, or in combination with any other Member, or other
Specified Person, controls or is controlled by, or is under the control of the
Member or other Specified Person; (ii) a Person of which the Member or other
Specified Person is an officer or partner or is the beneficial owner of 10% or
more of any class of equity security or interest; (iii) any trust or estate in
which the Member or other Specified Person has a beneficial interest or as to
which the Member or other Specified Person serves as a trustee or in another
fiduciary capacity; and (iv) any spouse, parent, child, brother or sister of the
Member or other Specified Person. The term "control"
<PAGE>
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership,
by contract or otherwise.
"Agreement" shall mean this Amended and Restated Operating Agreement, as
amended, modified or supplemented from time to time.
"Bankruptcy" shall be deemed to have occurred with respect to any Member or
Manager, at the time the Member or Manager: (1) makes an assignment for the
benefit of creditors; (ii) files a voluntary petition in bankruptcy; (iii) is
adjudicated bankrupt or insolvent; (iv) files a petition or answer seeking for
the Member or Manager any reorganization, arrangement, composition,
readjustment. liquidation. dissolution, or similar relief under any statute,
law, or regulation; (v) files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the Member or
Manager in any proceeding of this nature; (vi) seeks, consents to, or acquiesces
in the appointment of a trustee, receiver, or liquidator of the Member or
Manager or of all or any substantial part of the Member's or Manager's property;
or (vii) if within 120 days after the commencement of any proceeding against the
Member or Manager seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any statute,
law, or regulation, the proceeding has not been dismissed, or if within 90 days
after the appointment without the Member's or Manager's consent or acquiescence
of a trustee, receiver, or liquidator of the Member or Manager, or of all or any
substantial part of the Member's or Manager's properties, the appointment is not
vacated or stayed or within 90 days after the expiration of any stay, the
appointment is not vacated.
"Capital Account" shall mean the individual account maintained for each
Member by the Company, calculated pursuant to paragraph 8.5.
"Capital Contribution" shall mean the money and the fair market value of
property (net of liabilities assumed by the Company or to which the property is
subject) contributed to the Company by a Member, and as set forth on Annex A.
-------
Annex A shall set forth the agreed upon fair market value of each of the assets
- - -------
(other than cash) contributed to the capital of the Company as determined by the
contributing Member and the Company.
"Cause" shall mean (i) the failure of the Manager to render services to the
Company in accordance with such Manager's obligations under this Agreement,
which failure amounts to gross neglect of such Manager's duties to the Company;
(ii) the commission by the Manager of any act of fraud or embezzlement against
the Company, or (iii) the Manager being convicted of a felony.
"Code" or "IRC" shall mean the Internal Revenue Code of 1986, as amended,
modified or rescinded from time to time, or any similar provision of succeeding
law.
"Disability" shall mean a Manager's inability (as determined by a physician
appointed by the Company) due to accident or physical or mental illness, to
adequately and fully perform the duties that the Manager was performing for the
Company when the disability began. If at any time the physician appointed by the
Company makes a determination with respect to a Manager's disability,
-2-
<PAGE>
that determination shall be final. conclusive, and binding upon the Company, the
Member or Manager, and their successors in interest.
"Incapacity" or "Incapacitated" shall mean the adjudicated incompetency or
death of an individual Member or Manager, or dissolution of the entity
comprising any Member or Manager. and shall also include the death of an
individual Member when that Member has transferred all or any part of such
Member's Interest to an entity with an extended life (e.g., corporation or
trust).
"Interest" shall mean the entire ownership interest (which may, either for
a Member's Capital Account or for a Member's share of Taxable Income, Tax Losses
or Net Cash Flow, be expressed as a percentage or in terms of Units of
Participation) of a Member in the Company, including the rights and obligations
of the Member under this Agreement and the Act.
"Manager" shall mean the Manager or Managers designated in Article 14, and
any additional or replacement Managers elected pursuant to Article 14.
"Net Cash Flow" shall mean, with respect to any fiscal year, all cash
revenues of the Company from business operations during that period (including,
without limitation, interest or other earnings on the funds of the Company) less
----
the sum of the following to the extent made from those cash revenues:
(i) All principal and interest payments on any indebtedness of the
Company;
(ii) All cash expenses incurred incident to the operation of the
Company's business; and
(iii) Funds set aside as reserves for contingencies, working
capital, debt service, taxes, insurance or other costs and expenses incident to
the conduct of the Company's business which the Manager deems reasonably
necessary or appropriate.
"Person" shall mean an individual, corporation, partnership, limited
liability company, joint stock company, trust, association, unincorporated
entity, or any division thereof.
"Representative" shall mean a Person's executor, administrator, committee
or analogous fiduciary.
"Revocable Declaration of Trust" shall mean a trust of which a Member is
the grantor and has the power to revoke.
"Taxable Income" and "Tax Losses," respectively, shall mean the net income
or net losses of the Company as determined for federal income tax purposes, and
all items required to be separately stated by IRC (S)(S) 702 and 703 and the
Treasury Regulations promulgated thereunder.
"Units of Participation" shall mean the units of participation in the
Company set forth on Annex A, which shall reflect a Member's relative ownership
-------
Interest in the Company. Annex A shall
-------
-3-
<PAGE>
be amended to reflect any changes in the Members' Units of Participation.
Distributions or allocations made in proportion to or in accordance with the
Units of Participation shall be based upon relative Units of Participation as of
the record date for distributions and in accordance with IRC (S)(S) 706(c) and
(d).
Article 4 - Business of the Company
-----------------------
The business of the Company is to (i) purchase, invest in, hold and sell
real estate and securities, (ii) acquire, hold, develop and sell operating
businesses, (iii) conduct any other lawful business, and (iv) carry on any and
all activities related thereto. It is the intention of the Members that the
Company be treated as a partnership for federal, state and local income tax
purposes, and the Members agree not to take any position or make any election,
in a tax return or otherwise, inconsistent with such treatment; provided,
--------
however, the filing of federal, state and local tax returns shall not be
- - -------
construed to create a partnership (other than for tax purposes) among the
Members.
Article 5 - The Members
-----------
5.1 Initial Members. The names and business addresses of the Members are
---------------
set forth on Annex A.
-------
5.2 Additional Members. The Company may admit additional Members from
------------------
time-to-time at the election of Members holding a majority of the Units of
Participation, upon the terms and for the consideration determined by such
Members. Annex A shall be amended to reflect any changes in the Company's
-------
membership. A prerequisite to admission to membership in this Company shall be
the written agreement by the additional Member to be bound by the terms of this
Agreement.
5.3 No Liability of Members or Manager. No Member or Manager shall have
----------------------------------
personal liability for the obligations or liabilities of the Company. Except as
otherwise specifically provided in this Agreement, no Member, after his
admission to the Company, shall be obligated to contribute additional funds or
property, or loan money, to the Company.
5.4 Removal of Members. A Member may be removed from membership in the
------------------
Company without such Member's consent only (i) as provided in Article 15 or (ii)
upon the vote of Members holding a majority of the Units of Participation. A
Member removed from membership pursuant to subsection (ii) of this paragraph 5.4
shall be deemed to have become an Inactive Member in accordance with paragraph
15.1, except that the purchase price of such Inactive Member's Interest shall be
50% of the Contract Price.
5.5 Fiduciaries as Members. A Member may own an Interest in a fiduciary
----------------------
capacity, such as a trustee under a trust instrument, as executor or as a
personal representative of an estate or as custodian. Such fiduciary shall have
no interest or obligation individually with respect to any such Interests, but
shall be considered as acting solely in such fiduciary capacity. If a Member
acting in a fiduciary capacity ceases to act as such, the successor Fiduciary
shall be a Member in the same
-4-
<PAGE>
fiduciary capacity with the same nights and obligations as the predecessor
fiduciary. A Person may be a Member in an individual capacity and a Member in
one or more fiduciary capacities.
Article 6 - Principal Office
The principal office and place of business of the Company shall be located
at 1500 North Big Run Road, Ashland, Kentucky 41102. The Company may have such
other or additional offices as the Manager deems advisable.
Article 7 - Term
----
The term of the Company shall begin on the date the Company's Articles of
Organization are filed with the Georgia Secretary of State, and shall continue
until dissolution in accordance with the terms of this Agreement.
Article 8 - Capital and Contributions
-------------------------
8.1 Initial Contributions. The Members shall make the initial Capital
-------------
Contributions set forth on Annex A.
-------
8.2 Additional Contributions. The Members shall make additional Capital
------------------------
Contributions at such times and in such amounts as may be agreed upon by Members
holding a majority of the Units of Participation. Annex A shall be amended to
-------
reflect any additional Capital Contributions.
8.3 Member Loans. Upon the agreement of Members holding a majority of the
------------
Units of Participation, each of the Members shall be obligated to make loans to
the Company to fund operating and development costs. The loans shall be made at
the prime rate as published from time to time in The Wall Street Journal,
-----------------------
adjusted quarterly, with interest and principal payable upon the dissolution and
winding up of the Company, or at such earlier date as agreed upon by the Members
out of Net Cash Flow, after any distribution of Net Cash Flow with respect to
the Members' tax liabilities as contemplated by paragraph 9.1. The Members shall
be obligated to make such loans pro rata in accordance with their Units of
Participation, or otherwise as agreed upon by the Members. All loans shall be
made within 10 days after election by the Members to require such loans, or at
such other time as is specified by the Members making such election.
8.4 Interest on Capital. No Member shall be paid interest on any Capital
-------------------
Contribution or Capital Account.
8.5 Capital Accounts. A separate Capital Account shall be maintained by
----------------
the Company for each Member in accordance with Treas. Reg. (S) 1.704-
1(b)(2)(iv). There shall be credited to each Member's Capital Account: (i) the
amount of money contributed by such Member to the Company; (ii) the fair market
value of property contributed by such Member to the Company (net of liabilities
secured by such contributed property that the Company is considered to assume or
take subject to under IRC (S) 752); and (iii) allocations to such Member of
Company income and Gain (or items thereof), including income and gain exempt
from tax and income and gain, as computed for book
-5-
<PAGE>
purposes, in accordance with Treas. Reg. (S) 1.704-i(b)(2)(iv)(g). Each Member's
---
Capital Account shall be decreased by: (i) the amount Of money distributed to
such Member by the Company; (ii) the fair market value of property distributed
to such Member by the Company (net of liabilities secured by such distributed
property that such Member is considered to assume or take subject to under IRC
(S) 752); (iii) allocations to such Member of expenditures of the Company
described in IRC (S) 705(a)(2)(B); and (iv) allocations of loss and deduction
(or items thereof) including loss or deduction, computed for book purposes, as
described in Treas. Reg. (S) 1.704-1(b)(2)(iv)(g).
8.6 Withdrawal and Return of Capital. Except as expressly provided in this
--------------------------------
Agreement, including paragraph 9.1 with respect to distributions of Net Cash
Flow, no Member shall be entitled to withdraw any part of such Member's Capital
Contributions or Capital Account, or to receive any distribution from the
Company.
8.7 Revaluation of Company Property. If there shall occur (i) an
-------------------------------
acquisition of an Interest from the Company for more than a de minimis Capital
Contribution, or (ii) a distribution (other than a de minimis distribution) to a
Member in redemption of an Interest, then the Company shall revalue the assets
of the Company at their then fair market value and adjust the Capital Accounts
in the same mariner as provided in paragraph 17.1 in the case of a property
distribution. If there is a reallocation pursuant to this paragraph 8.7, then
Capital Accounts shall thereafter be adjusted for allocations of depreciation
(cost recovery) and gain or loss in accordance with the provisions of Treas.
Reg. (S)(S) 1.704-1(b)(2)(iv)(f) and (g), and the Members' distributive shares
of depreciation (cost recovery) and gain or loss shall thereafter be computed in
accordance with the principles of IRC (S) 704(c) and the regulations promulgated
thereunder using the traditional method with curative allocations within the
meaning of Treas. Reg. (S) 1.704-3 ) (c).
Article 9 - Distributions
-------------
9.1 Distributions to the Members. Unless otherwise determined by the
----------------------------
Manager, the Company's Net Cash Flow shall be retained by the Company for
reinvestment in the Company's business, except that, to the extent such Net Cash
Flow is available during a taxable year, (i) the Company shall distribute an
amount of Net Cash Flow during such taxable year equal to the amount of federal
and state income taxes due with respect to the Company's Net Profits for that
taxable year, assuming that the Member allocated such Net Profits is taxed on
such income at the highest applicable marginal rates for individuals residing in
West Palm Beach, Florida who are married and filing jointly, and (ii) the
Manager may elect, after the distribution of the amount required in (i) above,
to distribute additional Net Cash Flow in repayment of any loans made by the
Members to the Company. Distributions of Net Cash Flow shall be made among the
Members in accordance with their Units of Participation. "Net Profits" shall
mean an amount equal to the Company's Taxable Income for the applicable period.
9.2 Timing of Distributions. Distributions of Net Cash Flow shall be made
-----------------------
quarterly to the extent possible, on or prior to the date the Members are
required to make estimated tax payments for the previous quarter.
-6-
<PAGE>
Article 10 - Allocation of Profits and Losses for Tax Purposes
-------------------------------------------------
10.1 Allocations to the Members Generally. Taxable Income and Tax Losses
------------------------------------
shall be allocated among the Members in accordance with their Units of
Participation.
10.2 Limitation on Losses. Notwithstanding the general allocation of
--------------------
Taxable Income and Tax Losses described in paragraph 10.1, no Member shall be
allocated Tax Losses in excess of the aggregate of such Member's positive
Capital Account balance, Company Minimum Gain (within the meaning of Treas. Reg.
(S) 1.704-2(b)(2)), and Member Nonrecourse Minimum Gain (within the meaning of
Treas. Reg. (S) 1.704-2(i)(3)), until such time as no Member has a positive
Capital Account balance, whereupon subsequent allocations of Tax Losses shall
again be allocated among the Members in accordance with their Units of
Participation. Furthermore, no Member shall be allocated Tax Losses where it is
reasonably anticipated that such Member's Capital Account shall be negative at
the end of the fiscal year in which the Tax Losses arise or at the end of the
subsequent fiscal year, as a result of distributions of Net Cash Flow during
such periods, until such time as no Member would have a positive Capital Account
balance after such reasonably anticipated distributions of Net Cash Flow,
whereupon subsequent allocations of Tax Losses shall again be allocated among
the Members in accordance with their Units of Participation. Tax Losses not
allocated to a Member under this paragraph 10.2 shall be reallocated among those
Members with positive Capital Account balances in accordance with their Units of
Participation.
10.3 Qualified Income Offset. If a Member receives any adjustment,
-----------------------
allocation, or distribution described in Treas. Reg. (S)(S) 1.704-
1(b)(2)(ii)(d)(4), (5), or (6), then items of Taxable Income shall be specially
allocated to such Member in an amount and manner sufficient to eliminate the
deficit balance in such Member's Capital Account as quickly as possible. It is
the intention of the parties that this provision constitute a "qualified income
offset" within the meaning of Treas. Reg. (S) 1.704-1(b)(2)(ii)(d), and this
provision shall be so construed.
10.4 Minimum Gain Chargeback. If there is a net decrease in the Company's
-----------------------
Minimum Gain (within the meaning of Treas. Reg. (S) 1.704-2(b)(2)) or Member
Nonrecourse Minimum Gain (within the meaning of Treas. Reg. (S) 1.704-2(i)(3))
during any fiscal year of the Company, each Member shall be specially allocated,
before any other allocations under this Article 10, items of income and gain for
such fiscal year (and subsequent fiscal years, if necessary) in an amount equal
to such Member's share (determined in accordance with Treas. Reg. (S)(S) 1.704-
2(g) and 1.704-2(i)(5), as applicable) of the net decrease in the Company's
Minimum Gain or Member Nonrecourse Debt Minimum Gain, as applicable, for such
fiscal year, provided, however, that no such allocation shall be required if any
of the exceptions set forth in Treas. Reg. (S) 1.704-2(f) apply. It is the
intention of the parties that this provision constitute a "minimum gain
chargeback" within the meaning of Treas. Reg. (S)(S) 1.704-2(f) and 1.704-
2(i)(4), and this provision shall be so construed. Notwithstanding anything in
this Agreement to the contrary, the Company's partner nonrecourse deductions
(within the meaning of Treas. Reg. (S) 1.704-2(i)(2)) shall be allocated solely
to the Member who has the economic risk of loss with respect to the partner
nonrecourse liability related thereto in accordance with the provisions of
Treas. Reg. (S) 1.704-2(1)(1).
10.5 Curative Allocations. The allocations set forth in paragraphs 10.2
--------------------
through 10.4 are intended to comply with certain requirements of the Treasury
Regulations (the "Regulatory Allocations").
-7-
<PAGE>
It is the intent of the Members that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory Allocations or with
special allocations of other items of Taxable Income or Tax Losses pursuant to
this paragraph 10.5. Therefore, notwithstanding any other provision of this
Article 10 (other than the Regulatory Allocations), the Members shall make such
offsetting special allocations of Taxable Income and Tax Losses in whatever
manner the Members determine appropriate so that, after such offsetting
allocations are made, each Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Taxable Income and
Tax Losses were allocated pursuant to paragraph 10.1.
10.6 No Restoration of Deficit Capital Accounts. No Member shall be
------------------------------------------
required under any circumstances (either during the period of the Company's
operation or upon the Company's dissolution and termination) to restore a
deficit in such Member's Capital Account or otherwise, except as otherwise
specifically provided in this Agreement, make any contribution of cash or
property to the Company without such Member's consent, which may be withheld in
such Member's sole and absolute discretion.
10.7 Contributed Property. In accordance with the rules of IRC (S) 704(c)
--------------------
and the Treasury Regulations promulgated thereunder, items of income, gain,
loss, and deduction with respect to any property contributed to the capital of
the Company shall, solely for tax purposes, be allocated among the Members so as
to take account of any variation between the adjusted basis of such property to
the Company for federal income tax purposes and its fair market value at the
time of contribution.
10.8 Division Among Members. If there is a change in a Member's Interest
----------------------
during a fiscal year of the Company, any allocations pursuant to this Article 10
shall be made so as to take into account the varying interests of the Members
during the period to which the allocation relates, using the interim closing of
the books method for determining such allocations, or upon the unanimous
agreement of the Members (including any former Member affected by such
allocations), using any method for determining such allocations that is provided
in IRC (S) 706(d) and the Treasury Regulations promulgated thereunder.
Article 11 - Books of Account, Records and Reports
-------------------------------------
11.1 Responsibility for Books of Account and Records. Proper and complete
-----------------------------------------------
books of account and records shall be kept by the Manager in which shall be
entered fully and accurately all transactions and other matters relative to the
Company's business as are usually entered into books of account and records
maintained by persons engaged in businesses of a like character, including,
without limitation, a Capital Account for each Member. The Company's books of
account and records shall be prepared in accordance with generally accepted
accounting principles, consistently applied, except that the books of account
and records shall be kept on the cash basis, except in circumstances in which
the Manager determines that another basis of accounting will be in the best
interests of the Company. The books of account and records shall, at all times,
be maintained at the principal place of business of the Company, and shall be
open to the inspection and examination of the Members or their duly authorized
representatives during reasonable business hours, and any Member may, at such
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<PAGE>
Member's own expense, examine and make copies of the books of account and
records of the Company.
11.2 Reports. The Manager may prepare or cause to be prepared, and deliver
-------
or cause to be delivered to the Members from time to time during each fiscal
year, in connection with distributions or otherwise, unaudited statements
showing the results of the Company's operations to the date of that unaudited
statement.
Article 12 - Fiscal Year
-----------
The fiscal year of the Company shall end on December 1 of each year.
Article 13 - The Company's Funds
-------------------
The Company's funds shall be deposited in such bank account(s), or invested
in such interest-bearing or non-interest-bearing investments, as shall be
designated by the Manager. All withdrawals from any such bank account(s) shall
be made by the Manager. The Company's funds shall be held in the name of the
Company and shall not be commingled with those of any other Person.
Article 14 - Management of the Company
-------------------------
14.1 Rights and Duties of the Manager.
--------------------------------
(a) The business and affairs of the Company shall be managed by its
Manager. Harold Sergent shall be the Company's initial Manager. The Manager
shall direct, manage, and control the business of the Company to the best of
such Manager's ability. Except for situations in which the approval of the
Members is expressly required in this Agreement or by nonwaivable provisions of
the Act, the Manager shall have full and complete authority, power, and
discretion to manage and control the Company's business, affairs, and
properties, to make all decisions regarding those matters, and to perform any
and all other acts or activities customary or incident to the Company's
management. By acceptance of the position of Manager, the Manager agrees to be
bound by and subject to the terms of this Agreement.
(b) At any time when there is more than one Manager, any one Manager
shall have the power to act on behalf of the Company and bind the Company, and
actions of the Manager shall be approved by a majority of the Managers then in
office.
(c) The Company shall initially have one Manager. The number of
Managers of the Company shall be fixed from time to time by the vote of Members
holding a majority of the Units of Participation, but in no instance shall there
be less than one Manager. Each Manager shall hold office until such Manager
resigns or is removed for Cause, at which time a new Manager shall be elected by
the alternative vote of Members holding a majority of the Units of
Participation.
(d) The Manager shall have the responsibility and authority to manage
the operations and affairs of the Company.
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(e) The Manager shall not have the authority without the approval of
Members holding a majority of the Units of Participation to approve a
transaction between the Company and the Manager or an Affiliate of the Manager
or otherwise approving a transaction which might involve an actual or potential
conflict of interest between the Manager and the Company or the Manager and the
Members.
14.2 Members. No Member shall have the power or authority to bind the
-------
Company unless the Member has been authorized in writing by the Manager to act
as an agent of the Company. Meetings of the Members shall be held at least
annually and may be called by any Member upon at least three business days prior
written notice to the other Members. Notice may also be communicated in person
by telephone. Actions by the Members shall be taken by the affirmative vote of
Members holding a majority of the Units of Participation, unless otherwise
provided in this Agreement. The vote requirement in the preceding sentence shall
supersede any unanimous vote requirement set forth in Georgia Code (S) 14-11-
308(b). The notice shall provide the time and place of such meeting, which shall
be at the Company's principal office unless the Members unanimously consent to a
different location. Meetings may be held by any means of communication by which
all Members participating may simultaneously hear each other during this
meeting. Actions of the Members may be taken by unanimous written action.
14.3 Compensation. For any services rendered by a Manager, the Manager
------------
shall be entitled to receive fair and reasonable compensation for those services
and shall be entitled to receive reimbursement for expenses incurred in
performance of those services.
14.4 Resignation. A Manager shall be deemed to have resigned, effective
-----------
immediately, upon the Bankruptcy, Disability, or Incapacity of such Manager. Any
Manager may voluntarily resign at any time by giving written notice to the
Members of the Company. The resignation of any Manager shall take effect upon
receipt of that notice or at such later time as shall be specified in the
notice; and, unless otherwise specified in the notice, the acceptance of the
resignation shall not be necessary to make it effective. The resignation of a
Manager who is also a Member shall not affect the Manager's rights as a Member
and shall not constitute a withdrawal of a Member.
14.5 Removal. At a meeting called expressly for that purpose, all or any
-------
lesser number of Managers may be removed at any time, for Cause, by the
affirmative vote of Members holding a majority of the Units of Participation
(excluding the Manager's Units of Participation). The Members shall not have the
power or right to remove a Manager unless such removal is for Cause.
14.6 Vacancies. Any vacancy occurring for any reason in the number of
---------
Managers of the Company may be filled by the affirmative vote of a majority of
the remaining Managers then in office, provided that if there are no remaining
Managers, then the vacancies shall be filled by the affirmative vote of Members
holding a majority of the Units of Participation (excluding the Interest held by
any Manager removed from office pursuant to paragraph 14.5).
14.7 Time to be Devoted to Business. The Manager shall devote such time to
------------------------------
the Company's business as the Manager, in his reasonable discretion, shall deem
to be necessary to manage and supervise the Company's business and affairs in an
efficient manner; but nothing in this
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Agreement shall preclude the employment, at the expense of the Company, of any
agent or third party to manage or provide other services in respect of the
Company's business.
14.8 Other Activities and Competition. The Manager shall not be required to
--------------------------------
manage the Company as his sole and exclusive function and any Member may have
other business interests and may engage in other activities in addition to those
relating to the Company, including the rendering of advice or services of any
kind to Affiliates, other investors and the making or management of other
investments. Neither the Company nor any Member shall have any right, by virtue
of this Agreement or the relationship created hereby, in or to such other
ventures or activities or to the income or proceeds derived therefrom.
14.9 Liability. The Manager shall not be liable, responsible or accountable
---------
in damages or otherwise to the Company or any Member for any action taken or
failure to act on behalf of the Company within the scope of the authority
conferred on the Manager by this Agreement or by law unless such act or omission
was performed or omitted fraudulently or in bad faith or constituted gross
negligence.
14.10 Indemnification. The Company shall indemnify, defend and hold
---------------
harmless each Manager and Member (each an "Indemnified Party"), from and against
any loss, expense, damage or injury suffered or sustained by such Indemnified
Party by reason of any acts, omissions or alleged acts or omissions arising out
of such Indemnified Party's activities on behalf of the Company or in
furtherance of the interests of the Company, including but not limited to any
judgment, award, settlement, reasonable attorney's fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim if the acts, omissions or alleged acts or omissions
upon which such actual or threatened action, proceeding or claim is based were
for a purpose reasonably believed to be in the best interests of the Company and
were not performed or omitted fraudulently or in bad faith or as a result of
gross negligence by such Indemnified Party, and were not in violation of the
Indemnified Party's fiduciary obligation to the Company. Any such
indemnification shall only be from the assets of the Company.
Article 15 - Transfer of Interests
---------------------
15.1 Bankruptcy; Incapacity.
----------------------
(a) Upon the Bankruptcy or Incapacity of any Member, that Member (an
"Inactive Member") or such Inactive Member's Representative shall cease to have
any voice in the conduct of the affairs of the Company, and all acts, consents
and decisions with respect to the Company shall thereafter be made by the other
Members. The Inactive Member shall, nonetheless, remain liable for such Member's
share of any contributions or loans to the Company as provided herein, and shall
be entitled to receive such Member's share of Taxable Income, Tax Losses and Net
Cash Flow.
(b) For 180 days from and after the date a Member becomes an Inactive
Member, the Company and the other Members shall have an irrevocable option to
purchase the Inactive Member's Interest. The Company shall have the first option
to purchase the Inactive Member's Interest. If the Company does not elect to
exercise its option, then the Members shall have the right
-11-
<PAGE>
to purchase such Interest (in proportion to their Units of Participation if more
than one Member elects to exercise such option). If the Company or the other
Members elect to purchase the Inactive Member's Interest, such party shall
notify the Inactive Member or such Inactive Member's Representative of such
party's intention to do so within said 180-day period, and the Inactive Member's
Interest shall be purchased by the Company, or the other Members in proportion
to their respective Units of Participation at that time or in such other
proportion as the other Members may mutually agree. The purchase price of an
Inactive Member's Interest purchased pursuant to this paragraph 15.1 shall be
the Contract Price as defined by paragraph 15.6, and shall be payable at the
time and in the manner specified in paragraph 15.7. If the Company and the other
Members elect not to purchase the Inactive Member's Interest, then the Inactive
Member shall remain as such in accordance with paragraph 15.1(a).
15.2 Voluntary Withdrawal. A Member may voluntarily withdraw from the
--------------------
Company upon the giving of 30 days advance written notice to the Company and the
remaining Members. Upon the voluntary withdrawal of a Member from the Company (a
"Withdrawing Member"), such Withdrawing Member shall cease to be a Member of the
Company, and, as a result, shall cease to have any voice in the conduct of the
affairs of the Company, and all acts, consents and decisions with respect to the
Company shall thereafter be made by the other Members. A Withdrawing Member's
Interest in the Company shall be deemed to have been redeemed as of the date of
withdrawal. The purchase price payable by the Company for the Withdrawing
Member's Interest shall be 50% of the Contract Price, without interest, payable
out of the Company's available assets upon the Company's dissolution. The
purchase price due to the Withdrawing Member shall be represented by a
promissory note of the Company, in such form as shall be reasonably acceptable
to the Withdrawing Member, and shall be unsecured.
15.3 Restrictions on Transfer.
------------------------
(a) Except as provided in paragraph 15.3(e) or this paragraph 15.3(a),
no Member shall sell, assign, pledge, hypothecate, bequeath, give away or
transfer by operation of law or otherwise all or any part of such Member's
Interest (collectively "Transfer"), without obtaining the prior written consent
of the Manager (or if the Manager is the transferor, then the prior written
consent of the remaining Members holding a majority of the Units of
Participation), which consent may be unreasonably withheld. The Manager may in
his discretion approve the Transfer of the economic rights associated with the
ownership of an Interest, without approving the assignment of an Interest
carrying with it the right of the assignee to become a substituted Member.
Notwithstanding any of the restrictions set forth in this Article 15, Harold
Sergent may Transfer all or any part of his Units of Participation without
obtaining the consent of the Manager or the remaining Members, and subject to
the restrictions of paragraph 15.3)(b), the assignee of such Interest shall be a
substituted Member.
(b) If the Manager approves the assignment of an Interest, then such
assignment shall release the assigning Member from such Member's obligations
under this Agreement to the extent that such Member has assigned such Member's
Interest; provided that the approved assignee assumes the obligations of the
--------
assigning Member. The assignment of Units of Participation pursuant
-12-
<PAGE>
to this paragraph 15.3(b) shall confer upon the assignee the right to become a
substituted Member, in the following manner and subject to the following
conditions:
(i) Each assignment shall be effective as of the day that the other
Members approve of the assignment, or if such approval is not required, then on
the day that such Units of Participation are assigned;
(ii) No assignment will be effective if the assignment would, in the
opinion of counsel to the Company, result in the termination of the Company for
purposes of the IRC; and
(iii) No assignment to a minor or incompetent shall be
effective in any respect, except that this limitation shall not apply to a
transfer in trust for the benefit of a minor or in custodianship under the
Uniform Transfers to Minors Act or similar legislation.
(c) The Transfer of any Member's Interest in violation of this
Agreement shall be treated as an unapproved Transfer pursuant to paragraph
15.3(d). Any Member who attempts to Transfer such Member's Interest in violation
of this Agreement, whether by operation of law or otherwise, shall be deemed to
have become an Inactive Member and shall further be deemed to have granted the
Company the option to purchase such Member's Interest at 50% of the Contract
Price, subject to the terms of paragraph 15.1(b). If the Manager does not
approve of the Transfer of such Member's Interest, then a Member shall not
Transfer such Member's Interest and shall continue to be a Member. "Transfer"
shall not include (i) a transfer to a Revocable Declaration of Trust (without
the admission of such trust as a Member); (ii) a transfer to (but not from) the
executor, administrator, or other legal representative of the estate of a
deceased Member, (iii) a transfer to the guardian or conservator for a legally
adjudicated incompetent Member, or (Iv) a transfer subject to paragraph 15.3(e).
(d) Unless a transferee is approved by the Manager as a substituted
Member, the transferee of an Interest shall have no right to (i) interfere or
participate in the management or administration of the Company's business or
affairs, (ii) request any information on or an accounting of the Company's
transactions, or (iii) inspect the Company's books of account or records. The
Transfer of an Interest without approval of the transferee as a substituted
Member merely entities the transferee to receive the share of distributions,
income and losses to which the transferring Member would otherwise be entitled,
and the transferee shall have only those rights specified in the Act. In the
event of the Transfer of an Interest without the Manager's approval of the
assignment of the rights as a Member, the transferring Member shall remain
liable for such Member's obligations under this Agreement.
(e) If a bona fide offer in writing, signed by the offeror and
accompanied by a good certified or bank cashier's check for 10% of the price
offered as a good faith deposit shall have been made to a Member for the
purchase of such Member's Interest (the "Offeree Member"), and such Member
desires to accept the offer, then a true copy of such offer shall be forwarded
to the Manager and the other Members. The Company first and then the other
Members (in proportion to their Units of Participation, or in such other
proportions as they may agree) shall have the right, to be exercised by written
notice to such effect within 45 days after receipt of the offer by them, to
-13-
<PAGE>
purchase the Offeree Member's Interest on the same terms and conditions as are
contained in the offer. Such notice of acceptance shall set the closing date for
the consummation of the transaction, which shall not be later than (i) 30 days
from the mailing of such acceptance by them, or (ii) the date of closing in the
offer, whichever date is later, and shall also set forth the time and place of
closing, which shall be in Ashland, Kentucky, during usual business hours. If
the Company and the other Members do not send a notice of acceptance to the
Offeree Member within the prescribed time or are not ready, willing, and able to
consummate the purchase on the closing date, then the Offeree Member shall have
the right to sell his Interest to the offeror, provided that such sale is
consummated within 60 days after the 45-day period and provided, further, that
such sale is made strictly in accordance with the terms of the offer and on no
more favorable terms to the purchaser. The Transfer of an Interest pursuant to
this paragraph 15.3(e) shall not entitle the transferee to become a substituted
Member unless the assignment of the Interest is approved by the Manager pursuant
to 15.3(a). If the assignment of the Interest is not approved by the Manager,
then the Transfer shall be treated as a Transfer pursuant to paragraph 15.3(d)
without an assignment of membership fights.
15.4 Rights of a Dissociated Member. The rights and obligations of a
------------------------------
dissociated Member under this Article 15 are in lieu of any rights that such
Member might otherwise have under the Act. Except as otherwise provided in this
Agreement, no occurrence of an event of dissociation of a Member under the Act
shall cause a dissociation of such Member from the Company.
15.5 Assignees/Transferees Bound by this Agreement. Any assignee or Person
---------------------------------------------
admitted to the Company as a substituted Member shall be subject to and bound by
all provisions of this Agreement as if originally a party to this Agreement.
15.6 Contract Price.
--------------
(a) The "Contract Price" shall equal the Fair Value of the
transferring Member's Interest as of the date of the event triggering the sale.
The Fair Value shall be determined within 30 days after the event triggering the
transfer by agreement among the parties to the transaction, or if no agreement
can be reached, then by an appraisal (the appraiser shall be selected in
accordance with paragraph 15.6(b)) of the Fair Value of the transferring
Member's Interest. "Fair Value" shall be based on the distribution rights with
respect to the Interest being transferred or redeemed, taking into account the
terms of this Agreement and restrictions on such Member's Interest as set forth
in this Agreement and the Act.
(b) The parties shall attempt to agree on the selection of an
appraiser. If the parties cannot agree on an appraiser, then the Member (or such
Member's Representative) whose Interest is being transferred shall select a
qualified appraiser and the Company (at the direction of the Manager or the
remaining Members if the Manager's Interest is being transferred) shall select a
second qualified appraiser. The two appraisers shall then select a third
qualified appraiser. The two appraisers selected by the transferring Member and
the Company shall prepare appraisals of the Fair Value, and shall present those
appraisals to the third appraiser. The third appraiser acts as an arbitrator and
determines the Fair Value by selecting either (i) one of the two appraisals
presented, or (ii) a value between the two appraisals presented. If the Members
use one appraiser, then the cost of the appraiser shall be split between the
transferring Member and the Company. If the Members use three appraisers, then:
-14-
<PAGE>
(A) the cost of the appraiser selected by the transferring Member and one-half
of the cost of the third appraiser shall be borne by the transferring Member;
and (B) the cost of the appraiser selected by the Company and one-half of the
cost of the third appraiser shall be borne by the Company. The decision of the
appraiser or appraisers shall be final and binding upon the Members and the
Company.
15.7 Time and Manner of Payment.
--------------------------
(a) Any Interest transferred to the Company or the other Members
pursuant to this Article 15 (other than pursuant to paragraph 15.2 or 15.3(e))
shall be paid for, at the purchaser's option, either (i) all in cash at the time
the Interest is transferred, or (ii) by a down payment computed in accordance
with paragraph 15.7(b) and delivery of a promissory note signed by the
purchaser(s) for the balance of the Contract Price. The closing on the transfer
of any Interest shall occur within 30 days after determination of the Contract
Price, unless otherwise specified herein or in that option or offer.
(b) If the other Members or the Company elect(s) the second option in
paragraph 15.7(a), then such Persons shall pay as a down payment 10% of the
Contract Price. The remaining unpaid portion of the Contract Price shall be
represented by a promissory note of such Persons, in such form as shall be
acceptable to the transferring Member, and providing for four equal annual
installments of the remaining unpaid portion of the Contract Price, each
installment due on the anniversary of the transfer of the Interest. That
promissory note shall provide for the payment of interest with each payment of
principal on the unpaid portion of that promissory note from time to time, at
the prime rate as published in The Wall Street Journal, from time to time,
-----------------------
adjusted each January 1 and July 1, compounded semi-annually. The promissory
note shall be secured by a perfected pledge of the transferred Interest,
pursuant to the terms of a pledge agreement in a form reasonably satisfactory to
the transferring Member or such Member's Representative.
Article 16 - Dissolution of the Company
--------------------------
The happening of the following event shall, as provided below, cause a
dissolution of the Company:
(a) Subject to dissolution and termination of the Company pursuant to
Article 18, upon the written consent of Members holding a majority of the Units
of Participation authorizing the dissolution of the Company.
No event of dissociation of a Member or a Manager under the Act or event of
dissolution under the Act shall cause a dissolution of the Company.
Article 17 - Winding Up; Liquidating Distributions; Termination
--------------------------------------------------
17.1 Winding Up.
----------
(a) In the event of the dissolution of the Company for any reason,
then the Members or their successors shall commence to wind up the affairs of
the Company and to liquidate
-15-
<PAGE>
the Company's assets. The Members shall continue to share profits and losses
during the period of liquidation in accordance with Article 10. The Members
shall determine whether the Company's assets are to be sold or distributed to
the Members in dissolution of the Company. If the Company's assets are
distributed to the Members, then all such assets shall be valued at their then
fair market value as determined by the Members and the difference, if any, of
such fair market value over (or under) the adjusted basis of such assets to the
Company shall be credited (or charged) to the Capital Accounts of the Members in
accordance with Article 10. Fair market value shall be used for purposes of
determining the amount of any distribution to a Member pursuant to paragraph
17.2.
(b) If the Members are unable to agree on the fair market value of any
Company asset, then the fair market value shall be determined by a qualified
independent appraiser selected by the Members, or, if no appraiser can be agreed
upon by the Members, then selected by the Company's regularly employed
accounting firm.
17.2 Liquidating Distributions. Subject to the right of the Members to set
-------------------------
up such cash reserves as may be deemed reasonably necessary for any contingent
or unforeseen liabilities or obligations of the Company, the proceeds of the
liquidation and any other funds of the Company shall be distributed to:
(a) Creditors, in the order of priority as provided by law, including,
to the extent permitted by law, Members who are creditors,
(b) The Members for any unpaid distributions;
(c) The Members in proportion to their respective Capital Accounts
until they have received an amount equal to their Capital Accounts immediately
prior to such disposition, but after adjustment for gain or loss with respect to
-----
the disposition of the Company's assets incident to the dissolution of the
Company and the winding up of its affairs, whether or not the distribution
occurs prior to the dissolution of the Company; and
(d) The Members in accordance with their Units of Participation.
17.3 Rights of the Members. Each Member shall look solely to the Company's
---------------------
assets for all distributions with respect to the Company, his Capital
Contribution (including the return thereof), and share of profits, and shall
have no recourse therefor (upon dissolution or otherwise) against any other
Member.
17.4 Termination. Upon complete liquidation of the Company and distribution
-----------
of all Company funds, the Company shall terminate.
Article 18 - Special Power of Attorney
-------------------------
18.1 Granting of Power of Attorney. Concurrently with the execution of
-----------------------------
written acceptance and adoption of the provisions of this Agreement, each Member
grants to the Manager a special power of attorney constituting and appointing
the Manager as the attorney-in-fact for such
-16-
<PAGE>
Member, with power and authority to act in his name and on his behalf to
execute, acknowledge and swear to in the execution, acknowledgment and filing of
documents, which shall include, by way of illustration but not of limitation,
the following:
(a) This Agreement, any separate articles or certificates of limited
liability company, as well as any amendments to the foregoing which, under the
laws of the State of Georgia or the laws of any other state, are required to be
filed or which the Manager deems to be advisable to file;
(b) The Company's redemption of a Member's Interest pursuant to
Article 15;
(c) Any other instrument or document which may be required to be filed
by the Company under the laws of any state or by any governmental agency, or
which the Manager deems advisable to file; and
(d) Any instrument or document which may be required to effect the
continuation of the Company, the admission of an additional or substituted
Member, or the dissolution and termination of the Company (provided such
continuation, admission or dissolution and termination are in accordance with
the terms of this Agreement), or to reflect any reductions in amount of
contributions of the Members.
18.2 Nature of Power of Attorney. The special power of attorney to be
---------------------------
concurrently granted by each Member:
(a) Is a special power of attorney coupled with an interest, is
irrevocable, shall survive the death or dissolution of the granting Member, and
is limited to those matters herein set forth;
(b) May be exercised by the Manager acting alone for each Member by a
facsimile signature of the Manager or by listing all of the Members executing
any instrument with a single signature of the Manager acting as an attorney-in-
fact for all of them; and
(c) Shall survive an assignment by a Member of all or any portion of
such Member's Interest except that, where the assignee of an Interest owned by a
Member has been approved by the Members for admission to the Company as a
substituted Member, the special power of attorney shall survive such assignment
for the sole purpose of enabling the Manager to execute, acknowledge and file
any instrument or document necessary to effect such substitution.
Article 19 - Miscellaneous
-------------
19.1 Notices. All notices, approvals, consents and demands required or
-------
permitted under this Agreement shall be in writing and sent by hand delivery,
facsimile, overnight mail, certified mail or registered mail, postage prepaid,
to the Members and Managers at their addresses as shown from time to time on the
records of the Company, and shall be deemed given when delivered by hand
delivery, transmitted by facsimile or mailed by overnight, certified or
registered mail. Any Member
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<PAGE>
or Manager may specify a different address by notifying the other Members and
Managers and the Company in writing of the different address.
19.2 Governing Law. This Agreement and the rights of the parties to this
-------------
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Georgia, without regard to its conflicts of law principles.
19.3 Benefit and Binding Effect. Except as otherwise specifically provided
--------------------------
in this Agreement, this Agreement shall be binding upon and shall inure to the
benefit of the parties to this Agreement, and their legal representatives,
heirs, administrators, executors, successors and permitted assigns. Except as
otherwise specifically provided in this Agreement, no Manager may assign his
rights and obligations under this Agreement without the unanimous consent of the
Members.
19.4 Pronouns and Number. Wherever from the context it appears appropriate,
-------------------
each term stated in either the singular or the plural shall include the singular
and the plural, and pronouns stated in either the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter gender.
19.5 Headings: Annexes and Schedules. The headings contained in this
-------------------------------
Agreement are inserted only as a matter of convenience, and in no way define,
limit or extend the scope or intent of this Agreement or any provision of this
Agreement. The Annexes and Schedules to this Agreement are incorporated into
this Agreement by this reference and expressly made a part of this Agreement.
19.6 Partial Enforceability. If any provision of this Agreement, or the
----------------------
application of any provision to any Person or circumstance shall be held
invalid, illegal or unenforceable, then the remainder of this Agreement, or the
application of that provision to Persons or circumstances other than those with
respect to which it is held invalid, illegal or unenforceable, shall not be
affected thereby.
19.7 Previous Agreements. This Agreement shall supersede ail previous
-------------------
agreements of the parties to this Agreement with respect to the matters to which
this Agreement pertains.
19.8 Certificates. Interests in the Company shall be evidenced by
------------
certificates that identify the number of units held by such Member. The total
number of such units authorized to be issued shall be 10,000. The total number
of issued and outstanding units shall equal 100% of the membership interests in
the Company.
19.9 Enforcement. In the event of a breach or threatened breach by a Member
-----------
or Manager of any of the provisions of this Agreement, the Company shall be
entitled to obtain a temporary restraining order and temporary and permanent
injunctive relief without the necessity of proving actual damages by reason of
such breach or threatened breach, and to the extent permissible under the
applicable statutes and rules of procedure, a temporary injunction or
restraining order may be granted immediately upon the commencement of any such
suit and without notice. Nothing in this Agreement may be construed as
prohibiting the Company from pursuing any other remedy or remedies, including
without limitation, the recovery of damages. The Company shall have the right
-18-
<PAGE>
to set off any such damages against any amounts otherwise payable by it to the
Member or Manager under this Agreement or otherwise. Each Member and Manager
further covenants and agrees to indemnify and hold the Company harmless from and
against all costs and expenses, including legal or other professional fees and
expenses incurred by the Company in connection with or arising out of any
proceeding instituted by the Company against the Member or Manager to enforce
the terms and provisions of this Agreement if the Company is successful in whole
or in part in such proceeding.
19.10 Scope. If any one or more of the provisions of this Agreement
-----
shall for any reason be held to be excessively broad as to time, duration,
geographical scope, activity, or subject, each
-19-
<PAGE>
ARTICLE 3.68(a)
ARTICLES OF INCORPORATION
OF
PRINCESS BEVERLY COAL HOLDING COMPANY, INC
1. Corporate Name. The Corporation's name shall be Princess Beverly Coal
--------------
Holding Company, Inc.
2. Authorized Shares. The Corporation shall have authority to issue
-----------------
1,000 shares.
3. Registered Office and Agent. The street address of the Corporation's
---------------------------
initial registered office shall be Kentucky Home Life Building, Louisville,
Kentucky 40202. The name of the Corporation's initial registered agent at that
office shall be CT Corporation System.
4. Principal Office. The mailing address of the Corporation's principal
----------------
office shall be 1500 North Big Run Road, Ashland, Kentucky 41102.
5. Action by Shareholders in Lieu of Meeting. Any action required or
-----------------------------------------
permitted to be taken at a shareholders' meeting may be taken without a meeting
and without prior notice if the action is taken by shareholders entitled to vote
on the action who represent not less than eighty percent (80%) of the votes
entitled to be cast on such action (or such higher percentage as may be required
by these Articles), except for the election of directors, which shall require
the written consent of all the shareholders entitled to vote in the election.
Notice of the taking of any action by shareholders without a meeting by less
than unanimous written consent shall be given promptly after the action becomes
effective to those shareholders entitled to vote on the action who have not
consented in writing.
6. Indemnification. Each person who is or becomes an executive officer
---------------
or director of the Corporation shall be indemnified and advanced expenses by the
Corporation with respect to all threatened, pending or completed actions, suites
or proceedings in which a person was, is, or is threatened to be made a named
defendant or respondent because he is or was a director or executive officer of
the Corporation. This Article obligates the Corporation to indemnify and
advance expenses to its executive officers or directors only in connection with
proceedings arising from that person's conduct in his official capacity with the
Corporation to the extent permitted by the Kentucky Business Corporation Act, as
amended from time to time. the indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which directors and executive officers may be entitled under any agreement, vote
of shareholders or disinterested directors, or otherwise. The Corporation may
indemnify and advance expenses to any employee or agent to the fullest extent
permitted by law.
<PAGE>
7. Limitation of Director Liability.
--------------------------------
(a) Except as otherwise provided by Subsection (b) below, no director
of the Corporation shall have any personal liability to the Corporation or its
shareholders for monetary damages for breach of his duties as a director.
(b) Nothing in Article 7 (a) above shall be deemed or construed to
eliminate or limit the liability of a director for:
i. Any transaction in which the director's personal financial
interest is in conflict with the financial interests of the Corporation or its
shareholders;
ii. Acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;
iii. Any vote for or assent to an unlawful distribution to
shareholders as prohibited under KRS 271B.8-330 (or under any corresponding
provision of the Kentucky Business Corporation Act, as amended from time to
time); or
iv. Any transaction from which the director derived an improper
personal benefit.
/s/ Alan S. Meek
Alan S. Meek, Incorporator
Date: February 16, 1999
Prepared by:
/s/ Alan Meek
Alan S. Meek
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
(606) 231-0000
<PAGE>
Consent of Registered Agent
C T Corporation System hereby consents to serve as the registered
agent on behalf of the corporation.
/s/ Susan Metze
Susan Metze, Assistant Secretary
CT Corporation System
<PAGE>
Exhibit 3.68(B)
BYLAWS
OF
PRINCESS BEVERLY COAL HOLDING COMPANY, INC.
I certify that the following Bylaws, consisting of three pages, each of
which I have initialed for identification, are the Bylaws adopted by the sole
Director of Princess Beverly Coal Holding Company (the "Corporation") by a
Written Action by Sole Director in Lieu of Organizational Meeting, dated
February 19, 1999.
/s/ William H. Haselhoff
----------------------------------------
William H. Haselhoff, Secretary
<PAGE>
BYLAWS
OF
PRINCESS BEVERLY COAL HOLDING COMPANY, INC.
SECTION 1
Meetings of Shareholders
------------------------
1.1 Except as the Board of Directors may otherwise designate, the annual
meeting of the shareholders of the Corporation shall be held at the time and
date to be set by the Board of Directors of the Directors of the Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of a quorum of
shareholders who are present in person or by proxy at a meeting held to elect
directors.
2.2 Meetings of the Board of Directors may be called by the President/
Chief Executive Officer or by any director.
-2-
<PAGE>
2.3 Unless waived as permitted by the Kentucky Business Corporation Act,
notice of the time, place of each meeting of the directors shall be either (a)
telephoned or personally delivered to each director at least forty-eight hours
before the time of the meeting or (b) mailed to each director at his last known
address at least ninety-six hours before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, and one or more Vice Presidents all of whom shall be appointed
by the Board of Directors. The Corporation may also have such assistant
officers as the Board of Directors may deem necessary, all of whom shall be
elected by the Board of Directors or chosen by an officer or officers designated
by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Authority to preside at all meetings of the shareholders and of
the Board of Directors,
(c) Authority acting alone, except as otherwise directed by the Board
of Directors, to sign and deliver any document on behalf of the Corporation,
including, without limitation, any deed conveying title to any real estate owned
by the Corporation and any contract for the sale or other disposition of any
such real estate, and;
(d) Such other powers and duties as the Board of Directors may assign.
-3-
<PAGE>
3.3 The Vice President, or if there be more than one Vice President, the
Vice Presidents in the order of their seniority by designation (or, if not
designated, in the order of their seniority of election), shall perform the
duties of the President/Chief Executive Officer in his absence. The Vice
President shall have such other powers and duties as the Board of Directors or
the President/Chief Executive Officer may assign to them.
3.4 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Have responsibility for preparing minutes of the directors' and
shareholders' meetings and for authenticating records of the Corporation;
(c) Have charge of the corporate record books; and
(d) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer ,may assign.
3.5 The Treasurer shall
(a) Keep adequate and correct accounts of the Corporation's affairs
and transactions, and
(b) Have such other duties and powers as the Board of Directors or the
President/Chief Executive Officer may assign.
3.6 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President/Chief Executive Officer may assign.
SECTION 4
Certificates and Transfer
-------------------------
-4-
<PAGE>
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President/Chief Executive
Officer.
4.2 Certificates representing shares of the Corporation shall be signed
(either manually or in facsimile) by the President/Chief Executive Officer and
by the Secretary or Treasurer.
4.3 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-5-
<PAGE>
Exhibit 3.69(a)
ARTICLES OF INCORPORATION
of
PRINCESS BEVERLY COAL COMPANY
I. The undersigned agree to become a corporation by the name of:
PRINCESS BEVERLY COAL COMPANY
II. The address of the principal office of said corporation will be
located at 401 South Lafayette Drive in the city of Lewisburg, County of
Greenbrier, State of West Virginia, Zip 24901.
III. The purpose or purposes for which corporation is formed are as
follows:
To acquire, purchase, lease, option, own, sell and mortgage coal lands,
mineral estates, in the State of West Virginia or elsewhere; to buy and sell
real estate; to prospect for coal, and mine coal and other minerals or mineral
products, and generally to buy, sell, handle, and deal in the market in coal of
all kinds; to purchases, acquire and contract all kinds of machinery, buildings,
cars, and appliances for mining and marketing coal; to construct and operate
railways and tramways for mining and moving coal; to form and control subsidiary
companies and corporations which said subsidiaries to have all of the aforesaid
objects; and to do all other things necessary and incidental to all of the
aforesaid purposes; and further, to conduct and carry on any business authorized
by law.
IV. Provisions granting preemptive rights are:
Common law preemptive rights shall not be limited.
V. Provisions for the regulation of the internal affairs of the
corporation are:
None.
VI. The amount of the total authorized capital stock of said corporation
shall be:
Five Thousand and no/100 dollars, which shall be divided into 500
shares of the par value of Ten and no/100 dollars each.
VII. The full names and addresses of the incorporator(s), including street
and street numbers, if any, and the city, town, or village, including zip
number, the number of shares subscribed for by each are as follows:
<PAGE>
Freda M. Wentz 1110 Kanawha Valley Bldg., Charleston, WV 25301 150 Shares
VIII. The existence of this corporation is to be perpetual.
IX. The name and address of the appointed person to whom notice or
process may be sent:
Peter Moran, 401 South Lafayette Drive, Lewisburg, West Virginia 24901
X. The number of directors constituting the initial board of directors
of the corporation is three (3), and the names and addresses of the persons who
are to serve as directors until the first annual meeting of shareholders or
until their successors are elected and shall qualify.
NAME ADDRESS
Peter Moran 401 South Lafayette Drive, Lewisburg, West Virginia 24901
Paul Moran 401 South Lafayette Drive, Lewisburg, West Virginia 24901
L.W.Hamilton, Jr. 401 South Lafayette Drive, Lewisburg, West Virginia 24901
I, WE the undersigned, for the purpose of forming a corporation under
the laws of the State of West Virginia, do make and file this Article of
Incorporation, and I/We have accordingly hereunto set our respective hands this
6/th/ day of March , 1978.
/s/ Freda M. Wentz
----------------------------------------
Freda M. Wentz
<PAGE>
STATE OF WEST VIRGINIA )
)
COUNTY OF KANAWHA )
I, Dawn Elaine Clark, a Notary Public in and for the county and state
aforesaid, hereby certify that Freda M. Wentz whose name(s) are signed to the
foregoing Articles of Incorporation (names of all incorporator(s) as shown in
Article VII must be inserted in this space by official taking acknowledgement)
bearing date 6/th/ day of March, 1978, this day personally appeared before me in
my said county and severally acknowledged their signature(s) to be the same.
Given under my hand and the official seal this 6/th/ day of March , 1978.
/s/ Dawn Elaine Clark
----------------------------------------
Notary Public
(NOTARIAL SEAL)
My Commission expires: October 6, 1992
Articles of Incorporation prepared by:
Joseph W. Caldwell
DENNY, SKEEN, & CALDWELL
1110 Kanawha Valley Building
Charleston, West Virginia 25301
<PAGE>
Exhibit 3.69(b)
AMENDED AND RESTATED
BYLAWS
OF
PRINCESS BEVERLY COAL COMPANY
I certify that the following Amended and Restated Bylaws, consisting of
four pages, each of which I have initialed for identification, are the Bylaws
adopted by the sole Shareholder of Princess Beverly Coal Company (the
"Corporation") by Written Action by Sole Shareholder in Lieu of Meeting, dated
February 19, 1999.
/s/ James Campbell
-------------------------------------
James Campbell, Secretary
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
PRINCESS BEVERLY COAL COMPANY
SECTION 1
Meetings of Shareholders
------------------------
1.1 The annual meeting of the shareholders of the Corporation shall be
held at the time and date to be set by the Board of Directors of the
Corporation.
1.2 The annual meeting of the shareholders shall be held at a place
designated by the Board of Directors or, if the Board of Directors does not
designate a place, then at a place designated by the Secretary or, if the
Secretary does not designate a place, at the Corporation's principal business
office.
1.3 Special meetings of the shareholders shall be held at a place
designated by the Board of Directors if the special meeting is called by the
Board of Directors. If the special meeting is not called by the Board of
Directors, the meeting shall be held at the Corporation's principal business
office.
SECTION 2
Board of Directors
------------------
2.1 The exact number of directors may be fixed, increased or decreased
from time to time by a resolution adopted by the vote of the shareholders who
(I) are present in person or by proxy at
<PAGE>
a meeting held to elect directors and (ii) have a majority of the voting power
of the shares represented at such meeting and entitled to vote in the election.
2.2 Meetings of the Board of Directors may be called by the President or
by any director.
2.3 Unless waived as permitted by the South Carolina Business Corporation
Act of 1988, notice of the time, place and purpose of each meeting of the
directors shall be either (I) telephoned or personally delivered to each
director at least forty-eight hours before the time of the meeting or (ii)
mailed to each director at his last known address at least ninety-six hours
before the time of the meeting.
SECTION 3
Officers
--------
3.1 The Corporation shall have a President, a Vice President, a Secretary
and a Treasurer, all of whom shall be elected by the Board of Directors. The
Corporation may also have such assistant officers as the Board of Directors may
deem necessary, all of whom shall be elected by the Board of Directors or chosen
by an officer or officers designated by it.
3.2 The President shall
(a) Have general charge and authority over the business of the
Corporation subject to the direction of the Board of Directors,
(b) Have authority to preside at all meetings of the shareholders and of
the Board of Directors,
-3-
<PAGE>
(c) Have authority acting alone, except as otherwise directed by the
Board of Directors, to sign and deliver any document on behalf of the
Corporation, and
(d) Have such other powers and duties as the Board of Directors may
assign to him.
3.3 The Secretary shall
(a) Issue notices of all meetings for which notice is required to be
given,
(b) Keep the minutes of all meetings and have charge of the corporate
record books, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.4 The Treasurer shall
(a) Have the custody of all funds and securities of the Corporation,
(b) Keep adequate and correct accounts of the Corporation's affairs and
transactions, and
(c) Have such other duties and powers as the Board of Directors or the
President may assign to him.
3.5 Other officers and agents of the Corporation shall have such authority
and perform such duties in the management of the Corporation as the Board of
Directors or the President may assign to them.
SECTION 4
Certificates and Transfer
-------------------------
-4-
<PAGE>
4.1 Shares of the Corporation shall be represented by certificates in such
form as shall from time to time be prescribed by the President.
4.2 Transfer of shares shall be made only on the stock transfer books of
the Corporation.
SECTION 5
Amendments
----------
These bylaws may be altered, amended, repealed or restated by a majority of
the directors of the Corporation.
Prepared by
BROWN, TODD & HEYBURN PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
-5-
<PAGE>
================================================================================
EXHIBIT 4.4
AEI RESOURCES, INC.,
as Borrower,
and
THE GUARANTORS PARTY HERETO
____________________
$500,000,000
SENIOR SUBORDINATED CREDIT AGREEMENT
Dated as of September 2, 1998
____________________
WARBURG DILLON READ LLC,
as Arranger and Syndication Agent,
and
UBS AG, STAMFORD BRANCH,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions, Accounting Matters and Rules of Construction............................ 1
1.01. Certain Defined Terms................................................................ 1
1.02. Accounting Terms and Determinations.................................................. 28
1.03. Types of Loans....................................................................... 28
1.04. Rules of Construction................................................................ 28
Section 2. Loans, Fees, Register, Prepayments and Replacement of Lenders........................ 29
2.01. Initial Loans........................................................................ 29
2.02. Term Loan............................................................................ 29
2.03. [Reserved]........................................................................... 30
2.04. Termination of Initial Loan Commitments.............................................. 30
2.05. Fees................................................................................. 30
2.06. Lending Offices...................................................................... 30
2.07. Several Obligations of Lenders....................................................... 30
2.08. Notes, Register...................................................................... 30
2.09. Optional Prepayment.................................................................. 31
2.10. Mandatory Prepayments................................................................ 32
2.11. Replacement of Lenders............................................................... 33
Section 3. Interest............................................................................. 34
Section 4. Payments, Pro Rata Treatment; Computations; Etc...................................... 35
4.01. Payments............................................................................. 35
4.02. [Reserved]........................................................................... 35
4.03. Computation.......................................................................... 35
4.04. Minimum Amounts...................................................................... 35
4.05. Certain Notices...................................................................... 35
4.06. Non-Receipt of Funds by Administrative Agent......................................... 36
4.07. Right of Setoff, Sharing of Payments, Etc............................................ 37
Section 5. Yield Protection, Etc................................................................ 37
5.01. Additional Costs..................................................................... 37
5.02. Limitation on Types of Loans......................................................... 38
5.03. Breakage and Illegality.............................................................. 38
5.04. Treatment of Affected Loans.......................................................... 39
5.05. Compensation......................................................................... 39
5.06. Net Payments......................................................................... 39
Section 6. Guarantee............................................................................ 41
6.01. The Guarantee........................................................................ 41
6.02. Obligations Unconditional............................................................ 41
6.03. Reinstatement........................................................................ 42
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.04. Subrogation; Subordination........................................................... 42
6.05. Remedies............................................................................. 42
6.06. Instrument for the Payment of Money.................................................. 43
6.07. Continuing Guarantee................................................................. 43
6.08. General Limitation on Guarantee Obligations.......................................... 43
Section 7. Conditions Precedent................................................................. 43
7.01. Conditions to Effectiveness of Credit Documents and Obligation to Make Initial Loan.. 43
7.02. Additional Conditions to Making of Initial Loans..................................... 46
7.03. Conditions to Term Loan.............................................................. 47
7.04. Determinations Under Section 7....................................................... 48
Section 8. Representations and Warranties....................................................... 48
8.01. Corporate Existence.................................................................. 48
8.02. Financial Condition, Etc............................................................. 48
8.03. Litigation........................................................................... 49
8.04. No Breach, No Default................................................................ 49
8.05. Action............................................................................... 49
8.06. Approvals............................................................................ 49
8.07. Representations and Warranties in the Merger Agreement............................... 50
8.08. ERISA................................................................................ 50
8.09. Taxes................................................................................ 50
8.10. Investment Company Act; Public Utility Holding Company Act; Other Restrictions....... 50
8.11. Environmental Matters................................................................ 51
8.12. Environmental Investigations......................................................... 51
8.13. Use of Proceeds...................................................................... 51
8.14. Subsidiaries......................................................................... 51
8.15. [Reserved]........................................................................... 52
8.16. [Reserved]........................................................................... 52
8.17. Licenses and Permits; Compliance with Laws........................................... 52
8.18. True and Complete Disclosure......................................................... 52
8.19. Solvency; Etc........................................................................ 52
8.20. Contracts............................................................................ 53
8.21. Labor Matters........................................................................ 53
8.22. Year 2000............................................................................ 53
Section 9. Covenants............................................................................ 53
9.01. Financial Statements, Etc............................................................ 53
9.02. Litigation, Etc...................................................................... 55
9.03. Existence, Compliance with Law; Payment of Taxes; Inspection Rights;
Performance of Obligations; Etc...................................................... 55
9.04. Insurance............................................................................ 56
9.05. Limitation on Lines of Business, Limitation on Management Agreements................. 56
9.06. Limitation on Fundamental Changes, Acquisitions or Dispositions...................... 56
9.07. Limitation on Liens.................................................................. 58
9.08. Prohibition on Disqualified Capital Stock, Limitation on Indebtedness and
Contingent Obligations............................................................... 60
9.09. Limitation on Investments, Limitation on Creation of Subsidiaries and
Unrestricted Subsidiaries............................................................ 61
9.10. Limitation on Dividend Payments...................................................... 63
9.11. Limitation on Senior Subordinated Indebtedness....................................... 64
9.12. Consents............................................................................. 64
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.13. Compliance with Environmental Laws................................................... 64
9.14. Limitation on Transactions with Affiliates........................................... 65
9.15. Limitation on Accounting Changes; Limitation on Investment Company Status............ 65
9.16. Limitation on Modifications of Certain Documents, Etc................................ 65
9.17. Interest Rate Protection Agreements.................................................. 65
9.18. Limitation on Certain Restrictions Affecting Subsidiaries............................ 65
9.19. Additional Obligors.................................................................. 66
9.20. Limitation on Leases................................................................. 66
9.21 Limitation on Other Restrictions on Amendment of Credit Documents.................... 66
9.22. Triton Disposition................................................................... 66
9.23. Limitation on Issuance or Dispositions of Equity Interests of Borrower,
Subsidiaries and Unrestricted Subsidiaries........................................... 66
9.24. Limitation on Payments or Prepayments of Indebtedness or
Modification of Debt Documents....................................................... 66
9.25. Take or Pay Contracts................................................................ 67
9.26. Tax Sharing Arrangements............................................................. 67
9.27. Maintenance of Corporate Separateness................................................ 67
9.28. Take-Out Financing................................................................... 67
9.29. Exchange of Term Notes............................................................... 68
9.30. Release of Covenants Upon Conversion................................................. 68
Section 9A. Covenants Applicable to Term Loan.................................................... 68
(a) Limitation on Restricted Payments............................................. 68
(b) Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock...... 71
(c) Limitation on Liens........................................................... 73
(d) Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.. 73
(e) Merger, Consolidation, or Sale of Assets...................................... 74
(f) Transactions with Affiliates.................................................. 75
(g) Limitation on Issuances and Sales of Equity Interests in Wholly
Owned Subsidiaries....................................................... 75
(h) Sale of Unrestricted Subsidiary............................................... 75
(i) Limitation on Asset Sales..................................................... 75
Section 10. Events of Default.................................................................... 76
Section 11. Agents............................................................................... 78
11.01. General Provisions................................................................... 78
11.02. Indemnification...................................................................... 79
11.03. Consents Under Other Credit Documents................................................ 80
Section 12. Miscellaneous........................................................................ 80
12.01. Waiver............................................................................... 80
12.02. Notices.............................................................................. 80
12.03. Expenses, Indemnification, Etc....................................................... 80
12.04. Amendments, Etc...................................................................... 81
12.05. Successors and Assigns............................................................... 82
12.06. Assignments and Participations....................................................... 82
12.07. Survival............................................................................. 84
12.08. Captions............................................................................. 84
12.09. Counterparts; Interpretation; Effectiveness.......................................... 84
12.10. Governing Law, Submission to Jurisdiction; Waivers, Etc.............................. 84
12.11. Confidentiality...................................................................... 84
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.12. Independence of Representations, Warranties and Covenants............................ 85
12.13. Severability......................................................................... 85
12.14. Acknowledgments...................................................................... 85
Section 13. Subordination........................................................................ 85
(1) Loans and Notes Subordinated to Senior Indebtedness........................... 85
(2) Payment on Loans and Notes in Certain Circumstances, Payment
Held in Trust......................................................... 85
(A) No Payments in Certain Circumstances.................................. 85
(B) Payments Held in Trust................................................ 86
(3) Payment Over of Proceeds upon Dissolution, Etc................................ 86
(A) Payment Over........................................................... 86
(B) Payments Held in Trust................................................. 86
(4) Subrogation................................................................... 87
(5) Obligations of Borrower Unconditional......................................... 87
(6) Notice to Arrange............................................................. 87
(7) Reliance on Judicial Order or Certificate of Liquidating Agent................ 88
(8) Administrative Agent's Relation to Senior Indebtedness........................ 88
(9) Subordination Rights Not Impaired by Acts or Omissions of
Borrower or Holders of Senior Indebtedness............................ 88
(10) Lenders Authorize Administrative Agent To Effectuate
Subordination of Loans and Notes...................................... 89
(11) This Section Not To Prevent Events of Default................................. 89
(12) Administrative Agent's Compensation Not Prejudiced............................ 89
(13) No Waiver of Subordination Provisions......................................... 89
(14) Acceleration of Loans and Notes............................................... 89
Section 14. Subordination of Guarantee Obligations............................................... 89
14.01. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness.................. 89
14.02. No Payment on Guarantees in Certain Circumstances, Payments Held in Trusts........... 89
A. No Payments in Certain Circumstances.......................................... 89
B. Payments Held in Trust........................................................ 90
14.03. Payment Over of Proceeds upon Dissolution, Etc....................................... 90
A. Payment Over.................................................................. 90
B. Payments Held in Trust........................................................ 91
14.04. Subrogation.......................................................................... 91
14.05. Obligations of Guarantors Unconditional.............................................. 91
14.06. Notice to Arranger................................................................... 92
14.07. Reliance on Judicial Order or Certificate of Liquidating Agent....................... 92
14.08. Arranger's Relation to Guarantor Senior Indebtedness................................. 92
14.09. Subordination Rights Not Impaired by Acts or Omissions of the Guarantors or
Lenders of Guarantor Senior Indebtedness...................................... 93
14.10. Lenders Authorize Arranger To Effectuate Subordination of Guarantee.................. 93
14.11. This Article Not To Prevent Events of Default........................................ 93
14.12. Arranger's Compensation Not Prejudiced............................................... 93
14.13. No Waiver of Guarantee Subordination Provisions...................................... 93
14.14. Payments May Be Paid Prior to Dissolution............................................ 93
</TABLE>
<PAGE>
SENIOR SUBORDINATED CREDIT AGREEMENT dated as of September 2,1998,
among AEI RESOURCES, INC., as Borrower; the Guarantors party hereto; each of the
lenders that is a signatory hereto identified under the caption "LENDERS" on the
signature pages hereto or that, pursuant to Section 12.06(b), shall become a
"Lender" hereunder (individually, a "Lender" and, collectively, the "Lenders");
------ -------
WARBURG DILLON READ LLC, as arranger and syndication agent ("Arrange"); UBS AG,
-------
Stamford Branch, as administrative agent ("Administrative Agent").
--------------------
The parties hereto agree as follows:
Section 1. Definitions, Accounting Matters and Rules of
--------------------------------------------
Construction.
1.01. Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings:
"ABR Loans" shall mean Loans that bear interest at rates based upon
---------
the Alternate Base Rate.
"Acquired Businesses" shall mean Zeigler and Kindill.
-------------------
"Acquired Debt" means, with respect to any specified Person, (i)
-------------
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisitions" means the acquisition by Borrower of: (i) all of the
------------
outstanding capital stock of Zeigler Coal Holding Company, (ii) all of the
outstanding capital stock of certain subsidiaries of Cyprus Amax Coal Company
and certain mining equipment used by such subsidiaries together with an
agreement to pay Cyprus Amax Coal Company or its affiliate certain royalties,
(iii) all of the outstanding capital stock of Mid-Vol Leasing, Inc., Mega
Minerals, Inc. and Premium Processing, Inc. together with an agreement to pay
the former owners of Mid-Vol Leasing, Inc. certain production payments, (iv) all
of the outstanding capital stock of Kindill and Hayman, (v) certain of the
assets of The Battle Ridge Companies, (vi) the stock of Leslie Resources, Inc.
and Leslie Resources Management, Inc. and (vii) certain facilities, equipment
and intellectual property through the purchase of a substantial portion of the
assets of the Mining Technologies Division of Addington Enterprises, Inc.
"Additional Assets" means (i) any property or assets (other than
-----------------
Equity Interests, Indebtedness or rights to receive payments over a period
greater than 180 days, other than with respect to coal supply contract
restructurings) that are usable by Borrower or a Subsidiary in a Permitted
Business or (ii) the Equity Interests of a Person that is at the time, or
becomes, a Subsidiary as a result of the acquisition of such Equity Interests by
Borrower or another Subsidiary.
"Additional Obligors" see Section 9.19.
-------------------
"Administrative Agent" see the introduction hereto.
--------------------
"Advance Date" see Section 4.06.
------------
"AEI" shall mean AEI Holding Company, Inc., a Delaware corporation.
---
"Affiliate" shall mean, with respect to any Person, any other Person
---------
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control"
<PAGE>
(including, with its correlative meanings, "controlled by" and "under common
------------- ------------
control with") shall mean possession, directly or indirectly, of power to direct
- - ------------
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). Notwithstanding the foregoing, solely for purposes of Section 9.14
and Section 9A(f), Borrower shall not be deemed an Affiliate of any Subsidiary
and no Subsidiary shall be deemed an Affiliate of any other Subsidiary or
Borrower. Each Unrestricted Subsidiary shall be deemed an Affiliate of Borrower
and the Subsidiaries.
"Affiliate Transaction" see Section 9.15.
---------------------
"Agent" means either of Administrative Agent or Arranger.
-----
"Agreement" shall mean this Credit Agreement, as amended from time to
---------
time.
"Alternate Base Rate" shall mean for any day, a rate per annum that is
---------
equal to the higher of (i) the Federal Funds Rate, plus 0.50%, or (ii) the Prime
----
Rate.
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or of an Affiliate of such Lender) as such Lender
may from time to time specify to Administrative Agent and Borrower as the office
by which its Loans of such Type are to be made and maintained.
"Applicable Spread" shall mean (a) with respect to LIBOR Loans, 5.50%,
-----------------
and (b), with respect to ABR Loans, 4.50%, in each case increasing by 0.50% for
each period of 90 days (or portion thereof) that the Loans are outstanding. In
addition, during the continuance of any Event of Default, the Applicable Spread
will increase by 2.00% over the Applicable Spread then in effect.
"Approved Fund" shall mean, with respect to any Lender that is a fund
-------------
or commingled investment vehicle that invests in commercial loans, any other
fund that invests in commercial loans and is managed or advised by the same
investment advisor as such Lender or by an Affiliate of such investment advisor.
"Arranger" see the introduction hereto.
--------
"Asset Sale" means (i) the sale, lease, conveyance or other
----------
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of coal or rights to acquire coal or sales
of mining equipment and related parts and services, in each case, in the
ordinary course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of Borrower and its
Subsidiaries taken as a whole will be governed by Section 2.10(a)(iii) and/or
Section 9A(e) and not by the provisions of Section 2. 1 0(a)(iv)), and (ii) the
issue or sale by the Borrower or any of its Subsidiaries of Equity Interests of
any of Borrower's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $2.0 million or (b) for Net Proceeds in
excess of $2.0 million. Notwithstanding the foregoing, the following items shall
not be deemed to be Asset Sales: (i) a transfer of assets by Borrower to a
Subsidiary or by a Subsidiary to Borrower or to another Subsidiary, (ii) an
issuance of Equity Interests by a Subsidiary to Borrower or to another
Subsidiary, (iii) a Restricted Payment that is permitted by, or an Investment
that is not prohibited by, Section 9A(a), (iv) a disposition of Cash Equivalents
or obsolete equipment, (v) foreclosures on assets, (vi) the sale or discount, in
each case without recourse, of accounts receivable arising in the ordinary
course of business, but only in connection with the compromise or collection
thereof, (vii) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry and (viii)
the sale or disposition by Borrower or a Subsidiary of its Equity Interest in,
or all or substantially all of the assets of, an Unrestricted Subsidiary.
"Assets Held for Sale" means assets of Borrower reported on the
--------------------
financial statements of Borrower as assets held for sale in accordance with
GAAP.
-2-
<PAGE>
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978.
---------------
"Borrower" shall mean AEI Resources, Inc., a Delaware corporation.
--------
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Continuation or Conversion of or into, or an Interest Period for, a LIBOR Loan
or a notice by Borrower with respect to any such borrowing, payment, prepayment,
Continuation, Conversion or Interest Period, that is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Lease," as applied to any Person, shall mean any lease of any
-------------
Property by that Person as lessee which, in conformity with GAAP, is required to
be classified and accounted for as a capital lease on the balance sheet of that
Person.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a Capital Lease,
and, for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Cash Equivalents" means (a) securities with maturities of one year or
----------------
less from the date of acquisition issued or fully guaranteed or insured by the
U.S. Government or any agency thereof, (b) certificates of deposit and time
deposits with maturities of one year or less from the date of acquisition and
overnight bank deposits of any lender under the Senior Credit Facility or of any
commercial bank having capital and surplus in excess of $500.0 million and a
Thompson Bank Watch Rating of "B" or better, except that up to $ 10.0 million of
such certificates of deposit, time deposits and overnight deposits may be of or
with the Kentucky Bank and Trust Company at any one time, (c) repurchase
obligations of any lender under the Senior Credit Facility or of any commercial
bank satisfying the requirements of clause (b) of this definition, having a term
of not more than 90 days with respect to securities issued or fully guaranteed
or insured by the United States Government, (d) commercial paper of a domestic
issuer rated at least A-2 by Standard and Poor's Rating Group ("S&P") or P-2 by
-------
Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by
-----------
a nationally recognized rating agency if both of S&P and Moody's cease
publishing ratings of investments, (e) securities with maturities of one YEAR OR
LESS FROM THE DATE of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of credit
issued by ANY LENDER UNDER THE SENIOR Credit Facility or any commercial bank
satisfying the requirements of clause (b) of this definition or (g) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"CERCLA" shall mean the United States Comprehensive Environmental
------
Response, Compensation and Liability Act of 1980, as amended.
"Change of Control" shall mean:
-----------------
(I) prior to the Conversion Date, any transaction or event (including,
without limitation, an issuance, sale or exchange of Equity Interests, a
merger or consolidation, or a dissolution or liquidation) occurring on or
after the date hereof (whether or not approved by the board of directors of
Borrower) as a direct or indirect result of which (a) if such transaction
or event occurs prior to the consummation of an Initial Public Offering,
the Excluded Persons fail to beneficially own, directly or indirectly,
shares of Equity Interests of Borrower representing at least a majority (on
a fully diluted basis) of the aggregate voting power of the voting Equity
Interests of Borrower at the time outstanding or the ability to appoint a
majority of the board of directors of Borrower; (b) if such transaction or
event is an Initial Public Offering or occurs after the consummation of an
Initial Public Offering, (i) any Person or any group (other than the
Excluded Persons or the Excluded Group) shall (A) (directly or indirectly)
beneficially own in the aggregate shares of Equity
-3-
<PAGE>
Interests of Borrower having 33-1/3% or more of the aggregate voting power
of all shares of Equity Interests of Borrower at the time outstanding and
greater aggregate voting power than the Excluded Persons, collectively, or
(B) have the right or power to appoint a majority of the board of directors
of Borrower or (ii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the board of directors of
Borrower (together with any new directors whose election by such board of
directors or whose nomination for election by the shareholders of Borrower
was approved by a vote of at least a majority of the directors of Borrower
then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute at least a majority of the
board of directors of Borrower then in office; or (c) if such transaction
or event occurs at any time, whether before or after the consummation of an
Initial Public Offering, any event or circumstance constituting a "change
of control" or other similar occurrence under any documentation evidencing
or governing any Indebtedness of any Company in a principal amount in
excess of $ 10.0 million (other than under the Credit Documents or any
mineral leases or real property leases of any Company not constituting In
debtedness) shall occur which results in an obligation of any Company to
prepay, purchase, offer to purchase, redeem or defease all or a portion of
such Indebtedness. For purposes of this definition, the terms "beneficially
------------
own" and "group" shall have the respective meanings ascribed to them
--- -----
pursuant to Section 13(d) of the Exchange Act, except that a Person or
group shall be deemed to "beneficially own" all securities that such Person
or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time; and
(II) On and after the Conversion Date, the occurrence of any of the
following: (a) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of the
Borrower and its Subsidiaries taken as a whole to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act) other than a
Principal or a Related Party of a Principal, (b) the adoption of a plan
relating to the liquidation or dissolution of the Borrower, (c) the
consummation of any transaction (including, without limitation, any merger
or consolidation) the result of which is that any "person" (as defined
above), other than the Principals and their Related Parties or (prior to
the establishment of a Public Market) a Permitted Group, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Voting Stock of the Borrower (measured by voting power
rather than number of shares), or (iv) the Borrower consolidates with, or
merges with or into, any Person, or any Person consolidates with, or merges
with or into, the Borrower, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of the Borrower is converted into
or exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of the Borrower outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Capital Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after giving
effect to such issuance). For purposes of this definition, any transfer of
an equity interest of an entity that was formed for the purpose of
acquiring Voting Stock of the Borrower will be deemed to be a transfer of
such portion of such Voting Stock as corresponds to the portion of the
equity of such entity that has been so transferred.
"Closing Date" shall mean the date on which the Initial Loans are made
------------
hereunder.
"Code" shall mean the United States Internal Revenue Code of 1986, as
----
amended.
"Commission" shall mean the United States Securities and Exchange
----------
Commission.
"Commitment Letter" shall mean the Commitment Letter among UBS,
-----------------
Stamford Branch, Warburg Dillon Read LLC and Coal Ventures, Inc. dated August 3,
1998 together with all exhibits and schedules thereto and incorporated therein,
as such letter has been amended to the date hereof
-4-
<PAGE>
"Commitments" shall mean the Initial Loan Commitments and the Term
-----------
Loan Commitments.
"Common Stock" shall mean the common stock of the Borrower, par value
------------
$.01 per share.
"Companies" shall mean the Obligors and their respective Subsidiaries;
---------
and "Company" shall mean any of them. No Unrestricted Subsidiary (including AEI
-------
and its Subsidiaries until such time as AEI and its Subsidiaries shall cease to
constitute Unrestricted Subsidiaries hereunder) is a Company.
"Consolidated Cash Flow" means, with respect to any Person for any
----------------------
period, the Consolidated Net Income of such Person for such period plus (i)
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (ii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs, deferred financing fees and original issue
discount, noncash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financing, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iii)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (iv) depreciation, depletion,
amortization (including amortization of goodwill and other intangibles) and
other noncash expenses (including, without limitation, write downs and
impairment of property, plant and equipment and intangibles and other long-lived
assets) (excluding any such noncash expense for periods after the Closing Date
to the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Subsidiaries for such period to the extent
that such depreciation, depletion, amortization and other noncash expenses were
deducted in computing such Consolidated Net Income, plus (v) unusual or non-
recurring charges incurred within 12 months of the Closing Date, in connection
with any of the transactions contemplated by the Transaction Documents, minus
(vi) noncash items increasing such Consolidated Net Income for such period
(other than accruals in accordance with GAAP), plus (vii) noncash items
decreasing such Consolidated Net Income for such period (other than accruals in
accordance with GAAP), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, the provision for taxes on
the income or profits of, and the depreciation, depletion and amortization and
other noncash expenses of, a Subsidiary that is not a Guarantor shall be added
to Consolidated Net Income to compute Consolidated Cash Flow only to the extent
that a corresponding amount would be permitted at the date of determination to
be divided to Borrower by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary
shall be excluded to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that Net Income is not at the date
of determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, and
(v) the Net Income (or loss) of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to Borrower or one of its Subsidiaries.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary
-----------------------
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
-5-
<PAGE>
"Contaminant" see Section 8.11.
-----------
"Contingent Obligation" shall mean, as to any Person, any direct or
---------------------
indirect liability of such Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
-------------------
"Primary obligor"), including any obligation of such Person (but excluding
- - ----------------
reclamation surety and similar bonds issued in the ordinary course of business
or in connection with any acquisition) (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to advance or
provide funds for the payment or discharge of any such primary obligation, or to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet item, level of income
or financial condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof (each of (i)-
(iv), a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued
-------------------
for the account of such Person or as to which such Person is otherwise liable
for reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; provided, however, that the
-------- -------
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in each
case in the ordinary course of business or obligations for any recoupable
advance or minimum royalty payments under any mineral lease or real property
lease. The amount of any Contingent Obligation shall (x) in the case of a
Guaranty Obligation, be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated liability in
respect thereof, and (y) in the case of other Contingent Obligations, be equal
to the maximum reasonably anticipated liability in respect thereof.
"Continue," "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.09 of a LIBOR Loan from one Interest Period
to the next Interest Period.
"Contractual Obligation" shall mean as to any Person, any provision of
----------------------
any security issued by such Person or of any mortgage, security agreement,
pledge agreement, indenture, credit agreement, securities purchase agreement,
debt instrument, contract, agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its Property is bound or
subject.
"Contribution" shall mean the contribution of all of the outstanding
------------
capital stock of Borrower to Holding by AEI Enterprises, Inc. and Mr. Larry
Addington.
"Convert" "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.09 of one Type of Loans into another Type of Loans, which
may be accompanied by the transfer by a Lender (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"Conversion Date" shall mean the one-year anniversary of the Closing
---------------
Date.
"Covered Taxes" see Section 5.06(a).
-------------
"Credit Documents" shall mean this Agreement, the Notes and each of
----------------
the other documents, agreements, instruments, opinions and certificates now or
hereafter executed and delivered in connection herewith or therewith.
"Credit Facilities" means, with respect to Borrower or any of its
------------------
Subsidiaries, one or more debt facilities (including, without limitation, the
Senior Credit Facility) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale
-6-
<PAGE>
of receivables to such lenders or to special purpose entities formed to borrow
from such lenders against such receivables) or letters of credit, in each case,
as amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time.
"Creditor" shall mean any Agent or any Lender.
--------
"Cyprus Purchase Agreement" shall mean the Stock Purchase and Sale
-------------------------
Agreement dated as of May 28, 1998 between Cyprus Amax Coal Company, a Delaware
corporation, and AEI.
"Debt Issuance" shall mean the incurrence by any Obligor of any
-------------
Indebtedness after the Closing Date (other than as permitted by Section 9.08).
"Default" shall mean any event or condition- that constitutes an Event
-------
of Default or that would become, with notice or lapse of time or both, an Event
of Default.
"Designated Noncash Consideration" means the fair market value of
--------------------------------
noncash consideration received by Borrower or one of its Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation and executed by the principal executive officer and the principal
financial officer of Borrower, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"Designated Senior Indebtedness" means any Indebtedness outstanding
------------------------------
under the Senior Credit Facility.
"Disposition" shall mean (i) any conveyance, sale, lease, assignment,
-----------
transfer or other disposition (including by way of merger or consolidation and
including any sale-leaseback transaction) of any Property (including receivables
and shares of Equity Interests of any Subsidiary or joint venture of any Person)
(whether now owned or hereafter acquired) by any Company to any Person other
than Borrower or any Wholly Owned Subsidiary, (ii) any issuance or sale by any
Subsidiary of its Equity Interests to any Person other than Borrower or any
Wholly Owned Subsidiary and any issuance or sale by any Unrestricted Subsidiary
of its Equity Interests to any Person other than Borrower or a Wholly Owned
Unrestricted Subsidiary, and (iii) any liquidating or other non-ordinary course
dividend or distribution received by any Company in respect of any Unrestricted
Subsidiary or any joint venture or similar enterprise, excluding, however, in
each case any Excluded Disposition.
"Disposition Event" shall mean the receipt by any Company of proceeds
-----------------
or distributions of any kind from Property received in consideration for a
Disposition.
"Disqualified Capital Stock" shall mean, with respect to any Person,
--------------------------
any Equity Interest of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures (excluding any maturity as the result of an
optional redemption by the issuer thereof) or is mandatorily redeemable (other
than solely for Qualified Capital Stock), pursuant to a sinking fund obligation
or otherwise, or is redeemable at the sole option of the holder thereof (other
than solely for Qualified Capital Stock) or exchangeable or convertible into
debt securities of the issuer thereof at the note option of the holder thereof,
in whole or in part, on or prior to the date which is 90 days after the Final
Maturity Date.
"Dividend Payment" shall mean dividends (in cash, Property or
----------------
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any Equity Interests
or Equity Rights of any Company, but excluding dividends paid through the
issuance of additional shares of Qualified Capital Stock and any redemption or
exchange of any Qualified Capital Stock of such Obligor through the issuance of
Qualified Capital Stock of such Obligor.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
-7-
<PAGE>
"Domestic Subsidiary" means a Subsidiary that is (i) formed under the
-------------------
laws of the United States of America or a state or territory thereof or (ii) as
of the date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
"Eligible Person" shall mean (i) a commercial bank organized under the
---------------
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100.0 million; (ii) a commercial bank organized under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus in a dollar equivalent amount
of at least $100.0 million; provided, however, that such bank is acting through
-------- -------
a branch or agency located in the country in which it is organized or another
country that is also a member of the OECD; (iii) an insurance company, mutual
fund entity which is regularly engaged in making, purchasing or investing in
loans or securities or other financial institution organized under the laws of
the United States, any state thereof, any other country that is a member of the
OECD or a political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv) any
Affiliate of a Lender; and (v) any other entity (other than a natural person)
which is an "accredited investor" (as defined in Regulation D under the United
States Securities Act of 1933, as amended) which extends credit or buys loans as
one of its businesses including, but not limited to, insurance companies, mutual
funds, and investment funds. With respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans and is managed or advised
by the same investment advisor of such Lender or by an Affiliate of such
investment advisor shall be treated as a single Eligible Person.
"Environmental Claim" shall mean, with respect to any Person, any
-------------------
written notice, claim, demand or other communication (collectively, a "claim")
-----
by any other Person alleging such Person's liability for any costs, cleanup
costs, response or corrective action costs, damages to natural resources or
other Property, personal injuries, fines or penalties arising out of or
resulting from (i) the presence, Release or threatened Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) any violation of any Environmental Law. The term
"Environmental Claim" shall include any claim by any Person seeking damages,
-------------------
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all applicable laws, rules or
------------------
regulations of any Governmental Authority, any orders, decrees, judgments or
injunctions and the common law relating to mining operations and activities or
pollution or protection of human health, safety or the environment, including
without limitation, ambient air, indoor air, soil, surface water, ground water,
wetlands, land or subsurface strata, including, without limitation, those
relating to Releases or threatened Releases of Hazardous Materials into the
environment, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Requirement" see Section 8.11.
-------------------------
"Equity Interests" shall mean, with respect to any Person, any and all
----------------
shares, interests, participations or other equivalents, including membership
interests (however designated, whether voting or nonvoting), of capital of such
Person, including, if such Person is a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership, whether outstanding on the date
hereof or issued after the Closing Date.
"Equity Issuance" shall mean any of (a) any issuance or sale after the
---------------
Closing Date by Borrower or any direct or indirect parent of Borrower of (x) any
Equity Interests (including any Equity Interests issued upon exercise of any
Equity Rights) or any Equity Rights, or (y) any other security or instrument
representing an Equity Interest (or the right to obtain any Equity Interest) in
the issuing or selling Person, or (b) the receipt by any Company after the
Closing Date of any capital contribution (whether or not evidenced by any Equity
Interest issued by the recipient of such contribution) other than from any other
Company, excluding in each case (i) any issuance of common Equity Interests of
Holding to the seller or sellers in consideration for a Permitted Acquisition,
(ii) any issuance or sale of Equity Interests in any Subsidiary (which, for the
avoidance of doubt, is treated as a Disposition), (iii) any issuance
-8-
<PAGE>
or sale by Holding of Equity Interests of Holding to employees, directors,
officers or consultants pursuant to a benefit or compensation plan in the
ordinary course of business, (iv) any issuance of Qualified Capital Stock of
Holding to the extent that the proceeds thereof are used for a contemporaneous
purchase or redemption of Equity Interests of Holding pursuant to Section
9.10(b)(iii), (v) any issuance of Equity Interests by any Subsidiary to
directors or nominees if required by applicable law if resulting in de minimis
-- -------
proceeds, (vi) and issuance or sale by Borrower of Equity Interests of Borrower
pursuant to the exercise of stock options outstanding on the Closing Date; and
(viii) the issuance of Equity Interests to any Excluded Person.
"Equity Offering" means any public or private sale of equity
---------------
securities (excluding Disqualified Capital Stock) of Borrower, other than any
private sales to an Affiliate of Borrower.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of Equity Interests of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the United States Employee Retirement Income
-----
Security Act of 1974, as amended.
"ERISA Entity" shall mean any member of an ERISA Group.
------------
"ERISA Event" shall mean (a) any "reportable event," as defined in
-----------
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, the failure to make by its due date a required installment under Section
412(m) of the Code with respect to any Plan or the failure to make any required
contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Plan; (d) the incurrence by any
ERISA Entity of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by any ERISA Entity from the PBGC or a
plan administrator of any notice relating to an intention to terminate any Plan
or Plans or to appoint a trustee to administer any Plan, or the occurrence of
any event or condition which could reasonably be expected to constitute grounds
under ERISA for the termination of or the appointment of a trustee to
administer, any Plan; (f) the incurrence by any ERISA Entity of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; (g) the receipt by an ERISA Entity of any notice, or the
receipt by any Multiemployer Plan from any ERISA Entity of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; or (h) the occurrence of a nonexempt
prohibited transaction (within the meaning of Section 4975 of the Code or
Section 406 of ERISA) which could result in liability to any Company or any
Unrestricted Subsidiary.
"ERISA Group" shall mean any Company and any Unrestricted Subsidiary
-----------
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which, together
with Borrower, any Subsidiary or any Unrestricted Subsidiary, are treated as a
single employer under Section 414 of the Code.
"Event of Default" see Section 10.
----------------
"Excess Unrestricted Subsidiary Disposition Proceeds" means proceeds
---------------------------------------------------
from the sale or disposition by Borrower or a Subsidiary of all of its Equity
Interest in an Unrestricted Subsidiary not required to prepay the Senior Credit
Facility in compliance with Section 9A(k).
"Exchange Act" shall mean the United States Securities Exchange Act of
------------
1934.
-9-
<PAGE>
"Exchange Note Trustee" shall mean the trustee in connection with the
---------------------
Senior Subordinated Indenture.
"Exchange Notes" see Section 9.31.
--------------
"Excluded Dispositions" shall mean (i) Dispositions for fair market
---------------------
value resulting in no more than $10.0 million in aggregate proceeds in any
fiscal year; (ii) an exchange of equipment or inventory for like equipment or
inventory, provided that the Person effecting such exchange receives
substantially equivalent value in such exchange for the Property disposed of;
(iii) any transaction permitted by Section 9.06 (other than clause (g) thereof),
any Lien permitted by Section 9.07 and any Investment permitted by Section 9.09;
and (iv) any issuance of Equity Interests by any Subsidiary or Unrestricted
Subsidiary to directors or nominees if required by applicable law if resulting
in de minimis proceeds.
-- -------
"Excluded Equity Issuance" shall mean any issuance of Qualified
------------------------
Capital Stock of Borrower excluded from the definition of Equity Issuance by
virtue of clause (iv) thereof.
"Excluded Group" shall mean a "group" (as such term is used in
--------------
Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded
Persons; provided, however, that the voting power of the Equity Interests of
-------- -------
Borrower "beneficially owned" (as such term is used in Rule 13d-3 promulgated
under the Exchange Act) by such Excluded Persons (without attribution to such
Excluded Persons of the ownership by other members of the "group") represents a
majority of the voting power of the Equity Interests "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Excluded Person" shall mean Larry Addington, Bruce Addington, Robert
---------------
Addington, Stephen Addington, John Baum, Donald P. Brown, Kevin Crutchfield, Vic
Grubb, John Lynch, Bernie Mason, Marc Merritt, Jim Morris, Keith Sieber and any
Affiliate of any of the foregoing that is directly or indirectly controlling or
controlled by, or under direct or indirect common control with, any of the
foregoing.
"Existing Affiliate Agreement" see Section 9.15.
----------------------------
"Existing Debt" shall mean the Indebtedness of and commitments to make
-------------
extensions of credit in favor of Borrower and the Subsidiaries under the
existing debt instruments and credit facilities listed on Schedule 1.01(e).
----------------
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------ --- -----
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided, however, that (a) if the day for which such
-------- -------
rate is to be determined is not a Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day and (b) if such rate is not
so published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate quoted to Administrative Agent on such Business Day on
such transactions by three federal funds brokers of recognized standing, as
determined by Administrative Agent.
"Fee Letter" shall mean the Fee Letter dated as of August 3, 1998 by
----------
and among UBS AG, Stamford Branch, Warburg Dillon Read LLC and Coal Ventures,
Inc.
"Final Maturity Date" shall mean September 2, 2006.
"Fixed Change Coverage Ratio" means with respect to any Person and its
---------------------------
Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such
Person and its Subsidiaries for such period to the Fixed Charges of such Person
and its Subsidiaries for such period. In the event that the referent Person or
any of its Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness
(other than revolving credit borrowings) or issues or redeems
-10-
<PAGE>
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made
occurs (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
----------------
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Borrower or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be given pro forma effect as if they had occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such reference
period shall be calculated without giving effect to clause (iii) of the proviso
set forth in the definition of Consolidated Net Income, (ii) the Consolidated
Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Subsidiaries following the
Calculation Date and (iv) the Fixed Charges attributable to dividends paid to
Holding so as to permit Holding to pay cash interest as permitted by Section 9.
1 0(b)(iv) or clause (x) of the second paragraph of Section 9A shall be
calculated giving pro forma effect to such dividends as if the same had occurred
at the beginning of the applicable four-quarter reference period.
"Fixed Charges" means, with respect to any Person for any period, the
-------------
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, noncash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letters of credit or bankers' acceptance financing, and
net payments (if any) pursuant to Hedging Obligations, but excluding
amortization of debt issuance costs), (ii) the consolidated interest of such
Person and its Subsidiaries that was capitalized during such period, (iii) any
interest expense on the portion of Indebtedness of another Person that is
guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such guarantee
or Lien is called upon), (iv) the product of (a) all dividend payments, whether
or not in cash, on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of Borrower (other than Disqualified Capital Stock) or to
Borrower or a Subsidiary of Borrower, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the effective combined
federal, state and local tax rate of such Person for such period, expressed as a
decimal, in each case, for Borrower and its Subsidiaries on a consolidated basis
and in accordance with GAAP, and (v) in the case of Borrower, dividends paid to
Holding so as to permit Holding to pay cash interest on the Discount Notes.
"Foreign Subsidiaries" means Subsidiaries of the Borrower that are not
--------------------
Domestic Subsidiaries.
"GAAP" shall mean generally accepted accounting principles set forth
----
as of the relevant date in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" shall mean any government or political
----------------------
subdivision of the United States or any other country or any agency, authority,
board, bureau, central bank, commission, department or instrumentality thereof
or therein, including, without limitation, any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
-11-
<PAGE>
"guarantee" means a guarantee (other than by endorsement of negotiable
---------
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantee" shall mean the guarantee of each Guarantor pursuant to
---------
Section 6.
"Guaranteed Obligation" see Section 6.01.
---------------------
"Guarantor Senior Indebtedness" means, with respect to any Guarantor,
-----------------------------
at any date, (a) all Obligations, if any, of such Guarantor under the Credit
Facilities; (b) all Obligations of such Guarantor under Hedging Obligations
(including Post-Petition Interest); (c) all Obligations of such Guarantor under
standby letters of credit; and (d) all other Indebtedness of such Guarantor for
borrowed money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness unless the instrument under which
such Indebtedness of such Guarantor for money borrowed is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to such Guarantor's Guarantee, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent
that it may constitute Indebtedness, any Obligation for federal, state, local or
other taxes; (b) any Indebtedness among or between such Guarantor and any
Subsidiary of such Guarantor; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) Indebtedness evidenced by such Guarantor's Guarantee; (e)
Indebtedness of such Guarantor that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Guarantor; (f) to the extent that
it may constitute Indebtedness, any obligation owing under leases (other than
Capital Lease Obligations); and (g) any obligation that by operation of law is
subordinate to any general unsecured obligations of such Guarantor.
"Guarantors" shall mean Holding and each Subsidiary listed on Schedule
---------- --------
1.01(f), and each direct and indirect Subsidiary that guarantees the payment of
- - -------
the Obligations of Borrower hereunder and under the other Credit Documents
pursuant to Section 9.19.
"Guaranty Obligation" see the definition of Contingent Obligation.
-------------------
"Hayman" shall mean Hayman Holdings, Inc. a Kentucky corporation.
------
"Haulage and Delivery Agreement" means that certain agreement dated as
------------------------------
of October 22, 1997 between Borrower and TASK, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.
"Hazardous Material" shall mean any pollutant, contaminant, toxic,
------------------
hazardous or extremely hazardous substance, constituent or waste, or any other
constituent, waste, material, compound or substance subject to regulation under
any Environmental Law including, without limitation, petroleum or any petroleum
product, including crude oil or any fi-action thereof, polychlorinated
biphenyls, urea-formaldehyde insulation and asbestos.
"Hedging Obligation" means, with respect to any Person, the
------------------
obligations of such Person under (i) currency exchange, interest rate or
commodity swap agreements, currency exchange, interest rate or commodity cap
agreements and currency exchange, interest rate or commodity collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange, interest rates or commodity prices,
in each case for the purpose of risk management and not for speculation.
"Holding" shall mean AEI Resources Holding, Inc.
-------
-12-
<PAGE>
"Holding's Bridge Loan Agreement" means the Senior Credit Agreement,
-------------------------------
dated as of September 2, 1998, by and among Holding, Warburg Dillon Read LLC, as
arranger and syndication agent, UBS AG, Stamford Branch, as administrative
agent, and the other lenders party thereto.
"in the ordinary course of business" shall mean in the ordinary course
----------------------------------
of business of Borrower and the Subsidiaries consistent with past practice.
"incur" shall mean, with respect to any Indebtedness or other
-----
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "incurrence," "incurred" and "incurring" shall
---------- -------- ---------
have meanings correlative to the foregoing). Indebtedness of any Person or any
of its Subsidiaries existing at the time such Person becomes a Company (or is
merged into or consolidates with any Company), whether or not such Indebtedness
was incurred in connection with, or in contemplation of, such Person becoming a
Company (or being merged into or consolidated with any Company), shall be deemed
incurred at the time any such Person becomes a Company or merges into or
consolidates with any Company. Neither the accrual of interest, nor the
accretion of accreted value, shall be deemed to be an incurrence.
"Indebtedness" shall mean, for any Person, without duplication, (a)
------------
all indebtedness for borrowed money of such Person; (b) all obligations issued,
undertaken or assumed by such Person as the deferred purchase price of Property
or services (other than trade payables and accrued expenses paid on customary
terms incurred in the ordinary course of business on ordinary terms and not more
than 90 days past due); (c) all noncontingent reimbursement or payment
obligations of such Person with respect to Surety Instruments (such as, for
example, unpaid reimbursement obligations in respect of a drawing under a letter
of credit, but excluding reclamation, surety and similar bonds and undrawn
letters of credit issued in the ordinary course of business or in connection
with any acquisition); (d) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of Property or businesses; (e) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either case with
respect to Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such Property); (f) all Capital Lease Obligations of
such Person; (g) all net obligations of such Person with respect to Swap
Contracts (such obligations to be equal at any time to the aggregate net amount
that would have been payable by such Person at the most recent fiscal quarter
end in connection with the termination of such Swap Contracts at such fiscal
quarter end); (h) all obligations with respect to payments received in
consideration of coal or other minerals required to be acquired or produced
after the time of payment (including obligations under "take-or-pay" contracts
to deliver coal in return for payments already received); (i) all amounts
required to be paid by such Person as a guaranteed payment to partners,
including any mandatory redemption of shares or interests; (j) all indebtedness
of other Persons referred to in clauses (a) through (i) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in Property (including accounts
and contracts rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness; and (k) all
Guaranty Obligations of such Person in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through 0) above. Indebtedness
shall not include accounts extended by suppliers in the ordinary course of
business on normal trade terms in connection with the purchase of goods and
services or obligations for any recoupable advance or minimum royalty payments
under any mineral lease or real property lease. The Indebtedness of any Person
shall include any Indebtedness of any partnership in which such Person is the
general partner.
"Indemnitee" see Section 12.03.
----------
"Initial Loan Commitment" shall mean, for each Lender, the obligation
-----------------------
of such Lender to make Initial Loans in an aggregate principal amount at any one
time outstanding up to but not exceeding the amount set opposite the name of
such Lender on Annex A under the caption "Initial Loan Commitment" (as the same
may be reduced from time to time pursuant to Section 2.04 or changed pursuant to
Section 12.06(b)). The initial aggregate
-13-
<PAGE>
principal amount of the Initial Loan Commitments is $500.0 million (subject to
the limitations set forth in Section 2.01(a)).
"Initial Loan Commitment Percentage" shall mean, with respect to any
----------------------------------
Lender, the ratio of (a) the amount of the Initial Loan Commitment of such
Lender to (b) the aggregate amount of the Initial Loan Commitments of all of the
Lenders.
"Initial Loan Commitments" shall mean the aggregate sum of the Initial
------------------------
Loan Commitments.
"Initial Loan Lenders" shall mean (a) on the date hereof, the Lenders
--------------------
having Initial Loan Commitments on the signature pages hereof and (b)
thereafter, the Lenders from time to time holding Initial Loans and Initial Loan
Commitments after giving effect to any assignments thereof permitted by Section
12.06(b).
"Initial Loans" see Section 2.01(a).
-------------
"Initial Notes" shall mean the promissory notes provided for by
-------------
Section 2.08(a)(i) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Initial Public Offering" shall mean a primary underwritten public
-----------------------
offering of the common stock of Borrower, other than any public offering or sale
pursuant to a registration statement on Form S-8 or a comparable form.
"Insolvency or Liquidation Proceeding" means, with respect to any
------------------------------------
Person, any liquidation, dissolution or winding-up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.
"Insolvency Proceeding" shall mean, with respect to any Person, (a)
---------------------
any case, action or proceeding with respect to such Person before any court or
by or before any other Governmental Authority relating to bankruptcy,
insolvency, reorganization, liquidation, receivership, dissolution,
sequestration, conservatorship, winding-up or relief of debtors (or the
convening of a meeting or the passing of a resolution for or with a view to any
of the foregoing), or (b) any assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other similar arrangement
in respect of such Person's creditors generally or any substantial portion of
its creditors.
"Interest Period" shall mean, with respect to any LIBOR Loan, each
---------------
period commencing on the Interest Determination Date and ending on the
numerically corresponding day in the third calendar month thereafter.
"Interest Rate Determination Date" shall mean (x) the second Business
--------------------------------
Day on which banks in New York and London are open prior to the Closing Date or
the Conversion Date, as the case may be, and (y) with respect to any Monthly
Period, the second Business Day prior to the first Business Day of such Monthly
Period on which banks in New York City and London are open.
"Interest Rate Protection Agreement" shall mean, for any Person, an
----------------------------------
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"Investment" shall mean, for any Person: (a) the acquisition (whether
----------
for cash, Property, services or securities or otherwise) of Equity Interests,
bonds, notes, debentures or other securities of any other Person; (b) the making
of any deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person); (c) any capital contribution to (by means of any transfer of cash
or other Property to others or any payment for Property or services for the
account or use of others) any other Person; and (d) the entering into, or direct
or indirect incurrence, of any Guaranty Obligation with respect to Indebtedness
or other liability of any other Person.
-14-
<PAGE>
"Kindill" shall mean Kindill Holding, Inc., a Kentucky corporation,
-------
and its Subsidiaries.
"Kindill Acquisition" shall mean the acquisition by Borrower of
-------------------
Kindill and Hayman pursuant to the terms of the Kindill Acquisition Agreement.
"Kindill Acquisition Agreement" shall mean collectively: (i) the
-----------------------------
agreement dated as of September 2, 1998 among West Virginia-Indiana Coal Holding
Company, Inc. and the shareholders of Kindill providing for the purchase by
Borrower of all of the capital stock of Kindill for and (ii) the agreement dated
as of September 3, 1998 among West Virginia-Indiana Coal Holding Company, Inc.
and the shareholders of Hayman providing for the purchase by Borrower of all of
the capital stock of Hayman.
"Lease" shall mean any lease, sublease, franchise agreement, license,
-----
occupancy or concession agreement.
"Lender" and "Lenders" see the introduction to this Agreement.
------ -------
"Letter of Credit Agreements" shall mean the Letter of Credit
---------------------------
Agreements dated September 2, 1998 between Zeigler and each of First Chicago
National Bank, Bank of America National Trust and Savings Association, the First
National Bank of Chicago and Mellon Bank, N.A., pursuant to which such Banks
have issued letters of credit with an aggregate face amount of approximately
$183 million.
"LIBOR Loans" shall mean Loans that bear interest at rates based on
-----------
rates referred to in the definition of LIBOR Rate in this Section 1.01.
"LIBOR Rate" shall mean the rate of interest determined as follows:
----------
(a) on the Interest Determination Date, the Administrative Agent shall
obtain the offered quotation(s) that appear on the Reuter's Screen for
Dollar deposits for a period comparable to such Interest Period. If at
least two such offered quotations appear on the Reuter's Screen, the LIBOR
Rate shall be the arithmetic average (rounded upwards, if necessary, to the
nearest 1/100th of 1%) of such offered quotations, as determined by the
Administrative Agent; or
(b) if the Reuter's Screen is not available or has been discontinued,
the LIBOR Rate shall be the rate per annum which the Administrative Agent
in good faith determines to be the arithmetic average (rounded as
aforesaid) of the offered quotations for Dollar deposits in an amount
comparable to the Administrative Agent's share of the relevant amount in
respect of which the LIBOR Rate is being determined for a period comparable
to the relevant LIBOR Interest Period that leading banks in New York City
selected by the Administrative Agent are quoting at 11:00 A.M. on the
Interest Determination Date in the New York Interbank Market to major
international banks.
"Lien" shall mean, with respect to any Property, any mortgage, deed of
----
trust, lien, pledge, claim, charge, assignment, hypothecation, security interest
or encumbrance of any kind, any other type of preferential arrangement in
respect of such Property or any filing of any financing statement under the UCC
or any other similar notice of Lien under any similar notice or recording
statute of any Governmental Authority, including any easement, right-of-way or
other encumbrance on title to Real Property, in each of the foregoing cases
whether voluntary or imposed by law, and any agreement to give any of the
foregoing. For purposes of the Credit Documents, a Person shall be deemed to
own subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Loans" shall mean the Initial Loans and the Term Loans.
-----
"Losses" of any Person shall mean the losses, liabilities, claims
------
(including those based upon negligence, strict or absolute liability and
liability in tort), damages, reasonable expenses, obligations, penalties,
-15-
<PAGE>
actions, judgments, encumbrances, liens, penalties, fines, suits, reasonable and
documented costs or disbursements of any kind or nature whatsoever (including
reasonable fees and expenses of counsel in connection with any Proceeding
commenced or threatened in writing, whether or not such Person shall be
designated a party thereto) at any time (including following the payment of the
Obligations) incurred by, imposed on or asserted against such Person.
"Majority Lenders" shall mean (i) at any time prior to the Closing
----------------
Date, Lenders holding at least a majority of the aggregate amount of the Initial
Loan Commitments, and (ii) at any time after the Closing Date, Lenders holding
at least a majority of the outstanding Loans.
"Margin Stock" shall mean margin stock within the meaning of
------------
Regulations T, U and X.
"Marketable Securities" means, with respect to any Asset Sale, any
---------------------
readily marketable equity securities that are (i) traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market; and (ii)
issued by a corporation having a total equity market capitalization of not less
than $250.0 million; provided that the excess of (A) the aggregate amount of
securities of any one such corporation held by Borrower and any Subsidiary over
(B) ten times the average daily trading volume of such securities during the 20
immediately preceding trading days shall be deemed not to be Marketable
Securities, as determined on the date of the contract relating to such Asset
Sale.
"Material Adverse Change" shall mean, with respect to any Person, a
-----------------------
material adverse change, or any condition or event that has resulted or could
reasonably be expected to result in a material adverse change, in the condition
(financial or otherwise), business, Properties or results of operations of such
Person, individually or together with the Subsidiaries taken as a whole.
"Material Adverse Effect" shall mean, any of (a) a material adverse
-----------------------
effect, or any condition or event that has resulted or could reasonably be
expected to result in a material adverse effect, on the operations, Properties,
prospects or financial or other condition of Borrower, individually or together
with the Subsidiaries taken as a whole, (b) a material adverse effect on the
ability of the Obligors to consummate in a timely manner the Transactions or to
perform their obligations under any Credit Document or (c) a material adverse
effect on the legality, binding effect or enforceability of any Credit Document
or the rights and remedies of the Lenders or Agents thereunder.
"Mitsui Marketing Agreement" means that certain agreement dated as of
--------------------------
January 30, 1997 between Mitsui Matsushima Co. Ltd. and Bowie Resources,
Limited, as the same may be extended or renewed from time to time without
alteration of the material terms thereof.
"MMI Leases" means all equipment leases between Borrower and its
----------
Subsidiaries and NMI in existence as of the date of the Indenture; provided that
MMI Leases shall not include any extension, renewal, exercise of option or
modification of any equipment lease between Borrower and its Subsidiaries and
MMI.
"MMI Service Agreement" means that certain agreement dated as of
---------------------
October 22, 1997 between MMI and Borrower, as the same may be extended or
renewed from time to time without alteration of the material terms thereof.
"Monthly Period" shall mean the period commencing on the last calendar
--------------
day of each month, if such day is a Business Day, or the first Business Day
succeeding the last calendar day of each month and ending on the day next
preceding the first Business Day of the following Monthly Period; provided,
--------
however, that the first Monthly Period shall commence on the Closing Date.
"Multiemployer Plan" shall mean at any time a Multiemployer plan
------------------
within the meaning of Section 400 1(a)(3) of ERISA (i) to which any member of
the ERISA Group is then making or accruing an obligation to make contributions,
(ii) to which any member of the ERISA Group has within the preceding five plan
years made contributions, including for these purposes any Person which ceased
to be a member of the ERISA Group during such five year period, Or (iii) with
respect to which any Company could incur liability.
-16-
<PAGE>
"NAIC" shall mean the National Association of Insurance Commissioners.
----
"Net Available Proceeds" shall mean, in the case of any Equity
----------------------
Issuance or any Debt Issuance, the aggregate amount of all cash received by any
Company in respect thereof net of all investment banking fees, discounts and
commissions, legal fees, consulting fees, accountants' fees, underwriting
discounts and commissions and other customary fees and expenses, actually
incurred and satisfactorily documented in connection therewith.
"Net Income" means, with respect to any Person, the net income or loss
----------
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain or loss,
together with any related provision for taxes on such gain or loss, realized in
connection with (a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or (b) the disposition of any
securities by such Person or any of its Subsidiaries or the extinguishment of
any Indebtedness of such Person or any of its Subsidiaries and (ii) any
extraordinary or nonrecurring gain or loss, together with any related provision
for taxes on such extraordinary or nonrecurring gain or loss.
"Net Proceeds" means the aggregate proceeds (cash or property)
------------
received by Borrower or any of its Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any noncash consideration received in any Asset Sale) or the sale
or disposition of any Investment, net of the direct costs relating to such Asset
Sale, sale or disposition (including, without limitation, legal, accounting and
investment banking fees, and sales commissions), and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Guarantor Subsidiaries" means (i) Triton and its direct and
--------------------------
indirect Subsidiaries, (ii) Bowie and its direct and indirect Subsidiaries,
(iii) Yankeetown Dock Corporation and its direct and indirect Subsidiaries, (iv)
Borrower's future Unrestricted Subsidiaries and (v) Borrower's current and
future Foreign Subsidiaries.
"Non-Recourse Debt" means Indebtedness (i) as to which neither
-----------------
Borrower nor any of its Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness) other than a pledge of the Equity Interests of any Unrestricted
Subsidiaries, (b) is directly or indirectly liable (as a guarantor or otherwise)
other than by virtue of a pledge of the Equity Interests of any Unrestricted
Subsidiaries, or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Senior Notes being offered hereby) of Borrower or any of its Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Non-U.S. Lender" see Section 5.06(b).
---------------
"Notes" shall mean the Initial Notes and the Term Loan Notes.
-----
"Notice of Assignment" shall mean a notice of assignment pursuant to
--------------------
Section 12.06 substantially in the form of Exhibit F.
"Notice of Borrowing" shall mean a notice of borrowing substantially
-------------------
in the form of Exhibit H.
---------
"Obligations" shall mean all amounts, direct or indirect, contingent
-----------
or absolute, of every type or description, and at any time existing, owing to
any Creditor or any of its Related Parties or their respective successors,
transferees or assignees pursuant to the terms of any Credit Document or secured
by any of the Security Documents, whether or not the right of such Person to
payment in respect of such obligations and liabilities is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or
-17-
<PAGE>
unsecured and whether or not such claim is discharged, stayed or otherwise
affected by any bankruptcy case or insolvency or liquidation proceeding.
"Obligors" shall mean Borrower and the Guarantors.
--------
"Offer to Purchase" shall mean a written offer (the "Offer") sent by
-----------------
or on behalf of Borrower by first-class mail, postage prepaid, to each Lender at
his notice for address pursuant to Section 12.02 on the date of the Offer
offering to purchase up to the principal amount of Term Notes specified in such
Offer at the purchase price specified in such Offer. Unless otherwise required
by applicable law, the Offer shall specify an expiration date (the "Expiration
----------
Date") of the Offer to Purchase, which shall be not less than 20 Business Days
- - ----
nor more than 60 days after the date of such Offer, and a settlement date (the
"Purchase Date") for purchase of Term Notes to occur no later than five Business
- - --------------
Days after the Expiration Date. Borrower shall notify the Arranger at least 15
Business Days (or such shorter period as is acceptable to the Arranger) prior to
the mailing of the Offer of Borrower's obligation to make an Offer to Purchase,
and the Offer shall be mailed by Borrower or, at Borrower's request, by the
Arranger in the name and at the expense of Borrower. The Offer shall contain
all the information required by applicable law to be included therein. The
Offer also shall contain information concerning the business of Borrower and its
Subsidiaries which Borrower in good faith believes will enable such Lenders to
make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly consolidated
financial statements of Borrower and a financial analysis substantially similar
to a "Management' s Discussion and Analysis of Financial Condition and Results
of Operations" contained in a Form S-1 registration statement filed by an issuer
on its behalf with the Commission (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments in Borrower's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring Borrower to make the Offer to Purchase),
(iii) if applicable, appropriate proforma financial information concerning the
Offer to Purchase and the events requiring Borrower to make the Offer to
Purchase and (iv) any other information required by applicable law to be
included therein). The Offer shall contain all instructions and materials
necessary to enable such Lenders to tender Term Notes pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of this Agreement pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Term Notes
offered to be purchased by Borrower pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such
amount has been determined pursuant to the Section of this
Agreement requiring the Offer to Purchase) (the "Purchase
--------
Amount");
------
(4) the purchase price to be paid by Borrower for each $ 1,000
principal amount of Term Notes accepted for payment (the
"Purchase Price");
--------------
(5) the place or places where Term Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(6) that interest on any Term Note not tendered or tendered but not
purchased by Borrower pursuant to the Offer to Purchase will
continue to accrue;
(7) that on the Purchase Date the Purchase Price will become due and
payable upon each Term Note being accepted for payment pursuant
to the Offer to Purchase and that interest thereon shall cease to
accrue on and after the Purchase Date;
(8) that each holder electing to tender all or any portion of a Term
Note pursuant to the Offer to Purchase will be required to
surrender such Term Note at the place or places specified in the
Offer prior to the close of business on the Expiration Date (such
Term Note being,
-18-
<PAGE>
if Borrower or the Arranger so requires, duty endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to Borrower and the Arranger duly executed by, the
holder thereof or his attorney duly authorized in writing);
(9) that Lenders will be entitled to withdraw all or any portion of
Term Notes tendered if Borrower receives, not later than the
close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the holder, the principal amount
of the Term Note the holder tendered, the certificate number of
the Term Note the holder tendered and a statement that such
holder is withdrawing all or a portion of his tender;
(10) that (a) if Tenn Notes in an aggregate principal amount at
maturity less than or equal to the Purchase Amount are duly
tendered and not withdrawn pursuant to the Offer to Purchase,
Borrower shall purchase all such Term Notes and (b) if Term Notes
in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase,
Borrower shall purchase Term Notes having an aggregate principal
amount equal to the Purchase Amount on a pro rata basis (with
--- ----
such adjustments as may be deemed appropriate so that only Term
Notes in denominations of S 1,000 principal amount at maturity or
integral multiples thereof shall be purchased); and
(11) that in the case of any holder whose Term Note is purchased only
in part, Borrower shall execute and the Arranger shall
authenticate and deliver to the holder of such Tenn Note without
service charge, a new Term Note or Term Notes, of any authorized
denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased
portion of the Term Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance
with the provisions above pertaining to any Offer. References above to
principal amount shall mean and refer to principal amount at maturity, unless
the context otherwise requires.
"Officers' Certificate" shall mean, as applied to any corporation, a
---------------------
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its Chief Executive Officer or one of its Vice Presidents (or
an equivalent officer) and by its Chief Financial Officer, Vice President-
Finance or its Treasurer (or an equivalent officer) or any Assistant Treasurer
in their official (and not individual) capacities; provided, however, that every
-------- -------
Officers' Certificate with respect to the compliance with a condition precedent
to the making of any Loan or the taking of any other action hereunder shall
include (i) a statement that the officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, and (ii) a statement as to
whether, in the opinion of the signers, such condition has been complied with.
"Organic Document" shall mean, relative to any Person, its certificate
----------------
of incorporation, its bylaws, its partnership agreement, its memorandum and
articles of association, share designations or similar organization document,
voting trusts and similar arrangements applicable to any of its authorized
shares of Equity Interests.
"Original Lenders" shall mean the Lenders named on the signature pages
----------------
hereof who were Lenders at the Closing Date.
"Other Taxes" see Section 5.06(b).
-----------
"Parent Financing" shall mean the borrowings by Holding of $100.0
----------------
million pursuant to the Holding's Bridge Loan Agreement.
"Participant" see Section 12.06(c).
-----------
-19-
<PAGE>
"Payment Date" shall mean any Principal Payment Date and each date on
------------
which interest is due and payable on any Loan.
"Payor" see Section 4.06.
-----
"PBGC" shall mean the United States Pension Benefit Guaranty
----
Corporation or any successor thereto.
"Permits" see Section 8.17.
-------
"Permitted Acquisition" shall mean any Acquisition effected in
---------------------
compliance with Section 9.06(h), (in) or (n).
"Permitted Business" means coal production, coal mining, coal
------------------
brokering, coal transportation, mine development, energy related businesses,
coal, natural gas, petroleum or other fossil fuel exploration, production,
marketing, transportation and distribution and other related businesses, and
activities of the Company and its Subsidiaries as of the date of the closing of
the Acquisitions and any business or activity that is reasonably similar to any
of the foregoing or a reasonable extension, development or expansion thereof or
ancillary to any of the foregoing.
"Permitted Group" means any group of investors that is deemed to be a
---------------
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of any agreement or arrangement among two or more Persons, provided that
---------
no single Person (together with its Affiliates), other than the Principals and
their Related Parties, is the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule l3d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition, and beneficial ownership
shall be determined without regard to such agreement or arrangement), directly
or indirectly, of (A) more than 50% of the Voting Stock of Borrower that is
"beneficially owned" (as defined above) by such group of investors and (B) more
of the Voting Stock of Borrower than is at the time "beneficially owned" (as
defined above) by the Principals and their Related Parties in the aggregate
(Voting Stock, in each case, measured by voting power rather than number of
shares).
"Permitted Investments" means (a) any Investment in Borrower or in a
---------------------
Subsidiary of Borrower; (b) any Investment in Cash Equivalents; (c) any
Investment by Borrower or any Subsidiary of Borrower in a Person, if as a result
of such Investment (i) such Person becomes a Subsidiary of Borrower or (ii) such
Person, in one transaction or a series of related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, Borrower or a Subsidiary of
Borrower; (d) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Capital Stock) of Borrower; (e) any
Investment existing on the Closing Date (an "Existing Investment") and any
-------------------
Investment that replaces, refinances or refunds an Existing Investment, provided
that the new Investment is in an amount that does not exceed the amount
replaced, refinanced or refunded and is made in the same Person as the
Investment replaced, refinanced or refunded, (f) advances to employees not in
excess of $5.0 million outstanding at any one time; (g) Hedging Obligations
permitted under clause (ix) of Section 9A(b); (h) loans and advances to
officers, directors and employees for business-related travel expenses, moving
expenses and other similar expenses, in each case incurred in the ordinary
course of business; (i) any Investment in a Permitted Business (whether or not
an Investment in an Unrestricted Subsidiary) having an aggregate fair market
value, that when taken together with all other Investments made pursuant to this
clause (i), does not exceed in aggregate amount the sum of (1) 5% of Total
Assets at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value) plus (2) 100% of the Net Proceeds from the sale or
disposition of any Investment previously made pursuant to this clause (i) or
100% of the amount of any dividend, distribution or payment from any such
Investment, net of income taxes paid or payable in respect thereof, in each case
up to the amount of the Investment that was made pursuant to this clause (i) and
50% of the amount of such Net Proceeds or 50% of such dividends, distributions
or payments, in each case received in excess of the amount of the Investments
made pursuant to this clause (i); (j) guarantees of Indebtedness permitted under
Section 9A(b); (k) any Investment acquired by Borrower or any of its
Subsidiaries (A) in exchange for any other Investment or accounts receivable
held by Borrower or any such Subsidiary in connection
-20-
<PAGE>
with or as a result of a bankruptcy, workout, reorganization or recapitalization
of the issuer of such other Investment or accounts receivable or (B) as a result
of the transfer of title with respect to any secured Investment in default as a
result of a foreclosure by Borrower or any of its Subsidiaries with respect to
such secured Investment; (l) that portion of any Investment by Borrower or a
Subsidiary in a Permitted Business to the extent that Borrower or such
Subsidiary will receive in a substantially concurrent transaction an amount in
cash equal to the amount of such Investment (or the fair market value of such
Investment), net of any obligation to pay taxes or other amounts in respect of
the receipt of such cash; and (m) any Investment made by Borrower or any
Subsidiary in an Unrestricted Subsidiary with the proceeds of any equity
contribution to or sale of Equity Interest by Borrower or any Subsidiary,
provided that such proceeds shall not increase the amount available pursuant to
- - --------
clause (c) of the first paragraph of Section 9A(a); provided that the receipt of
--------
such cash does not carry any obligation by Borrower or such Subsidiary to repay
or return such cash; provided, however, that with respect to any Investment, the
-------- -------
Borrower may, in its sole discretion, allocate all or any portion of any
Investment to one or more of the above clauses so that the entire Investment
would be a Permitted Investment.
"Permitted Junior Securities" shall mean any securities of Borrower or
---------------------------
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to substantially the same extent as, or to a greater extent
than, the Loans and Notes are subordinated as provided in this Agreement, in any
event pursuant to a court order so providing and as to which (a) the rate of
interest on such securities shall not exceed the effective rate of interest on
the Loans and Notes on the date of this Agreement, (b) such securities shall not
be entitled to the benefits of covenants or defaults materially more beneficial
to the holders of such securities than those in effect with respect to the Loans
and Notes on the date of this Agreement and (c) such securities shall not
provide for amortization (including sinking fund and mandatory prepayment
provisions) commencing prior to the date six months following the final
scheduled maturity date of the Senior Indebtedness (as modified by the plan of
reorganization or readjustment pursuant to which such securities are issued).
"Permitted Liens" prior to the Conversion Date shall have the meaning
---------------
set forth in Section 9.07 and on and after the Conversion Date shall mean (i)
Liens securing Indebtedness under Credit Facilities that were permitted by the
terms of this Agreement to be incurred; (ii) Liens in favor of Borrower; (iii)
Liens on property of a Person existing at the time such Person is merged into or
consolidated with Borrower or any Subsidiary of Borrower; provided that such
--------
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with Borrower; (iv) Liens on property existing at
the time of acquisition thereof by Borrower or any Subsidiary of Borrower,
provided that such Liens were in existence prior to the contemplation of such
- - --------
acquisition; (v) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business; (vi) Liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance or other kinds of social security; (vii)
Liens existing on the Closing Date; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
--------
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens on assets of Guarantors to secure Guarantor Senior Indebtedness of such
Guarantors that was permitted by this Agreement to be incurred; (x) Liens
incurred in the ordinary course of business of Borrower or any Subsidiary of
Borrower with respect to obligations that (a) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by Borrower or such Subsidiary; (xi) Liens
on assets of Foreign Subsidiaries to secure Indebtedness that was permitted by
this Agreement to be incurred; (xii) statutory liens of landlords, mechanics,
suppliers, vendors, warehousemen, carriers or other like Liens arising in the
ordinary course of business; (xiii) judgment Liens not giving rise to an Event
of Default so long as any appropriate legal proceeding that may have been duly
initiated for the review of such judgment shall not have been finally terminated
or the period within which such legal proceeding may be initiated shall not have
expired; (xiv) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred or imposed, as applicable,
in the ordinary course of business and consistent with industry practices which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto
-21-
<PAGE>
(as such property is used by Borrower or its Subsidiaries) or interfere with the
ordinary conduct of the business of Borrower or such Subsidiaries; provided,
--------
however, that any such Liens are not incurred in connection with any borrowing
- - -------
of money or any commitment to loan any money or to extend any credit; (xv) Liens
to secure Indebtedness (including Capital Lease Obligations) permitted by clause
(vi) of the second paragraph of Section 9A(b) and other purchase money Liens to
finance property or assets of Borrower or any Subsidiary acquired in the
ordinary course of business; provided that such Liens are only secured by such
--------
property or assets so acquired or improved (including, in the case of the
acquisition of Equity Interests of a Person who becomes a Subsidiary, Liens on
the assets of the Person whose Equity Interests were so acquired); (xvi) Liens
securing Indebtedness under Hedging Obligations, provided that such Liens are
--------
only secured by property or assets that secure the Indebtedness subject to the
Hedging Obligation; (xvii) Liens to secure Indebtedness permitted by clause (x)
of the second paragraph of Section 9A(b); and (xviii) Liens on the Equity
Interests of Unrestricted Subsidiaries securing obligations of Unrestricted
Subsidiaries not otherwise prohibited by this Agreement.
"Permitted Refinancing" shall mean, with respect to any Indebtedness
---------------------
or Contingent Obligation, any refinancing thereof, provided, however, that (w)
-------- -------
no Default shall have occurred and be continuing or would arise therefrom, (x)
any such refinancing Indebtedness shall (I) not be on financial and other terms
that are more onerous, taken as a whole, to any Company or Creditor than the
Indebtedness or Contingent Obligation being refinanced and shall not have
defaults, rights or remedies more burdensome, taken as a whole, to any Company
or Creditor than the Indebtedness being refinanced, (II) not have a stated
maturity or weighted average life that is shorter than the Indebtedness or
Contingent Obligation being refinanced, (III) be at least as subordinate to the
Obligations as the Indebtedness or Contingent Obligation being refinanced (and
unsecured if the refinanced Indebtedness is unsecured), and (iv) be in principal
amount that does not exceed the principal amount so refinanced, plus the lesser
of (1) the stated amount of any premium or other payment required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness or
Contingent Obligation being refinanced and (2) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
----
either case, the amount of reasonable expenses of any Obligor or any Subsidiary
incurred in connection with such refinancing and (y) the sole obligor on such
refinancing Indebtedness or Contingent Obligation shall be Borrower or the
original obligor on such Indebtedness or Contingent Obligation being refinanced;
provided, however, that (1) any guarantor of the Indebtedness or Contingent
- - -------- -------
Obligation being refinanced shall be permitted to guarantee the refinancing
Indebtedness, and (ii) Borrower shall be permitted to guarantee any such
refinancing of any Qualified Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of
----------------------------------
Borrower or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Borrower or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
---------
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
and premium, if any, on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Loans, such Permitted Refinancing Indebtedness has a final maturity date
later than the Final Maturity Date and is subordinated in right of payment to
the Loans on terms at least as favor-able to the Lenders as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by Borrower or by the Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean at any time an employee pension benefit plan (other
----
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code
-22-
<PAGE>
or Section 302 of ERISA and is maintained or contributed to by any member of the
ERISA Group or with respect to which any Company or Unrestricted Subsidiary
could incur liability.
"Post-Petition Interest" means, with respect to any Indebtedness of
----------------------
any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Prime Rate" shall mean for any day, a rate 2er annum that is equal to
---------- ----
the corporate base rate of interest established by Administrative Agent from
time to time, changing when and as said corporate base rate changes. The
corporate base rate is not necessarily the lowest rate charged by Administrative
Agent to its customers.
"Principal Office" shall mean the principal office of Administrative
----------------
Agent, located on the date hereof at 677 Washington Boulevard, Stamford,
Connecticut 06912, or such other office as may be designated by Administrative
Agent.
"Principal Payment Date" shall mean, with respect to any Term Loan,
----------------------
each Quarterly Date set forth on Schedule 3.0 1 (b) on which a payment of
principal is due with respect to such Term Loan.
"Principals" means Larry Addington, Bruce Addington and Robert
----------
Addington.
"Prior Liens" shall mean Liens which, pursuant to the provisions of
-----------
any Security Document, are or may be superior to the Lien of such Security
Document.
"Proceeding" shall mean any claim, counterclaim, action, judgment,
----------
suit, hearing, arbitration or proceeding, including by or before any
Governmental Authority and whether judicial or administrative.
"Pro Forma Balance Sheets" see Section 8.02(d).
------------------------
"Pro Forma Date" see Section 8.02(d).
--------------
"Profit Payment Agreement" shall mean any agreement to make any
------------------------
payment the amount of which is, or the terms of payment of which are, in any
respect subject to or contingent upon the revenues, income, cash flow or profits
(or the like) of any Person or business.
"Property" shall mean any right, title or interest in or to property
--------
or assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible and including Equity Interests or other ownership
interests of any Person.
"Public Equity Offering" means an underwritten primary public offering
----------------------
of common stock of the Borrower pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity
-------------
Offering has been consummated and (ii) at least 35% of the total issued and
outstanding common stock of Borrower immediately prior to the consummation of
such Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.
"Qualified Capital Stock" shall mean with respect to any Person any
-----------------------
Equity Interests of such Person which is not Disqualified Capital Stock.
"Qualified Subsidiary" shall mean any Wholly Owned Subsidiary of
--------------------
Borrower that is an Obligor.
-23-
<PAGE>
"Quarter" shall mean each three month period ending on March 3 1, June
-------
30, September 30 and December 3 1.
"Quarterly Dates" shall mean the last Business Day of March, June,
---------------
September and December in each year, commencing with the last Business Day of
September, 1998.
"Real Property" shall mean, collectively, all right, title and
-------------
interest of any Company (including, without limitation, any leasehold or mineral
estate) in and to any and all parcels of real property owned or operated by any
Company, whether by lease, license or other use agreement, together with, in
each case, all improvements and appurtenant fixtures, equipment, personal
property, easements and other property and rights incidental to the ownership,
lease or operation thereof.
"redeem" shall mean redeem, repurchase, repay, defease or otherwise
------
acquire or retire for value; and "redemption" and "redeemed" have correlative
---------- --------
meanings.
"refinance" shall mean refinance, renew, extend, replace, defease or
---------
refund, in whole or in part, including successively; and "refinancing" and
-----------
"refinanced" have correlative meanings.
- - -----------
"Refinancing" shall mean the public offering or private placement and
-----------
sale by Borrower of the Refinancing Securities contemplated by Section 9.32, in
order to refinance, as applicable, the Initial Loans, Initial Notes, Term Notes,
the Exchange Notes and all Obligations owing in respect of this Agreement and
the other Loan Documents and all obligations under the Senior Subordinated
Indenture.
"Refinancing Securities" shall mean the unsecured senior subordinated
----------------------
notes of Borrower or any of its Subsidiaries proposed to be sold in order to
consummate the Refinancing pursuant to Section 9.32.
"Refinancing Securities Demand" see Section 9.32.
-----------------------------
"Register" see Section 2.08.
--------
"Registration Rights Agreement" shall mean a registration rights
-----------------------------
agreement substantially in the form of Exhibit G (with such changes therein as
---------
the Agents and Borrower shall approve).
"Regulation D" shall mean Regulation D (12 C.F.R. Part 204) of the
------------
Board of Governors of the United States Federal Reserve System.
"Regulations T, U and X" shall mean, respectively, Regulation T (12
----------------------
C.F.R. Part 220), Regulation U (12 C.F.R. Part 22 1) and Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the United States Federal Reserve System
(or any successor), as the same may be modified and supplemented and in effect
from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
-----------------
after the date hereof in United States Federal, state or foreign law or
regulations (including Regulation D) or the adoption or making after such date
of any interpretation, directive or request applying to a class of banks or
other financial institutions including such Lender of or under any Federal,
state or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority or any other regulatory agency with proper
authority, including non-governmental agencies or bodies, charged with the
interpretation or administration thereof or by the NAIC.
"Related Parties" see Section 11.01.
---------------
"Related Party" with respect to any Principal means (A) any
-------------
controlling stockholder of such Principal, any Subsidiary of such Principal, or
in the case of an individual, any spouse or immediate family member of such
Principal or (B) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or
-24-
<PAGE>
Persons beneficially holding a more than 50% controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (A).
"Release" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment.
"Replaced Lender" see Section 2.11.
---------------
"Replacement Lender" see Section 2.11.
------------------
"Required Payment" see Section 4.06.
----------------
"Requirement of Law" shall mean as to any Person, the Certificate of
------------------
Incorporation and By laws or other Organic Documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.
"Reserve Reports" see Section 7.01 (vi)
---------------
"Responsible Officer" shall mean the chief executive officer of
-------------------
Borrower and the president of Borrower (if not the chief executive officer) and,
with respect to financial matters, the chief financial officer of Borrower.
"Restricted Investment" means an Investment other than a Permitted
---------------------
Investment.
"Senior Credit Facility" means the Senior Credit Agreement, dated as
----------------------
of September 2, 1998, by and among Borrower, the guarantors parry thereto,
Warburg Dillon Read LLC, as An-anger and Syndication Agent, UBS AG, Stamford
Branch, as Administrative Agent, and the other lenders party thereto, including
any related notes, guarantees, collateral documents, letters of credit,
instruments and agreements executed in connection therewith (and any appendices,
exhibits or schedules to any of the foregoing), and in each case as amended,
modified, supplemented, restated, renewed, refunded, replaced, restructured,
repaid or refinanced from time to time (whether with the original agents and
lenders or other agents and lenders or otherwise, and whether provided under the
original credit agreement or other credit agreements or otherwise).
"Senior Indebtedness" means, at any date, (a) all Obligations of
-------------------
Borrower under the Credit Facilities; (b) all Obligations of Borrower under
Hedging Obligations (including Post-Petition Interest); (d) all Obligations of
Borrower under stand-by letters of credit; and (e) all other Indebtedness of
Borrower for borrowed money, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of Borrower for money borrowed is Incurred
expressly provides that such Indebtedness for money borrowed is not senior or
superior in right of payment to the Loans, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Senior Debt shall not include (a) to the extent that it may
constitute Indebtedness, any Obligation for Federal, state, local or other
taxes; (b) any Indebtedness among or between Borrower and any Subsidiary of
Borrower, unless and for so long as such Indebtedness has been pledged to secure
Obligations under the Credit Facilities; (c) to the extent that it may
constitute Indebtedness, any Obligation in respect of any trade payable incuffed
for the purchase of goods or materials, or for services obtained, in the
ordinary course of business; (d) Indebtedness evidenced by the Notes and the
Guarantees; (e) Indebtedness of Borrower that is expressly subordinate or junior
in right of payment to any other Indebtedness of Borrower; (f) to the extent
that it may constitute Indebtedness, any obligation owing under leases (other
than Capital Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
Borrower.
"Senior Subordinated Indenture" shall mean an indenture between
-----------------------------
Borrower and a trustee substantially in the form of the Arranger's customary
high yield indenture (which shall include guarantees by Subsidiaries
-25-
<PAGE>
of the Exchange Notes), modified as appropriate for the Exchange Notes and
having principal negative covenants substantially identical to Section 9A and
principal events of default substantially identical to Section 10 (with such
changes therein as the Required Lenders (which consent shall be conclusively
deemed given if a Lender does not object to the draft thereof within five
Business Days of receipt thereof) and Borrower shall approve, and, at such time
as notes issued thereunder are sold in a public offering, with other appropriate
changes to reflect such public offering), as the same may at any time be
amended, modified and supplemented and in effect.
"Significant Subsidiary" means any Subsidiary that would be a
----------------------
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Solvent" and "Solvency" shall mean, for any Person on a particular
------- --------
date, that on such date (a) the fair value of the Property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts and liabilities beyond such Person's ability to pay as such
debts and liabilities mature, (d) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute an unreasonably small capital and
(e) such Person is able to pay its debts as they become due and payable.
"Stated Maturity" means, with respect to any installment of interest
---------------
or principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Indebtedness" means any Indebtedness of Borrower which
-------------------------
is expressly subordinated in right of payment to the Loans.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. Unless the context clearly requires otherwise, all references to
any Subsidiary shall mean a Subsidiary of Borrower. All references to any
Subsidiary of Borrower shall include all those Persons which become Subsidiaries
of Borrower upon consummation of the Transactions. Other than for purposes of
the definition of "Unrestricted Subsidiary," unless otherwise indicated, all
reference herein to any Subsidiary of Borrower shall not include any
Unrestricted Subsidiary.
"Surety Instruments" shall mean all letters of credit (including
------------------
standby and commercial), bankers' acceptances, bank guarantees, surety bonds and
similar instruments.
"Swap Contract" shall mean any agreement entered into in the ordinary
-------------
course of business (as a bona fide hedge and not for speculative purposes)
----------
(including any master agreement and any agreement, whether or not in writing,
relating to any single transaction) that is an interest rate swap agreement,
basis swap, forward rate agreement, commodity swap, commodity option, equity or
equity index swap or option, bond option, interest rate option, foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement, cross-
currency rate swap agreement, swaption, currency option or any other similar
agreement (including any option to enter into any of the foregoing) and is
designed to protect the Obligors against fluctuations in interest rates,
currency exchange rates, or similar risks.
"Tax Returns" see Section 8.09.
-----------
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<PAGE>
"Taxes" see Section 8.09.
-----
"Technology Sharing Agreement" means that certain agreement dated as
----------------------------
of April 29, 1998 between Borrower and Addington Enterprises, Inc., as the same
may be extended or renewed from time to time without alteration of the material
terms thereof.
"Tender Offer" shall mean the tender offer by Zeigler Acquisition
------------
Corporation of at least 90% of the outstanding shares of common stock of Zeigler
pursuant to the terms of the Zeigler Acquisition Agreement.
"Term Loan Commitment" shall mean, for each Term Loan Lender, the
--------------------
obligation of such Lender to make a Term Loan in an amount up to but not
exceeding the amount set opposite the name of such Lender on Annex A under the
caption "Term Loan Commitment" (as the same may be changed pursuant to Section
12.06(b)). The initial aggregate principal amount of the Term Loan Commitments
is $100.0 million.
"Term Loan Commitment Percentage" shall mean, with respect to any Term
-------------------------------
Loan Lender, the ratio of (a) the amount of the Term Loan Commitment of such
Lender to (b) the Tenn Loan Commitments.
"Term Loan Commitments" shall mean the aggregate sum of the Term Loan
---------------------
Commitment of all the Lenders.
"Term Loan Lenders" shall mean (a) on the Conversion Date, the Lenders
-----------------
having Term Loan Commitments on the signature pages hereof, and (b) thereafter,
the Lenders from time to time holding Term Loans and Term Loan Commitments after
giving effect to any assignments thereof permitted by Section 12.06(b).
"Term Loan Notes" shall mean the promissory notes provided for by
---------------
Section 2.08(a)(ii) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Term Loans" see Section 2.02(a).
----------
"Test Date" shall mean the last day of each fiscal quarter, beginning
---------
with December 31, 1998. Compliance with the Financial Maintenance Covenants
shall be tested, as of each Test Date, on the date on which financial statements
pursuant to Section 9.0 1 (a) or (b) have been, or should have been, delivered
for the applicable fiscal period.
"Total Assets" means the total assets of Borrower and its Subsidiaries
------------
on a consolidated basis determined in accordance with GAAP, as shown on the most
recently available consolidated balance sheet of Borrower and its Subsidiaries.
"Total Debt" shall mean, at any date, the aggregate amount of
----------
Indebtedness of Borrower and its Consolidated Subsidiaries as of such date
determined on a consolidated basis in accordance with GAAP.
"Transaction Documents" shall mean each of this Agreement, the other
---------------------
Credit Documents, the Zeigler Acquisition Agreement, the Kindill Acquisition
Agreement, the Senior Credit Facility and each other document entered into in
order to consummate the Transactions, whether on, prior to or after the Closing
Date, and all documents related thereto and all exhibits, appendices, schedules
and annexes to any thereof.
"Transactions" shall mean the Contribution, the Tender Offer, the
------------
Zeigler Acquisition, borrowings under the Senior Credit Facility and the Bridge
Loan Agreement, the Kindill Acquisition, the borrowings hereunder on the Closing
Date and the other actions to be taken by the Companies pursuant to the Credit
Documents on the Closing Date or in connection with such borrowings.
"Triton" shall mean Triton Coal Company.
------
-27-
<PAGE>
"Triton Disposition" shall mean the Disposition of all or
------------------
substantially all of the Equity Interests or assets of Triton and its
Subsidiaries in one or more transactions.
"TVM" see Section 1.03.
---
"UCC" shall mean the Uniform Commercial Code as in effect in the
---
applicable state of jurisdiction.
"Unrestricted Subsidiary" shall mean any Subsidiary of Borrower, that,
-----------------------
at the time of determination, shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of Borrower, as provided below). The Board of
Directors of Borrower may designate any Subsidiary of Borrower (including any
newly acquired or newly formed Subsidiary at or prior to the time it is so
formed or acquired) to be an Unrestricted Subsidiary if (a) no Default is
existing or will occur as a consequence thereof, (b) such Subsidiary does not
own any Equity Interests of, or own or hold any Lien on any Property of, any
Company, (c) such Subsidiary and each of its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee,
or otherwise become directly or indirectly liable with respect any Indebtedness
pursuant to which the lender has recourse to any Property of any Company (except
that such Subsidiary and its Subsidiaries may become Guarantors if consented to
by Arranger), and (d) a default by such Person on any of its Indebtedness will
not result in, or permit any holder of Indebtedness of any Company to declare, a
default on such Indebtedness of any Company or cause the payment thereof to be
accelerated or payable prior to its stated maturity. Any Subsidiary of an
Unrestricted Subsidiary shall be an Unrestricted Subsidiary for purposes of this
Agreement. Each such designation shall be evidenced by filing with
Administrative Agent a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. Notwithstanding the foregoing, AEI and
its Subsidiaries shall be deemed to be Unrestricted Subsidiaries on and as of
the Closing Date.
"Voting Stock" of any Person as of any date means the Equity Interests
------------
of such Person that is at the time entitled to vote in the election of the Board
of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any
-----------------------
corporation, partnership or other entity of which all of the Equity Interests
(other than, in the case of a corporation, directors' qualifying shares or
nominee shares required under applicable law) are directly or indirectly owned
or controlled by such Person or one or more Wholly Owned Subsidiaries of such
Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person. Unless the context clearly requires otherwise, all references to any
Wholly Owned Subsidiary shall mean a Wholly Owned Subsidiary of Borrower.
"Wholly Owned Unrestricted Subsidiary" shall mean any Unrestricted
------------------------------------
Subsidiary of which all the Equity Interests (other than, in the case of a
corporation, directors' qualifying shares or nominee shares required under
applicable law) are directly or indirectly owned or controlled by Borrower or
one or more Wholly Owned Unrestricted Subsidiaries or by Borrower and one or
more Wholly Owned Unrestricted Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
--------------------
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Working Capital" shall mean an amount determined for Borrower and the
---------------
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP) equal to the sum of all current assets (other than cash)
less the sum of all current liabilities (other than the current portion of long-
term Indebtedness).
-28-
<PAGE>
"Zeigler" shall mean Zeigler Coal Holding Company, a Delaware
-------
corporation, and its Subsidiaries.
"Zeigler Acquisition" shall mean the acquisition of Zeigler pursuant
-------------------
to the Zeigler Acquisition Agreement.
"Zeigler Acquisition Agreement" shall mean the Agreement and Plan of
-----------------------------
Merger dated as of August 3, 1998 among Borrower, Zeigler Acquisition
Corporation and Zeigler.
1.02. Accounting Terms and Determinations. Except as otherwise
-----------------------------------
provided in this Agreement, all computations and determinations as to accounting
or financial matters shall be made in accordance with GAAP, and all accounting
or financial terms shall have the meanings ascribed to such terms by GAAP as in
effect on the date hereof. All financial statements to be delivered pursuant to
this Agreement shall be prepared in accordance with GAAP. All financial
covenants are to be calculated in accordance with GAAP as in effect on the date
hereof unless such modifications are agreed to by the parties hereto. If
Borrower or any Lender determines that a change in GAAP from that in effect on
the date hereof has altered the treatment of certain financial data to its
detriment under this Agreement, such party may by written notice to the others
and An-anger not later than ten days after the effective date of such change in
GAAP, request renegotiation of the financial covenants affected by such change.
If Borrower and the Majority Lenders have not agreed on revised covenants within
30 days after delivery of such notice, then, for purposes of this Agreement,
GAAP will mean generally accepted accounting principles on the date just prior
to the date on which the change that gave rise to the renegotiation occurred.
1.03. Types of Loans. Loans hereunder are distinguished by
--------------
"Type". The "Type" of a Loan refers to whether such Loan is an ABR Loan or a
----
LIBOR Loan, each of which constitutes a Type.
1.04. Rules of Construction. (a) In this Agreement and each other
---------------------
Credit Document, unless the context clearly requires otherwise (or such other
Credit Document clearly provides otherwise), references to (i) the plural
include the singular, the singular the plural and the part the whole; (ii)
Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; (iii) agreements (including this Agreement), promissory notes and
other contractual instruments include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
or other modifications thereto are not prohibited by their terms or the terms of
any Credit Document; (iv) statutes and related regulations include any
amendments of same and any successor statutes and regulations; and (v) time
shall be a reference to New York City time. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) In this Agreement and each other Credit Document, unless the
context clearly requires otherwise (or such other Credit Document clearly
provides otherwise), (i) "amend" shall mean "amend, restate, amend and restate,
-----
supplement or modify"; and "amended," "amending," and "amendment" shall have
------- -------- ---------
meanings correlative to the foregoing; (ii) in the computation of periods of
time from a specified date to a later specified date, "from" shall mean "from
----
and including"; "to" and "until" shall mean "to but excluding"; and "through"
-- ----- -------
shall mean "to and including"; (iii) "hereof," "herein" and "hereunder" (and
------ ------ ---------
similar terms) in this Agreement or any other Credit Document refer to this
Agreement or such other Credit Document, as the case may be, as a whole and not
to any particular provision of this Agreement or such other Credit Document;
(iv) "including" (and similar terms) shall mean "including without limitation"
---------
(and similarly for similar terms); (v) "or" has the inclusive meaning
represented by the phrase "and/or"; (vi) "satisfactory to" any Creditor shall
---------------
mean in form, scope and substance and on terms and conditions satisfactory to
such Creditor; (vii) references to "the date hereof" shall mean the date first
------
set forth above; and (viii) "asset" and "Property" shall have the same meaning
----- --------
and effect and refer to all tangible and intangible assets and property, whether
real, personal or mixed and of every type and description.
(c) In this Agreement unless the context clearly requires otherwise,
any reference to (i) an Annex, Exhibit or Schedule is to an Annex, Exhibit or
Schedule, as the case may be, attached to this Agreement and
-29-
<PAGE>
constituting a part hereof, and (ii) a Section or other subdivision is to a
Section or such other subdivision of this Agreement.
(d) No doctrine of construction of ambiguities in agreements or
instruments against the interests of the parry controlling the drafting thereof
shall apply to any Credit Document.
Section 2. Loans, Fees, Register, Prepayments and Replacement of
-----------------------------------------------------
Lenders.
- - -------
2.01. Initial Loans
-------------
(a) Initial Loans. Each Lender severally agrees, on the terms and
-------------
conditions of this Agreement, to make a single term loan (the "Initial Loan") to
------------
Borrower in Dollars on the Closing Date in an aggregate principal amount equal
to the Initial Loan Commitment of such Lender, such loan to be used to finance
the Transactions and to pay related fees and expenses. Each Initial Loan shall
be made by a Lender pro rata based on such Lenders Initial Loan Commitment
--- ----
Percentage. The aggregate sum of the amount of the Initial Loans made on the
Closing Date shall not exceed the Initial Loan Commitments or, with respect to
any Lender, its Initial Loan Commitment.
(b) Scheduled Payment of Initial Loan. Subject to Section 2.02,
---------------------------------
Borrower shall pay in full the outstanding amount of the Initial Loan and all
other Obligations owing hereunder no later than the Conversion Date.
(c) Borrowings. Borrower shall give Administrative Agent notice of
----------
each borrowing hereunder as provided in Section 4.05. The form of such notice
of borrowing shall be substantially in the form of Exhibit H. Not later than
---------
12:00 noon New York City time on the date specified for each borrowing
hereunder, each Lender shall make available the amount of the Initial Loan or
Initial Loans to be made by it on such date to Administrative Agent, at an
account specified by Administrative Agent maintained at the Principal Office, in
immediately available funds, for the account of Borrower. The amounts so
received by Administrative Agent shall, subject to the terms and conditions of
this Agreement, be made available to Borrower by depositing the same, in
immediately available funds, in an account of Borrower maintained with
Administrative Agent at the Principal Office designated by Borrower.
2.02. Term Loan
---------
(a) Term Loan Commitment. Subject to the terms and conditions of this
--------------------
Agreement and in reliance upon the representations and warranties of Borrower
herein set forth, the Lenders hereby severally agree, on the Conversion Date, if
the Initial Loans have not been repaid, to convert the then outstanding
principal amount of the Initial Notes into a term loan (the "Term Loan"), such
Term Loan to be in the aggregate principal amount of the then outstanding
principal amount of the Initial Notes. The Lenders' commitments to make the Term
Loan to Borrower pursuant to this Section 2.02(a) are herein called
individually, the "Term Loan Commitment" and collectively, the "Term Loan
-------------------- ---------
Commitments".
- - -----------
(b) Notice of Conversion/Borrowing. If Borrower has not repaid the
------------------------------
Initial Loan in full on or prior to the Conversion Date, then Borrower shall
convert the then outstanding principal amount of the Initial Notes into a Term
Loan under this Section 2.02. Borrower shall deliver to the Lenders a Notice of
Term Loan Conversion no later than 11:00 A.M., at least two Business Days in
advance of the Conversion Date. The Notice of Term Loan Conversion shall be
substantially in the form of Exhibit B hereto and shall specify the principal
amount of the Initial Notes outstanding on the Conversion Date to be converted
into a Term Loan.
(c) Making of Term Loan. Upon satisfaction or waiver of the
-------------------
conditions precedent specified in Section 7.03 hereof, each Lender shall extend
to Borrower the Term Loan to be issued on the Conversion Date by such Lender by
canceling on its records a corresponding principal amount of the Initial Notes
held by such Lender, which corresponding principal amount of the Initial Notes
shall be satisfied by the conversion into a Term Loan in accordance with this
Section 2.02.
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<PAGE>
(d) Maturity Date of Term Loan. The Term Loan shall mature and
--------------------------
Borrower shall pay in full the outstanding principal amount thereof and accrued
interest thereon on September 2, 2006 (the "Maturity Date").
-------------
2.03. [Reserved]
2.04. Termination of Initial Loan Commitments. The Initial Loan
---------------------------------------
Commitments shall be automatically and permanently terminated on October 15,
1998 if the Closing Date does not occur by said date.
2.05. Fees. (a) In the event the Initial Loan is converted into
----
the Term Loan pursuant to Section 2.02, Borrower shall pay to the Lenders, on
the Conversion Date, a fee equal to 2.75% of the initial principal amount of the
Tenn Loan.
(b) Borrower shall pay to the Agents for their own accounts, all fees
set forth in the Fee Letter.
2.06. Lending Offices. The Loans of each Type made by each Lender
---------------
shall be made and maintained at such Lenders Applicable Lending Office for Loans
of such Type.
2.07. Several Obligations of Lenders. The failure of any Lender
------------------------------
to make any Initial Loan to be made by it on the date specified therefor shall
not relieve any other Lender of its obligation to make its Initial Loan on such
date, but neither any Lender nor Administrative Agent shall be responsible for
the failure of any other Lender to make an Initial Loan to be made by such other
Lender, and (except as otherwise provided in Section 4.06) no Lender shall have
any obligation to Administrative Agent or any other Lender for the failure by
such Lender to make any Initial Loan required to be made by such Lender. Notes
representing the Term Loans (the "Term Loan Notes") shall be substantially in
---------------
the form of Exhibit A-2, dated the Conversion Date, payable to such Lender and
-----------
otherwise duly completed.
2.08. Notes, Register. (a) Borrower shall execute and deliver to
---------------
each Lender on the Closing Date which requests an Initial Note an Initial Note
dated the Closing Date substantially in the form of Exhibit A-1 to evidence the
-----------
portion of the Initial Loan made on such date by such Lender and with
appropriate insertions ("Original Initial Notes"). On each interest payment
----------------------
date prior to the Conversion Date on which Borrower elects to pay a PIK Interest
Amount pursuant to Section 3 (if and to the extent Borrower is permitted to pay
a PIK Interest Amount in lieu of cash), Borrower shall execute and deliver to
each Lender on such interest payment date a note dated such interest payment
date substantially in the form of Exhibit A-1 in a principal amount equal to
-----------
such Lender's pro rata portion of such PIK Interest Amount and with other
appropriate insertions (each a "Subsequent Initial Note" and, together with the
-----------------------
Original Initial Notes, the "Initial Notes"). A Subsequent Initial Note shall
-------------
bear interest at a rate per annum from the date of its issuance at the same rate
--- -----
per annum borne by all Initial Notes.
- - --- -----
Borrower shall execute and deliver to each Lender on the Conversion
Date which requests a Term Note, a Term Note dated the Conversion Date
substantially in the form of Exhibit A-2 to evidence the Term Loan made on such
-----------
date, in the principal amount of the Initial Notes held by such Lender on such
date and with other appropriate insertions (collectively, the "Original Term
-------------
Notes"). On or after the Conversion Date, on each interest payment date on
- - -----
which Borrower elects to pay a PIK Interest Amount pursuant to Section 3 (if and
to the extent Borrower is permitted to pay a PIK Interest Amount in lieu of
cash), Borrower shall execute and deliver to each Lender on such interest
payment date a note dated such interest payment date substantially in the form
of Exhibit A-2 in a principal amount equal to such Lender's pro rata portion of
----------- --- ----
such PIK Interest Amount and with other appropriate insertions (each a
"Subsequent Term Note" and, together with the Original Term Notes, the "Term
-------------------- ----
Notes"). A Subsequent Tenn Note shall bear interest at the same rate borne by
- - -----
all Term Notes.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Lender to Borrower, and each
payment made on account of the principal thereof, shall be recorded by such
Lender on its books and, prior to any transfer of any Note evidencing the Loans
held by it, endorsed by such Lender on the schedule attached to such Note or any
continuation thereof; provided, however, that the failure of such
-------- -------
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<PAGE>
Lender to make any such recordation or endorsement shall not affect the
obligations of Borrower to make a payment when due of any amount owing hereunder
or under such Note.
(c) Borrower hereby designates Administrative Agent to serve as its
agent, solely for purposes of this Section 2.08, to maintain a register (the
"Register") on which it will record the name and address of each Lender, the
--------
Commitment from time to time of each of the Lenders, the principal amount of the
Initial Loans made by each of the Lenders and each repayment in respect of the
principal amount of the Loans of each Lender. Failure to make any such
recordation or any error in such recordation shall not affect Borrower's
obligations in respect of such Initial Loans. The entries in the Register shall
be prima facie evidence of Borrower's Loans, and Borrower, Administrative Agent
and the Lenders shall treat each Person whose name is recorded in the Register
as the owner of an Initial Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Credit Documents,
notwithstanding any notice to the contrary. The Register shall be available for
inspection by Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
2.09. Optional Prepayment
-------------------
(a) Optional Prepayments of Initial Loan. Subject to Section 4.04,
------------------------------------
Borrower shall have the right to prepay Initial Loans, or to Convert Loans of
one Type into Loans of another Type or to Continue Loans of one Type as Loans of
the same Type, at any time or from time to time to be applied as specified by
Borrower; provided, however, that: (a) Borrower shall give Administrative Agent
--------
notice of each such prepayment, Conversion or Continuation as provided in
Section 4.05 (and, upon the date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable hereunder); (b) if LIBOR Loans
are prepaid or Converted other than on the last day of an Interest Period for
such Loans, Borrower shall at such time pay all expenses and costs required by
Section 5.05. Each notice of Conversion or Continuation shall be substantially
in the form of Exhibit I.
---------
Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10, in the event that any Event of Default
shall have occurred and be continuing, Administrative Agent may (and at the
request of the Majority Lenders shall) suspend the right of Borrower to Convert
any Loan into a LIBOR Loan, or to Continue any Loan as a LIBOR Loan, in which
event all Loans shall be Converted (on the last day(s) of the respective
Interest Periods therefor) or Continued, as the case may be, as ABR Loans.
(b) Optional Prepayments of Term Loan.
---------------------------------
(1) Optional Prepayment. Except as provided in this Section
-------------------
2.09(b)(1), Borrower may not prepay the Term Loan prior to September 1, 2003.
Borrower may, upon not less than 20 Business Days' prior written or telephonic
notice confirmed in writing to the An-anger at any time and from time to time,
on and after September 1, 2003, prepay the Term Loan, in whole or in part, in an
aggregate minimum amount of $500,000 and integral multiples of $100,000 in
excess of such amount, at 100% of the principal amount thereof, plus a premium
equal to, for each Lender, the interest rate in effect on such Lender's portion
of the Tenn Loan on the date notice of prepayment is given multiplied by the
following factor plus accrued and unpaid interest thereon, if any, to the date
of prepayment if prepaid during the twelve-month period commencing on September
I of the year set forth below:
YEAR PREMIUM FACTOR
2001 1/2
2002 1/3
2003 1/6
2004 and thereafter 0
(2) Optional Prepayment upon Public Equity Offering. Notwithstanding
-----------------------------------------------
the foregoing, at any time on or before September 1, 2001, Borrower may prepay
up to an aggregate principal amount of the Term Loan equal to 35% of the
aggregate principal amount of the Term Loan outstanding on the Conversion Date
at a prepayment price equal to the principal amount of the Term Loan so prepaid,
plus a premium equal to, for each Lender, the rate
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<PAGE>
of interest in effect on such Lenders portion of the Term Loan on the date
notice of prepayment is given, plus accrued and unpaid interest thereon, if any,
to the prepayment date with the net cash proceeds of an initial public offering
of common stock of the Company; provided, however, that at least an aggregate
-------- -------
principal amount of the Term Loan equal to 65% of the aggregate principal amount
of the Term Loan outstanding on the Conversion Date would remain outstanding
immediately after giving effect to any such prepayment (excluding any Term Loan
owned by Borrower or any of its Affiliates) and provided, further, that such
redemption shall occur within 45 days of the date of the closing of such initial
public offering.
(3) Pro Rata Prepayment Under Senior Subordinated Indenture. If any
-------------------------------------------------------
Exchange Notes are outstanding, any prepayment pursuant to Section 2.09(b)(1) or
(2) shall be made pro rata with an optional redemption of Exchange Notes under
--- ----
the Senior Subordinated Indenture.
2.10. Mandatory Prepayments. Borrower shall prepay the Initial Loans
---------------------
or Term Loans as follows:
(i) Mandatory Prepayment of Initial Loan upon Equity Issuance. To
---------------------------------------------------------
the extent allowed under, and to the extent funds remain available after
prepayment of, the Senior Credit Facility, upon any Equity Issuance after
the Closing Date, the Initial Loan shall be prepaid in an aggregate
principal amount equal to 50% of the Net Available Proceeds of such Equity
Issuance. Upon the request of the Administrative Agent on behalf of the
Majority Lenders, Borrower shall apply such Net Available Proceeds to the
prepayment of Indebtedness outstanding under the Holding Bridge Loan
Agreement.
(ii) Mandatory Prepayment of Initial Loan upon Debt Issuance. To
-------------------------------------------------------
the extent allowed under, and to the extent funds remain available after
prepayment of, the Senior Credit Facility, upon any Debt Issuance after the
Closing Date, the Initial Loan shall be prepaid in an aggregate principal
amount equal to 100% of the Net Available Proceeds of such Debt Issuance.
Upon the request of the Administrative Agent on behalf of the Majority
Lenders, Borrower shall apply such Net Available Proceeds to the prepayment
of Indebtedness outstanding under the Holding Bridge Loan Agreement.
(iii) Mandatory Offer to Purchase Initial Notes or Term Notes on
----------------------------------------------------------
Change of Control. (1) Following the occurrence of a Change of Control
-----------------
(the date of such occurrence being the "Change of Control Date"), Borrower
----------------------
shall notify the Arranger and the Lenders of such occurrence in the manner
prescribed by this Agreement and shall, within 20 days after the Change of
Control Date, make an Offer to Purchase all Initial Notes or Term Notes
then outstanding, as the case may be, at a purchase price in cash equal to
10 1% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date. Borrowers obligations may
be satisfied if a third parry makes the Offer to Purchase in the manner, at
the times and otherwise in compliance with the requirements of this
Agreement applicable to an Offer to Purchase made by Borrower and purchases
all Initial Notes or Term Notes validly tendered and not withdrawn under
such Offer to Purchase. Each Lender shall be entitled to tender all or any
portion of the Initial Notes or Term Notes owned by such Lender pursuant to
the Offer to Purchase, subject to the requirement that any portion of an
Initial Note or a Term Note tendered must be tendered in an integral
multiple of $1,000 principal amount.
(2) On or prior to the Purchase Date specified in the Offer to
Purchase, Borrower shall (i) accept for payment all Initial Notes or Term
Notes or portions thereof validly tendered pursuant to the Offer to
Purchase, (ii) deposit with the Arranger money sufficient to pay the
Purchase Price of all Initial Notes or Term Notes or portions thereof so
accepted and (iii) deliver or cause to be delivered to the Arranger for
cancellation all Term Notes so accepted together with an Officers'
Certificate stating the Initial Notes or Term Notes or portions thereof
accepted for payment by Borrower. The Arranger shall promptly mail or
deliver to Lenders whose Initial Notes or Term Notes are so accepted
payment in an amount equal to the Purchase Price for such Initial Notes or
Initial Notes or Term Notes, and the Arranger shall promptly authenticate
and mail or deliver to each Lender a new Initial Notes or Tenn Note or Term
Notes equal in principal amount to any unpurchased portion of the Initial
Notes or Term Note surrendered as requested by the Lender. Any Initial
Notes or Term Note not accepted for payment shall be promptly mailed or
delivered by Borrower to the Lender thereof.
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<PAGE>
Borrower shall publicly announce the results of the Offer to Purchase on or
as soon as practicable after the Purchase Date.
(iv) Mandatory Offer to Purchase Initial Notes and Term Notes on Asset
-----------------------------------------------------------------
Sale. Borrower shall, within 20 days after each Trigger Date, make an
----
Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to the Note Portion of
Unutilized Net Cash Proceeds. Such Offer to Purchase shall be made at a
purchase price in cash equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the Purchase Date;
provided, however, that the Offer to Purchase may be deferred until there
-------- -------
are aggregate Unutilized Net Cash Proceeds equal to or in excess of $15.0
million, at which time the entire amount of such Unutilized Net Cash
Proceeds, and not just the amount in excess of $15.0 million, shall be
applied as required pursuant to this paragraph.
In the event that any other Indebtedness of Borrower which ranks pari
----
passu with the Securities (the "Other Indebtedness") requires that an offer
----- ------------------
to purchase to be made to repurchase such Other Indebtedness upon the
consummation of any Asset Sale, Borrower may apply the Unutilized Net Cash
Proceeds otherwise required to be applied to an Offer to Purchase to offer
to purchase such Other Indebtedness and to an Offer to Purchase so long as
the amount of such Unutilized Net Cash Proceeds applied to repurchase the
Notes is not less than the Note Portion of Unutilized Net Cash Proceeds.
With respect to any Unutilized Net Cash Proceeds, Borrower shall make the
Offer to Purchase in respect thereof at the same time as the analogous
offer to purchase is made under the Senior Subordinated Indenture and
pursuant to any Other Indebtedness and the Purchase Date in respect thereof
shall be the same as the purchase date in respect thereof pursuant to the
Senior Subordinated Indenture and pursuant to any Other Indebtedness.
For purposes of this Section 2.10(iii), "Note Portion of Unutilized
--------------------------
Net Cash Proceeds" means the amount of the Unutilized Net Cash Proceeds
-----------------
equal to the product of (x) the Unutilized Net Cash Proceeds and (y) a
fraction the numerator of which is the principal amount of all Notes
tendered pursuant to the Offer to Purchase related to such Unutilized Net
Cash Proceeds (the "Note Amount") and the denominator of which is the sum
of the Note Amount and the lesser of the aggregate principal face amount or
accreted value as of the relevant purchase date of all Other Indebtedness
tendered pursuant to a concurrent offer to purchase such Other Indebtedness
made at the time of such Offer to Purchase.
With respect to any Offer to Purchase effected pursuant to this
Section 2.10(iii), as among the Term Notes, to the extent that the
principal amount of the Notes tendered pursuant to such Offer to Purchase
exceeds the Note Portion of Unutilized Net Cash Proceeds with respect
thereto, such Notes shall be purchased pro rata based on the principal
---------
amount of such Term Notes tendered by each Lender.
Each Lender shall be entitled to tender all or any portion of the
Notes owned by such Lender pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Note tendered must be tendered in an
integral multiple of $1,000 principal amount and subject to any proration
among tendering Lenders as described above.
2.11. Replacement of Lenders. Borrower shall have the right, if no
----------------------
Default then exists, to replace any Lender (the "Replaced Lender") with one
---------------
or more other Eligible Persons reasonably acceptable to Arranger
(collectively, the "Replacement Lender") if (x) such Lender is charging
------------------
Borrower increased costs pursuant to Section 5.01 or 5.06 in excess of
those being charged generally by the other Lenders or such Lender becomes
incapable of making LIBOR Loans as provided in Section 5.03 and/or (y) as
provided in Section 12.04(ii), such Lender refuses to consent to certain
proposed amendments, waivers or modifications with respect to this
Agreement; provided, however, that (i) at the time of any replacement
-------- -------
pursuant to this Section 2.11, the Replacement Lender shall enter into one
or more assignment agreements (and with all fees payable pursuant to said
Section 12.06 to be paid by the Replacement Lender) pursuant to which the
Replacement Lender shall acquire all of the Commitments and outstanding
Loans of the Replaced Lender and, in connection therewith, shall pay to the
Replaced Lender, an amount equal to the sum of (A) the principal of, and
all accrued interest on, all outstanding Loans of the Replaced Lender and
(B) all accrued, but
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<PAGE>
theretofore unpaid, fees owing to the Replaced Lender pursuant to Section
2.05, and (ii) all obligations of Borrower owing to the Replaced Lender
(other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being,
paid, but including any amounts which would be paid to a Lender pursuant to
Section 5.05 if Borrower were prepaying a LIBOR Loan) shall be paid in full
to such Replaced Lender concurrently with such replacement. Upon the
execution of the respective assignment agreement, the payment of amounts
referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of Notes executed by
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder and be
released of all its obligations as a Lender, except with respect to
indemnification provisions applicable to the Replaced Lender under this
Agreement, which shall survive as to such Replaced Lender.
Section 3. Interest.
--------
(a) (i)The Loans shall bear interest on the unpaid principal amount
thereof from the Closing Date through maturity (whether by prepayment,
acceleration or otherwise) for each Monthly Period (or part thereof) at a rate
per annum equal to the lesser of (x) (A) during such periods as the Loans are
- - --- -----
LIBOR Loans, the LIBOR Rate for such period plus the Applicable Spread or (B)
----
during such periods as the Loans are ABR Loans, the Alternate Base Rate (as in
effect from time to time) plus the Applicable Spread or (y) 16.00%.
----
(ii) At any time after the Conversion Date, at the request of any
Lender, all or any portion of the Term Loan owing to such Lender shall bear
interest at a fixed rate per annum equal to the then effective yield on
--- -----
U.S. Treasury securities having ten-year maturities plus 7.00%, effective
for such portion so elected by such Lender from and after the first
interest payment date with respect to such Term Loan after such notice;
provided, however, that no such conversion shall be permitted in respect of
-------- -------
amounts to be voluntarily prepaid following receipt of a notice of
prepayment pursuant to Section 2.09. In order to request the conversion of
such portion of the Term Loan to a fixed rate loan, the Lender shall notify
the Arranger in writing (the date of such notice, the "Notice Date") of its
-----------
intention to do so at least five Business Days and not greater than 10
Business Days prior to the next succeeding interest payment date indicating
the amount of the Term Loan for which it is requesting conversion to a
fixed rate Term Loan, and the Arranger shall so notify Borrower at least
two Business Days prior to such next succeeding interest payment date.
Upon the conversion of a portion of a Term Loan to a fixed rate Term Loan
an appropriate notation will be made on the Term Note and, on and after the
first interest payment date following the receipt by Borrower of a notice
hereunder, such portion of the Term Loan which is converted to a fixed rate
Term Loan (and any Exchange Note issued in respect thereof) shall bear
interest at the rate in effect on the applicable Notice Date until repaid.
(b) Interest shall be payable quarterly in arrears on each March 31,
June 30, September 30 and December 31 of each year, commencing on December 31,
1998, upon any prepayment of the Loans (to the extent accrued on the amount
being prepaid) and at maturity.
If, on any interest payment date, the interest accrued for the period
prior to such interest payment date exceeds the amount that would have accrued
at 14.00%, Borrower may pay all or a portion of the interest payable in excess
of the amount of interest that would be payable on such date at 14.00% by
issuance of Subsequent Initial Notes or Subsequent Term Notes, as the case may
be, in an aggregate principal amount equal to the amount of such interest being
so paid in Subsequent Initial Notes or Subsequent Term Notes (the "PIK Interest
------------
Amount"); provided, however, that any accrued interest unpaid on the due date of
- - ------ -------- -------
the payment of principal of any Loan shall be paid solely in cash on the
principal so due.
Section 4. Payments, Pro Rata Treatment; Computations; Etc.
-----------------------------------------------
4.01. Payments. (a) Except to the extent otherwise provided
--------
herein, all payments of principal, interest and other amounts to be made by
Borrower under this Agreement, and, except to the extent otherwise provided
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<PAGE>
therein, all payments to be made by the Obligors under any other Credit
Document, shall be made in Dollars, in immediately available funds, without
deduction, set-off or counterclaim, to Administrative Agent at its account at
the Principal Office, not later than 1:00 p.m. New York City time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).
(b) Borrower shall, at the time of making each payment under this
Agreement for the account of any Lender, specify to Administrative Agent (which
shall so notify the intended recipient(s) thereof) the Loans, Reimbursement
Obligations or other amounts payable by Borrower hereunder to which such payment
is to be applied (and in the event that Borrower fails to so specify, or if an
Event of Default has occurred and is continuing, Administrative Agent may
distribute such payment to the Lenders for application in such manner as it or
the Majority Lenders, subject to Section 4.02, may determine to be appropriate).
(c) Except to the extent otherwise provided in the second sentence of
Section 2.03(g), each payment received by Administrative Agent under this
Agreement or any Note for the account of any Lender shall be paid by
Administrative Agent to such Lender, in immediately available funds, (x) if the
payment was actually received by Administrative Agent prior to 1:00 p.m. (New
York City time) on any day, on such day and (y) if the payment was actually
received by Administrative Agent after 1:00 p.m. (New York City time) on any
day, on the following Business Day (it being understood that to the extent that
any such payment is not made in full by Administrative Agent, Administrative
Agent shall pay to such Lender, upon demand, interest at the Federal Funds Rate
from the date such amount was required to be paid to such Lender pursuant to the
foregoing clauses until the date Administrative Agent pays such Lender the
amount).
(d) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02. [Reserved].
4.03. Computation. Interest on LIBOR Loans shall be computed on the
-----------
basis of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable and interest
on ABR Loans shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which payable. Notwithstanding the
foregoing, for each day that the Alternate Base Rate is calculated by reference
to the Federal Funds Rate, interest on ABR Loans shall be computed on the basis
of a year of 360 days and actual days elapsed (including the first day but
excluding- the last day).
4.04. Minimum Amounts. Except for mandatory prepayments made
---------------
pursuant to Section 2. 10 and Conversions or prepayments made pursuant to
Section 5.04, each borrowing, Conversion and prepayment of principal of Loans
shall be in an amount at least equal to $1.0 million with respect to ABR Loans
and $1.0 million with respect to LIBOR Loans and in multiples of $100,000 in
excess thereof (borrowings, Conversions or prepayments of or into Loans of
different Types or, in the case of LIBOR Loans, having different Interest
Periods at the same time hereunder to be deemed separate borrowings, Conversions
and prepayments for purposes of the foregoing, one for each Type or Interest
Period). Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBOR Loans having the same Interest Period shall
be in an amount at least equal to $1.0 million and in multiples of $100,000 in
excess thereof and, if any LIBOR Loans or portions thereof would otherwise be in
a lesser principal amount for any period, such Loans or portions, as the case
may be, shall be ABR Loans during such period.
4.05. Certain Notices. Notices by Borrower to Administrative Agent
---------------
of terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans and of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by Administrative Agent not later than 11:00 a.m. New York City time on
the number of Business Days prior to the date
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<PAGE>
of the relevant termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified in the table
below.
NOTICE PERIODS
Notice Number of Business Days Prior
- - ------ -----------------------------
Termination or reduction of Commitments 2
Borrowing or optional prepayment of ABR Loans 1
Borrowing or optional prepayment of Conversions
into or Continuations as LIBOR Loans 3
Each such notice of termination or reduction shall specify the amount
of the Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Type of each Loan to be
borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion,
Continuation or prepayment (which shall be a Business Day). Administrative Agent
shall promptly notify the Lenders of the contents of each such notice. In the
event that Borrower fails to select the Type of Loan within the time period and
otherwise as provided in this Section 4.05, such Loan (if outstanding as a LIBOR
Loan) will be automatically Converted into a LIBOR Loan or (if outstanding as an
ABR Loan) will remain as, or (if not then outstanding) will be made as, an ABR
Loan.
4.06. Non-Receipt of Funds by Administrative Agent. Unless
--------------------------------------------
Administrative Agent shall have received written notice from a Lender or
Borrower (the "Payor")prior to the date on which the Payor is to make payment to
-----
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or a payment to Administrative Agent for the
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
----------------
that the Payor does not intend to make the Required Payment to Administrative
Agent, Administrative Agent may assume that the Required Payment has been made
and may, in reliance upon such assumption (but shall not be required to), make
the amount thereof available to the intended recipient(s) on such date; and, if
the Payor has not in fact made the Required Payment to Administrative Agent, the
recipient(s) of such payment shall, on demand, repay to Administrative Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "Advance Date") such amount was so
------------
made available by Administrative Agent until the date Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
--- -----
such day and, if such recipient(s) shall fail promptly to make such payment,
Administrative Agent shall be entitled to recover such amount, on demand, from
the Payor, together with interest as aforesaid; provided, however, that if
-------- -------
neither the recipient(s) nor the Payor shall return the Required Payment to
Administrative Agent within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s) shall each be
obligated to pay interest on the Required Payment as follows (without double
recovery):
(i) if the Required Payment shall represent a payment to be made by
Borrower to the Lenders, Borrower and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate set forth in Section 3.02(b) (without
duplication of the obligation of Borrower under Section 3.02 to pay
interest on the Required Payment at the rate set forth in Section 3.02(b)),
it being understood that the return by the recipient(s) of the Required
Payment to Administrative Agent shall not limit such obligation of Borrower
under Section 3.02 to pay interest at the rate set forth in Section 3.02(b)
in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan to be
made by the Lenders to Borrower, the Payor and Borrower shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment pursuant to Section 3.02, it being understood that the
return by Borrower
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<PAGE>
of the Required Payment to Administrative Agent shall not limit any claim
Borrower may have against the Payor in respect of such Required Payment.
4.07. Right of Setoff, Sharing of Payments, Etc. (a) If any Event
-----------------------------------------
of Default shall have occurred and be continuing, each Obligor agrees that, in
addition to (and without limitation of) any right of setoff, banker's lien or
counterclaim a Lender may otherwise have, each Lender shall be entitled, at its
option (to the fullest extent permitted by law), to set off and apply any
deposit (general or special, time or demand, provisional or final), or other
indebtedness, held by it for the credit or account of such Obligor at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Loans or any other amount payable to such
Lender hereunder that is not paid when due (regardless of whether such deposit
or other indebtedness is then due to such Obligor), in which case it shall
promptly notify such Obligor and Administrative Agent thereof; provided,
--------
however, that such Lenders failure to give such notice shall not affect the
- - -------
validity thereof.
(b) Each of the Lenders agrees that, if it should receive (other than
pursuant to Section 5) any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under the
Credit Documents, or otherwise) which is applicable to the payment of the
principal of, or interest on, the Loans or fees, of a sum which with respect to
the related sum or sums received by other Lenders is in a greater proportion
than the total of such amounts then owed and due to such Lender bears to the
total of such amounts then owed and due to all of the Lenders immediately prior
to such receipt, then such Lender receiving such excess payment shall purchase
for cash without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Obligor to such Lenders in such amount as shall
result in a proportional participation by all of the Lenders in such amount;
provided, however, that if all or any portion of such excess amount is
- - -------- -------
thereafter recovered from such Lender, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
Borrower consents to the foregoing arrangements.
(c) Borrower agrees that any Lender so purchasing such a participation
may exercise all rights of setoff, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans or other amounts (as the case may be) owing to such Lender in
the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
---------------------
5.01. Additional Costs. (a) If the adoption of, or any change in,
----------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority or the
NAIC made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any LIBOR Loan made by it or change
the basis of taxation of payments to such Lender in respect thereof by any
Governmental Authority (except for taxes covered by Section 5.06 and
changes in the rate of tax on the overall net income of such Lender or its
Applicable Lending Office, or any affiliate thereof or franchise tax by any
Governmental Authority);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans
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<PAGE>
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender any other condition (excluding
taxes);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining LIBOR Loans or issuing or participating in Letters of
Credit or to reduce any amount receivable hereunder in respect thereof then, in
any such case, Borrower shall promptly pay such Lender, upon its demand, any
additional amounts necessary to compensate such Lender for such increased cost
or reduced amount receivable. If any Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly notify
Borrower, through Administrative Agent, of the event by reason of which it has
become so entitled. A certificate as to any additional amounts setting forth
the calculation of such additional amounts pursuant to this Section 5.01
submitted by such Lender, through Administrative Agent, to Borrower shall be
conclusive in the absence of clearly demonstrable error.
Without limiting the survival of any other covenant hereunder, this Section 5.01
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
(b) In the event that any Lender shall have determined that the
adoption of any law, rule, regulation or guideline regarding capital adequacy
(or any change therein or in the interpretation or application thereof) or
compliance by any Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or Governmental Authority or the NAIC, in each
case, made subsequent to the date hereof including, without limitation, the
issuance of any final rule, regulation or guideline, does or shall have the
effect of reducing the rate of return on such Lenders or such corporation's
capital as a consequence of its obligations hereunder to a level below that
which such Lender or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after submission by such
Lender to Borrower (with a copy to Administrative Agent) of a written request
therefor, Borrower shall promptly pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
5.02. Limitation on Types of Loans. Anything herein to the
----------------------------
contrary notwithstanding, if, on or prior to the determination of any LIBOR Base
Rate for any Interest Period:
(i) Administrative Agent determines, which determination shall be
conclusive, absent manifest error, that quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR Base Rate" in
Section 1.0 1 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for LIBOR
Loans as provided herein; or
(ii) the Majority Lenders determine, which determination shall be
conclusive, that the relevant rates of interest referred to in the
definition of "LIBOR Base Rate" in Section 1.01 upon the basis of which the
rate of interest for LIBOR Loans for such Interest Period is to be
determined are not likely adequate to cover the cost to the applicable
Lenders of making or maintaining LIBOR Loans for such Interest Period,
then Administrative Agent shall give Borrower and each Lender prompt notice
thereof, and so long as such condition remains in effect, the affected Lenders
shall be under no obligation to make additional LIBOR Loans, to Continue LIBOR
Loans or to Convert ABR Loans into LIBOR Loans and Borrower shall, on the last
day(s) of the then current Interest Period(s) for the outstanding LE30R Loans,
either prepay such Loans or Convert such Loans into ABR Loans in accordance with
Section 2.09.
5.03. Breakage and Illegality. Notwithstanding any other
-----------------------
provision of this Agreement, in the event that any change in any Requirement of
Law or in the interpretation or application thereof shall make it unlawful for
any Lender or its Applicable Lending Office to honor its obligation to make or
maintain LIBOR Loans hereunder
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<PAGE>
(and, in the sole opinion of such Lender, the designation of a different
Applicable Lending Office would either not avoid such unlawfulness or would be
disadvantageous to such Lender), then such Lender shall promptly notify Borrower
thereof (with a copy to Administrative Agent) and such Lender's obligation to
make or Continue, or to Convert Loans of any other Type into, LIBOR Loans shall
be suspended until such time as such Lender may again make and maintain LIBOR
Loans (in which case the provisions of Section 5.04 shall be applicable).
5.04. Treatment of Affected Loans. If the obligation of any
---------------------------
Lender to make LIBOR Loans or to Continue, or to Convert ABR Loans into, LIBOR
Loans shall be suspended pursuant to Section 5.03, such Lender's LIBOR Loans
shall be automatically Converted into ABR Loans on the last day(s) of the then
current Interest Period(s) for such LIBOR Loans (or on such earlier date as such
Lender may specify to Borrower with a copy to Administrative Agent as is
required by law) and, unless and until such Lender gives notice as provided
below that the circumstances specified in Section 5.03 which gave rise to such
Conversion no longer exist:
(i) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal which would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its ABR
Loans; and
(ii) all Loans which would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as ABR Loans and
all ABR Loans of such Lender which would otherwise be Converted into LIBOR
Loans shall remain as ABR Loans.
If such Lender gives notice to Borrower with a copy to Administrative Agent that
the circumstances specified in Section 5.03 which gave rise to the Conversion of
such Lender's LIBOR Loans pursuant to this Section 5.04 no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when LIBOR Loans are outstanding, such Lender's ABR Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding LIBOR Loans, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans
and by such Lender are held pro rata (as to principal amounts, Types and
--- ----
Interest Periods) in accordance with their respective Commitments.
5.05. Compensation. (a) Borrower agrees to indemnify each Lender
------------
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (1) default by Borrower in payment when due
of the principal amount of or interest on any LIBOR Loan, (2) default by
Borrower in making a borrowing of, Conversion into or Continuation of LIBOR
Loans after Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (3) default by Borrower in making any
prepayment after Borrower has given a notice thereof in accordance with the
provisions of the Agreement, or (4) the making of a payment or a prepayment of
LIBOR Loans on a day which is not the last day of an Interest Period with
respect thereto, including in each case, any such loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
(b) For the purpose of calculation of all amounts payable to a Lender
under this Section 5.05 each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of the LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
-------- -------
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. Any Lender requesting compensation pursuant to
this Section 5.05 will furnish to Administrative Agent and Borrower a
certificate setting forth the basis and amount of such request and such
certificate, absent manifest effort, shall be conclusive. Without limiting the
survival of any other covenant hereunder, this covenant shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
5.06. Net Payments. (a) All payments made by Borrower or any
------------
Guarantor hereunder or under any Note or any Guarantee will be made without
setoff, counterclaim or other defense. Except as provided in Section 5.06(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed
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<PAGE>
by any Governmental Authority or by any political subdivision or taxing
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Lender pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or Applicable Lending Office of such Lender is located or any
jurisdiction in which such Lender conducts business or any subdivision thereof
or therein) and all interest, penalties or similar liabilities with respect
thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges being referred to collectively as "Covered Taxes"). If any
-------------
Covered Taxes are so levied or imposed, Borrower and each Guarantor, as the case
may be, agrees to pay the full amount of such Covered Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement, the Guarantees or under any Note, after withholding or deduction for
or on account of any Covered Taxes, will not be less than the amount provided
for herein or in such Note. If any amounts are payable in respect of Covered
Taxes pursuant to the preceding sentence, Borrower and each Guarantor agrees on
a joint and several basis to reimburse each Lender, upon the written request of
such Lender, (i) for taxes imposed on or measured by the net income or net
profits of such Lender pursuant to the laws of the jurisdiction in which such
Lender is organized or in which the principal office or Applicable Lending
Office of such Lender is located or under the laws of any political subdivision
or taxing authority of any such jurisdiction by reason of the making of payments
in respect of Covered Taxes pursuant to this Section (including pursuant to this
sentence) and (ii) for any withholding of taxes as such Lender shall determine
are payable by, or withheld from, such Lender in respect of amounts paid in
respect of Covered Taxes to or on behalf of such Lender pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Lender pursuant to this sentence. Borrower and each Guarantor, as the case may
be, will furnish to Administrative Agent within 45 days after the date the
payment of any Covered Taxes is due pursuant to applicable law certified copies
of tax receipts evidencing such payment by Borrower or any Guarantor. Borrower
and the Guarantors agree to jointly and severally indemnify and hold harmless
each Lender, and reimburse such Lender upon its written request, for the amount
of any Covered Taxes so levied or imposed and paid by such Lender and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) (a "Non-U.S. Lender") agrees to
---------------
deliver to Borrower and Administrative Agent on or prior to the Closing Date or,
in the case of a Lender that is an assignee or transferee of an interest under
this Agreement pursuant to Section 12.06 (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 100 1
(or successor forms) certifying to such Lenders entitlement to a complete
exemption from, or reduction in rate of, United States withholding tax with
respect to payments to be made under this Agreement and under any Note (or, with
respect to any assignee Lender, at least as extensive as the assigning Lender),
or (ii) if the Lender is not a "bank" within the meaning of Section 88
I(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form
1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in
the form of Exhibit K (any such certificate, a "Section 5.06 Certificate") and
------------------------
(y) two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Lender's entitlement to a
complete exemption from, or reduction in rate of, United States withholding tax
with respect to payments to be made under this Agreement and under any Note (or,
with respect to any assignee Lender, at least as extensive as the assigning
Lender). In addition, each Lender agrees that from time to time after the
Closing Date, when a lapse in time or change in circumstances renders the
previous certification obsolete or inaccurate in any material respect, it will
deliver to Borrower and Administrative Agent two new accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 100 1, or Form
W-8 and a Section 5.06 Certificate, as the case may be, and such other forms as
may be required in order to confirm or establish the entitlement of such Lender
to a continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement and any Note, or it shall immediately
notify Borrower and Administrative Agent of its inability to deliver any such
Form or Certificate, in which case such Lender shall not be required to deliver
any such form or certificate pursuant to this Section 5.06(b). Notwithstanding
the foregoing, no Lender shall be required to deliver any such form or
certificate if a change in treaty, law or regulation has occurred prior to the
date on which such delivery would otherwise be required that renders any such
form or certificate inapplicable or would prevent the Lender from duly
completing and delivering any such form or certificate with respect to it and
such Lender so advises Borrower. Borrower shall not be required to indemnify any
Non-U.S. Lender, or to pay any additional amounts to any Non-U.S.
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<PAGE>
Lender, in respect of U.S. Federal withholding tax pursuant to paragraph (a)
above to the extent that (i) the obligation to withhold amounts with respect to
U.S. Federal withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement; provided, however, that this clause (i) shall not apply
-------- -------
to the extent that (x) the indemnity payments or additional amounts any Lender
would be entitled to receive (without regard to this clause (i)) do not exceed
the indemnity payments or additional amounts that the Person making the
assignment or transfer to such Lender would have been entitled to receive in the
absence of such assignment or transfer, or (y) such assignment or transfer had
been requested by Borrower, or (ii) the obligation to pay such additional
amounts would not have arisen but for a failure by such Non-U.S. Lender to
comply with the provisions of this Section 5.06(b). Notwithstanding anything to
the contrary contained in the preceding sentence or elsewhere in this Section
5.06 and except as set forth in Section 12.06(b), Borrower agrees to pay
additional amounts and to indemnify each Lender in the manner set forth in
Section 5.06(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or withheld by
it as described in the immediately preceding sentence as a result of any changes
after the Closing Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of income or similar Covered Taxes.
(c) In addition, Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Note or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
-----------
Section 6. Guarantee.
---------
6.01. The Guarantee. The Guarantors hereby jointly and severally
-------------
guarantee as a primary obligor and not as a surety to each Lender and Agent and
their respective successors and assigns the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the principal of
and interest (including any interest that would accrue but for the provisions of
the Bankruptcy Code after any bankruptcy or insolvency petition under the
Bankruptcy Code) on the Loans made by the Lenders to, and the Notes held by each
Lender of, Borrower and all other Obligations from time to time owing to the
Lenders or Agents by Borrower under this Agreement and under the Notes and by
any Obligor under any of the other Credit Documents, in each case strictly in
accordance with the terms thereof (such obligations being herein collectively
called the "Guaranteed Obligations"). The Guarantors hereby jointly and
----------------------
severally agree that if Borrower shall fail to pay in full when due (whether at
stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02. Obligations Unconditional. The obligations of the
-------------------------
Guarantors under Section 6.01 are absolute, irrevocable and unconditional, joint
and several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Guarantor (except for payment in full). Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Guarantors hereunder which shall
remain absolute, irrevocable and unconditional under any and all circumstances
as described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
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<PAGE>
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be amended in any
respect, or any right under this Agreement, the Notes or any other Credit
Document or any other agreement or instrument referred to herein or therein
shall be amended or waived in any respect or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(iv) the release of any other Guarantor.
The Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that any
Agent or any Lender exhaust any right, power or remedy or proceed against
Borrower under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Guaranteed Obligations. The
Guarantors waive any and all notice of the creation, renewal, extension, waiver,
termination or accrual of any of the Guaranteed Obligations and notice of or
proof of reliance by any Lender or any Agent upon this guarantee or acceptance
of this guarantee, and the Guaranteed Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this guarantee, and all dealings between Borrower and the Lenders and
Agents shall likewise be conclusively presumed to have been had or consummated
in reliance upon this guarantee. This guarantee shall be construed as a
continuing, absolute, irrevocable and unconditional guarantee of payment without
regard to any right of offset with respect to the Guaranteed Obligations at any
time or from time to time held by the Lenders and Agents, and the obligations
and liabilities of the Guarantors hereunder shall not be conditioned or
contingent upon the pursuit by the Lenders or Agents or any other Person at any
time of any right or remedy against Borrower or against any other Person which
may be or become liable in respect of all or any part of the Guaranteed
Obligations or against any collateral security or guarantee therefor or right of
offset with respect thereto. This guarantee shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon the
Guarantors and the successors and assigns thereof, and shall inure to the
benefit of the Lenders, and their respective successors and assigns,
notwithstanding that from time to time during the term of this Agreement there
may be no Guaranteed Obligations outstanding.
6.03. Reinstatement. The obligations of the Guarantors under this
-------------
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Borrower in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise. The Guarantors jointly and severally agree that
they will indemnify each Agent and each Lender on demand for all reasonable
costs and expenses (including reasonable fees of counsel) incurred by such Agent
or such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law, other than any costs or
expenses resulting from the gross negligence or bad faith of such Creditor.
6.04. Subrogation; Subordination. Each Guarantor hereby agrees
--------------------------
that until the indefeasible payment and satisfaction in full in cash of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement it shall not exercise any right or remedy
arising by reason of any performance by it of its guarantee in Section 6.01,
whether by subrogation or otherwise, against Borrower or any other Guarantor of
any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. The payment of any amounts due with respect to any indebtedness of
Borrower or any other Guarantor now or hereafter owing to any Guarantor by
reason of any payment by such Guarantor under the Guarantee in this Section 6 is
hereby subordinated to the prior indefeasible payment in full in cash of the
Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for
or otherwise attempt to collect any such indebtedness of Borrower to such
Guarantor until the Obligations shall have been indefeasibly paid in full in
cash. If, notwithstanding the foregoing sentence, any Guarantor shall prior to
the indefeasible payment in full in cash of the Guaranteed Obligations collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Guarantor as trustee for
Agents and the Lenders and be paid over to Administrative Agent on account of
the Guaranteed Obligations without affecting in any manner the liability of such
Guarantor under the other provisions of the guaranty contained herein.
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<PAGE>
6.05. Remedies. The Guarantors jointly and severally agree that,
--------
as between the Guarantors and the Lenders, the obligations of Borrower under
this Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 (and shall be deemed to have become automatically due and
payable in the circumstances provided in said Section 10) for purposes of
Section 6.01 notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Borrower) shall forthwith
become due and payable by the Guarantors for purposes of Section 6.01.
6.06. Instrument for the Payment of Money. Each Guarantor hereby
-----------------------------------
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or Agent, at its
sole option, in the event of a dispute by such Guarantor in the payment of any
moneys due hereunder, shall have the right to bring motion-action under New York
CPLR Section 3213.
6.07. Continuing Guarantee. The guarantee in this Section 6 is a
--------------------
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
6.08. General Limitation on Guarantee Obligations. In any action
-------------------------------------------
or proceeding involving any state corporate law, or any state, Federal or
foreign bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Guarantor under Section 6.01
would otherwise be held or determined to be void, voidable, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under Section 6.01, then, notwithstanding any
other provision to the contrary, the amount of such liability shall, without any
further action by such Guarantor, any Lender, any Agent or any other Person, be
automatically limited and reduced to the highest amount that is valid and
enforceable and not subordinated to the claims of other creditors as determined
in such action or proceeding; provided, that, without limiting the generality of
--------
the foregoing, in any such action or proceeding in which KRS 371.065governs, (i)
the maximum aggregate liability of any Guarantor under Section 6.01 shall be
deemed to be $500,000,000 and (ii) the guarantee shall terminate on September
30, 2006; provide, further, that nothing herein shall be construed to imply
-------
that KRS 371.065 governs.
Section 7. Conditions Precedent.
--------------------
7.01. Conditions to Effectiveness of Credit Documents and
---------------------------------------------------
Obligation to Make Initial Loan. The effectiveness of the Credit Documents and
- - -------------------------------
the obligation of the Lenders to make an Initial Loan hereunder is subject to
the satisfaction of the conditions precedent that:
(i) Documentation and Evidence of Certain Matters. The Agents shall
---------------------------------------------
have received the following documents, each duly executed where appropriate
(with sufficient conformed copies for each Lender), each of which shall be
reasonably satisfactory to the Agents (and to the extent specified below,
to each Lender) in form and substance:
(1) Corporate Documents. Certified true and complete copies of
-------------------
the charter and by-laws and all amendments thereto (or equivalent
documents) of each Obligor and of all corporate authority for each
Obligor (including board of director resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect
to the execution, delivery and performance of such of the Credit
Documents to which such Obligor is intended to be a party and each
other document to be delivered by such Obligor from time to time in
connection herewith and the extensions of credit hereunder and the
consummation of the Transactions, certified as of the Closing Date as
complete and correct copies thereof by the Secretary or an Assistant
Secretary of Borrower.
(2) Officers' Certificate. An Officers' Certificate of Borrower,
---------------------
dated the Closing Date, to the effect set forth in clauses (a) and (b)
of Section 7.02(i) and to the effect that all conditions precedent to
the making of an Initial Loan have been satisfied.
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<PAGE>
(3) Opinions of Counsel. Opinion of Brown, Todd & Heyburn PLLC,
-------------------
counsel to the Obligors', substantially in the form of Exhibit E (and
---------
each Obligor hereby instructs such counsel to deliver such opinion to
the Lenders and Agents).
(4) The Credit Agreement. This Agreement, (i) executed and
--------------------
delivered by a duly authorized officer of each Obligor with a
counterpart for each Lender, and (ii) executed and delivered by a duly
authorized officer of each Lender and Agent.
(5) Initial Notes. The Initial Notes, duly completed and
-------------
executed for each Lender that has requested Initial Notes prior to the
Closing Date.
(6) Senior Credit Facility. (i) Executed or conformed copies of
----------------------
the Senior Credit Facility and any amendments thereto made on or prior
to the Closing Date, (ii) an Officers' Certificate from Borrower
stating that the Senior Credit Facility is in full force and effect on
the Closing Date and no material term or condition thereof has been
amended, modified or waived from the form most recently provided to
the Lenders and the Agents a reasonable time prior to the Closing Date
except with the prior written consent of the Required Lenders and the
Agents, (iii) an Officers' Certificate from Borrower stating that
Borrower and each of its Subsidiaries party thereto has performed or
complied with all agreements and conditions contained in the Senior
Credit Facility and any agreements or documents referred to therein
required to be performed or complied with by such party on or before
the Closing Date, and neither Borrower nor any of its Subsidiaries is
in default in the performance or compliance with any of the terms or
provisions thereof and (iv) all closing documents relating to the
Senior Credit Facility and all such counterpart originals or certified
copies of such documents, instruments, certificates and opinions as
the Required Lenders or the Agents may reasonably request.
(7) Solvency Certificate and Opinion. A certificate from the
--------------------------------
chief financial officer of Borrower and, at Borrowers expense, a
nationally recognized appraisal firm or valuation consultant
reasonably satisfactory to An-angers in form and substance reasonably
satisfactory to An-angers and the Lenders with respect to the Solvency
of each Obligor immediately after giving effect to the Transactions.
(8) Insurance. Evidence of insurance and certificates of
Insurance complying with the requirements of Section 9.04 and the
Security Documents.
(9) Transaction Documents. etc. Copies of the documentation
--------------------------
relating to each of the Transactions, any management or similar
agreement entered into with any Excluded Person or any of their
respective Affiliates and all exhibits, appendices, annexes and
schedules to any thereof, each certified by a senior officer of
Borrower as true, complete and correct copies thereof. The Agents
shall have had at least three Business Days to review all
documentation to be delivered pursuant to this paragraph and all such
documentation shall be in form and substance reasonably satisfactory
to the Agents.
(10) Repayment of Existing Indebtedness. Evidence in the form of
----------------------------------
a "pay-off' letter that the principal of and interest on, and all
other amounts owing in respect of, the Indebtedness listed on Schedule
7.01(i)(10) have been (or shall be simultaneously) paid in full, that
any commitments to extend credit under the agreements or instruments
relating to such Indebtedness have been canceled or terminated and
that all guarantees in respect of, and all Liens securing, any such
Indebtedness have been released (or arrangements for such release
satisfactory to Agents have been made); in addition, from any Person
holding any Lien securing any such Indebtedness, such Uniform
Commercial Code termination statements, mortgage releases and other
instruments, in each case in proper form for recording, as Agents
shall have reasonably requested to release and terminate of
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<PAGE>
record the Liens securing such Indebtedness (or arrangements for such
release and termination reasonably satisfactory to Agents and the
Majority Lenders have been made).
(11) Financial Statements. Unaudited interim financial
--------------------
statements of Borrower and each Acquired Business for each fiscal
month and quarterly period ended subsequent to June 30, 1998 as to
which such financial statements are available and such financial
statements shall not, in the reasonable judgment of the Lenders,
reflect any material adverse change in the financial condition of
Borrower and each of the Acquired Business as reflected in the
financial statements previously furnished to the Lenders.
(12) Business Plan. A detailed budget for fiscal years 1998
-------------
and 1999 and a written analysis of the business and prospects of
Borrower and the Subsidiaries (after giving effect to the
Transactions).
(13) Consents, Licenses and Approvals. A certificate of a
--------------------------------
responsible officer of Borrower stating that all consents,
authorizations and filings (other than the consents set forth on
Schedule 8.06) necessary to enter into and consummate the Transactions
(to the extent to be consummated on the Closing Date) and perform the
obligations under the Transaction Documents (including Hart-Scott-
Rodino clearance) are in full force and effect (or there shall be a
plan satisfactory to Agents and the Majority Lenders in their
respective sole discretion for the obtaining thereof) and that all
applicable waiting periods have expired without any action being taken
by any competent authority or threatened which, would restrain,
prevent or otherwise impose materially adverse conditions on any
Company, and each such consent, authorization and filing shall be in
form and substance satisfactory to Agents.
(ii) Date of Closing. Such extension of credit shall be made on or
before October 15, 1998.
(iii) Legality. Each of the Transactions to be consummated on the
--------
Closing Date and the financing therefor shall be in compliance with all
laws and regulations, or the Agents shall have determined such to be
inapplicable to such transactions.
(iv) Completion of Parent Financing. Borrower shall have received
------------------------------
aggregate gross proceeds of not less than $ 100.0 million from the Parent
Financing.
(v) Consummation of Acquisitions. Borrower shall have entered into
----------------------------
acquisition agreements with respect to each of the Acquired Businesses on
terms and in form and substance satisfactory to the Agents (the
"Acquisition Agreements"). All material conditions in each such Acquisition
---------------------------
Agreement shall have been satisfied, and not waived or modified except with
the consent of the Agents (which shall not be unreasonably withheld), and
all covenants in each such Acquisition Agreement shall have been satisfied
(without waiver or modification) in all material respects and all
representation and warranties contained therein shall be true and correct
in all material respects (without waiver or modification). Simultaneously
with the initial funding of the Term Loans, the Kindill Acquisition, the
Tender Offer and the Zeigler Acquisition shall have been consummated.
Immediately upon consummation of the Tender Offer the Borrower will effect
a short-form merger with Zeigler in accordance with Section 253 of the
Delaware General Corporation Law.
(vi) Maximum Merger Price. The consideration per share of common
--------------------
stock in the Zeigler Acquisition shall not exceed $21.25 per share
(excluding appraisal rights) and an aggregate of $608.0 million for all
shares (including appraisal rights).
(vii) Reserve Reports. Completed and signed reserve reports by the
---------------
engineering firms previously identified to Agents with respect to the
Obligors and the Acquired Businesses, which completed reserve reports will
not be materially different from the summary information previously
furnished to Agents.
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<PAGE>
(viii) No Other Debt or Preferred Stock. After giving effect to the
--------------------------------
Transactions and the other transactions contemplated hereby, Borrower and
the Subsidiaries shall have outstanding no Indebtedness or preferred stock
(or direct or indirect guarantee or other credit support in respect
thereof) outstanding other than the Loans under this Agreement, and the
Existing Debt.
(ix) No Material Adverse Change. (1) Zeigler shall not have
--------------------------
sustained any loss or interference with respect to its business or
properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, which loss or interference, in the reasonable
judgment of the Lender, has had or has a material adverse effect on the
business, condition (financial or other), or operations of Zeigler and
there shall not have been, in the reasonable judgment of the Lender, any
material adverse change in the business, condition (financial or other), or
operations of Zeigler; (2) trading generally shall not have been suspended
or materially limited on or by, as the case may be, any of the New York
Stock Exchange, the American Stock Exchange or the National Association of
Securities Dealers, Inc.; (3) a general moratorium on commercial banking
activities in New York shall not have been declared by either Federal or
New York State governmental authorities; and (4) there shall not have
occurred any outbreak or escalation of hostilities or any material adverse
change in financial markets or any calamity or crisis that, in the
reasonable judgment of the Agents, makes it impracticable to sell or
syndicate the Loans and the Commitments. As used in the previous sentence,
"material adverse change in financial markets" shall mean a decline of 12%
or more in the Dow Jones Industrial Average from August 3, 1998.
(x) Pro Forma Balance Sheet. The Lenders shall have received a pro
-----------------------
forma consolidated balance sheet of Borrower and the Subsidiaries dated as
of the date of the most recently available financial statements of Borrower
after giving effect to the Transactions, which balance sheet shall be
consistent in all material respects with the sources and uses of funds and
the other conditions contemplated hereby. Each Company shall also have
provided such other financial information as the Lenders or Agents may
reasonably request in connection with the Transactions.
(xi) Approvals. Except for the consents set forth on Schedule 8.06,
---------
all requisite Governmental Authorities and third parties shall have
approved or consented to the Transactions and the other transactions
contemplated hereby to the extent required, all applicable appeal periods
shall have expired and there shall be no governmental or judicial action or
Proceeding, actual or threatened, that has had the effect of (or could
reasonably be expected to have the effect of) restraining, preventing or
imposing materially burdensome conditions on any of the Transactions or the
other transactions contemplated hereby, except, in each case, as would not,
singly or in the aggregate, result in a Material Adverse Effect.
(xii) No Default in Other Agreements. Any defaults in any material
------------------------------
agreements of any Company that may result from the Transactions shall have
been resolved or otherwise addressed in a manner reasonably satisfactory to
Agents and the Majority Lenders; and no law or regulation adopted, proposed
or applicable after the date of the Commitment Letter shall be applicable
in the reasonable judgment of Agents and the Majority Lenders that
restrains, prevents or imposes materially adverse conditions upon any
component of the Transactions or the financing thereof, including the
extensions of credit under this Agreement.
(xiii) Margin Rule Compliance. All Loans and other financing to
----------------------
Borrower shall be in full compliance with all applicable requirements of
Regulations T, U and X.
(xiv) Satisfactory Environmental Reports. The Agents shall have
----------------------------------
received reasonably satisfactory third-party environmental reports
(including Phase I reports) of the Acquired Businesses to be acquired on
the Closing Date, Borrower and the Subsidiaries reasonably requested by the
Agents.
(xv) Other Documentation. All other documentation, including any
-------------------
employment agreement, management compensation arrangement (including any
agreements entered into with any of the senior
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<PAGE>
management of any Company) after the Transactions or other financing
arrangement of each Company shall be reasonably satisfactory in form and
substance to Agents and the Majority Lenders.
(xvi) Payment of Fees and Expenses. All accrued fees and expenses
----------------------------
(including the reasonable fees and expenses of Cahill Gordon & Reindel,
special counsel to Agents) of Agents and accrued fees of the Lenders in
connection with the Credit Documents and the Fee Letter shall have been
paid.
(xvii) Management Agreements. The Agents shall be reasonably
---------------------
satisfied with the terms and conditions of any management agreement entered
into or proposed to be entered into with any Excluded Person or any of
their Affiliates or any other Person.
(xviii) Other Matters. The Lenders shall have received such other
-------------
legal opinions, corporate documents and other instruments and/or
certificates, including, as the Agents or the Majority Lenders may request
in their reasonable discretion.
7.02. Additional Conditions to Making of Initial Loans. The
------------------------------------------------
obligation of the Lenders to make any Loan is subject to the further conditions
precedent that:
(i) No Default; Representations and Warranties True. Both
-----------------------------------------------
immediately prior to the making of such Initial Loan and also after giving
pro forma effect thereto and to the intended use thereof.
(A) no Default shall have occurred and be continuing; and
(B) the representations and warranties made by the Obligors
in Section 8, and by each Obligor in each of the other Credit
Documents to which it is a party, shall be true and complete on and as
of the date of the making of such Initial Loan with the same force and
effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date).
(ii) No Legal Bar. The Initial Loans and the use of proceeds
------------
thereof shall not contravene, violate or conflict with, nor involve any
Lender in a violation of, any law, rule, injunction, or regulation or
determination of any court of law or other Governmental Authority.
(iii) No Material Adverse Effect. There shall not have occurred any
--------------------------
event or circumstances which has had or is reasonably likely to have a
Material Adverse Effect.
(iv) Notice of Borrowing. Administrative Agent shall have received
-------------------
a Notice of Borrowing duly completed and complying with Section 4.05.
Each notice of borrowing by Borrower hereunder shall constitute a
certification by Borrower to the effect set forth in clause (i) above as of the
date of such borrowing or issuance.
Each notice submitted by Borrower hereunder for an extension of credit
hereunder shall constitute a representation and warranty by Borrower, as of the
date of such notice and as of the relevant borrowing date, that the applicable
conditions in Sections 7.01 and 7.02 have been satisfied in accordance with the
terms hereof
7.03. Conditions to Term Loan.
-----------------------
The obligation of the Lenders to make the Term Loan on the Conversion
Date is subject to the prior or concurrent satisfaction or waiver of the
following conditions precedent:
A. Notice of Conversion. The Agents shall have received in
--------------------
accordance with the provisions of Section 2.02 an originally executed
Notice of Conversion.
<PAGE>
B. No Bankruptcy. None of Borrower or any of its Significant
-------------
Subsidiaries shall be subject to a Bankruptcy Order or a bankruptcy or
other insolvency proceeding and no Default or Event of Default shall have
occurred under Section 10(f) or (g).
C. No Default. No Default under Section 10 or an Event of
----------
Default under Section I 0(a) (whether or not matured) shall have occurred.
D. No Acceleration of Indebtedness. No Event of Default shall
-------------------------------
have occurred under Section 10(b); provided, however that if such an Event
--------
of Default is continuing at the Conversion Date but the applicable grace
period, if any, set forth in Section 10(b) has not expired, the Conversion
Date shall be deferred until the earlier to occur of (i) the cure of such
Event of Default or (ii) the expiration of any applicable grace period.
E. Officers' Certificate. On the Conversion Date, the Agents
---------------------
shall have received an Officers' Certificate from Borrower dated the
Conversion Date and satisfactory in form and substance to the Agents, to
the effect that the conditions in this Section 7.03 are satisfied on and as
of the Conversion Date.
F. Term Notes. Borrower shall have executed and delivered to the
----------
Agents on the Conversion Date for delivery to the Lenders Term Notes dated
the Conversion Date substantially in the form of Exhibit B to evidence the
--
Term Loan, in the principal amount of (which principal amount shall be the
aggregate principal amount of the Initial Loan outstanding on the
Conversion Date) the Term Loan and with other appropriate insertions.
G. Fees and Expenses. All accrued fees and expenses owing to the
-----------------
Agents and the Lenders (including the reasonable fees and expenses of a law
firm serving as counsel to the Agents and Lenders) shall have been paid.
H. Margin Rules. The making of the Term Loan shall not violate
------------
Regulation T, U or X or any other regulation of the F.R.S. Board.
7.04. Determinations Under Section 7. For purposes of determining
------------------------------
compliance with the conditions specified in Sections 7.01, 7.02 and 7.03, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of Administrative Agent responsible for the transactions contemplated by this
Agreement shall have received notice from such Lender prior to the date that
Borrower, by notice to the Lenders, designates as the proposed date of the
extension of credit, specifying its objection thereto.
Section 8. Representations and Warranties. Each Obligor
------------------------------
represents and warrants to the Creditors that at and as of the Closing Date
(immediately before and immediately after giving effect to the transactions to
occur on such date (including the Transactions)):
8.01. Corporate Existence. Each Obligor and each Subsidiary: (a)
-------------------
is a corporation, partnership or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization; (b)
has all requisite corporate or other power and authority, and has all
governmental licenses, authorizations, consents and approvals necessary to own
its Property and carry on its business as now being conducted; and (c) is
qualified to do business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure to be so qualified and in good standing individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
8.02. Financial Condition, Etc. (a) Borrower has heretofore
------------------------
delivered to the Lenders the audited consolidated balance sheets of Borrower and
the Subsidiaries and of each of the Acquired Businesses as of December 31, 1995,
December 31, 1996 and December 31, 1997, and the related statements of earnings,
changes in stockholders' equity and cash flows for the fiscal years ended
December 31, 1996 and December 31, 1997, (B) the unaudited
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<PAGE>
consolidated balance sheets of Borrower and the Subsidiaries and of each of the
Acquired Businesses as of June 30, 1998, and the related statements of earnings
and cash flows for the fiscal periods ended on June 30, 1998. All of said
financial statements, including in each case the related schedules and notes,
are true, complete (in the case of year-end financial statements) and correct in
all material respects, have been prepared in accordance with GAAP consistently
applied and present fairly and accurately the financial position of Borrower and
the Subsidiaries and each of the Acquired Businesses as of the respective dates
of said balance sheets and the results of their operations for the respective
periods covered thereby, subject (in the case of interim statements) to period-
end audit adjustments.
(b) Except as set forth in Schedule 8.02(b) or in the financial
----------------
statements referred to in 8.02(a), there are no liabilities of any Company of
any kind, whether accrued, contingent, absolute, determined, determinable or
otherwise, which would, or could reasonably be expected to, have a Material
Adverse Effect and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than liabilities under this Agreement, the other Transaction Documents or
liabilities incurred in connection with the transactions contemplated hereby.
(c) Except as set forth in Schedule 8.02(c), since June 30, 1998
----------------
there has been no Material Adverse Change, or any event, change or circumstance
which could reasonably be expected to have a Material Adverse Change.
(d) Each of the pro forma balance sheet of Borrower and its
Consolidated Subsidiaries (the "Pro Forma Balance Sheets"), certified by the
------------------------
chief financial officer of Borrower, copies of which have been heretofore
furnished to each Lender, is the balance sheet of Borrower and its Consolidated
Subsidiaries as of the date of the latest available balance sheet of Borrower
prior to the Closing Date (the "Pro Forma Date"), adjusted to give effect (as if
--------------
such events had occurred on such date) to the Transactions to occur on the
Closing Date and the application of the proceeds of all Indebtedness incurred on
such date. Each Pro Forma Balance Sheet, together with the notes thereto,
accurately reflects in all material respects all adjustments necessary to give
effect to the Transactions, was prepared based on good faith assumptions, and
presents fairly in all material respects on a pro forma basis the consolidated
financial position of Borrower and its Consolidated Subsidiaries as at the Pro
Forma Date, adjusted as described above.
8.03. Litigation. Except as set forth in Schedule 8.03, there is
---------- -------------
no Proceeding pending against, or to the knowledge of Borrower threatened
against or affecting, any Company or any of its respective Properties before any
Governmental Authority which is reasonably likely to have a Material Adverse
Effect.
8.04. No Breach, No Default. (a) None of the execution, delivery
---------------------
and performance by each Obligor of any Credit Document or Transaction Document
to which it is a party and the consummation of the transactions herein and
therein contemplated (including the Transactions) will (i) conflict with or
result in a breach of, or require any consent (which has not been obtained and
is in full force and effect) under, any Organic Document of any Company, or any
applicable Requirement of Law or any order, writ, injunction or decree of any
Governmental Authority binding on any Company, or any term or provision of any
Contractual Obligation of any Company, or (ii) constitute (with due notice or
lapse of time or both) a default under any such Contractual Obligation, or (iii)
result in the creation or imposition of any Lien (except for the Liens created
pursuant to the Security Documents) upon any Property of any Company pursuant to
the terms of any such Contractual Obligation, except with respect to each of the
foregoing which could not reasonably be expected to have a Material Adverse
Effect or which could not reasonably be expected to subject any Agent or Lender
to any material risk of damages or liability to third parties.
(b) No Company is in default under or with respect to any
Contractual Obligation (including any Transaction Document) or any order, award
or decree of any Governmental Authority or arbitrator binding upon it or any of
its Property in any respect which could reasonably be expected to have a
Material Adverse Effect.
(c) No Default or Event of Default has occurred and is continuing.
8.05. Action. Each Company has all necessary corporate power,
------
authority and legal right to execute, deliver and perform its obligations under
each Credit Document and Transaction Document to which it is a
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<PAGE>
party and to consummate the transactions herein and therein contemplated; the
execution, delivery and performance by each Company of each Credit Document and
Transaction Document to which it is a party and the consummation of the
transactions herein and therein contemplated have been duly authorized by all
necessary corporate action on its part; and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
Notes and the other Credit Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will constitute,
its legal, valid and binding obligation, enforceable against each Obligor in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws of general applicability from time to time in effect affecting the
enforcement of creditors' rights and remedies and (b) the application of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
8.06. Approvals. No authorizations, approvals or consents of, and
---------
no filings or registrations with, any Governmental Authority, any securities
exchange or any other Person are necessary for the execution, delivery or
performance by any Company of the Credit Documents and the Transaction Documents
to which it is a party or for the legality, validity or enforceability hereof or
thereof or for the consummation of the transactions herein and therein
contemplated, except for filings and recordings in respect of the Liens created
pursuant to the Security Documents and except for consents, authorizations and
filings (i) that have been obtained or made and are in full force and effect or
(ii) set forth on Schedule 8.06.
-------------
8.07. Representations and Warranties in the Merger Agreement. The
------------------------------------------------------
representations and warranties set forth in Article IV and Article V of the
Merger Agreement as applicable to Zeigler and Borrower, respectively, are, in
each case, true and correct in all material respects as of the time such
representations and warranties were made and shall be true and correct in all
material respects as of the Closing Date as if such representations and
warranties were made on and as of such date, unless such representations and
warranty expressly indicates that it is being made as of any other specific
date.
8.08. ERISA. No ERISA Event has occurred or is reasonably
-----
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
have a Material Adverse Effect. The present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $1.0 million the fair market value of the assets of all such underfunded
Plans. Each member of the ERISA Group is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code with respect to
each Plan.
8.09. Taxes. Except as could not reasonably be expected to have a
-----
Material Adverse Effect, (i) all Tax returns, statements, reports and forms
(including estimated Tax or information returns) (collectively, the "Tax
---
Returns") required to be filed with any taxing authority by, or with respect to,
- - -------
each Company and each Unrestricted Subsidiary have been filed in accordance with
all applicable laws; (ii) each Company and each Unrestricted Subsidiary has
timely paid or made provision for payment of all Taxes shown as due and payable
on Tax Returns that have been so filed, and, as of the time of filing, each Tax
Return correctly reflected the facts regarding income, business, assets,
operations, activities and the status of each Company and each Unrestricted
Subsidiary (other than Taxes which are being contested in good faith and for
which adequate reserves are reflected on Borrower's financial statements); (iii)
each Company and each Unrestricted Subsidiary have made provision for all Taxes
payable by such Company and each Unrestricted Subsidiary for which no Tax Return
has yet been filed; (iv) the charges, accruals and reserves for Taxes with
respect to each Company and each Unrestricted Subsidiary reflected on Borrower's
financial statements are adequate under United States generally accepted
accounting principles to cover the Tax liabilities accruing through the date
thereof, and (v) there is no action, suit, proceeding, audit or claim now
proposed or pending against or with respect to any Company or any Unrestricted
Subsidiary in respect of any Tax where there is a reasonable possibility of an
adverse determination.
Except as set forth on Schedule 8.09, (i) no extension of a statute of
-------------
limitations relating to material Taxes is in effect with respect to any Company
or any Unrestricted Subsidiary; (ii) no Company or any Unrestricted Subsidiary
has ever been a member of an affiliated group of corporations within the meaning
of Section 1504 of the
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<PAGE>
Code other than an affiliated group of corporations of which Borrower was the
common parent; and (iii) there are no material Tax sharing agreements or similar
arrangements (including Tax indemnity arrangements) with respect to or involving
any Company or any Unrestricted Subsidiary.
For purposes of this Section 8.09, "Taxes" means any and all taxes,
charges, fees, levies or other assessments, including income, gross receipts,
excise, real or personal property, sales, withholding, social security,
retirement, unemployment, occupation, use, service, license, net worth, payroll,
franchise, and transfer and recording, imposed by the Internal Revenue Service
or any taxing authority (whether domestic or foreign, including any federal,
state, U.S. possession, county, local or foreign government or any subdivision
or taxing agency thereof), whether computed on a separate, consolidated,
unitary, combined or any other basis, including interest, fines, penalties or
additions to tax attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments.
8.10. Investment Company Act; Public Utility Holding Company Act;
-----------------------------------------------------------
Other Restrictions. No Company is an "investment company", or a company
- - ------------------
"controlled" by an "investment company", within the meaning of the United States
Investment Company Act of 1940, as amended. No Company is a "holding company",
or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding
company", within the meaning of the United States Public Utility Holding Company
Act of 1935, as amended. No Obligor is subject to the Federal Power Act. No
Obligor is subject to regulation under any law or regulation which limits its
ability to incur Indebtedness, including Laws relating to common contract
carriers or the sale of electricity, steam, water or other public utilities,
other than Regulation X of the Board of Governors of the Federal Reserve System.
8.11. Environmental Matters. Except as disclosed in Schedule 8.11
--------------------- -------------
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect: (i) each Obligor and the
Subsidiaries are in compliance with and in the last five years have been in
compliance with, and are not subject to liability under, any Environmental Laws
applicable to them and there are no Environmental Laws which would reasonably be
expected to result in material expenditures by any Obligor or any Subsidiary,
and no such Environmental Laws would reasonably be expected to interfere in any
material way with current or projected operations of any Obligor or any
Subsidiary; (ii) no Obligor or any Subsidiary has received notice that it or any
of their respective predecessors interests has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), or any similar state or
------
foreign or state law, nor has any Obligor or any Subsidiary received notice that
any Hazardous Materials that it or any of their respective predecessors in
interest has used, generated, stored, treated, handled, transported or disposed
of, or arranged for disposal or treatment of, have been found at any site at
which any Person is conducting or plans to conduct any action pursuant to any
Environmental Law, and no Obligor or any Subsidiary, or to the knowledge of the
Obligors, any of their respective predecessors in interest, has disposed of, or
arranged for the disposal or treatment of, or otherwise released Hazardous
Materials at any site at which any Person is conducting or plans to conduct any
action under Environmental Law; (iii) no properties now or formerly owned,
leased or operated by any Obligor or any Subsidiary or, to the knowledge of the
Obligors, any of their respective predecessors in interest, are (x) listed or
proposed for listing on the National Priorities List under CERCLA or (y) listed
on the Comprehensive Environmental Response, Compensation and Liability
Information System List promulgated pursuant to CERCLA or (z) included on any
similar lists maintained by any Governmental Authority; (iv) there are no past
or present events, conditions, activities, practices or actions, or any
agreements, judgments, decrees or orders by which any Obligor or any Subsidiary
is bound, which would reasonably be expected to prevent any Obligors or any
Subsidiary's compliance with any Environmental Law, or which would reasonably be
expected to give rise to any liability of any Obligor or any Subsidiary under
any Environmental Law, including, without limitation, liability under CERCLA or
similar state or foreign laws; (v) no Lien has been asserted or recorded, or to
the knowledge of the Obligors, threatened, under any Environmental Law with
respect to any asset, facility, inventory or property currently owned, leased or
operated by any Obligor or any Subsidiary; and (vi) there are no underground
storage tanks or related piping at any property owned, operated or leased by any
Obligor or any Subsidiary, (vii) and no such tanks or related piping has been
removed from such properties, and (viii) no Obligor or any Subsidiary is subject
to any judicial or administrative Proceeding alleging the violation of, or
liability under, any Environmental Law and, to the knowledge of the Obligors, no
such Proceeding is threatened.
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8.12. Environmental Investigations. All material environmental
----------------------------
investigations, studies, audits or assessments which have been conducted and
which are in the possession, custody or control of any Company relating (i) to
the current or prior business, operations, facilities or Property of any Company
or any Unrestricted Subsidiary or any of their respective predecessors in
interest or (ii) to any facility, Property or other asset now or previously
owned, operated, leased or used by any Company or any Unrestricted Subsidiary or
any of their respective predecessors in interest have been made available to the
Agents and the Lenders.
8.13. Use of Proceeds. No Company is engaged principally, or as
---------------
one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying Margin
Stock and no part of the proceeds of any extension of credit hereunder will be
used directly or indirectly and whether immediately, incidentally or ultimately
to purchase or carry any Margin Stock or to extend credit to others for such
purpose or to refund Indebtedness originally incurred for such purpose.
Following application of the proceeds of each extension of credit hereunder, not
more than 25 percent of the value of the assets (either of Borrower only or of
Borrower and the Subsidiaries on a consolidated basis) will be Margin Stock.
Borrower will use the proceeds of all Initial Loans to finance the Transactions,
pay fees and expenses related thereto, and for general corporate purposes.
8.14. Subsidiaries. As of the Closing Date (after giving effect
------------
to the Transactions), Borrower does not have any Subsidiaries or interests in
partnerships, joint ventures or business trusts other than the entities set
forth on Schedule 8.14(a). Schedule 8.14(b) depicts the organizational structure
----------------------------------
of the Obligors as of the Closing Date. Borrower owns, as of the Closing Date,
the percentage of the issued and outstanding Equity Interests or other evidences
of the ownership of each of the Subsidiaries, partnerships or joint ventures
listed on Schedule 8.14 as set forth on such Schedule. o such Subsidiary,
-------------
partnership or joint venture has issued any securities convertible into shares
of its Equity Interests (or other evidence of ownership) or any Equity Rights to
acquire such shares or securities convertible into such shares (or other
evidence of ownership), and the outstanding stock and securities (or other
evidence of ownership) of such Subsidiaries, partnerships or joint ventures are
owned by Borrower and the Subsidiaries free and clear of all Liens and Equity
Rights of others of any kind whatsoever, except for Liens pursuant to the
Security Documents. Any Unrestricted Subsidiary created or acquired after the
Closing Date will be created or acquired in accordance with the terms hereof.
8.15. [Reserved].
8.16. [Reserved].
8.17. Licenses and Permits; Compliance with Laws. The Companies
------------------------------------------
hold all governmental permits, licenses, authorizations, consents and approvals
(none of which has been modified or rescinded and all of which are in full force
and effect) (collectively, the "Permits") necessary for the Companies to own,
lease, and operate their respective Properties and to carry on their respective
businesses as now being conducted, except for Permits the failure of which to
obtain could not reasonably be expected to have a Material Adverse Effect.
The businesses of the Companies are not being conducted in violation
of any applicable Requirement of Law, Permit, concession, grant or other
authorization of any Governmental Authority, except for violations that could
not reasonably be expected to have a Material Adverse Effect.
There does not exist any judgment, order or injunction prohibiting or
imposing material adverse conditions upon the Transactions, or the performance
by any Obligor of its obligations under the Credit Documents and all applicable
Requirements of Law.
8.18. True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of any Obligor to any Creditor (other than the projections referred to in
the following sentence and other than any reserve studies prepared by third
parties) in connection with the negotiation, preparation or delivery of this
Agreement and the other Credit Documents or included herein or therein or
delivered pursuant hereto or thereto or pursuant to any information memorandum
distributed in connection with the syndication of the Commitments and Loans,
including all filings made with the Commission by any Company,
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<PAGE>
whether prior to or after the date of this Agreement, when taken as a whole, do
not, as of the date such information was furnished, contain any untrue statement
of material fact or omit to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not materially misleading. The projections and pro forma financial
information furnished at any time by any Obligor to any Creditor pursuant to
this Agreement have been prepared in good faith based on assumptions believed by
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount and no Obligor, however, makes any representation
as to the ability of any Company to achieve the results set forth in any such
projections. Borrower understands that all such statements, representations and
warranties shall be deemed to have been relied upon by the Lenders as a material
inducement to make each extension of credit hereunder. As of the Closing Date,
there is no fact known to any Obligor (other than general economic conditions,
which conditions are commonly known and affect businesses generally) that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Credit Documents or in any other
documents, certificates and statements furnished to Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby and by
the other Credit Documents.
8.19. Solvency; Etc. As of the Closing Date immediately prior to
-------------
and immediately following the consummation of the Transactions and the
extensions of credit to occur on such date each Obligor is and will be Solvent
(after giving effect to Section 6.08). Borrower believes that no reasonably
anticipated final judgment in a pending Proceeding or, to its knowledge, any
threatened Proceeding for money damages will be rendered at a time when, or in
an amount such that, any Company will be unable to satisfy such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount thereof and the earliest reasonable time at which such
judgments might be rendered). The cash available to each Company, after taking
into account all other anticipated uses of cash (including the payment of all
such Company's Indebtedness) is anticipated to be sufficient to pay any such
judgments promptly in accordance with their terms. No Company is contemplating
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidating of all or a substantial portion of its
property, and Borrower has no knowledge of any Person contemplating the filing
of any such petition against any Company.
8.20. Contracts. No Company is in default under any material
---------
contract or agreement to which it is a party or by which it is bound, nor, to
Borrower's knowledge, does any condition exist that, with notice or lapse of
time or both, would constitute such default, excluding in any case such defaults
that could not reasonably be expected to have a Material Adverse Effect.
Schedule 8.20 accurately and completely lists (x) all agreements, if any, among
- - -------------
the stockholders (or any of their Affiliates other than any Company) of Borrower
on the one hand and any Company on the other in effect on the date hereof and
all (y) material agreements which are in effect on the date hereof in connection
with the conduct of the business of the Companies.
8.21. Labor Matters. Except as set forth in Schedule 8.21, there
------------- -------------
are no strikes or other labor disputes against any Company pending or, to the
knowledge of Borrower, threatened which could reasonably be expected to have a
Material Adverse Effect. Hours worked by and payments made to employees of the
Companies have not been in violation of the Fair Labor Standards Act or any
other applicable Requirements of Law dealing with such matters that
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect. To the knowledge of Borrower, all payments due from any
Company on account of employee health and welfare insurance that (individually
or in the aggregate) could reasonably be expected to have a Material Adverse
Effect if not paid have been paid or accrued as a liability on the books of the
relevant Company.
8.22. Year 2000. Each Company has reviewed their operations with
---------
a view to assessing whether their business or operations will, in the receipt,
transmissions, processing, manipulation, storage, retrieval, retransmission or
other utilization of data, be vulnerable to any significant risk that computer
hardware, software or any equipment containing embedded microchips used in their
business or operations will not in the case of dates or time periods occurring
after December 31, 1999 function at least as effectively as in the case of dates
or time periods occurring prior to January 1, 2000. No Company has reason to
believe that the risks associated with the Year 2000 issue could reasonably be
expected to have a Material Adverse Effect.
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<PAGE>
Section 9. Covenants. Each Obligor, for itself and on behalf of its
---------
Subsidiaries and its Unrestricted Subsidiaries, covenants and agrees with the
Creditors that, so long as any Commitment or Loan is outstanding and until
payment in full of all amounts payable by Borrower hereunder:
9.01. Financial Statements, Etc. The Companies shall deliver to
-------------------------
Administrative Agent and each of the Lenders:
(a) Quarterly Financials. As soon as available and in any event
--------------------
within 45 days after the end of each of the first three quarterly fiscal
periods of each fiscal year beginning with the fiscal quarter ending
September 30, 1998, consolidated statements of operations, cash flows and
stockholders' equity of Borrower and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal year
to the end of such period, and the related consolidated balance sheet of
Borrower and its Consolidated Subsidiaries as at the end of such period,
setting forth in each case in comparative form (i) the corresponding
consolidated statements of operations, cash flows and stockholders' equity
for the corresponding period in the preceding fiscal year and (ii) the
corresponding budget or plan for such period, accompanied by a certificate
of a Responsible Officer of Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated
financial condition, results of operations and cash flows of Borrower and
its Consolidated Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments);
(b) Annual Financials. As soon as available and in any event within
-----------------
90 days after the end of each fiscal year beginning with the fiscal year
ending December 31, 1998, consolidated and consolidating statements of
operations, cash flows and stockholders' equity of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated and
consolidating balance sheet of Borrower and its Consolidated Subsidiaries
as at the end of such year, setting forth in each case in comparative form
(i) the corresponding consolidated and consolidating information as of the
end of and for the preceding fiscal year and (ii) the corresponding budget
or plan for such period, and accompanied by an opinion, without
qualification or exception, thereon of independent certified public
accountants of recognized national standing reasonably acceptable to the
Lenders, which opinion shall state that said consolidated and consolidating
financial statements fairly present the consolidated and consolidating
financial condition, results of operations and cash flows of Borrower and
its Consolidated Subsidiaries as at the end of, and for, such fiscal year
in accordance with GAAP, consistently applied and a certificate of such
accountants stating that, in making the examination necessary for their
opinion, they obtained no knowledge of any Default; Borrower shall supply
such additional information and detail as to any item or items contained on
any such statement that Lenders may reasonably require; all such
information will be prepared in accordance with GAAP consistently applied;
(c) [reserved];
(d) Other Financial Information. Promptly upon delivery thereof to
---------------------------
the holders of any debt securities or the stockholders of any Company
generally, copies of all financial statements and reports and proxy
statements so delivered, and at the time the same are filed, copies of all
financial statements and reports which any Company may make to or file with
the Commission or any successor or analogous Governmental Authority;
(e) [reserved];
(f) Notice of Default. Promptly after any Company knows or has
-----------------
reason to believe that any Default has occurred or that any Company is in
default of any material term or provision of the any other material
Contractual Obligation (other than pursuant to the Credit Documents), a
notice of such Default describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description
of the action that Borrower has taken and proposes to take with respect
thereto;
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<PAGE>
(g) Environmental Matters. Written notice of any Environmental Claim
---------------------
materially affecting any Company or any Unrestricted Subsidiary, any
Mortgaged Real Property or the operations of any Company, and any notice
from any Person of (i) the occurrence of any release, spill or discharge of
any Hazardous Material that is reportable under any Environmental Law, (ii)
the commencement of any clean-up pursuant to or in accordance with any
Environmental Law of any Hazardous Material at, on, under or within the
Mortgaged Real Property or any part thereof, (iii) any matters relating to
Hazardous Materials or Environmental Laws that may impair, or threaten to
impair, Lenders' security interest in the Mortgaged Real Property or any
Obligor's ability to perform any of its obligations under this Agreement
when such performance is due or (iv) any other condition, circumstance,
occurrence or event, any of which could reasonably be expected to result in
a material liability of any Company or any Unrestricted Subsidiary under
any Environmental Law;
(h) Auditors' Reports. Promptly upon receipt thereof, copies of all
-----------------
reports submitted to any Company by independent certified public
accountants in connection with each annual, interim or special audit of
such Company's books made by such accountants, including, without
limitation, any management letter commenting on any Company's internal
controls submitted by such accountants to management in connection with
their annual audit;
(i) Annual Budgets. An annual operating and capital improvements
--------------
budget of Borrower and the Subsidiaries in reasonable detail and financial
projections made in good faith, within 60 days after the end of each fiscal
year of Borrower,
(j) [reserved];
(k) Notice of Material Adverse Effect. Written notice of the
---------------------------------
occurrence of any Material Adverse Effect or any event or condition which
could reasonably be expected to result in any Material Adverse Effect;
(1) Governmental Filings and Notices. Promptly after request by
--------------------------------
Administrative Agent, copies of any other reports or documents that were
filed by any Company with any Governmental Agency and copies of any and all
material notices and other material communications from any Federal, state
or local Governmental Authority with respect to any Company;
(m) ERISA Information. Written notice of the occurrence of any ERISA
-----------------
Event that, alone or together with any other ERISA Events that have
occurred, could reasonably be expected to result in liability to the
Companies in an aggregate amount exceeding $2.0 million;
(n) Reserve Reports. As soon as available and in any event within 30
---------------
days after the end of each fiscal year, a reserve report in form and
substance satisfactory to the Administrative Agent, and copies of all Coal
Sales Agreements of the Companies, not theretofore delivered to the
Administrative Agent as well as copies of any amendments or modifications
to any Coal Supply Contracts of the Companies not theretofore delivered to
Agent and such other information as the Administrative Agent may request;
(o) [reserved];
(p) Miscellaneous. Promptly, such financial and other information
-------------
with respect to any Obligor or Subsidiary, as any Creditor may from time to
time reasonably request.
Borrower will furnish to Administrative Agent and each of the Lenders:
(i) concurrently with the delivery of the financial statements
referred to in Section 9.01(b), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default relating to the covenants contained in Section 9.11, except as
specified in such certificate; and
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<PAGE>
(ii) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, (1) a certificate of a senior
financial officer of Borrower (1) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the
action that Borrower has taken and proposes to take with respect thereto),
(II) specifying whether or not any Unrestricted Subsidiary has been created
or acquired since the last such certificate and (III) setting forth in
reasonable detail the computations necessary to determine whether each
Company is in compliance with Sections 9.07, 9.08, 9.09, 9.10 and 9.11 as
of the end of the respective quarterly fiscal period or fiscal year, (2) to
the extent not previously disclosed to Administrative Agent, a listing of
any state within the United States where any Obligor keeps inventory or
equipment and of any licenses arising under the laws of the United States
(or any jurisdiction therein) acquired by any Obligor since the date of the
most recent list delivered pursuant to this clause (H) (or, in the case of
the first such list so delivered, since the Closing Date), and (3) any
final accountants' management letters delivered by the independent
certified public accountants reporting on such financial statements to
Borrower or any Subsidiary.
9.02. Litigation, Etc. Borrower shall promptly give to
---------------
Administrative Agent and each Lender notice of all Proceedings, and any material
development thereof, affecting any Company, except Proceedings which could not
reasonably be expected to have a Material Adverse Effect.
9.03. Existence, Compliance with Law; Payment of Taxes; Inspection
------------------------------------------------------------
Rights; Performance of Obligations; Etc. Each Company shall (i) preserve and
- - ---------------------------------------
maintain its legal existence and all of its material rights, privileges and
franchises; provided , however, that nothing in this Section 9.03 shall prohibit
--------
any transaction expressly permitted under Section 9.06, (ii) comply with all
applicable Requirements of Law of Governmental Authorities, except to the extent
that the failure to do so could not reasonably be expected to have a Material
Adverse Effect, (iii) timely file true, accurate and complete tax returns
required by all Governmental Authorities and pay and discharge all material
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its Property prior to the date on which penalties
attach thereto (except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained in accordance with GAAP); (iv)
maintain all of its Properties used or useful in its business in good working
order and condition, ordinary wear and tear excepted, except to the extent that
the failure to do so with respect to any such Property could not reasonably be
expected to have a Material Adverse Effect; (v) permit representatives of any
Creditor upon reasonable prior notice, during normal business hours, to examine,
copy and make extracts from its books and records, to inspect its Properties,
and to discuss its business and affairs with its officers and employees and with
the independent accountants of each Company, all to the extent reasonably
requested by such Creditor; provided, however, that Administrative Agent or such
--------
Lender shall notify Borrower prior to any contact with such accountants and give
Borrower the opportunity to participate in such discussions; (vi) allow the
Agents to consult with Borrower's independent public accountants and auditors
with respect to the financial affairs of the Companies and authorize such
accountants to disclose to the Agents and the Lenders any and all financial
statements and other supporting financial documents and schedules including
copies of any management letter with respect to the business, financial
condition and other affairs of the Companies; at the request of the Agents,
Borrower shall deliver a letter addressed to such accountants instructing them
to comply with the provisions of this Section 9.03(vi); (vii) perform in all
material respects all of its Contractual Obligations, except where such failure
to so perform, singly or in the aggregate with all other such failures, could
not reasonably be expected to have a Material Adverse Effect; (viii) keep proper
books of record and accounts, in which full and correct entries shall be made of
all financial transactions and the Property and business of each Company in
accordance with GAAP in effect from time to time or as otherwise required by
applicable rules and regulations of any Governmental Authority having
jurisdiction over such Company; and (ix) confer with the Lenders in enforcing or
waiving material rights of any Company under any Transaction Document.
9.04. Insurance. Each Company shall maintain, with financially
---------
sound and reputable insurers, insurance of the kinds and in the amounts
customarily insured against by companies engaged in the same or similar business
and similarly situated and carry such other insurance as is appropriate for such
Company. Each Company shall pay all insurance premiums payable by them as and
when due.
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<PAGE>
9.05. Limitation on Lines of Business, Limitation on Management
---------------------------------------------------------
Agreements. No Company shall directly or indirectly, engage to any material
- - ----------
extent in any line or lines of business activity other than the business of the
type conducted by Borrower and the Subsidiaries as of the Closing Date or any
business related, ancillary or complementary thereto. No Company shall,
directly or indirectly, turn over the management of its Properties, rights,
licenses and franchises to any Person other than a full-time employee of the
Companies or enter into any management or similar agreement with any Person.
9.06. Limitation on Fundamental Changes, Acquisitions or
--------------------------------------------------
Dispositions. No Company shall, directly or indirectly, in a single transaction
- - ------------
or series of transactions, (1) merge, consolidate or amalgamate with or into any
Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), (2) effect any Acquisition, or (3) effect any Disposition (or
agree to do any of the foregoing). Notwithstanding the foregoing provisions of
this Section 9.06, each of the following shall be permitted:
(a) purchases and sales of Property in the ordinary course of
business;
(b) the incurrence of Permitted Liens;
(c) the merger, consolidation, dissolution or liquidation of (1)
any Subsidiary with or into (i) Borrower if Borrower shall be the
continuing or surviving corporation or (ii) any Qualified Subsidiary if a
Qualified Subsidiary shall be the continuing or surviving corporation, and
(2) any Subsidiary which is not a Qualified Subsidiary with or into any
other Subsidiary which is not a Qualified Subsidiary;
(d) Dispositions by any Subsidiary to Borrower or to any Qualified
Subsidiary;
(e) Dispositions of used, worn out, obsolete or surplus Property by
any Company in the ordinary course of business;
(f) sale or discount, in each case without recourse, of accounts
receivable past due arising in the ordinary course of business, but only in
connection with the compromise or collection thereof, provided, however,
-------- -------
that in no event may any Company enter into any factoring or securitization
program with respect to receivables;
(g) In addition to any other Dispositions permitted under this
Agreement, Borrower or any Subsidiary may effect any Disposition for fair
market value resulting in gross proceeds not to exceed $50.0 million in the
aggregate in any fiscal year of Borrower and $200.0 million since the
Closing Date;
(h) Acquisitions by Borrower or any Qualified Subsidiary of any
Person engaged in or any Property used in the coal business; provided,
--------
however, that each Acquisition under this Section 9.06(h) shall satisfy
-------
each of the following conditions:
(i) no Default then exists or would result therefrom;
(ii) no Company shall, in connection with any such
Acquisition, assume or remain liable with respect to any Indebtedness
or other liability (including any material tax or ERISA liability) of
the related seller, except (1) to the extent permitted under Section
9.08, and (2) obligations of the seller incurred in the ordinary
course of business and necessary or desirable to the continued
operation of the underlying properties, and any other such liabilities
or obligations not permitted to be assumed or otherwise supported by
any of the Companies hereunder shall be paid in full or released as to
the assets being so acquired on or before the consummation of such
Acquisition;
(iii) the Properties acquired in connection with any such
Acquisition shall be free and clear of any Liens, other than Permitted
Liens;
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(iv) the board of directors of the acquired Person shall not
have indicated publicly its opposition to the consummation of such
Acquisition;
(v) such Acquisition shall be effected through Borrower or a
Qualified Subsidiary and the Person acquired shall be merged with or
into a Qualified Subsidiary or shall be at the time of consummation
thereof a Qualified Subsidiary;
(vi) with respect to any Acquisition involving Acquisition
Consideration of more than $25.0 million, Borrower shall have provided
the Agents and the Lenders with (1) historical financial statements
for the last three fiscal years of the Person or business to be
acquired (audited if available without undue cost or delay) and
unaudited financial statements thereof for the most recent interim
period which are available, (2) reasonably detailed projections for
the succeeding five years pertaining to the Person or business to be
acquired, (3) a reasonably detailed description of all material
information relating thereto and copies of all material documentation
pertaining to such Acquisition, and (4) all such other information and
data relating to such Acquisition or the Person or business to be
acquired as may be reasonably requested by the Agents or the Majority
Lenders;
(vii) Borrower shall have delivered to the Agents and the
Lenders an Officers' Certificate certifying that such Acquisition
shall not have a Material Adverse Effect; and
(viii) the Acquisition Consideration (other than Equity
Issuances) for such Acquisition shall not exceed $100.0 million, and
the aggregate amount of the Acquisition Consideration (other than
Equity Issuances) for all Acquisitions effected pursuant to this
Section 9.06(h) since the Closing Date shall not exceed $200.0
million.
(i) transfers resulting from any casualty or condemnation of
Property;
(j) licenses or sublicenses by any Company of software, trademarks
and other intellectual property and general intangible and leases, licenses
or subleases of other property in the ordinary course of business and which
do not materially interfere with the business of any Company;
(k) any consignment arrangements or similar arrangements for the sale
of assets in the ordinary course of business of any Company;
(l) the making of Investments permitted by Section 9.09 and the
liquidation in the ordinary course of business of (A) Permitted Investments
and (B) Investments made pursuant to Sections 9.09(A)(a) and 9.09(A)(b);
(m) Acquisitions by Borrower or any Subsidiary of any new Subsidiary;
provided, however, that (1) the sole consideration provided therefor by the
-------- -------
Companies is common Equity Interests of Borrower, and (2) such Acquisition
shall comply with each of clauses (i), (ii), (iii), (iv), (v), (vii) and
(viii) of Section 9.06(h) (with references therein to Section 9.06(h) being
deemed references to this Section 9.06(m));
(n) the Triton Disposition; and
(o) the restructuring, renegotiation or termination of any Coal
Supply Agreement resulting in Borrower or its Subsidiaries receiving in a
single transaction, or series of related transactions, cash proceeds of no
greater than $50.0 million.
To the extent the Majority Lenders waive the provisions of this Section 9.06
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 9.06
(other than to any Company), such Collateral in each case shall be sold or
otherwise disposed of free and clear of the Liens created by the Security
Documents and Administrative Agent shall take such actions as are appropriate in
connection therewith.
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9.07. Limitation on Liens. No Company shall, directly or
-------------------
indirectly, create, incur, assume or suffer to exist any Lien upon any of their
respective Property, whether now owned or hereafter acquired, or sell any such
Property subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property (including the sale of accounts receivable with
recourse to any Company) or assign any right to receive income, except for the
following, which are herein collectively referred to as "Permitted Liens":
---------------
(a) Liens in existence on the Closing Date and identified in
Schedule 9.07, which Liens are reasonably acceptable to the Agents;
-------------
(b) Liens imposed by any Governmental Authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Companies, in accordance with
GAAP;
(c) Liens imposed by law which were incurred in the ordinary course
of business, such as carriers', warehousemen's, landlords' and mechanics'
Liens and other similar Liens arising in the ordinary course of business,
in each case for sums the payment of which is not required by Section 9.03;
(d) pledges or deposits under workers' compensation, unemployment
insurance and other social security legislation or the deposits securing
the liability to insurance carriers;
(e) pledges or deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(f) encumbrances typically found upon Real Property used for mining
purposes in the applicable jurisdiction in which the applicable Real
Property is located (e.g., surface rights agreements, wheelage agreements
and reconveyance agreements), easements, rights-of-way, restrictions or
minor defects or irregularities in title incurred in the ordinary course of
business and encumbrances consisting of zoning restrictions, easements,
licenses, restrictions on the use of such Real Property or minor
imperfections in title thereto which, in the aggregate, are not material in
amount, and which do not in any case materially detract from the value of
the Real Property subject thereto or interfere with the ordinary conduct of
the business of any Company on or with respect to such Real Property;
(g) Liens upon tangible personal Property acquired after the
Closing Date by Borrower or any Subsidiary, each of which Liens either (A)
existed on such Property before the time of its acquisition and was not
created in anticipation thereof, or (B) was created solely for the purpose
of securing Indebtedness representing, or incurred to finance or refinance,
the cost of such Property or improvements thereon; provided, however, that
-------- -------
(1) no such Lien shall extend to or cover any Property of any Company other
than the Property so acquired and improvements thereon, and (2) the
principal amount of Indebtedness secured by any such Lien shall at no time
exceed 100% of the fair market value of such Property at the time it was
acquired;
(h) Liens existing on any Property of any Person at the time such
Person becomes a Subsidiary or is merged or consolidated with or into a
Subsidiary and, in each case, not created in contemplation of or in
connection with such event; provided, however, that such Liens do not
-------------------
extend to any other Property of any Company;
(i) Liens not otherwise permitted hereunder securing obligations of
any Company at any time not exceeding in the aggregate $10.0 million;
(j) Liens securing obligations under Swap Contracts with any lender
or any Affiliate of a lender under the Senior Credit Facility to the extent
such Swap Contracts relates to the obligations under the Senior Credit
Facility;
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<PAGE>
(k) Liens consisting of judgment or judicial attachment Liens
(including prejudgment attachment) in existence less than 45 days after
the entry thereof or the enforcement of which is effectively stayed or
payment of which is covered in full (subject to a customary deductible) by
insurance or which do not otherwise result in an Event of Default under
Section 10(h);
(1) Liens securing obligations in respect of Capital Leases solely
on Property subject to such Capital Leases;
(m) any obligations or duties affecting any of the Property of any
Company to any municipality or public authority with respect to any
franchise, grant, license or permit which do not materially impair the use
of such Property for the purposes for which it is held;
(n) leases or subleases granted to third Persons not interfering in
any material respect with the business of any Company;
(o) Liens arising from UCC financing statements regarding leases
permitted by this Agreement;
(p) any interest or title of a lessor or sublessor under any lease
permitted by this Agreement;
(q) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods so long as such Liens attach only to the imported
goods;
(r) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by any Company in the ordinary course of
business;
(s) Liens created under this Agreement and/or the other Credit
Documents and Liens permitted under the documents governing the Senior
Credit Facility; and
(t) any extension, renewal or replacement of the foregoing;
provided, however, that the Liens permitted by this Section 9.07(t) shall
-------- -------
not cover any additional Indebtedness or Property (other than like Property
substituted for Property covered by such Lien).
9.08. Prohibition on Disqualified Capital Stock, Limitation on
--------------------------------------------------------
Indebtedness and Contingent Obligations. Except as provided below, no Company
- - ---------------------------------------
shall directly or indirectly issue or permit to be outstanding any Disqualified
Capital Stock, other than Disqualified Capital Stock issued to and held by
Borrower or any Qualified Subsidiary. No Company will incur any Indebtedness or
Contingent Obligation (other than the Loans) which contains any direct or
indirect default, prepayment event, redemption event, repurchase or mandatory
offer to purchase event upon the occurrence or failure to occur of any event or
circumstance relating to any Unrestricted Subsidiary. No Company shall, directly
or indirectly, incur any Indebtedness or any Contingent Obligation, except (each
of which shall be given independent effect):
(a) the Loans and the other Obligations (including the Guarantees)
under the Credit Documents;
(b) Existing Debt and Contingent Obligations outstanding on the
Closing Date and listed in Schedule 9.08 and specified on Schedule 9.08 as
------------- -------------
to remain outstanding after the Closing Date (less the aggregate amount of
any permanent prepayments or repayments thereof) and Permitted Refinancings
thereof;
(c) Indebtedness and Contingent Obligations of Borrower or any
Subsidiary owing to Borrower or any Qualified Subsidiary; provided, however
--------
that such Indebtedness and Contingent Obligations shall not be held by any
Person other than Borrower or a Qualified Subsidiary and shall not be
subordinate to any other
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<PAGE>
Indebtedness or Contingent Obligations or other obligation of the obligor
unless also subordinated to the Loans on terms no less favorable to the
Lenders than that of any other creditor;
(d) Contingent Obligations in respect of operating leases;
(e) Indebtedness and Contingent Obligations arising from honoring a
check, draft or similar instrument against insufficient funds; provided,
--------
however, that such Indebtedness is extinguished within two Business Days of
-------
its incurrence;
(f) Swap Contracts entered into in the ordinary course of business and
designed to protect the Obligors against fluctuations in interest rates,
currency exchange rates, or similar risks;
(g) Contingent Obligations of Borrower or any Qualified Subsidiary in
respect of Indebtedness or other liabilities of Borrower or any Subsidiary
to the extent that the existence of such Indebtedness or other liabilities
is not prohibited under this Agreement;
(h) Contingent Obligations in connection with Dispositions permitted
under Section 9.06, arising in connection with indemnification and other
agreements in respect of any contract relating to such Disposition, not to
exceed the consideration received by Borrower or any Subsidiary in
connection with such sale and excluding, however, in all cases any
Contingent Obligation with respect to any obligation of any third person
incurred in connection with the acquisition of the Property which is the
subject of such Disposition;
(i) Indebtedness and Contingent Obligations of Borrower and the
Subsidiaries (including Permitted Refinancings thereof) secured by Liens
permitted under Section 9.07(g) or (1) (and extensions, renewals or
replacements thereof pursuant to Section 9.07 (v)) not exceeding (together
with any Permitted Refinancing thereof) $50.0 million in the aggregate at
any time outstanding for Borrower and the Subsidiaries collectively;
(j) Indebtedness of a corporation which becomes a Subsidiary after the
date hereof; provided, however, that (1) such Indebtedness existed at the
-------- -------
time such corporation became a Subsidiary and was not created in connection
with or in anticipation thereof, (2) immediately after giving effect to the
acquisition of such corporation by Borrower no Default shall have occurred
and be continuing, and (3) the aggregate amount of Indebtedness outstanding
at any time pursuant to this Section 9.080) shall not exceed $100.0 million
for all Subsidiaries;
(k) unsecured Indebtedness, Contingent Obligations and Disqualified
Capital Stock incurred by Borrower, and any Permitted Refinancing thereof,
not to exceed $50.0 million in the aggregate at any time outstanding;
(1) Indebtedness of Borrower in an aggregate principal amount not to
exceed $25.0 million which is subordinated to the Loans pursuant to
documentation satisfactory to the Agents issued as part of the Acquisition
Consideration for any Acquisition permitted by Section 9.06(h);
(m) At such time as AM and its Subsidiaries cease to constitute
Unrestricted Subsidiaries, (i) Indebtedness of AM and its Subsidiaries in
an aggregate principal amount not to exceed $21.0 million and (ii) the 10%
Senior Notes due 2007 of AM and any Permitted Refinancings thereof in an
aggregate principal amount not to exceed $200.0 million;
(n) Indebtedness under the Holding's Bridge Loan Agreement in an
aggregate principal amount not to exceed $100.0 million and Permitted
Refinancings thereof, and
(o) until December 30, 1998, Contingent Obligations under the Letter
of Credit Agreements in an aggregate face amount not to exceed $183.0
million.
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<PAGE>
9.09. Limitation on Investments, Limitation on Creation of
----------------------------------------------------
Subsidiaries and Unrestricted Subsidiaries. (A) No Company shall, directly or
- - ------------------------------------------
indirectly, make or permit to remain outstanding any Investments, except:
(a) operating deposit accounts and certificates of deposit with
banks in the ordinary course of business;
(b) Permitted Investments;
(c) Investments by (1) Borrower or any Subsidiary in any Qualified
Subsidiary or in any Subsidiary if as a result thereof or in connection
therewith such Subsidiary becomes a Qualified Subsidiary (provided that no
Investment will be permitted in respect of any Subsidiary with respect to
which Borrower has not complied with Section 9.19), and (2) any Subsidiary
in Borrower;
(d) Investments outstanding on the Closing Date and identified with
particularity in Schedule 9.09 and any renewals, amendments and
replacements thereof that do not increase the amount thereof;
(e) Investments that constitute Indebtedness or Contingent
Obligations permitted under Section 9.08;
(f) advances, loans or extensions of credit by any Company to (1)
employees of any Company; provide , however, that the aggregate amount of
-------- ---------
all such loans, advances and extensions of credit (other than pursuant to
clause (2) of this Section 9.09(f)) shall not at any time exceed in the
aggregate $5.0 million (without giving effect to any write-down or write-
off thereof), and (2) employees of any Company in connection with stock
option plans so long as (x) such loans do not involve cash payments by any
Company and (y) no Company incurs any obligations at any time to repurchase
the stock so purchased;
(g) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(h) pledges or deposits required in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security or similar legislation;
(i) pledges or deposits in connection with (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed money),
leases or statutory obligations, (ii) contingent obligations on surety or
appeal bonds, and (iii) other non-delinquent obligations of a like nature,
in each case incurred in the ordinary course of business;
(j) Investments (including debt obligations) received in connection
with the bankruptcy or re organization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(k) Borrower and the Subsidiaries may hold additional Investments
in any Subsidiary which is not a Qualified Subsidiary to the extent that
such Investments reflect an increase in the stockholders' equity of such
Subsidiary resulting from retained earnings of such Subsidiary;
(l) capital expenditures permitted by the Senior Credit Facility;
(m) Investments by any Company in any Subsidiary which is not a
Qualified Subsidiary to the extent made in the ordinary course to fund or
support the ordinary course operations of such Subsidiary so long as no
Default shall have occurred and be continuing; provided, however, that (1)
-------- -------
the amount of such Investments made pursuant to this clause (m) shall not
exceed $5.0 million in the aggregate outstanding at any time (without
giving effect to any write-down or write-off thereof), and (2) upon the
request of the
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<PAGE>
Majority Lenders all such Investments in excess of $ 1.0 million shall be
evidenced by Intercompany Notes, which shall be pledged to Administrative
Agent pursuant to the Security Agreement;
(n) Borrower or any Subsidiary may hold the Equity Interests of any
Subsidiary existing on the Closing Date or created or acquired thereafter
in accordance with the provisions hereof and any additional Equity
Interests issued in exchange therefor or as a dividend thereon;
(o) Investments consisting of non-cash consideration received in the
form of securities, notes or similar obligations in connection with any
Disposition; provided, however that the aggregate amount of such non-cash
------------------
consideration received in connection with any such Disposition shall not
exceed 20% of the total consideration received in connection with any such
Disposition if the total consideration received in connection with such
Disposition exceeds $5.0 million;
(p) Investments made in order to consummate Acquisitions permitted by
Section 9.06(h) and Acquisitions effected in accordance with Section
9.06(n);
(q) Investments (other than any direct or indirect Guaranty Obligation
in respect of any Indebtedness, Contingent Obligation or other liabilities
or obligations) by Borrower in any Unrestricted Subsidiary with the portion
of the Net Available Proceeds of any Equity Issuance not required to be
applied to the prepayment of the Loans pursuant to Section 2. 1 0(ii) and
not previously expended pursuant to Section 9.09(r); provided, however,
-------- -------
that (1) Borrower shall be in compliance with Section 9.09(D) with respect
to any Unrestricted Subsidiary in which such Investment is being made, (2)
at the time of making any such Investment no Default shall exist or would
arise therefrom, (3) no such Investment shall be permitted to be made until
after the portion of the Net Available Proceeds of such Equity Issuance
required to be applied to the prepayment of the Loans pursuant to Section
2.10(ii) shall have been applied to the prepayment of the Loans, and (4)
such Investments shall not exceed in the aggregate outstanding at any time
(without giving effect to any write-downs or write-offs thereof) $5.0
million, net of any cash returns of capital, cash dividends and cash
distributions received in respect thereof,
(r) the Zeigler Acquisition and the Kindill Acquisition;
(s) Investments in Bowie Resources, Limited in connection with the
purchase from Mitsui Matsushita Co. Ltd. in an aggregate amount not to
exceed $11.5 million; and
(t) in addition to the foregoing, other Investments by Borrower or any
Subsidiary not exceeding in the aggregate outstanding at any time (without
giving effect to any write-downs or write-offs thereof) the sum of (1)
$20.0 million, plus (2) the aggregate sum of the portion of the Net
----
Available Proceeds from all Equity Issuances since the Closing Date not
required to be applied to the prepayment of the Loans pursuant to Section
2.10(ii) and not previously expended pursuant to Section 9.09(q), net of
any cash returns of capital, cash dividends and cash distributions received
in respect thereof and Net Available Proceeds of any Disposition thereof;
provided, however, that (x) any Investment made pursuant to this Section
-------- -------
9.06(r) that results in $5.0 million or more being then outstanding
(without giving effect to any write-downs or write-offs thereof) shall only
be made in a Subsidiary or in a Person whom Borrower or a Subsidiary has
the power to control the management and affairs thereof as certified to the
Agents by Borrower in an Officers' Certificate delivered prior to the time
of the making of such Investment and providing documentation evidencing
such control (and such Investment shall be permitted hereunder only so long
as Borrower or a Subsidiary has such control), (y) no such Investment shall
be permitted to be made with the Net Available Proceeds of any Equity
Issuance until after the portion of the Net Available Proceeds of such
Equity Issuance required to be applied to the prepayment of the Loans
pursuant to Section 2.10(ii) shall have been applied to the prepayment of
the Loans, and (z) at the time of making any such Investment no Default
shall exist or would arise therefrom.
(B) No Company shall, directly or indirectly, create or acquire any
Subsidiary without the prior written consent of the Majority Lenders, which
consent shall not be unreasonably withheld; provided, however, that
-------- -------
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<PAGE>
(1) the provisions of this Section 9.09(B) shall not require the Majority
Lenders' consent for (I) the creation or acquisition of direct or indirect
Wholly Owned Subsidiaries so long as Section 9.19 is complied with at the time
of formation or acquisition thereof, (II) the creation or acquisition of any
Subsidiary which is not a Wholly Owned Subsidiary so long as the Investment made
in connection therewith complies with Section 9.09(A) and so long as Section
9.19 is complied with at the time of formation or acquisition thereof, and (iii)
the acquisition of any Subsidiary made in compliance with Section 9.06(o) so
long as Section 9.19 is complied with at the time of such acquisition; and (2)
all Investments in any Subsidiary, including in connection with the creation or
acquisition thereof, must comply with Section 9.09(A).
(C) No Company shall cause or permit the majority of the members of
the board of directors or other governing body of any Subsidiary or Unrestricted
Subsidiary to be Persons designated by any Person other than (I) Borrower or
(II) any Subsidiary or (other than with respect to any Subsidiary) Unrestricted
Subsidiary of which the majority of the members of the board of directors or
other governing body are designees of Borrower.
(D) Borrower shall not create or acquire any direct or indirect
Unrestricted Subsidiary unless at the time of creation or acquisition thereof
(1) Borrower shall have or shall have caused the applicable Unrestricted
Subsidiary to comply with Section 9.12 and Section 9.13, and (2) Borrower shall
have entered into a tax sharing agreement which is in full force and effect on
terms and conditions satisfactory to the Agents in their sole discretion.
9.10. Limitation on Dividend Payments. No Company shall, directly
-------------------------------
or indirectly, declare or make any Dividend Payment at any time, except:
(a) any Subsidiary may declare and make Dividend Payments to
Borrower or any Subsidiary;
(b) so long as no Default has occurred and is continuing, Borrower
may make Dividend Payments to Holding if the proceeds thereof are used at
the time of such Dividend Payment by Holding:
(i) to pay out-of-pocket expenses, for administrative, legal
and accounting services provided by third parties that are reasonable
and customary and incurred in the ordinary course of business for the
professional services, or to pay franchise fees and similar costs;
provided, however, that Dividend Payments under this clause (b)(i)
--------
shall not exceed an aggregate amount of $1.0 million per year;
(ii) to pay taxes of the Companies as part of a consolidated,
combined or unitary tax filing group or of the separate operations of
Holding which are actually due and payable arising from the ownership
of the Equity Interests of Borrower by Holding (not to exceed in any
event the amount of tax that Borrower and the Subsidiaries would
otherwise pay if not part of such filing group);
(iii) to redeem Equity Interests (other than Disqualified
Capital Stock) held by current or former employees or directors of any
Company (or their estates or beneficiaries of their estates) upon the
death, disability, retirement or termination of employment or
directorship, as the case may be, pursuant to an agreement in effect
on the Closing Date as in effect on the Closing Date; provided,
--------
however, that the aggregate cash consideration paid, or distributions
made, pursuant to this clause (c)(ii) shall not exceed $5.0 million in
the aggregate in any fiscal year, plus, in each case, the proceeds of
----
any Excluded Equity Issuance consummated contempomneously with such
purchase or redemption; and
(iv) to fund cash interest payments on Indebtedness
outstanding under the Holding's Bridge Loan Agreement commencing
September 2, 2003 in accordance with the terms thereof or any
Permitted Refinancing thereof.
(c) so long as no Default or Event of Default then exists or would
arise therefrom, in the event Borrower consummates the Triton Disposition
on or prior to June 30, 1999, Borrower may make a Dividend
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Payment in an amount equal to (A) 75% of the first $50.0 million of Net
Available Proceeds in excess of $200.0 million from such Disposition, (B)
60% of the first $50.0 million of Net Available Proceeds in excess of
$250.0 million from such Disposition, (C) 40% of the first $50.0 million of
Net Available Proceeds in excess of $300.0 million from such Disposition
and (D) 30% of the Net Available Proceeds in excess of $350.0 million from
such Disposition; provide , that the amounts set forth in (A), (B), and (C)
shall be reduced by the amount of all Investments in excess of $20.0
million made by Borrower and its Subsidiaries in Triton since the Closing
Date.
9.11. Limitation on Senior Subordinated Indebtedness. The
----------------------------------------------
Borrower shall not, directly or indirectly, incur any Indebtedness that by its
terms would expressly rank senior in right of payment to the Loans and expressly
rank subordinate in right of payment to any other Indebtedness of the Borrower.
The Borrower shall not permit any Guarantor to, and no Guarantor
shall, directly or indirectly, incur any Indebtedness that by its terms would
expressly rank senior in right of payment to the Guarantee of such Guarantor and
expressly rank subordinate in right of payment to any Guarantor Senior
Indebtedness of such Guarantor.
9.12. Consents. Upon the exercise by Administrative Agent or the
--------
Lenders of any power, right, privilege or remedy pursuant to any Credit Document
which requires any consent, approval, registration, qualification or
authorization of any Governmental Authority, each Company shall execute and
deliver all applications, certifications, instruments and other documents and
papers that Administrative Agent or the Lenders may be so required to obtain.
9.13. Compliance with Environmental Laws. (a) Each Company shall
----------------------------------
comply with all Environmental Laws, and will keep or cause all Real Property to
be kept free of any Liens under Environmental Laws, unless failure to do so
could not reasonably be expected to have a Material Adverse Effect or subject
any Agent or Lender to any material risk of damages or liability; (b) in the
event of the presence of any Hazardous Material at, on, under or emanating from
any Real Property which would reasonably be expected to result in liability
under or a violation of any Environmental Law, in each case which could
reasonably be expected to have a Material Adverse Effect, each Company and
Unrestricted Subsidiary shall undertake, and/or cause any of their respective
tenants or occupants to undertake, at their sole expense, any action required
pursuant to Environmental Laws to mitigate and eliminate such presence;
provided, however, that no Company shall be required to comply with any order or
- - -------- -------
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP; (c) each Company shall promptly
notify Administrative Agent of the occurrence of any event specified in clause
(b) of this Section 9.14 and shall periodically thereafter keep Administrative
Agent informed of any material actions taken in response to such event and the
results of such actions; and (d) at the written request of Administrative Agent
at any time and from time to time, such Obligor will provide, at such Obligor's
sole cost and expense, an environmental site assessment (including, without
limitation, the results of any groundwater or other testing, conducted if
Administrative Agent directs that such testing be conducted) concerning any Real
Property now or hereafter owned, leased or operated by any Company, conducted by
an environmental consulting firm proposed by such Obligor and approved by
Administrative Agent indicating the presence or absence of Hazardous Materials
and the potential cost of any required investigation or other response or any
corrective action in connection with any Hazardous Materials on, at, under or
emanating from such Real Property; provided, however, that such request may be
-------- -------
made only if (a) there has occurred and is continuing an Event of Default, (b)
Administrative Agent reasonably believes that any Company or any such Real
Property is not in material compliance with Environmental Law or (c)
circumstances exist that reasonably could be expected to form the basis of an
Environmental Claim against such Company or any such Real Property which could
materially and adversely affect any Company. If any Obligor fails to provide the
same within 60 days after such request was made, Administrative Agent may but is
under no obligation to conduct the same, and such Obligor shall grant and hereby
grants to Administrative Agent and its agents access to such Real Property and
specifically grants Administrative Agent an irrevocable non-exclusive license,
subject to the rights of tenants, to undertake such an assessment, all at such
Obligor's sole cost and expense.
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9.14. Limitation on Transactions with Affiliates. No Company
------------------------------------------
shall, directly or indirectly: enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property, the rendering of any service, or a merger or consolidation), with or
for the benefit of any Affiliate (an "Affiliate Transaction") unless such
Affiliate Transaction is (i) otherwise not prohibited under this Agreement, (ii)
in the ordinary course business and (iii) on fair and reasonable terms that are
not less favorable to such Company than those that are reasonably obtainable at
the time in an arm's-length transaction with a Person that is not such an
Affiliate; provided, however, that so long as no Default shall have occurred and
-------- -------
be continuing, the following shall be permitted: (a) Dividend Payments permitted
by Section 9. 10; (b) reasonable fees and compensation paid to, and customary
indemnity and reimbursement provided on behalf of, officers, directors and
employees of any Company in the ordinary course of business; (c) loans or
advances to employees permitted by Section 9.09; (d) transactions and agreements
in existence on the Closing Date and listed and described with particularity in
Schedule 9.15 (as such agreements are in effect on the Closing Date, the
"Existing Affiliate Agreements") and the transactions contemplated by each of
-----------------------------
the Existing Affiliate Agreements.
9.15. Limitation on Accounting Changes; Limitation on Investment
----------------------------------------------------------
Company Status. No Company shall make or permit, any change in (i) accounting
- - --------------
policies or reporting practices, except immaterial changes and except as
required by generally accepted accounting principles or (ii) its fiscal year end
(December 31 of each year). No Obligor shall be or become an investment company
subject to the registration requirements under the United States Investment
Company Act of 1940, as amended.
9.16. Limitation on Modifications of Certain Documents, Etc. No
-----------------------------------------------------
Company shall, directly or indirectly, consent to any modification, supplement,
waiver, or amendment, in any manner which could be materially adverse to the
Lenders, of any of the provisions of any Organic Document.
9.17. Interest Rate Protection Agreements. Borrower shall obtain,
-----------------------------------
on or within 90 days after the Closing Date, interest rate protection agreements
(or in lieu thereof, shall have Refinanced Indebtedness which accrues interest
at a fixed rate) having terms and with counterparties reasonably satisfactory to
Arranger as shall result in effectively limiting the interest cost to the
Companies of 50% of the aggregate principal amount of then outstanding Total
Debt of the Companies for such period of time as the An-anger may reasonably
request from the date the initial interest rate protection agreements were
obtained (not to exceed three years).
9.18. Limitation on Certain Restrictions Affecting Subsidiaries.
---------------------------------------------------------
No Company shall, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any direct or indirect encumbrance or restriction on
the ability of any Subsidiary to (a) pay dividends or make any other
distributions on such Subsidiary's Equity Interests or any other interest or
participation in its profits owned by any Company, or pay any Indebtedness or
any other obligation owed to any Company, (b) make Investments in or to any
Company, or (c) transfer any of its Property to any Company. The foregoing
shall not prohibit (i) any such encumbrances or restrictions existing under or
by reason of applicable law or the Credit Documents, the Senior Credit Facility
or the Holding's, Bridge Agreement or any Permitted Refinancings thereof, (H)
restrictions on the transfer of assets subject to a Lien permitted under Section
9.07, (iii) customary restrictions on subletting or assignment of any lease
governing a leasehold interest of any Company, and (iv) restrictions on the
transfer of any Property subject to a Disposition permitted under this
Agreement.
9.19. Additional Obligors. Upon any Company creating or acquiring
-------------------
any Subsidiary after the Closing Date or at such time as AEI and its
Subsidiaries shall cease to constitute Unrestricted Subsidiaries here under
(each such Subsidiary and each of AEI and its Subsidiaries referred to herein as
an "Additional Obligor" and collectively as the "Additional Obligors"), Borrower
------------------ -------------------
shall cause each Additional Obligor to execute and deliver all such agreements,
guarantees, documents and certificates (including any amendments to the Credit
Documents and a Joinder Agreement substantially in the form of Exhibit J) as
---------
Administrative Agent may reasonably request and do such other acts and things as
Administrative Agent may reasonably request in order to have such Additional
Obligor guarantee the Obligations in accordance with the terms of the Credit
Documents.
9.20. Limitation on Leases. No Company shall become liable in any
--------------------
way, whether directly or by assignment or as a guarantor or other surety, for
the obligations of the lessee under any operating lease, unless, immediately
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after giving effect to the incurrence of liability with respect to such lease,
the Consolidated Rental Payments at the time in effect shall not exceed $5.0
million per annum..
--- ------
9.21. Limitation on Other Restrictions on Amendment of Credit
-------------------------------------------------------
Documents. No Company shall, directly or indirectly, enter into, suffer to
- - ---------
exist or become or remain subject to any agreement or instrument (other than the
Credit Documents) that (a) would, directly or indirectly prohibit or restrict or
require the consent of any Person to, any amendment to, or waiver or consent to
departure from the terms of, any of the Credit Documents or (b) contains any
provision that would contravene any provision of any Credit Document.
9.22. Triton Disposition. If any Loans are outstanding on
------------------
December 2, 1998, Borrower use its reasonable best efforts to effect the Triton
Disposition as soon as reasonably practicable thereafter
9.23. Limitation on Issuance or Dispositions of Equity Interests
----------------------------------------------------------
of Borrower, Subsidiaries and Unrestricted Subsidiaries. Holding shall not,
- - -------------------------------------------------------
directly or indirectly, effect any Disposition of any Equity Interests or Equity
Rights of Borrower. Prior to such time as AM and its Subsidiaries cease to be
Unrestricted Subsidiaries, Borrower shall not directly or indirectly, effect any
Disposition of AEI other than the pledge thereof pursuant to the security
agreement entered into in connection with the Senior Credit Facility. No
Subsidiary shall issue, sell, assign, transfer or otherwise dispose of any of
its Equity Interests or Equity Rights, except (a) to any Subsidiary, to Borrower
or a Qualified Subsidiary and (b) directors' qualifying shares as required by
law. Neither Borrower nor any Subsidiary shall effect the Disposition of any
Equity Interests of any Subsidiary unless all Equity Interests owned by Borrower
and the Subsidiaries are sold pursuant thereto.
9.24. Limitation on Payments or Prepayments of Indebtedness or
--------------------------------------------------------
Modification of Debt Documents. Borrower shall not, and shall not cause or
- - ------------------------------
permit any Subsidiary to, directly or indirectly:
(a) make any payment or prepayment (optional or otherwise) on or
redemption of or any payments in redemption, defeasance or repurchase of
any Indebtedness (other than the Loans) (whether in cash, securities or
other Property), except (1) regularly scheduled mandatory payments of
interest, (2) pursuant to any Permitted Refinancing and (3) the conversion
or exchange of any Indebtedness into shares of common Equity Interests of
Borrower;
(b) amend, supplement, waive or otherwise modify any of the provisions
of any Existing Debt (or any Permitted Refinancing thereof):
(i) which shortens the fixed maturity, or increases the rate
or shortens the time of payment of interest or dividends on, or
increases the amount or shortens the time of payment of any principal,
liquidation preference or premium payable whether at maturity, at a
date fixed for prepayment or by acceleration or otherwise of such
Indebtedness, or increases the amount of, or accelerates the time of
payment of, any fees payable in connection therewith (other than the
exercise by Borrower of its rights under the Cyprus Acquisition
Agreement to accelerate royalty payments thereunder);
(ii) which relates to the affirmative or negative covenants,
events of default or remedies under the documents or instruments
evidencing such Indebtedness and the effect of which is to subject
Borrower or any of the Subsidiaries to any more onerous or more
restrictive provisions; or
(iii) which otherwise adversely affects the interests of the
Lenders as senior creditors or the interests of the Lenders under this
Agreement or any other Credit Document in any respect.
9.25. Take or Pay Contracts. No Company shall or enter into or be
---------------------
a party to any arrangement for the purchase of materials, supplies, other
property or services if such arrangement by its express terms requires that
payment be made by such Company regardless of whether such materials, supplies,
other property or services are delivered or furnished to it.
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<PAGE>
9.26. Tax Sharing Arrangements. No Company shall enter into or
------------------------
permit to exist any tax sharing agreement or similar arrangement unless the same
shall have been reviewed by, and consented to, by the Agents.
9.27. Maintenance of Corporate Separateness. Borrower shall not,
-------------------------------------
and shall not permit any of the Subsidiaries or Unrestricted Subsidiaries to,
(a) fail to satisfy customary corporate formalities, including, without
limitation, (i) the holding of regular board of directors' and shareholders'
meetings, (ii) the maintenance of separate corporate records and (W) the
maintenance of separate bank accounts in its own name; (b) fail to act solely in
its own corporate name and through its authorized officers and agents; (c)
commingle any money or other assets of Borrower or any of the Subsidiaries with
any money or other assets of any Unrestricted Subsidiary; or (d) take any
action, or conduct its affairs in a manner, which could be expected to result in
the separate corporate existence of each of Borrower, each of the Subsidiaries
and each of its Unrestricted Subsidiaries from being ignored or the assets and
liabilities of Borrower or any of the Unrestricted Subsidiaries being
substantively consolidated with those of the Borrower or any other Company in
any Insolvency Proceeding. No Company shall make any payment to any creditor of
any Unrestricted Subsidiary. All financial statements of each Unrestricted
Subsidiary distributed to any creditor of an Unrestricted Subsidiary shall
clearly establish the separateness of such Unrestricted Subsidiary from the
Companies.
9.28. Take-Out Financing. The Borrower shall take any and every
------------------
action necessary or desirable, to the extent within the power of the Borrower,
so that the Take-Out Bank can, as soon as practicable after the Closing Date,
publicly sell or privately place the Refinancing Securities. If the Initial
Loans shall not have been refinanced in full prior thereto, the Borrower shall
agree that upon notice by the Take-Out Bank (a "Refinancing Securities Demand"),
-----------------------------
at any time and from time to time prior to the first anniversary of the Closing
Date, Holding and/or the Borrower will cause the issuance and sale of
Refinancing Securities upon such terms and conditions as specified in the
Refinancing Securities Demand; provided that (i) the interest rates (whether
--------
floating or fixed) shall be determined by the Take-Out Bank in light of the then
prevailing market conditions; (ii) the maturity of any Refinancing Securities
shall not be earlier than the eighth anniversary of the Closing Date; (iii) the
Refinancing Securities will be issued pursuant to one or more indentures
substantially in the form of the Take-Out Bank's customary high yield indenture
and which shall contain such terms, conditions and covenants as are customary
for similar financing and as are reasonably satisfactory in all respects to the
takeout Bank and its counsel and the Borrower and its counsel; and (iv) all
other arrangements with respect to the Refinancing Securities shall be
reasonably satisfactory in all respects to the Take-Out Bank in light of the
then prevailing market conditions. Before offering common equity of Holding in
connection with the issuance and sale of Refinancing Securities of the Borrower,
the Take-Out Bank will consult with the Borrower regarding prevailing market
conditions and the advisability of issuing common equity to facilitate the
placement of such Refinancing Securities.
Further, if it shall reasonably be determined by the Take-Out Bank
based on the prevailing market conditions that it is necessary and advisable to
sell the Refinancing Securities with an equity component, Holding shall issue
common equity to the purchasers of the Refinancing Securities in such amount as
is necessary in order for Holding and the Borrower to receive net proceeds from
the sale of the Refinancing Securities in an amount sufficient to repay the
Initial Loans in full; provided that in no event will Holding be required to
--------
issue common equity representing more than 5% of its outstanding common equity
(calculated on a fully-diluted basis) pursuant to this sentence.
9.29. Exchange of Term Notes. Borrower will, on the fifth
----------------------
Business Day following the written request (the "Exchange Request ") of the
----------------
holder of any Term Note (or beneficial owner of a portion thereof):
(i) Execute and deliver, cause each Guarantor to execute and deliver,
and cause a bank or trust company acting as trustee thereunder to execute
and deliver, the Senior Subordinated Indenture, if such Senior Subordinated
Indenture has not previously been executed and delivered;
(ii) Execute and deliver to such holder or beneficial owner in
accordance with the Senior Subordinated Indenture a note in the form
attached to the Senior Subordinated Indenture (the "Exchange Notes")
--------------
bearing interest as set forth therein in exchange for such Term Note dated
the date of the issuance of such Exchange Note, payable to the order of
such holder or owner, as the case may be, in the same principal
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<PAGE>
amount as such Term Note (or portion thereof) being exchanged, and cause
each Guarantor to endorse its guarantee thereon; and
(iii) Execute and deliver, and cause each Guarantor to execute and
deliver, to such holder or owner, as the case may be, a Registration Rights
Agreement in the form of Exhibit G, if such Registration Rights Agreement
---------
has not previously been executed and delivered or, if such Registration
Rights Agreement has previously been executed and delivered and such holder
or owner is not already a party thereto, permit such holder or owner to
become a party thereto.
The Exchange Request shall specify the principal amount of the Term
Notes to be exchanged pursuant to this Section 9.31 which shall be at least
$5,000,000 and integral multiples of $500,000 in excess thereof. Term Notes
delivered to Borrower under this Section 9.31 in exchange for Exchange Notes
shall be canceled by Borrower and the corresponding amount of the Term Loan
shall be deemed repaid and the Exchange Notes shall be governed by and construed
in accordance with the terms of the Senior Subordinated Indenture.
The bank or trust company acting as trustee under the Senior
Subordinated Indenture shall at all times be a corporation organized and doing
business under the laws of the United States of America or the State of New
York, in good standing and having its principal offices in the Borough of
Manhattan, in The City of New York, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
Federal or State authority and which has a combined capital and surplus of not
less than $50,000,000.
9.30. Release of Covenants Upon Conversion. Upon any conversion
------------------------------------
of the Initial Loans into Term Loans pursuant to Section 2.02, Sections 9.06-
9.10, 9.14, 9.18, 9.20, and 9.23-9.27 of this Agreement shall no longer apply to
any Obligor.
Section 9A. Covenants Applicable to Term Loan. Borrower covenants
---------------------------------
and agrees that from and after issuance of the Term Loan and the Term Notes
until the satisfaction in full of the Term Loan and the Term Notes and all other
Obligations due under this Agreement it shall, and shall cause each of its
Subsidiaries to, fully and timely perform all covenants in this Section 9A
required to be performed by any of them..
(a) Limitation on Restricted Payments. Borrower will not, and will
---------------------------------
not permit any of its Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of
Borrower's or any of its Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation involving
Borrower or any of its Subsidiaries or to the direct or indirect holders of
Borrower's or any of its Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Capital Stock) of Borrower); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving Borrower) any Equity
Interests of Borrower or any direct or indirect parent of the Borrower; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated to
the Exchange Notes, except a payment of interest or principal at Stated Maturity
or Indebtedness permitted under clause (viii) of Section 9A(b); or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) Borrower would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable fourquarter period, have been permitted
to incur at least S 1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the Section
9A(b); and
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<PAGE>
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Borrower and its Subsidiaries after the
Closing Date (excluding Restricted Payments permitted by clauses (ii),
(iii), (iv), (v), (viii), (ix) and (xi) of the next succeeding paragraph),
is less than the sum, without duplication, of (i) 50% of the Consolidated
Net Income of Borrower for the period (taken as one accounting period) from
the date of the closing of the issuance of the Exchange Notes to the end of
Borrower's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by Borrower since the date of the closing of the issuance of the Exchange
Notes as a contribution to its common equity capital or from the issue or
sale of Equity Interests of Borrower (other than Disqualified Capital
Stock) or from the issue or sale of Disqualified Capital Stock or debt
securities of Borrower that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Capital Stock or convertible
debt securities) sold to a Subsidiary of Borrower), plus (iii) to the
extent that any Restricted Investment that reduced the amount available for
Restricted Payments under this clause (c) is sold for cash or otherwise
liquidated or repaid for cash or any dividend or payment is received by
Borrower a Subsidiary after the date of the closing of the Acquisitions in
respect of such Investment, 100% of the amount of Net Proceeds or dividends
or payments (including the fair market value of property) received in
connection therewith, up to the amount of the Restricted Investment that
reduced this clause (c), and thereafter 50% of the amount of Net Proceeds
or dividends or payments (including the fair market value of property)
received in connection therewith (except that the amount of dividends or
payments received in respect of payments of obligations in respect of such
Investments, such as taxes, shall not increase the amounts under this
clause (c)), plus (iv) to the extent that any Unrestricted Subsidiary of
Borrower is redesignated as a Subsidiary after the Closing Date, 100% of
the fair market value of Borrower's Investment in such Subsidiary as of the
date of such redesignation up to the amount of the Restricted Investments
made in such Subsidiary that reduced this clause (c) and 50% of the excess
of the fair market value of Borrower's Investment in such Subsidiary as of
the date of such redesignation over (1) the amount of the Restricted
Investment that reduced this clause (c) and (2) any amounts that increased
the amount available as a Permitted Investment provided that with respect
--------
to any redesignation pursuant to this clause (iv) Borrower shall deliver to
the Trustee (I) in the case of any such redesignation involving aggregate
fair market value greater than $2.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying such value or
(H) in the case of any such redesignation involving aggregate fair market
value greater than $10.0 million, an independent appraisal or valuation
opinion issued by an accounting, appraisal or investment banking firm of
national standing; provided that any amounts that increase this clause (c)
shall not duplicatively increase amounts available as Permitted
Investments.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Agreement;
(ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
Borrower in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of Borrower) of,
other Equity Interests of Borrower (other than any Disqualified Capital
Stock); Provided that the amount of any such net cash proceeds that are
--------
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
(iii) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(iv) dividends or distributions by a Subsidiary of Borrower so long
as, in the case of any dividend or distribution payable on or in respect of
any class or series of securities issued by a Subsidiary, Borrower or a
Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or
series of securities;
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<PAGE>
(v) Investments in Unrestricted Subsidiaries having an aggregate
fair market value not to exceed the amount, at the time of such Investment,
substantially concurrently contributed in cash or Cash Equivalents to the
common equity capital of Borrower after the date of the closing of the
Acquisitions; provided that any such amount contributed shall be excluded
--------
from the calculation made pursuant to clause (c) of the preceding
paragraph;
(vi) the payment of dividends on Borrower's Common Stock, following
the first public offering of Borrower's Common Stock after the date of the
closing of the Acquisitions, of up to 6% per annum of the net proceeds
received by Borrower in such public offering, other than public offerings
with respect to Borrower's Common Stock registered on Form S-8; the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of Borrower or any Subsidiary of Borrower held by any
present or former employee or director of Borrower (or any of its
Subsidiaries), other than Equity Interests held by the Principals or any of
their Related Parties, pursuant to any management equity subscription
agreement or stock option agreement or any other management or employee
benefit plan; provided that (A) the aggregate price paid for all such
--------
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to a
maximum (without giving effect to the following proviso) of $5.0 million in
any calendar year); provide further that such amount in any calendar year
--------
may be increased by an amount not to exceed (x) the cash proceeds from the
sale of Equity Interests (not including Disqualified Capital Stock) of
Borrower or a Subsidiary to members of management and directors of Borrower
and its Subsidiaries that occurs after the date of the Indenture, plus (y)
the cash proceeds of key-man life insurance policies received by Borrower
and its Subsidiaries after the Closing Date, less (z) the amount of any
Restricted Payments previously made pursuant to clauses (x) and (y) of this
subparagraph (vi) and (B) no Default or Event of Default shall have
occurred and be continuing immediately after such transaction; and provided
--------
further, that cancellation of Indebtedness owing to Borrower from members
of management of Borrower or any of its Subsidiaries (other than the
Principals or any of their Related Parties) in connection with a repurchase
of Equity Interests of Borrower or a Subsidiary pursuant to any employment
agreement or arrangement or any stock option or similar plan will not be
deemed to constitute a Restricted Payment for purposes of this covenant or
any other provision of this Agreement.
(vii) repurchases of Equity Interests deemed to occur upon exercise
of stock options if such Equity Interests represent a portion of the
exercise price of such options;
(viii) the repurchase, redemption or other acquisition or retirement
for value of the Exchange Notes pursuant to the optional redemption
provisions of the Senior Subordinated Indenture; provided that the amount
--------
of any Equity Offering used to effect such a repurchase, redemption or
other acquisition or retirement for value shall be excluded from the
calculation made pursuant to clause (c) above;
(ix) the repurchase, redemption or other acquisition or retirement
for value of the Exchange Notes pursuant to the provisions of the Senior
Subordinated Indenture relating to the repurchase option available to
holders of the Exchange Notes in the event of a Change of Control or an
Asset Sale; provided that, as of the date of such repurchase, redemption or
--------
other acquisition or retirement for value, no Default or Event of Default
shall have occurred and be continuing or, with the passage of time, would
occur as a consequence thereof,
(x) the payment of dividends or distributions to Holding to (I)
fund cash interest payments on Indebtedness under the Holding's Bridge Loan
Agreement commencing December 30, 2003 in accordance with the terms
thereof, (II) pursuant to a tax allocation agreement in effect on the
Closing Date, in amounts required by Holding to pay income taxes, and (111)
in amounts required by Holding to pay administrative expenses not to exceed
$2.0 million in any calendar year; and
(xi) other Restricted Payments made with Excess Unrestricted
Subsidiary Disposition Proceeds.
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The Board of Directors may designate any Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default, For
purposes of making such determination, all outstanding Investments by Borrower
and its Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this Section 9A(a). All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the fair market value
of such Investments at the time of such designation. Such designation will only
be permitted if such Restricted Payment would be permitted at such time and if
such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements in the definition of "Unrestricted Subsidiary" as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of this Agreement and any Indebtedness of such Unrestricted Subsidiary
shall be deemed to be incurred by a Subsidiary of Borrower as of such date (and,
if such Indebtedness is not permitted to be incurred as of such date under
Section 9A(b), the Borrower shall be in default of such covenant). The Board of
Directors of Borrower may at any time designate any Unrestricted Subsidiary to
be a Subsidiary; provided that such designation shall be deemed to be an
--------
incurrence of Indebtedness by a Subsidiary of the Borrower of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Section 9A(b), calculated
on a pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Borrower or such Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any non-cash Restricted Payment or any adjustment made pursuant to clause (c)
of the first paragraph of this Section 9A(a) shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Exchange Note Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $10.0 million. Not later
than the date of making any Restricted Payment, Borrower shall deliver to the
Exchange Note Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this Section 9A(a) were computed.
If any Restricted Investment is sold or otherwise liquidated or repaid
or any dividend or payment is received by Borrower or a Subsidiary and such
amounts may be credited to clause (c) of the first paragraph of this Section
9A(a), then such amounts will be credited only to the extent of amounts not
otherwise included in Consolidated Net Income and that do not otherwise increase
the amount available as a Permitted Investment.
(b) Limitation on Incurrence of Indebtedness and Issuance of Preferred
------------------------------------------------------------------
Stock. Borrower will not, and will not permit any of its Subsidiaries to,
- - -----
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that
Borrower will not issue any Disqualified Capital Stock and will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
-------- -------
that Borrower may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Capital Stock and the Guarantors may incur Indebtedness or issue
Disqualified Capital Stock or preferred stock if the Fixed Charge Coverage Ratio
for Borrower's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Capital Stock or
preferred stock is issued would have been at least 2.0 to 1.0, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Capital Stock or preferred stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this Section 9A(b) will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
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(i) the incurrence by Borrower of Indebtedness under Credit
Facilities (and the guarantee thereof by the Guarantors); provided that the
--------
aggregate principal amount of all Indebtedness outstanding under this
clause (i) after giving effect to such incurrence does not exceed an amount
equal to $750.0 million (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of Borrower and
its Subsidiaries thereunder) less the amount of proceeds of Asset Sales
applied to repay any such term Indebtedness or revolving Indebtedness if
such repayment of revolving Indebtedness resulted in a corresponding
commitment reduction (excluding any such payments to the extent refinanced
at the time of repayment);
(ii) the incurrence by Borrower and its Subsidiaries of Existing
Debt;
(iii) (A) the guarantee by Borrower or any of the Guarantors of
Indebtedness of Borrower or a Subsidiary of Borrower or (B) the incurrence
of Indebtedness of a Subsidiary to the extent that such Indebtedness is
supported by a letter of credit, in each case that was permitted to be
incurred by another provision of this covenant;
(iv) the incurrence by Borrower or any of its Subsidiaries of
Indebtedness (including Capital Lease Obligations) to finance the
acquisition (including by direct purchase, by lease or indirectly by the
acquisition of the Capital Stock of a Person that becomes a Subsidiary as a
result of such acquisition) or improvement of assets or property (real or
personal) in an aggregate principal amount which, when aggregated with the
principal amount of all other Indebtedness then outstanding pursuant to
this clause (iv) and including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant
to this clause (iv), does not exceed an amount equal to 5% of Total Assets
at the time of such incurrence;
(v) the incurrence by Borrower or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to reftind, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted to be incurred under the
first paragraph of this Section 9A(b) or clauses (ii), (iii) or (iv) of
this paragraph;
(vi) the incurrence by Borrower or any of its Subsidiaries of
intercompany Indebtedness between or among Borrower and any of its
Subsidiaries; provided, however, that (i) if Borrower is the obligor on
-------- -------
such Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Exchange
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Borrower or a Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either Borrower or a Subsidiary
thereof shall be deemed, in each case, to constitute an incurrence of such
Indebtedness by Borrower or such Subsidiary, as the case may be, that was
not permitted by this clause (vi);
(vii) the incurrence by Borrower or any of its Subsidiaries of
Hedging Obligations that are incurred in the ordinary course of business
for the purpose of risk management and not for the purpose of speculation;
(viii) the incurrence by Borrower's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
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be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Subsidiary of
Borrower that was not permitted by this clause (viii), and the issuance of
preferred stock by Unrestricted Subsidiaries;
(ix) the incurrence of Indebtedness solely in respect of
performance, surety and similar bonds or completion or performance
guarantees (including, without limitation, performance guarantees pursuant
to coal supply agreements or equipment leases and including letters of
credit issued in support of such performance, surety and similar bonds), to
the extent that such incurrence does not result in the incurrence of any
obligation for the payment of borrowed money to others;
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(x) the incurrence of Indebtedness arising from agreements of
Borrower or a Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary;
provided, however, that (i) such Indebtedness is not reflected on the
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balance sheet of Borrower or any Subsidiary (contingent obligations
referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (i)) and (h) the maximum
assumable liability in respect of all such Indebtedness shall at no time
exceed the gross proceeds including noncash proceeds (the fair market value
of such noncash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received by
Borrower and its Subsidiaries in connection with such disposition; and
(xi) the incurrence by Borrower or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xi), not to exceed the
greater of (x) $50.0 million and (y) 2% of Total Assets.
Borrower will not incur, and will not permit its Subsidiaries to
incur, any Indebtedness (including Permitted Debt) that is contractually
subordinated in right of payment to any other Indebtedness of Borrower or such
Subsidiary unless such Indebtedness is also contractually subordinated in right
of payment to the Exchange Notes or the guarantees thereof, as the case may be,
on substantially identical terms; provided, however, that no Indebtedness of
-------- -------
Borrower or any Subsidiary shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of Borrower or any Subsidiary solely
by virtue of being unsecured.
For purposes of determining compliance with this Section 9A(b), in the
event that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this Section 9A(b),
Borrower shall, in its sole discretion, classify or reclassify such item of
Indebtedness in any manner that complies with this Section 9A(b). Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Capital Stock in the
form of additional shares of the same class of Disqualified Capital Stock, will
not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Capital Stock for purposes of this covenant; provided, in each such case, that
--------
the amount thereof is included in Fixed Charges of Borrower as accrued.
(c) Limitation on Liens. Borrower will not and will not permit any of
-------------------
its Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist or become effective any Lien of any kind (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under this Agreement and the Loans are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
(d) Limitation on Dividend and Other Payment Restrictions Affecting
---------------------------------------------------------------
Subsidiaries. Borrower will not, and will not permit any of its Subsidiaries
- - ------------
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (i)(a) pay dividends or make any other distributions to Borrower or any of
its Subsidiaries (1) on its Capital Stock or (2) with respect to any other
interest or participation in, or measured by, its profits, or (b) pay any
indebtedness owed to Borrower or any of its Subsidiaries, (ii) make loans or
advances to Borrower or any of its Subsidiaries or (iii) transfer any of its
properties or assets to Borrower or any of its Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Debt as in effect on the Closing Date, (b)
the Senior Credit Facility as in effect as of the date of the Indenture, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such amendments,
--------
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Senior Credit Facility as in effect on the Closing Date, (c) this Agreement,
(d) applicable law or any applicable rule, regulation or order, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by
Borrower or any of its
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Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
--------
Indebtedness, such Indebtedness was permitted by the terms of the Senior Note
Indenture to be incurred, (f) customary non-assignment provisions in leases and
other agreements entered into in the ordinary course of business and consistent
with past practices, (g) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired, (h) any agreement for the sale
of a Subsidiary that restricts distributions by that Subsidiary pending its
sale, (i) Permitted Refinancing Indebtedness, provided that the restrictions
--------
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced, (j) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of Section 9A(c)
that limits solely the right of the debtor to dispose of the assets securing
such Indebtedness, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other similar
agreements entered into in the ordinary course of business, (1) restrictions on
cash or other deposits Or net worth imposed by customers or lessors under
contracts or leases entered into in the ordinary course of business and (m) any
encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of the contracts, instruments or obligations referred to in clauses
(a) through (1) above, provided that such amendments, modifications,
--------
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of Borrower's Board of Directors,
not materially more restrictive in the aggregate with respect to such dividend
and other payment restrictions than those (considered as a whole) contained in
the dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding, replacement
or refinancing.
(e) Merger, Consolidation, or Sale of Assets. Borrower may not
----------------------------------------
consolidate or merge with or into (whether or not Borrower is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) Borrower is
the surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than Borrower) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than Borrower) or the
entity or Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of Borrower
under the Registration Rights Agreement, the Notes and this Agreement pursuant
to documentation in a form reasonably satisfactory to the Administrative Agent;
(iii) immediately after such transaction no Default or Event of Default exists;
and (iv) except in the case of a merger of Borrower with or into a Wholly Owned
Subsidiary of Borrower, immediately after giving pro forma effect to such
transaction, as if such transaction had occurred at the beginning of the
applicable four-quarter period, (A) the entity surviving such consolidation or
merger would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 9A(b) or (B) the Fixed Charge Coverage Ratio for Borrower
or the entity or Person formed by or surviving any such consolidation or merger
(if other than Borrower), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made would, immediately after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the ap plicable four-quarter period, not be less than such Fixed
Charge Coverage Ratio for Borrower and its Subsidiaries immediately prior to
such transaction. In addition, Borrower may not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among Borrower and its Subsidiaries.
Notwithstanding the foregoing clause (iv), (i) any Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to Borrower and (ii) Borrower may merge with an Affiliate that has no
significant assets or liabilities and was formed solely for the purpose of
changing the jurisdiction of organization of Borrower in another State of the
United States or the form of organization of Borrower so long as the amount of
Indebtedness of Borrower and its Subsidiaries is not increased thereby and
provided that the successor assumes all the
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obligations of Borrower under the Registration Rights Agreement, the Notes and
this Agreement pursuant to documentation in a form reasonably satisfactory to
the Administrative Agent.
(f) Transactions with Affiliates. Borrower will not, and will not
----------------------------
permit any of its Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are materially no less
favorable to Borrower or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by Borrower or such Subsidiary with an
unrelated Person and (ii) Borrower delivers to the Trustee (a) with respect to
any Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $2.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $10.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing. Notwithstanding the foregoing,
the following items shall not be deemed to be Affiliate Transactions: (i)
transactions entered into pursuant to the terms of (a) the Haulage and Delivery
Agreement, (b) the Mitsui Marketing Agreement, (c) the MMI Service Agreement,
(d) the Ml-fl Leases, (e) the Bowie Sales Agency Agreement and (f) the
Technology Sharing Agreement, each as in effect on the Closing Date or as
thereafter amended, provided any such amendment does not materially and
--------
adversely effect the rights of the Lenders under this Agreement or Holders of
the Exchange Notes under the Senior Subordinated Indenture, (ii) any employment
agreement or arrangement entered into by Borrower or any of its Subsidiaries or
any employee benefit plan available to employees of Borrower and its
Subsidiaries generally, in each case in the ordinary course of business and
consistent with the past practice of Borrower or such Subsidiary, (iii)
transactions between or among Borrower and/or its Subsidiaries, (iv) payment of
reasonable directors fees to Persons who are not otherwise Affiliates of
Borrower, (v) Restricted Payments that are permitted by this Agreement or
pursuant to the definition of Permitted Investments, (vi) indemnification
payments made to officers, directors and employees of Borrower or any Subsidiary
pursuant to charter, bylaw, statutory or contractual provisions; (vii)
transactions pursuant to the terms of the Transaction Documents in effect on the
dates of the closings of the Acquisitions, (viii) the provision by Borrower or
any Subsidiary to Triton of accounting and finance, legal, engineering,
marketing and other similar services in the ordinary course of business and (ix)
payments permitted pursuant to clause (x) under the second paragraph of Section
9A(a).
(g) Limitation on Issuances and Sales of Equity Interests in Wholly
---------------------------------------------------------------
Owned Subsidiaries. Borrower (i) will not, and will not permit any Wholly Owned
- - ------------------
Subsidiary of Borrower to, transfer, convey, sell, lease or otherwise dispose of
any Equity Interests in a Wholly Owned Subsidiary of Borrower to any Person
(other than Borrower or a Wholly Owned Subsidiary of Borrower), unless (a) (1)
such transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests in such Wholly Owned Subsidiary and (2) the cash Net Proceeds from
such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Sections 9A(h) and 2.09(iv) or (b) the proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with Section 9A(h) and (ii) will not permit any Wholly Owned Subsidiary of
Borrower to issue any of its Equity Interests (other than, if necessary, shares
of its Capital Stock constituting directors' qualifying shares) to any Person
other than to Borrower or a Wholly Owned Subsidiary of Borrower.
(h) Sale of Unrestricted Subsidiary. In the event an Unrestricted
-------------------------------
Subsidiary or its assets is disposed of by Borrower, Borrower will use (i) the
first $200.0 million of net cash proceeds therefrom and (ii) such additional
amounts, if any, required pursuant to the terms of the Senior Credit Facility to
prepay term loans under the Senior Credit Facility or to repay revolving leans
under the Senior Credit Facility and effect a corresponding commitment reduction
thereunder.
(i) Limitation on Asset Sales. Borrower will not, and will not permit
-------------------------
any of its Subsidiaries to, consummate an Asset Sale unless (i) Borrower (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value as determined in good faith by
Borrower (evidenced by
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a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Senior Subordinated Note Trustee with respect to any Asset Sale
determined to have a value greater that $25.0 million) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) except in the case of
Assets Held for Sale, at least 75% of the consideration therefor received by
Borrower or such Subsidiary is in the form of cash, Cash Equivalents or
Marketable Securities; provided that the following amounts shall be deemed to be
--------
cash: (w) any liabilities (as shown on Borrower's or such Subsidiary's most
recent balance sheet) of Borrower or any Subsidiary (other than contingent
liabilities and liabilities that are by their terms subordinated to the Senior
Subordinated Notes or any guarantee thereof) that are assumed by the transferee
of any such assets pursuant to a customary novation agreement that releases
Borrower or such Subsidiary from further liability, (x) any securities, notes or
other obligations received by Borrower or any such Subsidiary from such
transferee that are contemporaneously (subject to ordinary settlement periods)
converted by Borrower or such Subsidiary into cash (to the extent of the cash
received), (y) any Designated Noncash Consideration received by Borrower or any
of its Subsidiaries in such Asset Sale; provided that the aggregate fair market
--------
value (as determined above) of such Designated Noncash Consideration, taken
together with the fair market value at the time of receipt of all other
Designated Noncash Consideration received pursuant to this clause (y) less the
amount of Net Proceeds previously realized in cash from prior Designated Noncash
Consideration is less than 5% of Total Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value) and (z) Additional Assets received
in an exchange of assets transaction.
Within 360 days after the receipt of any cash Net Proceeds from an
Asset Sale, Borrower or such Subsidiary, at its option, may apply such cash Net
Proceeds, at its option, (a) to repay Indebtedness of Borrower or any Subsidiary
that is not subordinated in right of payment to the Senior Subordinated Notes or
to repay debt under one or more Credit Facilities and, if such debt is revolving
debt, to effect a corresponding commitment reduction thereunder, (b) to the
acquisition of all or a portion of the assets of, or a majority of the Voting
Stock of, another Permitted Business, the making of a capital expenditure or the
acquisition of other assets or Investments that are used or useful in a
Permitted Business or (c) to apply the cash Net Proceeds from such Asset Sale to
an Investment in Additional Assets.
To the extent all or part of the Net Cash Proceeds of any Asset Sale
are not applied within 360 days of such Asset Sale (each such 360th day, a
"Trigger Date") as described in clause (i), (ii) or (iii) of the immediately
------------
preceding paragraph (such Net Cash Proceeds, the "Unutilized Net Cash
-------------------
Proceeds"), Borrower shall comply with Section 2.09(iv).
Section 10. Events of Default. If one or more of the following
-----------------
events (herein called "Events of Default") shall occur and be continuing:
-----------------
(a) (i) Borrower shall default in the payment when due (whether at
stated maturity upon prepayment or repayment or acceleration or otherwise)
of any principal of any Loan, or (ii) Borrower shall default in the payment
when due of interest on any Loan or any fee or any other amount payable by
it hereunder or under any other Credit Document when due and such default
under this clause (ii) shall have continued unremedied for three or more
Business Days; or
(b) Any Company shall (i) default (x) in any payment under any coal
lease with aggregate lease payments in excess of $25.0 million or (y) in
the payment when due of any principal of or interest on any of its
Indebtedness (other than the Loans) aggregating $25.0 million or more,
beyond the period of grace, if any, provided in the instrument or agreement
under which such lease or Indebtedness was created, after giving effect to
any consents or waivers relating thereto obtained before the expiration of
any such period of grace; or (ii) any event specified in any lease, note,
agreement, indenture or other document evidencing or relating to any lease
with aggregate lease payments in excess of $25.0 million or Indebtedness
aggregating $25.0 million or more if the effect of such event (after giving
effect to any consents or waivers relating thereto obtained before the
expiration of any such period of grace) is to cause, or (with the giving of
any notice or the lapse of time or both) to permit the lessor under such
lease or the holder or holders of such Indebtedness (or a trustee or agent
on behalf of such holder or holders) to cause, such lease to be terminated
(and which
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termination could reasonably be expected to have a Material Adverse Effect)
or such Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity; or
(c) Any representation or warranty made or deemed made in any Credit
Document (or in any modification or supplement thereto) by any Relevant
Party or in any certificate furnished to any Creditor pursuant to the
provisions thereof, shall prove to have been false or misleading as of the
time made, deemed made or furnished in any material respect; or
(d) Any Obligor shall default in the performance of any of its
obligations under any of Sections 9.01 (f) or 9.05 through 9.31 or Section
9A; or Borrower shall default in the performance of its obligations under
Section 9.01 (k) and such default shall continue unremedied for five
Business Days; or any Obligor shall default in the performance of any of
its other obligations in this Agreement and such default shall continue
unremedied for a period of thirty days after written notice thereof to such
Obligor or Borrower by Administrative Agent or any Lender; or
(e) Any Company shall not, or shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts become due; or
(f) Any Company shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its Property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
or consents to any Insolvency Proceeding, (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v)
fail to controvert within 30 days or in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
Insolvency Proceeding, or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) (i) Any Insolvency Proceeding is commenced or filed against any
Company, or any writ, judgment, warrant of attachment, execution or similar
process is issued or levied against any Company, and either (1) such
proceeding or petition shall not be dismissed, or such writ, judgment, wan-
ant of attachment, execution or similar process shall not be released,
vacated or fully bonded, within 30 days after commencement, filing or levy
or (2) such proceeding shall not be actively contested by the Company; (ii)
any Company admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-
U.S. law) is ordered in any Insolvency Proceeding; (iii) any Company
acquiesces in the appointment of a receiver, receiver and manager, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar person for itself or a substantial portion of
its Property or business; or (iv) an order of relief against any Company
shall be entered in any Involuntary Proceeding; or
(h) A final judgment or judgments for the payment of money in excess
of $25.0 million in the aggregate (exclusive of judgment amounts to the
extent covered by insurance) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Company and the same shall not be discharged (or provision shall not be
made for such discharge), vacated or bonded pending appeal, or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and such Company shall not, within said period of 30 days, or
such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An ERISA Event shall have occurred that, in the opinion of the
Majority Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of any
Company in an aggregate amount exceeding $5.0 million; or
(j) Any Change of Control shall occur prior to the Conversion Date; or
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(k) Any Guarantee ceases to be in full force and effect; or
(l) Any Credit Document or any material provision thereof shall at any
time and for any reason be declared by a court of competent jurisdiction to
be null and void, or a Proceeding shall be commenced by any Company or any
other Person, or by any Governmental Authority, seeking to establish the
invalidity or unenforceability thereof (exclusive of questions of
interpretation of any provision thereof), or any Company shall repudiate or
deny that it has any liability or obligation for the payment of principal
or interest or other obligations purported to be created under any Credit
Document; or
(m) Any non-monetary judgment, order or decree is entered against any
Company which does or could reasonably be expected to have a Material
Adverse Effect, and there shall be any period of 10 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10, Administrative Agent may, with the consent
of the Majority Lenders, and upon written direction of the Majority Lenders
shall, by notice to Borrower, terminate the Commitments and/or declare the
principal amount then outstanding of, and the accrued interest on, the Loans and
all other amounts payable by Borrower hereunder and under the Notes (including
any amounts payable under Section 5.05 or 5.06) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower, reduce any claim to judgment and take any other
action permitted by law; and (2) in the case of the occurrence of an Event of
Default referred to in clause (f) or (g) of this Section 10 with respect to the
Borrower or any Significant Subsidiary, the Commitments shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Loans and all other amounts payable by Borrower hereunder and
under the Notes (including any amounts payable under Section 5.05 or 5.06) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by Borrower.
Section 11. Agents.
------
11.01. General Provisions. Each of the Lenders and Agents hereby
------------------
irrevocably appoints Administrative Agent as its agent and authorizes
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to Administrative Agent by the terms hereof, together
with such actions and powers as are reasonably incidental thereto.
Administrative Agent agrees to give promptly to each Lender a copy of each
notice or other document received by it pursuant to any Credit Document (other
than any that are required to be delivered to the Lenders by any Obligor).
The Lender or other financial institution serving as any Agent
hereunder shall have the same rights and powers in its capacity as a Lender as
any other Lender and may exercise the same as though it were not such Agent, and
such bank and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with any Company or other Affiliate
thereof as if it were not such Agent hereunder.
No Agent shall have any duties or obligations except those expressly
set forth herein. Without limiting the generality of the foregoing, (a) no Agent
shall be subject to any fiduciary or other implied duties, regardless of whether
a Default has occurred and is continuing, (b) no Agent shall have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that such Agent is
required to exercise in writing by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.04), and (c) except as expressly set forth herein, no
Agent shall have any duty to disclose, and shall not be liable for the failure
to disclose, any information relating to any Company that is communicated to or
obtained by the financial institution serving as such Agent or any of its
Affiliates in any capacity. No Agent shall be liable for any action taken or not
taken by it with the consent or at the request of the Majority Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.04) or in the absence of its own gross
negligence or willful misconduct. No
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Agent shall be deemed to have knowledge of any Default unless and until written
notice thereof is given to Administrative Agent and such Agent by Borrower or a
Lender, and no Agent shall be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement or any other Credit Document, (ii) the contents
of any certificate, report or other document delivered hereunder or under any
other Credit Document or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other Credit Document or any other agreement, instrument
or document, or (v) the satisfaction of any condition set forth in Section 7 or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to such Agent.
Each Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing reasonably believed by it to be
genuine and to have been signed or sent by the proper Person. Each Agent also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for
Borrower), independent accountants and other experts reasonably selected by it,
and shall not be liable for any action taken or not taken by it in accordance
with the advice of any such counsel, accountants or experts. Each Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with such Agent. Each Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Credit Document
unless it shall first receive such advice or concurrence of the Majority Lenders
(or, if so specified by this Agreement, all Lenders) as it deems appropriate or
it shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Each Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Majority Lenders (or,
if so specified by this Agreement, all Lenders), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders
and all future holders of the Loans.
Each Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by such Agent.
Each Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Affiliates, directors,
officers, employees, agents and advisors ("Related Parties"). The exculpatory
---------------
provisions of the preceding paragraphs shall apply to any such sub-agent and to
the Related Parties of each Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as such Agent.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, any Agent may resign at any time by notifying the
Lenders and Borrower. Upon any such resignation, the Majority Lenders shall have
the right to appoint a successor which, so long as no Default is continuing,
shall be reasonably acceptable to Borrower. If no successor shall have been so
appointed by the Majority Lenders and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be a bank with an office in New York, New York, or an Affiliate of
any such bank. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by Borrower to a successor Agent shall be the same as those payable to
its predecessor unless otherwise agreed between Borrower and such successor.
After the Agent's resignation hereunder, the provisions of this Section I I
shall continue in effect for the benefit of such retiring Agent, its sub-agents
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as such Agent.
Each Lender acknowledges that it has, independently and without
reliance upon any Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this
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Agreement, any related agreement or any document furnished hereunder or
thereunder. No Agent shall be deemed a trustee or other fiduciary on behalf of
any party.
11.02. Indemnification. Each Lender agrees to indemnify and hold
---------------
harmless each Agent (to the extent not promptly reimbursed under Section 12.03,
but without limiting the obligations of Borrower under Section 12.03), ratably
in accordance with the aggregate principal amount of the respective Commitments
of and/or Loans held by the Lenders, for any and all liabilities (including
pursuant to any Environmental Law), obligations, losses, damages, penalties,
actions, judgments, deficiencies, suits, costs, expenses (including reasonable
attorney's fees) or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against such Agent (including by any Lender)
arising out of or by reason of any investigation in or in any way relating to or
arising out of any Credit Document or any other documents contemplated by or
referred to therein for any action taken or omitted to be taken by such Agent
under or in respect of any of the Credit Documents or other such documents or
the transactions contemplated thereby (including the costs and expenses that
Borrower is obligated to pay under Section 12.03, but excluding, unless a
Default has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents; provided,
--------
however, that no Lender shall be liable for any of the foregoing to the extent
- - -------
they are determined by a court of competent jurisdiction in a final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of the party to be indemnified. The agreements set forth in this
Section 11.02 shall survive the payment of all Loans and other obligations
hereunder and shall be in addition to and not in lieu of any other
indemnification agreements contained in any other Credit Document.
11.03. Consents Under Other Credit Documents. Except as otherwise
-------------------------------------
provided in this Agreement and the other Credit Documents, Administrative Agent
may, with the prior consent of the Majority Lenders (but not otherwise), consent
to any modification, supplement or waiver under any of the other Credit
Documents.
Section 12. Miscellaneous.
-------------
12.01. Waiver. No failure on the part of any Creditor to exercise
------
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Credit Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12.02. Notices. All notices, requests and other communications
-------
provided for herein (including any modifications of, or waivers, requests or
consents under, this Agreement) shall be given or made in writing (including by
facsimile) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof; or, as to any party, at
such other address as shall be designated by such party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
facsimile or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid. Any Notice of Borrowing
or Notice of Continuation/Conversion shall be deemed to have been received when
actually received.
12.03. Expenses, Indemnification, Etc. (a) The Obligors, jointly
------------------------------
and severally, agree to pay or reimburse:
(i) the An-anger and Administrative Agent for all of their reasonable
out-of-pocket costs and expenses (including the reasonable fees and
expenses of legal counsel) in connection with (1) the negotiation,
preparation, execution and delivery of the Credit Documents and the
extension of credit hereunder, (2) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of any Credit
Document (whether or not consummated or effective) and (3) the primary
syndication of the Loans and Commitments;
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(ii) each of the Lenders and the Administrative Agent for all
reasonable out-of-pocket costs and expenses of the Lenders and the
Administrative Agent (including the reasonable fees and expenses of legal
counsel) in connection with (1) any Default and any enforcement or
collection proceedings resulting therefrom, including all manner of
participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y)
judicial or regulatory proceedings and (z) workout, restructuring or other
negotiations or proceedings (whether or not the workout, restructuring or
transaction contemplated thereby is consummated), (2) the enforcement of
this Section 12.03 and (3) any documentary taxes; and
(iii) each of the Lenders and the Administrative Agent for all
reasonable costs, expenses, taxes, assessments and other charges incurred
in connection with any filing, registration, recording or perfection of any
security interest contemplated by any Credit Document or any other document
referred to therein.
(b) The Obligors, jointly and severally, hereby agree to indemnify
each Creditor and their re spective Affiliates, directors, trustees, officers,
employees and agents (each, an "Indemnitee") from, and hold each of them
----------
harmless against, and that no Indemnitee will have any liability for, any and
all Losses incurred by any of them (including any and all Losses incurred by
Administrative Agent or Arranger to any Lender, whether or not any Creditor is a
party thereto) directly or indirectly arising out of or by reason of or relating
to the negotiation, execution, delivery, performance, administration or
enforcement of any Credit Document, any of the transactions contemplated by the
Credit Documents, any breach by any Obligor of any representation, warranty,
covenant or other agreement contained in any of the Credit Documents in
connection with any of the Transactions or the use or proposed use of any of the
Loans, but excluding any such Losses to the extent finally determined by a court
of competent jurisdiction in a final and nonappealable judgment to have arisen
from the gross negligence or bad faith of the Indemnitee.
Without limiting the generality of the foregoing, the Obligors,
jointly and severally, will indemnify each Creditor and each other Indemnitee
from, and hold each Creditor and each other Indemnitee harmless against, any
Losses described in the preceding sentence arising under any Environmental Law
as a result of (A) the past, present or future operations of any Company (or any
predecessor in interest to any Company), (B) the past, present or future
condition of any site or facility owned, operated, leased or used at any time by
any Company (or any such predecessor in interest), or (C) any Release or
threatened Release of any Hazardous Materials at, on, under or from any such
site or facility, including any such Release or threatened Release that shall
occur during any period when any Creditor shall be in possession of any such
site or facility following the exercise by such Creditor of any of its rights
and remedies hereunder; provided, however, that the indemnity hereunder shall be
-------- -------
subject to the exclusions from indemnification set forth in the preceding
sentence.
To the extent that the undertaking to indemnify and hold harmless set
forth in this Section 12.03 or any other provision of any Credit Document
providing for indemnification is unenforceable because it is violative of any
law or public policy or otherwise, the Obligors, jointly and severally, shall
contribute the maximum portion that each of them is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by any of the Persons indemnified hereunder.
The Obligors also agree that no Indemnitee shall have any liability
(whether direct or indirect, in contract or tort or otherwise) for any Losses to
any Obligor or any Obligor' s security holders or creditors resulting from,
arising out of, in any way related to or by reason of any matter referred to in
any indemnification or expense reimbursement provisions set forth in this
Agreement or any other Credit Document, except to the extent that any Loss is
determined by a court of competent jurisdiction in a final nonappealable
judgment to have resulted from the gross negligence or bad faith of such
Indemnitee.
The Obligors agree that, without the prior written consent of
Administrative Agent, Arranger and the Majority Lenders, which consent shall not
be unreasonably withheld, no Obligor will settle, compromise or consent to the
entry of any judgment in any pending or threatened Proceeding in respect of
which indemnification is reasonably likely to be sought under the
indemnification provisions of this Section 12.03 (whether or not any Indemnitee
is an actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional
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written release of each Indemnitee from all liability arising out of such
Proceeding and does not include any statement as to an admission of fault,
culpability or failure to act by or on behalf of any Indemnitee and does not
involve any payment of money or other value by any Indemnitee or any injunctive
relief or factual findings or stipulations binding on any Indemnitee.
12.04. Amendments, Etc. (i) Any provision of any Credit Document
---------------
may be amended, modified or supplemented by an instrument in writing signed by
the Obligors party thereto and the Majority Lenders, or by the Obligors party
thereto and Administrative Agent acting with the written consent of the Majority
Lenders, and any provision of any Credit Document may be waived by an instrument
in writing signed by the Obligors party thereto and the Majority Lenders, or by
the Obligors party thereto and Administrative Agent acting with the written
consent of the Majority Lenders; provided, however, that:
-------- -------
(a) no amendment or waiver shall, unless by an instrument signed by
all of the Lenders or by Administrative Agent acting with the written
consent of each Lender: (I) extend the scheduled final maturity of any
Loan or Note, or reduce the rate of interest (other than any waiver of any
increase in the interest rate pursuant to the second sentence of the
definition of Applicable Spread) or fees thereon, or extend the time of
payment of interest or fees thereon, or reduce the principal amount
thereof, or make any change to the definition of Applicable Spread, (II)
extend the final maturity of any of the Commitments (or reinstate any
Commitment terminated pursuant to Section 10), (111) change the currency in
which any Obligation is payable, (IV) amend the terms of this Section 12.04
or Section 4.07, 5 or 11.03, (V) reduce the percentages specified in the
definition of the term "Majority Lenders" or amend any provision of any
Credit Document requiring the consent of all the Lenders or reduce any
other percentage of the Lenders required to make any determinations or
waive any rights hereunder or to modify any provision hereof (it being
understood that, with the consent of the Majority Lenders, other additional
extensions of credit pursuant to this Agreement may be, included in the
determination of the Majority Lenders without notice to or consent of any
other Lender or Agent on substantially the same basis as the Commitments
(and related extensions of credit) are included on the Closing Date), (VI)
release any Guarantor from its obligations under Section 6 (unless
permitted by this Agreement), (VII) consent to the assignment or transfer
by any Obligor of any of its rights and obligations under any Credit
Document, (VIII) amend Section 12.03 or any other indemnification and
expense reimbursement provision set forth in any Credit Document, (IX)
modify the provisions of Sections 13 or 14 or any of the defined terms
related thereto in any manner adverse to the Lenders, or (X) waive
performance by Borrower of its obligations under, or consent to any
departure from any of the terms and provisions of, Section 2. 1 0(iii) or
(iv) (it being understood that any prepayment required by Section 2.10(i)
or (ii) may be waived or amended by the Majority Lenders); and
(b) any modification or supplement of or waiver with respect to
Section 11 which affects any Agent in their respective capacities as such
shall require the consent of such Agent.
(ii) If, in connection with any proposed change, waiver, discharge or
termination of any of the provisions of this Agreement as contemplated by
Section 12.04(i)(a) (other than clause (I) of such section), the consent of the
Majority Lenders is obtained but the consent of one or more of such other
Lenders whose consent is required is not obtained, then Borrower shall have the
right to replace each such nonconsenting Lender or Lenders (so long as all non-
consenting Lenders are so replaced) with one or more Replacement Lenders
pursuant to Section 2.11 so long as at the time of such replacement, each such
Replacement Lender consents to the proposed change, waiver, discharge or
termination; provided, however, that Borrower shall not have the right to
-------- -------
replace a Lender solely as a result of the exercise of such Lender's rights (and
the withholding of any required consent by such Lender) pursuant to clause (I)
of Section 12.04(i)(a).
12.05. Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
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12.06. Assignments and Participations. (a) No Obligor may assign
------------------------------
its respective rights or obligations hereunder or under the Notes or any other
Credit Document without the prior written consent of all of the Lenders.
(b) Each Lender may assign to any Eligible Person any of its Loans,
its Notes and its Com mitments (but only with the consent (which shall not be
unreasonably withheld, delayed or conditioned) of Borrower and Arranger);
provided, however, that (i) no such consent by Borrower or Arranger shall be
- - -------- -------
required in the case of any assignment to another Lender or any Lender's
Affiliate or an Approved Fund of any Lender (in which case, the assignee and
assignor Lenders shall give notice of the assignment to An-anger); (ii) no
consent of Borrower need be obtained if any Default shall have occurred and be
continuing; (iii) each assignment, other than to a Lender or any Lender's
Affiliate or an Approved Fund of any Lender and other than any assignment
effected by UBS AG or any of its Affiliates in connection with the syndication
of the Commitments and/or Loans, shall be in an aggregate amount at least equal
to $5.0 million unless the assigning Lender's exposure is reduced to $0 or
unless Borrower and An-anger otherwise agree and (iv) in no event may any such
assignment be made to any Obligor or any of its Affiliates without consent of
all Lenders. Any assignment of a Loan shall be effective only upon appropriate
entries with respect thereto being made in the Register (and each Note shall
expressly so provide). Any assignment or transfer of a Loan shall be registered
on the Register only upon surrender for registration of assignment or transfer
of the Note evidencing such Loan (if a Note was issued in respect thereof),
accompanied by an instrument in writing substantially in the form of Exhibit F,
and upon consent thereto by Borrower and Arranger to the extent required above,
one or more new Notes (if requested by the New Lender) in the same aggregate
principal amount shall be issued to the designated assignee and the old Notes
shall be returned by Administrative Agent to Borrower marked "canceled". Upon
execution and delivery by the assignee to Borrower and Arranger of an instrument
in writing substantially in the form of Exhibit F, and upon consent thereto by
Borrower and Arranger to the extent required above, and in the case of a Loan,
upon appropriate entries being made in the Register, the assignee shall have, to
the extent of such assignment (unless otherwise provided in such assignment with
the consent of Administrative Agent), the obligations, rights and benefits of a
Lender hereunder holding the Commitment(s) and Loans (or portions thereof)
assigned to it (in addition to the Commitment(s) and Loans, if any, theretofore
held by such assignee) and the assigning Lender shall, to the extent of such
assignment, be released from the Commitment(s) (or portion(s) thereof) so
assigned. Upon any such assignment (other than to a Lender or any Affiliate of
a Lender or an Approved Fund of any Lender and other than any assignment by UBS
AG or any of its Affiliates) the assignee Lender shall pay a fee of $3,500 to
Administrative Agent. Upon any such assignment, certain rights and obligations
of the assigning Lender shall survive as set forth in Section 12.07.
(c) A Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans held by it, or in its Commitments,
in which event each purchaser of a participation (a "Participant") shall be
-----------
entitled to the rights and benefits of the provisions of Section 5 (provided,
--------
however, that no Participant shall be entitled to receive any greater amount
- - -------
pursuant to Section 5 than the transferor Lender would have been entitled to
receive in respect of the participation effected by such transferor Lender had
no participation occurred) with respect to its participation in such Loans and
Commitments as if such Participant were a "Lender" for purposes of said Section,
but, except as otherwise provided in Section 4.07(c), shall not have any other
rights or benefits under this Agreement or any Note or any other Credit Document
(the Participants rights against such Lender in respect of such participation to
be those set forth in the agreements executed by such Lender in favor of the
Participant). All amounts payable by Borrower to any Lender under Section 5 in
respect of Loans and its Commitments shall be no greater than the amount that
would have applied if such Lender had not sold or agreed to sell any
participation in such Loans and Commitments, and as if such Lender were funding
each of such Loan and Commitments in the same way that it is funding the portion
of such Loan and Commitments in which no participations have been sold. In no
event shall a Lender that sells a participation agree with the Participant to
take or refrain from taking any action hereunder or under any other Credit
Document, except that such Lender may agree with the Participant that it will
not, without the consent of the Participant, agree to any modification or
amendment set forth in subclauses (1), (11), (111) or (VIII) of clause (a) of
the proviso to Section 12.04.
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, any Lender may assign and pledge
all or any portion of its Loans and its Notes to any United States Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal
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Reserve System and any Operating Circular issued by such Federal Reserve Bank
and, in the case of a Lender that is an investment fund, any such Lender may
assign or pledge all or any portion of its Loans and its Notes to its trustee in
support of its obligations to its trustee, without notice to or consent of
Borrower, Administrative Agent or Arranger. No such assignment shall release the
assigning Lender from its obligations hereunder.
(e) A Lender may furnish any information concerning any Company in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants) subject, however, to the
provisions of Section 12.11. In addition, each of Administrative Agent and
Arranger may furnish any information concerning any Obligor or any of its
Affiliates in Administrative Agent's or Arranger's possession to any Affiliate
of Administrative Agent or Arranger, subject, however, to the provisions of
Section 12.11. The Obligors shall assist any Lender in effectuating any
assignment or participation pursuant to this Section 12.06 (including during
syndication) in whatever manner such Lender reasonably deems necessary,
including participation in meetings with prospective transferees.
12.07. Survival. The obligations of the Obligors under Sections
--------
5.01, 5.05, 5.06 and 12.03, the obligations of each Guarantor under Section
6.03, and the obligations of the Lenders under Sections 5.06 and 11.02, shall
survive the repayment of the Loans and the termination of the Commitments and,
in the case of any Lender that may assign any interest in its Commitments or
Loans hereunder, shall (to the extent relating to such time as it was a Lender)
survive the making of such assignment, notwithstanding that such assigning
Lender may cease to be a "Lender" hereunder. In addition, each representation
and warranty made, or deemed to be made by a notice of any extension of credit,
herein or pursuant hereto shall be considered to have been relied upon by the
other parties hereto and shall survive the execution and delivery of this
Agreement and the Notes and the making of any extension of credit hereunder,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that Administrative Agent or any Lender may have had notice
or knowledge of any Default or incorrect representation or warranty.
12.08. Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
12.09. Counterparts; Interpretation; Effectiveness. This Agreement
-------------------------------------------
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to Administrative Agent
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof, other than the indemnity,
confidentiality, waiver of jury trial and governing law provisions of the
Commitment Letter, which are not superseded and survive. Except as provided in
Section 7.01, this Agreement shall become effective when it shall have been
executed by Administrative Agent and when Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
12.10. Governing Law, Submission to Jurisdiction; Waivers, Etc.
-------------------------------------------------------
Each Credit Document shall be governed by, and construed in accordance with, the
law of the State of New York, without regard to the principles of conflicts of
laws thereof (except in the case of the other Credit Documents, to the extent
otherwise expressly stated therein). Each Obligor hereby irrevocably and
unconditionally: (I) submits for itself and its Property in any Proceeding
relating to any Credit Document to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Supreme Court of the State of New York sitting in New York
County, the courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof; (H) consents that any such
Proceeding may be brought in any such court and waives trial by jury and any
objection that it may now or hereafter have to the venue of any such Proceeding
in any such court or that such Proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; (III) agrees that service
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of process in any such Proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to Borrower at its address set forth in Section 12.02 or at
such other address of which Administrative Agent shall have been notified
pursuant thereto; and (IV) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
12.11. Confidentiality. Each Lender agrees to keep information
---------------
obtained by it pursuant hereto and the other Credit Documents identified as
confidential in writing at the time of delivery confidential in accordance with
such Lender's customary practices and agrees that it will only use such
information in connection with the transactions contemplated by this Agreement
and not disclose any of such information other than (a) to such Lender's
employees, representatives, directors, attorneys, auditors, agents, professional
advisors, trustees or affiliates who are advised of the confidential nature of
such information or to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (so long as
such contractual counterparty or professional advisor to such contractual
counterparty agrees to be bound by the provision of this Section 12.11), (b) to
the extent such information presently is or hereafter becomes available to such
Lender on a non-confidential basis from any source of such information that is
in the public domain at the time of disclosure, (c) to the extent disclosure is
required by law (including applicable securities laws), regulation, subpoena or
judicial order or process (provided that notice of such requirement or order
--------
shall be promptly furnished to Borrower unless such notice is legally
prohibited) or requested or required by bank, securities, insurance or
investment company regulations or auditors or any administrative body or
commission (including the Securities Valuation Office of the National
Association of Insurance Commissioners) to whose jurisdiction such Lender may be
subject, (d) to any rating agency to the extent required in connection with any
rating to be assigned to such Lender, (e) to assignees or participants or
prospective assignees or participants who agree to be bound by the provisions of
this Section 12.11, (f) to the extent required in connection with any litigation
between any Obligor and any Lender with respect to the Loans or this Agreement
and the other Credit Documents or (g) with Borrower's prior written consent.
12.12. Independence of Representations, Warranties and Covenants.
---------------------------------------------------------
The representations, warranties and covenants contained herein shall be
independent of each other and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exception be deemed to permit any action or omission that would be in
contravention of applicable law. Notwithstanding anything herein to the
contrary, any matter identified on a Schedule to this Agreement shall be deemed
to be set forth on all other Schedules to this Agreement for purposes of
determining compliance with any of the representations, warranties or covenants
contained herein.
12.13. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
12.14. Acknowledgments. The Obligors hereby acknowledge that: (a)
---------------
each of them has been advised by counsel in connection with the negotiation,
execution and delivery of the Credit Documents; (b) no Creditor has any
fiduciary or similar relationship to any Obligor and the relationship between
the Creditors on the one hand, and the Obligors, on the other hand, is solely
that of debtor and creditor; and (c) no joint venture exists among the Creditors
or among the Obligors and the Creditors.
Section 13. Subordination.
-------------
(1) Loans and Notes Subordinated to Senior Indebtedness. Borrower
---------------------------------------------------
covenants and agrees, and the Agents and each Lender by its acceptance thereof
likewise covenant and agree, that all Loans and Notes shall be issued subject to
the provisions of this Section 13; and each person holding any Loan or Note,
whether upon original issue or upon transfer, assignment or exchange thereof,
accepts and agrees that all payments of the principal of and interest on the
Loans and Notes by Borrower shall, to the extent and in the manner set forth in
this Section 13, be
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<PAGE>
subordinated and junior in right of payment to the prior payment in full in cash
of all amounts payable under Senior Indebtedness.
(2) No Payment on Loans and Notes in Certain Circumstances, Payment
---------------------------------------------------------------
Held in Trust.
- - -------------
(A) No Payments in Certain Circumstances. No direct or indirect
------------------------------------
payment (excluding any payment or distribution of Permitted Junior Securities)
by or on behalf of Borrower of principal of or interest on the Loans and Notes,
whether pursuant to the terms of the Loans or Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, shall be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and upon receipt by the
Administrative Agent of written notice (a "Payment Blockage Notice") from the
-----------------------
holder or holders of such Designated Senior Indebtedness or the trustee or agent
acting on behalf of such Designated Senior Indebtedness, then, unless and until
such event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities) shall be made by or on
behalf of Borrower of principal of or interest on the Loans or Notes to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
-----------------------
receipt of such notice by the Administrative Agent and ending 179 days
thereafter.
Notwithstanding anything herein or in the Loans Or Notes to the
contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days
from the date the Payment Blockage Notice in respect thereof was given, (y)
there shall be a period of at least 181 consecutive days in each 360-day period
when no Payment Blockage Period is in effect and (z) not more than one Payment
Blockage Period may be commenced with respect to the Loans or Notes during any
period of 360 consecutive days. No event of default that existed or was
continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
(B) Payments Held in Trust. In the event that, notwithstanding the
----------------------
foregoing, any payment shall be received by the Arranger or any Lender when such
payment is prohibited by Section 13(2)(A), such payment shall be held in trust
for the benefit of, and shall be paid over or delivered to, the holders of
Designated Senior Indebtedness or their respective representatives, or to the
trustee or trustees under any indenture pursuant to which any of such Designated
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that, upon notice from the Administrative Agent
to the holders of Designated Senior Indebtedness that such prohibited payment
has been made, the holders of the Designated Senior Indebtedness (or their
representative or representatives or a trustee) notify the Administrative Agent
in writing of the amounts then due and owing on the Designated Senior
Indebtedness, if any, and only the amounts specified in such notice to the
Administrative Agent shall be paid to the holders of Designated Senior
Indebtedness.
(3) Payment Over of Proceeds upon Dissolution, Etc.
----------------------------------------------
(A) Payment Over. Upon any payment or distribution of assets or
------------
securities of Borrower of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior
Securities), upon any dissolution or winding-up or liquidation or reorganization
of Borrower, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all Senior Indebtedness shall first be paid
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in full in cash before the Lenders or An-anger on behalf of such Lenders shall
be entitled to receive any payment by Borrower of the principal of or interest
on the Loans or Notes, or any payment by Borrower to acquire any of the Loans or
Notes for cash, property or securities, or any distribution with respect to the
Loans or Notes of any cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities). Before any payment may be made by,
or on behalf of, Borrower of the principal of or interest on the Loans or Notes
upon any such dissolution or winding-up or liquidation or reorganization, any
payment or distribution of assets or securities of Borrower of any kind or
character, whether in cash, property or securities (excluding any payment or
distribution of Permitted Junior Securities), to which the Lenders or the
Administrative Agent on their behalf would be entitled, but for the
subordination provisions of this Agreement, shall be made by Borrower or by any
receiver, trustee in bankruptcy, liquidation trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
--- ----
Senior Indebtedness held by such holders) or their representatives or to the
trustee or trustees or agent or agents under any agreement or indenture pursuant
to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
(B) Payments Held in Trust. In the event that, notwithstanding the
----------------------
foregoing provision prohibiting such payment or distribution, any payment or
distribution of assets or securities of Borrower of any kind or character,
whether in cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities), shall be received by the Administrative Agent
or any Lender at a time when such payment or distribution is prohibited by
Section 13(3)(A) and before all obligations in respect of Senior Indebtedness
are paid in full in cash, or payment provided for, such payment or distribution
shall be received and held in trust for the benefit of, and shall be paid over
or delivered to the holders of Senior Indebtedness (pro rata to such holders on
--- ----
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their respective representatives, or to the trustee or trustees or agent or
agents under any indenture pursuant to which any of such Senior Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
The consolidation of Borrower with, or the merger of Borrower with or
into, another corporation or the liquidation or dissolution of Borrower
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Section 9A(e) shall not be deemed a dissolution, winding-
up, liquidation or reorganization for the purposes of this Section 13(3)(B) if
such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Section 9A(e).
(4) Subrogation. Upon the payment in full in cash of all Senior
-----------
Indebtedness, or provision for payment, the Lenders shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of cash, property or securities of Borrower made on such Senior
Indebtedness until the principal of and interest on the Loans and Notes shall be
paid in full in cash; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the Lenders or the Administrative Agent on their behalf
would be entitled except for the provisions of this Section 13, and no payment
over pursuant to the provisions of this Section 13 to the holders of Senior
Indebtedness by Lenders or the Administrative Agent on their behalf shall, as
between Borrower, its creditors other than holders of Senior Indebtedness, and
the Lenders, be deemed to be a payment by Borrower to or on account of the
Senior Indebtedness. It is understood that the provisions of this Section 13 are
and are intended solely for the purpose of defining the relative rights of the
Lenders, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.
If any payment or distribution to which the Lenders would otherwise
have been entitled but for the provisions of this Section 13 shall have been
applied, pursuant to the provisions of this Section 13, to the payment of all
amounts payable under Senior Indebtedness, then and in such case, the Lenders
shall be entitled to receive from the holders of such Senior Indebtedness any
payments or distributions received by such holders of Senior Indebtedness in
excess of the amount required to make payment in full, or provision for payment,
of such Senior Indebtedness.
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(5) Obligations of Borrower Unconditional. Nothing contained in this
-------------------------------------
Section 13 or elsewhere in this Agreement or in the Notes is intended to or
shall impair, as among Borrower and the Lenders, the obligation of Borrower,
which is absolute and unconditional, to pay to the Lenders the principal of and
interest on the Loans and Notes as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Lenders and creditors of Borrower other than the holders
of the Senior Indebtedness, nor shall anything herein or therein prevent the
Lenders or the Administrative Agent on their behalf from exercising all remedies
otherwise permitted by applicable law upon default under this Agreement, subject
to the rights, if any, under this Section 13 of the holders of the Senior
Indebtedness in respect of cash, property or securities of Borrower received
upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Section 13 shall restrict the right of the Administrative Agent or the
Lenders to take any action to declare the Securities to be due and payable prior
to their stated maturity pursuant to Section 10 or to pursue any rights or
remedies hereunder; provided, however, that all Senior Indebtedness then due and
-------- -------
payable shall first be paid in full before the Lenders or the Administrative
Agent is entitled to receive any direct or indirect payment from Borrower of
principal of or interest on the Loans and Notes.
(6) Notice to Arrange. Borrower shall give prompt written notice to
-----------------
the Administrative Agent of any fact known to Borrower which would prohibit the
making of any payment to or by the Administrative Agent in respect of the Loans
or Notes pursuant to the provisions of this Section 13. The Administrative
Agent shall not be charged with knowledge of the existence of any event of
default with respect to any Senior Indebtedness or of any other facts which
would prohibit the making of any payment to or by the Administrative Agent
unless and until the Administrative Agent shall have received notice in writing
to that effect signed by an Officer of Borrower, or by a holder of Senior
Indebtedness or trustee or agent therefor; and prior to the receipt of any such
written notice, the Administrative Agent shall be entitled to assume that no
such facts exist; provided, however, that if the Administrative Agent shall not
-------- -------
have received the notice provided for in this Section 13(6) at least two
Business Days prior to the date upon which by the terms of this Agreement any
moneys shall become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Loan or Note), then, regardless
of anything herein to the contrary, the Administrative Agent shall have full
power and authority to receive any moneys from Borrower and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such prior date.
Nothing contained in this Section 13(6) shall limit the right of the holders of
Senior Indebtedness to recover payments as contemplated by Section 13(3). The
Administrative Agent shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Senior Indebtedness (or a trustee on behalf of, or other representative of, such
holder) to establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder.
In the event that the Administrative Agent determines in good faith
that any evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Section 13, the Administrative Agent may request such Person to
furnish evidence to the reasonable satisfaction of the Administrative Agent as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Section 13, and if
such evidence is not furnished, the Administrative Agent may defer any payment
to such Person pending judicial determination as to the right of such Person to
receive such payment.
(7) Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets or securities referred to in this
Section 13, the Administrative Agent and the Lenders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings
are pending, or upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making such payment or distribution,
delivered to the Administrative Agent or to the Lenders for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of Borrower, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 13.
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(8) Administrative Agent's Relation to Senior Indebtedness. The
------------------------------------------------------
Administrative Agent shall be entitled to all the rights set forth in this
Section 13 with respect to any Senior Indebtedness which may at any time be held
by it in its individual or any other capacity to the same extent as any other
holder of Senior Indebtedness, and nothing in this Agreement shall deprive the
Administrative Agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the Administrative
Agent undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Section 13, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Agreement or the Notes against the Administrative Agent.
The Administrative Agent shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness (except as provided in Section 13(3)(B)). The
Administrative Agent shall not be liable to any such holders if the
Administrative Agent shall in good faith mistakenly pay over or distribute to
Lenders or to Borrower or to any other person cash, property or securities to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Section 13 or otherwise.
(9) Subordination Rights Not Impaired by Acts or Omissions of
---------------------------------------------------------
Borrower or Holders of Senior Indebtedness. No right of any present or future
- - ------------------------------------------
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of Borrower or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by Borrower with the terms of this
Agreement, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Section 13 are intended to be
for the benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness.
(10) Lenders Authorize Administrative Agent To Effectuate
----------------------------------------------------
Subordination of Loans and Notes. Each Lender by his acceptance of Loans and
- - --------------------------------
Notes authorizes and expressly directs the Administrative Agent on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Section 13, and appoints the Administrative Agent
his attorney-in-fact for such purposes, including, in the event of any
dissolution, winding-up, liquidation or reorganization of Borrower (whether in
bankruptcy, insolvency, receivership, reorganization or similar proceedings or
upon an assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of Borrower, the filing of a claim for
the unpaid balance of its Loans and Notes in the form required in those
proceedings.
(11) This Section Not To Prevent Events of Default. The failure to
---------------------------------------------
make a payment on account of principal of or interest on the Loans or Notes by
reason of any provision of this Section 13 shall not be construed as preventing
the occurrence of an Event of Default specified in Section 10.
(12) Administrative Agent's Compensation Not Prejudiced. Nothing in
--------------------------------------------------
this Section 13 shall apply to amounts due to the Administrative Agent pursuant
to other sections in this Agreement.
(13) No Waiver of Subordination Provisions. Without in any way
-------------------------------------
limiting the generality of Section 13(9), the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of or notice to the
Administrative Agent or the Lenders, without incurring responsibility to the
Lenders and without impairing or releasing the subordination provided in this
Section 13 or the obligations hereunder of the Lenders to the holders of Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (c) release any Person liable in any manner for the collection of
Senior Indebtedness; and (d) exercise or refrain from exercising any rights
against Borrower and any other Person.
(14) Acceleration of Loans and Notes. If payment of the Loans or
-------------------------------
Notes is accelerated because of an Event of Default, Borrower shall promptly
notify holders of the Senior Indebtedness of the acceleration.
Section 14. Subordination of Guarantee Obligations.
--------------------------------------
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14.01. Guarantee Obligations Subordinated to Guarantor Senior
------------------------------------------------------
Indebtedness. Each Guarantor covenants and agrees, and the Agents and each
- - ------------
Lender by its acceptance thereof likewise covenant and agree, that the Guarantee
shall be issued subject to the provisions of this Section 14; and each Person
holding any Loan or Note, whether upon original issue or upon transfer,
assignment or exchange thereof, accepts and agrees that all payments of the
principal of and interest on the Loans or Notes pursuant to the Guarantee made
by or on behalf of any Guarantor shall, to the extent and in the manner set
forth in this Section 14, be subordinated and junior in right of payment to the
prior payment in full in cash of all amounts payable under Guarantor Senior
Indebtedness of such Guarantor.
14.02. No Payment on Guarantees in Certain Circumstances, Payments
-----------------------------------------------------------
Held in Trusts.
- - --------------
A. No Payments in Certain Circumstances. No direct or indirect
------------------------------------
payment (excluding any payment or distribution of Permitted Junior Securities)
by or on behalf of any Guarantor of principal of or interest on the Loans or
Notes pursuant to such Guarantor's Guarantee, whether pursuant to the terms of
the Loans or Notes, upon acceleration or otherwise, shall be made if, at the
time of such payment, there exists a default in the payment of all or any
portion of the obligations on any Designated Guarantor Senior Indebtedness of
such Guarantor, whether at maturity, on account of mandatory redemption or
prepayment, acceleration or otherwise, and such default shall not have been
cured or waived or the benefits of this sentence waived by or on behalf of the
Lenders of such Designated Guarantor Senior Indebtedness. In addition, during
the continuance of any nonpayment event of default with respect to any
Designated Guarantor Senior Indebtedness pursuant to which the maturity thereof
may be immediately accelerated, and upon receipt by the An-anger of written
notice (the "Guarantor Payment Blockage Notice") from the Lender or Lenders of
---------------------------------
such Designated Guarantor Senior Indebtedness or the Arranger or agent acting on
behalf of such Designated Guarantor Senior Indebtedness, then, unless and until
such event of default has been cured or waived or has ceased to exist or such
Designated Guarantor Senior Indebtedness has been discharged or paid in full in
cash or the benefits of these provisions have been waived by the Lenders of such
Designated Guarantor Senior Indebtedness, no direct or indirect payment
(excluding any payment or distribution of Permitted Junior Securities) shall be
made by or on behalf of such Guarantor of principal or interest on the during a
period (a "Guarantor Blockage Period") commencing on the date of receipt of such
-------------------------
notice by the Arranger and ending 179 days thereafter.
Notwithstanding anything herein or in the Loans or Notes to the
contrary, (x) in no event shall a Guarantor Blockage Period extend beyond 179
days from the date the Guarantor Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each 360-
day period when no Guarantor Blockage Period is in effect and (z) not more than
one Guarantor Blockage Period may be commenced with respect to any Guarantor
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any other Guarantor Blockage
Period with respect to the Designated Guarantor Senior Indebtedness initiating
such Guarantor Blockage Period (to the extent the Lender of Designated Guarantor
Senior Indebtedness, or the trustee or agent acting on behalf of such Designated
Guarantor Senior Indebtedness, giving notice commencing such Guarantor Blockage
Period had knowledge of such existing or continuing event of default) may be, or
be made, the basis for the commencement of any other Guarantor Blockage Period
by the Lender or Lenders of such Designated Guarantor Senior Indebtedness or the
Arranger or agent acting on behalf of such Designated Guarantor Senior
Indebtedness, whether or not within a period of 360 consecutive days, unless
such event of default has been cured or waived for a period of not less than 90
consecutive days.
B. Payments Held in Trust. In the event that, notwithstanding the
----------------------
foregoing, any payment shall be received by the Arranger or any Lender when such
payment is prohibited by Section 14.02A, such payment shall be held in trust for
the benefit of, and shall be paid over or delivered to, the Lenders of such
Designated Guarantor Senior Indebtedness or their respective representatives, or
to the trustee under any agreement pursuant to which any of such Designated
Guarantor Senior Indebtedness may have been issued, as their respective
interests may appear, but only to the extent that, upon notice from the An-anger
to the Lenders of such Designated Guarantor Senior Indebtedness that such
prohibited payment has been made, the Lenders of such Designated Guarantor
Senior Indebtedness (or their representative or representatives or a trustee)
notify the Arranger in writing of the amounts then due and owing on such
Designated Guarantor Senior Indebtedness, if any, and only the amounts specified
in such notice to the An-anger shall be paid to the Lenders of such Designated
Guarantor Senior Indebtedness.
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14.03. Payment Over of Proceeds upon Dissolution, Etc.
----------------------------------------------
A. Payment Over. Upon any payment or distribution of assets or
------------
securities of any Guarantor of any kind or character, whether in cash, property
or securities (excluding any payment or distribution of Permitted Junior
Securities), upon any dissolution or winding-up or liquidation or reorganization
of such Guarantor, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership or other proceedings, all Guarantor Senior Indebtedness
of such Guarantor shall first be paid in full before the Lenders or the Arranger
on behalf of such Lenders shall be entitled to receive any payment by such
Guarantor of the principal of or interest on the Loans or Notes pursuant to such
Guarantor's Guarantee, or any payment to acquire any of the Loans or Notes for
cash, property or securities, or any distribution with respect to the Loans or
Notes of any cash, property or Loans or Notes (excluding any payment or
distribution of Permitted Junior Securities). Before any payment may be made by,
or on behalf of, any Guarantor of the principal of or interest on the Loans and
Notes upon any such dissolution or winding-up or liquidation or reorganization,
any payment or distribution of assets or securities of such Guarantor of any
kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities), to which the Lenders or
the An-anger on their behalf would be entitled, but for the subordination
provisions of this Agreement, shall be made by such Guarantor or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, directly to the Lenders of the Guarantor
Senior Indebtedness of such Guarantor (pro rata to such Lenders on the basis of
--- ----
the respective amounts of such Guarantor Senior Indebtedness held by such
Lenders) or their representatives or to the trustee or agent or agents under any
agreement pursuant to which any of such Guarantor Senior Indebtedness may have
been issued, as their respective interests may appear, to the extent necessary
to pay all such Guarantor Senior Indebtedness in full in cash after giving
effect to any prior or concurrent payment, distribution or provision therefor to
or for the Lenders of such Guarantor Senior Indebtedness.
B. Payments Held in Trust. In the event that, notwithstanding the
----------------------
foregoing provision pro hibiting such payment or distribution, any payment or
distribution of assets or securities of any Guarantor of any kind or character,
whether in cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities), shall be received by the Arranger or any Lender
at a time when such payment or distribution is prohibited by Section 14.03A and
before all obligations in respect of the Guarantor Senior Indebtedness of such
Guarantor are paid in full in cash, or payment provided for, such payment or
distribution shall be received and held in trust for the benefit of, and shall
be paid over or delivered to, the Lenders of such Guarantor Senior Indebtedness
(pro rata to such Lenders on the basis of the respective amounts of such
--- ----
Guarantor Senior Indebtedness held by such Lenders) or their respective
representatives, or to the trustee or agent or agents under any agreement
pursuant to which any of such Guarantor Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of such Guarantor Senior Indebtedness remaining unpaid until all such Guarantor
Senior Indebtedness has been paid in full in cash after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
Lenders of such Guarantor Senior Indebtedness.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another corporation or the liquidation or dissolution of
any Guarantor following the conveyance or transfer of its property as an
entirety, or substantially as an entirety, to another corporation upon the terms
and conditions provided in Section 9A(e) shall not be deemed a dissolution,
winding-up, liquidation or reorganization for the purposes of this Section 14.03
if such other corporation shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions stated in Section 9A(e).
14.04. Subrogation. Upon the payment in full in cash of all
-----------
Guarantor Senior Indebtedness of a Guarantor, or provision for payment, the
Lenders shall be subrogated to the rights of the Lenders of such Guarantor
Senior Indebtedness to receive payments or distributions of cash, property or
securities of such Guarantor made on such Guarantor Senior Indebtedness until
the principal of and interest on the Loans and Notes shall be paid in full in
cash; and, for the purposes of such subrogation, no payments or distributions to
the Lenders of such Guarantor Senior Indebtedness of any cash, property or
securities to which the Lenders or the Arranger on their behalf would be
entitled except for the provisions of this Section 14, and no payment over
pursuant to the provisions of this Section 14 to the Lenders of such Guarantor
Senior Indebtedness by Lenders or the Arranger on their behalf shall, as between
such Guarantor, its creditors other than Lenders of such Guarantor Senior
Indebtedness, and the Lenders, be deemed to be
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a payment by such Guarantor to or on account of such Guarantor Senior
Indebtedness. It is understood that the provisions of this Section 14 are and
are intended solely for the purpose of defining the relative rights of the
Lenders, on the one hand, and the Lenders of Guarantor Senior Indebtedness of
each Guarantor, on the other hand.
If any payment or distribution to which the Lenders would otherwise
have been entitled but for the provisions of this Section 14 shall have been
applied, pursuant to the provisions of this Section 14, to the payment of all
amounts payable under Guarantor Senior Indebtedness, then and in such case, the
Lenders shall be entitled to receive from the Lenders of such Guarantor Senior
Indebtedness any payments or distributions received by such Lenders of Guarantor
Senior Indebtedness in excess of the amount required to make payment in full, or
provision for payment, of such Guarantor Senior Indebtedness.
14.05. Obligations of Guarantors Unconditional. Nothing contained
---------------------------------------
in this Section 14 or elsewhere in this Agreement or in the Loans, Notes or the
Guarantees is intended to or shall impair, as among the Guarantors and the
Lenders, the obligation of each Guarantor, which is absolute and unconditional,
to pay to the Lenders the principal of and interest on the Loans and Notes as
and when the same shall become due and payable in accordance with the terms of
the Guarantee of such Guarantor, or is intended to or shall affect the relative
rights of the Lenders and creditors of any Guarantor other than the Lenders of
Guarantor Senior Indebtedness of such Guarantor, nor shall anything herein or
therein prevent the Lender or the An-anger on their behalf from exercising all
remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this Section 14 of the Lenders
of Guarantor Senior Indebtedness in respect of cash, property or securities of
any Guarantor received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Section 14 shall restrict the right of the Lenders or the Arranger to take
any action to declare the Loans and Notes to be due and payable prior to their
stated maturity pursuant to Section 10 or to pursue any rights or remedies
hereunder; provided, however, that all Guarantor Senior Indebtedness of any
-------- -------
Guarantor then due and payable shall first be paid in full before the Lenders or
the Arranger are entitled to receive any direct or indirect payment from such
Guarantor of principal of or interest on the Loans and Notes pursuant to such
Guarantor's Guarantee.
14.06. Notice to Arranger. Borrower and each Guarantor shall give
------------------
prompt written notice to the Arranger of any fact known to Borrower or such
Guarantor which would prohibit the making of any payment to or by the Arranger
in respect of the Securities pursuant to the provisions of this Section 14. The
Arranger shall not be charged with knowledge of the existence of any event of
default with respect to any Guarantor Senior Indebtedness or of any other facts
which would prohibit the making of any payment to or by the Arranger unless and
until the An-anger shall have received notice in writing to that effect signed
by an Officer of Borrower or such Guarantor, or by a Lender of Guarantor Senior
Indebtedness or the trustee or agent therefor; and prior to the receipt of any
such written notice, the An-anger shall be entitled to assume that no such facts
exist; provided, however, that if the Arranger shall not have received the
-------- -------
notice provided for in this Section 14.06 at least two Business Days prior to
the date upon which by the terms of this Agreement any moneys shall become
payable for any purpose (including, without limitation, the payment of the
principal of or interest on any Loan or Note), then, regardless of anything
herein to the contrary, the An-anger shall have full power and ' authority to
receive any moneys from any Guarantor and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date. Nothing
contained in this Section 14.06 shall limit the right of the Lenders of
Guarantor Senior Indebtedness to recover payments as contemplated by Section
14.03. The Arranger shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a Lender of any
Guarantor Senior Indebtedness (or a trustee on behalf of, or other
representative of, such Lender) to establish that such notice has been given by
a Lender of such Guarantor Senior Indebtedness or a trustee or representative on
behalf of any such Lender.
In the event that the Arranger determines in good faith that any
evidence is required with respect to the right of any Person as a Lender of
Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Section 14, the An-anger may request such Person to furnish
evidence to the reasonable satisfaction of the Arranger as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such
-94-
<PAGE>
Person under this Section 14, and if such evidence is not furnished, the
Arranger may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
14.07. Reliance on Judicial Order or Certificate of Liquidating
--------------------------------------------------------
Agent. Upon any payment or distribution of assets or securities of a Guarantor
- - -----
referred to in this Section 14, the Arranger and the Lenders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, delivered to the Arranger or to the Lenders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
Lenders of Guarantor Senior Indebtedness of such Guarantor and other
indebtedness of such Guarantor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 14.
14.08. Arranger's Relation to Guarantor Senior Indebtedness. The
----------------------------------------------------
Arranger shall be entitled to all the rights set forth in this Section 14 with
respect to any Guarantor Senior Indebtedness which may at any time be held by it
in its individual or any other capacity to the same extent as any other Lender
of Guarantor Senior Indebtedness, and nothing in this Agreement shall deprive
the Arranger of any of its rights as such Lender.
With respect to the Lenders of Guarantor Senior Indebtedness, the
Arranger undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Section 14, and no implied
covenants or obligations with respect to the Lenders of Guarantor Senior
Indebtedness shall be read into this Agreement against the Arranger. The
Arranger shall not be deemed to owe any fiduciary duty to the Lenders of
Guarantor Senior Indebtedness (except as provided in Section 14.03B). The
Arranger shall not be liable to any such Lenders if the An-anger shall in good
faith mistakenly pay over or distribute to Lenders or to Borrower or to any
other person cash, property or securities to which any Lenders of Guarantor
Senior Indebtedness shall be entitled by virtue of this Section 14 or otherwise.
14.09. Subordination Rights Not Impaired by Acts or Omissions of
---------------------------------------------------------
the Guarantors or Lenders of. Guarantor Senior Indebtedness. No right of any
- - ------------------------------------------------------------
present or future Lenders of any Guarantor Senior Indebtedness to enforce
subordination as provided herein shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of any Guarantor or by any act
or failure to act, in good faith, by any such Lender, or by any noncompliance by
any Guarantor with the terms of this Agreement, regardless of any knowledge
thereof which any such Lender may have or otherwise be charged with. The
provisions of this Section 14 are intended to be for the benefit of, and shall
be enforceable directly by, the Lenders of Guarantor Senior Indebtedness.
14.10. Lenders Authorize Arranger To Effectuate Subordination of
---------------------------------------------------------
Guarantee. Each Lender by its acceptance of Loans and Notes authorizes and
- - ---------
expressly directs the Arranger on its behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Section 14, and appoints the An-anger its Attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Guarantor, the filing of a claim for the unpaid
balance of its Loans and Notes in the form required in those proceedings.
14.11. This Article Not To Prevent Events of Default. The failure
---------------------------------------------
to make a payment on account of principal of or interest on the Securities by
reason of any provision of this Section 14 shall not be construed as preventing
the occurrence of an Event of Default specified in Section 10.
14.12. Arranger's Compensation Not Prejudiced. Nothing in this
--------------------------------------
Section 14 shall apply to amounts due to the An-anger pursuant to other sections
in this Agreement.
14.13. No Waiver of Guarantee Subordination Provisions. Without in
-----------------------------------------------
any way limiting the generality of Section 14.09, the Lenders of Guarantor
Senior Indebtedness may, at any time and from time to time, without the consent
of or notice to the An-anger or the Lenders, without incurring responsibility to
the Lenders and
-95-
<PAGE>
without impairing or releasing the subordination provided in this Section 14 or
the obligations hereunder of the Lenders to the Lenders of Guarantor Senior
Indebtedness, do any one or more of the following: (a) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter,
Guarantor Senior Indebtedness or any instrument evidencing the same or any
agreement under which Guarantor Senior Indebtedness is outstanding or secured;
(b) sell, exchange, release or otherwise deal with any property pledged,
mortgaged or otherwise securing Guarantor Senior Indebtedness; (c) release any
Person liable in any manner for the collection of Guarantor Senior Indebtedness;
and (d) exercise or refrain from exercising any rights against any Guarantor and
any other Person.
14.14. Payments May Be Paid Prior to Dissolution. Nothing
-----------------------------------------
contained in this Section 14 or elsewhere in this Agreement shall prevent (i) a
Guarantor, except under the conditions described in Section 14.02, from making
payments of principal of and interest on the Loans or Notes, or from depositing
with the Arranger any moneys for such payments, or (ii) the application by the
Arranger of any moneys deposited with it for the purpose of making such payments
of principal of and interest on the Loans or Notes, to the Lenders entitled
thereto unless at least two Business Days prior to the date upon which such
payment becomes due and payable, the Arranger shall have received the written
notice provided for in Section 14.02B or in Section 14.06. A Guarantor shall
give prompt written notice to the Arranger of any dissolution, winding-up,
liquidation or reorganization of such Guarantor.
[Signature Pages Follow]
-96-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
AEI RESOURCES, INC., as Borrower
By:/s/ John Baum
-------------------------------------
Name: John Baum
Title: Chief Financial Officer
Address for Notices:
AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telecopier No.: (606) 928-0450
Telephone No.: (606) 928-0439
AEI RESOURCES HOLDING, INC.
AEI COAL SALES COMPANY, INC., each as a Guarantor
By:/s/ Donald P. Brown
-------------------------------------
Name: Donald P. Brown
Title: President
-97-
<PAGE>
BEECH COAL COMPANY,
CANNELTON, INC.,
CANNELTON INDUSTRIES, INC.,
CANNELTON LAND COMPANY,
CANNELTON SALES COMPANY,
DUNN COAL & DOCK COMPANY,
KANAWHA CORPORATION (f/k/a Cyprus Kanawha
Corporation),
MIDWEST COAL COMPANY (f/k/a Amax Coal
Company),
MOUNTAIN COALS CORPORATION (f/k/a Cyprus
Mountain Coals Corporation),
WEST VIRGINIA-INDIANA COAL HOLDING
COMPANY, INC.,
each as a Guarantor
By:/s/ Scott Dyer
-------------------------------------
Name: Scott Dyer
Title: Vice President
-98-
<PAGE>
APPALACHIAN REALTY COMPANY (f/k/a Cyprus
Southern Realty Corporation),
AYRSHIRE LAND COMPANY,
COAL VENTURES HOLDING COMPANY, INC.,
GRASSY COVE COAL MINING COMPANY,
MEADOWLARK, INC.,
MEGA MINERALS, INC.
MIDWEST COAL SALES COMPANY (f/k/a Amax Coal
Sales Company),
MID-VOL LEASING, INC.
PREMIUM PROCESSING, INC.
ROARING CREEK COAL COMPANY,
STRAIGHT CREEK COAL RESOURCES COMPANY
(f/k/a Cyprus Cumberland Coal Corporation),
CC COAL COMPANY,
each as a Guarantor
By:/s/ William H. Haselhoff
-------------------------------------
Name: William H. Haselhoff
Title: President
BENTLEY COAL COMPANY,
SKYLINE COAL COMPANY,
KENTUCKY PRINCE MINING COMPANY,
each as a Guarantor
By: GRASSY COVE COAL MINING COMPANY, and
ROARING CREEK COAL COMPANY, each as General
Partner of each of the entities listed above
By:/s/ William H. Haselhoff
-------------------------------------
Name: William H. Haselhoff
Title: Vice President
-99-
<PAGE>
HAYMAN HOLDINGS, INC.
KINDILL HOLDING, INC.
KINDILL MINING, INC.,
each as a Guarantor
By:/s/ Scott Dyer
-------------------------------------
Name: Scott Dyer
Title: Vice President
KERMIT COAL COMPANY,
MOUNTAINEER COAL DEVELOPMENT COMPANY,
OLD BEN COAL COMPANY,
each as a Guarantor
By:/s/ Scott Dyer
-------------------------------------
Name: Scott Dyer
Title: Vice President
NUCOAL, LLC,
as Pledgor
By: AMERICOAL DEVELOPMENT COMPANY
ENCOAL CORPORATION
each as Member
By:/s/ William H. Haselhoff
-------------------------------------
Name: William H. Haselhoff
Title: Vice President
-100-
<PAGE>
AMERICOAL DEVELOPMENT COMPANY,
BELLAIRE TRUCKING COMPANY,
BLUEGRASS COAL DEVELOPMENT COMPANY,
EAST KENTUCKY ENERGY CORPORATION,
ENCOAL CORPORATION,
ENERZ CORPORATION,
EVERGREEN MINING COMPANY,
FAIRVIEW LAND COMPANY,
FRANKLIN COAL INTERNATIONAL, INC.
FRANKLIN COAL SALES COMPANY,
HERITAGE MINING COMPANY,
PHOENIX LAND COMPANY,
PREMIUM COAL DEVELOPMENT COMPANY,
R. & F. COAL COMPANY,
SHIPYARD RIVER COAL TERMINAL COMPANY,
TRITON COAL COMPANY,
TURRIS COAL COMPANY,
ZEIGLER COAL HOLDING COMPANY,
ZEIGLER ENVIRONMENTAL SERVICES COMPANY,
ZEIGLER INTERNATIONAL, INC.
ZEIGLER PROPERTY DEVELOPMENT COMPANY,
ZENERGY, INC.,
each as a Guarantor
By:/s/ William H. Haselhoff
-------------------------------------
Name: William H. Haselhoff
Title: Vice President
Address for Notices for all Guarantors:
c/o AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telecopier No.: (606) 928-0450
Telephone No.: (606) 928-0439
-101-
<PAGE>
UBS AG, Stamford Branch,
as Administrative Agent and as a Lender
By:/s/ Michael Y. Leder
-------------------------------------
Name: Michael Y. Leder
Title: Executive Director, Leveraged Finance
By:/s/ Thomas R. Salzano
-------------------------------------
Name: Thomas R. Salzano
Title: Associate Director, Banking Finance
Support, N.A.
Address for Notices:
UBS AG, Stamford Branch
677 Washington Blvd.
Stamford, CT 06901
Attention: Lara Kavanagh
Telecopier No.: (203)719-4181
Telephone No.: (203) 719-3146
-102-
<PAGE>
WARBURG DILLON READ LLC,
as Syndication Agent, and Arranger
By:/s/ Michael Y. Leder
-------------------------------------
Name: Michael Y. Leder
Title: Executive Director, Leveraged Finance
By:/s/ Daniel H. Chu
-------------------------------------
Name: Daniel H. Chu
Title: Executive Director
Address for Notices:
Warburg Dillon Read LLC
535 Madison Avenue
New York, New York 10022
Attention: Michael Leder
Telecopier No.: (212) 906-7858
Telephone No.: (212) 906-7116
-103-
<PAGE>
EXHIBIT 4.5
================================================================================
AEI RESOURCES, INC.
as Borrower
and
THE GUARANTORS PARTY HERETO
___________________________
$875,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of September 2, 1998
Amended and Restated as of December 14, 1998
___________________________
WARBURG DILLON READ LLC,
as Arranger and Syndication Agent,
and
UBS AG, STAMFORD BRANCH,
as Administrative Agent
===============================================================================
<PAGE>
TABLE OF CONTENTS
=================
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions, Accounting Matters and Rules of Construction................... 1
1.01. Certain Defined Terms.................................................... 1
1.02. Accounting Terms and Determinations...................................... 34
1.03. Classes and Types of Loans............................................... 34
1.04. Rules of Construction.................................................... 34
Section 2. Commitments, Letters of Credit, Fees, Register,
Prepayments and Replacement of Lenders............ 35
2.01. Loans.................................................................... 35
2.02. Borrowings............................................................... 36
2.03. Letters of Credit........................................................ 37
2.04. Termination and Reductions of Commitments................................ 42
2.05. Fees..................................................................... 42
2.06. Lending Offices.......................................................... 43
2.07. Several Obligations of Lenders........................................... 43
2.08. Notes: Register.......................................................... 43
2.09. Optional Prepayments and Conversions or Continuations of Loans........... 44
2.10. Mandatory Prepayments.................................................... 44
2.11. Replacement of Lenders................................................... 48
Section 3. Payments of principal and Interest.......................................... 48
3.01. Repayment of Loans....................................................... 48
3.02. Interest................................................................. 49
Section 4. Payments: Pro Rata Treatment: Computations Etc.............................. 50
4.01. Payments................................................................. 50
4.02. Pro Rata Treatment....................................................... 50
4.03. Computations............................................................. 51
4.04. Minimum Amounts.......................................................... 51
4.05. Certain Notices.......................................................... 51
4.06. Non-Receipt of Funds by Administrative Age................................ 52
4.07. Right of Setoff, Sharing of Payments: Etc................................ 53
Section 5. Yield Protection. Etc....................................................... 54
5.01. Additional Costs......................................................... 54
5.02. Limitation on Types of Loans............................................. 55
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5.03. Illegality............................................................... 56
5.04. Treatment of Affected Loans.............................................. 56
5.05. Compensation............................................................. 56
5.06. Net Payments............................................................. 57
9.13. Post-Closing Deliveries; Further Assurances.....................................101
(i) Post-Closing Deliveries.........................................................101
(ii) Security Interests, Further Assurances..........................................102
9.14. Compliance with Environmental Laws..............................................103
9.15. Limitation on Transactions with Affiliates......................................104
9.16. Limitation on Accounting Changes, Limitation on.................................104
Investment Company Status.
9.17. Limitation on Modifications of Certain Documents,...............................104
Etc.
9.18. Interest Rate Protection Agreements.............................................104
9.20. Additional Obligors.............................................................105
9.21. Limitation on Leases............................................................105
9.22. Limitation on Other Restrictions on Amendment of................................106
Credit Documents
9.23. Designated Senior Debt..........................................................106
9.24. Limitation on Issuance or Dispositions
of Equity Interests of Borrower, Subsidiaries
and Unrestricted Subsidiaries...............................................106
9.26. Take or Pay Contracts...........................................................107
9.27. Tax Sharing Arrangements........................................................107
9.28. Maintenance of Corporate Separateness...........................................107
9.29. Changes in Factual Information Regarding the....................................107
Collateral
9.30. Casualty and Condemnation.......................................................108
Section 10. Events of Default..................................................108
Section 11. Agents.....................................................................111
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.01. General Provisions..............................................................111
11.02. Indemnification.................................................................113
11.03. Consents Under Other Credit Documents...........................................114
11.04. Collateral Sub-Agent............................................................114
Section 12. Miscellaneous......................................................114
12.01. Waiver..........................................................................114
12.02. Notices.........................................................................114
12.03. Expenses, Indemnification, Etc..................................................115
12.04. Amendments, Etc.................................................................116
12.05. Successors and Assigns..........................................................119
12.06. Assignments and Participations..................................................119
12.07. Survival........................................................................121
12.08. Captions........................................................................122
12.10. Governing Law: Submission to Jurisdiction, Waivers..............................122
12.11. Confidentiality.................................................................122
Signatures..............................................................................S-1
</TABLE>
<PAGE>
ANNEX A - Commitments
SCHEDULE 1.01(a) - Applicable Margins Before Reset Date
SCHEDULE 1.01(b) - Applicable Margins After Reset Date
SCHEDULE 1.01(c) - Applicable Revolving Credit Fee Percentage
SCHEDULE 1.01(d) - Covered Properties
SCHEDULE 1.01(e) - Existing Debt
SCHEDULE 1.01(f) - Guarantors
SCHEDULE 1.01(g) - Mine Sites
SCHEDULE 1.01(h) - Shipyard Properties
SCHEDULE 3.01(B) - Amortization Schedule
SCHEDULE 7.01(xviii)(4) - Surveys
SCHEDULE 8.02(b) - Certain Contingent Obligations
SCHEDULE 8.02(c) - Certain Financial Matters
SCHEDULE 8.03 - Litigation
SCHEDULE 8.06 - Consents
SCHEDULE 8.09 - Tax Matters
SCHEDULE 8.11 - Environmental Matters
SCHEDULE 8.14(a) - Subsidiaries of Borrower
SCHEDULE 8.14(b) - Organizational Structure
SCHEDULE 8.20 - Material Contract
SCHEDULE 8.21 - Labor Matters
SCHEDULE 9.07 - Certain Existing Liens
SCHEDULE 9.08 - Certain Indebtedness to Remain Outstanding
SCHEDULE 9.09 - Investments
SCHEDULE 9.15 - Existing Affiliate Agreements
EXHIBIT A-1 - Form of Revolving Credit Note
EXHIBIT A-2 - Form of Tranche A Amended and Restated Term
Loan Note
EXHIBIT A-3 - Form of Tranche B Amended and Restated Tenn
Loan Note
EXHIBIT B - Form of Intercompany Note
EXHIBIT C - Form of Interest Rate Certificate
EXHIBIT D - Form of Security Agreement
EXHIBIT E-1 - Form of Opinion of Counsel to the Obligors
EXHIBIT E-2 - Form of Local Counsel Opinion
EXHIBIT F - Form of Notice of Assignment
EXHIBIT G-1 - Form of Mortgage
EXHIBIT G-2 - Form of Mortgage Amendment
EXHIBIT H - Form of Notice of Borrowing
EXHIBIT I - Form of Notice of Conversion/Continuation
EXHIBIT J - Form of Joinder Agreement
EXHIBIT K - Form of Section 5.06 Certificate for Lenders
EXHIBIT L - Form of Lien Waiver and Access Agreement
EXHIBIT M - Form of Assignment Agreement
EXHIBIT N - Form of Intercompany Lease Agreement
EXHIBIT O - Form of 7.01 (xviii)(9) Officers' Certificate
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 2,1998,
amended and restated as of December 14, 1998, among AEI RESOURCES, INC., as
Borrower; the Guarantors party hereto; each of the lenders that is a signatory
hereto identified under the caption "LENDERS" on the signature pages hereto or
that, pursuant to Section 12.06(b), shall become a "Lender" hereunder
(individually, a "Lender" and, collectively, the "Lenders"); WARBURG DILLON READ
------ -------
LLC, as arranger and syndication agent ("Arranger"); UBS AG, Stamford Branch, as
--------
administrative agent ("Administrative Agent").
--------------------
A. Borrower, the Guarantors party thereto, the Lenders party
thereto, the Arranger and the Administrative Agent are parties to that certain
Credit Agreement dated as of September 2, 1998 (the "Existing Credit Agreement")
pursuant to which the Lenders agreed, subject to the terms and limitations of
the Existing Credit Agreement, to make certain Loans (as hereinafter defined) to
Borrower in an aggregate principal amount not to exceed $750,000,000.
B. The parties hereto wish to make certain modifications to the
Existing Credit Agreement to, among other things, make certain additional Term
Loans (as hereinafter defined) and reduce the Revolving Credit Loans (as
hereinafter defined).
The parties hereto agree as follows:
Section 1. Definitions, Accounting Matters and Rules of
--------------------------------------------
Construction.
- - -------------
1.01. Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings:
"ABR Loans" shall mean Loans that bear interest at rates based upon
---------
the Alternate Base Rate.
"Acquisition" shall mean, with respect to any Person, any transaction
-----------
or series of related transactions for the direct or indirect (a) acquisition of
all or substantially all of the Property of any other Person, or of any business
or division of any other Person, (b) acquisition of in excess of 50% of the
Equity Interests of any other Person, or otherwise causing any other Person to
become a Subsidiary of such Person, or (c) merger or consolidation or any other
combination with any other Person.
"Acquisition Consideration" shall mean the purchase consideration for
-------------------------
any Acquisition and all other payments made by any Company in exchange for, or
as part of, or in connection with any Acquisition, whether paid in cash or by
exchange of Equity Interests or of assets or otherwise and whether payable at or
prior to the consummation of such Acquisition or deferred for payment at any
future time, whether or not any such future payment is subject to the occurrence
of any contingency, and includes any and all payments representing the purchase
price and any assumptions of Indebtedness, "earn-outs" and other Profit Payment
Agreements, consulting agreements, service agreements and non-competition
agreements.
"Additional Collateral" see Section 9.12.
---------------------
-1-
<PAGE>
"Additional Obligors" see Section 9.20.
-------------------
"Adjusted Net Income" shall mean, for any period, the consolidated net
-------------------
income (loss) for such period, of Borrower and its Consolidated Subsidiaries
calculated on a consolidated basis in accordance with GAAP, adjusted by
excluding (to the extent taken into account in the calculation of such
consolidated net income (loss)) the effect of (a) gains or losses for such
period from Dispositions not in the ordinary course of business and Excluded
Dispositions, and the tax consequences thereof, (b) any non-recurring or
extraordinary items of income or expense for such period and the tax
consequences thereof, (c) the portion of net income (loss) of any Person (other
than a Subsidiary) in which Borrower or any Subsidiary has an ownership
interest, except to the extent of the amount of cash dividends or other cash
distributions actually paid to Borrower or (subject to clause (e) below) any
Subsidiary during such period, (d) the net income (loss) of any Person combined
with Borrower or any Subsidiary on a "pooling of interests" basis attributable
to any period prior to the date of combination, (e) the net income of any
Subsidiary to the extent that the declaration or payment of dividends or similar
distribution by such Subsidiary was not for the relevant period permitted,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Subsidiary or its stockholders, (f) any net gain
from the collection of proceeds of life insurance or "key man" insurance
policies, (g) any income or loss from discontinued and terminated operations,
and (h) costs and expenses incurred in connection with Acquisitions consummated
on or prior to the Amendment and Restatement Date and the financing therefor.
"Administrative Agent" see the introduction hereto.
--------------------
"Advance Date" see Section 4.06.
------------
"AEI" shall mean AEI Holding Company, Inc., a Delaware corporation and
---
its Subsidiaries.
"Affiliate" shall mean, with respect to any Person, any other Person
---------
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
-------
with its correlative meanings, "controlled by" and "under common control with")
------------- -------------------------
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
Notwithstanding the foregoing, solely for purposes of Section 9.15, Borrower
shall not be deemed an Affiliate of any Subsidiary and no Subsidiary shall be
deemed an Affiliate of any other Subsidiary or Borrower. Each Unrestricted
Subsidiary shall be deemed an Affiliate of Borrower and the Subsidiaries.
"Affiliate Transaction" see Section 9.15.
---------------------
"Agent" means either of the Administrative Agent or Arranger.
-----
"Agreement" shall mean this Credit Agreement, as amended from time to
---------
time.
-2-
<PAGE>
"Alternate Base Rate" shall mean for any day, a rate per annum that is
------------------- --- -----
equal to the higher of (i) the Federal Funds Rate, plus 0.50%, or (ii) the Prime
----
Rate.
"Amended and Restated Revolving Credit Notes" shall mean the
-------------------------------------------
promissory notes provided for by Section 2.08(a) and all promissory notes
delivered in substitution or exchange therefor, in each case as the same shall
be modified and supplemented and in effect from time to time.
"Amended and Restated Term Loan Notes" shall mean the Amended and
------------------------------------
Restated Tranche A Term Loan Notes and the Amended and Restated Tranche B Term
Loan Notes.
"Amended and Restated Tranche A Term Loan Notes" shall mean the
----------------------------------------------
promissory notes provided for by Section 2.08(a)(ii) and all promissory notes
delivered in substitution or exchange therefor, in each case as the same shall
be modified and supplemented and in effect from time to time.
"Amended and Restated Tranche B Term Loan Notes" shall mean the
----------------------------------------------
promissory notes provided for by Section 2.08(a)(iii) and all promissory notes
delivered in substitution or exchange therefor, in each case as the same shall
be modified and supplemented and in effect from time to time.
"Amendment and Restatement Date" shall mean the date on which all
------------------------------
conditions to the effectiveness of this Amended and Restated Credit Agreement
have been satisfied or waived.
"Amortization Payment" shall mean each scheduled installment of
--------------------
payments on the Term Loans as set forth in Section 3.01(b).
"Applicable Lending Office" shall mean, for each Lender and for each
-------------------------
Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such
Lender) designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or of an Affiliate of such Lender) as such Lender
may from time to time specify to Administrative Agent and Borrower as the office
by which its Loans of such Type are to be made and maintained.
"Applicable Margin" shall be, for any Loan, (x) from the Closing Date
-----------------
to the first date (the "Reset Date") Borrower shall have delivered to the
----------
Lenders the financial statements and Interest Rate Certificates required by
Sections 9.01(a) and (e) and an Officers' Certificate demonstrating the then
applicable Leverage Ratio, the percentage per annum set forth on Schedule
--- ----- --------
1.01(a) for such Loan, and (y) on and after the Reset Date, when the Leverage
- - -------
Ratio at the end of the most recently ended fiscal quarter ending after such
date is as set forth in Schedule 1.01(b), the percentage per annum set forth
---------------- --- -----
opposite such Leverage Ratio in Schedule 1.01 (b) for such Loan. Any change in
------------------
the Leverage Ratio shall be effective to adjust the Applicable Margin as of the
date of receipt by Administrative Agent of the Interest Rate Certificate most
recently delivered pursuant to Section 9.01(e). If Borrower fails to deliver the
Interest Rate Certificates and financial statements within the times specified
in Sections 9.01(a), (b) and (e), the Leverage Ratio shall be deemed to be
greater than or equal to 3.0:1.0 until Borrower delivers such Interest Rate
Certificates and financial statements.
"Applicable Revolving Credit Fee Percentage" shall mean 0.5000% per
------------------------------------------ ---
annum.
- - -----
-3-
<PAGE>
"Approved Fund" shall mean, with respect to any Lender that is a fund
-------------
or commingled investment vehicle that invests in commercial loans, any other
fund that invests in commercial loans and is managed or advised by the same
investment advisor as such Lender or by an Affiliate of such investment advisor.
"Arranger" see the introduction hereto.
--------
"Assets Held for Sale" means (i) assets of the Borrower that are
--------------------
reported on the pro forma. financial statements of the Borrower contained in the
Amended Offering Memorandum and Solicitation Statement dated November 16, 1998
relating to the Borrowers exchange offer for the 10% Senior Notes due November
15, 2007 of AEI Holding Company, Inc. as assets held for sale in accordance with
GAAP and (ii) the office building in Fairview Heights, Illinois.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978.
---------------
"Borrower" shall mean AEI Resources, Inc., a Delaware corporation.
--------
"Bridge Loan Agreement" shall mean the Senior Subordinated Credit
---------------------
Agreement dated as of September 2, 1998 among Borrower, the guarantors party
thereto, the financial institutions party thereto, Warburg Dillon Read LLC, as
arranger and syndication agent and UBS AG, Stamford Branch, as administrative
agent.
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Continuation or Conversion of or into, or an Interest Period for, a LIBOR Loan
or a notice by Borrower with respect to any such borrowing, payment, prepayment,
Continuation, Conversion or Interest Period, that is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.
"Capital Expenditures" shall mean, for any period, any direct or
--------------------
indirect (by way of acquisition of securities of a Person or the expenditure of
cash or the incurrences of Indebtedness) expenditures in respect of the purchase
or other acquisition of fixed or capital assets, excluding (i) normal
replacement and maintenance programs properly charged to current operations,
(ii) any expenditure made with the Net Available Proceeds of any Disposition
effected pursuant to Section 9.06(g), (iii) any expenditure made with the
proceeds of any Excluded Disposition, (iv) expenditures in an amount not to
exceed the sum of (x) the Net Available Proceeds of any Casualty Event to the
extent such Net Available Proceeds are not required to be applied to the
prepayment of the Loans in accordance with Section 2.10(a)(i) and (y) the amount
of any applicable insurance deductibles with respect to such Casualty Event to
the extent such amount is applied as set forth in clause (w)(1) or (w)(II) of
Section 2.10(a)(i) within the period specified therein, (v) the purchase price
of equipment to the extent that the consideration therefor consists of used or
surplus equipment being traded in at such time or the proceeds of a concurrent
sale of such used or surplus equipment, in each case in the ordinary course of
business, and (vi) Acquisitions made pursuant to Section 9.06(h).
-4-
<PAGE>
"Capital Lease" as applied to any Person, shall mean any lease of any
-------------
Property by that Person as lessee which, in conformity with GAAP, is required to
be classified and accounted for as a capital lease on the balance sheet of that
Person.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a Capital Lease,
and, for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Casualty Event" shall mean, with respect to any Property (including
--------------
Real Property) of any Person, any loss of title with respect to Real Property or
any loss of or damage to or destruction of, or any condemnation or other taking
(including by any Governmental Authority) of, such Property (including Real
Property) for which such Person or any of its Subsidiaries receives insurance
proceeds or proceeds of a condemnation award or other compensation. "Casualty
--------
Event" shall include but not be limited to any taking of any Mortgaged Real
- - -----
Property or Real Property of any Company or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general or
special, or by reason of the temporary requisition of the use or occupancy of
any Mortgaged Real Property or Real Property of any Company or any part thereof,
by any Governmental Authority, civil or military.
"CERCLA" shall mean the United States Comprehensive Environmental
------
Response, Compensation and Liability Act of 1980, as amended.
"Change of Control" shall mean any transaction or event (including,
-----------------
without limitation, an issuance, sale or exchange of Equity Interests, a merger
or consolidation, or a dissolution or liquidation) occurring on or after the
date hereof (whether or not approved by the board of directors of Borrower) as a
direct or indirect result of which (a) if such transaction or event occurs prior
to the consummation of an Initial Public Offering, the Excluded Persons fail to
beneficially own, directly or indirectly, shares of Equity Interests of Borrower
representing at least a majority (on a fully diluted basis) of the aggregate
voting power of the voting Equity Interests of Borrower at the time outstanding
or the ability to appoint a majority of the board of directors of Borrower; (b)
if such transaction or event is an Initial Public Offering or occurs after the
consummation of an Initial Public Offering, (i) any Person or any group (other
than the Excluded Persons or the Excluded Group) shall (A) (directly or
indirectly) beneficially own in the aggregate shares of Equity Interests of
Borrower having 33-1/3% or more of the aggregate voting power of all shares of
Equity Interests of Borrower at the time outstanding and greater aggregate
voting power than the Excluded Persons, collectively, or (B) have the right or
power to appoint a majority of the board of directors of Borrower or (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the board of directors of Borrower (together with any new
directors whose election by such board of directors or whose nomination for
election by the shareholders of Borrower was approved by a vote of at least a
majority of the directors of Borrower then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute at least
a majority of the board of directors of Borrower then in office; or (c) if such
transaction or event occurs at any time, whether before or after the
consummation of an Initial Public Offering, any event or circumstance
constituting a "change of control" or other similar occurrence under any
documentation evidencing or governing any
-5-
<PAGE>
Indebtedness of any Company in a principal amount in excess of $25.0 million
(other than under the Credit Documents or any mineral leases or real property
leases of any Company not constituting Indebtedness) shall occur which results
in an obligation of any Company to prepay, purchase, offer to purchase, redeem
or defease all or a portion of such Indebtedness. For purposes of this
definition, the terms "beneficially own" and "group" shall have the respective
---------------- -----
meanings ascribed to them pursuant to Section 13(d) of the United States
Securities Exchange Act of 1934, except that a Person or group shall be deemed
to "beneficially own" all securities that such Person or group has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Class" see Section 1.03.
-----
"Closing Date" shall mean the date on which the initial extensions of
------------
credit are made hereunder.
"Code" shall mean the United States Internal Revenue Code of 1986, as
----
amended.
"Collateral" shall mean all of the Pledged Collateral, Mortgaged Real
----------
Property, the Intercompany Leases and all other Property of whatever kind or
nature pledged as collateral for the Obligations under any Security Document.
"Collateral Account" see Section 9 of the Security Agreement.
------------------
"Commission" shall mean the United States Securities and Exchange
----------
Commission.
"Commitment Letter" shall mean the Commitment Letter among UBS,
-----------------
Stamford Branch, Warburg Dillon Read LLC and Coal Ventures, Inc. dated August 3,
1998 together with all exhibits and schedules thereto and incorporated therein,
as such letter has been amended to the date hereof.
"Commitments" shall mean the Revolving Credit Commitments and the Term
-----------
Loan Commitments.
"Companies" shall mean the Obligors and their respective Subsidiaries;
---------
and "Company" shall mean any of them. No Unrestricted Subsidiary (including AEI
-------
and its Subsidiaries until such time as AEI and its Subsidiaries shall cease to
constitute Unrestricted Subsidiaries hereunder) is a Company.
"Consolidated Interest Expense" shall mean, for any period, all
-----------------------------
interest expense for such period (including original issue discount, interest
paid in kind, commitment fees, letter of credit fees and the interest component
of Capital Leases) of Borrower and its Consolidated Subsidiaries for such period
including all capitalized interest and the net amounts payable under all
Interest Rate Protection Agreements.
"Consolidated Net Worth" shall mean at the date of determination
----------------------
thereof, the sum of (a) all items which in conformity with GAAP would be
classified as stockholders' equity on a
-6-
<PAGE>
consolidated balance sheet of the Borrower at such date and (b) preferred stock
of the Borrower which (i) has no mandatory redemptions prior to December 31,
2005 and (ii) was issued and is outstanding on terms and conditions reasonably
satisfactory to the Agents.
"Consolidated Rental Payments" shall mean, for any period, the
----------------------------
aggregate amount of all rents paid or to be incurred under all operating leases
of Borrower and its Consolidated Subsidiaries as lessees (net of sublease
income).
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of
-----------------------
such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
the financial statements of such Person in accordance with GAAP.
"Contaminant" see Section 8.11.
-----------
"Contingent Obligation" shall mean, as to any Person, any direct or
---------------------
indirect liability of such Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
-------------------
"primary obligor"), including any obligation of such Person (but excluding
- - ----------------
reclamation surety and similar bonds and undrawn letters of credit issued in the
ordinary course of business or in connection with any acquisition) (i) to
purchase, repurchase or otherwise acquire such primary obligations or any
security therefor, (ii) to advance or provide funds for the payment or discharge
of any such primary obligation, or to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof (each of (i)-(iv), a "Guaranty Obligation"); (b)
-------------------
with respect to any Surety Instrument (other than any Letter of Credit) issued
for the account of such Person or as to which such Person is otherwise liable
for reimbursement of drawings or payments; (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; provided, however, that the
-------- -------
term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in each
case in the ordinary course of business or obligations for any recoupable
advance or minimum royalty payments under any mineral lease or real property
lease. The amount of any Contingent Obligation shall (x) in the case of a
Guaranty Obligation, be deemed equal to the stated or determinable amount of the
primary obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated liability in
respect thereof, and (y) in the case of other Contingent Obligations, be equal
to the maximum reasonably anticipated liability in respect thereof.
-7-
<PAGE>
"Continue," "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.09 of a LIBOR Loan from one Interest Period
to the next Interest Period.
"Contractual Obligation" shall mean as to any Person, any provision of
----------------------
any security issued by such Person or of any mortgage, security agreement,
pledge agreement, indenture, credit agreement, securities purchase agreement,
debt instrument, contract, agreement, instrument or other undertaking to which
such Person is a party or by which it or any of its Property is bound or
subject.
"Contribution" shall mean the contribution of all of the outstanding
------------
capital stock of Borrower to Holding by AEI Enterprises, Inc. and Mr. Larry
Addington.
"Convert," "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.09 of one Type of Loans into another Type of Loans, which
may be accompanied by the transfer by a Lender (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"Covered Properties" shall mean (i) with respect to the Real Property
------------------
of Zeigler, the Real Property set forth on Schedule 1.01(d)(i), (ii) with
-------------------
respect to the Real Property of Coal Ventures Holding Company, Inc. and its
Subsidiaries (other than Mid-Vol Leasing, Inc., Mega Minerals, Inc. and Premium
Processing, Inc. (collectively, "Mid-Vol") and CC Coal Company) and West-
Virginia-Indiana Coal Holding Company, Inc. and its Subsidiaries, the Real
Property set forth on Schedule 1.10(d)(ii), (iii) with respect to the Real
--------------------
Property of Mid-Vol, the Real Property set forth on Schedule 1.01(d)(iii), (iv)
---------------------
with respect to the Real Property of CC Coal Company, the Real Property set
forth on Schedule 1.01(d)(iv), (v) with respect to the Real Property of Kindill,
--------------------
the Real Property set forth on Schedule 1.01(d)(v), (vi) with respect to the
-------------------
Real Property of AEI, the Real Property set forth on Schedule 1.01(d)(vi) and
(viii) all Real Properties of the Obligors on which there are situated any
significant surface Improvements (as determined in the reasonable discretion of
the Administrative Agent) as set forth on Schedule 1.01(d)(viii).
"Covered Taxes" see Section 5.06(a).
-------------
"Credit Documents" shall mean this Agreement, the Notes, the Letter of
----------------
Credit Documents and the Security Documents and each of the other documents,
agreements, instruments, opinions and certificates now or. hereafter executed
and delivered in connection herewith or therewith.
"Creditor" shall mean (i) any Agent, (ii) the Issuing Lender, (iii)
--------
any Lender, and (iv) any Affiliate of a Lender party to a Swap Contract with an
Obligor to the extent such Swap Contract relates to any Loan.
"Cyprus Purchase Agreement" shall mean the Stock Purchase and Sale
-------------------------
Agreement dated as of May 28, 1998 between Cyprus Amax Coal Company, a Delaware
corporation, and AEI.
"Debt Issuance" shall mean the incurrence by any Obligor of any
-------------
Indebtedness after the Closing Date (other than as permitted by Section 9.08).
-8-
<PAGE>
"Default" shall mean any event or condition that constitutes an Event
-------
of Default or that would become, with notice or lapse of time or both, an Event
of Default.
"Disposition" shall mean (i) any conveyance, sale, lease, assignment,
-----------
transfer or other disposition (including by way of merger or consolidation and
including any sale-leaseback transaction) of any Property (including receivables
and shares of Equity Interests of any Subsidiary or joint venture of any Person)
(whether now owned or hereafter acquired) by any Company to any Person other
than Borrower or any Wholly Owned Subsidiary, (ii) any issuance or sale by any
Subsidiary of its Equity Interests to any Person other than Borrower or any
Wholly Owned Subsidiary and any issuance or sale by any Unrestricted Subsidiary
of its Equity Interests to any Person other than Borrower or a Wholly Owned
Unrestricted Subsidiary, and (iii) any liquidating or other non-ordinary course
dividend or distribution received by any Company in respect of any Unrestricted
Subsidiary or any joint venture or similar enterprise, excluding, however, in
each case any Excluded Disposition.
"Disposition Event" shall mean the receipt by any Company of proceeds
-----------------
or distributions of any kind from Property received in consideration for a
Disposition.
"Disqualified Capital Stock" shall mean, with respect to any Person,
--------------------------
any Equity Interest of such Person that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures (excluding any maturity as the result of an
optional redemption by the issuer thereof) or is mandatorily redeemable (other
than solely for Qualified Capital Stock), pursuant to a sinking fund obligation
or otherwise, or is redeemable at the sole option of the holder thereof (other
than solely for Qualified Capital Stock) or exchangeable or convertible into
debt securities of the issuer thereof at the note option of the holder thereof,
in whole or in part, on or prior to the date which is 90 days after the Final
Maturity Date.
"Dividend Payment" shall mean dividends (in cash, Property or
----------------
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any Equity Interests
or Equity Rights of any Company, but excluding dividends paid through the
issuance of additional shares of Qualified Capital Stock and any redemption or
exchange of any Qualified Capital Stock of such Obligor through the issuance of
Qualified Capital Stock of such Obligor.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Eligible Person" shall mean (i) a commercial bank organized under the
---------------
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100.0 million; (ii) a commercial bank organized under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
----
-9-
<PAGE>
country, and having a combined capital and surplus in a dollar equivalent amount
of at least $100.0 million; provided, however, that such bank is acting through
-------- -------
a branch or agency located in the country in which it is organized or another
country that is also a member of the OECD; (iii) an insurance company, mutual
fund entity which is regularly engaged in making, purchasing or investing in
loans or securities or other financial institution organized under the laws of
the United States, any state thereof, any other country that is a member of the
OECD or a political subdivision of any such country with assets, or assets under
management, in a dollar equivalent amount of at least $100.0 million; (iv) any
Affiliate of a Lender; and (v) any other entity (other than a natural person)
which is an "accredited investor" (as defined in Regulation D under the United
States Securities Act of 1933, as amended) which extends credit or buys loans as
one of its businesses including, but not limited to, insurance companies, mutual
funds, and investment funds. With respect to any Lender that is a fund that
invests in loans, any other fund that invests in loans and is managed or advised
by the same investment advisor of such Lender or by an Affiliate of such
investment advisor shall be treated as a single Eligible Person.
"Environmental Claim" shall mean, with respect to any Person, any
-------------------
written notice, claim, demand or other communication (collectively, a "claim")
by any other Person alleging such Person's liability for any costs, cleanup
costs, response or corrective action costs, damages to natural resources or
other Property, personal injuries, fines or penalties arising out of or
resulting from (i) the presence, Release or threatened Release into the
environment, of any Hazardous Material at any location, whether or not owned by
such Person, or (ii) any violation of any Environmental Law. The term
"Environmental Claim" shall include any claim by any Person seeking damages,
- - --------------------
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence of Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Laws" shall mean any and all applicable laws, rules or
------------------
regulations of any Governmental Authority, any orders, decrees, judgments or
injunctions and the common law relating to mining operations and activities or
pollution or protection of human health, safety or the environment, including
without limitation, ambient air, indoor air, soil, surface water, ground water,
wetlands, land or subsurface strata, including, without limitation, those
relating to Releases or threatened Releases of Hazardous Materials into the
environment, or otherwise relating to the manufacture, processing, generation,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
"Environmental Requirement" see Section 8.11.
-------------------------
"Equity Interests" shall mean, with respect to any Person, any and all
----------------
shares, interests, participations or other equivalents, including membership
interests (however designated, whether voting or non-voting), of capital of such
Person, including, if such Person is a partnership, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership, whether outstanding on the date
hereof or issued after the Closing Date.
"Equity Issuance" shall mean any of (a) any issuance or sale after the
---------------
Closing Date by Borrower or any direct or indirect parent of Borrower of (x) any
Equity Interests (including any Equity Interests issued upon exercise of any
Equity Rights) or any Equity Rights, or (y) any other security or instrument
representing an Equity Interest (or the right to obtain any Equity Interest) in
the issuing or selling Person, or (b) the receipt by any Company after the
Closing Date of any capital contribution (whether or not evidenced by any Equity
Interest issued by the recipient of such contribution) other than from any other
Company, excluding in each case (i) any issuance of common
-10-
<PAGE>
Equity Interests of Holding to the seller or sellers in consideration for a
Permitted Acquisition, (ii) any issuance or sale of Equity Interests in any
Subsidiary (which, for the avoidance of doubt, is treated as a Disposition),
(iii) any issuance or sale by Holding of Equity Interests of Holding to
employees, directors, officers or consultants pursuant to a benefit or
compensation plan in the ordinary course of business, (iv) any issuance of
Qualified Capital Stock of Holding to the extent that the proceeds thereof are
used for a contemporaneous purchase or redemption of Equity Interests of Holding
pursuant to Section 9.10(b)(iii), (v) any issuance of Equity Interests by any
Subsidiary to directors or nominees if required by applicable law if resulting
in de minimis proceeds, (vi) and issuance or sale by Borrower of Equity
Interests of Borrower pursuant to the exercise of stock options outstanding on
the Closing Date; and (viii) the issuance of Equity Interests to any Excluded
Person.
"Equity Rights" shall mean. with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including any stockholders' or voting trust agreements)
for the issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of Equity Interests of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the United States Employee Retirement Income
-----
Security Act of 1974, as amended.
"ERISA Entity" shall mean any member of an ERISA Group.
------------
"ERISA Event" shall mean (a) any "reportable event," as defined in
-----------
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, the failure to make by its due date a required installment under Section
412(m) of the Code with respect to any Plan or the failure to make any required
contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Plan; (d) the incurrence by any
ERISA Entity of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by any ERISA Entity from the PBGC or a
plan administrator of any notice relating to an intention to terminate any Plan
or Plans or to appoint a trustee to administer any Plan, or the occurrence of
any event or condition which could reasonably be expected to constitute grounds
under ERISA for the termination of or the appointment of a trustee to
administer, any Plan; (f) the incurrence by any ERISA Entity of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; (g) the receipt by an ERISA Entity of any notice, or the
receipt by any Multiemployer Plan from any ERISA Entity of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; or (h) the occurrence of a nonexempt
prohibited transaction (within the meaning of Section 4975 of the Code or
Section 406 of ERISA) which could result in liability to any Company or any
Unrestricted Subsidiary.
-11-
<PAGE>
"ERISA Group" shall mean any Company and any Unrestricted Subsidiary
-----------
and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which, together
with Borrower, any Subsidiary or any Unrestricted Subsidiary, are treated as a
single employer under Section 414 of the Code.
"Projected Annualized Cost Savings" shall mean (i) for December 31,
---------------------------------
1998, $50.0 million, (ii) for March 31, 1999, $37.5 million, (iii) for June 30,
1999, $25.0 million, (iv) for September 30, 1999, $12.5 million and (v) for each
Test Date after September 30, 1999, $0.
"Event of Default" see Section 10.
----------------
"Excess Cash Flow" shall mean, for any period, (A) the sum of (i)
----------------
Operating Cash Flow for such period (calculated for this definition by adding
back the cash portion of all extraordinary or nonrecurring items of income
(other than from Dispositions and Excluded Dispositions) to the extent excluded
in the calculation of Adjusted Net Income and by deducting the cash portion of
all extraordinary or non-recurring items of expense or loss to the extent
excluded in the calculation of Adjusted Net Income), (ii) any net decrease in
Working Capital during such period, and (iii) cash received from the proceeds of
any life insurance or "key man" policies during such period, minus (B) the sum
of (i) cash interest expense (including, without duplication, cash Capital Lease
expense and commitment fees) of Borrower and its Consolidated Subsidiaries for
such period to the extent deducted in calculating Adjusted Net Income, (ii) the
sum of all scheduled principal payments (other than pursuant to Section
2.10(a)(v)) on any Indebtedness (including Capital Leases and Term Loans
pursuant to Section 3.01(b)) of Borrower and its Consolidated Subsidiaries made
during such period from internally generated funds and all prepayments of
Revolving Credit Loans made from internally generated funds to the extent
accompanied by a permanent reduction in Revolving Credit Commitments, (iii)
Capital Expenditures made during such period by Borrower and the Subsidiaries to
the extent funded from internally generated funds, (iv) all cash income taxes
actually paid by Borrower during such period and dividends paid during such
period by Borrower pursuant to Section 9.10(c)(ii), and (v) cash paid during
such period for any Permitted Acquisition to the extent funded from internally
generated funds, and (vi) any net increases in Working Capital during such
period.
"Exchange Act" shall mean the United States Securities Exchange Act of
------------
1934.
"Excluded Dispositions" shall mean (i) Dispositions for fair market
---------------------
value resulting in no more than $10.0 million in aggregate proceeds in any
fiscal year; (ii) an exchange of equipment or inventory for like equipment or
inventory, provided that the Person effecting such exchange receives
substantially equivalent value in such exchange for the Property disposed of,
(iii) any transaction permitted by Section 9.06 (other than clause (g) thereof),
any Lien permitted by Section 9.07 and any Investment permitted by Section 9.09;
(iv) any issuance of Equity Interests by any Subsidiary or Unrestricted
Subsidiary to directors or nominees if required by applicable law if resulting
in de minimis proceeds, (v) the disposition of Triton, (vi) the disposition of
-- -------
the Shipyard Properties, and (vii) the sale of one share of Employee Benefits
Management Inc. to Addington Enterprises, Inc. and the sale of up to 20% of the
Equity Interests in Employee Benefits Management Inc.
-12-
<PAGE>
"Excluded Equity Issuance" shall mean any issuance of Qualified
------------------------
Capital Stock of Borrower excluded from the definition of Equity Issuance by
virtue of clause (iv) thereof.
"Excluded Group" shall mean a "group" (as such term is used in
--------------
Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded
Persons; provided, however, that the voting power of the Equity Interests of
-------- -------
Borrower "beneficially owned" (as such term is used in Rule 13d-3 promulgated
under the Exchange Act) by such Excluded Persons (without attribution to such
Excluded Persons of the ownership by other members of the "group") represents a
majority of the voting power of the Equity Interests "beneficially owned" (as
such term is used in Rule 13d-3 promulgated under the Exchange Act) by such
group.
"Excluded Person" shall mean Larry Addington, Bruce Addington, Robert
---------------
Addington, Stephen Addington, John Baum, Donald P. Brown, Kevin Crutchfield, Vic
Grubb, John Lynch, Bernie Mason, Marc Merritt, Jim Morris, Keith Sieber and any
Affiliate of any of the foregoing that is directly or indirectly controlling or
controlled by, or under direct or indirect common control with, any of the
foregoing.
"Existing Affiliate Agreements" see Section 9.15.
-----------------------------
"Existing Debt" shall mean the Indebtedness of and commitments to make
-------------
extensions of credit in favor of Borrower and the Subsidiaries under the
existing debt instruments and credit facilities listed on Schedule 1.01(e).
----------------
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------ --- -----
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided, however, that (a) if the day for which such
-------- -------
rate is to be determined is not a Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day and (b) if such rate is not
so published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate quoted to Administrative Agent on such Business Day on
such transactions by three federal funds brokers of recognized standing, as
determined by Administrative Agent.
"Fee Letter" shall mean the Fee Letter dated as of December 14, 1998
----------
by and among UBS AG, Stamford Branch, Warburg Dillon Read LLC and Coal Ventures,
Inc.
"Final Maturity Date" shall mean, September 30, 2005
-------------------
"Financial Maintenance Covenants" shall mean the covenants set forth
-------------------------------
in Section 9.11 (a) through (d).
"Funding Date" shall mean the date of the making of any extension of
------------
credit hereunder (including the Closing Date).
-13-
<PAGE>
"GAAP" shall mean generally accepted accounting principles set forth
----
as of the relevant date in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of the
date of determination.
"Governmental Authority" shall mean any government or political
----------------------
subdivision of the United States or any other country or any agency, authority,
board, bureau, central bank, commission, department or instrumentality thereof
or therein, including, without limitation, any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
"Governmental Real Property Disclosure Requirements" shall mean any
--------------------------------------------------
Requirement of Law of any Governmental Authority requiring notification of the
buyer or mortgagee of real property, or notification, registration, or filing to
or with any Governmental Authority, prior to the sale or mortgage of any real
property or transfer of control of an establishment, of the actual or threatened
presence or release into the environment, or the use, disposal, or handling of
Hazardous Material on, at, under, or near the real property to be sold or the
establishment for which control is to be transferred.
"Guarantee" shall mean the guarantee of each Guarantor pursuant to
---------
Section 6.
"Guaranteed Obligations" see Section 6.01.
----------------------
"Guarantors" shall mean Holding and each Subsidiary listed on Schedule
---------- --------
1.01(f), and each direct and indirect Subsidiary that guarantees the payment of
- - -------
the Obligations of Borrower hereunder and under the other Credit Documents
pursuant to Section 9.20.
"Guaranty Obligation" see the definition of Contingent Obligation.
-------------------
"Hayman" shall mean Hayman Holdings, Inc. a Kentucky corporation.
------
"Hazardous Material" shall mean any pollutant, contaminant, toxic,
------------------
hazardous, deleterious or extremely hazardous substance, constituent or waste,
or any other constituent, waste, material, compound or substance subject to
regulation under any Environmental Law including, without limitation, petroleum
or any petroleum product, including crude oil or any fraction thereof,
polychlorinated biphenyls, urea-formaldehyde insulation and asbestos.
"Holding" shall mean AEI Resources Holding, Inc.
-------
"Improvements" shall have the meaning given such term in the
------------
Mortgages.
-14-
<PAGE>
"in the ordinary course of business" shall mean in the ordinary course
----------------------------------
of business of Borrower and the Subsidiaries consistent with past practice.
"incur" shall mean, with respect to any Indebtedness or other
-----
obligation of any Person, to create, issue, incur (including by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "incurrence" "incurred" and "incurring" shall
---------- -------- ---------
have meanings correlative to the foregoing). Indebtedness of any Person or any
of its Subsidiaries existing at the time such Person becomes a Company (or is
merged into or consolidates with any Company), whether or not such Indebtedness
was incurred in connection with, or in contemplation of, such Person becoming a
Company (or being merged into or consolidated with any Company), shall be deemed
incurred at the time any such Person becomes a Company or merges into or
consolidates with any Company. Neither the accrual of interest, nor the
accretion of accreted value, shall be deemed to be an incurrence.
"Indebtedness" shall mean, for any Person, without duplication, (a)
------------
all indebtedness for borrowed money of such Person; (b) all obligations issued,
undertaken or assumed by such Person as the deferred purchase price of Property
or services (other than trade payables and accrued expenses paid on customary
terms incurred in the ordinary course of business on ordinary terms and not more
than 90 days past due); (c) all noncontingent reimbursement or payment
obligations of such Person with respect to Surety Instruments (such as, for
example, unpaid reimbursement obligations in respect of a drawing under a letter
of credit, but excluding reclamation, surety and similar bonds and undrawn
letters of credit issued in the ordinary course of business or in connection
with any acquisition); (d) all obligations of such Person evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of Property or businesses; (e) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either case with
respect to Property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such Property); (f) all Capital Lease Obligations of
such Person; (g) all net obligations of such Person with respect to Swap
Contracts (such obligations to be equal at any time to the aggregate net amount
that would have been payable by such Person at the most recent fiscal quarter
end in connection with the termination of such Swap Contracts at such fiscal
quarter end); (h) all obligations with respect to payments received in
consideration of coal or other minerals required to be acquired or produced
after the time of payment (including obligations under "take-or-pay" contracts
to deliver coal in return for payments already received); (i) all amounts
required to be paid by such Person as a guaranteed payment to partners,
including any mandatory redemption of shares or interests; 0) all indebtedness
of other Persons referred to in clauses (a) through (i) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in Property (including accounts
and contracts rights) owned by such Person, whether or not such Person has
assumed or become liable for the payment of such indebtedness; and (k) all
Guaranty Obligations of such Person in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through 0) above. Indebtedness
shall not include accounts extended by suppliers in the ordinary course of
business on normal trade terms in connection with the purchase of goods and
services or obligations for any recoupable advance or minimum royalty payments
under any mineral lease or real
-15-
<PAGE>
property lease. The Indebtedness of any Person shall include any Indebtedness of
any partnership in which such Person is the general partner.
"Indemnitee" see Section 12.03.
----------
"Initial Public Offering" shall mean a primary underwritten public
-----------------------
offering of the common stock of Borrower, other than any public offering or sale
pursuant to a registration statement on Form S-8 or a comparable form.
"Insolvency Proceeding" shall mean, with respect to any Person, (a)
---------------------
any case, action or proceeding with respect to such Person before any court or
by or before any other Governmental Authority relating to bankruptcy,
insolvency, reorganization, liquidation, receivership, dissolution,
sequestration, conservatorship, winding-up or relief of debtors (or the
convening of a meeting or the passing of a resolution for or with a view to any
of the foregoing), or (b) any assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other similar arrangement
in respect of such Person's creditors generally or any substantial portion of
its creditors.
"Intercompany Lease Agreement" shall mean an Amended and Restated
----------------------------
Collateral Assignment of Intercompany Leases, Subordination and Attainment
Agreement substantially in the form of Exhibit N among the Obligors and
---------
Administrative Agent, as the same may be amended in accordance with the terms
thereof and hereof or such other agreements reasonably acceptable to
Administrative Agent as shall be necessary to comply with applicable
Requirements of Law and effective to grant to Administrative Agent a Lien on and
security interest in the Intercompany Leases.
"Intercompany Leases" shall have the meaning set forth in the
-------------------
Intercompany Lease Agreement delivered on the Closing Date or thereafter
pursuant to Section 9.12.
"Intercompany Note" shall mean a promissory note substantially in the
-----------------
form of Exhibit B.
---------
"Interest Coverage Ratio" shall mean, for any Test Date, the ratio of
-----------------------
(x) the sum of Operating Cash Flow for the four fiscal quarters ending on such
Test Date and the Projected Annualized Cost Savings applicable to such Test Date
to (y) Consolidated Interest Expense for the four fiscal quarters ending on such
Test Date. In computing the Interest Coverage Ratio, (i) Operating Cash Flow
will be calculated on a pro forma basis for all Acquisitions consummated during
the four full fiscal quarters ending on the applicable Test Date as if such
Acquisitions had been consummated at the beginning of such period and
Consolidated Interest Expense shall be calculated on a pro forma, basis assuming
any Indebtedness incurred in connection with the Acquisitions referred to in
clause (i) had been incurred at the beginning of the four fiscal quarters ending
on the applicable Test Date.
"Interest Period" shall mean, with respect to any LIBOR Loan, each
---------------
period commencing on the date such LIBOR Loan is made or Converted from an ABR
Loan or the last day of the next preceding Interest Period for such LIBOR Loan
and (subject to the requirements of Sections 2.01(a), 2.01(b), 2.01(c) and 2.09)
ending on the numerically corresponding day in the first,
-16-
<PAGE>
second or third or sixth calendar month thereafter, as Borrower may select as
provided in Section 4.05, except that each Interest Period that commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any Revolving
Credit Loan would otherwise end after the Revolving Credit Commitment
Termination Date, such Interest Period shall end on the Revolving Credit
Commitment Termination Date; (ii) no Interest Period for any Term Loan may
commence before and end after any Principal Payment Date, unless, after giving
effect thereto, the aggregate principal amount of the Term Loans having Interest
Periods that end after such Principal Payment Date shall be equal to or less
than the aggregate principal amount of the Term Loans scheduled to be
outstanding after giving effect to the payments of principal required to be made
on such Principal Payment Date; (iii) each Interest Period that would otherwise
end on a day that is not a Business Day shall end on the next succeeding
Business Day (or, if such next succeeding Business Day fails in the next
succeeding calendar month, on the next preceding Business Day); and (iv)
notwithstanding clauses (i) and (ii) above, no Interest Period shall have a
duration of less than one month and, if the Interest Period for any LIBOR Loan
would otherwise be a shorter period, such Loan shall not be available hereunder
as a LIBOR Loan for such period.
"Interest Rate Certificate" shall mean an Officers' Certificate
-------------------------
substantially in the form of Exhibit C delivered pursuant to Section 9.01(e),
---------
demonstrating in reasonable detail the calculation of the Leverage Ratio as of
any Test Date.
"Interest Rate Protection Agreement" shall mean, for any Person, an
----------------------------------
interest rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific contingencies.
"internally generated funds" shall mean funds not generated from the
--------------------------
proceeds of any Loan, Debt Issuance, Equity Issuance, Disposition, insurance
recovery or Indebtedness (in each case without regard to the exclusions from the
definition thereof (other than sales of inventory in the ordinary course of
business)).
"Investment" shall mean, for any Person: (a) the acquisition (whether
----------
for cash, Property, services or securities or otherwise) of Equity Interests,
bonds, notes, debentures or other securities of any other Person; (b) the making
of any deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person); (c) any capital contribution to (by means of any transfer of cash
or other Property to others or any payment for Property or services for the
account or use of others) any other Person; and (d) the entering into, or direct
or indirect incurrence, of any Guaranty Obligation with respect to Indebtedness
or other liability of any other Person.
"Issuing Lender" shall mean UBS AG, Stamford Branch, or any of its
--------------
Affiliates, or such other Lender or Lenders selected by Administrative Agent
reasonably satisfactory to Borrower,
-17-
<PAGE>
as the issuer of Letters of Credit under Section 2.03, together with its
successors and assigns in such capacity.
"Kindill" shall mean Kindill Holding, Inc., a Kentucky corporation,
-------
and its Subsidiaries.
"Lease" shall mean any lease, sublease, franchise agreement, license,
-----
occupancy or concession agreement.
"Lender" and "Lenders" see the introduction to this Agreement.
------ -------
"Letter of Credit" see Section 2.03.
----------------
"Letter of Credit Agreements" shall mean the Letter of Credit
---------------------------
Agreement dated September 2, 1998 between Zeigler and First Chicago National
Bank, pursuant to which such Bank has issued letters of credit with an aggregate
face amount of approximately $6.0 million.
"Letter of Credit Documents" shall mean, with respect to any Letter of
--------------------------
Credit, collectively, any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to such Letter of
Credit) governing or providing for (a) the fights and obligations of the parties
concerned or at risk with respect to such Letter of Credit or (b) any collateral
security for any of such obligations, each as the same may be modified and
supplemented and in effect from time to time.
"Letter of Credit Interest" shall mean, for each Revolving Credit
-------------------------
Lender, such Lender's participation interest (or, in the case of the Issuing
Lender, the Issuing Lender's retained interest) in the Issuing Lender's
liability under Letters of Credit and such Lender's fights and interests in
Reimbursement Obligations and fees, interest and other amounts payable in
connection with Letters of Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean without duplication, at any
--------------------------
time and in respect of any Letter of Credit, the sum of (a) the undrawn face
amount of such Letter of Credit, plus (b) the aggregate unpaid principal amount
of all Reimbursement Obligations of Borrower at such time due and payable in
respect of all drawings made under such Letter of Credit.
"Leverage Ratio" shall mean, for any Test Date, the ratio of (x) Total
--------------
Debt at such Test Date, to (y) the sum of Operating Cash Flow for the four full
fiscal quarters ending on such Test Date and the Projected Annualized Cost
Savings applicable to such Test Date. In computing the Leverage Ratio, Operating
Cash Flow will be calculated on a pro forma basis for all Acquisitions
consummated during the four full fiscal quarters ending on the applicable Test
Date as if such Acquisitions had been consummated at the beginning of such
period.
"LIBOR Base Rate" shall mean, with respect to any LIBOR Loan for any
---------------
Interest Period therefor, the rate per annum determined by Administrative Agent
to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered
rates for deposits in Dollars with a term
-18-
<PAGE>
comparable to such Interest Period that appears on the Telerate British Bankers
Assoc. Interest Settlement Rates Page (as defined below) at approximately 11:00
a.m., London, England time, on the second full Business Day preceding the first
day of such Interest Period; provided, however, that (i), if no comparable term
-------- -------
for an Interest Period is available, the LIBOR Base rate shall be determined
using the weighted average of the offered rates for the two terms most nearly
corresponding to such Interest Period and (ii) if there shall at any time no
longer exist a Telerate British Bankers Assoc. Interest Settlement Rates Page,
"LIBOR Base Rate" shall mean, with respect to each day during each Interest
---------------
Period pertaining to LIBOR Loans comprising part of the same Borrowing, the rate
per annum equal to the rate at which Administrative Agent is offered deposits in
- - --- -----
Dollars at approximately 11:00 am., London, England time, two Business Days
prior to the first day of such Interest Period in the London interbank market
for delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to its portion of the amount of
such LIBOR Loan to be outstanding during such Interest Period.
"Telerate British Bankers Assoc. Interest Settlement Rates Page" shall mean the
--------------------------------------------------------------
display designated as Page 3750 on the Telerate System Incorporated Service (or
such other page as may replace such page on such service for the purpose of
displaying the rates at which Dollar deposits are offered by leading banks in
the London interbank deposit market).
"LIBOR Loans" shall mean Loans that bear interest at rates based on
-----------
rates referred to in the definition of "LIBOR Base Rate" in this Section 1.01.
"LIBOR Rate" shall mean, for any LIBOR Loan for any Interest Period
----------
therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) determined by Administrative Agent to be equal to the LIBOR Base Rate for
such Loan for such Interest Period divided by I minus the Reserve Requirement
(if any) for such Loan for such Interest Period.
"Lien" shall mean, with respect to any Property, any mortgage, deed of
----
trust, lien, pledge, claim, charge, assignment, hypothecation, security interest
or encumbrance of any kind, any other type of preferential arrangement in
respect of such Property or any filing of any financing statement under the UCC
or any other similar notice of Lien under any similar notice or recording
statute of any Governmental Authority, including any easement, right-of-way or
other encumbrance on title to Real Property, in each of the foregoing cases
whether voluntary or imposed by law, and any agreement to give any of the
foregoing. For purposes of the Credit Documents, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Loans" shall mean the Revolving Credit Loans and the Term Loans.
-----
"Losses" of any Person shall mean the losses, liabilities, claims
------
(including those based upon negligence, strict or absolute liability and
liability in tort), damages, reasonable expenses, obligations, penalties,
actions, judgments, encumbrances, liens, penalties, fines, suits, reasonable and
documented costs or disbursements of any kind or nature whatsoever (including
reasonable fees and expenses of counsel in connection with any Proceeding
commenced or threatened in writing, whether
-19-
<PAGE>
or not such Person shall be designated a party thereto) at any time (including
following the payment of the Obligations) incurred by, imposed on or asserted
against such Person.
"Majority Lenders" shall mean (i) at any time prior to the Closing
----------------
Date, Lenders holding at least a majority of the aggregate amount of the
Commitments, and (ii) at any time after the Closing Date, Lenders holding at
least a majority of the sum of (without duplication) (a) the aggregate principal
amount of outstanding Loans, plus (b) the aggregate amount of all Letter of
----
Credit Liabilities, plus (c) the aggregate Unutilized Revolving Credit
----
Commitments then in effect, plus (d) the aggregate amount of unused Term Loan
----
Commitments then in effect.
"Majority Revolving Credit Lenders" shall mean (i) at any time prior
---------------------------------
to the Closing Date, Lenders holding at least a majority of the aggregate amount
of the Revolving Credit Commitments and (ii) at any time after the Closing Date,
Lenders holding at least a majority of the sum of (without duplication) (a) the
aggregate principal amount of outstanding Revolving Credit Loans, plus (b) the
----
aggregate amount of all Letter of Credit Liabilities, plus (c) the aggregate
----
Unutilized Revolving Credit Commitments then in effect.
"Majority Term Lenders" shall mean (i) at any time prior to the
---------------------
Closing Date, Lenders holding at least a majority of the Term Loan Commitments,
and (ii) at any time after the Closing Date, Lenders holding at least a majority
of the stun of (a) the aggregate principal amount of outstanding Term Loans plus
----
(b) the aggregate amount of unused Term Loan Commitments then in effect.
"Majority Tranche A Term Loan Lenders" shall mean (i) at any time
------------------------------------
prior to the Closing Date, Lenders holding at least a majority of the Tranche A
Term Loan Commitments, and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the sum of (a) the aggregate principal amount of
outstanding Tranche A Term Loans plus (b) the aggregate amount of unused Tranche
----
A Term Loan Commitments then in effect.
"Majority Tranche B Term Loan Lenders" shall mean (i) at any time
------------------------------------
prior to the Closing Date, Lenders holding at least a majority of the Tranche B
Tenn Loan Commitments and (ii) at any time after the Closing Date, Lenders
holding at least a majority of the sum of (a) the aggregate principal amount of
outstanding Tranche B Term Loans plus (b) the aggregate amount of unused Tranche
----
B Term Loan Commitments then in effect.
"Margin Stock" shall mean margin stock within the meaning of
------------
Regulations T, U and X.
"Material Adverse Change" shall mean, with respect to any Person, a
-----------------------
material adverse change, or any condition or event that has resulted or could
reasonably be expected to result in a material adverse change, in the condition
(financial or otherwise), business, Properties or results of operations of such
Person, individually or together with the Subsidiaries taken as a whole.
"Material Adverse Effect" shall mean, any of (a) a material adverse
-----------------------
effect, or any condition or event that has resulted or could reasonably be
expected to result in a material adverse
-20-
<PAGE>
effect, on the operations, Properties, prospects or financial or other condition
of Borrower, individually or together with the Subsidiaries taken as a whole,
(b) a material adverse effect on the ability of the Obligors to consummate in a
timely manner the transactions contemplated hereby or to perform their
obligations under any Credit Document or (c) a material adverse effect on the
legality, binding effect or enforceability of any Credit Document or the rights
and remedies of Administrative Agent, the Lenders, the Issuing Lender or
Arranger thereunder.
"Mine" shall mean any excavation or opening into the earth now or
----
hereafter made from which coal or other minerals are or can be extracted on or
from any of the Covered Properties owned or leased by any Obligor, including,
without limitation, the mines described in the Reserve Reports delivered to the
Agents pursuant to Section 7.01(vii) of the Credit Agreement.
-----------------
"Mine Site" shall mean all Covered Property comprising a mine site
---------
(which site (i) shall include, without limitation, all Improvements (other than
Shipyard Properties) relating to or used in connection with such mine site
regardless of physical proximity to any Mine and (ii) contains one or more
Mines) as described, and commonly known by the names set forth, in Schedule
1.01(g).
"Mortgage" shall mean an agreement, including, but not limited to, a
--------
fee or leasehold mortgage, deed of trust or any other document acceptable to
Administrative Agent, creating and evidencing a Lien on a Mortgaged Real
Property, which shall be substantially in the form of Exhibit G-1, with such
-----------
schedules and including such additional provisions and other deviations from
such Exhibit or form as shall be necessary to conform such document to
applicable Requirements of Law or as shall be customary under such applicable
Requirements of Law, as the same may at any time be amended in accordance with
the terms thereof and hereof.
"Mortgage Amendment" shall mean an amendment to any Mortgage
------------------
substantially in the form of Exhibit G-2, with such schedules and including such
additional provisions and other deviations from such Exhibit or form as shall be
necessary to conform such document to applicable Requirements of Law or as shall
be customary under such applicable Requirements of Law, as the same may at any
time be amended in accordance with the terms thereof and hereof.
"Mortgaged Real Property" shall mean all Real Property which shall be
subject to a Mortgage (i) in the case of the Covered Properties described in
clauses (i), (ii), (iii), (iv), (v) and (vii) of the definition thereof,
delivered on the Closing Date, (ii) in the case of the Covered Properties
described in clauses (vi) and (vii) of the definition thereof, delivered on the
Amendment and Restatement Date (iii) in the case of all other Real Property
(other than the Intercompany Leases) delivered thereafter pursuant to Section
9.12 or Section 9.13, or (iv) in the case of the Intercompany Leases, delivered
pursuant to the provisions of the Intercompany Lease Agreement.
"Multiemployer Plan" shall mean at any time a multiemployer plan
------------------
within the meaning of Section 4001(a)(3) of ERISA (i) to which any member of the
ERISA Group is then making or accruing an obligation to make contributions, (ii)
to which any member of the ERISA Group has within the preceding five plan years
made contributions, including for these purposes any Person which ceased to be a
member of the ERISA Group during such five year period, or (iii) with respect to
which any Company could incur liability.
-21-
<PAGE>
"NAIC" shall mean the National Association of Insurance Commissioners.
----
"Net Available Proceeds" shall mean:
----------------------
(i) in the case of any Disposition Event, the amount of Net Cash
Payments received by any Company in connection with such Disposition Event;
(ii) in the case of any Casualty Event, the aggregate amount of
proceeds of insurance, condemnation awards and other compensation received
by any Company in respect of such Casualty Event net of (A) fees and
expenses incurred by such Company in connection with recovery thereof, (B)
repayments of Indebtedness (other than Indebtedness hereunder) to the
extent secured by a Lien on such Property that is permitted hereunder and,
to the extent such Property constitutes Collateral, under the applicable
Security Document, and (C) any taxes (including income, transfer, stamp,
duty, customs, withholding and any other taxes) paid or payable by any
Company in respect of amount so recovered (after application of all credits
and other offsets); and
(iii) in the case of any Equity Issuance or any Debt Issuance,
the aggregate amount of all cash received by any Company in respect thereof
net of all investment banking fees, discounts and commissions, legal fees,
consulting fees, accountants' fees, underwriting discounts and commissions
and other customary fees and expenses, actually incurred and satisfactorily
documented in connection therewith.
"Net Cash Payments" shall mean, with respect to any Disposition Event,
-----------------
the aggregate amount of all cash payments (including any cash payments received
by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise, but only as and
when received) received by any Company directly or indirectly in connection with
such Disposition Event; provided, however, that Net Cash Payments shall be net
-------- -------
(without duplication) of (i) the amount of all fees and expenses paid by any
Company in connection with such Disposition Event (the "Relevant Dispositions");
---------------------
(ii) any taxes (including income, transfer, stamp, duty, customs, withholding
and any other taxes) paid or estimated to be payable by any Company as a result
of the Relevant Disposition (after application of all credits and other
offsets); (iii) any repayments by any Company of Indebtedness (other than the
Obligations) to the extent that (a) such Indebtedness is secured by a Lien on
the Property that is the subject of the Relevant Disposition that is permitted
hereunder and, to the extent such Property constitutes Collateral, under the
applicable Security Document and (b) the transferee of (or holder of a Permitted
Lien on) such Property requires that such Indebtedness be repaid as a condition
to the purchase of such Property; (iv) amounts required to be paid to any Person
(other than any Company) owning a beneficial interest in the assets subject to
such Relevant Disposition; and (v) appropriate amounts to be provided by any
Company, as a reserve, in accordance with GAAP, against any liabilities
associated with such Relevant Disposition and retained by any Company after such
Relevant Disposition, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Relevant
Disposition, all as reflected in an Officers' Certificate delivered to
Administrative Agent.
-22-
<PAGE>
"Non-U.S. Lender" see Section 5.06(b).
---------------
"Notes" shall mean the Amended and Restated Revolving Credit Notes and
-----
the Amended and Restated Term Loan Notes.
"Notice of Assignment" shall mean a notice of assignment pursuant to
--------------------
Section 12.06 substantially in the form of Exhibit F.
---------
"Notice of Borrowing" shall mean a notice of borrowing substantially
-------------------
in the form of Exhibit H.
---------
"Obligations" shall mean all amounts, direct or indirect, contingent
-----------
or absolute, of every type or description, and at any time existing, owing to
any Creditor or any of its Related Parties or their respective successors,
transferees or assignees pursuant to the terms of any Credit Document or secured
by any of the Security Documents, whether or not the right of such Person to
payment in respect of such obligations and liabilities is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured and whether or not such claim
is discharged, stayed or otherwise affected by any bankruptcy case or insolvency
or liquidation proceeding.
"Obligors" shall mean Borrower and the Guarantors.
--------
"Officers' Certificate" shall mean, as applied to any corporation, a
---------------------
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer) or its Chief Executive Officer or one of its Vice Presidents (or
an equivalent officer) and by its Chief Financial Officer, Vice President-
Finance or its Treasurer (or an equivalent officer) or any Assistant Treasurer
in their official (and not individual) capacities; provided, however, that every
-------- -------
Officers' Certificate with respect to the compliance with a condition precedent
to the making of any Loan or the taking of any other action hereunder shall
include (i) a statement that the officers making or giving such Officers'
Certificate have read such condition and any definitions or other provisions
contained in this Agreement relating thereto, and (ii) a statement as to
whether, in the opinion of the signers, such condition has been complied with.
"Operating Cash Flow" shall mean, for any period, the sum (without
-------------------
duplication) of the amounts for such period of Adjusted Net Income, plus in each
----
case to the extent deducted in calculating such Adjusted Net Income, (i) income
tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and
amortization expense, and (iv) the non-cash component of any item of expense
(including, without limitation, writedowns and impairment of property, plant and
equipment and intangibles and other long-lived assets), other than to the extent
requiring an accrual or reserve for future cash expenses, all as determined on a
consolidated basis for Borrower and its Consolidated Subsidiaries.
"Original Lenders" shall mean the Lenders named on the signature pages
----------------
hereof who were Lenders at the Closing Date.
-23-
<PAGE>
"Organic Document" shall mean, relative to any Person, its certificate
----------------
of incorporation, its bylaws, its partnership agreement, its memorandum and
articles of association, share designations or similar organization document,
voting trusts and similar arrangements applicable to any of its authorized
shares of Equity Interests.
"Other Taxes" see Section 5.06(b).
-----------
"Participant" see Section 12.06(c).
-----------
"Payment Date" shall mean any Principal Payment Date and each date on
------------
which interest is due and payable on any Loan.
"Payor" see Section 4.06.
-----
"PBGC" shall mean the United States Pension Benefit Guaranty
----
Corporation or any successor thereto.
"Permits" see Section 8.17.
-------
"Permitted Acquisition" shall mean any Acquisition effected in
---------------------
compliance with Section 9.06(h), (in) or (n).
"Permitted Investments" shall mean, for any Person: (a) direct
---------------------
obligations of the United States of America, or of any agency thereof, or
obligations guaranteed as to principal and interest by the United States of
America, or by any agency thereof, in either case maturing not more than one
year from the date of acquisition thereof by such Person; (b) time deposits,
certificates of deposit or bankers' acceptances (including eurodollar deposits)
issued by (i) any bank or trust company organized under the laws of the United
States of America or any state thereof and having capital, surplus and undivided
profits of at least $500.0 million and a deposit rating of investment grade or
(ii) Kentucky Bank & Trust in an amount not to exceed $5.0 million at any one
time; (c) commercial paper rated A-1 or better by Standard & Poor's Corporation
or P-1 or better by Moody's Investors Service, Inc., respectively, maturing not
more than 180 days from the date of acquisition thereof by such Person; (d)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (a) above entered into with a bank
meeting the qualifications described in clause (b) above; (e) securities with
maturities of six months or less from the date of acquisition issued or fully
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least A by S&P or A by Moody's; or (f) money market mutual funds that invest
primarily in the foregoing items.
"Permitted Liens" see Section 9.07.
---------------
"Permitted Refinancing" shall mean, with respect to any Indebtedness
---------------------
or Contingent Obligation, any refinancing thereof, provided, however that (w) no
-------- -------
Default shall have occurred and be continuing or would arise therefrom, (x) any
such refinancing Indebtedness shall (I) not be on
-24-
<PAGE>
financial and other terms that are more onerous, taken as a whole, to any
Company or Creditor than the Indebtedness or Contingent Obligation being
refinanced and shall not have defaults, rights or remedies more burdensome,
taken as a whole, to any Company or Creditor than the Indebtedness being
refinanced, (II) not have a stated maturity or weighted average life that is
shorter than the Indebtedness or Contingent Obligation being refinanced, (III)
be at least as subordinate to the Obligations as the Indebtedness or Contingent
Obligation being refinanced (and unsecured if the refinanced Indebtedness is
unsecured), and (IV) be in principal amount that does not exceed the principal
amount so refinanced, plus the lesserof (1) the stated amount of any premium
or other payment required to be paid in connection with such refinancing
pursuant to the terms of the Indebtedness or Contingent Obligation being
refinanced and (2) the amount of premium or other payment actually paid at such
time to refinance the Indebtedness, plus in either case, the amount of
----
reasonable expenses of any Obligor or any Subsidiary incurred in connection with
such refinancing and (y) the sole obligor on such refinancing Indebtedness or
Contingent Obligation shall be Borrower or the original obligor on such
Indebtedness or Contingent Obligation being refinanced; provided, however, that
-------- -------
(1) any guarantor of the Indebtedness or Contingent Obligation being refinanced
shall be permitted to guarantee the refinancing Indebtedness, and (ii) Borrower
shall be permitted to guarantee any such refinancing of any Qualified
Subsidiary.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, trust, unincorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"Plan" shall mean at any time an employee pension benefit plan (other
----
than a Multiemployer Plan) which is covered by Title TV of ERISA or subject to
the minimum funding standards under Section 412 of the Code or Section 302 of
ERISA and is maintained or contributed to by any member of the ERISA Group or
with respect to which any Company or Unrestricted Subsidiary could incur
liability.
"Pledged Collateral" shall have the meaning set forth in any Security
------------------
Agreement delivered on the Closing Date or thereafter pursuant to Section 9.12.
"Prime Rate" shall mean for any day, a rate per annum that is equal to
---------- --- -----
the corporate base rate of interest established by Administrative Agent from
time to time, changing when and as said corporate base rate changes. The
corporate base rate is not necessarily the lowest rate charged by Administrative
Agent to its customers.
"Principal Office" shall mean the principal office of Administrative
----------------
Agent, located on the date hereof at 677 Washington Boulevard, Stamford,
Connecticut 06912, or such other office as may be designated by Administrative
Agent.
"Principal Payment Date" shall mean, with respect to any Term Loan,
----------------------
each Quarterly Date set forth on Schedule 3.01(b) on which a payment of
principal is due with respect to such Term Loan.
-25-
<PAGE>
"Prior Liens" shall mean Liens which, pursuant to the provisions of
-----------
any Security Document, are or may be superior to the Lien of such Security
Document.
"Proceeding" shall mean any claim, counterclaim, action, judgment,
----------
suit, hearing, arbitration or proceeding, including by or before any
Governmental Authority and whether judicial or administrative.
"Profit Payment Agreement" shall mean any agreement to make any
------------------------
payment the amount of which is, or the terms of payment of which are, in any
respect subject to or contingent upon the revenues, income, cash flow or profits
(or the like) of any Person or business.
"Pro Forma Balance Sheets" see Section 8.02(d).
------------------------
"Pro Forma Date" see Section 8.02(d).
--------------
"Property" shall mean any right, title or interest in or to property
--------
or assets of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible and including Equity Interests or other ownership
interests of any Person.
"Qualified Capital Stock" shall mean with respect to any Person any
-----------------------
Equity Interests of such Person which is not Disqualified Capital Stock.
"Qualified Subsidiary" shall mean any Wholly Owned Subsidiary of
--------------------
Borrower that is an Obligor.
"Quarter" shall mean each three month period ending on March 31, June
-------
30, September 30 and December 31.
"Quarterly Dates" shall mean the last Business Day of March, June,
---------------
September and December in each year, commencing with the last Business Day of
March, 1999.
"Real Property" shall mean, collectively, all right, title and
-------------
interest of any Company (including, without limitation, any leasehold or mineral
estate) in and to any and all parcels of real property owned or operated by any
Company, whether by lease, license or other use agreement, together with, in
each case, all improvements and appurtenant fixtures, equipment, personal
property, easements and other property and rights incidental to the ownership,
lease or operation thereof
"redeem" shall mean redeem, repurchase, repay, defease or otherwise
------
acquire or retire for value; and "redemption" and "redeemed" have correlative
meanings.
"refinance" shall mean refinance, renew, extend, replace, defease or
---------
refund, in whole or in part, including successively; and "refinancing" and
-----------
"refinanced" have correlative meanings.
- - -----------
"Register" see Section 2.08.
--------
-26-
<PAGE>
"Regulation D" shall mean Regulation D (12 C.F.R. Part 204) of the
------------
Board of Governors of the United States Federal Reserve System.
"Regulations T, U and X" shall mean, respectively, Regulation T (12
----------------------
C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) and Regulation X (12 C.F.R.
Part 224) of the Board of Governors of the United States Federal Reserve System
(or any successor), as the same may be modified and supplemented and in effect
from time to time.
"Regulatory Change" shall mean, with respect to any Lender, any change
-----------------
after the date hereof in United States Federal, state or foreign law or
regulations (including Regulation D) or the adoption or making after such date
of any interpretation, directive or request applying to a class of banks or
other financial institutions including such Lender of or under any Federal,
state or foreign law or regulations (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) by any court or
governmental or monetary authority or any other regulatory agency with proper
authority, including non-governmental agencies or bodies, charged with the
interpretation or administration thereof or by the NAIC.
"Reimbursement Obligations" shall mean, at any time, the obligations
-------------------------
of Borrower then outstanding, or that may thereafter arise in respect of all
Letters of Credit then outstanding, to reimburse amounts paid by the Issuing
Lender in respect of any drawings under a Letter of Credit.
"Related Parties" see Section 11.01.
---------------
"Release" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment.
"Replaced Lender" see Section 2.11.
---------------
"Replacement Lender" see Section 2.11.
------------------
"Required Payment" see Section 4.06.
----------------
"Requirement of Law" shall mean as to any Person, the Certificate of
------------------
Incorporation and ByLaws or other Organic Documents of such Person, and any law,
treaty, rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its Property or to which such Person or any of its Property is
subject.
"Reserve Reports" see Section 7.01(vii).
---------------
"Reserve Requirement" shall mean, for any Interest Period for any
-------------------
LIBOR Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the United States Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D). LIBOR
Loans shall be deemed to constitute Eurocurrency liabilities and to be subject
to such reserve requirements
-27-
<PAGE>
without benefit of or credit for proration, exceptions or offsets which may be
available from time to time to any Lender under Regulation D.
"Reset Date" see the definition of Applicable Margin.
----------
"Responsible Officer" shall mean the chief executive officer of
-------------------
Borrower and the president of Borrower (if not the chief executive officer) and,
with respect to financial matters, the chief financial officer of Borrower.
"Revolving Credit Commitment" shall mean, for each Revolving Credit
---------------------------
Lender, the obligation of such Lender to make Revolving Credit Loans in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set opposite the name of such Lender on Annex A under the caption
-------
"Revolving Credit Commitment" (as the same may be reduced from time to time
pursuant to Section 2.04 or changed pursuant to Section 12.06(b)). The aggregate
principal amount of the Revolving Credit Commitments as of the Amendment and
Restatement Date is $300.0 million (subject to the limitations set forth in
Section 2.01(a)).
"Revolving Credit Commitment Percentage" shall mean, with respect to
--------------------------------------
any Revolving Credit Lender, the ratio of (a) the amount of the Revolving Credit
Commitment of such Lender to (b) the aggregate amount of the Revolving Credit
Commitments of all of the Lenders.
"Revolving Credit Commitment Termination Date" shall mean the last
--------------------------------------------
Business Day in December 2003.
"Revolving Credit Commitments" shall mean the aggregate sum of the
----------------------------
Revolving Credit Commitments.
"Revolving Credit Facility" shall mean the credit facility comprising
-------------------------
the Revolving Credit Commitment of all of the Revolving Credit Lenders.
"Revolving Credit Lenders" shall mean (a) on the date hereof, the
------------------------
Lenders having Revolving Credit Commitments on the signature pages hereof and
(b) thereafter, the Lenders from time to time holding Revolving Credit Loans and
Revolving Credit Commitments after giving effect to any assignments thereof
permitted by Section 12.06(b).
"Revolving Credit Loans" see Section 2.01(a).
----------------------
"Security Agreement" shall mean an Amended and Restated Security
------------------
Agreement substantially in the form of Exhibit D among the Obligors and
---------
Administrative Agent, as the same may be amended in accordance with the terms
thereof and hereof or such other agreements reasonably acceptable to
Administrative Agent as shall be necessary to comply with applicable
Requirements of Law and effective to grant to Administrative Agent a perfected
first priority Lien on and security interest in the Pledged Collateral.
-28-
<PAGE>
"Security Documents" shall mean the Security Agreements, the
------------------
Mortgages, the Mortgage Amendments, the Intercompany Lease Agreement and each
other security document or pledge agreement required by applicable Requirements
of Law to grant a valid, perfected Lien on and security interest in any property
or asset acquired or developed pursuant to a Permitted Acquisition or any other
Additional Collateral, and all UCC or other financing statements or instruments
of perfection required by this Agreement, the Security Agreement or any Mortgage
to be filed with respect to the security interests in Property and fixtures
created pursuant to any Security Agreements or any Mortgage and any other
document or instrument utilized to pledge any Property of whatever kind or
nature as collateral for the Obligations.
"Senior Notes Indenture" means the indenture dated as of December 14,
----------------------
1998 between the Borrower and IBJ Schroder Bank & Trust Company, as trustee.
"Senior Subordinated Notes Indenture" means the indenture dated as of
-----------------------------------
December 14, 1998 between the Borrower and State Street Bank and Trust Company,
as trustee.
"Shipyard Properties" shall mean all import/export shipyard terminal
-------------------
facilities located on any Real Properties of the Obligors as set forth on
Schedule 1.01(h).
"Significant Subsidiary" shall have the meaning set forth in Rule 1-02
----------------------
of Regulation S-X under the Securities Act of 1933, as amended.
"Solvent" and "Solvency" shall mean, for any Person on a particular
------- --------
date, that on such date (a) the fair value of the Property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts and liabilities beyond such Person's ability to pay as such
debts and liabilities mature, (d) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction, for
which such Person's Property would constitute an unreasonably small capital and
(e) such Person is able to pay its debts as they become due and payable.
"Subordinated Indebtedness" shall mean Indebtedness of or any Company
-------------------------
that is subordinated to any other Indebtedness of such Company.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person. Unless the context clearly requires otherwise, all references to
any Subsidiary shall mean a
-29-
<PAGE>
Subsidiary of Borrower. All references to any Subsidiary of Borrower shall
include all those Persons which become Subsidiaries of Borrower upon
consummation of the transactions contemplated hereby. Other than for purposes of
the definition of "Unrestricted Subsidiary," unless otherwise indicated, all
reference herein to any Subsidiary of Borrower shall not include any
Unrestricted Subsidiary.
"Supermajority Lenders" shall mean (i) at any time prior to the
---------------------
Closing Date, Lenders holding at least two-thirds of the aggregate amount of the
Commitments and (ii) at any time after the Closing Date, Lenders holding at
least two-thirds of the sum of (without duplication) (a) the aggregate principal
amount of outstanding Loans, plus (b) the aggregate amount of all Letter of
----
Credit Liabilities, plus (c) the aggregate unused amount of Revolving Credit
----
Commitments then in effect, plus (d) the aggregate amount of unused Term Loan
----
Commitments then in effect.
"Supermajority Lenders of the Affected Class" shall mean (i) at any
-------------------------------------------
time prior to the Closing Date, Lenders holding at least two-thirds of the
aggregate amount of the Commitments of the applicable tranche of Term Loan
Commitments which would be affected by any modification, supplement or waiver
contemplated by clause (e) or (f) to the proviso to Section 12.04(i), and (ii)
at any time after the Closing Date, Lenders holding at least two-thirds of the
sum of (a) the aggregate amount of the outstanding Loans of the applicable
tranche of Term Loans, plus (b) the aggregate amount of unused Term Loan
----
Commitments then in effect which would be affected by any modification,
supplement or waiver contemplated by clause (e) or (f) to the proviso to Section
12.04(i).
"Surety Instruments" shall mean all letters of credit (including
------------------
standby and commercial), bankers' acceptances, bank guarantees, surety bonds and
similar instruments.
"Survey" shall mean a survey of any Real Property (and all
------
improvements thereon): (i) prepared by a surveyor or engineer licensed to
perform surveys in the state, province or country where such Real Property is
located, (ii) dated (or redated) not earlier than 6 months prior to the date of
delivery thereof unless there shall have occurred after the date of such survey
any exterior construction on the site of such Real Property, in which event such
survey shall be dated (or redated) after the completion of such construction or,
if such construction shall not have been completed as of such date of delivery,
not earlier than 20 days prior to such date of delivery, (iii) certified by the
surveyor (in a manner acceptable to Administrative Agent) to Administrative
Agent and (iv) with respect to Real Property set forth on Schedule 1.01(d)(vi)
and any other Real Property on which significant surface Improvements (as
determined in the reasonable discretion of Administrative Agent) are located,
sufficiently detailed for the Title Company to delete the survey exception or
issue a comprehensive endorsement in the applicable title policy (or, in the
case of significant surface Improvements located on the portions of the Covered
Properties affected by the consents set forth on Schedule 8.06, sufficiently
detailed for the Person delivering a title opinion or certificate of title with
respect thereto, to deliver such opinion or certificate free from exceptions of
the type commonly known as "survey exceptions" to title insurance policies), and
if necessary, to do so, complying in all respects with the minimum detail
requirements of the American Land Title Association as such requirements are in
effect on the date of preparation of such Survey.
-30-
<PAGE>
"Swap Contract" shall mean any agreement entered into in the ordinary
-------------
course of business (as a bona fide hedge and not for speculative purposes)
(including any master agreement and any agreement, whether or not in writing,
relating to any single transaction) that is an interest rate swap agreement,
basis swap, forward rate agreement, commodity swap, commodity option, equity or
equity index swap or option, bond option, interest rate option, foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
crosscurrency rate swap agreement, swaption, currency option or any other
similar agreement (including any option to enter into any of the foregoing) and
is designed to protect the Obligors against fluctuations in interest rates,
currency exchange rates, or similar risks (including any Interest Rate
Protection Agreement entered into pursuant to Section 9.18).
"Take-Out Securities" shall have the meaning given to such term in the
-------------------
Bridge Loan Agreement.
"Tax Returns" see Section 8.09.
-----------
"Taxes" see Section 8.09.
-----
"Term Loan Commitments" shall mean the Tranche A Term Loan Commitments
---------------------
and the Tranche B Term Loan Commitments, collectively.
"Term Loan Facilities" shall mean the credit facilities comprising the
--------------------
Term Loan Commitments.
"Term Loan Lenders" shall mean the Tranche A Term Loan Lenders and the
-----------------
Tranche B Term Loan Lenders, collectively.
"Term Loan Tranches" shall mean the Term Loans outstanding under the
------------------
Tranche A Term Loans and the Tranche B Term Loans, collectively, and "Term Loan
---------
Tranche" shall mean any of them.
- - -------
"Term Loans" shall mean the Tranche A Term Loans and the Tranche B
----------
Term Loans, collectively.
"Test Date" shall mean the last day of each fiscal quarter, beginning
---------
with December 31, 1998. Compliance with the Financial Maintenance Covenants
shall be tested, as of each Test Date, on the date on which financial statements
pursuant to Section 9.01(a) or (b) have been, or should have been, delivered for
the applicable fiscal period.
"Title Company" shall mean such title insurance or abstract company as
-------------
shall be designated by, or reasonably acceptable to, Administrative Agent.
"Total Debt" shall mean, at any date, the aggregate amount of
----------
Indebtedness of Borrower and its Consolidated Subsidiaries as of such date
determined on a consolidated basis in accordance with GAAP.
-31-
<PAGE>
"Tranche A Term Loan Commitment" shall mean, for each Tranche A Term
------------------------------
Loan Lender, the obligation of such Lender to make a Tranche A Term Loan in an
amount up to but not exceeding the amount set opposite the name of such Lender
on Annex A under the caption "Tranche A Term Loan Commitment" (as the same may
-------
be changed pursuant to Section 12.06(b)).
"Tranche A Term Loan Commitment Percentage" shall mean, with respect
-----------------------------------------
to any Tranche A Term Loan Lender, the ratio of (a) the amount of the Tranche A
Term Loan Commitment of such Lender to (b) the Tranche A Term Loan Commitments.
"Tranche A Term Loan Commitments" shall mean the aggregate sum of the
-------------------------------
Tranche A Term Loan Commitment of all the Lenders.
"Tranche A Term Loan Lenders" shall mean (a) on the date hereof, the
---------------------------
Lenders having
"Tranche A Term Loan Commitments" on the signature pages hereof, and
-------------------------------
(b) thereafter, the Lenders from time to time holding Tranche A Term Loans and
Tranche A Term Loan Commitments after giving effect to any assignments thereof
permitted by Section 12.06(b).
"Tranche A Term Loans" shall mean the loans provided for by Section
--------------------
2.01(b), which may be ABR Loans and/or LIBOR Loans.
"Tranche B Term Loan Commitment" shall mean, for each Tranche B Term
------------------------------
Loan Lender, the obligation of such Lender to make a Tranche B Term Loan in an
amount up to but not exceeding the amount set opposite the name of such Lender
on Annex A under the caption "Tranche B Term Loan Commitment" (as the same may
-------
be changed pursuant to Section 12.06(b)).
"Tranche B Term Loan Commitment Percentage" shall mean, with respect
-----------------------------------------
to any Tranche B Term Loan Lender, the ratio of (a) the amount of the Tranche B
Term Loan Commitment of such Lender to (b) the Tranche B Term Loan Commitments.
"Tranche B Term Loan Commitments" shall mean the aggregate sum of the
-------------------------------
Tranche B Term Loan Commitment of all the Lenders.
"Tranche B Term Loan Lenders" shall mean (a) on the date hereof, the
---------------------------
Lenders having Tranche B Term Loan Commitments on the signature pages hereof,
and (b) thereafter, the Lenders from time to time holding Tranche B Term Loans
and Tranche B Term Loan Commitments after giving effect to any assignments
thereof permitted by Section 12.06(b).
"Tranche B Term Loans" shall mean the loans provided for by Section
--------------------
2.01(c), which may be ABR Loans and/or LIBOR Loans.
"Triton" shall mean Triton Coal Company, L.L.C.
------
"Type" see Section 1.03.
----
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<PAGE>
"UCC" shall mean the Uniform Commercial Code as in effect in the
---
applicable state of jurisdiction.
"Unrestricted Subsidiary" shall mean any Subsidiary of Borrower, that,
-----------------------
at the time of determination, shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of Borrower, as provided below). The Board of
Directors of Borrower may designate any Subsidiary of Borrower (including any
newly acquired or newly formed Subsidiary at or prior to the time it is so
formed or acquired) to be an Unrestricted Subsidiary if (a) no Default is
existing or will occur as a consequence thereof, (b) such Subsidiary does not
own any Equity Interests of, or own or hold any Lien on any Property of, any
Company, (c) such Subsidiary and each of its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee,
or otherwise become directly or indirectly liable with respect any Indebtedness
pursuant to which the lender has recourse to any Property of any Company (except
that such Subsidiary and its Subsidiaries may become Guarantors if consented to
by Arranger), and (d) a default by such Person on any of its Indebtedness will
not result in, or permit any holder of Indebtedness of any Company to declare, a
default on such Indebtedness of any Company or cause the payment thereof to be
accelerated or payable prior to its stated maturity. Any Subsidiary of an
Unrestricted Subsidiary shall be an Unrestricted Subsidiary for purposes of this
Agreement. Each such designation shall be evidenced by filing with
Administrative Agent a certified copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Unutilized Revolving Credit Commitment" shall mean, for any Revolving
--------------------------------------
Credit Lender, at any time, the excess of such Lender's Revolving Credit
Commitment at such time over the sum of (i) the aggregate outstanding principal
amount of Revolving Credit Loans made by such Lender and (ii) such Lender's
Revolving Credit Commitment Percentage of the aggregate amount of Letter of
Credit Liabilities at such time.
"Wholly Owned Subsidiaries" shall mean, with respect to any Person,
-------------------------
any corporation, partnership or other entity of which all of the Equity
Interests (other than, in the case of a corporation, directors' qualifying
shares or nominee shares required under applicable law) are directly or
indirectly owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person. Unless the context clearly requires otherwise, all
references to any Wholly Owned Subsidiary shall mean a Wholly Owned Subsidiary
of Borrower.
"Wholly Owned Unrestricted Subsidiary" shall mean any Unrestricted
------------------------------------
Subsidiary of which all the Equity Interests (other than, in the case of a
corporation, directors' qualifying shares or nominee shares required under
applicable law) are directly or indirectly owned or controlled by Borrower or
one or more Wholly Owned Unrestricted Subsidiaries or by Borrower and one or
more Wholly Owned Unrestricted Subsidiaries.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
--------------------
a result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
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<PAGE>
"Working Capital" shall mean an amount determined for Borrower and the
---------------
Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP) equal to the sum of all current assets (other than cash)
less the sum of all current liabilities (other than the current portion of long-
term Indebtedness).
1.02. Accounting Terms and Determinations. Except as otherwise
-----------------------------------
provided in this Agreement, all computations and determinations as to accounting
or financial matters shall be made in accordance with GAAP, and all accounting
or financial terms shall have the meanings ascribed to such terms by GAAP as in
effect on the date hereof. All financial statements to be delivered pursuant to
this Agreement shall be prepared in accordance with GAAP. All financial
covenants are to be calculated in accordance with GAAP as in effect on the date
hereof unless such modifications are agreed to by the parties hereto. If
Borrower or any Lender determines that a change in GAAP from that in effect on
the date hereof has altered the treatment of certain financial data to its
detriment under this Agreement, such parry may by written notice to the others
and Arranger not later than ten days after the effective date of such change in
GAAP, request renegotiation of the financial covenants affected by such change.
If Borrower and the Majority Lenders have not agreed on revised covenants within
30 days after delivery of such notice, then, for purposes of this Agreement,
GAAP will mean generally accepted accounting principles on the date just prior
to the date on which the change that gave rise to the renegotiation occurred.
1.03. Classes and Types of Loans. Loans hereunder are distinguished
--------------------------
by "Class" and by "Type". The "Class" of a Loan (or of a Commitment to make a
-----
Loan) refers to whether such Loan is a Revolving Credit Loan, Tranche A Term
Loan or a Tranche B Term Loan, each of which constitutes a Class. The "Type" of
----
a Loan refers to whether such Loan is an ABR Loan or a LIBOR Loan, each of which
constitutes a Type. Loans may be identified by both Class and Type.
1.04. Rules of Construction. (a) In this Agreement and each other
---------------------
Credit Document, unless the context clearly requires otherwise (or such other
Credit Document clearly provides otherwise), references to (i) the plural
include the singular, the singular the plural and the part the whole; (ii)
Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; (iii) agreements (including this Agreement), promissory notes and
other contractual instruments include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
or other modifications thereto are not prohibited by their terms or the terms of
any Credit Document; (iv) statutes and related regulations include any
amendments of same and any successor statutes and regulations; and (v) time
shall be a reference to New York City time. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
(b) In this Agreement and each other Credit Document, unless the
context clearly requires otherwise (or such other Credit Document clearly
provides otherwise), (i) "amend" shall mean "amend, restate, amend and restate,
-----
supplement or modify"; and "amended," "amending," and "amendment" shall have
------- -------- ---------
meanings correlative to the foregoing; (ii) in the computation of periods of
time from a specified date to a later specified date, "from" shall mean "from
----
and including"; "to" and "until" shall mean "to but excluding"; and "through"
-- ----- -------
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<PAGE>
shall mean "to and including"; (iii) "hereof," "herein" and "hereunder" (and
------ ------ ---------
similar terms) in this Agreement or any other Credit Document refer to this
Agreement or such other Credit Document, as the case may be, as a whole and not
to any particular provision of this Agreement or such other Credit Document;
(iv) "including" (and similar terms) shall mean "including without limitation"
---------
(and similarly for similar terms); (v) "or" has the inclusive meaning
represented by the phrase "and/or"; (vi) "satisfactory to" any Creditor shall
---------------
mean in form, scope and substance and on terms and conditions satisfactory to
such Creditor; (vii) references to "the date hereof" shall mean the date first
---------------
set forth above; and (viii) "asset" and "Property" shall have the same meaning
----- --------
and effect and refer to all tangible and intangible assets and property, whether
real, personal or mixed and of every type and description.
(c) In this Agreement unless the context clearly requires otherwise,
any reference to (i) an Annex, Exhibit or Schedule is to an Annex, Exhibit or
Schedule, as the case may be, attached to this Agreement and constituting a part
hereof, and (ii) a Section or other subdivision is to a Section or such other
subdivision of this Agreement.
(d) No doctrine of construction of ambiguities in agreements or
instruments against the interests of the party controlling the drafting thereof
shall apply to any Credit Document.
Section 2. Commitments, Letters of Credit, Fees, Register,
Prepayments and Replacement of Lenders.
-------------------------------------------------
2.01. Loans.
-----
(a) Revolving Credit Loans. Each Revolving Credit Lender severally
----------------------
agrees, on the terms and conditions of this Agreement, to make revolving credit
loans (the "Revolving Credit Loans") to Borrower in Dollars during the period
----------------------
from and including the Closing Date to but not including the Revolving Credit
Commitment Termination Date in an aggregate principal amount at any one time
outstanding not exceeding the amount of the Revolving Credit Commitment of such
Lender as in effect from time to time; provided, however, that in no event shall
-------- -------
the sum of the aggregate principal amount of (without duplication) all Revolving
Credit Loans then outstanding, plus the aggregate amount of all Letter of Credit
----
Liabilities at any time exceed the aggregate amount of the Revolving Credit
Commitments as in effect at such time. Subject to the terms and conditions of
this Agreement, during such period Borrower may borrow, repay and reborrow the
amount of the Revolving Credit Commitments by means of ABR Loans and LIBOR Loans
and may Convert Revolving Credit Loans of one Type into Revolving Credit Loans
of another Type (as provided in Section 2.09) or Continue Revolving Credit Loans
of one Type as Revolving Credit Loans of the same Type (as provided in Section
2.09).
(b) Tranche A Term Loans. Each Tranche A Term Loan Lender severally
--------------------
agrees, on the terms and conditions of this Agreement, to make a single term
loan to Borrower in Dollars on the Amendment and Restatement Date in an
aggregate principal amount equal to the Tranche A Term Loan Commitment of such
Lender, such loan to be used to finance the transactions contemplated hereby and
to pay related fees and expenses. Subject to the terms and conditions of this
Agreement, thereafter Borrower may Convert Tranche A Term Loans of one Type into
Tranche A Term Loans
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<PAGE>
of another Type (as provided in Section 2.09) or Continue Tranche A Term Loans
of one Type as Tranche A Term Loans of the same Type (as provided in Section
2.09). Each Tranche A Term Loan shall be made by a Tranche A Term Loan Lender
pro rata based on such Lender's Tranche A Term Loan Commitment Percentage. The
- - --- ----
aggregate sum of the amount of the Tranche A Term Loans made on the Amendment
and Restatement Date shall not exceed the Tranche A Term Loan Commitments or,
with respect to any Lender, its Tranche A Term Loan Commitment.
Tranche A Term Loans that are repaid or prepaid may not be reborrowed.
(c) Tranche B Tenn Loans. Each Tranche B Term Loan Lender severally
--------------------
agrees, on the terms and conditions of this Agreement, to make a single term
loan to Borrower in Dollars on the Amendment and Restatement Date in an
aggregate principal amount equal to the Tranche B Term Loan Commitment of such
Lender, such loan to be used to finance the transactions contemplated hereby and
to pay related fees and expenses. Subject to the terms and conditions of this
Agreement, thereafter Borrower may Convert Tranche B Term Loans of one Type into
Tranche B Term Loans of another Type (as provided in Section 2.09) or Continue
Tranche B Term Loans of one Type as Tranche B Term Loans of the same Type (as
provided in Section 2.09). Each Tranche B Term Loan shall be made by a Tranche B
Term Loan Lender pro rata based on such Lender's Tranche B Term Loan Commitment
--- ----
Percentage. The aggregate amount of the Tranche B Term Loans made on the
Amendment and Restatement Date shall not exceed the Tranche B Term Loan
Commitments or, with respect to any Lender, its Tranche B Term Loan Commitment.
Tranche B Term Loans that are repaid or prepaid may not be reborrowed.
(d) Limit on LIBOR Loans. No more than ten separate Interest Periods
--------------------
in respect of LIBOR Loans of any Class may be outstanding at any one time. LIBOR
Loans made prior to the earlier to occur of December 31, 1998 and such time as
An-anger has notified Borrower that the primary syndication of the credit
commitments and loans hereunder has been completed may only have an Interest
Period of one (1) month. No LIBOR Loans may be made at the Closing Date unless
consented to by An-anger in its sole discretion.
2.02. Borrowings. Borrower shall give Administrative Agent notice of
----------
each borrowing hereunder as provided in Section 4.05. The form of such notice of
borrowing shall be substantially in the form of Exhibit H. Not later than 12:00
---------
noon New York City Time on the date specified for each borrowing hereunder, each
Lender shall make available the amount of the Loan or Loans to be made by it on
such date to Administrative Agent, at an account specified by Administrative
Agent maintained at the Principal Office, in immediately available funds, for
the account of Borrower. Each borrowing of Revolving Credit Loans shall be made
by each Revolving Credit Lender pro rata based on such Lender's Revolving Credit
--- ----
Commitment Percentage. The amounts so received by Administrative Agent shall,
subject to the terms and conditions of this Agreement, be made available to
Borrower by depositing the same, in immediately available funds, in an account
of Borrower maintained with Administrative Agent at the Principal Office
designated by Borrower.
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<PAGE>
2.03. Letters of Credit. Subject to the terms and conditions hereof,
-----------------
the Revolving Credit Commitments may be utilized, upon the request of Borrower,
in addition to the Revolving Credit Loans provided for by Section 2.01(a), for
standby and commercial documentary letters of credit (herein collectively called
"Letters of Credit") issued by the Issuing Lender for the account of Borrower or
-----------------
any Subsidiary which is an Obligation that Borrower shall be a co-applicant (and
jointly and severally liable) with respect to each Letter of Credit issued for
the account of any such Subsidiary); provided, however, that in no event shall
-------- -------
(i) the aggregate amount of all Letter of Credit Liabilities, plus the aggregate
----
principal amount of the Revolving Credit Loans then outstanding exceed at any
time the Revolving Credit Commitments as in effect at such time, (ii) the sum of
the aggregate principal amount of Revolving Credit Loans then outstanding made
by any Revolving Credit Lender, plus such Lender's pro rata share (based on the
---- --- ----
Revolving Credit Commitments) of the aggregate amount of all Letter of Credit
Liabilities exceed such Lender's Revolving Credit Commitment as in effect at
such time, (iii) the outstanding aggregate amount of all Letter of Credit
Liabilities exceed $225.0 million, (iv) the face amount of any Letter of Credit
be less than $ 100,000, (v) the expiration date of any Letter of Credit extend
beyond the earlier of (x) the fifth Business Day preceding the Revolving Credit
Commitment Termination Date and (y) the date twelve months following the date of
such issuance for standby Letters of Credit or 180 days after the date of such
issuance for commercial documentary Letters of Credit, unless the Majority
Revolving Credit Lenders have approved such expiry date in writing (but never
beyond the fifth Business Day prior to the Revolving Credit Commitment
Termination Date); provided however, that any (a) standby Letter of Credit may
-------- -------
be automatically extendible for periods of up to one year (but never beyond the
fifth Business Day preceding the Revolving Credit Commitment Termination Date)
so long as such Letter of Credit provides that the Issuing Lender retains an
option satisfactory to the Issuing Lender to terminate such Letter of Credit
prior to each extension date, unless all of the Revolving Credit Lenders have
approved such expiry date in writing and (b) any Letter of Credit issued in
connection with an Investment pursuant to Section 9.09(q) may have an expiration
date of June 30, 2002, or (vi) the Issuing Lender issue any Letter of Credit
after it has received notice from Borrower or the Majority Revolving Credit
Lenders stating that a Default exists until such time as the Issuing Lender
shall have received written notice of (x) rescission of such notice from the
Majority Revolving Credit Lenders, (y) waiver of such Default in accordance with
this Agreement or (z) Administrative Agent's good faith determination that such
Default has ceased to exist. The following additional provisions shall apply to
Letters of Credit:
(a) Borrower shall give Administrative Agent at least three
Business Days' irrevocable prior notice (effective upon receipt) specifying
the date (which shall be no later than thirty days preceding the Revolving
Credit Termination Date) each Letter of Credit is to be issued and
describing in reasonable detail the proposed terms of such Letter of Credit
(including the beneficiary thereof) (including whether such Letter of
Credit is to be a commercial Letter of Credit or a standby Letter of
Credit). Upon receipt of any such notice, Administrative Agent shall advise
the Issuing Lender of the contents thereof. Each Lender hereby authorizes
the Issuing Lender to issue, and perform its obligations under, Letters of
Credit. Letters of Credit shall be issued in accordance with the customary
procedures of the Issuing Lender, which may include an application for
Letters of Credit. The Issuing Lender may refuse to issue any Letter of
Credit the contents of which are not reasonably satisfactory
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<PAGE>
to it. If there is any conflict between the procedures required by the
Issuing Lender and this Agreement, this Agreement shall govern.
(b) On each day during the period commencing with the issuance by
the Issuing Lender of any Letter of Credit and until such Letter of Credit
shall have expired or been terminated, the Revolving Credit Commitment of
each Revolving Credit Lender shall be deemed to be utilized for all
purposes hereof in an amount equal to such Lender's Revolving Credit
Commitment Percentage of the then undrawn face amount of such Letter of
Credit. Each Revolving Credit Lender (other than the Issuing Lender) agrees
that, upon the issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Issuing Lender's liability
under such Letter of Credit in an amount equal to such Lender's Revolving
Credit Commitment Percentage of such liability, and each Revolving Credit
Lender (other than the Issuing Lender) thereby shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as
surety, and shall be unconditionally obligated to the Issuing Lender to pay
and discharge when due, its Revolving Credit Commitment Percentage of the
Issuing Lender's liability under such Letter of Credit. The Issuing Lender
shall be deemed to hold a Letter of Credit Liability in an amount equal to
its retained interest in the related Letter of Credit after giving effect
to such acquisition by the Revolving Credit Lenders other than the Issuing
Lender of their participation interests.
(c) Upon the making of any payment to the beneficiary of any
Letter of Credit, the Issuing Lender shall promptly notify Borrower
(through Administrative Agent) of the amount paid by the Issuing Lender and
the date on which payment was made to such beneficiary. Borrower hereby
unconditionally agrees to pay and reimburse the Issuing Lender for the
amount of payment under such Letter of Credit, together with interest
thereon at the Alternate Base Rate plus the Applicable Margin applicable to
Revolving Credit Loans from the date payment was made to such beneficiary
to the date on which payment is due, not later than the next Business Day
after the date on which Borrower receives such notice from the Issuing
Lender. Any such payment due from Borrower and not paid on the required
date shall bear interest at rates specified in Section 3.02(b).
(d) Forthwith upon its receipt of a notice referred to in clause
(c) of this Section 2.03, Borrower shall advise the Issuing Lender whether
or not Borrower intends to borrow hereunder to finance its obligation to
reimburse the Issuing Lender for the amount of the related demand for
payment and, if it does, submit a notice of such borrowing as provided in
Section 4.05. In the event that Borrower fails to so advise Administrative
Agent, or if Borrower fails to reimburse the Issuing Lender for a demand
for payment under a Letter of Credit by the next Business Day after the
date of such notice, Administrative Agent shall give each Revolving Credit
Lender prompt notice of the amount of the demand for payment, specifying
such Lender's Revolving Credit Commitment Percentage of the amount of the
related demand for payment.
(e) Each Revolving Credit Lender (other than the Issuing Lender)
shall pay to Administrative Agent for account of the Issuing Lender at the
Principal Office in Dollars and in immediately available funds, the amount
of such Lender's Revolving Credit
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<PAGE>
Commitment Percentage of any payment under a Letter of Credit upon notice
by the Issuing Lender (through Administrative Agent) to such Revolving
Credit Lender requesting such payment and specifying such amount. Each such
Revolving Credit Lender's obligation to make such payments to
Administrative Agent for account of the Issuing Lender under this clause
(e), and the Issuing Lender's right to receive the same, shall be absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including (i) the failure of any other Revolving Credit Lender to make its
payment under this clause (e), (ii) the financial condition of Borrower or
the existence of any Default or (iii) the termination of the Commitments.
Each such payment to the Issuing Lender shall be made without any offset,
abatement, withholding or reduction whatsoever.
(f) Upon the making of each payment by a Revolving Credit Lender
to the Issuing Lender pursuant to clause (e) above in respect of any Letter
of Credit, such Lender shall, automatically and without any further action
on the part of Administrative Agent, the Issuing Lender or such Lender,
acquire (i) a participation in an amount equal to such payment in the
Reimbursement Obligation owing to the Issuing Lender by Borrower hereunder
and under the Letter of Credit Documents relating to such Letter of Credit
and (ii) a participation in a percentage equal to such Lender's Revolving
Credit Commitment Percentage in any interest or other amounts payable by
Borrower hereunder and under such Letter of Credit Documents in respect of
such Reimbursement Obligation. Upon receipt by the Issuing Lender from or
for the account of Borrower of any payment in respect of any Reimbursement
Obligation or any such interest or other amounts (including by way of
setoff or application of proceeds of any collateral security) the Issuing
Lender shall promptly pay to Administrative Agent for account of each
Revolving Credit Lender which has satisfied its obligations under clause
(e) above, such Revolving Credit Lender's Revolving Credit Commitment
Percentage of such payment, each such payment by the Issuing Lender to be
made in the same money and funds in which received by the Issuing Lender.
In the event any payment received by the Issuing Lender and so paid to the
Revolving Credit Lenders hereunder is rescinded or must otherwise be
returned by the Issuing Lender, each Revolving Credit Lender shall, upon
the request of the Issuing Lender (through Administrative Agent), repay to
the Issuing Lender (through Administrative Agent) the amount of such
payment paid to such Lender, with interest at the rate specified in clause
(i) of this Section 2.03.
(g) Borrower shall pay to Administrative Agent for the account of
the Issuing Lender in respect of each Letter of Credit a letter of credit
commission in an amount equal to (x) the rate per annum equal to the
--- -----
Applicable Margin for Revolving Credit Loans that would be LIBOR Loans in
effect at the time of issuance thereof, multiplied by (y) the daily average
undrawn face amount of such Letter of Credit (but in no event less than
$500 per Letter of Credit on a per annum basis) for the period from and
--- -----
including the date of issuance of such Letter of Credit (i) in the case of
a Letter of Credit which expires in accordance with its terms, to and
including such expiration date and (ii) in the case of a Letter of Credit
which is drawn in full or is otherwise terminated other than on the stated
expiration date of such Letter of Credit, to but excluding the date such
Letter of Credit is drawn in full or is terminated, such fee to be non-
refundable and to be paid in arrears quarterly, on each Quarterly Date (or
such minimum $500 per annum fee to be paid on the date of issuance of the
--- -----
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<PAGE>
applicable Letter of Credit), and on the earlier of the Revolving Credit
Commitment Termination Date or the date of the termination of the Revolving
Credit Commitments or the date of such termination, expiration or the
Business Day subsequent to notice of a drawing. The Issuing Lender shall
pay to Administrative Agent for account of each Revolving Credit Lender
(other than the Issuing Lender), from time to time at reasonable intervals
(but in any event at least quarterly), but only to the extent actually
received from Borrower, an amount equal to such Lender's Revolving Credit
Commitment Percentage of all letter of credit commissions referred to in
the first sentence of this clause (g). In addition, Borrower shall pay to
Administrative Agent for account of the Issuing Lender only in respect of
each Letter of Credit a letter of credit issuance fee in an amount equal to
0.25% per annum multiplied by the original face amount from the issue date
--- -----
through the expiry date of such Letter of Credit (but in no event less than
$500 per Letter of Credit), such amount to be payable quarterly in arrears
on each Quarterly Date, plus all charges, costs and expenses in the amounts
customarily charged by the Issuing Lender from time to time in like
circumstances with respect to the issuance, amendment or transfer of each
Letter of Credit and drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar month, the
Issuing Lender shall deliver (through Administrative Agent) to each
Revolving Credit Lender and Borrower a notice describing the aggregate
amount of all Letters of Credit outstanding at the end of such month. Upon
the request of any Revolving Credit Lender from time to time, the Issuing
Lender shall deliver any other information reasonably requested by such
Lender with respect to each Letter of Credit then outstanding.
(i) To the extent that any Revolving Credit Lender fails to pay
an amount required to be paid pursuant to clause (e) or (f) of this Section
2.03 on the due date therefor, such Lender shall pay interest to the
Issuing Lender (through Administrative Agent) on such amount from and
including such due date to but excluding the date such payment is made (i)
during the period from and including such due date to but excluding the
date three Business Days thereafter, at a rate per annum equal to the
--- -----
Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at
a rate per annum equal to the post-default rate (as in effect from time to
--- -----
time) pursuant to Section 3.02(b).
(j) The issuance by the Issuing Lender of any modification or
supplement to any Letter of Credit hereunder that would extend the expiry
date or increase the face amount thereof shall be subject to the same
conditions applicable under this Section 2.03 to the issuance of new
Letters of Credit, and no such modification or supplement shall be issued
hereunder unless either (x) the respective Letter of Credit affected
thereby would have complied with such conditions had it originally been
issued hereunder in such modified or supplemented form or (y) each
Revolving Credit Lender shall have consented thereto.
(k) Notwithstanding the foregoing, the Issuing Lender shall not
be under any obligation to issue any Letter of Credit if at the time of
such issuance, any order, judgment or decree of any Governmental Authority
or arbitrator shall purport by its terms to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit or any requirement
-40-
<PAGE>
of law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority
shall prohibit, or request that the Issuing Lender refrain from, the
issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon such Issuing Lender with respect to such
Letter of Credit any restriction or reserve or capital requirement (for
which the Issuing Lender is not otherwise compensated) not in effect on the
date hereof. At any time that the Issuing Lender shall not be under any
obligation to issue Letters of Credit pursuant to this paragraph (k), the
Issuing Lender may be replaced by Borrower with another Lender reasonably
acceptable to Administrative Agent upon notice to the Issuing Lender and
Administrative Agent. Upon any such replacement, Administrative Agent shall
notify the Lenders of any such replacement of the Issuing Lender and the
replacement Issuing Lender shall agree to be bound by the applicable
provisions of this Agreement. At the time any such replacement shall become
effective, Borrower shall pay all unpaid fees accrued for the account of
the replaced Issuing Lender pursuant to Section 2.03(g). From and after the
effective date of any such replacement, (i) the successor Issuing Lender
shall have all the rights and obligations of the Issuing Lender under this
Agreement with respect to Letters of Credit to be issued thereafter and
(ii) references herein to the term "Issuing Lender" shall be deemed to
refer to such successor or to any previous Issuing Lender, or to such
successor and all previous Issuing Lenders, as the context shall require.
After the replacement of an Issuing Lender hereunder, the replaced Issuing
Lender shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Lender under this Agreement with
respect to Letters of Credit issued by it prior to such replacement, but
shall not be required to issue additional Letters of Credit.
The obligations of Borrower under this Agreement and any Letter of Credit
Document to reimburse the Issuing Lender for a drawing under a Letter of Credit,
and to repay any drawing under a Letter of Credit converted into Revolving
Credit Loans, shall be unconditional and irrevocable, and shall be paid strictly
in accordance with the terms of this Agreement and each such other Letter of
Credit Document under all circumstances, including the following: (i) any lack
of validity or enforceability of this Agreement or any Letter of Credit
Document; (ii) the existence of any claim, setoff, defense or other right that
Borrower may have at any time against any beneficiary or any transferee of any
Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Issuing Lender or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by the
Letter of Credit Documents or any unrelated transaction; (iii) any draft,
demand, certificate or other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or
delay in the transmission or otherwise of any document required in order to make
a drawing under any Letter of Credit; or any defense based upon the failure of
any drawing under a Letter of Credit to conform to the terms of the Letter of
Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing; or (iv) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Borrower or a Guarantor; provided, however, that Borrower shall
-------- -------
not be obligated to reimburse the Issuing Lender for any wrongful payment
determined by a court of competent jurisdiction to have been made by the Issuing
Lender as a result of acts or omissions constituting willful misconduct or gross
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<PAGE>
negligence on the part of the Issuing Lender. To the extent that any provision
of any Letter of Credit Document is inconsistent with the provisions of this
Section 2.03, the provisions of this Section 2.03 shall control.
2.04. Termination and Reductions of Commitments. (a) (i) The
-----------------------------------------
aggregate amount of the Revolving Credit Commitments shall be automatically and
permanently reduced to zero on the Revolving Credit Commitment Termination Date.
The aggregate amount of Revolving Credit Commitments shall be permanently
reduced on the date any required prepayments described in Section 2.10(a) are
required to be made in the amount specified in Section 2.10(b)(ii).
(ii) The aggregate amount of the Term Loan Commitments shall be
automatically and permanently reduced to zero immediately after the making of
the Term Loans on the Amendment and Restatement Date.
(b) Borrower shall have the right at any time or from time to time (i)
so long as no Revolving Credit Loans or Letter of Credit Liabilities will be
outstanding as of the date specified for termination, to terminate the Revolving
Credit Commitments, and (ii) to reduce the aggregate amount of the Unutilized
Revolving Credit Commitments of all the Revolving Credit Lenders; provided,
--------
however, that (x) Borrower shall give notice of each such termination or
- - -------
reduction as provided in Section 4.05, and (y) each partial reduction shall be
in an aggregate amount at least equal to $5.0 million (or a larger multiple of $
1.0 million) or, if less, the remaining Revolving Credit Commitments.
(c) The Commitments once terminated or reduced may not be reinstated.
2.05. Fees. (a) Borrower shall pay to Administrative Agent for the
----
account of each Revolving Credit Lender a commitment fee on the daily average
amount of such Lender's Unutilized Revolving Credit Commitment, for the period
from and including the Closing Date to but not including the earlier of the date
such Revolving Credit Commitment is terminated and the Revolving Credit
Commitment Termination Date, at a rate per annum equal to the Applicable
--- -----
Revolving Credit Fee Percentage. Any accrued commitment fee under this Section
2.05(a) shall be payable in arrears on each Quarterly Date and on the earlier of
the date the Revolving Credit Commitments are terminated and the Revolving
Credit Commitment Termination Date.
(b) Borrower shall pay to Administrative Agent for its own account a
nonrefundable administrative fee pursuant to the terms of the Fee Letter.
2.06. Lending Offices. The Loans of each Type made by each Lender
---------------
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
2.07. Several Obligations of Lenders. The failure of any Lender to
------------------------------
make any Loan to be made by it on the date specified therefor shall not relieve
any other Lender of its obligation to make its Loan on such date, but neither
any Lender nor Administrative Agent shall be responsible for the failure of any
other Lender to make a Loan to be made by such other Lender, and (except as
otherwise provided in Section 4.06) no Lender shall have any obligation to
Administrative Agent or
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<PAGE>
any other Lender for the failure by such Lender to make any Loan required to be
made by such Lender.
2.08. Notes: Register. (a) (i) At the request of any Revolving Credit
---------------
Lender, the Revolving Credit Loans made by such Revolving Credit Lender shall be
evidenced by one or more promissory notes of Borrower, substantially in the form
of Exhibit A-1, dated the Closing Date, payable to such Lender and otherwise
-----------
duly completed.
(ii) At the request of any Lender, the Tranche A Term Loans made by
such Tranche A Term Loan Lender shall be evidenced by one or more promissory
notes of Borrower, substantially in the form of Exhibit A-2 dated the Closing
-----------
Date, payable to such Lender and otherwise duly completed.
(iii) At the request of any Lender, the Tranche B Term Loans made
by such Tranche B Term Loan Lender shall be evidenced by one or more promissory
notes of Borrower, substantially in the form of Exhibit A-3 dated the Closing
-----------
Date, payable to such Lender and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan of each Class made by each Lender to
Borrower, and each payment made on account of the principal thereof, shall be
recorded by such Lender on its books and, prior to any transfer of any Note
evidencing the Loans of such Class held by it, endorsed by such Lender on the
schedule attached to such Note or any continuation thereof; provided, however,
-------- -------
that the failure of such Lender to make any such recordation or endorsement
shall not affect the obligations of Borrower to make a payment when due of any
amount owing hereunder or under such Note.
(c) Borrower hereby designates Administrative Agent to serve as its
agent, solely for purposes of this Section 2.08, to maintain a register (the
"Register") on which it will record the name and address of each Lender, the
- - ---------
Commitment from time to time of each of the Lenders, the principal amount of the
Loans made by each of the Lenders and each repayment in respect of the principal
amount of the Loans of each Lender. Failure to make any such recordation or any
error in such recordation shall not affect Borrower's obligations in respect of
such Loans. The entries in the Register shall be prima facie evidence of
Borrower's Loans, and Borrower, Administrative Agent and the Lenders shall treat
each Person whose name is recorded in the Register as the owner of a Loan or
other obligation hereunder as the owner thereof for all purposes of this
Agreement and the other Credit Documents, notwithstanding any notice to the
contrary. The Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
2.09. Optional Prepayments and Conversions or Continuations of Loans.
--------------------------------------------------------------
Subject to Section 4.04, Borrower shall have the right to prepay Loans, or to
Convert Loans of one Type into Loans of another Type or to Continue Loans of one
Type as Loans of the same Type, at any time or from time to time to be applied
as specified by Borrower; provided, however, that: (a) Borrower shall give
-------- -------
Administrative Agent notice of each such prepayment, Conversion or Continuation
as provided in Section 4.05 (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder);
(b) if LIBOR Loans are prepaid or Converted other
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<PAGE>
than on the last day of an Interest Period for such Loans, Borrower shall at
such time pay all expenses and costs required by Section 5.05; and (c)
prepayments of the Term Loans pursuant to this Section 2.09 shall be applied pro
---
rata. among the Term Loan Tranches based upon the remaining unpaid amounts
- - ----
thereof and, as to each such Term Loan Tranche, the amount to be applied thereto
shall be applied pro rata among the remaining Amortization Payments based upon
--- ----
the remaining unpaid amounts thereof. Each notice of Conversion or Continuation
shall be substantially in the form of
Exhibit 1.
- - ---------
Notwithstanding the foregoing, any Tranche B Term Loan Lender may,
with respect to any voluntary prepayment to the extent that Tranche A Term Loans
are outstanding (after giving effect to the application of such voluntary
prepayment to the Tranche A Term Loans), elect not to have all or any part of
any voluntary prepayments applied to such Lender's Tranche B Term Loans, in
which case the aggregate amount of such prepayment so declined shall be applied
to the remaining Amortization Payments with respect to the Tranche A Term Loans
pro rata. If no Tranche A Term Loans are outstanding, such election to decline
- - --- ----
prepayments shall not be available.
Notwithstanding the foregoing, and without limiting the rights and
remedies of the Lenders under Section 10, in the event that any Event of Default
shall have occurred and be continuing, Administrative Agent may (and at the
request of the Majority Lenders shall) suspend the right of Borrower to Convert
any Loan into a LIBOR Loan, or to Continue any Loan as a LIBOR Loan, in which
event all Loans shall be Converted (on the last day(s) of the respective
Interest Periods therefor) or Continued, as the case may be, as ABR Loans.
2.10. Mandatory Prepayments. (a) Borrower shall prepay the Term Loans
---------------------
as follows (each such prepayment to be effected in each case in the manner,
order and to the extent specified in subsection (b) below of this Section 2.10):
(i) Casualty Events. On the date on which Borrower or any
---------------
Subsidiary receives any Net Available Proceeds from any Casualty Event, in
an aggregate principal amount equal to 100% of such Net Available Proceeds;
provided, however, that
-------- -------
(w) so long as no Default or Event of Default then exists,
the Net Available Proceeds thereof shall not be required to be so
applied on such date to the extent that (1) in the event that such Net
Available Proceeds are less than or equal to $5.0 million, Borrower
has delivered an Officers' Certificate to Administrative Agent on or
prior to such date stating that such proceeds shall be used or (11) in
the event that such Net Available Proceeds exceed $5.0 million
Administrative Agent has elected by notice to Borrower on or prior to
such date to require such proceeds to be used to (A) in the case of
Mortgaged Real Property, repair, replace or restore any Property in
respect of which such Net Available Proceeds were paid or (B) in the
case of Property other than Mortgaged Real Property, fund the
substitution of other Property used or usable in the business of
Borrower and the Subsidiaries or repair, replace or restore such
Property i respect of which such Casualty Event has occurred, in each
case within 360 days following the date of the receipt of such Net
Available Proceeds,
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<PAGE>
(x) all such Net Available Proceeds in excess of $ 150,000
individually or $ 1.5 million in the aggregate shall be held in the
Collateral Account and released therefrom only in accordance with the
terms of the Security Agreement, and
(y) if all or any portion of such Net Available Proceeds not
required to be applied to the prepayment of Term Loans pursuant to the
preceding proviso (w) is not so used within 360 days after the date of
the receipt of such Net Available Proceeds, such remaining portion
shall be applied on the last day of such period as specified in
Section 2.10(b).
(ii) Equity Issuance. Upon any Equity Issuance after the Closing
---------------
Date, in an aggregate principal amount equal to 50% of the Net Available
Proceeds of such Equity Issuance; provided, however, no such prepayment
-------- -------
shall be required so long as the Leverage Ratio at the end of the most
recently ended fiscal quarter is less than 3.0:1.0.
(iii) Debt Issuance. Upon any Debt Issuance after the Closing
-------------
Date, in an aggregate principal amount equal to 100% of the Net Available
Proceeds of such Debt Issuance (other than any Debt Issuance consisting of
Subordinated Indebtedness, to the extent the proceeds thereof are used to
refinance Indebtedness incurred pursuant to the Bridge Loan Agreement).
(iv) Disposition Events. Upon the date of receipt of any Net
------------------
Available Proceeds from any Disposition Event, in an aggregate principal
amount equal to 100% of the Net Available Proceeds from such Disposition
Event; provided, however, that
-------- -------
(w) up to $25.0 million in the aggregate in each fiscal year
(or $50.0 million if the Leverage Ratio at the end of the most
recently ended fiscal quarter shall be less than 3.0:1.0) of Net
Available Proceeds from any Disposition (including any Disposition of
any Assets held for Sale to the extent not utilized as provided in
clause(x) below) effected pursuant to Section 9.06(g) shall not be
required to be applied as provided herein on such date if and to the
extent that (1) no Default or Event of Default then exists or would
arise therefrom, and (2) Borrower delivers an Officers' Certificate to
Administrative Agent on or prior to such date stating that such Net
Available Proceeds shall be reinvested in capital assets of Borrower
or any Subsidiary in each case within 360 days following the date of
such Disposition Event (which certificate shall set forth the
estimates of the proceeds to be so expended),
(x) up to $1 0.0 million in the aggregate from the
Disposition of Assets Held for Sale shall not be required to be
applied as provided herein so long as such amounts are applied to
repay a like amount under the Bridge Loan Agreement on or prior to
March 31, 1999,
(y) all such Net Available Proceeds in excess of $150,000
individually and $1.5 million in the aggregate shall be held in the
Collateral Account
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<PAGE>
and released therefrom only in accordance with the terms of the
Security Agreement, and
(z) if all or any portion of such Net Available Proceeds
which are permitted to be applied to reinvestment pursuant to the
terms of Section 2.10(a)(iv)(w) is not so used within such 360 day
period, such remaining portion shall be applied on the last day of
such period (or such earlier date as Borrower determines not to
reinvest any portion thereof) as specified in Section 2.10(b) (it
being understood that the foregoing shall in no way affect the
obligation of any Company to obtain the consent of the Majority
Lenders if required pursuant to this Agreement to effect any
Disposition).
(v) Excess Cash Flow. Not later than 95 days after the end of
----------------
each fiscal year of Borrower commencing with the fiscal year ended December
31, 1998, in an aggregate principal amount equal to (A) 75% of Excess Cash
Flow for such fiscal year when the Leverage Ratio at the end of such fiscal
year is greater than or equal to 3.0: 1.0 (as evidenced in an Officers'
Certificate delivered to Administrative Agent) and (B) 50% of Excess Cash
Flow for such fiscal year when the Leverage Ratio at the end of such fiscal
year is less than 3.0: 1.0 (as evidenced in an Officers' Certificate
delivered to Administrative Agent).
(vi) Other Required Prepayments. If the terms of any agreement,
--------------------------
instrument or indenture pursuant to which any Indebtedness pari passu with
---- -----
or junior in right of payment to the Loans is outstanding (or pursuant to
which such Indebtedness is guaranteed) require prepayment of such
Indebtedness out of the proceeds of any Disposition or otherwise unless
such proceeds are used to prepay other Indebtedness, then, to the extent
not otherwise required by this Section 2.10(a), the Loans shall be repaid
in an amount equal to the amount that would be required to be prepaid at
such time as and upon such terms so that such other Indebtedness will not
be required to be prepaid pursuant to the terms of the agreement, indenture
or instrument or guarantee governing such other Indebtedness.
(b) Application. The amount of any required prepayments described in
-----------
Section 2.10(a) shall be applied as follows:
(i) first, the amount of the required prepayment shall be applied
-----
to the reduction of Amortization Payments on the Term Loans required by
Section 3.01(b) pro rata among the Term Loan Tranches based upon the
--- ----
remaining unpaid amounts thereof and, as to Tranche A Term Loans, the
amount to be applied thereto shall be applied pro rata to the remaining
--- ----
Amortization Payments thereunder based on the remaining unpaid amounts
thereof (provided that any prepayments required pursuant to Section
2.10(a)(iv) from the Triton Disposition shall be applied to the Tranche A
Term Loans in inverse order of maturity to the remaining Amortization
Payments thereunder) and as to Tranche B Term Loans, the amount to be
applied thereto shall be applied in inverse order of maturity to the
remaining Amortization Payments thereunder. Notwithstanding the foregoing,
(x) any holder of Tranche B Term Loans may, with respect to any mandatory
prepayment, to the extent that Tranche A Tenn Loans are outstanding (after
giving effect to such required prepayment to the Tranche
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<PAGE>
A Term Loans), elect not to have all or any amount of any such required
prepayments applied to such holder's Tranche B Term Loans, as the case may
be, in which case the aggregate amount so declined shall be applied to the
remaining Amortization Payments in respect of the Tranche A Term Loans pro
---
rata and (y) if no Tranche A Term Loans are outstanding (after giving
----
effect to such required prepayment), such election to decline prepayments
shall not be available; and
(ii) second, after such time as no Term Loans remain outstanding,
------
Revolving Credit Commitments shall be permanently reduced (at the same time
that the prepayment of the Term Loans would have been made and assuming an
unlimited amount thereof then outstanding) pro rata in an amount equal to
--- ----
the amount of any such required prepayment that would have been applied to
the Term Loans (assuming an unlimited amount thereof then outstanding) and
to the extent that, after giving effect to such reduction, the aggregate
principal amount of Revolving Credit Loans, plus the aggregate amount of
----
all Letter of Credit Liabilities would exceed the Revolving Credit
Commitments, Borrower shall, first prepay outstanding Revolving Credit
-----
Loans, and second, provide cover for Letter of Credit Liabilities as
------
specified in Section 2.10(d), in an aggregate amount equal to such excess.
Notwithstanding the foregoing, if the amount of any prepayment of
Loans required under this Section 2.10 shall be in excess of the amount of the
ABR Loans at the time outstanding, only the portion of the amount of such
prepayment as is equal to the amount of such outstanding ABR Loans shall be
immediately prepaid and, at the election of Borrower, the balance of such
required prepayment shall be either (i) deposited in the Collateral Account and
applied to the prepayment of LIBOR Loans on the last day of the then next-
expiring Interest Period for LIBOR Loans or (ii) prepaid immediately, together
with any amounts owing to the Lenders under Section 5.05. Notwithstanding any
such deposit in the Collateral Account, interest shall continue to accrue on
such Loans until prepayment.
(c) Revolving Credit Extension Reductions. Until the Revolving Credit
-------------------------------------
Commitment Termination Date, Borrower shall from time to time immediately prepay
the Revolving Credit Loans (and/or provide cover for Letter of Credit
Liabilities as specified in Section 2.10(d)) in such amounts as shall be
necessary so that at all times the aggregate outstanding amount of the Revolving
Credit Loans, plus the aggregate outstanding Letter of Credit Liabilities shall
----
not exceed the Revolving Credit Commitments as in effect at such time, such
amount to be applied, first, to Revolving Credit Loans outstanding and, second,
----- ------
as cover for Letter of Credit Liabilities outstanding as specified in Section
2.10(d).
(d) Cover for Letter of Credit Liabilities. In the event that Borrower
--------------------------------------
shall be required pursuant to this Section 2.10 to provide cover for Letter of
Credit Liabilities, Borrower shall effect the same by paying to Administrative
Agent immediately available funds in an amount equal to the required amount,
which funds shall be retained by Administrative Agent in the Collateral Account
(as provided in the Security Agreement as collateral security in the first
instance for the Letter of Credit Liabilities) until such time as all Letters of
Credit shall have been terminated and all of the Letter of Credit Liabilities
paid in full.
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<PAGE>
2.11. Replacement of Lenders. Borrower shall have the right, if no
----------------------
Default then exists, to replace any Lender (the "Replaced Lender") with one or
---------------
more other Eligible Persons reasonably acceptable to Arranger (collectively, the
"Replacement Lender") if (x) such Lender is charging Borrower increased costs
------------------
pursuant to Section 5.01 or 5.06 in excess of those being charged generally by
the other Lenders or such Lender becomes incapable of making LIBOR Loans as
provided in Section 5.03 and/or (y) as provided in Section 12.04(ii), such
Lender refuses to consent to certain proposed amendments, waivers or
modifications with respect to this Agreement; provided, however, that (i) at the
-------- -------
time of any replacement pursuant to this Section 2.11, the Replacement Lender
shall enter into one or more assignment agreements (and with all fees payable
pursuant to said Section 12.06 to be paid by the Replacement Lender) pursuant to
which the Replacement Lender shall acquire all of the Commitments and
outstanding Loans of, and in each case Letter of Credit Interests by, the
Replaced Lender and, in connection therewith, shall pay to (x) the Replaced
Lender, an amount equal to the sum of (A) the principal of, and all accrued
interest on, all outstanding Loans of the Replaced Lender, (B) all Reimbursement
Obligations owing to such Replaced Lender, together with all then unpaid
interest with respect thereto at such time, and (C) all accrued, but theretofore
unpaid, fees owing to the Replaced Lender pursuant to Section 2.05, and (y) the
Issuing Lender an amount equal to such Replaced Lender's Revolving Credit
Commitment Percentage of any Reimbursement Obligations (which at such time
remains a Reimbursement Obligation) to the extent such amount was not
theretofore funded by such Replaced Lender, and (ii) all obligations of Borrower
owing to the Replaced Lender (other than those specifically described in clause
(i) above in respect of which the assignment purchase price has been, or is
concurrently being, paid, but including any amounts which would be paid to a
Lender pursuant to Section 5.05 if Borrower were prepaying a LIBOR Loan) shall
be paid in full to such Replaced Lender concurrently with such replacement. Upon
the execution of the respective assignment agreement, the payment of amounts
referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Lender, delivery to the Replacement Lender of Notes executed by
Borrower, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder and be released of
all its obligations as a Lender, except with respect to indemnification
provisions applicable to the Replaced Lender under this Agreement, which shall
survive as to such Replaced Lender.
Section 3. Payments of principal and Interest.
----------------------------------
3.01. Repayment of Loans.
------------------
(a) Revolving Credit. Borrower hereby promises to pay to
----------------
Administrative Agent for the account of each Lender the entire outstanding
principal amount of such Lender's Revolving Credit Loans, and each Revolving
Credit Loan shall mature, on the Revolving Credit Commitment Termination Date.
(b) Term Loan. (1) Tranche A Term Loans. Borrower hereby promises to
--------- --------------------
pay to Administrative Agent for the account of the Tranche A Term Loan Lenders,
in repayment of the principal of the Tranche A Term Loans, the amounts set forth
on Schedule 3.01(b) on the dates set forth on Schedule 3.01(b) (subject to
---------------- ----------------
adjustment for any prepayments required by Section 2.10 to the extent actually
made).
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<PAGE>
(2) Tranche B Term Loans. Borrower hereby promises to pay to
--------------------
Administrative Agent, for the account of the Tranche B Term Loan Lenders, in
repayment of the principal of the Tranche B Term Loans, the amounts set forth in
Schedule 3.01(b) on the dates set forth in Schedule 3.01(b) (subject to
- - ---------------- ----------------
adjustment for any prepayments required by Section 2.10 to the extent actually
made).
3.02. Interest. (a) Borrower hereby promises to pay to Administrative
--------
Agent for the account of each Lender interest on the unpaid principal amount of
each Loan made by such Lender for the period from and including the date of such
Loan to but excluding the date such Loan shall be paid in full at the following
rates per annum:
(i) during such periods as such Loan is an ABR Loan, the
Alternate Base Rate (as in effect from time to time), plus the Applicable
----
Margin and
(ii) during such periods as such Loan is a LIBOR Loan, for each
Interest Period relating thereto, the LIBOR Rate for such Loan for such
Interest Period, plus the Applicable Margin.
----
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan and other overdue amounts owed by any Obligor
under the Credit Documents shall bear interest at a rate per annum equal to (x)
--- -----
in the case of principal of any Loans, the rate which is 2% in excess of the
rate then borne by such Loans, (y) in the case of interest, the rate which is 2%
in excess of the rate otherwise applicable to ABR Loans which are Revolving
Credit Loans from time to time and (z) in the case of such other amounts, the
rate which is 2% in excess of the rate otherwise applicable to ABR Loans which
are Revolving Credit Loans from time to time. Interest which accrues under this
paragraph shall be payable on demand.
(c) Accrued interest on each Loan shall be payable (i) in the case of
an ABR Loan, quarterly on the Quarterly Dates, (ii) in the case of a LIBOR Loan,
on the last day of each Interest Period therefor and, if such Interest Period is
longer than three months, at three-month intervals following the first day of
such Interest Period and (iii) in the case of any LIBOR Loan, upon the payment
or prepayment thereof or the Conversion of such Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid or Converted), except that
interest payable at the rate set forth in Section 3.02(b) shall be payable from
time to time on demand. Promptly after the determination of any interest rate
provided for herein or any change therein, Administrative Agent shall give
notice thereof to the Lenders to which such interest is payable and to Borrower.
Section 4. Payments: Pro Rata Treatment: Computations Etc.
-----------------------------------------------
4.01. Payments. (a) Except to the extent otherwise provided herein,
--------
all payments of principal, interest, Reimbursement Obligations and other amounts
to be made by Borrower under this Agreement and the Notes, and, except to the
extent otherwise provided therein, all payments to be made by the Obligors under
any other Credit Document, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to Administrative Agent at
its account at the Principal Office, not later than 1:00 p.m. New York City time
on the date on which such
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<PAGE>
payment shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day).
(b) Borrower shall, at the time of making each payment under this
Agreement or any Note for the account of any Lender, specify to Administrative
Agent (which shall so notify the intended recipient(s) thereof) the Loans,
Reimbursement Obligations or other amounts payable by Borrower hereunder to
which such payment is to be applied (and in the event that Borrower fails to so
specify, or if an Event of Default has occurred and is continuing,
Administrative Agent may distribute such payment to the Lenders for application
in such manner as it or the Majority Lenders, subject to Section 4.02, may
determine to be appropriate).
(c) Except to the extent otherwise provided in the second sentence of
Section 2.03(g), each payment received by Administrative Agent under this
Agreement or any Note for the account of any Lender shall be paid by
Administrative Agent to such Lender, in immediately available funds, (x) if the
payment was actually received by Administrative Agent prior to 1:00 p.m. (New
York City time) on any day, on such day and (y) if the payment was actually
received by Administrative Agent after 1:00 p.m. (New York City time) on any
day, on the following Business Day (it being understood that to the extent that
any such payment is not made in full by Administrative Agent, Administrative
Agent shall pay to such Lender, upon demand, interest at the Federal Funds Rate
from the date such amount was required to be paid to such Lender pursuant to the
foregoing clauses until the date Administrative Agent pays such Lender the
amount).
(d) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02. Pro Rata Treatment. Except to the extent otherwise provided
------------------
herein: (a) each borrowing of Loans of a particular Class from the Lenders under
Section 2.01 shall be made from the relevant Lenders, each payment of commitment
fee under Section 2.05 in respect of Commitments of a particular Class shall be
made for account of the relevant Lenders, and each termination or reduction of
the amount of the Commitments of a particular Class under Section 2.04 shall be
applied to the respective Commitments of such Class of the relevant Lenders, pro
---
rata according to the amounts of their respective Commitments of such Class; (b)
- - ----
except as otherwise provided in Section 5.04, LIBOR Loans of any Class having
the same Interest Period shall be allocated pro rata among the relevant Lenders
--- ----
according to the amounts of their respective Revolving Credit and Term Loan
Commitments (in the case of the making of Loans) or their respective Revolving
Credit and Term Loans (in the case of Conversions and Continuations of Loans);
(c) each payment or prepayment of principal of Revolving Credit Loans or Term
Loans by Borrower shall be made for account of the relevant Lenders pro rata in
--- ----
accordance with the respective unpaid outstanding principal amounts of the Loans
of such Class held by them; and (d) each payment of interest on Revolving Credit
Loans and Term Loans by Borrower shall be made for account of the relevant
Lenders pro rata in accordance with the amounts of interest on such Loans then
--- ----
due and payable to the respective Lenders.
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4.03. Computations. Interest on LIBOR Loans and commitment fee and
------------
letter of credit fees shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on ABR Loans and
Reimbursement Obligations shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Notwithstanding the foregoing, for each day that the Alternate Base Rate is
calculated by reference to the Federal Funds Rate, interest on ABR Loans and
Reimbursement Obligations shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day),
4.04. Minimum Amounts. Except for mandatory prepayments made pursuant
---------------
to Section 2.10 and Conversions or prepayments made pursuant to Section 5.04,
each borrowing, Conversion and prepayment of principal of Loans shall be in an
amount at least equal to $1.0 million with respect to ABR Loans and $1.0 million
with respect to LIBOR Loans and in multiples of $100,000 in excess thereof
(borrowings, Conversions or prepayments of or into Loans of different Types or,
in the case of LIBOR Loans, having different Interest Periods at the same time
hereunder to be deemed separate borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period). Anything in
this Agreement to the contrary notwithstanding, the aggregate principal amount
of LIBOR Loans having the same Interest Period shall be in an amount at least
equal to $1.0 million and in multiples of $100,000 in excess thereof and, if any
LIBOR Loans or portions thereof would otherwise be in a lesser principal amount
for any period, such Loans or portions, as the case may be, shall be ABR Loans
during such period.
4.05. Certain Notices. Notices by Borrower to Administrative Agent of
---------------
terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans and of Classes of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by Administrative Agent not later than 11:00
a.m. New York City time on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified in the table
below,
NOTICE PERIODS
<TABLE>
<CAPTION>
Notice Number of Business Days Prior
- - --------------------------------------------------------- -----------------------------
<S> <C>
Termination or reduction of Commitments 2
Borrowing or optional prepayment of, or Conversions
into, ABR Loans 1
Borrowing or optional prepayment of, Conversions
into, Continuations as, or duration of Interest Periods
for, LIBOR Loans 3
</TABLE>
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<PAGE>
Each such notice of termination or reduction shall specify the amount
and the Class of the Commitments to be terminated or reduced. Each such notice
of borrowing, Conversion, Continuation or prepayment shall specify the Class of
Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to
Section 4.04) and Type of each Loan to be borrowed, Converted, Continued or
prepaid and the date of borrowing, Conversion, Continuation or prepayment (which
shall be a Business Day). Each such notice of the duration of an Interest Period
shall specify the Loans to which such Interest Period is to relate.
Administrative Agent shall promptly notify the Lenders of the contents of each
such notice. In the event that Borrower fails to select the Type of Loan, or the
duration of any Interest Period for any LIBOR Loan, within the time period and
otherwise as provided in this Section 4.05, such Loan (if outstanding as a LIBOR
Loan) will be automatically Converted into a LIBOR Loan with a one month
Interest Period on the last day of the then current Interest Period for such
Loan or (if outstanding as an ABR Loan) will remain as, or (if not then
outstanding) will be made as, an ABR Loan.
4.06. Non-Receipt of Funds by Administrative Age. Unless
------------------------------------------
Administrative Agent shall have received written notice from a Lender or
Borrower (the "Payor" prior to the date on which the Payor is to make payment to
-----
Administrative Agent of (in the case of a Lender) the proceeds of a Loan to be
made by such Lender hereunder or a payment to Administrative Agent for the
account of one or more of the Lenders hereunder (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
----------------
that the Payor does not intend to make the Required Payment to Administrative
Agent, Administrative Agent may assume that the Required Payment has been made
and may, in reliance upon such assumption (but shall not be required to), make
the amount thereof available to the intended recipient(s) on such date; and, if
the Payor has not in fact made the Required Payment to Administrative Agent, the
recipient(s) of such payment shall, on demand, repay to Administrative Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date (the "Advance Date") such amount was so
------------
made available by Administrative Agent until the date Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
--- -----
such day and, if such recipient(s) shall fail promptly to make such payment,
Administrative Agent shall be entitled to recover such amount, on demand, from
the Payor, together with interest as aforesaid; provided, however, that if
-------- -------
neither the recipient(s) nor the Payor shall return the Required Payment to
Administrative Agent within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s) shall each be
obligated to pay interest on the Required Payment as follows (without double
recovery):
(i) if the Required Payment shall represent a payment to be made
by Borrower to the Lenders, Borrower and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest in respect of
the Required Payment at the rate set forth in Section 3.02(b) (without
duplication of the obligation of Borrower under Section 3.02 to pay
interest on the Required Payment at the rate set forth in Section 3.02(b)),
it being understood that the return by the recipient(s) of the Required
Payment to Administrative Agent shall not limit such obligation of Borrower
under Section 3.02 to pay interest at the rate set forth in Section 3.02(b)
in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a Loan
to be made by the Lenders to Borrower, the Payor and Borrower shall each be
obligated retroactively to
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<PAGE>
the Advance Date to pay interest in respect of the Required Payment
pursuant to Section 3.02, it being understood that the return by Borrower
of the Required Payment to Administrative Agent shall not limit any claim
Borrower may have against the Payor in respect of such Required Payment.
4.07. Right of Setoff, Sharing of Payments: Etc. (a) If any Event of
------------------------------------------
Default shall have occurred and be continuing, each Obligor agrees that, in
addition to (and without limitation of) any right of setoff, banker's lien or
counterclaim a Lender may otherwise have, each Lender shall be entitled, at its
option (to the fullest extent permitted by law), to set off and apply any
deposit (general or special, time or demand, provisional or final), or other
indebtedness, held by it for the credit or account of such Obligor at any of its
offices, in Dollars or in any other currency, against any principal of or
interest on any of such Lender's Loans, Reimbursement Obligations or any other
amount payable to such Lender hereunder that is not paid when due (regardless of
whether such deposit or other indebtedness is then due to such Obligor), in
which case it shall promptly notify such Obligor and Administrative Agent
thereof, provided, however, that such Lender's failure to give such notice shall
-------- -------
not affect the validity thereof.
(b) Each of the Lenders agrees that, if it should receive (other than
pursuant to Section 5) any amount hereunder (whether by voluntary payment, by
realization upon security, by the exercise of the right of setoff or banker's
lien, by counterclaim or cross action, by the enforcement of any right under the
Credit Documents, or otherwise) which is applicable to the payment of the
principal of, or interest on, the Loans, Reimbursement Obligations or fees, of a
sum which with respect to the related sum or sums received by other Lenders is
in a greater proportion than the total of such amounts then owed and due to such
Lender bears to the total of such amounts then owed and due to all of the
Lenders immediately prior to such receipt, then such Lender receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Lenders an interest in the Obligations of the respective Obligor to such
Lenders in such amount as shall result in a proportional participation by all of
the Lenders in such amount; provided, however, that if all or any portion of
-------- -------
such excess amount is thereafter recovered from such Lender, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest. Borrower consents to the foregoing arrangements.
(c) Borrower agrees that any Lender so purchasing such a participation
may exercise all rights of setoff, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Loans or other amounts (as the case may be) owing to such Lender in
the amount of such participation.
(d) Nothing contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of any Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section 4.07 applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Lenders entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
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<PAGE>
Section 5. Yield Protection. Etc.
----------------------
5.01. Additional Costs. (a) If the adoption of, or any change in, any
----------------
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority or the NAIC made
subsequent to the date hereof
(i) shall subject any Lender or Issuing Lender to any tax of any
kind whatsoever with respect to this Agreement, any Note, any Letter of
Credit or any Lender's participation therein, any Letter of Credit Document
or any LIBOR Loan made by it or change the basis of taxation of payments to
such Lender in respect thereof by any Governmental Authority (except for
taxes covered by Section 5.06 and changes in the rate of tax on the overall
net income of such Lender or its Applicable Lending Office, or any
affiliate thereof or franchise tax by any Governmental Authority);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender or Issuing Lender which is not otherwise included in
the determination of the LIBOR Rate hereunder; or
(iii) shall impose on such Lender or Issuing Lender any other
condition (excluding taxes);
and the result of any of the foregoing is to increase the cost to such Lender or
Issuing Lender, by an amount which such Lender or Issuing Lender deems to be
material, of making, converting into, continuing or maintaining LIBOR Loans or
issuing or participating in Letters of Credit or to reduce any amount receivable
hereunder in respect thereof then, in any such case, Borrower shall promptly pay
such Lender or Issuing Lender, upon its demand, any additional amounts necessary
to compensate such Lender or Issuing Lender for such increased cost or reduced
amount receivable. If any Lender or Issuing Lender becomes entitled to claim any
additional amounts pursuant to this subsection, it shall promptly notify
Borrower, through Administrative Agent, of the event by reason of which it has
become so entitled. A certificate as to any additional amounts setting forth the
calculation of such additional amounts pursuant to this Section 5.01 submitted
by such Lender or Issuing Lender, through Administrative Agent, to Borrower
shall be conclusive in the absence of clearly demonstrable error. Without
limiting the survival of any other covenant hereunder, this Section 5.01 shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
(b) In the event that any Lender or Issuing Lender shall have
determined that the adoption of any law, rule, regulation or guideline regarding
capital adequacy (or any change therein or in the interpretation or application
thereof) or compliance by any Lender or Issuing Lender or any corporation
controlling such Lender or Issuing Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) from any
central bank or Governmental Authority or the NAIC, in each case, made
subsequent to the date hereof including, without limitation, the
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<PAGE>
issuance of any final rule, regulation or guideline, does or shall have the
effect of reducing the rate of return on such Lender's or Issuing Lender's or
such corporation's capital as a consequence of its obligations hereunder or
under any Letter of Credit to a level below that which such Lender or Issuing
Lender or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or Issuing Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender or Issuing Lender to be material, then from time to time, after
submission by such Lender or Issuing Lender to Borrower (with a copy to
Administrative Agent) of a written request therefor, Borrower shall promptly pay
to such Lender or Issuing Lender such additional amount or amounts as will
compensate such Lender or Issuing Lender for such reduction.
5.02. Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if, on or prior to the determination of any LIBOR Base Rate for
any Interest Period:
(i) Administrative Agent determines, which determination shall be
conclusive, absent manifest error, that quotations of interest rates for
the relevant deposits referred to in the definition of "LIBOR Base Rate" in
Section 1.01 are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for LIBOR
Loans as provided herein; or
(ii) if the related Loans are Revolving Credit Loans, the
Majority Revolving Credit Lenders or, if the related Loans are Tranche A
Term Loans, the Majority Tranche A Term Loan Lenders or, if the related
Loans are Tranche B Term Loans, the Majority Tranche B Term Loan Lenders
determine, which determination shall be conclusive, that the relevant rates
of interest referred to in the definition of "LIBOR Base Rate" in Section
1.01 upon the basis of which the rate of interest for LIBOR Loans for such
Interest Period is to be determined are not likely adequate to cover the
cost to the applicable Lenders of making or maintaining LIBOR Loans for
such Interest Period, then Administrative Agent shall give Borrower and
each Lender prompt notice thereof, and so long as such condition remains in
effect, the affected Lenders shall be under no obligation to make
additional LIBOR Loans, to Continue LIBOR Loans or to Convert ABR Loans
into LIBOR Loans and Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding LIBOR Loans, either prepay such
Loans or Convert such Loans into ABR Loans in accordance with Section 2.09.
5.03. Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender or
Issuing Lender or its Applicable Lending Office to honor its obligation to make
or maintain LIBOR Loans or issue Letters of Credit hereunder (and, in the sole
opinion of such Lender or Issuing Lender, the designation of a different
Applicable Lending Office would either not avoid such unlawfulness or would be
disadvantageous to such Lender or Issuing Lender), then such Lender or Issuing
Lender shall promptly notify Borrower thereof (with a copy to Administrative
Agent) and such Lender's or Issuing Lender's obligation to make or Continue, or
to Convert Loans of any other Type into, LIBOR Loans or issue Letters of Credit
shall be suspended until such time
-55-
<PAGE>
as such Lender or Issuing Lender may again make and maintain LIBOR Loans or
issue Letters of Credit (in which case the provisions of Section 5.04 shall be
applicable).
5.04. Treatment of Affected Loans. If the obligation of any Lender to
---------------------------
make LIBOR Loans or to Continue, or to Convert ABR Loans into, LIBOR Loans shall
be suspended pursuant to Section 5.03, such Lender's LIBOR Loans shall be
automatically Converted into ABR Loans on the last day(s) of the then current
Interest Period(s) for such LIBOR Loans (or on such earlier date as such Lender
may specify to Borrower with a copy to Administrative Agent as is required by
law) and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 5.03 which gave rise to such Conversion no
longer exist:
(i) to the extent that such Lender's LIBOR Loans have been so
Converted, all payments and prepayments of principal which would otherwise
be applied to such Lender's LIBOR Loans shall be applied instead to its ABR
Loans; and
(ii) all Loans which would otherwise be made or Continued by such
Lender as LIBOR Loans shall be made or Continued instead as ABR Loans and
all ABR Loans of such Lender which would otherwise be Converted into LIBOR
Loans shall remain as ABR Loans.
If such Lender gives notice to Borrower with a copy to Administrative Agent that
the circumstances specified in Section 5.03 which gave rise to the Conversion of
such Lender's LIBOR Loans pursuant to this Section 5.04 no longer exist (which
such Lender agrees to do promptly upon such circumstances ceasing to exist) at a
time when LIBOR Loans are outstanding, such Lender's ABR Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding LIBOR Loans, to the extent necessary so that,
after giving effect thereto, all Loans held by the Lenders holding LIBOR Loans
and by such Lender are held pro rata (as to principal amounts, Types and
--- ----
Interest Periods) in accordance with their respective Commitments.
5.05. Compensation. (a) Borrower agrees to indemnify each Lender and
------------
to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (1) default by Borrower in payment when due
of the principal amount of or interest on any LIBOR Loan, (2) default by
Borrower in making a borrowing of, Conversion into or Continuation of LIBOR
Loans after Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (3) default by Borrower in making any
prepayment after Borrower has given a notice thereof in accordance with the
provisions of the Agreement, or (4) the making of a payment or a prepayment of
LIBOR Loans on a day which is not the last day of an Interest Period with
respect thereto, including in each case, any such loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate the deposits from which such funds were obtained.
(b) For the purpose of calculation of all amounts payable to a Lender
under this Section 5.05 each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of the LIBOR Loan and having a
maturity comparable to the relevant Interest Period; provided, however, that
-------- -------
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<PAGE>
each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. Any Lender requesting compensation pursuant to
this Section 5.05 will furnish to Administrative Agent and Borrower a
certificate setting forth the basis and amount of such request and such
certificate, absent manifest error, shall be conclusive. Without limiting the
survival of any other covenant hereunder, this covenant shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
5.06. Net Payments. (a) All payments made by Borrower or any
------------
Guarantor hereunder or under any Note or any Guarantee will be made without
setoff, counterclaim or other defense. Except as provided in Section 5.06(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
Governmental Authority or by any political subdivision or taxing authority
thereof or therein with respect to such payments (but excluding, except as
provided in the second succeeding sentence, any tax imposed on or measured by
the net income or net profits of a Lender pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or Applicable Lending Office of such Lender is located or any
jurisdiction in which such Lender conducts business or any subdivision thereof
or therein) and all interest, penalties or similar liabilities with respect
thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges being referred to collectively as "Covered Taxes"). If any
-------------
Covered Taxes are so levied or imposed, Borrower and each Guarantor, as the case
may be, agrees to pay the full amount of such Covered Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement, the Guarantees or under any Note, after withholding or deduction for
or on account of any Covered Taxes, will not be less than the amount provided
for herein or in such Note. If any amounts are payable in respect of Covered
Taxes pursuant to the preceding sentence, Borrower and each Guarantor agrees on
a joint and several basis to reimburse each Lender, upon the written request of
such Lender, (i) for taxes imposed on or measured by the net income or net
profits of such Lender pursuant to the laws of the jurisdiction in which such
Lender is organized or in which the principal office or Applicable Lending
Office of such Lender is located or under the laws of any political subdivision
or taxing authority of any such jurisdiction by reason of the making of payments
in respect of Covered Taxes pursuant to this Section (including pursuant to this
sentence) and (ii) for any withholding of taxes as such Lender shall determine
are payable by, or withheld from, such Lender in respect of amounts paid in
respect of Covered Taxes to or on behalf of such Lender pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Lender pursuant to this sentence. Borrower and each Guarantor, as the case may
be, will furnish to Administrative Agent within 45 days after the date the
payment of any Covered Taxes is due pursuant to applicable law certified copies
of tax receipts evidencing such payment by Borrower or any Guarantor. Borrower
and the Guarantors agree to jointly and severally indemnify and hold harmless
each Lender, and reimburse such Lender upon its written request, for the amount
of any Covered Taxes so levied or imposed and paid by such Lender and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto.
(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) (a "Non-U.S. Lender") agrees to
------
deliver to Borrower and
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<PAGE>
Administrative Agent on or prior to the Closing Date or, in the case of a Lender
that is an assignee or transferee of an interest under this Agreement pursuant
to Section 12.06 (unless the respective Lender was already a Lender hereunder
immediately
prior to such assignment or transfer), on the date of such assignment or
transfer to such Lender, (i) two accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001 (or successor forms) certi to such
Lender's entitlement to a complete exemption from, or reduction in rate of,
United States withholding tax with respect to payments to be made under this
Agreement and under any Note (or, with respect to any assignee Lender, at least
as extensive as the assigning Lender), or (ii) if the Lender is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit K (any such certificate, a
---------
"Section 5.06 Certificate") and (y) two accurate and complete original signed
- - -------------------------
copies of Internal Revenue Service Form W-8 (or successor form) certifying to
such Lender's entitlement to a complete exemption from, or reduction in rate of,
United States withholding tax with respect to payments to be made under this
Agreement and under any Note (or, with respect to any assignee Lender, at least
as extensive as the assigning Lender). In addition, each Lender agrees that from
time to time after the Closing Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to Borrower and Administrative Agent two new
accurate and complete original signed copies of Internal Revenue Service Form
4224 or 1001, or Form W-8 and a Section 5.06 Certificate, as the case may be,
and such other forms as may be required in order to confirm or establish the
entitlement of such Lender to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify Borrower and Administrative Agent of its
inability to deliver any such Form or Certificate, in which case such Lender
shall not be required to deliver any such form or certificate pursuant to this
Section 5.06(b). Notwithstanding the foregoing, no Lender shall be required to
deliver any such form or certificate if a change in treaty, law or regulation
has occurred prior to the date on which such delivery would otherwise be
required that renders any such form or certificate inapplicable or would prevent
the Lender from duly completing and delivering any such form or certificate with
respect to it and such Lender so advises Borrower. Borrower shall not be
required to indemnify any Non-U.S. Lender, or to pay any additional amounts to
any Non-U.S. Lender, in respect of U.S. Federal withholding tax pursuant to
paragraph (a) above to the extent that (i) the obligation to withhold amounts
with respect to U.S. Federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement; provided however that this clause (i)
----------------
shall not apply to the extent that (x) the indemnity payments or additional
amounts any Lender would be entitled to receive (without regard to this clause
(i)) do not exceed the indemnity payments or additional amounts that the Person
making the assignment or transfer to such Lender would have been entitled to
receive in the absence of such assignment or transfer, or (y) such assignment or
transfer had been requested by Borrower, or (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender to comply with the provisions of this Section 5.06(b). Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 5.06 and except as set forth in Section 12.06(b), Borrower agrees
to pay additional amounts and to indemnify each Lender in the manner set forth
in Section 5.06(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or withheld by
it as described in the immediately preceding sentence as a result of
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<PAGE>
any changes after the Closing Date in any applicable law, treaty, governmental
rule, regulation, guideline or order, or in the interpretation thereof, relating
to the deducting or withholding of income or similar Covered Taxes.
(c) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Note or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Notes (hereinafter referred to as "Other Taxes").
Section 6. Guarantee.
---------
6.0 1. The Guarantee. The Guarantors hereby jointly and severally
--------------
guarantee as a primary obligor and not as a surety to each Lender, Issuing
Lender and Agent and their respective successors and assigns the prompt payment
in full when due (whether at stated maturity, by acceleration or otherwise) of
the principal of and interest (including any interest that would accrue but for
the provisions of the Bankruptcy Code after any bankruptcy or insolvency
petition under the Bankruptcy Code) on the Loans made by the Lenders to, and the
Notes held by each Lender of, Borrower and all other Obligations from time to
time owing to the Lenders, Issuing Lender or Agents by Borrower under this
Agreement and under the Notes and by any Obligor under any of the other Credit
Documents, and all obligations of Borrower or any Subsidiary to any Lender or
any Affiliate of any Lender in respect of any Swap Contract and all Obligations
owing to the Issuing Lender under the Letter of Credit Documents, in each case
strictly in accordance with the terms thereof (such obligations being herein
collectively called the "Guaranteed Obligations"). The Guarantors hereby jointly
and severally agree that if Borrower shall fail to pay in full when due (whether
at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be promptly paid in
full when due (whether at extended maturity, by acceleration or otherwise) in
accordance with the terms of such extension or renewal.
6.02. Obligations Unconditional. The obligations of the Guarantors
--------------------------
under Section 6.01 are absolute, irrevocable and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of Borrower under this Agreement, the Notes or
any other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a surety or
Guarantor (except for payment in full). Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of the following
shall not alter or impair the liability of the Guarantors hereunder which shall
remain absolute, irrevocable and unconditional under any and all circumstances
as described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
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(ii) any of the acts mentioned in any of the provisions of this
Agreement or the Notes or any other agreement or instrument referred to
herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be amended in any
respect, or any right under this Agreement, the Notes or any other Credit
Document or any other agreement or instrument referred to herein or therein
shall be amended or waived in any respect or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(iv) any lien or security interest granted to, or in favor of, the
Issuing Lender or any Lender or Agent as security for any of the
Guaranteed Obligations shall fail to be perfected; or
(v) the release of any other Guarantor.
The Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that the
Issuing Lender or any Agent or any Lender exhaust any right, power or remedy or
proceed against Borrower under this Agreement or the Notes or any other
agreement or instrument referred to herein or therein, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations. The Guarantors waive any and all notice of the creation, renewal,
extension, waiver, termination or accrual of any of the Guaranteed Obligations
and notice of or proof of reliance by the Issuing Lender, any Lender or any
Agent upon this guarantee or acceptance of this guarantee, and the Guaranteed
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this guarantee, and all dealings between
Borrower and the Issuing Lender, Lenders and Agents shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
guarantee. This guarantee shall be construed as a continuing, absolute,
irrevocable and unconditional guarantee of payment without regard to any right
of offset with respect to the Guaranteed Obligations at any time or from time to
time held by the Issuing Lender, Lenders and Agents, and the obligations and
liabilities of the Guarantors hereunder shall not be conditioned or contingent
upon the pursuit by the Issuing Lender, Lenders or Agents or any other Person at
any time of any right or remedy against Borrower or against any other Person
which may be or become liable in respect of all or any part of the Guaranteed
Obligations or against any collateral security or guarantee therefor or right of
offset with respect thereto. This guarantee shall remain in full force and
effect and be binding in accordance with and to the extent of its terms upon the
Guarantors and the successors and assigns thereof, and shall inure to the
benefit of the Lenders, and their respective successors and assigns,
notwithstanding that from time to time during the term of this Agreement there
may be no Guaranteed Obligations outstanding.
6.03. Reinstatement. The obligations of the Guarantors under this
-------------
Section 6 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of Borrower in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
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or reorganization or otherwise. The Guarantors jointly and severally agree that
they will indemnify the Issuing Lender, each Agent and each Lender on demand for
all reasonable costs and expenses (including reasonable fees of counsel)
incurred by the Issuing Lender, such Agent or such Lender in connection with
such rescission or restoration, including any such costs and expenses incurred
in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law, other than any costs or expenses resulting from the
gross negligence or bad faith of such Creditor.
6.04. Subrogation; Subordination. Each Guarantor hereby agrees
---------------------------
that until the indefeasible payment and satisfaction in full in cash of all
Guaranteed Obligations and the expiration and termination of the Commitments of
the Lenders under this Agreement it shall not exercise any right or remedy
arising by reason of any performance by it of its guarantee in Section 6.0 1,
whether by subrogation or otherwise, against Borrower or any other Guarantor of
any of the Guaranteed Obligations or any security for any of the Guaranteed
Obligations. The payment of any amounts due with respect to any indebtedness of
Borrower or any other Guarantor now or hereafter owing to any Guarantor by
reason of any payment by such Guarantor under the Guarantee in this Section 6 is
hereby subordinated to the prior indefeasible payment in full in cash of the
Guaranteed Obligations. Each Guarantor agrees that it will not demand, sue for
or otherwise attempt to collect any such indebtedness of Borrower to such
Guarantor until the Obligations shall have been indefeasibly paid in full in
cash. If, notwithstanding the foregoing sentence, any Guarantor shall prior to
the indefeasible payment in full in cash of the Guaranteed Obligations collect,
enforce or receive any amounts in respect of such indebtedness, such amounts
shall be collected, enforced and received by such Guarantor as trustee for
Agents, the Issuing Lender and the Lenders and be paid over to Administrative
Agent on account of the Guaranteed Obligations without affecting in any manner
the liability of such Guarantor under the other provisions of the guaranty
contained herein.
6.05. Remedies. The Guarantors jointly and severally agree that,
---------
as between the Guarantors and the Lenders, the obligations of Borrower under
this Agreement and the Notes may be declared to be forthwith due and payable as
provided in Section 10 (and shall be deemed to have become automatically due and
payable in the circumstances provided in said Section 10) for purposes of
Section 6.01 notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against Borrower and that, in the event of such declaration (or
such obligations being deemed to have become automatically due and payable),
such obligations (whether or not due and payable by Borrower) shall forthwith
become due and payable by the Guarantors for purposes of Section 6.01.
6.06. Instrument for the Payment of Money. Each Guarantor hereby
------------------------------------
acknowledges that the guarantee in this Section 6 constitutes an instrument for
the payment of money, and consents and agrees that any Lender or Agent, at its
sole option, in the event of a dispute by such Guarantor in the payment of any
moneys due hereunder, shall have the right to bring motion-action under New York
CPLR Section 3213.
6.07. Continuing Guarantee. The guarantee in this Section 6 is a
---------------------
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
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6.08. General Limitation on Guarantee Obligations. In any action
--------------------------------------------
or proceeding involving any state corporate law, or any state, Federal or
foreign bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Guarantor under Section 6.01
would otherwise be held or determined to be void, voidable, invalid or
unenforceable, or subordinated to the claims of any other creditors, on account
of the amount of its liability under Section 6.01, then, notwithstanding any
other provision to the contrary, the amount of such liability shall, without any
further action by such Guarantor, any Lender, any Agent or any other Person, be
automatically limited and reduced to the highest amount that is valid and
enforceable and not subordinated to the claims of other creditors as determined
in such action or proceeding; provided that, without limiting the generality of
the foregoing, in any such action or proceeding in which KRS 371.065 governs,
(i) the maximum aggregate liability of any Guarantor under Section 6.01 shall be
deemed to be $875,000,000 and (ii) the guarantee shall terminate on September
30, 2005; provided, further, that nothing herein shall be construed to imply
-------- --------
that KRS 371.065 governs.
Section 7. Conditions Precedent.
---------------------
7.01. Effectiveness and Initial Extension of Credit. The
----------------------------------------------
effectiveness of this Amended and Restated Credit Agreement and the other Credit
Documents and the obligation of the Lenders to make any initial extension of
credit hereunder (whether by making a Loan or issuing a Letter of Credit) is
subject to the satisfaction of the conditions precedent that:
(i) Documentation and Evidence of Certain Matters. The Agents shall
have received the following documents, each duly executed where appropriate
(with sufficient conformed copies for each Lender), each of which shall be
reasonably satisfactory to the Agents (and to the extent specified below,
to each Lender) in form and substance:
(1) Corporate Documents. Certified true and complete copies of
--------------------
the charter and by-laws and all amendments thereto (or equivalent
documents) of each Obligor and of all corporate authority for each
Obligor (including board of director resolutions and evidence of the
incumbency, including specimen signatures, of officers) with respect
to the execution, delivery and performance of such of the Credit
Documents to which such Obligor is intended to be a party and each
other document to be delivered by such Obligor from time to time in
connection herewith and the extensions of credit hereunder and the
consurnmation of the transactions contemplated hereby, certified as of
the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of Borrower.
(2) Officers' Certificate. An Officers' Certificate of Borrower,
----------------------
dated the Closing Date, to the effect set forth in clauses (a) and (b)
of Section 7.02(i) and to the effect that all conditions precedent to
the making of such extension of credit have been satisfied.
(3) Opinions of Counsel. (a) Opinion of Brown, Todd & Heyburn
--------------------
PLLC, counsel to the Obligors, substantially in the form of Exhibit E-
1, and (b) an opinion of counsel to the Obligors, substantially in the
form of Exhibit E-2 addressed to
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Agents and the Lenders, in each jurisdiction where Mortgaged Real
Property is located in form and substance reasonably satisfactory to
Agents (and each Obligor hereby instructs such counsel to deliver such
opinion to the Lenders and Agents).
(4) The Credit Agreement. This Agreement, (a) executed and
---------------------
delivered by a duly authorized officer of each Obligor with a
counterpart for each Lender, and (b) executed and delivered by a duly
authorized officer of each Lender and Agent.
(5) Notes. The Notes, duly completed and executed for each Lender
------
that has requested Notes prior to the Closing Date.
(6) Security Agreement. The Security Agreement and such other
-------------------
pledge agreements required under applicable Requirements of Law in the
judgment of counsel to Administrative Agent (each of which shall be in
full force and effect), duly authorized, executed and delivered by the
Obligors and Administrative Agent, together with (a) the certificates,
if any, identified under the name of such Obligors in Schedule I-A and
------------
Schedule I-B to the Security Agreement, accompanied by undated stock
------------
powers or instruments of assignment executed in blank if applicable,
and (b) the notes identified under the name of such Obligors in
Schedule 11 to the Security Agreement, accompanied by undated
-----------
notations or instruments of assignment executed in blank.
(7) Solvency Certificate and Opinion. A certificate from the
---------------------------------
chief financial officer of Borrower and, at Borrower's expense, a
nationally recognized appraisal firm or valuation consultant
reasonably satisfactory to Arrangers in form and substance reasonably
Satisfactory to Arrangers and the Lenders with respect to the Solvency
of each Obligor immediately after giving effect to the transactions
contemplated hereby.
(8) Insurance. Evidence of insurance and certificates of
----------
Insurance complying with the requirements of Section 9.04 and the
Security Documents.
(9) Certain Documents, etc. Any management or similar agreement
-----------------------
entered into with any Excluded Person or any of their respective
Affiliates and all exhibits, appendices, annexes and schedules to any
thereof, each certified by a senior officer of Borrower as true,
complete and correct copies thereof. The Agents shall have had at
least three Business Days to review all documentation to be delivered
pursuant to this paragraph and all such documentation shall be in form
and substance reasonably satisfactory to the Agents.
(10) Officers' Certificate Regarding Covered Properties. An
---------------------------------------------------
Officers' Certificate of Borrower certifying that, to the best of such
Officers' knowledge and in all material respects: (a) except as set
forth on an exhibit to the certificate, on a net basis there are no
take or pay or other prepayments with respect to the Covered
Properties (other than those permitted by the Security Documents)
which would require any Company to deliver coal mined from the Covered
Properties at some
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future time without then or thereafter receiving full payment
therefor, (b) none of the Covered Properties has been sold, and (c)
the Covered Properties are part of the Mortgaged Real Property as of
the Amendment and Restatement Date.
(11) Repayment of Existing Indebtedness. Evidence in the form of
-----------------------------------
a "pay-off" letter that the principal of and interest on, and all
other amounts owing in respect of, the Indebtedness listed on Schedule
--------
7.01(i)(11) have been (or shall be simultaneously) paid in full, that
-----------
any commitments to extend credit under the agreements or instruments
relating to such Indebtedness have been canceled or terminated and
that all guarantees in respect of, and all Liens securing, any such
Indebtedness have been released (or arrangements for such release
satisfactory to Agents have been made); in addition, from any Person
holding any Lien securing any such Indebtedness, such Uniform
Commercial Code termination statements, mortgage releases and other
instruments, in each case in proper form for recording, as Agents
shall have reasonably requested to release and terminate of record the
Liens securing such Indebtedness (or arrangements for such release and
termination reasonably satisfactory to Agents and the Majority Lenders
have been made).
(12) Financial Statements. Unaudited interim financial statements
---------------------
of Borrower and each Acquired Business for each fiscal month and
quarterly period ended subsequent to June 30, 1998 as to which such
financial statements are available and such financial statements shall
not, in the reasonable judgment of the Lenders, reflect any material
adverse change in the financial condition of Borrower and each of the
Acquired Business as reflected in the financial statements previously
furnished to the Lenders.
(13) Business Plan. A detailed budget for fiscal years 1998 and
--------------
1999 and a written analysis of the business and prospects of Borrower
and the Subsidiaries (after giving effect to the transactions
contemplated hereby).
(14) Consents, Licenses and Approvals. A certificate of a
---------------------------------
responsible officer of Borrower stating that all consents,
authorizations and filings (other than the consents set forth on
Schedule 8.06) necessary to enter into and consummate the transactions
-------------
contemplated hereby and perform the obligations under the Credit
Documents are in full force and effect (or there shall be a plan
satisfactory to Agents and the Majority Lenders in their respective
sole discretion for the obtaining thereof) and that all applicable
waiting periods have expired without any action being taken by any
competent authority or threatened which, would restrain, prevent or
otherwise impose materially adverse conditions on any Company, and
each such consent, authorization and filing shall be in form and
substance satisfactory to Agents.
(ii) Management Agreements. The Agents shall be reasonably satisfied
----------------------
with the terms and conditions of any management agreement entered into or
proposed to be entered into with any Excluded Person or any of their
Affiliates or any other Person.
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<PAGE>
(iii) Legality. Each of the transactions contemplated hereby to be
---------
consummated on the Amendment and Restatement Date shall be in compliance
with all laws and regulations, or the Agents shall have determined such to
be inapplicable to such transactions.
(iv) [omitted]
(v) [omitted]
(vi) [omitted]
(vii) Reserve Reports. Completed and signed reserve reports by the
----------------
engineering firms previously identified to Agents with respect to the
Obligors, which completed reserve reports will not be materially different
from the summary information previously furnished to Agents.
(viii) No Other Debt or Preferred Stock. After giving effect to the
---------------------------------
transactions contemplated hereby, Borrower and the Subsidiaries shall have
outstanding no Indebtedness or preferred stock (or direct or indirect
guarantee or other credit support in respect thereof) outstanding other
than the Loans under this Agreement, and the Existing Debt.
(ix) No Mat rial Adverse Change. (1) Zeigler shall not have sustained
---------------------------
any loss or interference with respect to its business or properties from
fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, which loss or interference, in the reasonable judgment of the
Lender, has had or has a material adverse effect on the business, condition
(financial or other), or operations of Zeigler and there shall not have
been, in the reasonable judgment of the Lender, any material adverse change
in the business, condition (financial or other), or operations of Zeigler;
(2) trading generally shall not have been suspended or materially limited
on or by, as the case may be, any of the New York Stock Exchange, the
American Stock Exchange or the National Association of Securities Dealers,
Inc.; (3) a general moratorium on commercial banking activities in New York
shall not have been declared by either Federal or New York State
governmental authorities; and (4) there shall not have occurred any
outbreak or escalation of hostilities or any material adverse change in
financial markets or any calamity or crisis that, in the reasonable
judgment of the Agents, makes it impracticable to sell or syndicate the
Loans and the Commitments. As used in the previous sentence, "material
adverse change in financial markets" shall mean a decline of 12% or more in
the Dow Jones Industrial Average from August 3, 1998.
(x) Pro Forma Balance Sheet. The Lenders shall have received a pro
------------------------
forma consolidated balance sheet of Borrower and the Subsidiaries dated as
of the date of the most recently available financial statements of Borrower
after giving effect to the transactions contemplated hereby, which balance
sheet shall be consistent in all material respects with the sources and
uses of funds and the other conditions contemplated hereby. Each Company
shall also have provided such other financial information as the Lenders or
Agents may reasonably request in connection with the transactions
contemplated hereby.
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(xi) Approvals. Except for the consents set forth on Schedule 8.06,
---------- -------------
all requisite Governmental Authorities and third parties shall have
approved or consented to the transactions contemplated hereby to the extent
required, all applicable appeal periods shall have expired and there shall
be no governmental or judicial action or Proceeding, actual or threatened,
that has had the effect of (or could reasonably be expected to have the
effect of) restraining, preventing or imposing materially burdensome
conditions on any of the transactions contemplated hereby, except, in each
case, as would not, singly or in the aggregate, result in a Material
Adverse Effect.
(xii) No Default in Other Agreements. Any defaults in any material
-------------------------------
agreements of any Company that may result from the transactions
contemplated hereby shall have been resolved or otherwise addressed in a
manner reasonably satisfactory to Agents and the Majority Lenders; and no
law or regulation adopted, proposed or applicable after the date of the
Commitment Letter shall be applicable in the reasonable judgment of Agents
and the Majority Lenders that restrains, prevents or imposes materially
adverse conditions upon any component of the transactions contemplated
hereby or the financing thereof, including the extensions of credit under
this Agreement.
(xiii) Margin Rule Compliance. All Loans and other financing to
-----------------------
Borrower shall be in full compliance with all applicable requirements of
Regulations T, U and X.
(xiv) Satisfactory Environmental Reports Governmental Real Property
-------------------------------------------------------------
Disclosure Requirements. The Agents shall have received (1) reasonably
------------------------
satisfactory third-party environmental reports (including Phase I reports)
of the Borrower and the Subsidiaries reasonably requested by the Agents and
(2) all documentation necessary under all applicable Governmental Real
Property Disclosure Requirements. The Obligors shall take or cause to be
taken all actions necessary in connection with such Governmental Real
Property Disclosure Requirements.
(xv) Other Documentation. All other documentation, including any
--------------------
employment agreement, management compensation arrangement (including any
agreements entered into with any of the senior management of any Company)
after the transactions contemplated hereby or other financing arrangement
of each Company shall be reasonably satisfactory in form and substance to
Agents and the Majority Lenders.
(xvi) Payment of Fees and Expenses. All accrued fees and expenses
-----------------------------
(including the reasonable fees and expenses of Cahill Gordon & Reindel,
special counsel to Agents) of Agents and accrued fees of the Lenders in
connection with the Credit Documents and the Fee Letter shall have been
paid.
(xvii) Filings and Lien Searches. The Obligors shall have authorized,
--------------------------
executed and delivered each of the following:
(1) UCC Financing Statements (Form UCC-1 or UCC-2, as
appropriate) in appropriate form for filing under the UCC and any
other applicable Requirements
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of Law in each jurisdiction as may be necessary or appropriate to
perfect the Liens created, or purported to be created, by the Security
Documents;
(2) certified copies of Requests for Information (Form UCC-11),
tax lien, judgment lien and pending lawsuit searches or equivalent
reports or lien search reports, each of a recent date listing all
effective financing statements, lien notices or comparable documents
that name any Obligor as debtor and that are filed in those state and
county jurisdictions in which any of the Collateral of such Obligor is
located and the state and county jurisdictions in which each such
Obligor's principal place of business is located, none of which
encumber the Collateral covered or intended to be covered by the
Security Documents other than those encumbrances which constitute
Prior Liens;
(3) to the extent equipment or inventory is maintained on a
leased premise located in a Covered Property, a copy of each Lease or
other agreement relating to such possessory interest; and
(4) evidence of the completion of all recordings and filings of,
or with respect to, the Security Agreement, including filings with the
United States Patent, Trademark and Copyright offices, and delivery of
such other security and other documents, including, without
limitation, financial account consent letters and consents of counter
parties to contracts and leases, and the taking of all actions as may
be necessary or, in the opinion of Administrative Agent, desirable, to
perfect the Liens created, or purported to be created, by the Security
Agreement, except for any of the foregoing to be provided after the
Closing Date pursuant to Section 9.13 hereof.
(xviii) Conditions Relating to Covered Property and Real Property.
---------------------------------------------------------
Each Obligor shall have caused to be delivered to Administrative Agent on
behalf of Agents and the Lenders, the following documents and instruments:
(1) (i) a Mortgage Amendment to each Mortgage delivered on the
Closing Date (other than a Mortgage which encumbers the Shipyard
Properties, which shall be subject to the provisions of Section 9.13
hereof), duly authorized and executed, in form for recording in the
recording office of each jurisdiction where the Covered Property
encumbered thereby is situated, together with such other instruments
as shall be necessary or appropriate (in the judgment of the
Administrative Agent) to maintain and create a Lien under applicable
law, all of which shall be in form and substance reasonably
satisfactory to Administrative Agent, which Mortgage Amendment
together with the appropriate Mortgage shall be effective to create
and/or maintain a first priority Lien on such Covered Property subject
to no Liens other than Prior Liens applicable to such Covered Property
or (ii) a Mortgage duly authorized and executed encumbering each
Covered Property described in clause (vi) of the definition thereof
(other than any portions of the Covered Properties affected by the
consents described on Schedule 8.06) in favor of Administrative Agent,
-------------
for the benefit of the
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<PAGE>
Agents and the Lenders, in form for recording in the recording office
of each jurisdiction where each such Covered Property is situated,
together with such other instruments as shall be necessary or
appropriate (in the judgment of the Administrative Agent) to create a
Lien under applicable law, all of which shall be in form and substance
reasonably satisfactory to Administrative Agent, which Mortgage and
other instruments shall be effective to create a first priority Lien
on such Covered Property subject to (i) no Liens other than Prior
Liens applicable to such Covered Property and (ii) the inability of
the Obligors to grant a security interest in unrecorded Real Property
interests; provide however, that the Obligors shall endeavor to record
such unrecorded instruments in accordance with Section 1.4 of the
Mortgage;
(2) an Intercompany Lease Agreement, duly authorized and
executed, assigning each Obligor's interest in the Intercompany Leases
to Administrative Agent, for the benefit of the Agents and the
Lenders, in form for recording in the recording office of each
jurisdiction where the Real Property demised under each Intercompany
Lease is situated, together with such other instruments as shall be
necessary or appropriate (in the judgment of Administrative Agent) to
create and/or maintain a Lien under applicable law, all of which shall
be in form and substance reasonably satisfactory to Administrative
Agent, which Intercompany Lease Agreement and other instruments would
be effective to create and/or maintain (upon recordation of such
instruments at the times contemplated in the Intercompany Lease
Agreement) a first priority Lien on such Obligor's interests in the
Intercompany Leases subject to no Liens other than Prior Liens
permitted by the Intercompany Lease Agreement;
(3) except for any of the following which are to be provided
after the Amendment and Restatement Date pursuant to Section 9.13,
with respect to each leased Covered Property and each other leased
Real Property at which significant Pledged Collateral (as determined
in the reasonable discretion of Administrative Agent) is located Lien
Waiver and Access Agreement, substantially in the form of Exhibit L;
(4) with respect to each Covered Property listed on Schedule
--------
1.01(d)(viii)(4) and such Covered Properties as determined in the
----------------
reasonable discretion of the Administrative Agent, a Survey;
(5) with respect to each Real Property, policies or certificates
of insurance of the type required by Section 1.7 of the Mortgages;
(6) with respect to each Real Property, UCC, judgment and tax
Lien searches in form and substance satisfactory to Administrative
Agent;
(7) evidence acceptable to Administrative Agent of payment by
Borrower of all title insurance premiums, search and examination
charges, survey costs, mortgage recording taxes and related charges
required for the recording of the
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Mortgages and issuance of the title insurance policies referred to in
this Section 7.01(xviii);
(8) with respect to each Covered Property, copies of all leases
in which any Obligor holds the landlord's or the tenants interest,
each of which shall be acceptable to Administrative Agent;
(9) with respect to each Covered Property, an Officer's
Certificate substantially in the form of Exhibit O;
---------
(10) except for any of the following which are to be provided
after the Amendment and Restatement Date pursuant to Section 9.13,
with respect to (a) each Covered Property on which significant surface
Improvements are located as indicated on Schedule 1.01(d)(vii) (other
----------------------
than any portions of such Covered Properties affected by the consents
described on Schedule 8.06), a policy (or commitment to issue a
-------------
policy) of title insurance insuring (or committing to insure) the Lien
of the Mortgage encumbering such Covered Property as a valid first
priority Lien on the Real Property and fixtures described therein (or,
if such title insurance is unavailable at commercially reasonable
rate, in the case of significant surface Improvements located on the
portions of the Covered Properties affected by the consents described
on Schedule 8.06, a title opinion or certificate of title containing
-------------
no exceptions to title other than exceptions for Prior Liens and other
exceptions reasonably acceptable to Administrative Agent), and (b)
each other Covered Property except such Covered Property the loss of
which would not materially impair the value or operation of any Mine
Site as determined in the sole discretion of the Administrative Agent,
a title opinion confirming that the Lien of the Mortgage encumbering
such Covered Property constitutes a valid first priority Lien on the
Real Property and fixtures described therein. Each policy (or
commitment to issue a policy) of title insurance shall be in an amount
not less than 115% of the fair market value thereof and shall (i) be
issued by the Title Company, (ii) include such reinsurance
arrangements (with provisions for direct access) as shall be
reasonably acceptable to Administrative Agent, (iii) have been
supplemented by such endorsements (or where such endorsements are not
available, opinions of special counsel or other professionals
acceptable to Administrative Agent) as shall be reasonably requested
by Administrative Agent and shall be available in the applicable
jurisdiction at commercially reasonable rates (including, without
limitation, endorsements on matters relating to usury, first loss,
last dollar, zoning, contiguity, revolving credit, doing business,
road access, variable rate and so-called comprehensive coverage over
covenants and restrictions), (iv) include such affidavits and
instruments of indemnifications by Borrower and the applicable
Subsidiary as shall be reasonably required to induce the Title Company
to issue the policy or policies (or commitment) and endorsements
contemplated in this paragraph and (v) contain no exceptions to title
other than exceptions for Prior Liens and other exceptions reasonably
acceptable to Administrative Agent. Each title opinion shall (a)
contain such supplemental opinions as shall be reasonably requested by
Administrative Agent and shall be
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commercially reasonably available (including, without limitation,
opinions on matters relating to zoning, contiguity and road access),
(b) be accompanied by such affidavits and instruments as shall be
reasonably requested by Administrative Agent in connection with such
opinions and (c) contain no exceptions to title other than exceptions
for Prior Liens and other exceptions reasonably acceptable to
Administrative Agent; and
(11) with respect to each Covered Property (other than any
portions of such Covered Property affected by the consents described
on Schedule 8.06), all such other items as shall be reasonably
-------------
necessary in the opinion of counsel to the Lenders to create a valid
perfected first priority mortgage Lien on such Covered Real Property
subject only to Prior Liens.
(xix) Other Matters. The Lenders shall have received such other legal
--------------
opinions, corporate documents and other instruments and/or certificates,
including, as the Agents or the Majority Lenders may request in their
reasonable discretion.
7.02. Initial and Subsequent Extensions of Credit. The obligation of
--------------------------------------------
the Lenders to make any Loan or otherwise extend any credit to Borrower upon the
occasion of each borrowing or other extension of credit (whether by making a
Loan or issuing a Letter of Credit but excluding any Continuation of any LIBOR
Loan or any Conversion) hereunder (including the initial borrowing) is subject
to the further conditions precedent that:
(i) No Default, Representations and Warranties True. Both immediately
------------------------------------------------
prior to the making of such Loan or other extension of credit and also
after giving pro forma effect thereto and to the intended use thereof
(A) no Default shall have occurred and be continuing; and
(B) the representations and warranties made by the Obligors in
Section 8, and by each Obligor in each of the other Credit Documents
to which it is a party, shall be true and complete on and as of the
date of the making of such Loan or other extension of credit with the
same force and effect as if made on and as of such date (or, if any
such representation or warranty is expressly stated to have been made
as of a specific date, as of such specific date).
(ii) No Legal Bar. The Loans and the use of proceeds thereof shall not
-------------
contravene, violate or conflict with, nor involve any Lender in a violation
of, any law, rule, injunction, or regulation or determination of any court
of law or other Governmental Authority.
(iii) No Material Adverse Effect. There shall not have occurred any
---------------------------
event or circumstances which has had or is reasonably likely to have a
Material Adverse Effect.
(iv) Notice of Borrowing. Administrative Agent shall have received a
--------------------
Notice of Borrowing duly completed and complying with Section 4.05.
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Each notice of borrowing or request for the issuance of a Letter of
Credit by Borrower hereunder shall constitute a certification by Borrower to the
effect set forth in clause (i) above as of the date of such borrowing or
issuance.
Each notice submitted by Borrower hereunder for an extension of credit
hereunder shall constitute a representation and warranty by Borrower, as of the
date of such notice and as of the relevant borrowing date or date of issuance of
a Letter of Credit, as applicable, that the applicable conditions in Sections
7.01 and 7.02 have been satisfied in accordance with the terms hereof.
7.03. Determinations Under Section 7. For purposes of determining
-------------------------------
compliance with the conditions specified in Sections 7.01 and 7.02, each Lender
shall be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter required thereunder to be consented to or
approved by or acceptable or satisfactory to the Lenders unless an officer of
Administrative Agent responsible for the transactions contemplated by this
Agreement shall have received notice from such Lender prior to the date that
Borrower, by notice to the Lenders, designates as the proposed date of the
extension of credit, specifying its objection thereto.
Section 8. Representations and Warranties. Each Obligor represents and
-------------------------------
warrants to the Creditors that at and as of each Funding Date (in each case
immediately before and immediately after giving effect to the transactions to
occur on such date):
8.01. Corporate Existence. Each Obligor and each Subsidiary: (a)
--------------------
is a corporation, partnership or other entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization; (b)
has all requisite corporate or other power and authority, and has all
governmental licenses, authorizations, consents and approvals necessary to own
its Property and carry on its business as now being conducted; and (c) is
qualified to do business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure to be so qualified and in good standing individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
8.02. Financial Condition, Etc. (a) Borrower has heretofore
-------------------------
delivered to the Lenders the audited consolidated balance sheets of Borrower and
the Subsidiaries and of each of the businesses acquired prior to the Amendment
and Restatement Date (each an "Acquired Business") as of December 31, 1995,
-----------------
December 31, 1996 and December 31, 1997, and the related statements of earnings,
changes in stockholders' equity and cash flows for the fiscal years ended
December 31, 1996 and December 31, 1997, (B) the unaudited consolidated balance
sheets of Borrower and the Subsidiaries and of each of the Acquired Businesses
as of June 30, 1998, and the related statements of earnings and cash flows for
the fiscal periods ended on June 30, 1998. All of said financial statements,
including in each case the related schedules and notes, are true, complete (in
the case of year-end financial statements) and correct in all material respects,
have been prepared in accordance with GAAP consistently applied and present
fairly and accurately the financial position of Borrower and the Subsidiaries
and each of the Acquired Businesses as of the respective dates of said balance
sheets and the results of their operations for the respective periods covered
thereby, subject (in the case of interim statements) to period-end audit
adjustments.
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<PAGE>
(b) Except as set forth in Schedule 8.02(b) or in the financial
----------------
statements referred to in 8.02(a), there are no liabilities of any Company of
any kind, whether accrued, contingent, absolute, determined, determinable or
otherwise, which would, or could reasonably be expected to, have a Material
Adverse Effect and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than liabilities under this Agreement or liabilities incurred in
connection with the transactions contemplated hereby.
(c) Except as set forth in Schedule 8.02(c), since June 30, 1998 there
----------------
has been no Material Adverse Change, or any event, change or circumstance which
could reasonably be expected to have a Material Adverse Change.
(d) Each of the pro forma balance sheet of Borrower and its
Consolidated Subsidiaries (the "Pro Forma Balance Sheets"), certified by the
------------------------
chief financial officer of Borrower, copies of which have been heretofore
furnished to each Lender, is the balance sheet of Borrower and its Consolidated
Subsidiaries as of the date of the latest available balance sheet of Borrower
prior to the Closing Date (the "Pro Forma Date"), adjusted to give effect (as if
--------------
such events had occurred on such date) to the transactions to occur on the
Closing Date and the application of the proceeds of all Indebtedness incurred on
such date. Each Pro Forma Balance Sheet, together with the notes thereto,
accurately reflects in all material respects all adjustments necessary to give
effect to the transactions contemplated hereby, was prepared based on good faith
assumptions, and presents fairly in all material respects on a pro forma basis
the consolidated financial position of Borrower and its Consolidated
Subsidiaries as at the Pro Forma Date, adjusted as described above.
8.03. Litigation. Except as set forth in Schedule 8.03 there is no
----------- -------------
Proceeding pending against, or to the knowledge of Borrower threatened against
or affecting, any Company or any of its respective Properties before any
Governmental Authority which is reasonably likely to have a Material Adverse
Effect.
8.04. No Breach, No Default. (a) None of the execution, delivery
----------------------
and performance by each Obligor of any Credit Document to which it is a party
and the consummation of the transactions herein and therein contemplated will
(i) conflict with or result in a breach of, or require any consent (which has
not been obtained and is in full force and effect) under, any Organic Document
of any Company, or any applicable Requirement of Law or any order, writ,
injunction or decree of any Governmental Authority binding on any Company, or
any term or provision of any Contractual Obligation of any Company, or (ii)
constitute (with due notice or lapse of time or both) a default under any such
Contractual Obligation, or (iii) result in the creation or imposition of any
Lien (except for the Liens created pursuant to the Security Documents) upon any
Property of any Company pursuant to the terms of any such Contractual
Obligation, except with respect to each of the foregoing which could not
reasonably be expected to have a Material Adverse Effect or which could not
reasonably be expected to subject any Agent, Lender or Issuing Lender to any
material risk of damages or liability to third parties.
(b) No Company is in default under or with respect to any Contractual
Obligation or any order, award or decree of any Governmental Authority or
arbitrator binding upon it or any of its Property in any respect which could
reasonably be expected to have a Material Adverse Effect.
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<PAGE>
(c) No Default or Event of Default has occurred and is continuing.
8.05. Action. Each Company has all necessary corporate power,
-------
authority and legal right to execute, deliver and perform its obligations under
each Credit Document to which it is a party and to consummate the transactions
herein and therein contemplated; the execution, delivery and performance by each
Company of each Credit Document to which it is a party and the consummation of
the transactions herein and therein contemplated have been duly authorized by
all necessary corporate action on its part; and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
Notes and the other Credit Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will constitute,
its legal, valid and binding obligation, enforceable against each Obligor in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws of general applicability from time to time in effect affecting the
enforcement of creditors' rights and remedies and (b) the application of general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
8.06. Approvals. No authorizations, approvals or consents of, and
----------
no filings or registrations with, any Governmental Authority, any securities
exchange or any other Person are necessary for the execution, delivery or
performance by any Company of the Credit Documents to which it is a party or for
the granting of a Lien on any Company's Property in favor of Administrative
Agent pursuant to the Security Documents or for the legality, validity or
enforceability hereof or thereof or for the consummation of the transactions
herein and therein contemplated, except for filings and recordings in respect of
the Liens created pursuant to the Security Documents and except for consents,
authorizations and filings (i) that have been obtained or made and are in full
force and effect or (ii) set forth on Schedule 8.06.
-------------
8.07. [Omitted].
-------
8.08. ERISA. No ERISA Event has occurred or is reasonably expected
------
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to have
a Material Adverse Effect. The present value of all accumulated benefit
obligations of all underfunded Plans (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $1.0 million the fair market value of the assets of all such underfunded
Plans. Each member of the ERISA Group is in compliance in all material respects
with the presently applicable provisions of ERISA and the Code with respect to
each Plan.
8.09. Taxes. Except as could not reasonably be expected to have a
------
Material Adverse Effect, (i) all Tax returns, statements, reports and forms
(including estimated Tax or information returns) (collectively, the "Tax
---
Returns") required to be filed with any taxing authority by, or with respect to,
each Company and each Unrestricted Subsidiary have been filed in accordance with
all applicable laws; (ii) each Company and each Unrestricted Subsidiary has
timely paid or made provision for payment of all Taxes shown as due and payable
on Tax Returns that have been so filed,
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<PAGE>
and, as of the time of filing, each Tax Return correctly reflected the facts
regarding income, business, assets, operations, activities and the status of
each Company and each Unrestricted Subsidiary (other than Taxes which are being
contested in good faith and for which adequate reserves are reflected on
Borrower's financial statements); (iii) each Company and each Unrestricted
Subsidiary have made provision for all Taxes payable by such Company and each
Unrestricted Subsidiary for which no Tax Return has yet been filed; Ov) the
charges, accruals and reserves for Taxes with respect to each Company and each
Unrestricted Subsidiary reflected on Borrower's financial statements are
adequate under United States generally accepted accounting principles to cover
the Tax liabilities accruing through the date thereof, and (v) there is no
action, suit, proceeding, audit or claim now proposed or pending against or with
respect to any Company or any Unrestricted Subsidiary in respect of any Tax
where there is a reasonable possibility of an adverse determination.
Except as set forth on Schedule 8.09, (i) no extension of a statute of
--------------
limitations relating to material Taxes is in effect with respect to any Company
or any Unrestricted Subsidiary; (ii) no Company or any Unrestricted Subsidiary
has ever been a member of an affiliated group of corporations within the meaning
of Section 1504 of the Code other than an affiliated group of corporations of
which Borrower was the common parent; and (iii) there are no material Tax
sharing agreements or similar arrangements (including Tax indemnity
arrangements) with respect to or involving any Company or any Unrestricted
Subsidiary.
For purposes of this Section 8.09, "Taxes" means any and all taxes,
-----
charges, fees, levies or other assessments, including income, gross receipts,
excise, real or personal property, sales, withholding, social security,
retirement, unemployment, occupation, use, service, license, net worth, payroll,
franchise, and transfer and recording, imposed by the Internal Revenue Service
or any taxing authority (whether domestic or foreign, including any federal,
state, U.S. possession, county, local or foreign government or any subdivision
or taxing agency thereof), whether computed on a separate, consolidated,
unitary, combined or any other basis, including interest, fines, penalties or
additions to tax attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments.
8.10. Investment Company Act; Public Utility Holding Company Act;
-----------------------------------------------------------
Other Restrictions. No Company is an "investment company", or a company
- - -------------------
"controlled" by an "investment company", within the meaning of the United States
Investment Company Act of 1940, as amended. No Company is a "holding company",
or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding
company", within the meaning of the United States Public Utility Holding Company
Act of 1935, as amended. No Obligor is subject to the Federal Power Act. No
Obligor is subject to regulation under any law or regulation which limits its
ability to incur Indebtedness, including Laws relating to common contract
carriers or the sale of electricity, steam, water or other public utilities,
other than Regulation X of the Board of Governors of the Federal Reserve System.
8.11. Environmental Matters. Except as disclosed in Schedule 8.11
---------------------- -------------
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect: (i) each Obligor and the
Subsidiaries are in compliance with and in the last five years have been in
compliance with, and are not subject to liability under, any Environmental Laws
applicable to them and there are no Environmental Laws which would reasonably be
expected to result in
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<PAGE>
material expenditures by any Obligor or any Subsidiary, and no such
Environmental Laws would reasonably be expected to interfere in any material way
with current or projected operations of any Obligor or any Subsidiary; (ii) no
Obligor or any Subsidiary has received notice that it or any of their respective
predecessors interests has been identified as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"), or any similar state or foreign or state law,
------
nor has any Obligor or any Subsidiary received notice that any Hazardous
Materials that it or any of their respective predecessors in interest has used,
generated, stored, treated, handled, transported or disposed of, or arranged for
disposal or treatment of, have been found at any site at which any Person is
conducting or plans to conduct any action pursuant to any Environmental Law, and
no Obligor or any Subsidiary, or to the knowledge of the Obligors, any of their
respective predecessors in interest, has disposed of, arranged for the disposal
or treatment of, or otherwise released Hazardous Materials at any site at which
any Person is conducting or plans to conduct any action under Environmental Law;
(iii) no properties now or formerly owned, leased or operated by any Obligor or
any Subsidiary or, to the knowledge of the Obligors, any of their respective
predecessors in interest, are (x) listed or proposed for listing on the National
Priorities List under CERCLA or (y) listed on the Comprehensive Environmental
Response, Compensation and Liability Information System List promulgated
pursuant to CERCLA or (z) included on any similar lists maintained by any
Governmental Authority; (iv) there are no past or present events, conditions,
activities, practices or actions, or any agreements, judgments, decrees or
orders by which any Obligor or any Subsidiary is bound, which would reasonably
be expected to prevent any Obligor's or any Subsidiary's compliance with any
Environmental Law, or which would reasonably be expected to give rise to any
liability of any Obligor or any Subsidiary under any Environmental Law,
including, without limitation, liability under CERCLA or similar state or
foreign laws; (v) no Lien has been asserted or recorded, or to the knowledge of
the Obligors, threatened, under any Environmental Law with respect to any asset,
facility, inventory or property currently owned, leased or operated by any
Obligor or any Subsidiary; and (vi) there are no underground storage tanks or
related piping at any property owned, operated or leased by any Obligor or any
Subsidiary, (vii) and no such tanks or related piping has been removed from such
properties, and (viii) no Obligor or any Subsidiary is subject to any judicial
or administrative Proceeding alleging the violation of, or liability under, any
Environmental Law and, to the knowledge of the Obligors, no such Proceeding is
threatened.
8.12. Environmental Investigations. All material environmental
-----------------------------
investigations, studies, audits or assessments which have been conducted and
which are in the possession, custody or control of any Company relating (i) to
the current or prior business, operations, facilities or Property of any Company
or any Unrestricted Subsidiary or any of their respective predecessors in
interest or (ii) to any facility, Property or other asset now or previously
owned, operated, leased or used by any Company or any Unrestricted Subsidiary or
any of their respective predecessors in interest have been made available to the
Agents and the Lenders.
8.13. Use of Proceeds. No Company is engaged principally, or as
----------------
one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying Margin
Stock and no part of the proceeds of any extension of credit hereunder will be
used directly or indirectly and whether immediately, incidentally or ultimately
to purchase or carry any Margin Stock or to extend credit to others for such
purpose or to refund
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<PAGE>
Indebtedness originally incurred for such purpose. Following application of the
proceeds of each extension of credit hereunder, not more than 25 percent of the
value of the assets (either of Borrower only or of Borrower and the Subsidiaries
on a consolidated basis) will be Margin Stock. If requested by any Lender or
Administrative Agent, Borrower will furnish to Administrative Agent and each
Lender a statement to the foregoing effect in conformity with the requirements
of FR Form UI referred to in Regulation U.
8.14. Subsidiaries. As of the Closing Date, Borrower does not have
-------------
any Subsidiaries or interests in partnerships, joint ventures or business trusts
other than the entities set forth on Schedule 8.14(a). Schedule 8.14(b) depicts
---------------- ----------------
the organizational structure of the Obligors as of the Closing Date. Borrower
owns, as of the Closing Date, the percentage of the issued and outstanding
Equity Interests or other evidences of the ownership of each of the
Subsidiaries, partnerships or joint ventures listed on Schedule 8.14(a) as set
----------------
forth on such Schedule. No such Subsidiary, partnership or joint venture has
issued any securities convertible into shares of its Equity Interests (or other
evidence of ownership) or any Equity Rights to acquire such shares or securities
convertible into such shares (or other evidence of ownership), and the
outstanding stock and securities (or other evidence of ownership) of such
Subsidiaries, partnerships or joint ventures are owned by Borrower and the
Subsidiaries free and clear of all Liens and Equity Rights of others of any kind
whatsoever, except for Liens permitted pursuant to the Security Documents with
respect thereto. Any Unrestricted Subsidiary created or acquired after the
Closing Date will be created or acquired in accordance with the terms hereof.
8.15. Properties. (a) Except for such exceptions that do not or
-----------
could not reasonably be expected to have a Material Adverse Effect, Borrower or
a Subsidiary (i) has good and marketable title to all the Real Properties owned
in fee reflected in the Borrower Balance Sheet or in any later financial
statements provided hereunder as being owned by Borrower or any Subsidiary
(except properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), or acquired after the date thereof and (ii) has
valid leasehold interests in all leased Real Properties constituting Covered
Properties and is in possession of the Real Properties purported to be leased
thereunder (except with respect to portions thereof subleased to third parties
in the ordinary course of business and in accordance with the provisions of the
applicable Security Documents), in each case, free and clear of all Liens,
except Liens of the type described as Prior Liens in the Mortgages. To the
knowledge of Borrower, each lease described in clause (ii) of the immediately
preceding sentence is valid without default thereunder by the lessee or lessor
except as disclosed in the Officers' Certificate delivered on the Amendment and
Restatement Date pursuant to the provisions of Section 7.01(xviii)(9). Title to
all Property other than Real Property is held by a Company free and clear of all
Liens except for Prior Liens and other Liens expressly permitted to exist on
such type of Property by the terms of the applicable Security Document.
(b) The estate, title and interest of the Obligors in the Covered
Properties constitute all of the estate, title and interest in Real Properties
as are necessary for the conduct of the business and operations of Borrower and
its Subsidiaries as presently conducted and all of the Covered Properties (other
than the portions thereof affected by the consents described in Schedule 8.06
-------------
and any Mortgaged Leases (as defined in the Mortgage) which are unrecorded) are
as of the date hereof encumbered by Mortgages in favor of Administrative Agent.
The estate, title and interest of
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the Obligors in the Covered Properties listed in Schedule 1.01(d)(i), (ii),
-------------------------
(iii), (iv), (v) and (vi) are the only leasehold or fee simple mineral estates
- - -------------------------
or interest of the Obligors which are within the Obligors' current five-year
mine plans. The estate, title and interest of the Obligors in their respective
Properties (other than the Real Properties) constitute all of the estate, title
and interest in Properties (other than Real Properties) as are necessary for the
conduct of the business and operations of Borrower and its Subsidiaries as
presently conducted and all such Properties (other than the portions thereof
affected by the consents described in Schedule 8.06) are as of the date hereof
-------------
encumbered by Security Documents in favor of Administrative Agent.
(c) Except for such exceptions that do not, or could not reasonably be
expected to have a Material Adverse Effect, the Property of Borrower and the
Subsidiaries, taken as a whole, is in good operating condition and repair
(ordinary wear and tear excepted), and constitutes all of the assets and
properties which are required for the businesses and operations of Borrower and
the Subsidiaries as presently conducted.
8.16. Security Interest: Absence of Financing Statements; Etc. The
--------------------------------------------------------
Security Documents, once executed and delivered, will create, in favor of
Administrative Agent for the benefit of the Lenders and Agents, as security for
the obligations purported to be secured thereby, a valid and enforceable, and
upon filing or recording with the appropriate Governmental Authorities and
delivery of the applicable documents to Administrative Agent, perfected first
priority security interest in and Lien upon all of the Collateral (and the
proceeds thereof), superior to and prior to the rights of all third persons
other than the holders of Prior Liens and subject to no other Liens except for
Liens expressly permitted to exist on such Collateral by the terms of the
applicable Security Document.
Except with respect to Prior Liens and other Liens expressly permitted
by the terms of the applicable Security Document and the Liens created by the
Security Documents, there is no currently effective financing statement,
security agreement, chattel mortgage, real estate mortgage or other document
filed or recorded with any filing records, registry, or other public office,
that purports to cover, affect or give notice of any present or possible future
Lien on, or security interest in, any assets or Property of any Company or
rights thereunder or any Equity Interests of any Unrestricted Subsidiary.
8.17. Licenses and Permits, Compliance with Laws. The Companies
-------------------------------------------
hold all governmental permits, licenses, authorizations, consents and approvals
(none of which has been modified or rescinded and all of which are in full force
and effect) (collectively, the "Permits") necessary for the Companies to own,
-------
lease, and operate their respective Properties and to carry on their respective
businesses as now being conducted, except for Permits the failure of which to
obtain could not reasonably be expected to have a Material Adverse Effect.
The businesses of the Companies are not being conducted in violation
of any applicable Requirement of Law, Permit, concession, grant or other
authorization of any Governmental Authority, except for violations that could
not reasonably be expected to have a Material Adverse Effect.
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<PAGE>
There does not exist any judgment, order or injunction prohibiting or
imposing material adverse conditions upon the performance by any Obligor of its
obligations under the Credit Documents and all applicable Requirements of Law.
8.18. True and Complete Disclosure. The information, reports,
-----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of any Obligor to any Creditor (other than the projections referred to in
the following sentence and other than any reserve studies prepared by third
parties) in connection with the negotiation, preparation or delivery of this
Agreement and the other Credit Documents or included herein or therein or
delivered pursuant hereto or thereto or pursuant to any information memorandum
distributed in connection with the syndication of the Commitments and Loans,
including all filings made with the Commission by any Company, whether prior to
or after the date of this Agreement, when taken as a whole, do not, as of the
date such information was furnished, contain any untrue statement of material
fact or omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
materially misleading. The projections and pro forma financial information
furnished at any time by any Obligor to any Creditor pursuant to this Agreement
have been prepared in good faith based on assumptions believed by Borrower to be
reasonable at the time made, it being recognized by the Lenders that such
financial information as it relates to future events is not to be viewed as fact
and that actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount and no Obligor, however, makes any representation as to the
ability of any Company to achieve the results set forth in any such projections.
Borrower understands that all such statements, representations and warranties
shall be deemed to have been relied upon by the Lenders as a material inducement
to make each extension of credit hereunder. As of the Closing Date, there is no
fact known to any Obligor (other than general economic conditions, which
conditions are commonly known and affect businesses generally) that could
reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Credit Documents or in any other
documents, certificates and statements furnished to Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby and by
the other Credit Documents.
8.19. Solvency; Etc. As of the Closing Date immediately prior to
--------------
and immediately following the consummation of the transactions contemplated
hereby and the extensions of credit to occur on such date each Obligor is and
will be Solvent (after giving effect to Section 6.08). Borrower believes that no
reasonably anticipated final judgment in a pending Proceeding or, to its
knowledge, any threatened Proceeding for money damages will be rendered at a
time when, or in an amount such that, any Company will be unable to satisfy such
judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount thereof and the earliest reasonable time at which such
judgments might be rendered). The cash available to each Company, after taking
into account all other anticipated uses of cash (including the payment of all
such Company's Indebtedness) is anticipated to be sufficient to pay any such
judgments promptly in accordance with their terms. No Company is contemplating
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidating of all or a substantial portion of its
property, and Borrower has no knowledge of any Person contemplating the filing
of any such petition against any Company.
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<PAGE>
8.20. Contracts. No Company is in default under any material
----------
contract or agreement to which it is a party or by which it is bound, nor, to
Borrower's knowledge, does any condition exist that, with notice or lapse of
time or both, would constitute such default, excluding in any case such defaults
that could not reasonably be expected to have a Material Adverse Effect.
Schedule 8.20 accurately and completely lists (x) all agreements, if any, among
- - -------------
the stockholders (or any of their Affiliates other than any Company) of Borrower
on the one hand and any Company on the other in effect on the date hereof and
all (y) material agreements which are in effect on the date hereof in connection
with the conduct of the business of the Companies.
8.21. Labor Matters. Except as set forth in Schedule 8.21 there
-------------- -------------
are no strikes or other labor disputes against any Company pending or, to the
knowledge of Borrower, threatened which could reasonably be expected to have a
Material Adverse Effect. Hours worked by and payments made to employees of the
Companies have not been in violation of the Fair Labor Standards Act or any
other applicable Requirements of Law dealing with such matters that
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect. To the knowledge of Borrower, all payments due from any
Company on account of employee health and welfare insurance that (individually
or in the aggregate) could reasonably be expected to have a Material Adverse
Effect if not paid have been paid or accrued as a liability on the books of the
relevant Company.
8.22. Year 2000. Each Company has reviewed their operations with a
----------
view to assessing whether their business or operations will, in the receipt,
transmissions, processing, manipulation, storage, retrieval, retransmission or
other utilization of data, be vulnerable to any significant risk that computer
hardware, software or any equipment containing embedded microchips used in their
business or operations will not in the case of dates or time periods occurring
after December 31, 1999 function at least as effectively as in the case of dates
or time periods occurring prior to January 1, 2000. No Company has reason to
believe that the risks associated with the Year 2000 issue could reasonably be
expected to have a Material Adverse Effect.
Section 9. Covenants. Each Obligor, for itself and on behalf of its
----------
Subsidiaries and its Unrestricted Subsidiaries, covenants and agrees with the
Creditors that, so long as any Commitment, Loan or Letter of Credit Liability is
outstanding and until payment in full of all amounts payable by Borrower
hereunder:
9.01. Financial Statements, Etc. The Companies shall deliver to
--------------------------
Administrative Agent and each of the Lenders:
(a) Quarterly Financials. As soon as available and in any event within
---------------------
45 days after the end of each of the first three quarterly fiscal periods
of each fiscal year beginning with the fiscal quarter ending September 30,
1998, consolidated statements of operations, cash flows and stockholders'
equity of Borrower and its Consolidated Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the end
of such period, and the related consolidated balance sheet of Borrower and
its Consolidated Subsidiaries as at the end of such period, setting forth
in each case in comparative form (i) the corresponding consolidated
statements of operations, cash flows and stockholders' equity for the
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corresponding period in the preceding fiscal year and (ii) the
corresponding budget or plan for such period, accompanied by a certificate
of a Responsible Officer of Borrower, which certificate shall state that
said consolidated financial statements fairly present the consolidated
financial condition, results of operations and cash flows of Borrower and
its Consolidated Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments);
(b) Annual Financials. As soon as available and in any event within 90
------------------
days after the end of each fiscal year beginning with the fiscal year
ending December 31, 1998, consolidated and consolidating statements of
operations, cash flows and stockholders' equity of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated and
consolidating balance sheet of Borrower and its Consolidated Subsidiaries
as at the end of such year, setting forth in each case in comparative form
(i) the corresponding consolidated and consolidating information as of the
end of and for the preceding fiscal year and (ii) the corresponding budget
or plan for such period, and accompanied by an opinion, without
qualification or exception, thereon of independent certified public
accountants of recognized national standing reasonably acceptable to the
Lenders, which opinion shall state that said consolidated and consolidating
financial statements fairly present the consolidated and consolidating
financial condition, results of operations and cash flows of Borrower and
its Consolidated Subsidiaries as at the end of, and for, such fiscal year
in accordance with GAAP, consistently applied and a certificate of such
accountants stating that, in making the examination necessary for their
opinion, they obtained no knowledge of any Default; Borrower shall supply
such additional information and detail as to any item or items contained on
any such statement that Lenders may reasonably require; all such
information will be prepared in accordance with GAAP consistently applied;
(c) [reserved];
(d) Other Financial Information. Promptly upon delivery thereof to the
----------------------------
holders of any debt securities or the stockholders of any Company
generally, copies of all financial statements and reports and proxy
statements so delivered, and at the time the same are filed, copies of all
financial statements and reports which any Company may make to or file with
the Commission or any successor or analogous Governmental Authority;
(e) Interest Rate Certificates. Together with the financial statements
---------------------------
delivered pursuant to clause (a) or (b) of this Section 9.01, an Interest
Rate Certificate;
(f) Notice of Default. Promptly after any Company knows or has reason
------------------
to believe that any Default has occurred or that any Company is in default
of any material term or provision of the any other material Contractual
Obligation (other than pursuant to the Credit Documents), a notice of such
Default describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action that
Borrower has taken and proposes to take with respect thereto;
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(g) Environmental Matters. Written notice of any Environmental Claim
----------------------
materially affecting any Company or any Unrestricted Subsidiary, any
Mortgaged Real Property or the operations of any Company, and any notice
from any Person of (i) the occurrence of any release, spill or discharge of
any Hazardous Material that is reportable under any Environmental Law, (ii)
the commencement of any clean-up pursuant to or in accordance with any
Environmental Law of any Hazardous Material at, on, under or within the
Mortgaged Real Property or any part thereof, (iii) any matters relating to
Hazardous Materials or Environmental Laws that may impair, or threaten to
impair, Lenders' security interest in the Mortgaged Real Property or any
Obligor's ability to perform any of its obligations under this Agreement
when such performance is due or (iv) any other condition, circumstance,
occurrence or event, any of which could reasonably be expected to result in
a material liability of any Company or any Unrestricted Subsidiary under
any Environmental Law;
(h) Auditors' Reports. Promptly upon receipt thereof, copies of all
------------------
reports submitted to any Company by independent certified public
accountants in connection with each annual, interim or special audit of
such Company's books made by such accountants, including, without
limitation, any management letter commenting on any Company's internal
controls submitted by such accountants to management in connection with
their annual audit;
(i) Annual Budgets. An annual operating and capital improvements
---------------
budget of Borrower and the Subsidiaries in reasonable detail and financial
projections made in good faith, within 60 days after the end of each fiscal
year of Borrower;
(j) Lien Matters. Written notice of (1) the incurrence of any Lien
-------------
(other than Prior Liens and other Liens expressly permitted by the terms of
the applicable Security Document) on, or claim asserted against any of the
Collateral or (2) the occurrence of any other event which could reasonably
be expected to adversely affect the aggregate value of the Collateral;
(k) Notice of Material Adverse Effect. Written notice of the
----------------------------------
occurrence of any Material Adverse Effect or any event or condition which
could reasonably be expected to result in any Material Adverse Effect;
(1) Governmental Filings and Notices. Promptly after request by
---------------------------------
Administrative Agent, copies of any other reports or documents that were
filed by any Company with any Governmental Agency and copies of any and all
material notices and other material communications from any Federal, state
or local Governmental Authority with respect to any Company;
(m) ERISA Information. Written notice of the occurrence of any ERISA
------------------
Event that, alone or together with any other ERISA Events that have
occurred, could reasonably be expected to result in liability to the
Companies in an aggregate amount exceeding $2.0 million;
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(n) Reserve Reports. As soon as available and in any event within 30
----------------
days after the end of each fiscal year, a reserve report in form and
substance satisfactory to the Administrative Agent, and copies of all Coal
Sales Agreements of the Companies, not theretofore delivered to the
Administrative Agent as well as copies of any amendments or modifications
to any Coal Supply Contracts of the Companies not theretofore delivered to
Agent and such other information as the Administrative Agent may request.
(o) [reserved]
(p) Miscellaneous. Promptly, such financial and other information with
--------------
respect to any Obligor or Subsidiary, as any Creditor may from time to time
reasonably request.
(Borrower will furnish to Administrative Agent and each of the
Lenders:
(i) concurrently with the delivery of the financial statements
referred to in Section 9.01(b), a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default relating to the covenants contained in
Section 9.11, except as specified in such certificate; and
(ii) at the time it furnishes each set of financial statements
pursuant to paragraph (a) or (b) above, (1) a certificate of a senior
financial officer of Borrower (1) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing
the action that Borrower has taken and proposes to take with respect
thereto), (11) specifying whether or not any Unrestricted Subsidiary
has been created or acquired since the last such certificate and (111)
setting forth in reasonable detail the computations necessary to
determine whether each Company is in compliance with Sections 9.07,
9.08, 9.09, 9. 10 and 9.11 as of the end of the respective quarterly
fiscal period or fiscal year, (2) to the extent not previously
disclosed to Administrative Agent, a listing of any state within the
United States where any Obligor keeps inventory or equipment and of
any licenses arising under the laws of the United States (or any
jurisdiction therein) acquired by any Obligor since the date of the
most recent list delivered pursuant to this clause (II) (or, in the
case of the first such list so delivered, since the Closing Date), and
(3) any final accountants' management letters delivered by the
independent certified public accountants reporting on such financial
statements to Borrower or any Subsidiary.
9.02. Litigation, Etc. Borrower shall promptly give to
----------------
Administrative Agent and each Lender notice of all Proceedings, and any material
development thereof, affecting any Company, except Proceedings which could not
reasonably be expected to have a Material Adverse Effect.
9.03. Existence, Compliance with Law: Payment of Taxes: Inspection
------------------------------------------------------------
Rights: Performance of Obligations, Etc. Each Company shall (i) preserve and
- - ----------------------------------------
maintain its legal existence and all of its material rights, privileges and
franchises; provided, however, that nothing in this Section 9.03
--------- --------
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shall prohibit any transaction expressly permitted under Section 9.06, (ii)
comply with all applicable Requirements of Law of Governmental Authorities,
except to the extent that the failure to do so could not reasonably be expected
to have a Material Adverse Effect, (iii) timely file true, accurate and complete
tax returns required by all Governmental Authorities and pay and discharge all
material taxes, assessments and governmental charges or levies imposed on it or
on its income or profits or on any of its Property prior to the date on which
penalties attach thereto (except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper proceedings
and against which adequate reserves are being maintained in accordance with
GAAP); (iv) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted, except to the
extent that the failure to do so with respect to any such Property could not
reasonably be expected to have a Material Adverse Effect; (v) permit
representatives of any Creditor upon reasonable prior notice, during normal
business hours, to examine, copy and make extracts from its books and records,
to inspect its Properties, and to discuss its business and affairs with its
officers and employees and with the independent accountants of each Company, all
to the extent reasonably requested by such Creditor, provided however that
Administrative Agent or such Lender shall notify Borrower prior to any contact
with such accountants and give Borrower the opportunity to participate in such
discussions; (vi) allow the Agents to consult with Borrower's independent public
accountants and auditors with respect to the financial affairs of the Companies
and authorize such accountants to disclose to the Agents and the Lenders any and
all financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of the Companies; at the request of the
Agents, Borrower shall deliver a letter addressed to such accountants
instructing them to comply with the provisions of this Section 9.03(vi); (vii)
perform in all material respects all of its Contractual Obligations, except
where such failure to so perform, singly or in the aggregate with all other such
failures, could not reasonably be expected to have a Material Adverse Effect;
and (viii) keep proper books of record and accounts, in which full and correct
entries shall be made of all financial transactions and the Property and
business of each Company in accordance with GAAP in effect from time to time or
as otherwise required by applicable rules and regulations of any Governmental
Authority having jurisdiction over such Company.
9.04. Insurance. (A) Each Company shall maintain, with financially
----------
sound and reputable insurers, insurance of the kinds and in the amounts
customarily insured against by companies engaged in the same or similar business
and similarly situated and carry such other insurance as is appropriate for such
Company. Each Company shall pay all insurance premiums payable by them as and
when due.
(B) All policies of insurance required to be maintained by any Company
must name Administrative Agent, on behalf of the Lenders and Agents, as
mortgagee (in the case of property insurance) or additional insured (in the case
of liability insurance), as applicable, or certificate holder (in the case of
workers' compensation insurance) and must provide that no cancellation, non-
renewal or modification (including reduced coverage) of the policies will be
made without thirty days' prior written notice to Administrative Agent and if
the insurance carrier shall have received written notice from Administrative
Agent of the occurrence of an Event of Default, the insurance carrier shall pay
all proceeds otherwise payable to any Company under such policies directly to
Administrative Agent.
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(C) The Obligors shall give immediate written notice of any loss in
excess of $5.0 million to the insurance carrier and to Administrative Agent.
Each Obligor on behalf of itself and its Subsidiaries hereby irrevocably
authorizes and empowers Administrative Agent, as its attorney-in-fact coupled
with an interest, if any Default shall have occurred or such loss is reasonably
likely to be materially adverse to the Lenders, to make proof of loss, to adjust
and compromise any claim under insurance policies, to appear in and prosecute
any action arising from such insurance policies, to collect and receive
insurance proceeds, and to deduct therefrom Administrative Agent's expenses
incurred in the collection of such proceeds. Nothing contained in this Section
9.04(C), however, shall require Administrative Agent to incur any expense or
take any action hereunder.
(D) Each policy of insurance obtained or maintained by any Company
shall: (i) be written by financially responsible companies selected by Borrower
and having an A.M. Best rating of "A" or better and being in a financial size
category of XII or larger, or by other companies reasonably acceptable to
Administrative Agent; (ii) waive all rights of subrogation of the insurers
against the Creditors; (iii) waive any right of the insurers to set-off or
counterclaim or to make any other deduction, whether by way of attachment or
otherwise, as against any Creditor; (iv) waive all claims for insurance premiums
or commissions or additional premiums or assessments against the Creditors; and
(v) provide that, except in the case of third-party liability insurance, the
proceeds of any loss affecting any Property which is Collateral (including Real
Property) or interests therein shall be applied in accordance with the terms of
this Agreement and all applicable Security Documents.
(E) Borrower will advise Administrative Agent promptly of any material
policy cancellation, reduction or amendment.
(F) Borrower will not and will not permit any Subsidiary to materially
modify any of the provisions of any policy with respect to casualty insurance
without delivering the original copy of the endorsement reflecting such
modification to Administrative Agent.
(G) If at any time any Covered Property on which significant surface
Improvements (as determined in the reasonable discretion of the Agent) exist is
located in an area which is designated (i) a "flood hazard area" in any Flood
Insurance Rate Map published by the Federal Emergency Management Agency (or any
successor agency), Borrower shall obtain flood insurance in such total amount as
Administrative Agent or the Majority Lenders may from time to time reasonably
require, and otherwise comply with the National Flood Insurance Program as set
forth in the Flood Disaster Protection Act of 1973, as amended from time to
time, or (ii) a "Zone I" area, Borrower shall obtain earthquake insurance in
such total amount as Administrative Agent or the Majority Lenders may reasonably
require, in the case of each of clauses (i) and (ii), to the extent such risks
are customarily insured against by owners of property comparable to and in the
same geographic area as the applicable Covered Property and such insurance is
available at commercially reasonable rates.
9.05. Limitation on Lines of Business; Limitation on Management
---------------------------------------------------------
Agreements. No Company shall directly or indirectly, engage to any material
- - -----------
extent in any line or lines of business activity other than the business of the
type conducted by Borrower and the Subsidiaries as of the Closing Date or any
business related, ancillary or complementary thereto. No Company shall, directly
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or indirectly, turn over the management of its Properties, rights, licenses and
franchises to any Person other than a full-time employee of the Companies or
enter into any management or similar agreement with any Person.
9.06. Limitation on Fundamental Changes, Acquisitions or
--------------------------------------------------
Dispositions. No Company shall, directly or indirectly, in a single transaction
- - -------------
or series of transactions, (1) merge, consolidate or amalgamate with or into any
Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), (2) effect any Acquisition, or (3) effect any Disposition (or
agree to do any of the foregoing). Notwithstanding the foregoing provisions of
this Section 9.06, each of the following shall be permitted:
(a) purchases and sales of Property in the ordinary course of
business;
(b) the pledge of the Collateral pursuant to the Security Documents;
(c) the merger, consolidation, dissolution or liquidation of (1) any
Subsidiary with or into (i) Borrower if Borrower shall be the continuing or
surviving corporation or (ii) any Qualified Subsidiary if a Qualified
Subsidiary shall be the continuing or surviving corporation, and (2) any
Subsidiary which is not a Qualified Subsidiary with or into any other
Subsidiary which is not a Qualified Subsidiary;
(d) Dispositions by any Subsidiary to Borrower or to any Qualified
Subsidiary;
(e) Dispositions of used, worn out, obsolete or surplus Property by
any Company in the ordinary course of business;
(f) sale or discount, in each case without recourse, of accounts
receivable past due arising in the ordinary course of business, but only in
connection with the compromise or collection thereof; provided, however,
-------- -------
that in no event may any Company enter into any factor in with respect to
receivables;
(g) In addition to any other Dispositions permitted by this Agreement,
Borrower or any Subsidiary may effect any Disposition for fair market value
resulting in gross proceeds not to exceed $50.0 million in the aggregate in
any fiscal year of Borrower and $200.0 million since the Closing Date;
provided, however, that in each case, the Net Available Proceeds therefrom
-------- -------
are reinvested as specified in Section 2.1(a)(iv) or applied to the
prepayment of the Loans as specified in Section 2.10(a)(iv);
(h) Acquisitions by Borrower or any Qualified Subsidiary of any Person
engaged in or any Property used in the coal business; provided, however,
-------- --------
that each Acquisition under this Section 9.06(h) shall satisfy each of the
following conditions:
(i) no Default then exists or would result therefrom;
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(ii) after giving pro forma effect to such Acquisition, (1)
Borrower shall be in compliance with all covenants set forth in
Section 9.11 as of the most recent Test Date (assuming, for purposes
of Section 9.11, that such Acquisition, and all other Permitted
Acquisitions consummated since the first day of the relevant
measurement period for each financial covenant set forth in Section
9.11 ending on such last day, had occurred on the first day of such
relevant measurement period), and (2) Borrower and the Subsidiaries
can reasonably be expected to remain in compliance with such covenants
through the Final Maturity Date and to have sufficient cash liquidity
to conduct their respective business and pay their respective debts
and other liabilities as they come due;
(iii) no Company shall, in connection with any such Acquisition,
assume or remain liable with respect to any Indebtedness or other
liability (including any material tax or ERISA liability) of the
related seller, except (1) to the extent permitted under Section 9.08,
and (2) obligations of the seller incurred in the ordinary course of
business and necessary or desirable to the continued operation of the
underlying properties, and any other such liabilities or obligations
not permitted to be assumed or otherwise supported by any of the
Companies hereunder shall be paid in full or released as to the assets
being so acquired on or before the consummation of such Acquisition;
(iv) the Properties acquired in connection with any such
Acquisition shall be free and clear of any Liens, other than Permitted
Liens (or, in the event such Properties shall constitute Additional
Collateral or Real Property required, pursuant to the provisions of
Section 9.12, to be pledged to Administrative Agent, Liens of the type
that would constitute Prior Liens under the Security Documents
executed and delivered on the date hereof);
(v) the board of directors of the acquired Person shall not have
indicated publicly its opposition to the consummation of such
Acquisition;
(vi) such Acquisition shall be effected through Borrower or a
Qualified Subsidiary and the Person acquired shall be merged with or
into a Qualified Subsidiary or shall be at the time of consummation
thereof a Qualified Subsidiary;
(vii) with respect to any Acquisition involving Acquisition
Consideration of more than $25.0 million, Borrower shall have provided
the Agents and the Lenders with (1) historical financial statements
for the last three fiscal years of the Person or business to be
acquired (audited if available without undue cost or delay) and
unaudited financial statements thereof for the most recent interim
period which are available, (2) reasonably detailed projections for
the succeeding five years pertaining to the Person or business to be
acquired, (3) a reasonably detailed description of all material
information relating thereto and copies of all material documentation
pertaining to such Acquisition, and (4) all such other information and
data relating to
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such Acquisition or the Person or business to be acquired as may be
reasonably requested by the Agents or the Majority Lenders;
(viii) Borrower shall have delivered to the Agents and the
Lenders an Officers' Certificate certifying that (1) such Acquisition
complies with this Section 9.06(h) (which shall have attached thereto
reasonably detailed backup data and calculations showing such
compliance), and (2) such Acquisition shall not have a Material
Adverse Effect; and
(ix) the Acquisition Consideration (other than Equity Issuances)
for such Acquisition shall not exceed $100.0 million, and the
aggregate amount of the Acquisition Consideration (other than Equity
Issuances) for all Acquisitions effected pursuant to this Section
9.06(h) since the Closing Date shall not exceed $200.0 million.
(i) transfers resulting from any casualty or condemnation of Property;
(j) licenses or sublicenses by any Company of software, trademarks and
other intellectual property and general intangible and leases, licenses or
subleases of other property in the ordinary course of business and which do
not materially interfere with the business of any Company;
(k) any consignment arrangements or similar arrangements for the sale
of assets in the ordinary course of business of any Company;
(1) the making of Investments permitted by Section 9.09 and the
liquidation in the ordinary course of business of (A) Permitted Investments
and (B) Investments made pursuant to Sections 9.09(A)(a) and 9.09(A)(b);
(m) Acquisitions by Borrower or any Subsidiary of any new Subsidiary;
provided however that (1) the sole consideration provided therefor by the
Companies is common Equity Interests of Borrower, and (2) such Acquisition
shall comply with each of clauses (i), (ii), (iii), (iv), (v), (vii) and
(viii) of Section 9.06(h) (with references therein to Section 9.06(h) being
deemed references to this Section 9.06(m));
(n) the restructuring, renegotiation or termination of any Coal Supply
Agreement resulting in Borrower or its Restricted Subsidiaries receiving in
a single transaction, or series of related transactions, cash proceeds of
no greater than $50.0 million.
To the extent the Majority Lenders waive the provisions of this Section 9.06
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 9.06
(other than to any Company), such Collateral in each case shall be sold or
otherwise disposed of free and clear of the Liens created by the Security
Documents and Administrative Agent shall take such actions as are appropriate in
connection therewith.
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9.07. Limitation on Liens and Negative Pledges. No Company shall,
-----------------------------------------
directly or indirectly, create, incur, assume or suffer to exist any Lien upon
or with respect to any Collateral except for Prior Liens and other Liens
expressly permitted by the terms of the applicable Security Documents. No
Company shall, directly or indirectly, create, incur, assume or suffer to exist
any Lien upon any of their respective Property that does not constitute
Collateral, whether now owned or hereafter acquired, or sell any such Property
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property (including the sale of accounts receivable with recourse to any
Company) or assign any right to receive income, except for Liens expressly
permitted by the applicable Security Document and except for the following,
which are herein collectively referred to as "Permitted Liens":
---------------
(a) Liens in existence on the Amendment and Restatement Date and
identified in Schedule 9.07 which Liens are reasonably acceptable to the
-------------
Agents;
(b) Liens imposed by any Governmental Authority for taxes, assessments
or charges not yet due or which are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are
maintained on the books of the Companies, in accordance with GAAP;
(c) Liens imposed by law which were incurred in the ordinary course of
business, such as carriers', warehousemen's, landlords' and mechanics'
Liens and other similar Liens arising in the ordinary course of business,
in each case for sums the payment of which is not required by Section 9.03;
(d) pledges or deposits under workers' compensation, unemployment
insurance and other social security legislation or the deposits securing
the liability to insurance carriers;
(e) pledges or deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(f) The following encumbrances which do not, in any case, individually
or in the aggregate, materially detract from the value of any Mine Site or
Shipyard Property subject thereto or interfere with the ordinary conduct of
the business or operations of any Company as presently conducted on or with
respect to such Mine Site or Shipyard Property:
(i) encumbrances typically found upon Real Property used for
mining purposes in the applicable jurisdiction in which the applicable
Real Property is located to the extent such encumbrances would be
permitted or granted by a prudent operator of mining property similar
in use and configuration to such Real Property (i.e., surface rights
agreements, wheelage agreements and reconveyance agreements);
(ii) rights and easements of owners (i) of undivided interests in
any of the Real Property where the applicable Company owns less than
100% of the fee interest,
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(ii) of interests in the surface of any Real Property where the
applicable Company does not own or lease such surface interests, (iii)
and lessees, if any, of coal or other minerals (including oil and gas)
where the applicable Company does not own such coal or other minerals,
and (iv) and lessees of other coal seams and other minerals (including
oil and gas) not owned or leased by such Company; provided however
-------- -------
that the rights and easements described in clauses (i) through (iv) of
this subclause (b) shall in no event cause any breach of the
----------
representations made in Section 8.15(b);
---------------
(iii) easements, rights-of-way, restrictions or minor defects or
irregularities in title incurred in the ordinary course of business
and encumbrances consisting of zoning restrictions, easements,
licenses or restrictions on the use of the Real Property or minor
imperfections in title thereto;
(iv) with respect to any Real Property in which any Company holds
a leasehold interest, terms, agreements, provisions, conditions, and
limitations (other than royalty and other payment obligations which
shall be permitted hereunder in accordance with the provisions of
Section 9.07(f)(vi)) contained in the leases granting such leasehold
interest and the rights of lessors thereunder (and their heirs,
executors, administrators, successors, and assigns);
(v) farm, grazing, hunting, recreational and residential leases
with respect to which any Company is the lessor encumbering portions
of the Real Properties to the extent such leases would be granted or
permitted by, and contain terms and provisions that would be
acceptable to, a prudent operator of mining properties similar in use
and configuration to such Real Properties;
(vi) royalty and other payment obligations to sellers or
transferors of fee coal or lease properties to the extent such
obligations constitute a lien not yet delinquent;
(vii) rights of others to subjacent or lateral support and
absence of subsidence rights; and
(viii) rights of repurchase or reversion when mining and
reclamation are completed.
(g) Liens upon tangible personal Property acquired after the Closing
Date by Borrower or any Subsidiary, each of which Liens either (A) existed
on such Property before the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the purpose of securing
Indebtedness representing, or incurred to finance or refinance, the cost of
such Property or improvements thereon; provided however, that (1) no such
-------- -------
Lien shall extend to or cover any Property of any Company other than the
Property so acquired and improvements thereon, and (2) the principal amount
of Indebtedness secured by any such Lien shall at no time exceed 100% of
the fair market value of such Property at the time it was acquired;
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(h) Liens existing on any Property of any Person at the time such
Person becomes a Subsidiary or is merged or consolidated with or into a
Subsidiary and, in each case, not created in contemplation of or in
connection with such event; provided however, that such Liens do not extend
to any other Property of any Company;
(i) Liens not otherwise permitted hereunder securing obligations of
any Company at any time not exceeding in the aggregate $10.0 million;
(j) Liens securing obligations under Swap Contracts with any Lender or
any Affiliate of a Lender to the extent such Swap Contracts relates to the
Obligations and only so long as the Obligations are secured by the same
collateral on a pari passu basis;
---- -----
(k) Liens consisting of judgment or judicial attachment Liens
(including prejudgment attachment) in existence less than 45 days after the
entry thereof or the enforcement of which is effectively stayed or payment
of which is covered in full (subject to a customary deductible) by
insurance or which do not otherwise result in an Event of Default under
Section 10(h);
(1) Liens securing obligations in respect of Capital Leases solely on
Property subject to such Capital Leases;
(m) any obligations or duties affecting any of the Property of any
Company to any municipality or public authority with respect to any
franchise, grant, license or permit which do not materially impair the use
of such Property for the purposes for which it is held;
(n) leases or subleases granted to third Persons not interfering in
any material respect with the business of any Company;
(o) Liens arising from UCC financing statements regarding leases
permitted by this Agreement;
(p) any interest or title of a lessor or sublessor under any lease
permitted by this Agreement;
(q) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods so long as such Liens attach only to the imported
goods;
(r) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by any Company in the ordinary course of
business;
(s) Liens created under this Agreement and/or the other Credit
Documents; and
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(t) any extension, renewal or replacement of the foregoing; provided,
--------
however, that the Liens permitted by this Section 9.07(t) shall not cover
-------
any additional Indebtedness or Property (other than like Property
substituted for Property covered by such Lien).
Except with respect to (i) specific Property encumbered pursuant to a
Lien permitted to be incurred pursuant to this Section 9.07 or (ii) specific
Property to be sold pursuant to an executed agreement with respect to a
Disposition consummated in accordance with this Agreement, no Company will
directly or indirectly, enter into any agreement on or after the Closing Date
prohibiting or restricting in any manner (directly or indirectly and including
by way of covenant, representation or warranty or event of default) the creation
or assumption of any Lien upon its Property, whether now owned or hereafter
acquired, except pursuant to the Credit Documents, the Bridge Loan Agreement and
any Permitted Refinancings thereof.
9.08. Prohibition on Disqualified Capital Stock, Limitation on
--------------------------------------------------------
Indebtedness and Contingent Obligation. Except as provided below, no Company
- - ---------------------------------------
shall directly or indirectly issue or permit to be outstanding any Disqualified
Capital Stock, other than Disqualified Capital Stock issued to and held by
Borrower or any Qualified Subsidiary. No Company will incur any Indebtedness or
Contingent Obligation (other than the Loans) which contains any direct or
indirect default, prepayment event, redemption event, repurchase or mandatory
offer to purchase event upon the occurrence or failure to occur of any event or
circumstance relating to any Unrestricted Subsidiary. No Company shall, directly
or indirectly, incur any Indebtedness or any Contingent Obligation, except (each
of which shall be given independent effect):
(a) the Loans and the other Obligations (including the Guarantees)
under the Credit Documents;
(b) Existing Debt and Contingent Obligations outstanding on the
Amendment and Restatement Date and listed in Schedule 9.08 and specified on
-------------
Schedule 9.08 as to remain outstanding after the Amendment and Restatement
-------------
Date (less the aggregate amount of any permanent prepayments or repayments
thereof) and Permitted Refinancings thereof,
(c) Indebtedness and Contingent Obligations of Borrower or any
Subsidiary owing to Borrower or any Qualified Subsidiary; provided however,
-------- --------
that (1) if requested by the Majority Lenders, such Indebtedness shall be
evidenced by an Intercompany Note which shall be pledged to Administrative
Agent on behalf of the Lenders pursuant to the Security Agreement, and (2)
such Indebtedness and Contingent Obligations shall not be held by any
Person other than Borrower or a Qualified Subsidiary and shall not be
subordinate to any other Indebtedness or Contingent Obligations or other
obligation of the obligor unless also subordinated to the Loans on terms no
less favorable to the Lenders than that of any other creditor;
(d) Contingent Obligations in respect of operating leases;
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(e) Indebtedness and Contingent Obligations arising from honoring a
check, draft or similar instrument against insufficient funds; provide
however that such Indebtedness is extinguished within two Business Days of
its incurrence;
(f) Swap Contracts entered into in the ordinary course of business and
designed to protect the Obligors against fluctuations in interest rates,
currency exchange rates, or similar risks (including any Interest Rate
Protection Agreement entered into pursuant to Section 9.18);
(g) Contingent Obligations of Borrower or any Qualified Subsidiary in
respect of Indebtedness or other liabilities of Borrower or any Subsidiary
to the extent that the existence of such Indebtedness or other liabilities
is not prohibited under this Agreement;
(h) Contingent Obligations in connection with Dispositions permitted
under Section 9.06, arising in connection with indemnification and other
agreements in respect of any contract relating to such Disposition, not to
exceed the consideration received by Borrower or any Subsidiary in
connection with such sale and excluding, however, in all cases any
Contingent Obligation with respect to any obligation of any third person
incurred in connection with the acquisition of the Property which is the
subject of such Disposition;
(i) Indebtedness and Contingent Obligations of Borrower and the
Subsidiaries (including Permitted Refinancings thereof) secured by Liens
permitted under Section 9.07(g) or (1) (and extensions, renewals or
replacements thereof pursuant to Section 9.07 (v)) not exceeding (together
with any Permitted Refinancing thereof) $50.0 million in the aggregate at
any time outstanding for Borrower and the Subsidiaries collectively;
(j) Indebtedness of a corporation which becomes a Subsidiary after the
date hereof; provided however, that (1) such Indebtedness existed at the
-------- -------
time such corporation became a Subsidiary and was not created in connection
with or in anticipation thereof, (2) immediately after giving effect to the
acquisition of such corporation by Borrower no Default shall have occurred
and be continuing, and (3) the aggregate amount of Indebtedness outstanding
at any time pursuant to this Section 9.080) shall not exceed $100.0 million
for all Subsidiaries;
(k) unsecured Indebtedness, Contingent Obligations and Disqualified
Capital Stock incurred by Borrower, and any Permitted Refinancing thereof,
not to exceed $50.0 million in the aggregate at any time outstanding;
(l) Indebtedness of Borrower in an aggregate principal amount not to
exceed $25.0 million which is subordinated to the Loans pursuant to
documentation satisfactory to the Agents issued as part of the Acquisition
Consideration for any Acquisition permitted by Section 9.06(h);
(m) the 101/2% Senior Notes due 2005 of AEI in an aggregate principal
amount not to exceed $200.0 million;
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(n) Indebtedness under the Bridge Loan Agreement in an aggregate
principal amount not to exceed $45.0 million and Permitted Refinancings
thereof;
(o) until February 28, 1999, Contingent Obligations under the Letter
of Credit Agreements in an aggregate face amount not to exceed $6.0
million; and
(p) the 11 1/2% Senior Subordinated Notes due 2006 of Borrower in an
aggregate principal amount not to exceed $150,000,000.
All intercompany debt shall be unsecured and subordinate in right of
payment (to the same extent as the subordination provisions set forth in Exhibit
-------
B hereto) to the Obligations. Each Obligor, by its execution and delivery of
- - -
this Agreement, hereby agrees to subordinate its right of payment under any
intercompany debt owed to it by Borrower or any Subsidiary to the full and
complete payment and performance of the Obligations. No Obligor shall incur any
Subordinated Indebtedness unless such Subordinated Indebtedness shall be
subordinated to the Obligations at least to the same extent and for so long as
such Subordinated Indebtedness is subordinated to such other Indebtedness
pursuant to documentation reasonably acceptable to the Agents.
9.09. Limitation on Investments; Limitation on Creation of
----------------------------------------------------
Subsidiaries and Unrestricted Subsidiaries. (A) No Company shall, directly or
- - -------------------------------------------
indirectly, make or permit to remain outstanding any Investments, except:
(a) operating deposit accounts and certificates of deposit with banks
in the ordinary course of business;
(b) Permitted Investments;
(c) Investments by (1) Borrower or any Subsidiary in any Qualified
Subsidiary or in any Subsidiary if as a result thereof or in connection
therewith such Subsidiary becomes a Qualified Subsidiary (provided that no
Investment will be permitted in respect of any Subsidiary with respect to
which Borrower has not complied with Section 9.20), and (2) any Subsidiary
in Borrower;
(d) Investments outstanding on the Closing Date and identified with
particularity in Schedule 9.09 and any renewals, amendments and
-------------
replacements thereof that do not increase the amount thereof;
(e) Investments that constitute Indebtedness or Contingent Obligations
permitted under Section 9.08;
(f) advances, loans or extensions of credit by any Company to (1)
employees of any Company; provide however that the aggregate amount of all
such loans, advances and extensions of credit (other than pursuant to
clause (2) of this Section 9.09(f)) shall not at any time exceed in the
aggregate $5.0 million (without giving effect to any write-down or write-
off thereof), and (2) employees of any Company in connection with stock
option plans
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so long as (x) such loans do not involve cash payments by any Company and
(y) no Company incurs any obligations at any time to repurchase the stock
so purchased;
(g) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(h) pledges or deposits required in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
social security or similar legislation;
(i) pledges or deposits in connection with (i) the non-delinquent
performance of bids, trade contracts (other than for borrowed money),
leases or statutory obligations, (ii) contingent obligations on surety or
appeal bonds, and (iii) other non-delinquent obligations of a like nature,
in each case incurred in the ordinary course of business;
(j) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(k) Borrower and the Subsidiaries may hold additional Investments in
any Subsidiary which is not a Qualified Subsidiary to the "tent that such
Investments reflect an increase in the stockholders' equity of such
Subsidiary resulting from retained earnings of such Subsidiary;
(1) Capital Expenditures permitted by Section 9.11 (d);
(m) Investments by any Company in any Subsidiary which is not a
Qualified Subsidiary to the extent made in the ordinary course to fund or
support the ordinary course operations of such Subsidiary so long as no
Default shall have occurred and be continuing; provided, however that (1)
-------- -------
the amount of such Investments made pursuant to this clause (m) shall not
exceed $5.0 million in the aggregate outstanding at any time (without
giving effect to any write-down or write-off thereof), and (2) upon the
request of the Majority Lenders all such Investments in excess of $1.0
million shall be evidenced by Intercompany Notes, which shall be pledged to
Administrative Agent pursuant to the Security Agreement;
(n) Borrower or any Subsidiary may hold the Equity Interests of any
Subsidiary existing on the Closing Date or created or acquired thereafter
in accordance with the provisions hereof and any additional Equity
Interests issued in exchange therefor or as a dividend thereon;
(o) Investments consisting of non-cash consideration received in the
form of securities, notes or similar obligations in connection with any
Disposition; provided, however, that (1) the aggregate amount of such non-
-------- --------
cash consideration received in connection with any such Disposition shall
not exceed 20% of the total consideration received in connection
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with any such Disposition if the total consideration received in connection
with such Disposition exceeds $5.0 million, and (2) such non-cash
consideration is pledged pursuant to the appropriate Security Document;
(p) Investments made in order to consummate Acquisitions permitted by
Section 9.06(h) and Acquisitions effected in accordance with Section
9.06(n);
(q) Investments consisting of loans to the purchaser of Triton, in an
aggregate principal amount not to exceed $20.0 million (plus any additional
amounts added thereto for accrued interest and fees);
(r) Investments (other than any direct or indirect Guaranty Obligation
in respect of any Indebtedness, Contingent Obligation or other liabilities
or obligations) by Borrower in any Unrestricted Subsidiary with the portion
of the Net Available Proceeds of any Equity Issuance not required to be
applied to the prepayment of the Loans pursuant to Section 2.10(a)(ii) and
not previously expended pursuant to Section 9.09(r); provided, however,
-------- --------
that (1) Borrower shall be in compliance with Section 9.09(D) with respect
to any Unrestricted Subsidiary in which such Investment is being made, (2)
at the time of making any such Investment no Default shall exist or would
arise therefrom, (3) no such Investment shall be permitted to be made until
after the pot portion of the Net Available Proceeds of such Equity Issuance
required to be applied to the prepayment of the Loans pursuant to Section
2.10(a)(ii) shall have been applied to the prepayment of the Loans, and (4)
such Investments shall not exceed in the aggregate outstanding at any time
(without giving effect to any write-downs or write-offs thereof) $5.0
million, net of any cash returns of capital, cash dividends and cash
distributions received in respect thereof;
(s) in addition to the foregoing, other Investments by Borrower or any
Subsidiary not exceeding in the aggregate outstanding at any time (without
giving effect to any write-downs or write-offs thereof) the sum of (1)
$20.0 million, plus (2) the aggregate sum of the portion of the Net
Available Proceeds from all Equity Issuances since the Closing Date not
required to be applied to the prepayment of the Loans pursuant to Section
2.10(a)(ii) and not previously expended pursuant to Section 9.09(q), net of
any cash returns of capital, cash dividends and cash distributions received
in respect thereof and Net Available Proceeds of any Disposition thereof;
provided however, that (x) any Investment made pursuant to this Section
-------- -------
9.06(r) that results in $5.0 million or more being then outstanding
(without giving effect to any write-downs or write-offs thereof) shall only
be made in a Subsidiary or in a Person whom Borrower or a Subsidiary has
the power to control the management and affairs thereof as certified to the
Agents by Borrower in an Officers' Certificate delivered prior to the time
of the making of such Investment and providing documentation evidencing
such control (and such Investment shall be permitted hereunder only so long
as Borrower or a Subsidiary has such control), (y) no such Investment shall
be permitted to be made with the Net Available Proceeds of any Equity
Issuance until after the portion of the Net Available Proceeds of such
Equity Issuance required to be applied to the prepayment of the Loans
pursuant to Section 2. 1 0(a)(ii) shall have been applied to the prepayment
of the Loans, and (z) at the time of making any such Investment no Default
shall exist or would arise therefrom.
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(B) No Company shall, directly or indirectly, create or acquire any
Subsidiary without the prior written consent of the Majority Lenders, which
consent shall not be unreasonably withheld; provided, however, that (1) the
--------- -------
provisions of this Section 9.09(B) shall not require the Majority Lenders'
consent for (I) the creation or acquisition of direct or indirect Wholly Owned
Subsidiaries so long as Section 9.20 is complied with at the time of formation
or acquisition thereof, (II) the creation or acquisition of any Subsidiary which
is not a Wholly Owned Subsidiary so long as the Investment made in connection
therewith complies with Section 9.09(A) and so long as Section 9.20 is complied
with at the time of formation or acquisition thereof, and (iii) the acquisition
of any Subsidiary made in compliance with Section 9.06(o) so long as Section
9.20 is complied with at the time of such acquisition; and (2) all Investments
in any Subsidiary, including in connection with the creation or acquisition
thereof, must comply with Section 9.09(A).
(C) No Company shall cause or permit the majority of the members of
the board of directors or other governing body of any Subsidiary or Unrestricted
Subsidiary to be Persons designated by any Person other than (1) Borrower or
(II) any Subsidiary or (other than with respect to any Subsidiary) Unrestricted
Subsidiary of which the majority of the members of the board of directors or
other governing body are designees of Borrower.
(D) Borrower shall not create or acquire any direct or indirect
Unrestricted Subsidiary unless at the time of creation or acquisition thereof
(1) Borrower shall have or shall have caused the applicable Unrestricted
Subsidiary to comply with Section 9.12 and Section 9.13, and (2) Borrower shall
have entered into a tax sharing agreement which is in full force and effect on
terms and conditions satisfactory to the Agents in their sole discretion.
9.10. Limitation on Dividend Payments. No Company shall, directly
--------------------------------
or indirectly, declare or make any Dividend Payment at any time, except:
(a) any Subsidiary may declare and make Dividend Payments to Borrower
or any Subsidiary;
(b) so long as no Default has occurred and is continuing, Borrower may
make Dividend Payments to Holding if the proceeds thereof are used at the
time of such Dividend Payment by Holding:
(i) to pay out-of-pocket expenses, for administrative, legal and
accounting services provided by third parties that are reasonable and
customary and incurred in the ordinary course of business for the
professional services, or to pay franchise fees and similar costs;
provided, however, that Dividend Payments under this clause (b)(i)
-------- --------
shall not exceed an aggregate amount of $ 1.0 million per year;
(ii) to pay taxes of the Companies as part of a consolidated,
combined or unitary tax filing group or of the separate operations of
Holding which are actually due and payable arising from the ownership
of the Equity Interests of Borrower by Enterprises (not to exceed in
any event the amount of tax that Borrower and the Subsidiaries would
otherwise pay if not part of such filing group); and
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(iii) to redeem Equity Interests (other than Disqualified
Capital Stock) held by current or former employees or directors of any
Company (or their estates or beneficiaries of their estates) upon the
death, disability, retirement or termination of employment or
directorship, as the case may be, pursuant to an agreement in effect
on the Closing Date as in effect on the Closing Date; provided,
--------
however, that the aggregate cash consideration paid, or distributions
-------
made, pursuant to this clause (c)(ii) shall not exceed $5.0 million in
the aggregate in any fiscal year, plus, in each case, the proceeds of
any Excluded Equity Issuance consummated contemporaneously with such
purchase or redemption.
9.11. Financial Covenants.
--------------------
(a) Maximum Leverage Ratio. The Leverage Ratio shall not, as of any
-----------------------
Test Date during any period set forth in the table below, exceed the ratio set
forth opposite such period in the table below:
Period Ratio
------- ---------
December 31, 1998 4.00:1.00
March 31, 1999 3.90:1.00
June 30, 1999 3.75:1.00
September 30, 1999 3.50:1.00
December 31, 1999 3.25:1.00
March 31, 2000 3.25:1.00
June 30, 2000 3.25:1.00
September 30, 2000 3.25:1.00
December 31, 2000 3.00:1.00
March 3 1, 2001 3.00:1.00
June 30, 2001 3.00:1.00
September 30, 2001 3.00:1.00
December 31, 2001 and thereafter 2.75:1.00
(b) Minimum Interest Coverage Ratio. The Interest Coverage Ratio shall
-------------------------------
not, as of any Test Date during any period set forth in the table below, be less
than the ratio set forth opposite such period in the table below:
Period Ratio
------- ---------
December 31, 1998 2.50:1.00
March 31, 1999 2.60:1.00
June 30, 1999 2.75:1.00
September 30, 1999 2.90:1.00
December 3 1, 1999 3.00:1.00
March 31, 2000 3.00:1.00
June 30, 2000 3.00:1.00
September 30, 2000 3.00:1.00
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December 31, 2000 3.25:1.00
March 31, 2001 3.25:1.00
June 30, 2001 3.25:1.00
September 30, 2001 3.25:1.00
December 31, 2001 and thereafter 3.50:1.00
(c) Minimum Net Worth. Consolidated Net Worth shall not, at any time
------------------
on or after December 31, 1997, be less than the sum of negative $125.0 million,
plus 50% of cumulative Consolidated Net Income from October 1, 1998 plus 100% of
the proceeds (net of underwriting discounts and commissions and other costs and
expenses directly associated therewith) from the sale after the Closing Date of
equity securities of the Borrower in any public offering or private placement or
from a capital contribution from any person; Provided that no adjustment shall
be made for any period in which the Borrower has negative Consolidated Net
Income.
(d) Capital Expenditures. (1) The aggregate amount of Capital
---------------------
Expenditures made by the Companies in any fiscal year shall not exceed the
amount set forth below opposite such year:
Fiscal Year Capital Expenditures
----------- --------------------
Amendment and Restatement Date $125.0 million
through 1999
2000 and each fiscal year thereafter $65.0 million
provided, however, that (x) if the aggregate amount of Capital Expenditures for
- - -------- --------
any fiscal year shall be less than the amount permitted for such fiscal year
(before giving effect to any carryover), then the shortfall may be added to the
amount of Capital Expenditures permitted for the immediately succeeding (but not
any other) fiscal year and (y) in determining whether any amount is available
for carryover, the amount expended in any fiscal year shall first be deemed to
be from the amount allocated to such year before any carryover.
(2) Notwithstanding anything herein to the contrary, so long as no
Default shall have occurred and be continuing, Borrower and the Subsidiaries may
make Capital Expenditures with the Net Available Proceeds of any Disposition
effected in accordance with Section 9.06(g) to the extent that such Net
Available Proceeds have not been otherwise expended by Borrower or any
Subsidiary.
9.12. Pledge or Mortgage of Additional Collateral. Promptly, and
--------------------------------------------
in any event within 30 days, after the acquisition of any Property of the type
that would have constituted Collateral at the Amendment and Restatement Date
(including the Equity Interests of any Subsidiary hereafter created or acquired
and the Property of AEI and its Subsidiaries at such time as AEI and its
Subsidiaries shall cease to be Unrestricted Subsidiaries) other than Real
Property (the "Additional Collateral") and after the creation or acquisition of
---------------------
any Subsidiary or at such time as AEI and its Subsidiaries shall cease to be
Unrestricted Subsidiaries, each Company shall take all action reasonably
necessary or desirable, including the execution and delivery of all such
agreements, assignments, documents, registers and instruments (including
amendments to the Credit Documents), using best efforts to obtain any necessary
consents where applicable (provided, however, that "best efforts" shall not
-------- -------
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require such Company to pay or cause to be paid any remuneration to any third
party in order to obtain any necessary consent to the extent it would be
commercially unreasonable so to do) and the filing of appropriate financing
statements or other documents under the provisions of the UCC or applicable
requirements of any Governmental Authority in each of the offices where such
filing is necessary or appropriate, to grant (in the reasonable judgment of
Administrative Agent or the Majority Lenders) to Administrative Agent for the
benefit of the Issuing Lender, Lenders and Agents a duly perfected first
priority Lien on such Property pursuant to appropriate Security Documents.
In the event that, after the Amendment and Restatement Date, any
Company (including any Subsidiary created or acquired on or after the Amendment
and Restatement Date) acquires or holds any fee or leasehold interest in any
Real Property as a result of such creation, acquisition or merger, such Company
shall notify the Administrative Agent and (i) take such actions and execute such
documents as Administrative Agent or the Majority Lenders shall reasonably
require to confirm the Lien of an existing Mortgage, if applicable, or to create
a new Mortgage on such additional Real Property and (ii) cause to be delivered
to Administrative Agent, on behalf of the Lenders, the documents and instruments
reasonably requested by Administrative Agent with respect to such additional
Real Property, including, without limitation, items of the type set forth in
Section 7.01 relating to Real Property. If requested by the Agents or the
Majority Lenders, Borrower shall obtain at its sole expense and as soon as
practicable but in any event not later than 45 days after request therefor,
Phase I environmental reports from an environmental engineering firm reasonably
acceptable to An-anger with respect to any fee or leasehold Real Property held
by any Company if not delivered on or prior to the Amendment and Restatement
Date.
The costs of all actions taken by the parties in connection with the
pledge of Additional Collateral or in connection with any Mortgage, including
reasonable costs of counsel for Administrative Agent, shall be paid by the
Obligors promptly following written demand.
9.13. Post-Closing Deliveries; Further Assurances.
--------------------------------------------
(i) Post-Closing Deliveries. Each Obligor shall cause to be delivered
------------------------
to Administrative Agent, on behalf of Agents and the Lenders, as soon as
reasonably practicable but in no event later than 120 days after the Amendment
and Restatement Date, the following:
(1) each of the following documents or instruments:
(a) Lien Waiver and Access Agreement to the extent required by
Section 7.01(xviii)(3);
(b) a Survey to the extent required by Section 7.01
(xviii)(4); and
(c) title insurance, title opinions or certificates of title as
required by Section 7.01 (xviii)(I 0);
(2) in the case of all of the Real Property other than the Covered
Properties, each of the following documents or instruments:
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(a) a Mortgage, or amendment to a Mortgage delivered on the
Closing Date or the amendment and Restatement Date (as appropriate),
duly authorized and executed encumbering each Real Property not
encumbered by a Mortgage on the Closing Date or the Amendment and
Restatement Date (other than any Real Property excluded at the
discretion of Administrative Agent or otherwise excluded pursuant to
the proviso set forth in the last paragraph of the Granting Clauses to
the Mortgage), in favor of Administrative Agent, for the benefit of
the Agents and the Lenders, in form for recording in the recording
office of each jurisdiction where each such Real Property is situated,
together with such other instruments as shall be necessary or
appropriate (in the reasonable judgment of Administrative Agent) to
create a Lien under applicable law (subject, however, to the
provisions of Section 1.4.1 of the Mortgage relating to recordation of
memoranda of Leases), all of which shall be in form and substance
reasonably satisfactory to Administrative Agent, which Mortgage and
other instruments shall be effective to create a first priority Lien
on such Real Property subject to no Liens other than Prior Liens
applicable to such Real Property and such other Liens reasonably
acceptable to Administrative Agent; and
(b) an Intercompany Lease Agreement, or amendment to an
Intercompany Lease Agreement delivered on the Amendment and
Restatement Date, duly authorized and executed, assigning each
Obligor's interest in the Intercompany Leases to Administrative Agent,
for the benefit of the Agents and the Lenders, in form for recording
in the recording office of each jurisdiction where the Real Property
demised under each Intercompany Lease is situated, together with such
other instruments as shall be necessary or appropriate (in the
judgment of Administrative Agent) to create a Lien under applicable
law, all of which shall be in form and substance reasonably
satisfactory to Administrative Agent, which Intercompany Lease
Agreement and other instruments would be effective to create (upon
recordation of such instruments at the times contemplated in the
Intercompany Lease Agreement) a first priority Lien on such Obligor's
interests in the Intercompany Leases subject to no Liens other than
Prior Liens permitted by the Intercompany Lease Agreement.
(3) in addition to the foregoing, in the event the contemplated
Disposition of the Shipyard Properties shall not have been consummated on
or before December 31, 1998, the appropriate Obligors shall cause to be
delivered to Administrative Agent on behalf of Agents and the Lenders, in
no event later than December 31, 1998, Mortgage Amendments to the Mortgages
encumbering the Shipyard Properties.
(4) any other instruments or documents of the type described in
Section 7.01 relating to Collateral, as shall be reasonably requested by
Administrative Agent;
provide, however, that with respect to the documents required to be delivered
- - -----------------
pursuant to subsection (i)(1)(a) of this Section, each Obligor shall be required
to use its best efforts to deliver such documents and such "best efforts" shall
not require such Obligor to pay or cause to be paid any remuneration to any
third party in order to obtain such third-party's consent to the extent it would
be commercially unreasonable so to do.
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(ii) Security Interests, Further Assurances. Each Company shall,
--------------------------------------
promptly, upon the reasonable request of Administrative Agent or any Lender, at
Borrower's expense, execute, acknowledge and deliver, or cause the execution,
acknowledgment and delivery of, and thereafter register, file or record, or
cause to be registered, filed or recorded, in an appropriate governmental
office, any document or instrument supplemental to or confirmatory of the
Security Documents or otherwise deemed by Administrative Agent reasonably
necessary or desirable for the continued validity, perfection and priority of
the Liens on the Collateral covered thereby, or obtain any consents as may be
necessary or appropriate in connection therewith.
Each Company shall deliver or cause to be delivered to Administrative
Agent from time to time such other documentation, consents, authorizations,
approvals and orders in form and substance reasonably satisfactory to
Administrative Agent as Administrative Agent shall reasonably deem necessary to
perfect or maintain the Liens on the Collateral.
If any Lender determines in good faith that it is required by any
Governmental Authority or any Requirement of Law to obtain appraisals as to the
market value of any Real Property constituting Collateral, Borrower shall obtain
such appraisals as soon as practicable but in any event not less than 45 days
after request therefor, at the sole cost and expense of Borrower and in
conformity with the requirements of such Governmental Authority and all
Requirements of Law, as from time to time in effect.
Upon the exercise by Administrative Agent or the Lenders of any power,
right, privilege or remedy pursuant to any Credit Document which requires any
consent, approval, registration, qualification or authorization of any
Governmental Authority, each Company shall execute and deliver all applications,
certifications, instruments and other documents and papers that Administrative
Agent or the Lenders may be so required to obtain.
(iii) Letters of Credit. Borrower shall cause to be discharged all
obligations under the Letter of Credit Agreements and the letters of credit
issued thereunder as soon as reasonably practicable but in no event later than
April 8, 1999.
9.14. Compliance with Environmental Laws. (a) Each Company shall
-----------------------------------
comply with all Environmental Laws, and will keep or cause all Real Property to
be kept free of any Liens under Environmental Laws, unless failure to do so
could not reasonably be expected to have a Material Adverse Effect or subject
any Agent, Lender or Issuing Lender to any material risk of damages or
liability; (b) in the event of the presence of any Hazardous Material at, on,
under or emanating from any Real Property which would reasonably be expected to
result in liability under or a violation of any Environmental Law, in each case
which could reasonably be expected to have a Material Adverse Effect, each
Company and Unrestricted Subsidiary shall undertake, and/or cause any of their
respective tenants or occupants to undertake, at their sole expense, any action
required pursuant to Environmental Laws to mitigate and eliminate such presence;
provide however that no Company shall be required to comply with any order or
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP; (c) each Company shall promptly
notify Administrative Agent of the occurrence of any event specified in clause
(b) of this Section 9.14 and
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shall periodically thereafter keep Administrative Agent informed of any material
actions taken in response to such event and the results of such actions; and (d)
at the written request of Administrative Agent at any time and from time to
time, such Obligor will provide, at such Obligor's sole cost and expense, an
environmental site assessment (including, without limitation, the results of any
groundwater or other testing, conducted if Administrative Agent directs that
such testing be conducted) concerning any Real Property now or hereafter owned,
leased or operated by any Company, conducted by an environmental consulting firm
proposed by such Obligor and approved by Administrative Agent indicating the
presence or absence of Hazardous Materials and the potential cost of any
required investigation or other response or any corrective action in connection
with any Hazardous Materials on, at, under or emanating from such Real Property;
provided, however, that such request may be made only if (a) there has occurred
and is continuing an Event of Default, (b) Administrative Agent reasonably
believes that any Company or any such Real Property is not in material
compliance with Environmental Law or (c) circumstances exist that reasonably
could be expected to form the basis of an Environmental Claim against such
Company or any such Real Property which could materially and adversely affect
any Company. If any Obligor fails to provide the same within 60 days after such
request was made, Administrative Agent may but is under no obligation to conduct
the same, and such Obligor shall grant and hereby grants to Administrative Agent
and its agents access to such Real Property and specifically grants
Administrative Agent an irrevocable non-exclusive license, subject to the rights
of tenants, to undertake such an assessment, all at such Obligor's sole cost and
expense.
9.15. Limitation on Transactions with Affiliates. No Company
-------------------------------------------
shall, directly or indirectly: enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
Property, the rendering of any service, or a merger or consolidation), with or
for the benefit of any Affiliate (an "Affiliate Transaction") unless such
Affiliate Transaction is (i) otherwise not prohibited under this Agreement, (ii)
in the ordinary course business and (iii) on fair and reasonable terms that are
not less favorable to such Company than those that are reasonably obtainable at
the time in an arm's-length transaction with a Person that is not such an
Affiliate; provided, however that so long as no Default shall have occurred and
be continuing, the following shall be permitted: (a) Dividend Payments permitted
by Section 9. 10, (b) reasonable fees and compensation paid to, and customary
indemnity and reimbursement provided on behalf of, officers, directors and
employees of any Company in the ordinary course of business; (c) loans or
advances to employees permitted by Section 9.09; (d) transactions and agreements
in existence on the Closing Date and listed and described with particularity in
Schedule 9.15 (as such agreements are in effect on the Closing Date, the
- - -------------
"Existing Affiliate Agreements") and the transactions contemplated by each of
the Existing Affiliate Agreements.
9.16. Limitation on Accounting Changes, Limitation on Investment
----------------------------------------------------------
Company Status. No Company shall make or permit, any change in (i) accounting
- - ---------------
policies or reporting practices, except immaterial changes and except as
required by generally accepted accounting principles or (ii) its fiscal year end
(December 31 of each year). No Obligor shall be or become an investment company
subject to the registration requirements under the United States Investment
Company Act of 1940, as amended.
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9.17. Limitation on Modifications of Certain Documents, Etc. No
------------------------------------------------------
Company shall, directly or indirectly, consent to any modification, supplement,
waiver, or amendment, in any manner which could be materially adverse to the
Lenders, of any of the provisions of any Organic Document.
9.18. Interest Rate Protection Agreements. Borrower shall obtain,
------------------------------------
on or within 90 days after the Amendment and Restatement Date, interest rate
protection agreements (or in lieu thereof, shall have Refinanced Indebtedness
which accrues interest at a fixed rate) having terms and with counter parties
reasonably satisfactory to An-anger as shall result in effectively limiting the
interest cost to the Companies of 50% of the aggregate principal amount of then
outstanding Total Debt of the Companies for such period of time as the An-anger
may reasonably request from the date the initial interest rate protection
agreements were obtained (not to exceed three years).
9.19. Limitation on Certain Restrictions Affecting Subsidiaries.
-----------------------------------------------------------
No Company shall, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any direct or indirect encumbrance or restriction on
the ability of any Subsidiary to (a) pay dividends or make any other
distributions on such Subsidiary's Equity Interests or any other interest or
participation in its profits owned by any Company, or pay any Indebtedness or
any other obligation owed to any Company, (b) make Investments in or to any
Company, or (c) transfer any of its Property to any Company. The foregoing shall
not prohibit (i) any such encumbrances or restrictions existing under or by
reason of applicable law or the Credit Documents, the Bridge Loan Agreement, the
Senior Indenture or the Senior Subordinated Indenture, or documents governing
any Permitted Refinancing thereof, (ii) restrictions on the transfer of assets
subject to a Lien permitted under Section 9.07, (iii) customary restrictions on
subletting or assignment of any lease governing a leasehold interest of any
Company, and (iv) restrictions on the transfer of any Property subject to a
Disposition permitted under this Agreement.
9.20. Additional Obligors. Upon any Company creating or acquiring
--------------------
any Subsidiary after the Closing Date or at such time as AEI and its
Subsidiaries shall cease to constitute Unrestricted Subsidiaries hereunder (each
such Subsidiary and each of AEI and its Subsidiaries referred to herein as an
"Additional Obligor" and collectively as the "Additional Obligors"), Borrower
- - ------------------- --------------------
shall (i) cause each Additional Obligor to execute and deliver all such
agreements, guarantees, documents and certificates (including any amendments to
the Credit Documents and a Joinder Agreement substantially in the form of
Exhibit J as Administrative Agent may reasonably request and do such other acts
- - ---------
and things as Administrative Agent may reasonably request in order to have such
Additional Obligor guarantee the Obligations in accordance with the terms of the
Credit Documents, (ii) promptly (1) execute and deliver to Administrative Agent
such amendments to the Security Documents as Administrative Agent deems
necessary or advisable in order to grant to Administrative Agent, for the
benefit of the Agents and the Lenders, a perfected first priority security
interest in the Equity Interests and debt securities of such Additional Obligor
which are owned by Borrower or any Subsidiary and required to be pledged
pursuant to the Security Agreement, (11) deliver to Administrative Agent the
certificates representing such Equity Interests and debt securities, together
with (A) in the case of such Equity Interests, undated stock powers endorsed in
blank, and (B) in the case of such debt securities, endorsed in blank, in each
case executed and delivered by a responsible officer of Borrower or such
Additional Obligor, as the case may be, (111) cause such Additional Obligor to
take such actions necessary or advisable to grant to Administrative Agent for
the benefit
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of the Agents and the Lenders a perfected first priority security interest in
the collateral described in the Security Agreement with respect to such
Additional Obligor, including, without limitation, the filing of UCC financing
statements in such jurisdictions as may be required by the Security Agreement or
by Requirements of Law or as may be reasonably requested by Administrative
Agent, and (IV) if reasonably requested by Administrative Agent, deliver to
Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to Administrative Agent.
9.21. Limitation on Leases. No Company shall become liable in any
---------------------
way, whether directly or by assignment or as a guarantor or other surety, for
the obligations of the lessee under any operating lease, unless, immediately
after giving effect to the incurrence of liability with respect to such lease,
the Consolidated Rental Payments at the time in effect shall not exceed $5.0
million per annum.
9.22. Limitation on Other Restrictions on Amendment of Credit
-------------------------------------------------------
Documents. No Company shall, directly or indirectly, enter into, suffer to exist
- - ----------
or become or remain subject to any agreement or instrument (other than the
Credit Documents) that (a) would, directly or indirectly prohibit or restrict or
require the consent of any Person to, any amendment to, or waiver or consent to
departure from the terms of, any of the Credit Documents or (b) contains any
provision that would contravene any provision of any Credit Document.
9.23. Designated Senior Debt. No Company shall designate any
-----------------------
Indebtedness or other obligation, other than Indebtedness under this Agreement
and under the Senior Notes Indenture, as "Designated Senior Debt" or other
similar designation in the documents governing any Indebtedness of any Company
that confers upon the holders of such Indebtedness or other obligation (or any
Person acting on their behalf) the right to initiate blockage periods under any
other Indebtedness of such Company.
9.24. Limitation on Issuance or Dispositions of Equity Interests of
-------------------------------------------------------------
Borrower, Subsidiaries and Unrestricted Subsidiaries. Holding shall not,
- - -----------------------------------------------------
directly or indirectly, effect any Disposition of any Equity Interests or Equity
Rights of Borrower. No Subsidiary shall issue, sell, assign, transfer or
otherwise dispose of any of its Equity Interests or Equity Rights, except (a) to
any Subsidiary, to Borrower or a Qualified Subsidiary and (b) directors'
qualifying shares as required by law. Neither Borrower nor any Subsidiary shall
effect the Disposition of any Equity Interests of any Subsidiary unless all
Equity Interests owned by Borrower and the Subsidiaries are sold pursuant
thereto.
9.25. Limitation on Payments or Prepayments of Indebtedness or
---------------------------------------------------------
Modification of Debt Documents. Borrower shall not, and shall not cause or
- - -------------------------------
permit any Subsidiary to, directly or indirectly:
(a) make any payment or prepayment (optional or otherwise) on or
redemption of or any payments in redemption, defeasance or repurchase of
any Indebtedness (other than the Loans) (whether in cash, securities or
other Property), except (1) regularly scheduled mandatory payments of
interest, (2) pursuant to any Permitted Refinancing, (3) the
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conversion or exchange of any Indebtedness into shares of common Equity
Interests of Borrower and (4) so long as no Default or Event of Default
shall have occurred and is continuing, regularly scheduled mandatory
payments of principal on the Mid-Vol Note, the Leslie Note and Indebtedness
under the Ikerd Bandy Note and any Indebtedness incurred pursuant to
Section 9.08(l);
(b) amend, supplement, waive or otherwise modify any of the provisions
of any Existing Debt (or any Permitted Refinancing thereof):
(i) which shortens the fixed maturity, or increases the rate or
shortens the time of payment of interest or dividends on, or increases the
amount or shortens the time of payment of any principal, liquidation preference
or premium payable whether at maturity, at a date fixed for prepayment or by
acceleration or otherwise of such Indebtedness, or increases the amount of, or
accelerates the time of payment of, any fees payable in connection therewith
(other than the exercise by Borrower of its rights under the Cyprus Acquisition
Agreement to accelerate royalty payments thereunder);
(ii) which relates to the affirmative or negative covenants, events
of default or remedies under the documents or instruments evidencing
such Indebtedness and the effect of which is to subject Borrower or
any of the Subsidiaries to any more onerous or more restrictive
provisions; or
(iii) which otherwise adversely affects the interests of the Lenders
as senior creditors or the interests of the Lenders under this
Agreement or any other Credit Document in any respect.
9.26. Take or Pay Contracts. No Company shall or enter into or be
----------------------
a party to any arrangement for the purchase of materials, supplies, other
property or services if such arrangement by its express terms requires that
payment be made by such Company regardless of whether such materials, supplies,
other property or services are delivered or furnished to it.
9.27. Tax Sharing Arrangements. No Company shall enter into or
-------------------------
permit to exist any tax sharing agreement or similar arrangement unless the same
shall have been reviewed by, and consented to, by the Agents.
9.28. Maintenance of Corporate Separateness. Borrower shall not,
--------------------------------------
and shall not permit any of the Subsidiaries or Unrestricted Subsidiaries to,
(a) fail to satisfy customary corporate formalities, including, without
limitation, (i) the holding of regular board of directors' and shareholders'
meetings, (ii) the maintenance of separate corporate records and (iii) the
maintenance of separate bank accounts in its own name; (b) fail to act solely in
its own corporate name and through its authorized officers and agents; (c)
commingle any money or other assets of Borrower or any of the Subsidiaries with
any money or other assets of any Unrestricted Subsidiary; or (d) take any
action, or conduct its affairs in a manner, which could be expected to result in
the separate corporate existence of each of Borrower, each of the Subsidiaries
and each of its Unrestricted Subsidiaries from being
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ignored or the assets and liabilities of Borrower or any of the Unrestricted
Subsidiaries being substantively consolidated with those of the Borrower or any
other Company in any Insolvency Proceeding. No Company shall make any payment to
any creditor of any Unrestricted Subsidiary. All financial statements of each
Unrestricted Subsidiary distributed to any creditor of an Unrestricted
Subsidiary shall clearly establish the separateness of such Unrestricted
Subsidiary from the Companies.
9.29. Changes in Factual Information Regarding the Collateral.
--------------------------------------------------------
Each Company will furnish to the Administrative Agent prompt written notice of
any change (i) in any Obligor's corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Obligor's chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or any office or facility at which Collateral
owned by it is located (including the establishment of any such new office or
facility), (iii) in any Obligor's identity or corporate structure, (iv)
resulting in any tangible Collateral being located in any jurisdiction in which
a financing statement must be, but has not been, filed in order to perfect the
Administrative Agent's Liens, (v) in respect of any patents, trademarks
copyrights or applications therefor owned by or licensed to any Obligor, or (vi)
in any Obligor's Federal Taxpayer Identification Number. Each Company will not
effect or permit any change referred to in the preceding sentence unless all
filings have been made under the Uniform Commercial Code or otherwise that are
required in order for the Administrative Agent to continue at all times
following such change to have a valid, legal and perfected security interest in
all the Collateral and will promptly notify the Administrative Agent if any
material portion of the Collateral is damaged or destroyed.
9.30. Casualty and Condemnation. Each Company will furnish to the
--------------------------
Administrative Agent and the Lenders prompt written notice of any casualty or
other insured damage to any material portion of any Collateral or the
commencement of any action or proceeding for the taking of any material portion
of the Collateral or any part thereof or interest therein under power of eminent
domain or by condemnation or similar proceeding.
Section 10. Events of Default. If one or more of the following
------------------
events (herein called "Events of Default") shall occur and be continuing:
(a) (i) Borrower shall default in the payment when due (whether at
stated maturity upon prepayment or repayment or acceleration or otherwise)
of any principal of any Loan or Reimbursement Obligation, or (ii) Borrower
shall default in the payment when due of interest on any Loan or any
Reimbursement Obligation or any fee or any other amount payable by it
hereunder or under any other Credit Document when due and such default
under this clause (ii) shall have continued unremedied for three or more
Business Days; or
(b) Any Company shall (i) default (x) in any payment under any coal
lease with aggregate lease payments in excess of $25.0 million or (y) in
the payment when due of any principal of or interest on any of its
Indebtedness (other than the Loans) aggregating $25.0 million or more,
beyond the period of grace, if any, provided in the instrument or agreement
under which such lease or Indebtedness was created, after giving effect to
any consents or waivers relating thereto obtained before the expiration of
any such period of grace; or (ii) any event specified in any lease, note,
agreement, indenture or other document evidencing or
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relating to any lease with aggregate lease payments in excess of $25.0
million or Indebtedness aggregating $25.0 million or more if the effect of
such event (after giving effect to any consents or waivers relating thereto
obtained before the expiration of any such period of grace) is to cause, or
(with the giving of any notice or the lapse of time or both) to permit the
lessor under such lease or the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such lease
to be terminated (and which termination could reasonably be expected to
have a Material Adverse Effect) or such Indebtedness to become due, or to
be prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity; or
(c) Any representation or warranty made or deemed made in any Credit
Document (or in any modification or supplement thereto) by any Relevant
Party or in any certificate furnished to any Creditor pursuant to the
provisions thereof, shall prove to have been false or misleading as of the
time made, deemed made or furnished in any material respect; or
(d) Any Obligor shall default in the performance of any of its
obligations under any of Sections 9.0 1 (f) or 9.05 through 9.11, 9.13
through 9.15 or 9.20 through 9.24; or Borrower shall default in the
performance of its obligations under Section 9.0 1 (e) or (k) or 9.18 and
such default shall continue unremedied for five Business Days; or any
Obligor shall default in the performance of any of its other obligations in
this Agreement, the Security Documents or the Letter of Credit Documents
and such default shall continue unremedied for a period of thirty days
after written notice thereof to such Obligor or Borrower by Administrative
Agent or any Lender; or
(e) Any Company shall not, or shall admit in writing its inability to,
or be generally unable to, pay its debts as such debts become due; or
(f) Any Company shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its Property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
or consents to any Insolvency Proceeding, (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v)
fail to controvert within 30 days or in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an involuntary
insolvency Proceeding, or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) (i) Any Insolvency Proceeding is commenced or filed against any
Company, or any writ, judgment, wan-ant of attachment, execution or similar
process is issued or levied against any Company, and either (1) such
proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded, within 30 days after commencement, filing or levy
or (2) such proceeding shall not be actively contested by the Company; (ii)
any Company admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-
U.S. law) is ordered in any Insolvency Proceeding; (iii) any
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Company acquiesces in the appointment of a receiver, receiver and manager,
trustee, custodian, conservator, liquidator, mortgagee in possession (or
agent therefor), or other similar person for itself or a substantial
portion of its Property or business; or (iv) an order of relief against any
Company shall be entered in any Involuntary Proceeding; or
(h) A final judgment or judgments for the payment of money in excess
of $25.0 million in the aggregate (exclusive of judgment amounts to the
extent covered by insurance) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against any
Company and the same shall not be discharged (or provision shall not be
made for such discharge), vacated or bonded pending appeal, or a stay of
execution thereof shall not be procured, within 30 days from the date of
entry thereof and such Company shall not, within said period of 30 days, or
such longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An ERISA Event shall have occurred that, in the opinion of the
Majority Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of any
Company in an aggregate amount exceeding $5.0 million; or
0) Any Change of Control shall occur; or
(k) Any Security Document after delivery thereof by any Obligor at any
time shall cease to be in full force and effect or shall for any reason
fail to create or cease to maintain a valid and duly perfected first
priority security interest in and Lien upon (subject to Prior Liens and
other Liens expressly permitted by the terms of the applicable Security
Document) any material portion of the Collateral; or
(1) Any Guarantee ceases to be in full force and effect; or
(in) Any Credit Document or any material provision thereof shall at
any time and for any reason be declared by a court of competent
jurisdiction to be null and void, or a Proceeding shall be commenced by any
Company or any other Person, or by any Governmental Authority, seeking to
establish the invalidity or unenforceability thereof (exclusive of
questions of interpretation of any provision thereof), or any Company shall
repudiate or deny that it has any liability or obligation for the payment
of principal or interest or other obligations purported to be created under
any Credit Document; or
(n) Any non-monetary judgment, order or decree is entered against any
Company which does or could reasonably be expected to have a Material
Adverse Effect, and there shall be any period of 10 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 10, Administrative Agent may, with the consent
of the Majority Lenders, and upon
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written direction of the Majority Lenders shall, by notice to Borrower,
terminate the Commitments and/or declare the principal amount then outstanding
of, and the accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by Borrower hereunder and under the Notes (including
any amounts payable under Section 5.05 or 5.06) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by Borrower, reduce any claim to judgment, take any other
action permitted by law and/or take any action permitted to be taken by the
Security Documents during the existence of an Event of Default; and (2) in the
case of the occurrence of an Event of Default referred to in clause (f) or (g)
of this Section 10 with respect to the Borrower or any Significant Subsidiary,
the Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans, the Reimbursement
Obligations and all other amounts payable by Borrower hereunder and under the
Notes (including any amounts payable under Section 5.05 or 5.06) shall
automatically become immediately due and payable without presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by Borrower.
In addition, Borrower agrees, upon the occurrence and during the
continuance of any Event of Default if Administrative Agent has declared the
principal amount then outstanding of, and accrued interest on, the Revolving
Credit Loans, and all other amounts payable to the Revolving Credit Lenders
hereunder and under the Notes evidencing such Loans to be due and payable, it
may and shall, if requested by the Majority Revolving Credit Lenders through
Administrative Agent (and, in the case of any Event of Default referred to in
clause (f) or (g) of this Section 10 with respect to the Borrower or any
Significant Subsidiary, forthwith, without any demand or the taking of any other
action by Administrative Agent or such Lenders) provide cover for the Letter of
Credit Liabilities by paying to Administrative Agent immediately available funds
in an amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by Administrative Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as provided in the Security
Agreement.
Section 11. Agents.
-------
11.01. General Provisions. Each of the Lenders, the Issuing Lender
-------------------
and Arranger hereby irrevocably appoints Administrative Agent as its agent and
authorizes Administrative Agent to take such actions on its behalf and to
exercise such powers as are delegated to Administrative Agent by the terms
hereof and the Security Documents, together with such actions and powers as are
reasonably incidental thereto. Administrative Agent agrees to give promptly to
each Lender a copy of each notice or other document received by it pursuant to
any Credit Document (other than any that are required to be delivered to the
Lenders by any Obligor).
The Lender or other financial institution serving as any Agent or
Issuing Lender hereunder shall have the same rights and powers in its capacity
as a Lender as any other Lender and may exercise the same as though it were not
such Agent or Issuing Lender, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
any Company or other Affiliate thereof as if it were not such Agent or Issuing
Lender hereunder.
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No Agent or Issuing Lender shall have any duties or obligations except
those expressly set forth herein. Without limiting the generality of the
foregoing, (a) no Agent or Issuing Lender shall be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) no Agent or Issuing Lender shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that such Agent or Issuing
Lender is required to exercise in writing by the Majority Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.0-4), and (c) except as expressly set
forth herein, no Agent or Issuing Lender shall have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to any
Company that is communicated to or obtained by the financial institution serving
as such Agent or Issuing Lender or any of its Affiliates in any capacity. No
Agent or Issuing Lender shall be liable for any action taken or not taken by it
with the consent or at the request of the Majority Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.04) or in the absence of its own gross negligence or
willful misconduct. No Agent shall be deemed to have knowledge of any Default
unless and until written notice thereof is given to Administrative Agent and
such Agent by Borrower or a Lender, and no Agent or Issuing Lender shall be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement or any
other Credit Document, (ii) the contents of any certificate, report or other
document delivered hereunder or under any other Credit Document or in connection
herewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement or any other
Credit Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Section 7 or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to such
Agent.
Each Agent and Issuing Lender shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person. Each
Agent and Issuing Lender also may rely upon any statement made to it orally or
by telephone and reasonably believed by it to be made by the proper Person, and
shall not incur any liability for relying thereon. Each Agent and Issuing Lender
may consult with legal counsel (who may be counsel for Borrower), independent
accountants and other experts reasonably selected by it, and shall not be liable
for any action taken or not taken by it in accordance with the advice of any
such counsel, accountants or experts. Each Agent and Issuing Lender may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with such Agent or Issuing Lender. Each Agent and Issuing Lender shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Credit Document unless it shall first receive such advice or
concurrence of the Majority Lenders (or, if so specified by this Agreement, all
Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
Each Agent and Issuing Lender shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Majority Lenders (or, if so
specified by this
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Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
Each Agent and Issuing Lender may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by such Agent or Issuing Lender. Each Agent, Issuing Lender and any
such sub-agent may perform any and all its duties and exercise its rights and
powers through their respective Affiliates, directors, officers, employees,
agents and advisors ("Related Parties"). The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Agent and Issuing Lender and any such sub-agent, and shall apply
to their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as such Agent or Issuing
Lender.
Subject to the appointment and acceptance of a successor Agent as
provided in this paragraph, any Agent may resign at any time by notifying the
Lenders, the Issuing Lender (with respect to Administrative Agent only) and
Borrower. Upon any such resignation, the Majority Lenders shall have the right
to appoint a successor which, so long as no Default is continuing, shall be
reasonably acceptable to Borrower. If no successor shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation, then the retiring
Agent may, on behalf of the Lenders and the Issuing Lender, appoint a successor
Agent which shall be a bank with an office in New York, New York, or an
Affiliate of any such bank. Upon the acceptance of its appointment as Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
The fees payable by Borrower to a successor Agent shall be the same as those
payable to its predecessor unless otherwise agreed between Borrower and such
successor. After the Agent's resignation hereunder, the provisions of this
Section I I shall continue in effect for the benefit of such retiring Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while it was acting as such Agent.
Each Lender acknowledges that it has, independently and without
reliance upon any Agent, Issuing Lender or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent,
Issuing Lender or any other Lender and based on such documents and information
as it shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement, any
related agreement or any document furnished hereunder or thereunder. No Agent or
Issuing Lender shall be deemed a trustee or other fiduciary on behalf of any
party.
11.02. Indemnification. Each Lender agrees to indemnify and hold
----------------
harmless each Agent and the Issuing Lender (to the extent not promptly
reimbursed under Section 12.03, but without limiting the obligations of Borrower
under Section 12.03), ratably in accordance with the aggregate principal amount
of the respective Commitments of and/or Loans and Reimbursement Obligations held
by the Lenders, for any and all liabilities (including pursuant to any
Environmental Law), obligations, losses, damages, penalties, actions, judgments,
deficiencies, suits, costs, expenses
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(including reasonable attorney's fees) or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against such Agent or
Issuing Lender (including by any Lender) arising out of or by reason of any
investigation in or in any way relating to or arising out of any Credit Document
or any other documents contemplated by or referred to therein for any action
taken or omitted to be taken by such Agent or Issuing Lender under or in respect
of any of the Credit Documents or other such documents or the transactions
contemplated thereby (including the costs and expenses that Borrower is
obligated to pay under Section 12.03, and including also any payments under any
indemnity that Administrative Agent is required to issue to any Lender referred
to in Section 4.0 1 (c) of the Security Agreement, or to any bank referred to in
Section 4.02 of the Security Agreement to which remittances in respect of
Accounts, as defined therein, are to be made, but excluding, unless a Default
has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents; provided
however that no Lender shall be liable for any of the foregoing to the extent
they are determined by a court of competent jurisdiction in a final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of the party to be indemnified. The agreements set forth in this
Section 11.02 shall survive the payment of all Loans and other obligations
hereunder and shall be in addition to and not in lieu of any other
indemnification agreements contained in any other Credit Document.
11.03. Consents Under Other Credit Documents. Except as otherwise
--------------------------------------
provided in this Agreement and the other Credit Documents, Administrative Agent
may, with the prior consent of the Majority Lenders (but not otherwise), consent
to any modification, supplement or waiver under any of the other Credit
Documents.
11.04. Collateral Sub-Agent. Each Lender by its execution and
---------------------
delivery of this Agreement agrees, as contemplated by Section 9 of the Security
Agreement, that, in the event it shall hold any Permitted Investments referred
to therein, such Permitted Investments shall be held in the name and under the
control of such Lender, and such Lender shall hold such Permitted Investments as
a collateral sub-agent for Administrative Agent thereunder. Borrower by its
execution and delivery of this Agreement hereby consents to the foregoing.
Section 12. Miscellaneous.
--------------
12.01. Waiver. No failure on the part of any Creditor to exercise
-------
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Credit Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The remedies provided herein
are cumulative and not exclusive of any remedies provided by law.
12.02. Notices. All notices, requests and other communications
--------
provided for herein and under the Security Documents (including any
modifications of, or waivers, requests or consents under, this Agreement) shall
be given or made in writing (including by facsimile) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof-, or, as to any party, at such other address as shall be designated
by such party in a notice to
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each other party. Except as otherwise provided in this Agreement all such
communications shall be deemed to have been duly given when transmitted by
facsimile or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid. Any Notice of Borrowing
or Notice of Continuation/Conversion shall be deemed to have been received when
actually received.
12.03. Expenses, Indemnification, Etc. (a) The Obligors, jointly
-------------------------------
and severally, agree to pay or reimburse:
(i) the Issuing Lender, Arranger and Administrative Agent for all of
their reasonable out-of-pocket costs and expenses (including the reasonable
fees and expenses of legal counsel) in connection with (1) the negotiation,
preparation, execution and delivery of the Credit Documents and the
extension of credit hereunder, (2) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of any Credit
Document (whether or not consummated or effective) and (3) the primary
syndication of the Loans and Commitments;
(ii) each of the Lenders, the Issuing Lender and Administrative Agent
for all reasonable out-of-pocket costs and expenses of the Lenders, the
Issuing Lender and Administrative Agent (including the reasonable fees and
expenses of legal counsel) in connection with (1) any Default and any
enforcement or collection proceedings resulting therefrom, including all
manner of participation in or other involvement with (x) bankruptcy,
insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the
workout, restructuring or transaction contemplated thereby is consummated),
(2) the enforcement of this Section 12.03 and (3) any documentary taxes;
and
(iii) each of the Lenders, the Issuing Lender and Administrative
Agent for all reasonable costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any security interest contemplated by any Credit Document or
any other document referred to therein.
(b) The Obligors, jointly and severally, hereby agree to indemnify
each Creditor and their respective Affiliates, directors, trustees, officers,
employees and agents (each, an "Indemnitee") from, and hold each of them
harmless against, and that no Indemnitee will have any liability for, any and
all Losses incurred by any of them (including any and all Losses incurred by
Administrative Agent, Arranger or the Issuing Lender to any Lender, whether or
not any Creditor is a party thereto) directly or indirectly arising out of or by
reason of or relating to the negotiation, execution, delivery, performance,
administration or enforcement of any Credit Document, any of the transactions
contemplated by the Credit Documents, any breach by any Obligor of any
representation, warranty, covenant or other agreement contained in any of the
Credit Documents in connection with any of the transactions contemplated hereby,
the use or proposed use of any of the Loans or Letters of Credit, the issuance
of or performance under any Letter of Credit or the use of any collateral
security for the Loans (including the exercise by any Creditor of the rights and
remedies or any power of attorney with respect thereto and any action or
inaction in respect thereof), but excluding any such Losses to
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the extent finally determined by a court of competent jurisdiction in a final
and nonappealable judgment to have arisen from the gross negligence or bad faith
of the Indemnitee.
Without limiting the generality of the foregoing, the Obligors.
jointly and severally, will indemnify each Creditor and each other Indemnitee
from, and hold each Creditor and each other Indemnitee harmless against, any
Losses described in the preceding sentence arising under any Environmental Law
as a result of (A) the past, present or future operations of any Company (or any
predecessor in interest to any Company), (B) the past, present or future
condition of any site or facility owned, operated, leased or used at any time by
any Company (or any such predecessor in 'interest), or (C) any Release or
threatened Release of any Hazardous Materials at, on, under or from any such
site or facility, including any such Release or threatened Release that shall
occur during any period when any Creditor shall be in possession of any such
site or facility following the exercise by such Creditor of any of its rights
and remedies hereunder or under any of the Security Documents; pro- vided,
however that the indemnity hereunder shall be subject to the exclusions from
indemnification set forth in the preceding sentence.
To the extent that the undertaking to indemnify and hold harmless set
forth in this Section 12.03 or any other provision of any Credit Document
providing for indemnification is unenforceable because it is violative of any
law or public policy or otherwise, the Obligors, jointly and severally, shall
contribute the maximum portion that each of them is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all indemnified
liabilities incurred by any of the Persons indemnified hereunder.
The Obligors also agree that no Indemnitee shall have any liability
(whether direct or indirect, in contract or tort or otherwise) for any Losses to
any Obligor or any Obligor's security holders or creditors resulting from,
arising out of, in any way related to or by reason of any matter referred to in
any indemnification or expense reimbursement provisions set forth in this
Agreement or any other Credit Document, except to the extent that any Loss is
determined by a court of competent jurisdiction in a final nonappealable
judgment to have resulted from the gross negligence or bad faith of such
Indemnitee.
The Obligors agree that, without the prior written consent of
Administrative Agent, An-anger and the Majority Lenders which consent shall not
be unreasonably withheld, no Obligor will settle, compromise or consent to the
entry of any judgment in any pending or threatened Proceeding in respect of
which indemnification is reasonably likely to be sought under the
indemnification provisions of this Section 12.03 (whether or not any Indemnitee
is an actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional written release of each
Indemnitee from all liability arising out of such Proceeding and
does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of any Indemnitee and does not involve any
payment of money or other value by any Indemnitee or any injunctive relief or
factual findings or stipulations binding on any Indemnitee.
12.04. Amendments, Etc. (i) Any provision of any Credit Document
----------------
may be amended, modified or supplemented by an instrument in writing signed by
the Obligors party thereto and the Majority Lenders, or by the Obligors party
thereto and Administrative Agent acting with the written
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consent of the Majority Lenders, and any provision of any Credit Document may be
waived by an instrument in writing signed by the Obligors party thereto and the
Majority Lenders, or by the Obligors party thereto and Administrative Agent
acting with the written consent of the Majority Lenders; provide however that:
---------------
(a) no amendment or waiver shall, unless by an instrument signed by
all of the Lenders or by Administrative Agent acting with the written
consent of each Lender (with Obligations directly affected in the case of
clause (I)): (1) extend the scheduled final maturity of any Loan or Note,
or extend the stated expiration date of any Letter of Credit beyond the
Revolving Credit Commitment Termination Date, or reduce the rate of
interest (other than any waiver of any increase in the interest rate
applicable to any of the Loans pursuant to clause (b) of Section 3.02) or
fees thereon, or extend the time of payment of interest or fees thereon, or
reduce the principal amount thereof, or make any change to the definition
of Applicable Margin or Applicable Revolving Credit Fee Percentage, (11)
extend the final maturity of any of the Commitments (or reinstate any
Commitment terminated pursuant to Section 10), (111) change the currency in
which any Obligation is payable, (IV) amend the terms of this Section 12.04
or Section 4.07, 5 or 11.03, (V) reduce the percentages specified in the
definition of the term "Majority Lenders" or "Supermajority Lenders" or
amend any provision of any Credit Document requiring the consent of all the
Lenders or reduce any other percentage of the Lenders required to make any
determinations or waive any fights hereunder or to modify any provision
hereof (it being understood that, with the consent of the Majority Lenders,
other additional extensions of credit pursuant to this Agreement may be,
included in the determination of the Majority Lenders and Supermajority
Lenders without notice to or consent of any other Lender or Agent on
substantially the same basis as the Commitments (and related extensions of
credit) are included on the Closing Date), (VI) release any Guarantor from
its obligations under Section 6 (unless permitted by this Agreement), (VII)
consent to the assignment or transfer by any Obligor of any of its rights
and obligations under any Credit Document, (VIII) release all or
substantially all the Collateral or terminate the Lien under any Credit
Document in respect of all or substantially all the Collateral (except as
permitted by the Credit Documents) or agree to additional obligations
(other than the Obligations) being secured by the Collateral, or (IX) amend
Section 12.03 or any other indemnification and expense reimbursement
provision set forth in any Credit Document (it being understood that any
prepayment required by Section 2. 1 0(a) may be waived or amended by the
Majority Lenders);
(b) no such amendment or waiver shall increase the Commitments of any
Lender over the amount thereof then in effect without the consent of such
Lender (it being understood that amendments or waivers of conditions
precedent, covenants or Defaults shall not constitute an increase of the
Commitment of any Lender);
(c) any modification or supplement of or waiver with respect to
Section I I which affects any Agent in their respective capacities as such
shall require the consent of such Agent;
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(d) no consent of any Lender need be obtained, and Administrative
Agent is hereby authorized, to release any Lien securing the Obligations on
Property which is the subject of any disposition permitted by the Credit
Documents;
(e) subject to clause (a)(1) above of this proviso to this Section
12.04(i), the consent of the Supermajority Lenders of the Affected Class as
well as the Supermajority Lenders shall be required with respect to any
extension of any scheduled Amortization Payment or any reduction in the
amount of any scheduled Amortization Payment (it being understood that,
subject to clause (f) below of this Section 12.04, any prepayment required
by Section 2. 10 may be modified, supplemented or waived by the Majority
Lenders);
(f) no modification, supplement or waiver shall, unless by an
instrument signed by the Supermajority Lenders of the Affected Class or by
Administrative Agent acting with the written consent of the Supermajority
Lenders of the Affected Class, change the timing of the receipt or the
application of mandatory prepayments hereunder as among the Tranche A Term
Loans and the Tranche B Term Loans or the order in which any such
prepayment is applied to the Tranche A Term Loans or Tranche B Term Loans
(although any required prepayment set forth in Section 2. 10 may otherwise
be modified, supplemented or waived by the Majority Lenders);
(g) no reduction of the percentage specified in the definition of
"Majority Revolving Credit Lenders," "Majority Tranche A Term Loan Lenders"
or "Majority Tranche B Term Loan Lenders" shall be made without the consent
of each Revolving Credit Lender, each Tranche A Term Loan Lender or each
Tranche B Term Loan Lender, respectively (it being understood that only the
Class of such Loan to which such definition relates need consent to any
such reduction and that the Increased Facility Amount, if extended by any
Lender, shall be, and, with the consent of the Majority Lenders, other
additional extensions of credit pursuant to this Agreement may be, included
in any such definition without notice to or consent of any other Lender or
Agent on substantially the same terms as the Commitments (and related
extensions of credit) are included on the Closing Date);
(h) no reduction of the percentage specified in the definition of (1)
"Majority Tenn Lenders" shall be made without the consent of the Majority
Tranche A Term Loan Lenders and the Majority Tranche B Term Loan Lenders or
(11) "Supermajority Lenders of the Affected Class" shall be made without
the consent of each Term Loan Lender (it being understood, that with the
consent of the Majority Lenders, additional extensions of credit pursuant
to this Agreement may be included in either such definition without notice
to or consent of any other Lender or Agent on substantially the same terms
as the Commitments (and related extensions of credit) are included on the
Closing Date);
(i) (reserved];
0) no amendment or waiver shall affect the rights or duties of the
Issuing Lender in its capacity as such or alter the obligation of any
Revolving Credit Lender pursuant to Section 2.03(e) or 2.03(f) without the
consent of the Issuing Lender;
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(k) no consent of any Lender need be obtained to effect any amendment
of any Credit Document necessary to comply with Section 9.12 or Section
9.19; and
(1) no amendment, modification, supplement or waiver may be made to
any condition precedent to any extension of credit under the Revolving
Credit Facility set forth in subsection 7.02 without the written consent of
the Majority Revolving Credit Lenders, it being understood that no
amendment to or waiver of any representation or warranty or any covenant
contained in this Agreement or any other Credit Document, or of any
Default, shall be deemed to be effective for purposes of determining
whether the conditions precedent set forth in subsection 7.02 to the making
of any extension of credit under the Revolving Credit Loans have been
satisfied unless the Majority Revolving Credit Lenders shall have consented
to such amendment or waiver.
(ii) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
Section 12.04(i)(a) (other than clause (1) of such section), the consent of the
Majority Lenders, Majority Tranche A Term Loan Lenders, Majority Tranche B Tenn
Loan Lenders, Majority Revolving Credit Lenders, Majority Term Lenders,
Supermajority Lenders or Supermajority Lenders of the Affected Class, as the
case may be, is obtained but the consent of one or more of such other Lenders
whose consent is required is not obtained, then Borrower shall have the right to
replace each such non-consenting Lender or Lenders (so long as all non-
consenting Lenders are so replaced) with one or more Replacement Lenders
pursuant to Section 2.11 so long as at the time of such replacement, each such
Replacement Lender consents to the proposed change, waiver, discharge or
termination; provided however, that Borrower shall not have the right to replace
a Lender solely as a result of the exercise of such Lender's rights (and the
withholding of any required consent by such Lender) pursuant to clause (1) of
Section 12.04(i)(a).
12.05. Successors and Assigns. This Agreement shall be binding upon
-----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06. Assignments and Participations. (a) No Obligor may assign
-------------------------------
its respective rights or obligations hereunder or under the Notes or any other
Credit Document without the prior written consent of all of the Lenders.
(b) Each Lender may assign to any Eligible Person any of its Loans,
its Notes, its Letter of Credit Interests and its Commitments (but only with the
consent (which shall not be unreasonably withheld, delayed or conditioned) of
Borrower and the Administrative Agent and, in the case of the Revolving Credit
Commitments, the Issuing Lender); provided, however that (i) no such consent by
Borrower, the Issuing Lender or the Administrative Agent shall be required in
the case of any assignment to another Lender or any Lender's Affiliate or an
Approved Fund of any Lender (in which case, the assignee and assignor Lenders
shall give notice of the assignment to the Administrative Agent); (ii) no
consent of Borrower need be obtained if any Default shall have occurred and be
continuing; (iii) each assignment, other than to a Lender or any Lender's
Affiliate or an Approved Fund of any Lender and other than any assignment
effected by UBS AG or any of its Affiliates in connection with the syndication
of the Commitments and/or Loans, shall be in an
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aggregate amount at least equal to $5.0 million unless the assigning Lender's
exposure is reduced to $0 or unless Borrower and the Administrative Agent
otherwise agree and (iv) in no event may any such assignment be made to any
Obligor or any of its Affiliates without consent of all Lenders. Any assignment
of a Loan shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of a Loan shall be registered on the Register only upon
surrender for registration of assignment or transfer of the Note evidencing such
Loan (if a Note was issued in respect thereof), accompanied by an instrument in
writing substantially in the form of Exhibit F, and upon consent thereto by
Borrower, the Administrative Agent and the Issuing Lender to the extent required
above, one or more new Notes (if requested by the New Lender) in the same
aggregate principal amount shall be issued to the designated assignee and the
old Notes shall be returned by Administrative Agent to Borrower marked
"canceled". Upon execution and delivery by the assignee to Borrower and the
Administrative Agent of an instrument in writing substantially in the form of
Exhibit F and upon consent thereto by Borrower, the Administrative Agent and the
Issuing Lender to the extent required above, and in the case of a Loan, upon
appropriate entries being made in the Register the assignee shall have, to the
extent of such assignment (unless otherwise provided in such assignment with the
consent of Administrative Agent), the obligations, rights and benefits of a
Lender hereunder holding the Commitment(s), Loans (or portions thereof) and
Letter of Credit Interests assigned to it (in addition to the Commitment(s),
Letter of Credit Interests and Loans, if any, theretofore held by such assignee)
and the assigning Lender shall, to the extent of such as assignment, be released
from the Commitment(s) (or portion(s) thereof) so assigned. Upon any such
assignment (other than to a Lender or any Affiliate of a Lender or an Approved
Fund of any Lender and other than any assignment by UBS AG or any of its
Affiliates) the assignee Lender shall pay a fee of $3,500 to Administrative
Agent. Upon any such assignment, certain rights and obligations of the assigning
Lender shall survive as set forth in Section 12.07.
(c) A Lender may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans and Letter of Credit Interests
held by it, or in its Commitments, in which event each purchaser
of a participation (a "Participant") shall be entitled to the rights and
benefits of the provisions of Section 5 (provide however, that no Participant
shall be entitled to receive any greater amount pursuant to Section 5 than the
transferor Lender would have been entitled to receive in respect of the
participation effected by such transferor Lender had no participation occurred)
with respect to its participation in such Loans, Letter of Credit Interests and
Commitments as if such Participant were a "Lender" for purposes of said Section,
but, except as other wise provided in Section 4.07(c), shall not have any other
rights or benefits under this Agreement or any Note or any other Credit Document
(the Participant's rights against such Lender in respect of such participation
to be those set forth in the agreements executed by such Lender in favor of the
Participant). All amounts payable by Borrower to any Lender under Section 5 in
respect of Loans, Letter of Credit Interests and its Commitments shall be no
greater than the amount that would have applied if such Lender had not sold or
agreed to sell any participation in such Loans, Letter of Credit Interests and
Commitments, and as if such Lender were funding each of such Loan, Letter of
Credit Interests and Commitments in the same way that it is funding the portion
of such
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Loan, Letter of Credit Interests and Commitments in which no participations have
been sold. In no event shall a Lender that sells a participation agree with the
Participant to take or refrain from taking any action hereunder or under any
other Credit Document, except that such Lender may agree with the Participant
that it will not, without the consent of the Participant, agree to any
modification or amendment set forth in subclauses (1), (11), (111) or
(VIII) of clause (a) of the proviso to Section 12.04.
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 12.06, any Lender may assign and pledge
all or any portion of its Loans and its Notes to any United States Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank and, in the case of a Lender that is an investment
fund, any such Lender may assign or pledge all or any portion of its Loans and
its Notes to its trustee in support of"its obligations to its trustee, without
notice to or consent of Borrower, Administrative Agent, Arranger or Issuing
Lender. No such assignment shall release the assigning Lender from its
obligations hereunder.
(e) A Lender may furnish any information concerning any Company in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants) subject, however, to the
provisions of Section 12.11. In addition, each of Administrative Agent and
Arranger may furnish any information concerning any Obligor or any of its
Affiliates in Administrative Agent's or Arranger's possession to any Affiliate
of Administrative Agent or Arranger, subject, however, to the provisions of
Section 12.11. The Obligors shall assist any Lender in effectuating any
assignment or participation pursuant to this Section 12.06 (including during
syndication) in whatever manner such Lender reasonably deems necessary,
including participation in meetings with prospective mansferees.
12.07. Survival. The obligations of the Obligors under Sections
---------
5.01, 5.05, 5.06 and 12.03, the obligations of each Guarantor under Section
6.03, and the obligations of the Lenders under Sections 5.06 and 11.02, shall
survive the repayment of the Loans and Reimbursement Obligations and the
termination of the Commitments and, in the case of any Lender that may assign
any interest in its Commitments, Loans or Letter of Credit Interest hereunder,
shall (to the extent relating to such time as it was a Lender) survive the
making of such assignment, notwithstanding that such assigning Lender may cease
to be a "Lender" hereunder. In addition, each representation and warranty made,
or deemed to be made by a notice of any extension of credit, herein or pursuant
hereto shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement and the Notes and
the making of any extension of credit hereunder, regardless of any investigation
made by any such other party or on its behalf and notwithstanding that
Administrative Agent or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty.
12.08. Captions. The table of contents and captions and section
---------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
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12.09. Counterparts Interpretation, Effectiveness. This Agreement
-------------------------------------------
may be executed in counterparts (and by different parties hereto an different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to Administrative Agent
constitute the entire contract among the parties relating to the subject matter
hereof and supersede any and all previous agreements and understandings, oral or
written, relating to the subject matter hereof, other than the indemnity,
confidentiality, waiver of jury trial and governing law provisions of the
Commitment Letter, which are not superseded and survive. Except as provided in
Section 7.01, this Agreement shall become effective when it shall have been
executed by Administrative Agent and when Administrative Agent shall have
received counterparts hereof which, when taken together, bear the signatures of
each of the other parties hereto, and thereafter shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns. Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
12.10. Governing Law: Submission to Jurisdiction, Waivers. Etc.
---------------------------------------------------
Each Credit Document shall be governed by, and construed in accordance with, the
law of the State of New York, without regard to the principles of conflicts of
laws thereof (except in the case of the other Credit Documents, to the extent
otherwise expressly stated therein). Each Obligor hereby irrevocably and
unconditionally: (I) submits for itself and its Property in any Proceeding
relating to any Credit Document to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Supreme Court of the State of New York sitting in New York
County, the courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof-, (II) consents that any such
Proceeding may be brought in any such court and waives trial by jury and any
objection that it may now or hereafter have to the venue of any such Proceeding
in any such court or that such Proceeding was brought in an inconvenient court
and agrees not to plead or claim the same; (111) agrees that service of process
in any such Proceeding may be effected by mailing a copy thereof by registered
or certified mail (or any substantially similar form of mail), postage prepaid,
to Borrower at its address set forth in Section 12.02 or at such other address
of which Administrative Agent shall have been notified pursuant thereto; and
(IV) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction.
12.11. Confidentiality. Each Lender agrees to keep information
----------------
obtained by it pursuant hereto and the other Credit Documents identified as
confidential in writing at the time of delivery confidential in accordance with
such Lender's customary practices and agrees that it will only use such
information in connection with the transactions contemplated by this Agreement
and not disclose any of such information other than (a) to such Lender's
employees, representatives, directors, attorneys, auditors, agents, professional
advisors, trustees or affiliates who are advised of the confidential nature of
such information or to any direct or indirect contractual counter party in swap
agreements or such contractual counter party's professional advisor (so long as
such contractual counter party or professional advisor to such contractual
counter party agrees to be bound by the provision of this Section 12.11), (b) to
the extent such information presently is or hereafter becomes available to such
Lender on a non-confidential basis from any source of such information that is
in the public domain at the time of disclosure, (c) to the extent disclosure is
required by law (including
-120-
<PAGE>
applicable securities laws), regulation, subpoena or judicial order or process
(provide that notice of such requirement or order shall be promptly furnished to
Borrower unless such notice is legally prohibited) or requested or required by
bank, securities, insurance or investment company regulations or auditors or any
administrative body or commission (including the Securities Valuation Office of
the National Association of Insurance Commissioners) to whose jurisdiction such
Lender may be subject, (d) to any rating agency to the extent required in
connection with any rating to be assigned to such Lender, (e) to assignees or
participants or prospective assignees or participants who agree to be bound by
the provisions of this Section 12.11, (f) to the extent required in connection
with any litigation between any Obligor and any Lender with respect to the Loans
or this Agreement and the other Credit Documents or (g) with Borrower's prior
written consent.
-121-
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
AEI RESOURCES, MC., as Borrower
By:___________________________________
Name:
Title:
Address for Notices:
c/o AEI Resources, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telecopier No.: (606) 928-0450
Telephone No.: (606) 928-0439
-122-
<PAGE>
S-2
17 WEST MINING, INC., IKERD-BANDY CO., INC.,
ACECO, INC., KERMIT COAL COMPANY,
ADDINGTON MINING, INC., LESLIE RESOURCES, INC.,
AEI COAL SALES COMPANY, INC., LESLIE RESOURCES MANAGEMENT, INC.,
AEI HOLDING COMPANY, INC., MEADOWLARK, INC.,
AEI RESOURCES HOLDING, INC., MEGA MINERALS, INC.,
AMERICOAL DEVELOPMENT COMPANY, MIDWEST COAL SALES COMPANY,
APPALACHIAN REALTY COMPANY, MID-VOL LEASING, INC.
AYRSHIRE LAND COMPANY, MINING TECHNOLOGIES, INC.,
BELLAIRE TRUCKING COMMAND, MOUNTAIN-CLAY, INCORPORATED (d/b/a
BLUEGRASS COAL DEVELOPMENT COMPANY, Mountain Clay, Inc.),
Bowie Resources Limited PHOENIX LAND COMPANY,
CC COAL COMPANY, PREMIUM PROCESSING, INC.,
COAL VENTURES HOLDING COMPANY, INC., PREMIUM COAL DEVELOPMENT COMPANY,
EAST KENTUCKY ENERGY CORPORATION, PRO-LAND, INC. (d/b/a Kern Coal
Company)
EMPLOYEE BENEFITS MANAGEMENT, INC., R. & F. COAL COMPANY,
ENCOAL CORPORATION, RIVER COAL COMPANY, INC.,
ENERZ CORPORATION, ROARING CREEK COAL COMPANY,
EVERGREEN MINING COMPANY, SHIPYARD RIVER COAL TERMINAL
COMPANY,
FAIRVIEW LAND COMPANY, STRAIGHT CREEK COAL RESOURCES
COMPANY,
FRANKLIN COAL SALES COMPANY, TENNESSEE MINING, INC.,
GRASSY COVE COAL MINING COMPANY, TURRIS COAL COMPANY,
HERITAGE MINING COMPANY, WYOMING COAL TECHNOLOGY, INC.,
HIGHLAND COAL, INC., ZEIGLER COAL HOLDING COMPANY,
ZEIGLER ENVIRONMENTAL SERVICES
COMPANY,
ZENERGY, INC.,
Each as a guarantor
By:___________________________________
Name: C.K. LANE
Title: VICE PRESIDENT
-123-
<PAGE>
S-3
BEECH COAL COMPANY.
CANNELTON, INC.,
CANNELTON INDUSTRIES. INC..
CANNELTON LAND COMPANY,
CANNELTON SALES COMPANY.
DUNN COAL & DOCK COMPANY,
HAYMAN HOLDINGS, INC.,
KANAWRA CORPORATION,
KINDILL HOLDING, INC.,
KINDILL MINING, INC.,
MIDWEST COAL COMPANY,
MOUNTAINEER COAL
DEVELOPMENT COMPANY,
MOUNTAIN COALS CORPORATION,
OLD BEN COAL COMPANY,
WEST VIRGINIA-INDIANA COAL
HOLDING
COMPANY, INC.,
each as a Guarantor
By: __________________________
Name: WILLIAM H. HASELHOFF
Title: SEC SECRETARY/TREASURER
BENTLEY COAL COMPANY.
SKYLINE COAL COMPANY.
KENTUCKY PRINCE MINING
COMPANY,
each as Pledgor
By: GRASSY COVE COAL MINING
COMPANY,
ROARING CREEK COAL COMPANY,
each as General Partner of each of the
entities listed above
By: __________________________________
Name: C. K. LANE
Title: VICE-PRESIDENT
S-4
-124-
<PAGE>
NUCOAL. LLC,
as Pledgor
By: AMERICOAL DEVELOPMENT
COMPANY
ENCOAL CORPORATION
each as Member
By: _________________________________
Name: C. K. L A N E
Title: VIC E-P RE S I D E N T
Address for Notices for all Guarantors:
c/o AEI Resources. Inc.
1500 North Big Run Road
Ashland. Kentucky 41102
Attention: Donald P. Brown
Telecopier No.: (606) 928-0450
Telephone No.: (606) 928-0439
-125-
<PAGE>
S-5
UBS AG, Stamford Branch,
as Administrative Agent. Issuing Lender and
as a Lender
By: ___________________________________
Name: Dorothy McKinley
Title: Executive Director
Leveraged Finance
Address for Notices:
UBS AG. Stamford Branch
677 Washington Blvd.
Stamford. CT 06901
Attention: Lara Kavanagh
Telecopier No.: (203) 719-4181
Telephone No.: (203) 719-4176
-126-
<PAGE>
S-6
WARBURG DILLON READ LLC.
as Syndication Agent. and Arranger
By: ___________________________________
Name: Kaj Ahlburg
Title: Executive Director
High Yield Corporate Finance
Address for Notices:
Warburg Dillon Read LLC
535 Madison Avenue
New York, New York 10022
Attention: Michael Leder
Telecopier No.: (212) 906-7858
Telephone No.:(212) 906-7116
-127-
<PAGE>
ANNEX A
ALLOCATIONS
<TABLE>
<CAPTION>
As of the Closing Date:
Allocation
-----------------------------------------------------
Revolving Tranche A Tranche B
Credit Term Loan Term Loan
Institution Commitments Commitment Commitment Total
- - ------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
UBS AG. $350,000,000 $150,000,000 $250,000,000 $750,000,000
Total $350,000,000 $150,000,000 $250,000,000 $750,000,000
============ ============ ============ ============
As of the Amendment and Restatement Date:
Allocation
--------------------------------------------------------------------
Revolving Outstanding Tranche A Outstanding
Credit Tranche A Term Loan Tranche B
Institution Commitments Term Loans Commitment Term Loans Total
- - ------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
UBS AG. $300,000,000 $150,000,000 $175,000,000 $250,000,000 $875,000,000
Total $300,000,000 $150.000,000 $175,000,000 $250,000.000 $875,000,000
============ ============ ============ ============ ============
</TABLE>
-128-
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF LATHAM & WATKINS APPEARS HERE]
__________________, 1999
AEI Resources, Inc.
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Re: $200,000,000 Aggregate Principal Amount of 10-1/2%
Senior Notes due 2005 of AEI Resources, Inc. and
AEI Holding Company, Inc.
--------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of $200,000,000 aggregate principal
amount of 10-1/2% Senior Notes due 2005 (the "Exchange Notes") by AEI Resources,
--------------
Inc., a Delaware corporation, and AEI Holding Company, Inc., a Delaware
corporation (together, the "Issuers"), registered under the Securities Act of
-------
1933, as amended, on Form S-4 filed with the Securities and Exchange Commission
(the "Commission") on ________________, 1999 (File Numbers 333-72327 and
----------
333-72355) (as amended, the "Registration Statement"), relating to the offer
----------------------
(the "Exchange Offer") by the Issuers to exchange their outstanding 10-1/2%
--------------
Senior Notes due 2005 (the "Old Notes") for Exchange Notes, you have requested
---------
our opinion with respect to the matters set forth below. The Old Notes were
issued pursuant to an indenture (the "Indenture"), dated as of December 14,
---------
1998, among the Issuers, the Guarantors party thereto and State Street Bank and
Trust Company, as trustee (the "Trustee"). This opinion is being rendered
-------
pursuant to Sections 7.02(b) and 11.05 of the Indenture with respect to the
authentication and delivery by the Trustee of the Exchange Notes issued on
________________, 1999 pursuant to Section 2.02 of the Indenture. Capitalized
terms not defined herein shall have the meanings assigned to them in the
Indenture.
<PAGE>
LATHAM & WATKINS
________________, 1999
Page 2
In our capacity as special counsel to the Issuers, we have made such
legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have deemed necessary
or appropriate for purposes of this opinion. In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as copies.
We have examined (i) the Indenture, (ii) the form of the Exchange Notes
set forth as an Exhibit to the Indenture, (iii) the Registration Statement, (iv)
the final prospectus, dated ________________, 1999, relating to the Exchange
Offer, (v) an authentication order, dated ________________, 1999, from the
Issuers to the Trustee with respect to the delivery of the exchange Notes and
ordering the Trustee to authenticate them up to $200,000,000 aggregate principal
amount (the "Authentication Order"), (vi) the officers' Certificate, dated
--------------------
__________________, 1999, delivered to the Trustee by the Issuers pursuant to
Sections 7.02(b) and 11.05 of the Indenture (the "Officers' Certificate") and
---------------------
(vii) certain resolutions of the Boards of Directors of the Issuers.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States and the internal laws of the State of
New York, and we express no opinion with respect to the applicability thereto,
or the effect thereon, of the laws of any other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies within any
state.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:
1. Upon (a) the delivery to the Trustee of the Authentication Order and
the Officers' Certificate and (b) the due tender and delivery to the Trustee of
the Old Notes in an aggregate principal amount equal to the aggregate principal
amount of the Exchange Notes and the acceptance of such Old Notes by the Company
for exchange in the Exchange Offer, all of the conditions set forth in the
Indenture with respect to the authentication and delivery by the Trustee of the
Exchange Notes in the amount set forth in the Authentication Order (such amount
not to exceed $200,000,000 aggregate principal amount) will have been complied
with.
2. The Indenture has been duly qualified under the Trust Indenture Act
of 1939, as amended.
<PAGE>
LATHAM & WATKINS
________________, 1999
Page 2
This opinion is furnished to you solely for your benefit in connection
with the issuance of the Exchange Notes. This opinion may not be relied upon by
you for any other purpose, or furnished to, quoted to, or relied upon by any
other person, firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
<PAGE>
EXHIBIT 10.1
================================================================================
STOCK PURCHASE AGREEMENT
between
ADDINGTON HOLDING COMPANY, INC.
and
PITTSTON ACQUISITION COMPANY
___________________________________________
Dated as of September 24, 1993
___________________________________________
SALE OF STOCK OF
ADDINGTON, INC.
APPALACHIAN MINING, INC.
APPALACHIAN LAND COMPANY
VANDALIA RESOURCES, INC.
KANAWHA DEVELOPMENT CORPORATION
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- - ------- ----
1. Purchase and Sale of the Shares.................................. -1-
2. Closing.......................................................... -3-
3. Conditions to Closing............................................ -4-
(a) Buyer's Obligation........................................ -4-
(b) Seller's Obligation....................................... -7-
(c) Pre-Closing and Post-Closing Actions...................... -10-
(i) Excluded Assets..................................... -10-
(ii) Excluded Liabilities................................ -11-
(iii) Excluded Litigation................................. -12-
4. Representations and Warranties of Seller......................... -13-
(a) Authority................................................. -13-
(b) The Shares................................................ -14-
(c) Organization and Standing of Each Company................. -15-
(d) Capital Stock of Each Company............................. -15-
(e) Equity Interests.......................................... -16-
(f) Financial Statements; Undisclosed
Liabilities............................................... -16-
(g) Taxes..................................................... -17-
(h) Tangible Personal Property................................ -18-
(i) Real Property............................................. -18-
(j) Contracts................................................. -20-
(k) Litigation; Decrees....................................... -23-
(1) Benefit Plans............................................. -24-
(m) Absence of Changes or Events.............................. -27-
(n) Compliance with Applicable Laws........................... -28-
(o) Employee and Labor Relations.............................. -30-
(p) Licenses; Permits......................................... -31-
(q) Bank Accounts and Powers of Attorney...................... -31-
(r) Transaction with Affiliates............................... -31-
(s) West Virginia Business Investment and
Jobs Expansion Tax Credits ("STC")........................ -31-
(t) Patents and trademarks.................................... -32-
(u) Insurance................................................. -32-
(v) As Is..................................................... -33-
<PAGE>
5. Covenants........................................................ -33-
5A. Covenants of Seller.............................................. -33-
(a) Access.................................................... -33-
(b) Ordinary Conduct.......................................... -34-
(c) Pro Forma Balance Sheet................................... -36-
(d) Resignations.............................................. -37-
(e) Other Transactions........................................ -37-
(f) Supplemental Disclosure................................... -38-
(g) Trustee and Bank Releases................................. -38-
(h) Other Financial Statements................................ -38-
5B. Covenants of Buyer............................................... -39-
(a) Buyer's Actions........................................... -39-
(b) Supplemental Disclosure................................... -39-
(c) Planned Closing of Any Company Employment
Site...................................................... -40-
(d) Certain Rulings........................................... -40-
6. Representations and Warranties of Buyer........................... -40-
(a) Authority................................................. -40-
(b) Actions and Proceedings, etc.............................. -41-
(c) Consents.................................................. -41-
(d) Qualification............................................. -42-
(e) No Broker................................................. -42-
(f) Investment Intent......................................... -42-
(g) Permit Blocking........................................... -42-
7. Mutual Covenants................................................. -43-
(a) Cooperation............................................... -43-
(b) Best Efforts.............................................. -43-
(c) Antitrust Notification.................................... -44-
(d) Records................................................... -45-
(e) Non-Disclosure............................................ -46-
(f) Litigation Support........................................ -46-
8. Further Assurances............................................... -46-
9. Indemnification................................................... -47-
(a) Tax Indemnification........................................... -47-
(b) Other Indemnification by Seller............................... -49-
(c) Indemnification by Buyer...................................... -50-
(D) Losses Net of Insurance, etc.................................. -52-
(E) Termination of Indemnification................................ -52-
(f) Procedures Relating to Indemnification
<PAGE>
(Other than Under Section 9(a) and 9(h))...................... -53-
(g) Procedures Relating to Indemnification
of Tax Claims................................................. -54-
(h) STC Indemnification and Procedures
Relating Thereto.............................................. -55-
10. Tax Matters.................................................... -57-
11. Assignment..................................................... -60-
18. Interpretation................................................. -62-
19. Waiver......................................................... -62-
20. Counterparts................................................... -62-
21. Entire Agreement............................................... -63-
22. Fees........................................................... -63-
23. Severability................................................... -63-
24. Consent to Jurisdiction........................................ -63-
25. Non-solicitation of Personnel.................................. -64-
26. Other Agreement................................................ -64-
27. Governing Law.................................................. -65-
28. Affiliate Defined.............................................. -65-
29. Termination.................................................... -65-
30. Publicity...................................................... -66-
31. Trade Secrets.................................................. -66-
<PAGE>
Exhibit 10.1
STOCK PURCHASE AGREEMENT dated as of September 24, 1993, between ADDINGTON
HOLDING COMPANY, INC., a Delaware corporation ("Seller"), and PITTSTON
ACQUISITION COMPANY, a Virginia Corporation ("Buyer")
Buyer desires to purchase from Seller, and Seller desires to sell to Buyer,
all the issued and outstanding shares of Common Stock (the "Shares"), of
Addington, Inc., Appalachian Mining, Inc., Appalachian Land Company, Vandalia
Resources, Inc. and Kanawha Development Corporation (each, as well as Ironton
Coal Company, a wholly owned subsidiary of Addington, Inc., hereinafter referred
to as "Company" and collectively as the "Companies"), such Shares being more
fully described on Schedule 1 attached hereto.
Accordingly, the parties hereto hereby agree as follows:
1. Purchase and Sale of the Shares. (a) On the terms and subject to the
-------------------------------
conditions of this Agreement, Seller will sell, transfer and deliver or cause to
be sold, transferred and delivered to Buyer, and Buyer will purchase from
Seller, free and clear of all liens, claims and encumbrances of any king, the
Shares for an aggregate purchase price (the "Purchase Price") of One Hundred
Fifty Seven Million ($157,000,000) dollars cash.
(b) Within 60 days after the Closing Date, Seller will prepare and
deliver to Buyer a statement of working capital for the Companies (the "Working
Capital Statement") showing the Companies' Combined Net Working Capital as of
the close of business on the Closing Date. "Companies' Combined Net Working
Capital" means current assets minus current liabilities of the Companies on a
combined basis determined after giving effect to the transactions to be
consummated prior to or at the Closing (eliminating the working capital effect
of any Excluded Assets and Excluded Liabilities to be distributed out of the
Companies prior to the Closing and the current portion of any liability for
which the Companies shall not be responsible), with current assets and current
liabilities accounts calculated in accordance with
<PAGE>
generally accepted accounting principles ("GAAP"), and on a basis, consistent
with the past accounting practices of the Companies, except to the extent the
same is modified by the agreement of the parties to compute the deferred
overburden, pit inventory and current portion of accrued reclamation, accrued
expenses and other calculations, the method of such computation being set out in
Schedule 1(b) and except as modified and reflected in the current assets and
current liabilities accounts on the Pro Forma Balance Sheet Attached as Schedule
5A (c) (except to the extent inconsistent with Schedule 1(b)).
(c) Within 10 days after the determination of the Companies' Combined
Net Working Capital (as provided in Section 1(b) above), (i) if the Companies's
Combined Net Working Capital exceeds $0.00, Buyer shall cause the Companies to
distribute to Seller or Buyer shall pay to Seller an amount equal to the
difference between the Companies' Combined Net Working Capital and $0.00, or
(ii) if the Companies' Combined Net Working Capital is less than $0.00, Seller
shall pay to the Companies or Buyer an amount equal to the difference between
the Companies's Combined Net Working Capital and $0.00. Any adjustment
pursuant to this Section shall be paid in cash by Buyer or Seller as applicable,
within 10 days after determination of the Companies' Combined Net Working
Capital, by wire transfer of immediately available funds to a bank account
designated in writing by the party receiving payment.
(d) The Working Capital Statement will become final for all purposes
30 days after receipt by Buyer unless Buyer has delivered a detailed statement
describing its objections thereto. Buyer and Seller will use reasonable efforts
to resolve any such objections. If the parties do not achieve a final resolution
withing 15 days after Seller has received the statement of objections, Buyer and
Seller will within 10 days select a mutually acceptable accounting firm to
resolve any remaining objections. If Buyer and Seller are unable to agree on
the choice of an accounting firm, they will select a nationally recognized
accounting firm by lot (after excluding their respective regular outside
-2-
<PAGE>
auditors). the selected accounting firm shall be retained jointly by the
parties on the condition, among other things, that it shall notify the parties
of its determination withing 30 days after its selection. The determination of
the accounting firm so selected regarding the matters in dispute will be set
forth in writing and will be conclusive and binding upon the parties and the
Working Capital Statement shall thereupon become final. The parties shall each
pay one-half of the fees and expenses of such accounting firm.
(e) Buyer will make the books, records and financial staff of the
Companies available to Seller, its accountants and other representatives at
reasonable times and upon reasonable notice during the preparation by Seller of
the Working Capital Statement and the resolution by the parties of any
objections thereto.
2. Closing. (a) The closing (the "Closing") of the purchase and sale of
-------
the Shares shall be held at the offices of Jackson & Kelly, 1600 Laidley Tower,
Charleston, West Virginia at 10:00 a.m. on the date (the "Closing Date") which
is 10 business days following the date on which the parties mutually agree that
the conditions to the closing set forth in Section 3 of this Agreement have been
or will be satisfied (or waived) by the Closing Date; provided, that the Closing
--------
Date shall not be earlier than 40 days after the Date on which Buyer shall have
been provided the financial statements referred to in Section 5A(h); provided
--------
further, that if the Closing shall not have occurred on or before December 31,
- - -------
1993, either party shall have the right to terminate of Sections 5A(e), 5A(h)
and 29. The date on which the Closing shall occur is hereinafter referred to as
the "Closing Date".
(b) At the Closing, (i) Buyer shall deliver to Seller, by wire
transfer to a bank account designated in writing by Seller at least two business
days prior to the Closing Date, immediately available funds in an amount equal
to the sum of (A) the Purchase Price plus (B) the Closing Tax Adjustment Amount
(as defined in Section 9 (a)), and (ii) Seller shall deliver or cause to be
-3-
<PAGE>
delivered to Buyer certificates representing the Shares, duly endorsed in blank
or accompanied by stock powers duly endorsed in blank in proper form for
transfer, with appropriate transfer stamps, if any, affixed.
3. Conditions to Closing. (a) Buyer's Obligation. The obligation of
--------------------- ------------------
Buyer to purchase and pay for the Shares is subject to the satisfaction (or
waiver by Buyer) as of the Closing of the following conditions:
(i) the representations and warranties of Seller made in this
Agreement shall be true and correct in all material respects as of the date
hereof and on and as of the Closing, as though made on and as of the
Closing Date, and Seller shall have performed or complied in all material
respects with all obligations and covenants required by this Agreement to
be preformed or complied with by Seller by the time of the Closing; and
Seller shall have delivered to Buyer a certificate dated the Closing Date
and signed by an authorized officer of Seller confirming the foregoing.
"Material" for purposes of this provision shall mean that the
representations, warranties and covenants shall have an adverse affect on
Buyer of $250,000 or more in aggregate.
(ii) Buyer shall have received an opinion dated the Closing Date of
Brown, Todd & Heyburn, counsel to Seller, substantially in the form of
Exhibit A.
(iii) No injunction or order of any court or administrative agency of
competent jurisdiction shall be in effect, and no statute, rule or
regulation of nay governmental authority or instrumentality shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
purchase and sale of the Shares.
(iv) No action, suit or other proceeding by any person to restrain or
prohibit the purchase and sale of the Shares shall be pending which in the
-4-
<PAGE>
written opinion of Buyer's counsel is reasonably likely to succeed.
(v) The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") shall have expired or been
terminated.
(vi) Buyer (or its designee) and Seller (or its Designee) shall have
executed an Equipment Payment Agreement pertaining to two high wall mining
units ("HWM Units"), substantially in the form of Exhibit B.
(vii) Addington Mining, Inc. and American Eagle Coal Company shall
have executed a Coal Purchase Agreement providing for the sale by Addington
Mining, Inc. of coal to American Eagle Coal Company, substantially in the
form of Exhibit C.
(viii) Documentation form each of Bank of America National Trust and
Savings Association, successor to Security Pacific National bank (the
"Trustee", as trustee of the 12% Senior Secured Notes of Addington
Resources, Inc. ("ARI") and Pittsburgh National Bank and PNC Bank (the
"Bank", the Seller's primary lender) individually and as agent for itself
and Pittsburgh National Bank, evidencing the release of each Company and
its assets under existing credit agreements, satisfactory to Buyer in its
sole discretion, shall have been obtained.
(ix) Buyer shall have received such other documents as to Seller and
each Company as Buyer's counsel shall reasonably request.
(x) Buyer shall have received all requisite corporate approvals
(including without limitation the approval of the Board of Directors of the
Pittston Company (the ultimate parent of Buyer).
(xi) An affiliate of Seller and Addington, Inc. shall have executed a
Lease Agreement relating to the lease of the accounting building and repair
-5-
<PAGE>
shop described on Schedule 3(a)(xi), substantially in the form of Exhibit
D.
(xii) Buyer shall not have received a ruling within 45 days of the
date hereof from the West Virginia Department of Tax and Revenue that its
purchase of the Shares of Appalachian Mining, Inc., Appalachian Land
Company and Vandalia Resources, Inc. and Buyer's and Seller's election to
treat this transaction as an asset purchase for federal income tax purposes
under IRC (S)338(h)(10) will be considered a transfer of qualified
investment to successors under W. Va. Code (S)11-13C-9(b).
(xiii) Buyer shall be satisfied in its sole discretion by not later
than 14 days from the date of this Agreement or three business days
following the date of availability of the appropriate representatives of
each of the coal customers of the Companies identified on Schedule 3(a)
(xiii) that the business and commercial relationship between the Companies
and such customers are not in jeopardy. Failure of Buyer to advise Seller
of its dissatisfaction within the time period specified shall be deemed a
waiver of this condition.
(xiv) ARI shall have executed and delivered a Guaranty Agreement,
substantially in the form of Exhibit E.
(xv) Addington Mining, Inc. and Appalachian Mining, Inc. shall have
executed and delivered a Royalty Agreement, substantially in the form of
Exhibit F.
(xvi) Within five business days after execution of this Agreement,
Seller shall have obtained from the Board of Directors of Seller and
Addington Resources, Inc. approval of the transactions contemplated by this
Agreement and advised Buyer that such approval has been obtained.
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<PAGE>
(b) Seller's Obligation. The obligation of Seller to sell and deliver
-------------------
the Shares to Buyer is subject to the satisfaction (or waiver by Seller) as of
the Closing of the following condition:
(i) the representations and warranties of Buyer made in this
Agreement shall be true and correct in all material respects as of the date
hereof and on and as of the Closing, as though made on and as of the
Closing Date, and Buyer shall have performed or complied in all material
respects with all obligations and covenants required by this Agreement to
be performed or complied with by Buyer by the time of the Closing; and
buyer shall have delivered to seller a certificated dated the Closing Date
and signed by an authorized officer of Buyer confirming the forgoing.
"Material" for purposes of this provision shall mean that the
representation, warranty or covenant shall have an adverse affect on Seller
of $250,000 or more in the aggregate.
(ii) Seller shall have received an opinion dated the Closing Date of
Jackson & Kelly, counsel to Buyer, substantially in the form of Exhibit G.
(iii) No injunction or order of any court or administrative agency or
instrumentality shall be in effect, and no statute, rule or regulation of
any governmental authority of competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
purchase and sale of Shares.
(iv) No action, suit or other proceeding by any person to restrain or
prohibit the purchase and sale of Shares shall be pending which in the
written opinion of Seller's counsel is reasonably likely to succeed.
(v) The waiting period under the HSR Act shall have expired or been
terminated.
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<PAGE>
(vi) Buyer (or its designee) and Seller (or its designee) shall have
executed an Equipment Payment Agreement pertaining to two HWM Units,
substantially in the form of Exhibit B.
(vii) Addington Mining, Inc. and American Eagle Coal company shall
have executed a Coal Purchase Agreement providing for the sale by Addington
Mining, Inc. of coal to American Eagle Coal Compan8, substantially in the
form of Exhibit C.
(viii) Documentation from each of the Trustee and the Bank evidencing
the release of each Company and its assets under existing credit
agreements, satisfactory to Seller in its sole discretion, shall have been
obtained.
(ix) At or prior to Closing, ARI and its affiliates, principals,
directors, officers and agents of ARI (excluding each Company)
(collectively, the "ARI Group") shall have been removed and released from
any and all liability or obligation under the bonds specified on Schedule
3(b)(ix).
(x) At or prior to Closing, the ARI Group shall have been removed
and released from the guaranties and indemnities under the documents
specified on Schedule 3(b)(x).
(xi) Seller shall have received such other documents as Seller's
counsel shall reasonably request.
(xii) Seller shall have received approval of the transactions
contemplated by this agreement for the Board of Directors and shareholders
of ARI. Seller and its affiliates shall have the right in their sole
discretion, but not the obligation, to structure the transactions
contemplated by this Agreement so that the shareholders of ARI have the
opportunity to exercise dissenters rights with respect to this transaction
and receive fair value for their shares. If Seller makes available
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<PAGE>
dissenters rights to the ARI shareholders, then not more than ten percent
of the shareholders shall have exercised such dissenters rights.
(xiii) ARI shall have received an opinion from its financial advisor
to the effect that the sale of the Shares and the transactions contemplated
by this Agreement are fair to the ARI Shareholders from a financial
viewpoint.
(xiv) All consents required under the documents described on
Schedule 3 (b) (xiv) shall have been obtained.
(xv) Pittston Minerals Group, Inc. shall have executed and
delivered a Guaranty Agreement, substantially in the form of Exhibit I.
(xvi) Pittston Minerals Group, Inc. shall have executed and
delivered to ARI an Indemnity Agreement (NERCO), substantially in the form
of Exhibit J.
(xvii) Addington Mining, Inc. and Appalachian Mining, Inc. shall have
executed and delivered a Royalty Agreement, substantially in the form of
Exhibit F.
(xviii) Within five business days of the execution of this Agreement,
Buyer shall have obtained from the Board of Directors of Pittston Minerals
Group, Inc. and the Pittston Company approval of the transactions
contemplated by this Agreement and advised Seller that such approval has
been obtained.
(c) Pre-Closing and Post-Closing Actions.
------------------------------------
(i) Excluded Assets. Seller shall, before the Closing, use
---------------
commercially reasonable efforts to obtain all necessary consents, permits
and transfers of permits, and to take all other steps necessary for the
conveyance, assignment and transfer of certain personal and real property
and other items from the
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<PAGE>
Companies to Seller or its affiliates ("Excluded Assets"). "Excluded
Assets" shall include the personal and real property and other items
described on Schedule 3(c)i. With respect to any Excluded Assets which are
unable to be fully conveyed, assigned or transferred out of the Companies
prior to the Closing or in connection with the taking of any action with
respect to those Excluded Assets, Seller shall use commercially reasonable
efforts to obtain all consents, permits and transfers of permits, and to
take all other steps necessary for the conveyance, assignment or transfer
of such Excluded Assets to Seller or its affiliates as soon as its
practicable after the Closing, and Buyer shall cooperate, and shall cause
the Companies to cooperate, with Seller and its affiliates, in all such
efforts, including requesting third parties to consent to such conveyances
and assignments, filing applications for the transfer of regulatory permits
pertaining to the Excluded Assets and executing and delivering such further
instruments and documents as Seller may reasonably request. Seller through
its affiliates shall be allowed to utilize at its sole expense all Excluded
Assets not distributed out prior to the Closing as long as Seller
indemnifies Buyer from and against any liability or loss arising out of
ownership, operation, maintenance or use of the Excluded Assets. As soon as
all necessary consents permits and transfers of permits have been obtained
and all other steps necessary for the conveyance, assignment and transfer
of the Excluded Assets have been taken, Buyer shall cause the Companies or
other successor in interest to the Excluded Assets to execute and deliver
such agreements and instruments as may be necessary or appropriate to
convey, assign or transfer each such Excluded Asset to the designated
affiliate of Seller free and clear of any liens in existence prior to the
Closing. All costs and expenses including Taxes (including any STC
recapture) associated with the transfer of Excluded Assets shall be the
sole responsibility of Seller.
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<PAGE>
(ii) Excluded Liabilities. As of the Closing Date, Seller shall
--------------------
assume and shall be solely responsible for, and Buyer and the Companies
shall have no responsibility for, any liabilities or obligations of any
Company of any nature, kind or description which arise or accrue with
respect to or are attributable to the following (the "Excluded
Liabilities"):
(A) The ownership, operation and maintenance of the Excluded Assets,
whether before or after the Closing Date.
(B) The litigation (the "Excluded Litigation") specified on Schedule
3(c)(iii) and referred to in Section 3(c)(iii) hereof.
(C) All liabilities for Addington, Inc.'s state workers compensation claims
for traumatic injury and occupational disease where the date of injury or the
even giving rise to the claim or the date of last exposure was prior to the
Closing Date, whether the claim is filed before or after the Closing Date; and
all liabilities for all of Addington, Inc.'s federal claims under 30 U.S.C.
Sections 901-945 to the extent claims were made prior to the Closing Date and to
the EXTENT made by employees of Addington, Inc. who do not work for Addington,
Inc. more than 125 working days after the Closing Date. Addington, Inc.
presently maintains an excess coverage insurance policy which protects it from
amounts in excess of $300,000 per claim. Buyer agrees to cause Addington, Inc.
after closing to cooperate with Seller in continuing such insurance coverage (if
necessary) at Seller's expense until Seller no longer has liability this
provision.
(iii) Excluded Litigation. With respect to the excluded litigation
-------------------
specified on Schedule 3(c) (iii) (the "Excluded Litigation"), the parties
agree as follows:
(A) Seller:
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<PAGE>
(1) shall assume control of and be responsible for the excluded
Litigation, but the Excluded Litigation shall remain in the Companies,
(2) may contest and defend against the Excluded Litigation in any
manner it reasonably may deem appropriate (including the choice of counsel and
experts),
(3) may consent to the entry of any judgment or enter into any
settlement with respect to the Excluded Litigation without the prior consent of
Buyer or any of the Companies,
(4) shall pay the net amount of any final judgment or settlement
entered into with respect to the claims of any party in the Excluded Litigation
after subtracting any offsets, recoveries from permissible counterclaim, cross
claims or third party pleadings, if any; provided, however, the foregoing shall
in no way limit the right of Seller to exhaust its rights of appeal at its own
cost and expense prior to the payment of any judgement.
(B) After the Closing Date, Buyer will provide, and will cause each of
the Companies to provide, Seller with full access, at any reasonable time and
from time to time, to such information and data relating to the Excluded
Litigation as Seller may reasonably request, and Buyer will furnish and request
independent accountants and outside legal counsel of Buyer or any Company to
furnish to Seller such additional information or documents relating to the
Excluded Litigation in the possession of such persons as Seller may from time to
item reasonably request. In addition, Buyer will cooperate, and will cause each
of the Companies to cooperate, with Seller and its legal counsel in the defense
or contest of the Excluded Litigation, including making available their
respective officers and other personnel to attend hearings, depositions and
trials, as Seller may reasonably request in connection with the defense or
contest of the Excluded Litigation but Seller
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<PAGE>
shall reimburse Buyer and each of the Companies for all costs and expenses
incurred in connection therewith.
4. Representations and Warranties of Seller. Seller hereby represents
----------------------------------------
and warrants to Buyer as follows:
(a) Authority. Seller is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. Seller
has all requisite corporate power and authority to enter into this Agreement and
to consummate the transactions contemplated hereby. All corporate acts and
other processes required to be taken by Seller to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by Seller and constitutes a valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien, claim or
encumbrance of any king upon any of the properties or assets of any Company
under, any provision of (i) the General Corporation Law of the State of Delaware
and the corporation laws of each state of incorporation of each Company and each
state where each Company is qualified or required to be qualified to conduct
business, (ii) the Certificate of Articles of Incorporation or By-laws of each
of Seller or any Company, (iii) any material note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment, agreement or arrangement to
which Seller or any company is a party or by which any of their respective
properties or assets are bound except as disclosed on Schedule 4(a) or (iv) any
judgement, order or decree, or material statute, law, ordinance, rule or
regulation applicable to Seller or any company or the
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<PAGE>
property or assets of Seller or any Company. Except as disclosed on Schedule
4(a) and except in the ordinary course of business following the Closing, no
consent, approval, license, permit, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, or any
other third party is required to be obtained or made by or with respect to
Seller or any company or any of their respective affiliates in connection with
(i) the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby or (ii) the conduct by any Company of its
business following the Closing as conducted on the date hereof, other than (a)
compliance with and filings under the HSR Act, (B) compliance with and filings
under Section 13(a) or 15(d), as the case may be, of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and (C) compliance with and filings
under various Federal and state environmental and/or mining laws.
(b) The Shares. The Shares are duly authorized and validly issued and
----------
fully paid and non-assessable. Seller has good and valid title to the Shares,
free and clear of any liens, claims and encumbrances of any kind, except that
the Shares of Addington, Inc. are pledged by such pledge shall be released as of
Closing. Upon delivery to Buyer at the Closing of certificates representing the
Shares, duly endorsed by Seller for transfer to Buyer, and upon Seller's receipt
of the Purchase Price, good and valid title to the shares will pass to Buyer,
free and clear of any liens, claims, encumbrances, security interests, options,
charges and restrictions of any kind. Other than this Agreement, the Shares are
not subject to any voting trust agreement or other contract, agreement,
arrangement, commitment or understanding, including any such agreement,
arrangement, commitment or understanding restricting or otherwise relating to
the voting, dividend rights or disposition of the Shares.
(c) Organization and Standing of Each Company. Each Company is a
-----------------------------------------
corporation duly organized and validly
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<PAGE>
existing under the laws of the state identified on Schedule 1. Each Company has
full corporate power and authority and, to the best of Seller's knowledge after
reasonable investigation, possesses all governmental franchises, licenses,
permits, authorizations and approvals necessary (including, without limitation,
all Federal and state mining licenses, permits, approvals and authorizations and
bonds posted in connection therewith, whether pertaining to health or safety,
the environment or otherwise) to enable it to use its corporate name and to own,
lease or otherwise hold its properties and assets and to carry on its business
as presently conducted. Each Company is duly qualified and in good standing to
do business in each jurisdiction (shown on Schedule 1) in which the nature of
its business or the ownership, leasing or holding of its properties makes such
qualification necessary, except such jurisdictions where the failure so to
qualify would not have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the COMPANY.
Seller has made available to Buyer true and complete copies of the Articles of
Incorporation, as amended to date, and the By-laws, as in effect on the date
hereof, of each COMPANY. The stock certificate and transfer books and the minute
books of each Company (which have been made available for inspection by Buyer)
are true and complete.
(d) Capital Stock of Each Company. The authorized capital stock, par
-----------------------------
value per share, and the number of issued and outstanding shares for each
Company, is set forth on Schedule 1. The Shares are duly authorized and validly
issued and are fully paid and nonassessable. Seller is the registered holder of
the Shares. The Shares have not been issued in violation of, and none of the
Shares is subject to, any preemptive or subscription rights. Except as set
forth above, there are no shares of capital stock or other equity securities of
any Company outstanding. There are no exchangeable securities or other
commitments (other than this Agreement) pursuant to which Seller or any Company
is or may become obligated to issue, sell, purchase, return or redeem any shares
of capital stock or other securities of
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<PAGE>
any Company, and there are not any equity securities of any Company reserved for
issuance for any purpose.
(e) Equity Interests. Except as described on Schedule 4(e), no
----------------
Company directly or indirectly owns any capital stock of or other equity
interests in any corporation, partnership or other entity.
(f) Financial Statements; Undisclosed Liabilities.
---------------------------------------------
(i) Within 10 days of the date hereof, Sellers shall have delivered to
Buyer Schedule 4(f)(i) setting forth the audited statement of assets,
liabilities and parent investment of the combined Companies as of December
31, 1991 and as of December 31, 1992 (collectively, the "Balance Sheet"),
and the related statements of operating revenues and expenses and cash flow
of the combined Companies for each of the years in the three year period
ended December 31, 1992 and unaudited statement of assets, liabilities and
parent investment and such related statements for the year to date periods
ended June 30, 1992 and June 30, 1993 (the financial statements described
above, collectively, the "Financial Statements").
(ii) The Financial Statements for all periods presented shall reflect,
in accordance with GAAP and on a consistent basis which is mutually
agreeable to the Buyer and Seller, the accounting results for only the
assets and liabilities and related revenues and expenses of the Companies
to be acquired by the Buyer under this Agreement and any other transactions
contemplated by this Agreement which should appropriately be included.
(iii) Seller agrees to provide access to Buyer upon reasonable
request any other existing financial statements, data or information in the
possession of Seller.
(g) Taxes.
-----
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<PAGE>
(i) For purposes of this Agreement, (A) "Tax" or "Taxes" shall mean
all Federal, state, local and foreign taxes and assessments and any other
governmental impositions which may be imposed, no matter how measured or
applied, including all interest, penalties and additions imposed with
respect to such amounts; (B) "Pre-Closing Tax Period" shall mean all
taxable periods ending on or before the Closing Date and the portion ending
on the Closing Date of any taxable period that includes (but does not end
on) such day; and (C) "Code" shall mean the Internal Revenue Code of 1986
and the Regulations thereunder, as amended.
(ii) Except as set forth on Schedule 4(g)(ii) or Schedule 4(l)(ii),
(A) each Company and each affiliated group (within the meaning of Section
1504 of the Code) or consolidated, combined or unitary group (under any
state or local tax law) of which any such COMPANY is or has been a member
(each such group, an "Affiliated Group") has filed or caused to be filed in
a timely manner (within any applicable extension periods) all Tax returns,
reports and forms required to be filed by any taxing authority or any tax
laws, including but not limited to the Code and any applicable state, local
or foreign tax laws, (B) all taxes shown to be due on such returns, reports
and forms have been timely paid in full or will be timely paid in full by
the due date thereof, (C) no tax liens have been filed and no claims are
being asserted in writing with respect to any Taxes and (D) no examinations
or inquiries are currently being conducted by any taxing authority.
(iii) (A) neither Seller nor any of its affiliates has made with
respect to any Company, or any property held by any Company, any consent under
Section 341 of the Code, (B) no property of any Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code and (C) no Company is
a party to any lease made pursuant to Section 168 (f) (8) of the Internal
Revenue Code of 1954.
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(iv.) Except as set forth in Schedule 4(g)(iv), there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any Tax returns required to be filed with respect to any Company,
and neither any Company nor any Affiliated Group has requested any extension of
time within which to file any Tax return, which return has not yet been filed.
(h) Tangible Personal Property: Schedule 4(h) is a list of each item of
--------------------------
tangible personal property which will be owned or leased by any Company as of
the Closing. Except as described in Schedule 4(h), each Company owns all of its
tangible personal property listed on Schedule 4(h) and all other tangible
personal property reflected on each of its books and records as being owned by
each of it, free and clear of all liens an encumbrances, except for liens for ad
valorem property taxes not yet due and payable, purchase money security
interests arising in the ordinary course of their respective businesses, and
each Company is entitled to possession of its leased tangible personal property
listed on Schedule 4(h), with all such leases being valid and in full force and
effect.
(i) Real Property. Set forth in Schedule 4(i) is (i) a true and complete
-------------
description of all real property which will be owned by each Company as of the
Closing and all buildings and other structures located thereon; (ii) an
identification of all leases, subleases, easements, licenses or other
agreements, together with all amendments thereto, under which each Company will
be, as of the closing, a lessor, lessee, licensor, licensee, grantor, grantee or
other party with respect to any real property or any interest therein (except
where a Company acquired its interest in such real property subject to any of
the foregoing); and (iii) an identification of all options which will be held by
each Company as of the Closing or contractual obligations which will exist on
the Closing Date on the part of each Company to purchase or acquire any interest
in any real property. Except as indicated in Schedule (4)(i), (i) each of
Company owns the real property described in Schedule 4(i)as owned by it in fee,
free and clear of all liens, encumbrances,
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equities, claims, covenants, conditions, reservations, restrictions, easements,
rights, rights of way and other agreements arising by, through or under Seller
or any Company or any of its or their affiliates; (ii) each of the leases,
subleases, easements, licenses, agreements and options described in Schedule
4(i)is a valid, binding, enforceable agreement of each of the parties thereto,
and is in full force and effect, and each Company has performed all covenants
and obligations in all material respects required to be performed by it under
such lease, sublease, easement, license, agreement and option and there exists
no material default or event which, with lapse of time or notice to it, would
constitute a material default by such Company; and (iii)neither Seller nor any
Company has received any notice that a lessor, grantor, licensor or option or
under any of such leases, subleases, easements, licenses, agreements or options
intends to cancel or terminate any of such leases, subleases, agreements,
licenses or options or to exercise or not to exercise any option of any of such
leases, subleases, easements, licenses or agreements. There are no eminent
domain or condemnation proceedings pending or, to the knowledge of Seller,
threatened against any asset or property of any Company.
(j) Contracts. Schedule 4(j) contains a correct and complete list of
---------
agreements, contracts, personal property leases (other than those listed on
Schedule 4(i) and commitments (whether written or oral) to which, as of the
Closing Date, any Company will be a party or which, as of the Closing Date, will
affect or bind any Company or any of this property (except those made in the
ordinary course of business and requiring aggregate future payments or
performance by any Company or receipts having a value of less than $30,000),
including without limitation, the following:
(a) notes, mortgages, indentures, loan or credit agreements, equipment
lease agreements, security agreements and other agreements and
instruments reflecting obligations for borrowed money or other
monetary indebtedness or otherwise relating to the
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borrowing of money by, or the extension of credit to any Company or
related to its business and binding agreements or commitments to enter
into any such agreements or commitments;
(b) management consulting and employment agreements and binding
agreements or commitments to enter into same;
(c) coal sales agreements, purchase orders, contract bids or other
agreements and commitments to sell or offer to sell coal, or to
purchase or offer to purchase coal;
(d) coal sales agency agreements or commitments authorizing any
person to act as agent for the purchase or sale of coal or to
otherwise represent any Company in connection with the purchase
or sale of coal;
(e) contract mining agreements, whether as contract miner or
owner/employer;
(f) processing, storage, loading or transloading agreements or other
agreements or commitments pursuant to which any Company utilizes
or is obligated to utilize any preparation plant, stockpile area,
crushing plant, screening plant, tipple, processing facility, rail
car or unit train loading facility, barge loading facility or
other installation or facility owned, leased or used by it to
process, wash, crush, grade, screen, store, load, transload or
ship coal for persons other than a Company (a "Third Party") or
any agreement or contract pursuant to which any Third Party
utilizes or is obligated to utilize any preparation plant,
stockpile area, crushing plant, screening plant, tipple,
processing facility, rail car or unit train facility, barge
loading facility or other installation
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or facility owned, leased or used by such Third Party to process,
wash, crush, grade, screen, store, load, transload or ship coal
for any Company;
(g) agreements relating to the transportation and movement of coal
mined or sold by any Company or agreements or commitments for any
rates, tariffs or other charges applicable to such transportation
or movement;
(h) agreements to pay any overriding royalty, finder's fee, commission
or other compensation or consideration or to pay any person in
connection with or related to the identification purchase, sale,
leasing or other acquisition of any real property, equipment,
machinery, personal property, lease, contract, opportunity,
permit, license, authorization or other right or asset, tangible
or intangible, of any Company;
(i) option, purchase and sale or lease agreements involving any real
property, equipment, machinery, personal property or other asset,
tangible or intangible;
(j) agreements and purchase orders entered into or issued in the
ordinary course of business for the purchase or sale of goods
(other than coal), services, supplies or capital assets;
(k) joint venture or other agreements involving the sharing of profits
or losses;
(l) contracts or agreements with ARI, Seller, or any subsidiary or
affiliate of either, or any director or officer of ARI, Seller, or
any subsidiary or affiliate of either, or any person who is an
immediate relative of any such person, or
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any combination of such
persons;
(m) outstanding powers of attorney empowering any person company or
other organization to act on behalf of any Company;
(n) outstanding guarantees, subordination agreements, indemnity
agreements and other similar types of agreements, whether or not
entered into in the ordinary course of business, which any Company
is or may become liable for or obligated to discharge, or any
asset of any Company is or may become subject to the satisfaction
of, any indebtedness, obligation, performance or undertaking of
any other person, except for indemnification agreements contained
in any of the instruments listed in the Schedules hereto;
(o) contracts, orders, decrees or judgments preventing or restricting
any Company from carrying on business in any location;
(p) agreements, contracts or commitments relating to the acquisition
of the outstanding capital stock or equity interest of any
business enterprise; and
(q) contracts, commitments or obligations not made in the ordinary
course of business and having unexpired terms in excess of one
year or requiring aggregate future payments or receipts in excess
of 430,000 or otherwise material to the business or operations of
any Company
Seller has provided Buyer with true and complete copies of all such written
leases, agreements, contracts, commitments and related agreements listed on
Schedule 4(j), including all amendments, modifications, waivers and elections
applicable thereto.
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Except as set forth in Schedule 4(j), such leases, agreements,
contracts, commitments and related agreements are valid and binding, enforceable
in accordance with their respective terms (subject to any applicable bankruptcy,
insolvency; fraudulent conveyance, reorganization, moratorium or other similar
laws affecting generally the enforcement of creditors' rights) and are in full
force and effect. Except as disclosed in Schedule 4(j), there is not under any
such lease, contract, agreement, commitment or related agreement, any existing
material breach or material default (or event or condition, which after notice
or lapse of time, or both, would constitute a material breach or material
default), by Seller or any Company , or to the knowledge of Seller any other
party thereto.
(k) Litigation; Decrees. No Company is a party to any lawsuit, claim
-------------------
(including without limitation claims for occupational pneumoconiosis,
occupational injury and occupational disease)), proceeding or investigation, and
no such lawsuit, claim, proceeding or investigation has been threatened in
writing within the last 24 months, as of the date of this Agreement, by or
against or affecting any Company or any of its properties, assets, operations or
businesses other than as set forth on Schedule 4(k). Schedule 4(k)identifies
the items of Excluded Litigation which Seller shall assume control of and be
responsible for pursuant to Section 3(c)(iii) and the items to be retained by
the Companies. No Company is subject to or in default under any material
judgment, order or decree of any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, applicable
to it or any of its properties, assets, operations or businesses.
(1) Benefit Plans. (i) No Company has ever maintained or contributed
-------------
to, or now maintains or contributes to, any "employees pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (referred to herein as a "Pension Plan") or "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) (referred to
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herein as a "Welfare Plan") except such Welfare Plans disclosed on Schedule
4(1)(i). Schedule 4(l)(i) also discloses any deferred compensation plan, bonus
plan, incentive plan, disability or other group insurance plan, stock option
plan, employee stock purchase plan, vacation plan, severance plan, sick leave
plan or policy, holiday plan or policy, maternity leave plan or policy or any
other benefit plan, program, agreement (including employment agreement or union
contracts), arrangements or commitments of any kind, maintained by any Company ,
that is not a Pension Plan or Welfare Plan. Seller has delivered to Buyer true,
complete and correct copies of (A) each plan disclosed on Schedule 4(l)(i) (a
"Company Plan") (or, in the case of any unwritten Company Plans, descriptions
thereof), (B) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each Company Plan (if any such report was
required by applicable law), (C)the most recent summary plan description for
each Company Plan for which a summary plan description is required by applicable
law and (4) each trust agreement and insurance or annuity contract relating to
any Company Plan.
(ii) Each Company Plan has been administered in all material respects
in accordance with its terms, except as disclosed in Schedule 4(l)(ii). Each
Company, its subsidiaries and all Company Plans are in compliance in all
material respects with the applicable provisions of ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), except as disclosed in Schedule
4(l)(ii). Except as disclosed in Schedule 4(l)(ii), all reports, returns and
similar documents with respect to the Company Plans required to be filed with
any governmental agency or distributed to any Company Plan participant have been
duly and timely filed or distributed. Except as disclosed in schedule 4(l)(ii),
there are no investigations by any governmental agency, termination proceedings
or other claims (except claims for benefits payable in the normal operation of
the Company Plans), suits or proceedings against or involving any Company Plan
or asserting any rights or claims to benefits under any Company Plan that could
give rise to any material liability, and there are not any facts that
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could give rise to any material liability in the event of any such
investigation, claim, suit or proceeding.
(iii) Schedule 4 (l)(iii) discloses whether each Welfare Plan is
(i) unfunded, (ii) funded through a "welfare benefit fund", as such term is
defined in Section 419(e) of the Code, or other funding mechanism or (iii)
insured. Each Welfare Plan (including any Welfare Plan covering retirees or
other former employees) may be amended or terminated without material liability
to any Company on or at any time after the Closing Date. The Companies and its
subsidiaries comply with the applicable requirements of Section 4980B(f) of the
Code with respect to each Company Plan that is a group health plan, as such term
is defined in Section 5000(b)(1) of the Code.
(iv.) Seller has listed on Schedule 4(l)(iv) each Pension
Plan subject to Title IV of ERISA or section 412 of the Code (a "Seller Pension
Plan") maintained or contributed to by any person or entity that, together with
Seller, is treated as a single employer under Section 414(b), (c), (m) or (o) of
the Code (each a "Commonly Controlled Entity"). Except as disclosed in Schedule
4(1)(iv), (A) all contributions to each Seller Pension Plan that may have been
required to be made in accordance with Section 302 of ERISA or Section 412 of
the Code have been timely made, (B) there has been no application for or waiver
of the minimum funding standards imposed by Section 412 of the Code with respect
to any Seller Pension Plan and (C) no Seller Pension Plan has an "accumulated
funding deficiency" within the meaning of Section 412(a) of the Code as of the
most recent plan year.
(v) Except as disclosed in Schedule 4(l)(v), no Seller Pension
Plan has been terminated nor have there been any "reportable events" (as defined
in Section 4043 of ERISA and the regulations thereunder) with respect thereto.
(vi) With respect to any Seller Pension Plan subject to Title IV
of ERISA, no Commonly Controlled Entity has incurred any material liability to
such Seller
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<PAGE>
Pension Plan or to the Pension Benefit Guaranty Corporation other than for the
payment of premiums, all of which have been paid when due.
(vii) Except as disclosed in Schedule 4(l)(vii), at no time within
the five years preceding the Closing Date has Seller or any Commonly Controlled
Entity been required to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA), and neither Seller nor any Commonly Controlled
Entity has incurred any withdrawal liability, within the meaning of Section 4201
of ERISA, which liability has not been fully paid as of the date hereof, or
announced an intention to withdraw, but not yet completed such withdrawal, from
any multiemployer plan. Except as disclosed on Schedule 4(l)(vii), no action
has been taken and no circumstances exist that, alone or with the passage of
time, could result in either a partial or complete withdrawal from any
multiemployer plan. Schedule 4(l)(vii) lists for each multiemployer plan,
Seller's best estimate of the amount of withdrawal liability that would be
incurred if each Commonly Controlled Entity were to make a complete withdrawal
from such plans of the Closing Date. The aggregate amount of withdrawal
liability from such complete withdrawal from all such plans will not exceed
$10,000.
(viii) Schedule 4(1) (viii) sets forth and identifies all
agreements to which any Company is a party, whether oral or in writing, with
present or former officers, directors or employees of, or consultants to, any
Company which (A) obligate any Company to pay, on any date or dates during the
remaining term of such agreement, an aggregate amount in excess of $10,000, or
(B) cannot be terminated on 60 days' notice.
(ix) Neither any Company nor any related person (within the
meaning of section 9701 (c)(2) of the Code) has any liability under subtitle J
of the Code (Coal Industry Health Benefits).
(x) Except as set forth in Schedule 4(1)(x), no employee or former
employee with any Company or any
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beneficiary thereof will become entitled to any bonus, retirement, severance,
job security or similar benefits or any enhanced benefits as a result of the
transactions contemplated hereby that will constitute a post closing obligation
of any of the Companies.
(m) Absence of Changes or Events. Except as expressly permitted by
----------------------------
the terms of this Agreement (including without limitation the distribution of
Excluded Assets and excess working capital as contemplated by this Agreement),
there has not been any material adverse change in the business, assets,
condition (financial or otherwise) or results of operations of any Company since
June 30, 1993; and Addington Resources, Inc. has caused the business of its
consolidated group (including the companies), since June 30, 1993, to be
conducted in the ordinary course and in substantially the same manner as
presently conducted and has made all reasonable efforts consistent with past
practices to preserve all reasonable efforts consistent with past practices to
preserve the Companies' relationships with customers, suppliers and others with
whom such Company deals, and each such Company has not taken any action that, if
taken after the date hereof, would constitute a breach of any of the covenants
set forth in Section 5A(b).
(n) Compliance with Applicable Laws. (i) Except as set forth in
-------------------------------
Schedule 4(n), each Company is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental authority or
instrumentality, domestic or foreign (including, without limitation, the Surface
Mining Control and Reclamation Act of 1977, as amended ("SMCRA"), the Federal
Mine Safety and Health Act of 1977, as amended, and the Black Lung Benefits
Reform Act of 1977, as amended), except where noncompliance would not have a
material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations of such Company. In addition, each of the
Companies is in material compliance with, and in good standing under, applicable
workers' compensation laws and in material compliance under black lung laws.
Except as
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set forth in Schedule 4(n), Seller has not received any written communication
from a governmental authority that alleges that any Company is not in
compliance, in all material respects, with all material Federal, state, local or
foreign laws, ordinances, rules and regulations.
(ii) Except as set forth in Schedule 4(n), to the best of Seller's
knowledge after reasonable investigation none of the operations or properties of
any Company is the subject of any Federal, state or foreign investigation
evaluating whether any remedial action is needed to respond to a release of any
Hazardous Substance (as hereinafter defined) into the environment, and neither
Seller nor any Company has received any written communication from a
governmental authority that alleges that any Company is not in compliance, and
each Company is in compliance, in all respects, with all Federal, state, local
or foreign laws, ordinances, codes, rules and regulations relating to the
environment ("Environmental Laws"). Except as set forth in Schedule 4(n),
Seller (in respect of the business of each Company)and each Company have filed
all notices and compliance reports required to be filed under Environmental Law
indicating past or present treatment, storage or disposal of a Hazardous
Substance in the environment. Except as set forth in Schedule 4(n), to the best
of Seller's knowledge after reasonable investigation no Company has any material
contingent liabilities in respect of its business in connection with any
Hazardous Substance that individually or in the aggregate would have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of its operations. "Hazardous Substance" shall mean: (i) any hazardous,
toxic or dangerous waste, substance or material defined as such in (or for
purposes of) the Comprehensive Environmental Response Compensation and Liability
Act, as amended, Super Fund Amendments and Reauthorization Act and so-called
superfund or superlien law, or any other Environmental Law, including
Environmental Laws relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material in
effect on the date of this Agreement, (ii) petroleum, asbestos or PCBs
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and (iii) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any Federal, state, foreign or local
governmental authority pursuant to any Environmental Law or any health and
safety or similar law, code, ordinance, rule or regulation, order or decree, and
which may or could pose a hazard to the health and safety of workers at or users
of any properties of any Company or cause offsite damage to adjacent property
owner or cause damage to the environment.
(iii) Neither Seller nor any person or entity "owned or controlled"
by Seller nor any person or entity which "owns or controls" Seller has been
notified by the Federal Office of Surface Mining or the agency of any state
administering the SMCRA (or any comparable state statute), that it is (A)
ineligible to receive additional surface mining permits or (B) under
investigation to determine whether its eligibility to receive such permits
should be revoked, i.e., "permit blocked". As used herein, the terms "owned or
---
controlled" and "owns or controls" shall be defined as set for in 30 C.F.R. (S)
773.5 (1991).
(iv) Except as set forth in Schedule 4(n) (iv), as of the Closing
Date there will be no underground storage tanks on any real property owned or
controlled by any Company.
(o) Employee and Labor Relations. Except as set forth on Schedule
----------------------------
4(o), no Company is a party to, bound by, or negotiating any collective
bargaining agreement or any other agreement with any labor union, association or
other employee group, nor is any employee of any Company represented by any
labor union or similar association. No labor union or employee organization has
been certified or recognized as the collective bargaining representative of any
employees of any Company. There are no formal union organizational campaigns or
representation proceedings underway or to the best of Seller's knowledge pending
or planned with respect to any employees of any Company nor are there any
existing or pending or planned labor strikes, work stoppages,
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slowdowns, disputes, grievances, unfair labor practice charges, labor
arbitration proceedings or other disturbances affecting any employee of any
Company, or affecting operations at or deliveries to any mine or other facility
of any Company. Except as described on Schedule 4(o)or Schedule 4(l)(i), no
Company has any liability for any arrearage of wages or for any delinquent
unemployment, FICA or other employee taxes or for any penalties or interest for
failure to timely pay any such taxes due. No Company has pending against it any
unfair labor practice charges, other administrative charges, claims, grievances
or lawsuits before any court, governmental agency, regulatory body or arbitrator
arising under any Federal or state law, regulation or executive order governing
employment.
(p) Licenses; Permits. Schedule 4(p) sets forth a true and complete
-----------------
list of all material licenses, permits, certificates, bonds, approvals and other
such authorizations issued or granted to each Company by local, state or Federal
governmental authorities or agencies. Except as disclosed on Schedule 4(p), all
material, licenses, permits, certificate, bonds, approvals or other such
authorizations of each Company are validly held by it, each Company has complied
with all material requirements in connection therewith and the same will not be
subject to suspension, modification or revocation as a result of this Agreement
of the consummation of the transactions contemplated hereby. Each Company has
all material licenses, permits, certificates, bonds, approvals and other such
authorizations from local, state or Federal government authorities or agencies
which are necessary for the conduct of each Company's business.
(q) Bank Accounts and Powers of Attorney. Schedule 4(q) contains a
------------------------------------
complete and correct list and summary description showing (i) the name of each
bank in which any Company has an account or safe deposit box and names of all
persons authorized to draw thereon or to have access thereto, and (ii) the names
of all persons, if any, holding powers of attorney from any Company.
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(r) Transaction with Affiliates. Except as set forth in the notes to
---------------------------
the Financial Statements or in the Schedules hereto, no Company has any
outstanding contract agreement or other arrangement with Seller or any of its
affiliates with which will continue in effect subsequent to the Closing.
(s) West Virginia Business Investment and Jobs Expansion Tax Credits
----------------------------------------------------------------
("STC"). Seller's affiliate, Appalachian Mining, Inc. ("AMI") is a participant
- - ------
in a qualified multiyear, multiparticipant STC project (the "Alloy STC
Project"). Neither Seller not its affiliates including Vandalia Resources, Inc.
("Vandalia") and AMI, has since January 29, 1993 taken any action of failed to
take any action or failed to take any action which would impair the status (if
any) which the multiyear, multi participant STC project (the "Vandalia STC
Project") had on January 29, 1993. The Alloy STC Project and the Vandalia STC
Project, are collectively referred to as the "STC Projects". Schedule 4(s)(i)
lists the assets of AMI and of Vandalia which will remain in service in the STC
Projects on the Closing Date and the useful lives that AMI and Vandalia have
respectively assigned to those assets for STC Purposes. Schedule 4 (s)(ii)
lists the actual amounts of credit claimed through 1992 by AMI in the Alloy STC
Project. Schedule 4(s)(iii) lists the "new jobs", as defined in W. Va. Code
(S) 11-13C-4(b) which AMI and Vandalia claim are created as of the Closing Date
in each of the STC Projects. Notwithstanding anything in this Agreement to the
contrary, SELLER DOES NOT REPRESENT, WARRANT OR GUARANTY THAT BUYER OR AMI OR
VANDALIA WILL RECEIVE ANY TAX CREDITS RELATING TO THE STC PROJECTS OR THAT
POSITION TAKEN BY AMI AND VANDALIA AS TO THE "NEW JOBS" LISTED IN SCHEDULE
4(s)(iii) WILL BE ACQUIESCED TO BY THE WEST VIRGINIA DEPARTMENT OF TAX AND
REVENUE.
(t) Patents and trademarks. No Company has any patents, trademarks,
----------------------
tradenames, service marks, copyrights or patent applications pending, and are
not subject to any license agreements with third parties or agreements requiring
royalty or other payments in respect of such matters.
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<PAGE>
(u) Insurance. Schedule 4(u) contains a complete and correct list and
---------
summary description of all policies of insurance which are in effect, including
amounts thereof, in which any Company is named as the insured party, has a
beneficial interest or for which it has paid any premiums. Such policies are in
full force and effect and insure all assets and property of each Company against
loss or damage in amounts as set forth in such policies. Until the Closing
Date, Seller will cause each Company to maintain in full force and effect its
presently existing insurance coverage, or insurance comparable to such existing
coverage.
(v) As Is. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN
-----
DOCUMENTS OR INSTRUMENTS EXECUTED PURSUANT TO THIS AGREEMENT, BUYER ACKNOWLEDGES
THAT SELLER HAS MADE NO REPRESENTATIONS REGARDING THE VALUE OR CONDITION OF THE
ASSETS OF THE COMPANIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE
ASSETS OF THE COMPANIES WILL BE HELD BY THE COMPANIES AT CLOSING "AS IS, WHERE
IS" WITH NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO TITLE,
OWNERSHIP, USE, POSSESSION, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
QUANTITY OR QUALITY OF RESERVES, MINING COSTS OR RATIOS, GRADE, RECOVERABILITY,
VALUE, MINEABILITY, CONDITION, OPERATION, DESIGN, CAPACITY, TAX, TREATMENT, OR
OTHERWISE, AND ALL SUCH REPRESENTATIONS AND WARRANTIES ARE EXPRESSLY DISCLAIMED.
NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO DIMINISH OR LIMIT THE EXPRESS
REPRESENTATIONS, WARRANTIES OR COVENANTS CONTAINED IN THIS AGREEMENT.
5. Covenants.
---------
5A. Covenants of Seller. Seller covenants and agrees as follows:
-------------------
(a) Access. Seller shall, and shall cause each Company, and its or
------
their officers, directors, employees and agents to, afford the officers,
employees and agents of Buyer complete access at all reasonable times, from the
date hereof to the Closing, to its or their officers, employees, agents,
properties, books, and records, and
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shall furnish Buyer all financial, operating and other data and information as
Buyer, through its officers, employees, or agents, may reasonably request, but
only to the extent that any of the foregoing relates to any Company. Buyer
acknowledges that it has been given access to such information at various times
over the twelve month period preceding this Agreement. Subject to applicable law
or court orders, Buyer shall cause all such information of a non-public nature
provided by Seller, and shall promptly destroy all analyses, compilations,
studies or other documents of or prepared by the Buyer from such non-public
information. If this Agreement is terminated, Buyer shall not use or disclose
any confidential information obtained from Seller or the Companies, or other
information concerning the business or properties of the Seller or the
Companies. Buyer shall be responsible for maintaining the confidentiality of
such confidential and trade secret information and ensuring that such
information is not used or disclosed by its employees, affiliates and agents,
and Buyer shall be responsible for the acts of its agents, employees and
affiliates in that regard.
(b) Ordinary Conduct. Except as set forth on Schedule 5A(b) or
----------------
otherwise expressly permitted by the terms of this Agreement, or as necessary in
connection with taking such actions with regard to the assets and liabilities of
the Companies as are contemplated by this Agreement (including without
limitation the distribution of Excluded and excess working capital as
contemplated by this Agreement), from the date hereof to the Closing, Seller
will cause the business of each Company to be conducted in the ordinary course
in substantially the same manner as presently conducted and will make all reason
efforts consistent with past practices to preserve its relationships with
customers, employees, suppliers and others with whom such Company deals. In
addition, except as set forth on Schedule 5A (b) or other expressly permitted by
the terms of this Agreement (including without limitations the distribution of
Excluded Assets and excess working capital as contemplated by this Agreement),
Seller will not permit any Company to do any
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of the following without the prior written consent of Buyer:
(i) amend its Articles of Incorporation or By-laws;
(ii) declare or pay any dividend or make any other distributions to
its shareholders whether or not upon or in respect of any shares of its
capital stock;
(iii) redeem or otherwise acquire any shares of its capital stock
or issue any capital stock or or any securities convertible into or
exchangeable for any shares of capital stock; any option, warrant or right
relations thereto
(iv) grant to any employee, officer or director any increases in
compensation or benefits, or enter into any employment contract or adopt, amend
or terminate any profit sharing, compensation, bonus, deferred compensation,
pension, retirement or other employee benefit plan, agreement, fund, trust or
arrangement, for the benefit or welfare of any employee;
(v) incur or assume any liabilities, obligations or indebtedness
for borrowed money or guarantee any such liabilities, obligations or
indebtedness;
(vi) permit, allow or suffer any of its assets to be subjected to
any mortgage, pledge, lien, encumbrance, restriction or charge of any kind;
(vii) cancel material indebtedness (individually or in the aggregate)
or waive any claims or rights of substantial value;
(viii) except as contemplated by this Agreement, loan or advance any
amount to, or sell, transfer or lease any of its assets to, or enter into
any agreement or arrangement with Seller or any of its affiliates;
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(ix) make any change in any method of accounting or accounting
practice or policy other then those required by generally accepted
accounting principles;
(x) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets (other then inventory) which are material individually,
or in the aggregate, to such Company;
(xi) make or incur any capital expenditure or expenditures which,
individually, is in excess of $5,000 or, in the aggregate, are in excess of
$25,000;
(xii) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets, except in the ordinary course of
business consistent with past practice;
(xiii) enter into any lease of real property;
(xiv) enter into any new commitments for the sale or purchase of
coal the performance of which extends beyond January 31, 1994 or the
purchase or disposition of coal properties or amend any existing coal sales
agreement; or
(xv) agree, whether in writing or otherwise, to do any of the
foregoing.
Seller shall not, and shall not permit any Company to, take any
action that would, or that could reasonably be expected to, result in (i) any of
its representations and warranties set forth in this Agreement becoming untrue
or (ii) any of the conditions to the purchase and sale of the Shares not being
satisfied.
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(c) Pro Forma Balance Sheet. Schedule 5A (c) sets forth a pro forma
-----------------------
balance sheet (the "Pro forma Balance Sheet") reflecting the assets,
liabilities, and working capital which each Company would have had if the
Closing had occurred on June 30, 1993 after the distribution of the Excluded
Assets and Excluded Liabilities.
(d) Resignations. On the Closing Date, Seller shall cause to be
------------
delivered to Buyer duly sided resignations, effective immediately after the
Closing Date, of all officers and directors of each Company and shall take such
other action as is necessary to accomplish the forgoing.
(e) Other Transactions; Seller Beak-Up Fee. Prior to the Closing;
none of Seller, any Company, ARI nor any other affiliate of Seller shall, nor
shall they permit any of their respective officers, directors, or other
representatives to directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information or
assistance to, any corporation, partnership, person, or other entity or group
(other than Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving any
Company; but the foregoing shall not prohibit Seller or its affiliates from
engaging in discussions or negotiations with, or furnishing information to, a
third party who seeks to initiate such discussions or negotiations following
Seller's receipt of a written proposal which is financially superior as compared
to this Agreement (as determined by Seller's Board of Directors), but only to
the extent that Seller's Board of Directors shall conclude in good faith on the
basis of written advice from Seller's outside securities counsel that such
action is necessary in order for Seller and its board of directors to act in a
manner consistent with its or their fiduciary duties (a "Superior Offer"). In
the event that Seller or any Company receives a Superior Offer, Seller will
promptly notify Buyer of such proposal and keep Buyer fully informed of any
progress, action or event with respect thereto. Upon receipt of
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any such notice from Seller, Buyer shall have the sole and exclusive right to
terminate the obligations of Buyer and Seller under this Agreement; provided
that if ARI or Seller executes an agreement pertaining to a Superior Offer,
Seller shall pay Buyer $15 million as a break-up fee within five business days
of such execution. However, nothing contained in the foregoing provisions of
this Section 5A(e) shall preclude or limit Buyer from pursuing any rights or
remedies against any person or entity who submits any such Superior Offer.
(f) Supplemental Disclosure. Seller shall have the continuing
-----------------------
obligation until the Closing to supplement or amend the Schedules hereto with
respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in such Schedules; provided, however, that for the purpose of the
-------- -------
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date of
this Agreement unless so agreed in writing by Buyer.
(g) Trustee and Bank Releases. ARI and Seller shall obtain
-------------------------
documentation from each of the Trustee and the Bank evidencing the release of
each Company and its assets under existing credit agreements prior to the
Closing.
(h) Other Financial Statements. On or before October 20, 1993, Seller
--------------------------
acknowledges and agrees to use its best efforts to provide to Buyer unaudited
financial statements described in Section 4 (f)(i) above for the quarter year
and year to date periods ended September 30, 1992 and September 30, 1993 which
shall then be included as a part of the Financial Statements (as defined in
Section 4(f)(i)) If such financial statements are provided to Buyer after
October 20, 1993, the dates specified in Sections 2(a) and 29 shall be extended
for the same number of days between October 20, 1993 and the date such financial
statements are provided to Buyer. Such financial statements shall in any event
be provided to Buyer not later than November 15, 1993.
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5B. Covenants of Buyer. Buyer covenants and agrees as follows:
------------------
(a) Buyer's Actions. Buyer shall not take any action that would, or
---------------
that could reasonably be expected to, result in (i) any of its representations
and warranties set forth in this Agreement becoming untrue in any material
respect, or (ii) any of the conditions to the purchase and sale of the Shares
not being satisfied in any material respect; and buyer shall cooperate with
Seller in the removal of liability and obligations under bonds and guarantees
specified on Schedule 5B(a). Buyer also agrees to provide such financial and
other information of Buyer and of Pittston Minerals Group, Inc. as is necessary
to accomplish such replacement or substitution. Except for the bonds listed on
Schedule 3(b)(ix) and the guarantees specified on Schedule 3(b)(x), if the
removal of liabilities and obligations are unable to be obtained as of the
Closing Date with respect to each of those bonds and guarantees described on
Schedule 5B(a), then in lieu of such removal, Seller will accept an indemnity
substantially in the form of Exhibit H from Pittston Minerals Group, Inc.
("PMGI"), provided that PMGI shall have at least $70 million net worth and debt
not exceeding $90 million (exclusive of debt of the Companies) immediately
following the Closing. After the Closing Date, Buyer shall also continue to also
use its best efforts to remove Seller and its affiliates and its officers from
such liabilities or obligations listed on Schedule 5B(a).
(b) Supplemental Disclosure. Buyer shall have the continuing
-----------------------
obligation until the Closing to supplement, or amend its Schedules with respect
to any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
such Schedules; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless so agreed in writing by Seller.
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<PAGE>
(c) Planned Closing of Any Company Employment Site. Prior to the
----------------------------------------------
Closing, Buyer shall have the continuing obligation to immediately advise Seller
of any planned or intended closing of any Company's employment sites existing
immediately prior to the Closing, or layoff of any Company's employees employed
immediately prior to Closing, where such closing or layoff may or will be
sufficient to invoke coverage of the Worker Adjustment and Retraining
Notification Act of 1989 for such Company.
(d) Certain Rulings. With regard to the ruling referred to in Section
---------------
3(a) (xii), Buyer will make such request for determination with reasonable
diligence.
6. Representations and Warranties of Buyer. Buyer hereby represents
---------------------------------------
and warrants to Seller as follows:
(a) Authority. Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the Commonwealth of Virginia.
Buyer has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. All corporate
acts and other proceedings required to be taken by Buyer to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by Buyer and constitutes a valid
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
terms hereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give right to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
any of the properties or assets of the Company under, any provision of (i) the
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Stock Corporation Act of the Commonwealth of Virginia, (ii) the Articles of
Incorporation or bylaws of Buyer, (iii) any material note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment, agreement or
arrangement to which Buyer is a party or by which any of its properties are
bound or (iv) any judgment, order, or decree or material statute, law,
ordinance, rule or regulation applicable to Buyer or its property or assets. No
consent, approval, license, permit order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required to be obtained or made by or with respect to Buyer in connection with
the execution and delivery of this Agreement or the consummation by Buyer of the
transactions contemplated hereby, other than (A) compliance with and filings
under the HSR Act and (B) compliance with and filings under Section 13 (a) or 15
(d), as the case may be, of the Exchange Act.
(b) Actions and Proceedings, etc. There are no (I) outstanding
----------------------------
judgements, orders, write, injunctions or decrees of any court, governmental
agency or arbitration tribunal against Buyer which have an adverse effect on the
ability of Buyer to consummate the transactions contemplated hereby or (ii)
actions, suits, claims or legal, administrative or arbitration proceedings or
investigations pending or, to the best knowledge of Buyer, threatened against
Buyer, which are likely to have a material adverse effect on the ability of
Buyer to consummate the transactions contemplated hereby.
(c) Consents. No consent of any party and no consent, license,
--------
approval or authorization of, or exemption by, or filing restriction or
declaration with, any governmental authority, bureau, agency or regulatory
authority is required in connection with the execution, delivery, validity or
enforceability of this Agreement or the consummation of the transactions
contemplated hereby and thereby.
(d) Qualification. Buyer is duly qualified and in good standing to do
-------------
business in each jurisdiction I
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which the nature of its business or the ownership, leasing or holding of its
properties make such qualification necessary, except such jurisdictions where
the failure so to qualify would not have a material adverse effect on the
business, assets, conditions (financial or otherwise) or results of operations
of Buyer. Buyer has made available to Seller true and complete copies of its
Articles of Incorporation, as amended to date, and its By-laws, as in effect on
the date hereof.
(e) No Broker. Buyer has not retained any broker or finder nor has
---------
any finder or broker acted on behalf of Buyer in connection with this Agreement
or the transactions contemplated hereby.
(f) Investment Intent. Buyer is acquiring the Shares solely for
-----------------
its own account for the purpose of investment and not with a view to or for sale
in connection with any distribution thereof, and has no present intention or
plan to effect any resale, assignment or distribution of the of the Shares.
Buyer acknowledges that the Shares have not been registered or qualified under
the Securities Act of 1933 or any state securities laws and may be sold,
assigned, pledge or otherwise disposed of in the absence of such registration
only pursuant to an exemption form such registration. Buyer acknowledges that
the certificates evidencing the Shares shall each bear a restrictive legend to
the foregoing effect. Buyer has received such information from Seller and the
Companies as it has requested and acknowledges that there are no representations
or warranties, express or implied, except as expressly set forth in this
Agreement.
(g) Permit Blocking. Except as set out on Schedule 6 (g), neither
---------------
Buyer nor any person or entity "owned or controlled" by Buyer nor any person or
entity which "owns or controls" Buyer has been notified by the Federal Office of
Surface Mining or the agency of any state administering the SMCRA )or any
comparable state statute), that it is (A) ineligible to receive additional
surface mining permits or (B) under investigation to
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determine whether its eligibility to receive such permits should be revoked,
i.e., "permit blocked". As used herein, the te4rms "owned or controlled" and
"owns or controls" shall be defined as set for in 30 C.F.R. (S) 773.5 (1991).
7. Mutual Covenants. Each of Seller and Buyer covenants and agrees
----------------
as follows:
(a) Cooperation. Buyer and Seller shall cooperate with each other and
-----------
shall cause their officers, employees, agents, auditors and representatives to
cooperate with each other after the Closing to ensure the orderly transition of
each Company from Seller to Buyer and to minimize any disruption to the
respective businesses of Seller, Buyer or any Company that might result from the
transactions contemplated hereby. Neither party shall be required by this
Section 7 (a) to take any action that would unreasonably interfere with the
conduct of business.
(b) Best Efforts. (i) Subject to the terms and conditions of this
------------
Agreement, each party will use its best efforts to cause the consents of or
releases from, as appropriate, the Trustee and the Bank set forth in Section 3
to be obtained and all other conditions to the Closing to occur.
(ii) Seller shall use its best efforts to take, and cause to be taken,
all actions and to do, and cause to be done, all things necessary, proper or
advisable under applicable laws and regulations and otherwise, to obtain prior
to Closing all authorizations, consents and waivers ("Consents") required form
third parties to consummate and make effective the transactions contemplated by
this Agreement (which Consents shall include without limitation those set forth
on Schedule 4 (a)), provided, however, that nothing contained herein shall
require Seller, Buyer or any Company to assume any additional obligation or
incur any additional liability in order to obtain Consents. Buyer shall use its
best efforts to assist and cooperate with Seller in such efforts. Each party
agrees to keep the other fully
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informed with respect to such efforts. In the event any Consent is not obtained
prior to Closing despite the best efforts of Seller and Buyer, Buyer and Seller
shall negotiate in good faith a mutually acceptable solution to the failure to
obtain any required Consent, but if a mutually acceptable solution is not
reached and the failure to obtain such Consent would have material adverse,
consequences to the transactions contemplated by this Agreement, then in such
event the party or parties disadvantaged by failure to obtain such Consent shall
have the right to terminate this Agreement without any further liability to the
other party.
(iii) Notwithstanding the foregoing provisions of Section 7 (b)
(ii), with respect to consents required with respect to the documents specified
on Schedule 3 (b) (xiv) (the "Early Consents"), withing 30 days of execution of
this Agreement, Seller shall advise Buyer of any Early Consents Seller
reasonably determines that it will not be able to obtain prior to Closing.
Buyer shall thereupon have the right for an additional 15 days to pursue the
obtaining of such Early Consents which Seller has determined are not obtainable.
At the expiration of the aforesaid 45 day period, if Buyer and Seller, have not
been able to agree on a mutually acceptable solution to the failure to obtain
any required Early consent, then Seller shall have the right for a period of
five days following expiration of such 45 day period to terminate this Agreement
without any further liability to Buyer.
(c) Antitrust Notification. Each of Seller and Buyer will as promptly
----------------------
as practicable, but in not event later than five business days following the
execution and delivery of this Agreement, file with the United States Federal
trade Commission (the "FTC") and the United States Department of Justice (the
"DOJ") the notification and report form required for the transactions
contemplate hereby and any supplemental information re1uested in connection
therewith pursuant to the HSR Act. Any such notification and report form and
supplemental information will be in substantial
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compliance with the requirements of the HSR Act. Any such notification and
report form and supplemental information will be in substantial compliance with
the requirements of the HSR Act. Each of Buyer and Seller shall furnish to the
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission which is
necessary under the HSR Act. Seller and Buyer shall keep each other apprized of
the status of any communications with, and inquiries or requests for additional
information from, the FTC and the DOJ and shall comply promptly with any such
inquiry or request. Each of Seller and Buyer will use its best efforts to obtain
any clearance required under the HSR Act for the purchase and sale of the
Shares. Each party shall be responsible for its filing fees relation to the
filing of HSR Act notification and report form.
(d) Records. (i) On the Closing Date, Seller shall deliver or
-------
cause to be delivered or cause to be delivered to Buyer all original agreements,
documents, books, records and files (collectively, "Records"), in the possession
of Seller relating to the business and operations of each Company to the extent
not then in the possession of such Company, subject to the following exceptions:
(A) Buyer recognizes that certain Records may contain incidental
information relating to a Company or may relate primarily to subsidiaries
or divisions of Seller other then such Company, and that Seller may retain
such Records and shall provide copies of the relevant portions thereof to
Buyer; and
(B) Seller may retain any Tax returns, reports or forms, and Buyer
shall be provided with copies of such returns, reports or forms only to the
extent that they relate to any Company's separate returns or separate Tax
liability.
(ii) After the Closing, upon reasonable written notice, Buyer and
Seller agree to furnish or cause to be furnished to each other and their
representatives, employees, counsel and accountants access, during normal
business hours, such information (including Records pertinent to each Company)
and
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assistance relating to any Company as is reasonably necessary for financial
reporting and accounting matters, the preparations and filing of any Tax
returns, reports or forms or the defense of any Tax claim or assessment;
provided, however, that such access does not unreasonably disrupt the normal
- - -------- -------
operations of Seller, Buyer or such Company.
(e) Non-Disclosure. Subject to applicable law or court order, each
--------------
party shall cause all such information of a non-public nature obtained by its
pursuant to this Agreement to be retained confidentially. If this Agreement is
terminated, each party shall promptly return all such information of non-public
nature provided by the other party, shall promptly destroy all analyses,
cumulations, studies or other documents of or prepared by it form such non-
public information, shall not use or disclose any such non-public information to
third parties and shall take reasonable step to cause its agents and employees
to comply with this provision.
(f) Litigation Support. The parties shall cooperate with each other
------------------
in the defense or contest, make available their personnel, and provide such
testimony and reasonable access to their books and records as shall be necessary
in connection with the defense or contest of any action, suit, proceeding,
hearing, investigation, charge, compliant or claim which questions the validity
of this Agreement or seeks to enjoin, retrain or prohibit the transactions
contemplated by this Agreement.
8. Further Assurances. From time to time as and when requested by
------------------
either party hereto, the other party shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplate by this agreement.
9. Indemnification. (a) Tax Indemnification.
---------------- -------------------
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<PAGE>
(i) Seller shall indemnify Buyer and its affiliates (including each
Company) and each of their respective officers, directors, employees and agents
and hold them harmless from (A) all liability for Taxes of any Company for the
Pre-Closing Tax Period, (B) all liability (As a result of Treasury Regulation
(S)1.1502-6 or otherwise) for Taxes of Seller, any Affiliated Group or any
member of any Affiliated Group, (C) all liability for federal and state income
taxes and sales taxes resulting from the Section 338 (g) and 338(h) (10)
elections (or any comparable election under state or local Tax law) contemplated
by Section 10(a) of this Agreement, and (d) all liability for reasonable legal
fees and expenses attributable to any item in clause (A), (B) or (C) above.
(ii) Buyer shall, and shall cause each Company to, indemnify Seller
and its affiliates and each of their respective officers, directors, employees
and agents and hold them harmless from (A) all liability for Taxes of each such
Company (other than Taxes described in clauses (i)(A),(i)(B)or (i)(C) of this
Section 9 (a)) and (B) all liability for reasonable legal fees and expenses
attributable to any item in clause (A) above.
(iii) Any Tax returns (other than those returns relating to an
election made under Section 10 (a) of this Agreement) for the Pre-Closing Tax
Period, the due dates for which returns are not until after Closing and have not
been filed prior to Closing (other than for Straddle Period Tax returns), shall
be prepared by Seller and furnished, along with payment of any Tax liability
due, to any Company for approval (which approval shall not be unreasonably
withheld) and signature at least 30 days prior to the due date for filing such
returns.
(iv) In the case of any taxable period that includes (but does not
end on) the Closing Date (each a "Straddle Period"):
(A) real, personal and intangible property Taxes ("Property
Taxes")of any Company attributable to the Pre-Closing Tax Period shall be
equal to the
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<PAGE>
amount of such Property Taxes for the entire Straddle Period multiplied by
a fraction, the numerator of which is the number of days during the
Straddle Period that are in the Pre-Closing Tax Period and the denominator
of which is the number of days in the Straddle Period;
(B) The West Virginia Severance Tax ("Severance Tax") of any
Company attributable to the Pre-Closing Tax Period shall be computed as if
such taxable period ended as of the close of business on the Closing Date
including all Severance Tax on the sale of inventory as a result of this
transaction and the STC Credits attributable to the Pre-Closing Tax Period
shall be equal to the amount of such STC Credits for the entire Straddle
Period, multiplied by a fraction, the numerator of which is the number of
days during the Straddle Period that are in the Pre-Closing Tax Period and
the denominator of which is the number of days in the Straddle Period; and
(C) the Taxes of any Company (other than Property Taxes and
Severance Tax) attributable to the Pre-Closing Tax Period shall be computed
as if such taxable period ended as of the close of business on the Closing
Date.
Seller's indemnity obligation in respect of Taxes for a Straddle Period shall
initially be effected by its payment to Buyer of the excess of (x) such Taxes
for the Pre-Closing Tax Period over (y) the amount of such Taxes paid by Seller
or any of its affiliates (other than any Company) at any time plus the amount of
such Taxes paid by any Company on or prior to the Closing Date. Seller shall
initially pay such excess to Buyer within five days prior to the due date of any
return, report or form with respect to Straddle Period Taxes. If the amount of
such Taxes paid by Seller or any of its affiliates (other than any Company) at
any time plus the amount of such Taxes paid by any Company on or prior to the
Closing Date exceeds the amount payable by Seller pursuant to the preceding
sentence, Buyer shall pay to Seller the amount of such excess (a) in the case of
Property Taxes, at the Closing
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<PAGE>
(the "Closing Tax Adjustment Amount") and (b) in all other cases, within five
days prior to the due date of the return, report or form with respect to the
final liability for such Taxes is required to be filed. The payments to be made
pursuant to this paragraph by Seller or Buyer with respect to a Straddle Period
shall be appropriately adjusted to reflect any final determination (which shall
include the execution of Form 870-AD or successor form) with respect to Straddle
Period Taxes.
(b) Other Indemnification by Seller. Seller shall indemnify Buyer,
-------------------------------
its affiliates (including each Company) and each of their respective officers,
directors, employees and agents and hold them harmless from any loss, liability,
claim, damage or expense (including reasonable legal fees and expenses) suffered
or incurred by any such indemnified party (other than any relating to Taxes and
STC, for which indemnification provisions are set forth in paragraph (a), (g)
and (h) of this Section 9) to the extent arising from (i) any breach of any
representation or warranty of Seller contained in this Agreement or in any
Schedule, certificate, instrument or other document delivered by it pursuant
hereto (ii) any breach of any covenant of Seller contained in this Agreement
requiring performance after the Closing Date or (iii) any Excluded Liabilities.
Seller's obligation to indemnify Buyer under this Section 9(b) shall be subject
to the following:
(A) Subject to the limitations specified in Section 9(i) hereof, there
shall be no other limitation on the amount of liability for breach of
representations contained in Sections 4(a), (b), (c), (d), (e), (g) and (s);
(B) There shall be no limitation on the amount of liability for
obligations of any Company which by the express terms of this Agreement are not
to be obligations of any Company as of the Closing but instead are to be
distributed out of the Company by not later than the Closing or are to be
retained by Seller specifically including the Excluded Liabilities;
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<PAGE>
(C) For all other obligations to indemnify, Seller shall be
responsible as follows:
(w) For losses exceeding $250,000.00 if notice of a claim for
indemnification is received by Seller before the first anniversary of the
closing;
(x) For losses exceeding $500,000.00 if notice of a claim for
indemnification is received by Seller during the period between the first and
second anniversary of the closing;
(y)_ For losses exceeding $1,000,000.00 if notice of a claim for
indemnification is received by Seller during the period between the second and
third anniversary of the closing; and
(z) For losses exceeding $5,000,000.00 if notice of a claim for
indemnification is received by Seller during the period between the third and
fourth anniversary of the Closing.
(D) Notice of any claim for indemnification shall be in writing and
shall state with specificity the nature and circumstances giving rise to such
claim and the amount thereof. Claims for indemnification shall not be
accumulated from year to year for purposes of annual thresholds.
(c) Indemnification by Buyer. Buyer shall indemnify Seller, its
------------------------
affiliates, and each of their respective officers, directors, employees and
agents and hold them harmless from any loss, liability, claim, damage or expense
(including reasonable legal fees and expenses) suffered or incurred by any such
indemnified party to the extent arising from (i) any breach of any
representation or warranty of Buyer contained in this Agreement or in any
Schedule, certificate, instrument or other document delivered by it pursuant
hereto, (ii) any breach of any covenant of Buyer contained in this Agreement
requiring performance after the Closing Date, (iii) any breach of the covenant
of Buyer contained in this Agreement obligating Buyer to immediately notify
Seller of any
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<PAGE>
planned or intended closing of employment sites or layoff of employees,
involving any Company's employment sites or employees existing immediately prior
to the Closing, where such closing or layoff may or will be sufficient to invoke
coverage of the Worker Adjustment and Retraining Notification Act of 1989 for
such Company or (iv) any liabilities or obligations of any Company arising from
events which occur after the Closing Date except any Excluded Liabilities. With
respect to Buyer's obligation to indemnify under this Section 9(c), Buyer shall
be subject to the following:
(A) There shall be no limitation on the amount of liability for
breach of representations contained in Section 6(a)-(d) and (f).
(B) For all other obligations to indemnify, Buyer shall be
responsible as follows:
(w) For losses exceeding $250,000.00 if notice of a claim for
indemnification is received by Buyer before the first anniversary of the
Closing;
(x) For losses exceeding $500,000.00 if notice of a claim for
indemnification is received by Buyer during the period between the first and
second anniversary of the Closing;
(y) For losses exceeding $1,000,000.00 if notice of a claim for
indemnification is received by Buyer during the period between the second and
third anniversary of the Closing; and
(z) For losses exceeding $5,000,000.00 if notice of a claim for
indemnification is received by buyer during the period between the third and
fourth anniversary of the Closing.
(C) Notice of any claim for indemnification shall be in writing and
shall state with specificity the nature and circumstances giving rise to such
claim and the amount thereof. Claims for indemnification shall not be
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<PAGE>
accumulated form year to year for purposes of annual thresholds.
(D) Losses Net of Insurance, etc. The amount of any loss, liability,
----------------------------
claim, damage, expense or Tax for which indemnification is provided under this
Section 9 shall be net of any amounts recovered or recoverable by the
indemnified party under insurance policies with respect to such loss, liability,
claim, damage, expense or Tax and shall be (i) increased to take account of any
net Tax cost incurred by the indemnified party arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (ii) reduced to
take account of any net Tax benefit available to and/or realized by the
indemnified party arising from the incurrence or payment of any such loss,
liability, claim, damage, expense or Tax. In computing the amount of any such
Tax cost or Tax benefit, the indemnified party shall be deemed to recognize all
other items of income, gain, loss, deduction or credit before any item arising
from the receipt of any indemnity recognizing payment hereunder or the
incurrence or payment of any indemnified loss, liability, claim, damage, expense
or Tax.
(E) Termination of Indemnification. The obligations to indemnify and
------------------------------
hold harmless a party hereto (i) pursuant to Section 9 (a) shall terminate at
the time the applicable statute of limitations with respect to the Tax liability
in question expires (giving effect to any extension thereof), (ii) pursuant to
Section 9(b)(i) shall terminate when the applicable representation or warranty
terminates pursuant to Section 13, (iii) pursuant to Section 9(h)(i) shall not
terminate, (iv) with respect to any liability of any Company which by the
express terms of this Agreement are not to be obligations of any Company as of
the Closing shall not terminate and (v) pursuant to any other provision to
indemnify and hold harmless hereunder shall terminate at the close of business
four years following the Closing Date; provided, however, that as to clauses (i)
-------- -------
and (ii) above such obligations to indemnify and hold harmless shall not
terminate with respect to any item as to which the person to be indemnified or
the related party hereto shall have, before the expiration of
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the applicable period, previously made a claim by delivering a notice (stating
in reasonable detail the basis of such claim) to the indemnifying party.
(f) Procedures Relating to Indemnification (Other than Under Section
----------------------------------------------------------------
9(a) and 9(h)). In order for a party (the "indemnified party") to be entitled
- - ---------------
to any indemnification provided for under this Agreement (other than under
Sections 9(a) or (h)) in respect of, arising out of or involving a claim or
demand made by any person, firm, governmental authority or corporation against
the indemnified party (a "Third Party Claim"), such indemnified party must
notify the indemnifying party in writing, and in reasonable detail, of the Third
Party Claim within 10 business days after receipt of such indemnified party of
written notice of the Third Party Claim; provided, however that failure to give
such notification shall not affect the indemnification provided hereunder except
and unless to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure (the indemnifying party shall not be
liable for any expenses incurred during the period in which the indemnified
party failed to give such notice). Thereafter, the indemnified party shall
deliver to the indemnifying party, within five business days after the
indemnified party's receipt thereof, copies of all notices and documents
(including court papers) received by the indemnified party relating to the Third
Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. Should
the indemnifying party so elect to assume the defense of a Third Party Claim the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by the
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indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof (other than
during any period in which the indemnified party shall have failed to give
notice of the Third Party Claim as provided above). If the indemnifying party
chooses to defend or prosecute any Third Party Claim, all of the parties hereto
shall cooperate in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the indemnifying party's request) the provision
to the indemnifying party of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient and reasonable basis to provide additional information and
explanation of any material provided hereunder. Whether or not the indemnifying
party shall have assumed the defense of a Third Party Claim, the indemnified
party shall not admit any liability with respect to , or settle, compromise or
discharge, such Third Party Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld).
(g) Procedures Relating to Indemnification of Tax Claims. If either
Seller or Buyer receives a written claim from any taxing authority that, if
successful, would result in an indemnity payment to Buyer, Seller or one of
their respective affiliates (a "Tax Claim"), the party receiving such Tax Claim
shall promptly notify the other party in writing of such Tax Claim.
With respect to any Tax Claim (other than those relating solely to
Taxes of any Company for a Straddle Period), the indemnifying party shall
control all proceedings taken in connection with such Tax Claim (including,
without limitation, selection of counsel) and, without limiting the foregoing,
may in its sole discretion forgo any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with respect
thereto, and may, in its sole discretion, either pay the Tax claimed and sue for
a refund where applicable
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<PAGE>
law permits such refund suits or contest such Tax Claim in any permissible
manner. The indemnifying party shall, however, consider in good faith the advice
of the other party concerning the most appropriate forum in which to proceed and
other related matters (it being understood, however, that all such decisions
shall be left to the sole discretion of indemnifying party); provided, however,
-------- --------
that in no case shall the indemnifying party settle or otherwise compromise any
Tax Claim without the other party's prior written consent, which consent shall
not be unreasonably withheld. Buyer shall control all proceedings taken in
connection with any Tax Claim relating solely to Taxes of any Company for a
Straddle Period. Buyer, Seller, any Company and each of their respective
affiliates shall cooperate with each other in contesting any Tax Claim, which
cooperation shall include, without limitation, the retention and (upon request)
the provision of records and information to the other party that are reasonably
relevant to such Tax Claim.
(h) STC Indemnification and Procedures Relating Thereto, (i) Seller
---------------------------------------------------
shall indemnify Buyer, its affiliates (including the Companies) and each of
their respective officers, directors, employees and agents and hold them
harmless from any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) suffered or incurred by any such indemnified
party (other than any loss, liability, claim, damage or expense relating to the
indemnification set forth in paragraphs (a) and (b) of this Section 9) arising
from any assessment by the West Virginia Department of Tax and Revenue, made
against Appalachian Mining, Inc. or Vandalia Resources, Inc. for credits, if
any, taken by Appalachian Mining, Inc. or Vandalia Resources, Inc. while either
was affiliated with Seller prior to Closing. Seller shall pay to Buyer such
amount claimed pursuant to paragraph (h) (iii) of this Section 9 within five
days of the receipt of such claim.
(ii) Buyer shall indemnify Seller, its affiliates and each of their
respective officers, directors, employees and agents and hold them harmless from
any loss, liability, claim, damage or expense
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(including reasonable legal fees and expenses) suffered or incurred by any such
indemnified party arising from any assessment by the West Virginia Department of
Tax and Revenue to the extent such assessment reduces STC claimed for periods
prior to the Closing Date and was caused by actions taken by Buyer after the
Closing Date. Buyer shall pay to Seller such amount claimed pursuant to
paragraph (h) (iii) of this Section 9 within five days of receipt of such claim.
(iii) If either Seller or Buyer receives a written claim from any
taxing authority that, if successful, would result in an indemnity payment to an
indemnified party or one of its affiliates pursuant to paragraph (h) (i) or (ii)
of this Section 9 (a "STC Claim"), the party receiving such STC Claim shall
promptly notify the other party in writing of such STC Claim. With respect to
any STC Claim, the procedure set forth in paragraph (g) shall be applicable.
(i) The aggregate liability of Seller under this Section 9 shall
not exceed the Purchase Price. The sole and exclusive remedy of Buyer for
damages exceeding such amount shall be a right of rescission.
(j) In no event shall either Buyer or Seller or any of their
respective affiliates, directors, officers, agents or attorneys be liable for
any indirect, special extraordinary or consequential damages under this
Agreement or with respect to the transactions contemplated hereunder or in the
agreements attached as Exhibits hereto unless specifically and expressly
permitted by the terms and provisions thereof.
10. Tax Matters. (a) Buyer shall (i) timely make an election under
-----------
Section 338(g) of the Code (and any comparable election under state or local Tax
law) with respect to each Company, (ii) join Seller in timely making an election
under Section 338(h)(10) of the Code (and any comparable election under state or
local Tax law) with respect thereto and (iii) cooperate with Seller in the
completion and timely filing of such elections in accordance with the provisions
of Temporary Regulation
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<PAGE>
(S)1.338(h)(10)-1T (or any comparable provisions of state or local Tax law) or
any successor provision. By not later than seven days after the date hereof,
Seller and Buyer shall negotiate in good faith an agreement to allocate the sum
of (i) Purchase Price and (ii) the liabilities (other than the Excluded
Liabilities) of the Companies within the meaning of Temporary Regulations
(S)1.338(b)-1T(f)(1) immediately after the Closing Date (hereinafter
collectively referred to as the "Adjusted Purchase Price"), and such allocation
shall be set forth on Schedule 10(a) to be attached hereto. Neither Seller nor
Buyer (nor any of their respective affiliates) shall take any position on any
Tax return or with any taxing authority that is inconvenient with the Adjusted
Purchase Price allocation set forth on Schedule 10(a).
(b) For any Straddle Period, Buyer shall timely prepare and file with
the appropriate authorities all Tax returns, reports and forms required to be
filed and will pay all Taxes due with respect to such returns, reports and
forms; provided that Seller will reimburse Buyer (in accordance with the
--------
procedures set forth in Section 9(a)) for any amount owed by Seller pursuant to
Section 9(a) with respect to the taxable periods covered by such returns,
reports or forms. For any taxable period of any Company that ends on or before
the Closing Date, other than for returns, reports and forms which have been
previously filed, Seller shall timely prepare and furnish to such Company for
approval all Tax returns due with respect to such returns, reports and forms in
accordance with the provisions of Section 9(a). Buyer and Seller agree to cause
each Company to file all Tax returns, reports and forms for the period including
the Closing Date on the basis that the relevant taxable period ended as of the
close of business on the Closing Date, unless the relevant taxing authority will
not accept a return, report or form filed on that basis.
(c) Seller, each Company and Buyer shall reasonably cooperate, and
shall cause their respective affiliates, officers, employees, agents, auditors
and representatives reasonably to cooperate, in preparing and filing all
returns, reports and forms relating to Taxes,
-56-
<PAGE>
including maintaining and making available to each other all records necessary
in connection with Taxes and in resolving all disputes and audits with respect
to all taxable periods relating to Taxes. Buyer and Seller recognize that each
party and their respective affiliates will need access, from time to time, after
the Closing Date, to certain accounting and Tax records and information held by
any COMPANY or Seller to the extent such records and information pertain to
events occurring prior to the Closing Date; therefore, Buyer, Seller and their
respective affiliates agree, and Buyer agrees to cause each Company, (i) to use
its reasonable efforts to properly retain and maintain such records until such
time as the other party agrees that such retention and maintenance is no longer
necessary, and (ii) to allow Seller, Buyer and their respective agents and
representatives (and agents or representatives of any of their affiliates), at
times and dates mutually acceptable to the parties, to inspect, review and make
copies of such records as such party may deem necessary or appropriate from time
to time, such activities to be conducted during normal business hours and at the
expense of the party requesting such copies.
(d) Any refunds or credits of Taxes of any Company for any taxable
period ending on or before the Closing Date shall be for the account of Seller
except to the extent any such refund is reflected on the Working Capital
Statement, in which case such refund shall be for the account of Buyer. Any
refunds or credits of Taxes of any Company for any taxable period beginning
after the Closing Date shall be for the account of the Buyer. Any refunds or
credits of Taxes of any Company for any Straddle Period shall be apportioned
between Seller and Buyer in accordance with the formula in Section 9(a) as it
relates to a Straddle Period. Buyer shall, if Seller so requests and at
Seller's expense and if Buyer obtains, at Seller's expense, an opinion from
outside tax counsel that such action does not cause Buyer harm, cause any
Company to file for and obtain any refunds or credits to which Seller is
entitled under this Section 10(d). Buyer and Seller shall jointly control the
presentation of any such refund claim made on behalf of Seller. Buyer shall
cause
-57-
<PAGE>
each COMPANY to forward to Seller any such refund due to Seller within 10
days after the refund is received (or reimburse Seller for any such credit
within 10 days after the credit is allowed or applied against other Tax
liability); provided, however, that any such amounts payable to Seller shall be
-------- -------
net of any Tax cost to Buyer or such Company, as the case may be, attributable
to the receipt of such refund. Notwithstanding the foregoing, the control of
the prosecution of a claim for refund of Taxes paid pursuant to a deficiency
assessed subsequent to the Closing Date as a result of an audit shall be
governed by the provisions of Section 9(g).
(e) Seller shall be responsible for filing any amended consolidated,
combined or unitary Tax returns, reports or forms for taxable years ending on or
prior to the Closing Date which are required as a result of examination
adjustments made by the Internal Revenue Service or by the applicable state,
local or foreign taxing authorities for such taxable years as finally
determined. For those jurisdictions in which separate Tax returns are filed by
any Company, any required amended returns resulting from such examination
adjustments, as finally determined, shall be prepared by Seller and furnished to
such Company for approval (which approval should not be unreasonably withheld),
signature and filing at least 30 days prior to the due date for filing such
returns.
(f) Seller shall deliver to Buyer at the Closing an affidavit in form
and substance satisfactory to Buyer, duly executed and acknowledged, certifying
that the sale of the Shares is exempt from the provisions of the Foreign
Investment in Real Property Tax Act of 1980.
(g) On the Closing Date, Buyer will cause each COMPANY to conduct its
business in the ordinary course in substantially the same manner as presently
conducted and on the Closing Date will not permit such COMPANY to effect any
extraordinary transactions (other than any such transactions expressly required
by applicable law or by this Agreement) that could result in Tax liability to
such
-58-
<PAGE>
Company in excess of Tax liability associated with the conduct of its business
in the ordinary course.
(h) Seller shall cause the provisions of any Tax sharing or allocation
agreement to which any Company is a party to be terminated on or before the
Closing Date, such that such COMPANY shall not have any obligation with respect
to any such agreement after the Closing Date.
(i) Buyer shall pay any stock transfer Taxes due as a result of the
sale of the Shares.
11. Assignment. This Agreement and the rights and obligations
----------
hereunder shall not be assignable or transferable by Buyer or Seller (including
by operation of law in connection with a merger, or sale of substantially all
the assets, of Buyer or Seller) without the prior written consent of the other
party hereto; provided, however, that Buyer may assign its right to purchase the
-------- -------
Shares hereunder to one or more subsidiaries or affiliates of Buyer without the
prior written consent of Seller; overnight courier service, mailed or sent by
telecopy by the sending party, as follows:
(i) If to Buyer:
Pittston Acquisition Company
100 First Stamford Place
Stamford, Connecticut 06912
(Telecopy No.: 203-978-5205)
Attention: President
With copies to:
Pittston Coal Management COMPANY
P.O. Box 5100
Lebanon, Virginia 24266
(Telecopy No.: 703-889-6160)
Attention: General Counsel
-59-
<PAGE>
and
Jackson & Kelly
1600 Laidley Tower
P.O. Box 553
Charleston, West Virginia 25322
(Telecopy No.: 304-340-1130)
Attention: Charles Q. Gage, Esq.
and
Latham & Watkins
Suite 1000, 885 Third Avenue
New York, New York 10022-4802
(Telecopy No.: 212-751-4864)
Attention: Jeffrey J. Hass
(ii) If to Seller:
In care of Addington Resources, Inc.
9431 U.S. Route 60
Ashland, Kentucky 41102
(Telecopy No.: 606-928-9527)
Attention: R. Douglas Striebel,
Chief Financial Officer
With copies to:
Michael D. Johnson, Esq.
1932 Carter Avenue
P.O. Box 1545
Ashland, Kentucky 41105-1545
(Telecopy No.: 606-325-1690)
and
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn
2700 Lexington Financial Center
Lexington, Kentucky 40507
(Telecopy No.: 606-231-0011)
-60-
<PAGE>
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier service
or sent by telecopy, or on the date five business days after dispatch by
certified or registered mail if mailed, in each case delivered, sent or mailed
(properly addressed) to such party as provided in this Section 17 or in
accordance with the latest unrevoked direction from such party given in
accordance with this Section 17.
18. Interpretation. The headings contained in this Agreement, in any
--------------
Exhibit or Schedule hereto and in the table of contents to this Agreement, are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. Waiver. Whenever in this Agreement a party is permitted to waive
------
a condition, right or obligation of the other party, such waiver to be effective
must be in writing and signed by the waiving party with notice in accordance
with this Agreement.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
21. Entire Agreement. This Agreement, including the Exhibits and
----------------
Schedules attached hereto, constitutes the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter.
22. Fees. (a) Each party to this Agreement shall pay all expenses
----
incurred by it or on its behalf in connection with the preparation,
authorization, execution and performance of this Agreement, including, but not
limited to, all fees and expenses of agents, representatives, counsel and
accountants.
-61-
<PAGE>
(b) Each party to this Agreement shall hold the other party harmless
with respect to any broker's, finder's or other similar agent's fee with respect
to the transactions contemplated hereby claimed by any broker, finder or similar
agent engaged or employed by the indemnifying party.
23. Severability. If any provision of this Agreement or the
------------
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
24. Consent to Jurisdiction. Each of Buyer and Seller irrevocably
-----------------------
submits to the exclusive jurisdiction of (a) the Circuit Court of Boyd County,
Kentucky, and (b) the United States District Court for the Eastern District of
Kentucky, for the purposes of any suit, action or other proceeding arising out
of this Agreement or any transaction contemplated hereby. Each of Buyer and
Seller agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Eastern District of Kentucky or, if,
for jurisdictional reasons, such suit, action or other proceeding may not be
brought in such court, in the Circuit Court of Boyd County, Kentucky. Each of
Buyer and Seller further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set forth
above shall be effective service of process for any action, suit or proceeding
in Kentucky with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. Each of
Buyer and Seller irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in (a) the Circuit Court of Boyd County,
Kentucky, or (b) the United States District Court for the Eastern District of
Kentucky, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any
-62-
<PAGE>
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
25. Non-solicitation of Personnel. Except for the employees whose
-----------------------------
names are set forth on Schedule 24 or otherwise agreed to by Seller and Buyer in
writing, Seller hereby agrees that for a period of one year following the
Closing Date neither it nor any person affiliated with it will, directly or
indirectly, solicit or recruit any employee of any Company or any employee of
Buyer or its affiliates previously employed by any Company or otherwise request
or cause any such employee to terminate his or her employment with any Company
or Buyer or its affiliates. Seller acknowledges that the covenant contained in
this Section is reasonable and necessary to protect the legitimate business
interests of Buyer. Notwithstanding the above, Seller shall not be prohibited
from employing individuals who are not on Schedule 24 who without solicitation
by Seller terminate employment with the Companies and seek employment with
Seller or its affiliates.
26. Other Agreement. At Closing, Seller shall cause the Agreement
---------------
substantially in the form attached hereto as Exhibit K to be excluded by the
parties thereto (other than Buyer) and delivered to Buyer.
27. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Kentucky.
28. Affiliate Defined. As used in this Agreement, the term
-----------------
"affiliate" shall mean any person or entity that directly or indirectly
controls, is controlled by or is under common control with, any other person or
entity.
29. Termination.
-----------
(a) If a condition to Buyer's obligation to close in Section 3(a) is
not satisfied on or before December 31, 1993, then Buyer shall have the right to
either waive the condition and acquire the Shares or terminate the parties
-63-
<PAGE>
obligation to close the sale of the Shares under this Agreement. If Buyer
elects to acquire the Shares, then Buyer shall not seek indemnification from
Seller with respect to the event or facts giving rise to the failure of the
condition. If Buyer elects to terminate the parties' obligations to consummate
the transactions contemplated by this Agreement by reason of such failure, then
neither party shall have any liability to the other party in connection with the
failure to close, subject however to the provisions of Section 5A(e).
(b) If a condition to Seller's obligation to close in Section 3(b) is
not satisfied on or before December 31, 1993, then Seller shall have the right
to either waive the condition and sell the Shares or terminate the parties
obligation to close the sale of the Shares under this Agreement. If Seller
elects to sell the Shares, then Seller shall not seek indemnification from Buyer
with respect to the event or facts giving rise to the failure of the condition.
If Seller elects to terminate the parties' obligations to consummate the
transactions contemplated by this Agreement by reason of such failure, then
neither party shall have any liability to the other party in connection with the
failure to close.
30. Publicity. Through the Closing, neither Seller nor Buyer shall
---------
issue any public announcement regarding the terms of this Agreement or the
transactions contemplated hereby without the prior consent of the other party,
unless required by law in which event each party shall provide the other party
with prior opportunity to comment on any such public announcement.
31. Trade Secrets. Except as expressly provided to the contrary in
-------------
this Agreement or the Exhibits attached hereto, Seller and its affiliates shall
have the right to use any confidential or trade secrets information of the
Companies acquired through Seller's ownership of the Companies in connection
with Seller's and its affiliates activities after Closing.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
ADDINGTON HOLDING COMPANY, INC.
By:/s/ Larry Addington
-----------------------------
Name: Larry Addington
Title: President
PITTSTON ACQUISITION COMPANY
By:/s/ Garold R. Spindler
-----------------------------
Name: Garold R. Spindler
Title: Vice President
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<PAGE>
================================================================================
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
effective as of December 18, 1997
among
AEI HOLDING COMPANY, INC.
as Purchaser
ADDINGTON ENTERPRISES, INC.
as Guarantor
and
GREG WELLS
as the Shareholder
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 Definitions ................................................. 1
1.1 Definitions ................................................. 1
1.2 Additional Terms ............................................ 6
1.3 Rules of Interpretation ..................................... 6
ARTICLE 2 Purchase and Sale ........................................... 7
2.1 Purchase of the Shares ...................................... 7
2.2 Purchase Price .............................................. 7
2.3 Acceleration ................................................ 9
2.4 Liabilities ................................................. 9
2.5 Tax Refunds ................................................. 10
2.6 Closing of Books of Account ................................. 10
2.7 Section 338 Election ........................................ 10
ARTICLE 3 Representations and Warranties of the Shareholder ........... 11
3.1 Organization ................................................ 11
3.2 Capitalization .............................................. 11
3.3 Title to Stock .............................................. 12
3.4 Subsidiaries ................................................ 13
3.5 Authority ................................................... 13
3.8 Absence of Material Change .................................. 14
3.9 Tax Matters ................................................. 15
3.10 Undisclosed Liabilities ..................................... 16
3.11 Contracts ................................................... 16
3.12 Litigation and Pending Proceedings .......................... 17
3.13 Real Property ............................................... 18
3.14 Restrictions on Property .................................... 19
3.15 Condition of Assets ......................................... 19
3.16 Inventory ................................................... 19
3.17 Notes and Accounts Receivable ............................... 19
3.18 Banks, Directors and Officers, Powers of Attorney, Life
Insurance and Employees ..................................... 19
3.19 Permits, Etc ................................................ 20
3.20 Intellectual Property ....................................... 20
3.21 Working Relationships ....................................... 21
3.22 Proprietary Information ..................................... 21
3.23 Customers, Etc .............................................. 21
3.24 Insurance ................................................... 21
3.25 Labor Relations ............................................. 21
3.26 Employee Benefit Plans ...................................... 22
3.27 Potential Competing Interests ............................... 25
3.28 Environmental Matters ....................................... 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.29 Immigration Matters ......................................... 27
3.30 Permit Blocking ............................................. 27
3.31 Consents and Notices ........................................ 27
3.32 Transactions with Affiliates ................................ 27
3.33 Distributions ............................................... 28
3.34 Actions Since October 31, 1997 .............................. 28
3.35 Completeness of Statements .................................. 28
ARTICLE 4 Representations and Warranties of Purchaser and Guarantor ... 28
4.1 Organization ................................................ 28
4.2 Authority ................................................... 28
4.3 Permit Blocking ............................................. 29
4.4 Knowledge of Misrepresentations ............................. 29
4.5 Financial Ability ........................................... 29
ARTICLE 5 Covenants of the Shareholder ................................ 29
5.1 Investigations .............................................. 29
5.2 Consents .................................................... 30
5.3 Conduct of Business in the Ordinary Course .................. 30
5.4 Preservation of Business .................................... 32
5.5 Notification of Material Changes and Litigation ............. 32
5.6 Cooperation ................................................. 32
5.7 Discussions with Other Purchasers ........................... 32
5.8 Representations and Warranties .............................. 32
5.9 Public ...................................................... 33
5.10 Resignations ................................................ 33
5.11 Discussions with Certain Parties ............................ 33
ARTICLE 6 Covenants of Purchaser ...................................... 33
6.1 Cooperation ................................................. 33
6.2 Representations and Warranties .............................. 33
6.3 Publicity ................................................... 33
6.4 Discussions with Certain Parties ............................ 33
6.5 Ownership and Control ....................................... 34
6.6 Shareholder Guarantees ...................................... 34
6.7 Insurance ................................................... 34
6.8 Income Tax Representation ................................... 34
6.9 Record Retention ............................................ 34
6.10 Final S Corporation Tax Returns ............................. 34
6.11 Accounting Personnel ........................................ 35
6.12 Return of Documents Upon Termination ........................ 35
6.13 Purchaser Letter............................................. 35
ARTICLE 7 Conditions to Obligations of Purchaser ...................... 35
7.1 Representations, Warranties and Covenants ................... 35
7.2 No Material Adverse Change .................................. 35
7.3 Opinion of Counsel for the Shareholder ...................... 35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.4 Statutory Requirements......................................... 36
7.5 Consulting Agreement........................................... 36
7.6 Deliveries..................................................... 36
7.7 Financing...................................................... 36
7.8 Closing........................................................ 36
7.9 Third-Party Consents and Approvals............................. 36
7.10 No Injunction.................................................. 36
7.11 No Pending Action.............................................. 37
7.12 Due Diligence.................................................. 37
7.13 [intentionally left blank]..................................... 37
ARTICLE 8 Conditions to Obligations of the Shareholder................... 37
8.1 Representations, Warranties and Covenants...................... 37
8.2 Opinion of Counsel for Purchaser............................... 37
8.3 Statutory Requirements......................................... 38
8.4 Deliveries..................................................... 38
8.5 Third-Party Consents and Approvals............................. 38
8.6 Closing........................................................ 38
8.7 [intentionally left blank]..................................... 38
ARTICLE 9 The Closing.................................................... 38
9.1 Date and Place................................................. 38
9.2 Deliveries..................................................... 38
ARTICLE 10 Survival of Representations and Warranties -- Indemnification.. 38
10.1 Survival....................................................... 38
10.2 Indemnity by the Shareholder................................... 39
10.3 Indemnify by Purchaser......................................... 39
10.4 Limit of Liability............................................. 39
10.5 Remedies; Right of Offset...................................... 40
10.6 Control of Indemnified Matters................................. 40
ARTICLE 11 Arbitration.................................................... 41
11.1 Dispute Resolution............................................. 41
11.2 Selection of Arbitrators....................................... 41
11.3 Temporary Relief............................................... 41
11.4 Rules of Arbitration........................................... 41
11.5 Arbitrators' Award............................................. 41
ARTICLE 12 Guaranty....................................................... 41
ARTICLE 13 Miscellaneous.................................................. 42
13.1 Notices........................................................ 42
13.2 Waivers........................................................ 44
13.3 Expenses....................................................... 44
13.4 Headings; Interpretation....................................... 44
13.5 Annexes and Schedules.......................................... 44
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13.6 Entire Agreement............................................... 44
13.7 Representations and Warranties, Etc............................ 44
13.8 Governing Law.................................................. 45
13.9 Brokers........................................................ 45
13.10 Counterparts................................................... 45
13.11 Benefit and Binding Effect..................................... 45
13.12 Severability................................................... 45
13.13 No Consequential Damages....................................... 45
13.14 Assignment and Assumption...................................... 45
13.15 Superseding Document........................................... 45
</TABLE>
<PAGE>
AMENDED AND RESTATED EXHIBIT 10.3
--------------------
STOCK PURCHASE AGREEMENT
------------------------
This is an Amended and Restated Stock Purchase Agreement, effective as of
December 18, 1997 (this "Agreement"), among AEI HOLDING COMPANY, INC., a
Delaware corporation ("Purchaser"); (ii) ADDINGTON ENTERPRISES, INC., a Kentucky
corporation ("Guarantor"); and (iii) GREG WELLS, an individual, who is the sole
shareholder (the "Shareholder") of LESLIE RESOURCES, INC. ("LRI"), and LESLIE
RESOURCES MANAGEMENT, INC. ("LRM"), each a Kentucky corporation (individually, a
Company, and collectively, the "Companies").
RECITALS
--------
A. The Companies are engaged in the business of coal mining, and are
located in Hazard, Kentucky.
B. The Shareholder owns one hundred percent (100%) of the issued and
outstanding shares of the capital stock of the Companies (the "Shares").
C. The Shareholder desires to sell, and Purchaser desires to purchase,
all of the Shares pursuant to the terms and conditions of this Agreement.
D. The Guarantor desires to execute this Agreement solely to guarantee
the obligations of Purchaser under this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE 1
Definitions
-----------
1.1 Definitions. As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Aceco" shall mean Aceco, Inc., a Kentucky corporation, that is a
wholly-owned subsidiary of LRM.
(b) "Act" shall have the meaning given in Section 3.29.
(c) "Affiliate" shall mean (i) a Person that directly, or indirectly
through one or more intermediaries, controls or controlled by, or is controlled
by a Person that controls, a party to this Agreement; (ii) any trust or estate
in which a party to this Agreement has a beneficial interest or as to which a
party to this Agreement serves as a trustee or in another fiduciary capacity;
and (iii) any spouse, parent or lineal descendent of a party to this Agreement.
<PAGE>
(d) "Aminex Order" shall mean that certain Agreement of Compromise
and Settlement dated as of February 14, 1979 between and among Aminex Resources
Corporation et at. and Rudolph W. Giuliani, et al., a copy of which has been
delivered to the Purchaser by the Shareholder hereunder.
(e) "Assumed Liabilities" shall have the meaning given in Section
2.4.
(f) "Bonds" shall have the meaning given in Section 3.19(b).
(g) "Business Days" shall have the meaning given in Section 1.3(1).
(h) "CERCLA" shall have the meaning given in Section 3.28(a).
(i) "Charges" shall have the meaning given in Section 3.7(a).
(j) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(k) "Closing Date" shall mean the date of the Closing pursuant to
Sections 7.8 and 8.6.
(l) "Closing Financial Statements" shall mean each Company's most
recent consolidated unaudited balance sheet, prepared in the ordinary course of
business, as of December 20, 1997 (the "Closing Balance Sheet"), and each
Company's most recent related consolidated unaudited statement of income,
prepared in the ordinary course of business available on the Closing Date (the
"Closing Income Statement"), copies of which shall be delivered to Purchaser at
or before the Closing.
(m) "Code" shall have the meaning given in Section 3.9(a).
(n) "Companies Intellectual Property" shall have the meaning given in
Section 3.20.
(o) "Consulting Agreement" shall mean the Consulting Agreement, in
the form attached hereto as Annex 1.1(n), to be entered into among Purchaser and
the Shareholder at the Closing.
(p) [intentionally left blank]
(q) [intentionally left blank]
(r) "Current Financial Statements" shall mean each Company's most
recent consolidated unaudited balance sheet, prepared in the ordinary course of
business, available as of December 18, 1997 (the "Current Balance Sheet"), and
each Company's most recent related consolidated unaudited statement of income,
prepared in the ordinary course of business, available
-2-
<PAGE>
at the date of this Agreement (the "Current Income Statement"), copies of which
are attached hereto as Annex 1.1(q).
(s) "Equipment Debt" shall mean, as of December 20, 1997, the
aggregate amount outstanding on all equipment notes and equipment leases, if
any, and all accrued interest on such items.
(t) "Deferred Amount" shall have the meaning given in Section 2.2(e).
(u) "Deficiency Payment" shall have the meaning given in Section
2.2(e)(iii).
(v) "Environmental Complaint" shall have the meaning given in Section
3.28(f).
(w) "ERISA" shall have the meaning given in Section 3.26(a).
(x) "Financial Statements" shall mean the consolidated audited
balance sheet, the consolidated audited statements of income and retained
earnings, and the consolidated audited statements of change in financial
position of each Company and Subsidiary as of its fiscal year ended December 31,
1996, respectively, copies of which are attached hereto as Annex 1.1(w).
(y) "GAAP" shall have the meaning given in Section 2.2(c)(i).
(z) "Hazardous Discharge" shall have the meaning given in Section
(318e).
(aa) "Hazardous Material" shall have the meaning given in Section
318(a).
(bb) "Highland" shall mean Highland Coal, Inc., a Kentucky
corporation, that is a wholly-owned subsidiary of LRM.
(cc) "Initial Payment" shall have the meaning given in Section 2.2(b).
(dd) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith; copyrights;
pending or issued registrations for any of the foregoing; patents and patent
applications; unpatented inventions; trade secrets and other confidential or
proprietary information, computer programs, processes, formulas and methods; and
all other intangible property rights of any kind.
(ee) "IRS" shall have the meaning given in Section 3.26(c).
(ff) "Kentucky River Deferred Minimum Royalty Payments" shall mean
those certain deferred minimum royalty payments totaling approximately Six
Hundred Thousand and no/100 Dollars ($600,000.00) for the Companies' Camp Creek
and Hardburley surface mining operations pursuant to the consolidated coal
mining lease with Kentucky River Coal Corporation dated March 19, 1997.
-3-
<PAGE>
(gg) "Kem Coal" shall mean Pro-Land, Inc., d/b/a Kem Coal Company, a
Kentucky corporation, that is a wholly-owned subsidiary of LRM.
(hh) "Leased Real Property" shall have the meaning given in Section
3.13(a).
(ii) "Leased Tangible Assets" shall have the meaning given in Section
3.7(b).
(j) "Leslie Permits" shall have the meaning given in Section 3.19(a).
(kk) "Liabilities" shall mean all accounts payable, notes payable,
liabilities, commitments, indebtedness or obligations of any kind whatsoever,
whether absolute, accrued, contingent, matured or unmatured, of any Company or
Subsidiary, or to which any of any Company's or Subsidiary's properties or
assets are subject.
(ll) "Loss" shall have the meaning given in Section 10.2.
(mm) "LRI Coal Sales Agreements" shall have the meaning given in
Section 3.11(a).
(nn) "LRI Miscellaneous Agreements" shall have the meaning given in
Section 3.11 (a).
(oo) "LRI Tangible Assets" shall have the meaning given in Section
3.7(a).
(pp) "Material" (whether or not capitalized) shall include any matter
which might reasonably influence Purchaser's decision to consummate the
transactions contemplated herein.
(qq) "Monthly Payment" shall have the meaning given in Section
2.2(e)(i).
(rr) "Mountain Clay" shall mean Mountain-Clay, Incorporated, d/b/a
Mountain Clay, Inc., a Kentucky corporation, that is a wholly-owned subsidiary
of LRM.
(ss) "Net Working Capital" shall have the meaning given in Section
2.2(c)(i).
(tt) "Notices" shall have the meaning given in Section 13.1.
(uu) "Other Documents" shall mean the Non-Competition Agreement and
all other agreements, certificates, opinions, instruments or documents
contemplated by, required by or referred to in, this Agreement for the
consummation of the transactions contemplated hereby.
(vv) "Owned Real Property" shall have the meaning given in Section
3.13(b).
(ww) "Payment Year" shall have the meaning given in Section
2.2(e)(iii).
(xx) "PBGC" shall have the meaning given in Section 3.26(c).
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(yy) "Permits" shall have the meaning given in Section 3.19(a).
(zz) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(aaa) "Preferred Stock" shall have the meaning given in Section
3.3(d).
(bbb) "Purchase Price" shall have the meaning given in Section 2.2.
(ccc) "Retained Liabilities" shall have the meaning given in Section
2.4.
(ddd) "River Coal" shall mean River Coal Company, Inc., a Kentucky
corporation, that is a wholly-owned subsidiary of Kern Coal.
(eee) "Rules" shall have the meaning given in Section 11.4.
(fff) "Shareholder's knowledge" shall have the meaning given in
Section 13.7.
(ggg) "Subsidiaries" shall mean, collectively, Aceco, Highland, Kem
Coal, Mountain Clay and River Coal.
(hhh) "Subsidiaries' Shares" shall have the meaning given in Section
3.2(b).
(iii) "Tangible Assets" shall mean the LRI Tangible Assets and the
Transco Tangible Assets, collectively.
(jjj) "Tax" shall have the meaning given in Section 3.9(a).
(kkk) "Tax Return." shall have the meaning given in Section 3.9(a).
(lll) "Transco Coal Sales Agreement" shall have the meaning given in
Section 3.11(a).
(mmm) "Transco Miscellaneous Agreements" shall have the meaning given
in Section 3.11(a).
(nnn) "Transco Parties" shall mean, the Companies, the Subsidiaries,
Transco Coal Company, Inc., Leeco, Inc. and New Brush Creek Mining, Inc.
(ooo) "Transco Tangible Assets" shall have the meaning given in
Section 3.7(a).
(ppp) "Unknown Liabilities" shall mean all Liabilities that arise or
accrue with respect to, or are attributable to, the ownership or operation of
the Companies and the Subsidiaries of which the Shareholder does not have
knowledge as of the Closing Date.
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<PAGE>
(qqq) "VEBA" shall have the meaning given in Section 3.26(n).
(rrr) "Working Capital Statement" shall have the meaning given in
Section 2.2(c)(i).
1.2 Additional Terms. Other capitalized terms used in this Agreement but
----------------
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.
1.3 Rules of Interpretation.
-----------------------
(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) Except as otherwise defined herein, accounting terms have the
meanings assigned to them by generally accepted accounting principles, as
applied by the accounting entity to which they refer.
(e) The words "include," "includes" and "including" are not limiting.
(f) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(g) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(h) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(i) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Kentucky.
(j) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser, Guarantor and the
Shareholder. Accordingly, this
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Agreement and the Other Documents shall be deemed to be the product of all
parties thereto, and no ambiguity shall be construed in favor of or against any
party.
ARTICLE 2
Purchase and Sale
-----------------
2.1 Purchase of the Shares. Subject to the terms and conditions of this
----------------------
Agreement, the Shareholder hereby agrees to sell, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase, the Shares.
2.2 Purchase Price. Subject to the adjustments as provided in this
--------------
Article 2 and subject to a potential discount for early payment as provided in
this Article 2, the purchase price (the "Purchase Price") for the Shares shall
be Nineteen Million Seven Hundred Fifty Thousand Dollars ($19,750,000.00), which
shall be paid to the Shareholder as follows:
(a) Deposit. Purchaser has heretofore paid to the Shareholder a
-------
deposit (the "Deposit") in the amount of Two Hundred Fifty Thousand and no/100
Dollars ($250,000.00) refundable only upon Shareholder's breach of its
obligations hereunder and failure to consummate the sale of the Shares to
Purchaser, and the Deposit shall be applied to the Purchase Price at Closing.
Notwithstanding anything else herein contained, should Purchaser fail to
consummate the acquisition of the Shares under circumstances wherein Shareholder
retains the Deposit, the same shall be considered liquidated damages and
Shareholder's sole and exclusive remedy against Purchaser.
(b) Initial Payment. At Closing, Purchaser shall pay the Shareholder
---------------
Eleven Million Dollars ($11,000,000.00) in cash or cash equivalent (the "Initial
Payment") as adjusted under Section 2.2(d).
(c) [intentionally left blank]
(d) Adjustment to Initial Payment for Equipment Debt. If the
------------------------------------------------
Equipment Debt is determined on or before Closing to be greater than Nine
Million Five Hundred Thousand Dollars ($9,500,000.00), the Initial Payment shall
be adjusted downward by an amount equal to such difference.
(e) Deferred Amount. Subject to a downward adjustment pursuant to
---------------
Section 2.2(c), Purchaser shall pay the Shareholder the deferred amount of Eight
Million Fifty Thousand Dollars ($8,050,000.00) (the "Deferred Amount") as
follows:
(i) Monthly Payment. Purchaser shall pay the Shareholder a
---------------
monthly payment (each, a "Monthly Payment") in the amount of Forty Cents ($0.40)
per ton of coal produced, shipped and sold from all properties owned, leased or
otherwise controlled (including renewals or extensions of any lease) by the
Companies or the Subsidiaries as of the Closing Date, commencing with the first
day of the first calendar month following the month during which the Closing
occurs. The Monthly Payment shall be due on the twenty-fifth (25th) day of each
calendar month for coal shipped during the preceding calendar month. If the
Closing occurs Other than on the first (1st) day
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of a month, the first Monthly Payment shall be prorated so as to be based only
on those days of the month including and following tile Closing Date.
(ii) Right To Inspect Records. The Shareholder, his agents and
------------------------
his representatives shall have the right, upon providing at least five (5) days
prior written notice, at any reasonable time during business hours to (i)
examine the method and accuracy of weighing, weight records, coal quality tests,
production records, reserve reports, drilling and exploration records and
reports, maps and surveys of all coal which are applicable to the Monthly
Payments and (ii) inspect, audit and make copies of such records at the
applicable Company's or Subsidiary's office. The Shareholder shall use such
information only for the purposes set forth herein and otherwise keep the same
confidential, except in such instances as disclosure may be required by law.
Purchaser shall maintain those of its records referred to above in an accurate
and complete fashion, and shall preserve each such record for at least three (3)
years from the date such coal is mined or such reports are delivered, as the
case may be. Unless the Shareholder objects to the calculations of the Monthly
Payments within three (3) years of the date on which reports are delivered, all
such calculations and payments thereunder shall be deemed final and conclusive.
(iii) Minimum Annual Payment. For purposes of this Agreement, the
----------------------
term "Payment Year" shall mean a twelve-month (12-month) period beginning on the
first day of the calendar month following the calendar month during which the
Closing occurs (e.g., January 1) and ending on the last day of the twelfth
----
(12th) calendar month thereafter (e.g., December 31). If Purchaser fails to ship
----
sufficient coal from the properties owned, leased or otherwise controlled by the
Companies and the Subsidiaries as of the Closing Date during any Payment Year to
yield the Shareholder an aggregate sum of the Monthly Payments for such year
equal to or greater than One Million Dollars ($1,000,000.00), Purchaser shall
pay to the Shareholder, within sixty (60) days after the end of such Payment
Year, a payment equal to One Million Dollars ($1,000,000.00) minus the aggregate
Monthly Payments that were actually paid by Purchaser during such Payment Year
(a "Deficiency Payment").
(iv) End of Payment Obligations. Purchaser's obligation to pay
--------------------------
Monthly Payments and Deficiency Payments shall end as of the earlier of: (A) the
date that the aggregate Monthly Payments and Deficiency Payments paid by
Purchaser equal the Deferred Amount (as adjusted pursuant to this Article 2), or
(B) the last day of the fifth (5th) Payment Year. If Purchaser's aggregate
Monthly Payments and Deficiency Payments are less than the Deferred Amount (as
adjusted pursuant to this Article 2) at the end of the fifth (5th) Payment Year,
Purchaser shall, within sixty (60) days after the end of the fifth (5th) Payment
Year, pay the Shareholder an amount equal to the difference between the Deferred
Amount (as adjusted pursuant to this Article 2) (including accrued interest) and
the sum of the aggregate Monthly Payments and Deficiency Payments paid by
Purchaser to the Shareholder during such five-year period.
(v) Interest on Deferred Amount. Until the Deferred Amount has
---------------------------
been paid in full, the unpaid balance of the Deferred Amount shall bear interest
at the rate specified in the promissory note described in Section 2.2(e)(vii)
below.
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<PAGE>
(vi) Reduction in Deferred Amount. If the Deferred Amount is
----------------------------
adjusted downward pursuant to this Article 2 or pursuant to an offset as
permitted under this Agreement, Purchaser shall be entitled to withhold and
retain any and all Monthly Payments and Deficiency Payments up to the amount of
such adjustment or offset. Such adjustment or offset to the Deferred Amount
shall be effective on the date that Purchaser provides written notice of the
adjustment or offset to the Shareholder.
(vii) Promissory Note. The Deferred Amount shall be evidenced by a
---------------
promissory note in the form attached hereto as Annex 2.2, which shall be
delivered by the Purchaser to the Shareholder at the Closing.
2.3 Acceleration. The entire outstanding amount of the Deferred Amount
------------
shall be due and payable immediately upon the closing of a transaction involving
the purchase of substantially all of the shares of either the Purchaser or
Guarantor (excluding any public offering) or substantially all of the assets of
either the Purchaser or Guarantor unless the third party purchaser, after such
transaction is completed, has a net worth equal to or greater than the net worth
of the Purchaser or, as applicable, Guarantor immediately preceding the
transaction.
2.4 Liabilities. Subject to the terms and conditions of this Agreement,
-----------
Purchaser shall assume the following liabilities (the "Assumed Liabilities"):
(a) all obligations under the contracts and leases listed in Schedules
3.11(a)(1), 3.11(a)(2), 3.11(a)(3), 3.11(a)(4) and 3.13(a) accruing after the
Closing Date; (b) the unpaid balance of all Equipment Debt up to a maximum
aggregate amount of Nine Million Five Hundred Thousand Dollars ($9,500,000.00)
(including accrued interest); (c) all liabilities shown in the Financial
Statements, the Current Financial Statements or the Closing Financial
Statements; (d) all reclamation obligations and liabilities of the Companies and
the Subsidiaries; (e) all Unknown Liabilities; (f) all Liabilities relating to
matters listed on Schedule 3.7(a), 3.9, 3.10, 3.12, 3.19(a), 3.19(b)(1),
3.19(b)(2), 3.24, 3.26, 3.28 and 6.6; (g) all liabilities or obligations arising
under the Aminex Order; (h) all liabilities or obligations arising under the
Kentucky River Deferred Minimum Royalty Payments and (i) all liabilities or
obligations of any nature, kind or description whatsoever, known or unknown,
absolute, contingent or otherwise, which arise or accrue with respect to or are
attributable to the ownership and operation of the Companies and the -
Subsidiaries on or after the Closing Date. The Shareholder shall assume or
retain (as applicable) and be responsible for all of the liabilities and
obligations which arise or accrue with respect to, or are attributable to, the
ownership or operation of the Companies and Subsidiaries prior to the Closing
Date, other than the Assumed Liabilities (the "Retained Liabilities"). As of the
Closing Date, Purchaser, the Companies and the Subsidiaries shall have no
responsibility for the Retained Liabilities. For purposes of clarification,
Liabilities for minimum royalty payment obligations owed in connection with
Leased Real Property shall be prorated as of the Closing Date, with the
Shareholder, on the one hand, and the applicable Company or Subsidiary, on the
other hand, each being responsible for any deficiency in minimum royalty
payments attributable to such party, with such deficiency calculated as the
prorated amount of the minimum royalty payment due during the period such party
had rights to mine the Leased Real Property minus the actual amount of royalties
paid to the lessor by such party.
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<PAGE>
2.5 Tax Refunds. The Shareholder shall be entitled to any tax refund
-----------
attributable to operations of the Companies or the Subsidiaries prior to
Closing. Purchaser shall be entitled to any tax refund attributable to
operations of die Companies or the Subsidiaries subsequent to Closing.
2.6 Closing of Books of Account. The parties intend that the closing of
---------------------------
the books of account of the Companies shall occur as of the end of business on
December 31, 1997. In the event the parties are unable to close the books of
account as of such date, then under Code (S)1377(a)(2) and Temporary Regulations
Section 18.1377-1, the Companies shall elect to have the rules in Code
(S)1377(a)(1) apply as if the taxable year consisted of two taxable years, with
the Closing Date, being the final day of the first such year. Pursuant to this
Agreement, the Shareholder is disposing of all shares owned in the Companies,
and consent to the making of an election under Code (S)1377(a)(2) by the
Companies.
2.7 Section 338 Election. Purchaser has stated that it desires to make an
--------------------
election pursuant to I.R.C. Section 338(h)(10) and Shareholder hereby consents
to the making of such an election and shall cause the Companies and the
Subsidiaries to undertake all actions necessary to give effect to such election
to be effective for the period ended December 31, 1997, subject to the following
conditions:
(a) The allocation of the Purchase Price to the assets of LRI and LRM
and the Subsidiaries shall be in the sole discretion of the Purchaser exercised
in good faith; and
(b) If necessary, Purchaser agrees to cause the Companies and
Subsidiaries to take all actions to cooperate with the Shareholder in defending
the election and to bear all expense of the Companies, the Subsidiaries or the
Shareholder necessary to support the allocation in any challenge before any
taxing authority or in any administrative or judicial proceeding; and
(c) Purchaser shall pay to the Shareholder in cash or cash equivalents
on or before April 15, 1998, and before each successive quarterly estimated tax
period thereafter, the amount by which the Shareholder's actual income Tax
liability arising from his sale of the Shares increases solely as a result of
making such election (such amounts to be adjusted upon the filing of each annual
tax return of the Shareholder); and
(d) Purchaser shall indemnify and holds harmless the Shareholder from
and against any and all liabilities, costs and expenses, including attorneys'
fees, accountants' and expert witness' fees and expenses in any tax proceeding
or appeal, arising from or relating to the election made.
The obligation of the Purchaser to pay the amounts and to indemnify the
Shareholder hereunder shall not be subject to any right of offset against other
liability under this Agreement, at law or in equity whatsoever.
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<PAGE>
ARTICLE 3
Representations and Warranties of the Shareholder
-------------------------------------------------
The Shareholder represents and warrants to Purchaser as follows:
3.1 Organization. Each of the Companies and the Subsidiaries is a
------------
corporation duly organized and validly existing under the laws of the
Commonwealth of Kentucky, and has full corporate power and authority to own,
lease and operate its properties as such properties are now owned, leased and
operated, and to conduct its business as and where its business is now
conducted. Each of the Companies and the Subsidiaries is qualified to do
business and is in good standing in all jurisdictions in which the character of
the properties owned or leased by it, or the nature of the activities conducted
by it, makes such qualification necessary. Schedule 3.1 lists the jurisdictions
in which each Company and Subsidiary is qualified to do business.
True and complete copies, with all amendments, of the Articles of
Incorporation of each Company and Subsidiary (certified as of a recent date by
the Shareholder) and the Bylaws of each Company and Subsidiary (certified as of
the date hereof by the Secretary of the applicable Company or Subsidiary) have
been delivered to the Purchaser. The corporate minute books of each Company
correctly reflect all corporate actions taken by the directors and shareholders
of such Company, and correctly record all resolutions adopted by them. The
corporate minute books of each Subsidiary correctly reflect all corporate
actions taken by the directors and shareholders of such Subsidiary and correctly
record all resolutions adopted by them subsequent to the Companies' acquisition
of the Subsidiaries, and to the best of Shareholder's knowledge, prior to the
Companies? acquisition of the Subsidiaries. All corporate actions required of
each Company and Subsidiary have been taken, and all reports or returns required
to be filed by each. Company and Subsidiary have been filed. No Company or
Subsidiary is a party to any agreement or instrument, or is subject to any
charter or other corporate restriction, or any judgment, decree, writ,
injunction, order, award, law, rule, regulation, code or ordinance which
materially adversely affects, or might reasonably be expected to materially and
adversely affect, the properties or assets, earnings, business, operations,
affairs, prospects or condition (financial or otherwise) of any Company or
Subsidiary.
3.2 Capitalization.
--------------
(a) The authorized capital stock of LRM consists of one thousand
(1,000) shares of common stock with no par value, of which twenty-five (25)
shares are issued and outstanding. The authorized capital stock of LRI consists
of one hundred (100) shares of common stock with no par value, of which twenty
(20) shares are issued and outstanding and sixty (60) shares are treasury stock.
The authorized capital stock of Aceco consists of one thousand (1,000) shares of
common stock with no par value, of which one thousand (1,000) shares are issued
and outstanding. The authorized capital stock of Highland consists of two
thousand (2,000) shares of common stock with no par value, of which one thousand
(1,000) shares are issued and outstanding. The authorized capital stock of Kern
Coal consists of one thousand (1,000) shares of common stock with no par value,
of which four hundred (400) shares are issued and outstanding. The authorized
capital stock of Mountain Clay consists of two thousand (2,000) shares of common
stock of One Hundred Dollars ($100.00) par value, of which eight hundred and ten
(810) shares are issued and outstanding. The
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<PAGE>
authorized capital stock of River Coal consists of forty (40) shares of common
stock of Twenty-Five Dollars ($25.00) par value, of which forty (40) shares are
issued and outstanding.
(b) All of the Shares and all of the capital stock of each Subsidiary
(such capital stock, the "Subsidiaries' Shares") have been duly authorized and
validly issued, and are fully paid and nonassessable. There are no outstanding
subscription rights, warrants, options, conversion rights, or other rights or
agreements of any kind whatsoever entitling any Person to purchase or acquire
any interest in any of the Shares or the Subsidiaries' Shares. None of the
Shares or the Subsidiaries' Shares has been issued in violation of any federal,
state or other law pertaining to the issuance of securities or in violation of
any rights, preemptive or otherwise, of any Person.
3.3 Title to Stock.
--------------
(a) The Shareholder has, and at the Closing will have, good and
marketable (legal and beneficial) title to the Shares, free and clear of all
liens, pledges, proxies, voting trusts, encumbrances, security interests,
claims, charges, and restrictions whatsoever, and there are no outstanding
purchase agreements, options, warrants, or other rights of any kind whatsoever
entitling any Person to purchase or acquire an interest in any of such Shares or
restricting their transfer in accordance with this Agreement. No other Person
has owned any shares of either of the Companies at any time since December 31,
1996.
(b) LRM has, and at the Closing will have, good and marketable (legal
and beneficial) title to the Subsidiaries' Shares except those of River Coal,
free and clear of all liens, pledges, proxies, voting trusts, encumbrances,
security interests, claims, charges, and restrictions whatsoever, and there are
no outstanding purchase agreements, options, warrants, or other rights of any
kind whatsoever entitling any Person to purchase or acquire an interest in any
of such Subsidiaries' Shares or restricting their transfer in accordance with
this Agreement.
(c) Kern Coal has, and at the Closing will have, good and marketable
(legal and beneficial) title to River Coal's capital stock, free and clear of
all liens, pledges, proxies, voting trusts, encumbrances, security interests,
claims, charges, and restrictions whatsoever, and there are no outstanding
purchase agreements, options, warrants, or other rights of any kind whatsoever
entitling any Person to purchase or acquire an interest in any of such capital
stock or restricting their transfer in accordance with this Agreement.
(d) LRI has, and at the Closing will have, good and marketable (legal
and beneficial) title to eight hundred (800) shares of preferred stock of
Reclamation Surety Holding Company, Inc. (the "Preferred Stock"), free and clear
of all liens, pledges, proxies, voting trusts, encumbrances, security interests,
claims, charges, and restrictions whatsoever, and there are no outstanding
purchase agreements, options, warrants, or other rights of any kind whatsoever
entitling any Person to purchase or acquire an interest in any of such Preferred
Stock or restricting its transfer in accordance with this Agreement. Seller
makes no representation or warranty with respect to the value of, or the
available market for, the RSHC Stock, the financial status or business prospects
of RSHC, or the assets of RSHC, and Buyer shall rely solely upon the management
of RSHC for information pertaining to that company or the value of its stock.
-12-
<PAGE>
3.4 Subsidiaries. Neither Company owns or controls, or has ever owned or
------------
controlled, directly or indirectly, any capital stock of any other corporation
or any interest in any other Person other than Aceco, Highland, Kern Coal,
Mountain Clay or River Coal, other than LRI's ownership of the Preferred Stock.
No Subsidiary owns or controls, or has ever owned or controlled, directly or
indirectly, any capital stock of any corporation or any interest in any Person
other than Kern Coal's ownership of the capital stock of River Coal.
3.5 Authority.
---------
(a) The Shareholder has full right, power, authority, and capacity to
execute and deliver this Agreement and the Other Documents, and to perform his
respective obligations under this Agreement and the Other Documents. This
Agreement and the Other Documents constitute valid and legally binding
obligations of the Shareholder, enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by the Shareholder, the Companies and the Subsidiaries
will not, (i) violate any provision of, or result in the breach of or accelerate
or permit the acceleration of any performance required by the terms of, the
Articles of Incorporation or Bylaws of any Company or Subsidiary; any contract,
agreement, arrangement or undertaking to which the Shareholder or any Company or
Subsidiary is a party or by which any of them may be bound; any judgment,
decree, writ, injunction, order or award of any arbitration panel, court or
governmental authority; or any applicable law, ordinance, rule or regulation of
any governmental body; (ii) result in the creation of any claim, lien, charge or
encumbrance upon any of the properties or assets (whether real or personal,
tangible or intangible) of any Company or Subsidiary; (iii) terminate or cancel,
or result in the termination or cancellation of, any agreement or undertaking to
which any Company or Subsidiary is a
[PAGE 14 MISSING]
inspected by Purchaser, except for normal wear and tear and deterioration
associated with the operation of such assets in the ordinary course of the
Companies' or the Subsidiaries' business.
(b) Schedule 3.7(b) sets forth a true and complete list of all die
principal items of machinery, equipment, vehicles, and other tangible personal
property now leased by each Company and Subsidiary in its business, together
with a brief description of the principal terms of each lease (the "Leased
Tangible Assets"). Except as set forth on Schedule 3.7(b), as of the Closing
Date and immediately following the consummation of the transactions at Closing,
each Company and Subsidiary will have good and transferable leasehold interests
in all personal property shown on Schedule 3.7(b) as leased by it, in each case
under valid leases enforceable against the lessors thereunder. The execution and
delivery of this Agreement, and the consummation. of the transactions
contemplated by this Agreement, will not result in the creation of any Charge on
any of the Leased Tangible Assets. The Leased Tangible Assets shall be in
substantially the same condition on the Closing Date as they were at the time
they were inspected by Purchaser, except for normal wear and
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<PAGE>
tear and deterioration associated with the operation of such assets in the
ordinary course of the Companies' or the Subsidiaries' business.
3.8 Absence of Material Change. Except as set forth on Schedule 3.8, the
--------------------------
Current Financial Statements, the Closing Financial Statements or the other
schedules to this Agreement:
(a) Since October 31, 1997, the business and affairs of the Companies
and the Subsidiaries have been conducted only in the ordinary course.
(b) Since October 31, 1997, (i) there has been no- change in the
condition (financial or otherwise), of i the assets, liabilities, earnings,
business, operations, affairs or prospects of any Company or Subsidiary, other
than minor changes in the ordinary course of business, none of which either
singly or in the aggregate has been materially adverse; and (ii) there has been
no damage, destruction, loss or other occurrence or development (whether or not
insured against), which either singly or in the aggregate materially adversely
affects (and the Shareholder does not- know, or have any reasonable grounds to
know, of any threatened occurrence or development which could materially
adversely affect) the assets, liabilities, earnings, business, operations,
affairs or prospects of any Company or Subsidiary.
(c) Since October 31, 1997, no Company or Subsidiary has (i) created
or incurred any liability, commitment or obligation (absolute or contingent),
except unsecured current liabilities incurred for other than money borrowed in
the ordinary course of business; (ii) mortgaged, pledged or subjected to any
lien or otherwise encumbered any. of its assets, tangible or intangible; (iii)
discharged or satisfied any lien, security interest or encumbrance, or paid any
obligation or liability (absolute or contingent), other than current liabilities
due and payable in the ordinary course of business; (iv) waived any rights of
substantial value; canceled any debts or claims; or terminated or amended, or
suffered the termination or amendment of, any contract, lease, agreement or
license to which such Company or Subsidiary is or was a party; (v) made any
capital expenditures or any capital additions or betterments which in the
aggregate exceeded Twenty-Five Thousand Dollars ($25,000.00); (vi) sold or
otherwise disposed of any of its assets, tangible or intangible, except in the
ordinary course of business; (vii) declared or paid any dividends or made any
other distribution on or in respect of, or directly or indirectly purchased,
retired, redeemed, or otherwise acquired, any Shares of such Company or capital
stock of such Subsidiary; (viii) paid or agreed to pay, conditionally or
otherwise, any bonus, extra compensation, pension or severance pay to any of
such Company's or Subsidiary's present or former stockholders, directors,
officers, agents or employees, whether under any existing pension or other plan
or otherwise, or increased the compensation (including salaries, fees,
commissions, bonuses, prof-it sharing, incentive, pension, retirement or other
similar payments) being, paid as of December 31, 1996, to any of such Company's
or Subsidiary's stockholders, directors, officers, agents or employees; (ix)
renewed, amended, become bound by or entered into any contract, commitment or
transaction other than in the ordinary course of business; or (x) changed any
accounting practice followed or employed in preparing the Financial Statements
or the Current Financial Statements.
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<PAGE>
3.9 Tax Matters.
-----------
(a) As used in this Agreement, the term "Code" means the Internal
Revenue Code of 1986, as amended. The term "Tax" means any federal, state, local
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code See. 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. The term "Tax Return" means any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including. any schedule or attachment thereto, and including any amendment
thereof.
(b) Except as described on Schedule 3.9, each Company and Subsidiary
has filed all Tax Returns that it was required to file; all such Tax Returns
were correct and complete in all material respects; all Taxes owed by each
Company and Subsidiary (whether or not shown on any Tax Return) have been paid;
no Company or Subsidiary currently is the beneficiary of any extension of time
within which to file any Tax Return; no claim has ever been made by an authority
in a jurisdiction where any Company or Subsidiary does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction; and there are no liens
on any of the assets of any Company or Subsidiary that arose in connection with
any failure (or alleged failure) to pay any Tax.
(c) Each Company and Subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor, or other third party, and
each Company and Subsidiary has collected and paid all taxes required to have
been collected and paid in connection with any amounts received from any
customer or other third party.
(d) There is no dispute or claim concerning any Tax liability of any
Company or Subsidiary (i) claimed or raised by any authority in writing, or (ii)
as to which the Shareholder has knowledge based upon personal contact with any
agent of such authority. Schedule 3.9 lists all federal, state, local, and
foreign income Tax Returns filed with respect to the Companies and the
Subsidiaries for taxable periods ended on or after December 31, 1994; indicates
those Tax Returns that have been audited; and indicates those Tax Returns that
currently are the subject of audit. The Shareholder has delivered to Purchaser
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by any
Company or Subsidiary since December 31, 1994.
(e) No Company or Subsidiary has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(f) No Company or Subsidiary has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code Sec. 280G. Each Company and Subsidiary has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
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<PAGE>
substantial understatement of federal income Tax within the meaning of Code Sec.
6661 as to returns due on or before December 31, 1989, or Code Sec. 6662 as to
returns due after that date. No Company or Subsidiary has any liability for
unpaid Taxes because it once was a member of an affiliated group during any part
of any consolidated return year.
3.10 Undisclosed Liabilities.
-----------------------
(a) No Company or Subsidiary is, and no Company's or Subsidiary's
properties or assets are, subject to any debt, liability, commitment or
obligation of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, which (i) is not shown and adequately reserved against in
the Financial Statements; (ii) is not shown and adequately reserved against in
the Current Financial Statements; (iii) was incurred subsequent to the date of
the Current Financial Statements other than in the ordinary course of business
and not in violation of any provision of this Agreement or (iv) is not listed on
Schedule 3.10.
3.11 Contracts.
---------
(a) All coal sales agreements to which each Company and each
Subsidiary is a party that were acquired under or in connection with the Transco
Purchase Agreement are listed on Schedule 3.11(a)(1) (the "Transco Coal Sales
Agreements") and all other coal sales agreements to which each Company and each
Subsidiary is a party are listed on Schedule 3.11(a)(2) (the "LRI Coal Sales
Agreements"). All other material contracts and commitments to which each Company
and each Subsidiary is a party that were acquired under or in connection with
the Transco Purchase Agreement are set forth on Schedule 3.11(a)(3) (the
"Transco Miscellaneous Agreements"). All other material contracts and
commitments to which each Company and each Subsidiary is a party that were not
acquired under or in connection with the Transco Purchase Agreement are set
forth on Schedule 3.11(a)(4) (the " LRI Miscellaneous Agreements").
(b) Except as set forth on Schedules 3.11(a)(1), 3.11(a)(2),
3.11(a)(3) and 3.11(a)(4), no Company or Subsidiary is a party to or bound by,
and no Company's or Subsidiary's business or assets are bound or affected by,
any material written or oral contract, agreement or commitment of any kind
whatsoever, including, but not limited to, any (1) employment agreement; (ii)
promotion or advertising agreement; (iii) bonus, profit sharing, deferred
compensation, hospitalization, retirement, insurance, pension, welfare, stock
option or stock, purchase plan, arrangement or agreement or any other plan,
arrangement or agreement providing, for employee benefits or for the
remuneration, direct or indirect, of its stockholders, directors, officers or
employees; (iv) agreement with any shareholder, director or officer of any
Company or Subsidiary; (v) agreement containing covenants by such Company or
Subsidiary not to compete in any lines of business or commerce; (vi) franchise
or distributorship agreement; (vii) loan, credit or financing agreement,
including all agreements for any commitments for future loans, credits or
financing; (viii) guarantee; (ix) mortgage or security agreement; or (x)
agreement to purchase raw materials, packaging, supplies or services used
regularly in any Company's or Subsidiary's business, or to sell the products or
services provided by any Company or Subsidiary.
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<PAGE>
(c) Except as set forth on Schedule 3.11(c), all o f the LRI Coal
Sales Agreements, the Transco Coal Sales Agreements, the LRI Miscellaneous
Agreements and the Transco Miscellaneous Agreements are in full force and
effect, each Company and Subsidiary has performed all obligations required to be
performed by it to date under all such contracts and commitments, and the
Shareholder does not know, or have any reasonable grounds to know, that any
other party is in default (or would be in default on the giving of notice or the
lapse of time or both) under any such contract or commitment.
(d) True and complete copies of all contracts and commitments
(including all open bids for coal sales) to which any Company or Subsidiary is a
party or which are listed on Schedules 3.11(a)(1), 3.11(a)(2), 3.11(a)(3) and
3.11(a)(4) or which are otherwise referred to in this Agreement, including any
Schedule or Annex hereto, have been delivered to Purchaser or made available for
Purchaser's inspection, and there are no amendments to or modifications of, or
significant agreements of the parties relating to, any such contract, agreement
or commitment which have not been disclosed to Purchaser, and each such
contract, agreement or commitment is valid and binding on the parties thereto in
accordance with its respective terms. Schedules 3.11(a)(1), 3.11(a)(2),
3.11(a)(3) and 3.11(a)(4) include a true and complete description of the terms
of any unwritten contract or commitment to which any Company or Subsidiary is a
party or by which any Company or Subsidiary is bound.
(e) The prices which each Company and Subsidiary shall receive or pay
under all outstanding contracts, agreements and commitments with its customers,
suppliers and others have been determined in accordance with such Company's or
Subsidiary's established pricing principles. After due inquiry, neither the
Shareholder, any Company or any Subsidiary knows of any adverse change in the
availability or cost of any of any Company's or Subsidiary's supplies that is
likely to occur and that would materially and adversely affect the operation and
financial performance of any Company or Subsidiary.
(f) If consent to the transactions contemplated by this Agreement and
the Other Documents is required under any contract or commitment to be
transferred under or in connection with this Agreement and the Other Documents,
the Shareholder shall use his best efforts to obtain such consent (subject to
Section 7.9).
3.12 Litigation and Pending Proceedings. Except as set forth on Schedule
----------------------------------
3.12, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations pending or threatened in any court or before any
governmental agency or instrumentality or arbitration panel or otherwise
against, by or affecting the Shareholder or any Company or Subsidiary, or any
Company's or Subsidiary's business, prospects or condition (financial or
otherwise), or any of any Company's or Subsidiary's properties or assets, or
which would prevent the performance of this Agreement or the Other Documents or
any of the transactions contemplated hereby or thereby, or which declare the
same unlawful or cause the rescission thereof. Each Company and Subsidiary has
complied with, and no Company or Subsidiary is in default in any respect under
(and has not been charged or threatened with, and is not under an investigation
with respect to, any charge concerning any violation of any provision of), any
federal, state or local law, regulation, ordinance, rule or order (whether
executive,
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<PAGE>
judicial, legislative, or administrative), or any order, writ, injunction or
decree of any court, agency or instrumentality.
3.13 Real Property.
-------------
(a) Schedule 3.13(a) sets forth a true and complete list of all leases
and other agreements (including wheelage and right-of-way agreements) by which
the Company holds a leasehold interest or other contractual rights in and to any
real property, or has the right to receive income from any third party as a
result of the use or occupancy of any real property by such third party. The
leases and other agreements identified on Schedule 3.13 (a), as each may have
been amended, supplemented or otherwise modified by contemporaneous or
subsequent written agreements, are hereinafter referred to as the "Leases," and
the property and property rights granted therein are hereinafter referred to as
the "Leased Real Property". As of the Closing Date, the Shareholder especially
warrants the Companies' and Subsidiaries' title to their respective leasehold
interest or other contractual rights in and to the Leased Real Property.
(b) Schedule 3.13(b) sets forth a true and complete list of all real
property that the Companies and their Subsidiaries own in fee, whether surface
or mineral or portion thereof (the "Owned Real Property"). As of the Closing
Date, the Shareholder specially warrants fee title to the Owned Real Property
(except for such properties acquired by the Companies or their Subsidiaries with
covenant of general warranty, and in which cases the Shareholder generally
warrants fee title to such properties), free and clear of all Charges other than
as may be contained in the instruments of conveyance of the Owned Real
Properties to the Companies or their Subsidiaries.
(c) Except as set forth on Schedule 3.13(a), as of the Closing Date:
(i) there will be no past due payment obligation or other material default under
any of the Leases; (ii) neither Shareholder nor the Companies or Subsidiaries
has received any notice (oral or written) of, or knows of, any act, omission or
condition which constitutes a material default, or with the passage of time
and/or the giving of notice would constitute a material default, under any of
the Leases; (iii) there will be no Charges against the Leases or the rights of
the Companies or Subsidiaries thereunder; (iv) to the best of the knowledge of
the Shareholder, neither the Companies nor the Subsidiaries has mined any coal
that did not belong to it, or mined any coal in such a reckless or imprudent
fashion as to give rise to any material claims for loss or waste by any of its
lessors; and (v) each of the Leases will be in good standing, valid and
enforceable against the lessor or other party in accordance with its terms.
(d) Subject to all of the lessors listed on Schedule 3.31 giving their
consent to the transactions contemplated herein, the acquisition of the Shares
by Purchaser will not constitute a default under the terms of any of the Leases.
(e) Except as set forth on Schedule 3.13(a), the Companies and the
Subsidiaries are in actual and peaceful possession of that portion of the Leased
Real Property with respect to which the Companies or their Subsidiaries have
Permits and are actively conducting coal mining operations (the "Permitted
Leased Real Property").
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<PAGE>
3.14 Restrictions on Property. No applicable zoning or building law,
------------------------
ordinance, administrative regulation, urban redevelopment law, or any other law,
regulation, rule, order or decree, prohibits or interferes with, limits or
impairs, or would, if not permitted by any prior nonconforming use, prohibit or
interfere with, or limit or impair, the use, operation, maintenance of or access
to, or affects the value of, the real or personal property owned or leased by
any Company or Subsidiary or any item thereof, as now used, operated or
maintained by such Company or Subsidiary. No notice of any violation of any
applicable zoning or building law, ordinance, administrative regulation, or any
other law, regulation, rule, order or decree, has been received by any Company
or Subsidiary, and the Shareholder does not know, or have any reasonable grounds
to know, of the threat of any such notice. No condemnation proceeding has been
instituted or is threatened with respect to any Leased Real Property or Owned
Real Property.
3.15 Condition of Assets. Except as expressly contained in Section 3.7 of
-------------------
this Agreement or the Other Documents, the Buyer acknowledges that the
Shareholder has made no representation regarding the value or condition of the
Tangible Assets, and the Acquired Assets will be held by the Companies or
Subsidiaries at Closing "as is, where is" with no representations or warranties,
express or implied, as to merchantability or fitness for a particular purpose,
other than set forth in Section 3.7.
3.16 Inventory. The Companies' and the Subsidiaries' coal inventory as of
---------
the date of the Current Balance Sheets, and all additions to the Company's coal
inventory since such date, consist solely of coal which is usable or saleable in
the ordinary course of the Company's business.
3.17 Notes and Accounts Receivable. Except as set forth on Schedule 3.17,
-----------------------------
all notes and accounts receivable of each Company and Subsidiary shown on the
Current Balance Sheets or thereafter acquired by any Company or Subsidiary have
been collected or are current and collectible in the ordinary course (in the
case of any such note in accordance with its terms, and in the case of any such
account within 45 days after billing) at the aggregate recorded amounts thereof
on such Company's or Subsidiary's books, less the bad debt reserves provided
therefor on the Current Balance Sheet, as such reserves may have been adjusted
on such Company's or Subsidiary's books in the ordinary course of business to
date. No note or account receivable of any Company or Subsidiary is subject to
counterclaim or set off.
3.18 Banks, Directors and Officers, Powers of Attorney, Life Insurance and
-----------------------------------------------------------------
Employees. Schedule 3.18 sets forth (a) a list of all banks with which each
- - ---------
Company and Subsidiary has an account, deposit, certificate of deposit, or safe
deposit box along with identifying numbers and the names of all persons
authorized to draw thereon or have access thereto; (b) the names of all
incumbent directors and officers of each Company and Subsidiary and of all
incumbent trustees and committee members under any plans listed on Schedule 3.26
or related trusts; (c) the names of all Persons having powers of attorney from
any Company or Subsidiary and a summary statement of the terms thereof; (d) a
description and identification of any insurance policies held or paid for by any
Company or Subsidiary on the lives of any of such Company's or Subsidiary's key
employees, officers, directors or shareholders; and (e) the names and job
descriptions of all of each Company's and Subsidiary's non-hourly employees
whose total compensation from each Company or Subsidiary for the year ending
December 3 1, 1997, will exceed Fifty Thousand Dollars ($50,000.00), together
with a statement of the full amount paid or payable to each such person in
respect of such year. Except
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<PAGE>
for any currently effective collective bargaining agreements listed on Schedule
3.25, no person is employed by any Company or Subsidiary other than at the will
of the employing Company or Subsidiary for an indefinite period of time, and at
the option of either such Company or Subsidiary or the employee, such employee's
employment with such Company or Subsidiary may be terminated with or without
cause, and with or without notice, at any time, except as may be limited by
applicable law.
3.19 Permits, Etc.
------------
(a) Each Company and Subsidiary has all permits, licenses, franchises,
approvals, certificates or authorizations (collectively, "Permits") of any
federal, state or local governmental or regulatory body required in order to
permit. it to carry on its business as presently conducted, all of which are in
full force and effect, and none of which will be adversely affected by the
transactions contemplated herein. All current Permits held by each Company and
each Subsidiary are listed on Schedule 3.19(a) (the "Leslie Permits"). No
misrepresentations or willful or negligent omissions were made of any material
fact in obtaining any Leslie Permit. No action or claim is pending, threatened
or contemplated to revoke, suspend, modify, alter, amend or terminate any Leslie
Permit, or to declare any Leslie Permit invalid in any respect, and the
Shareholder does not know of any reason for such action.
(b) All reclamation and performance bonds posted by each Company and
each Subsidiary in connection with its operations are listed on Schedule
3.19(b)(1) (collectively, the "Bonds"). Except as disclosed on Schedule
3.19(b)(2): (i) the Companies and the Subsidiaries have properly carried out all
reclamation with respect to their coal mining and processing operations required
to date by law; and (ii) the operation of the Companies' and the Subsidiaries'
coal mining and processing operations, and the state of reclamation on all of
the Leased Real Property and Owned Real Property are "current" or in "deferred
status" regarding reclamation obligations and otherwise are in material
compliance with all applicable mining, reclamation, health and safety, zoning,
land use and all other laws and regulations (including, without limitation, all
aspects of the Federal Coal Mine Health and Safety Act of 1969, as amended, and
the Federal Mine Safety and Health Act of 1977, as amended, and 'similar state
laws and regulations) and in accordance with reclamation plans submitted with
respect to the Leslie Permits.
3.20 Intellectual Property. Schedule 3.20 sets forth a true and complete
---------------------
identification and summary description of all Intellectual Property owned or
utilized by each Company and Subsidiary in its business (collectively, the
"Companies' Intellectual Property"), including a description of the nature of
each Company's and Subsidiary's interest therein. Except as set forth on
Schedule 3.20, all of the Companies' Intellectual Property is owned by the
Companies and the Subsidiaries and is free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims; no Company
or Subsidiary is a party to any license, consent, settlement or other agreement
involving the Companies' Intellectual Property; there are, and have been, no
claims, actions or judicial or adversarial proceedings involving any of the
Company's Intellectual Property, and no such actions or proceedings are
threatened or anticipated; the Companies and the Subsidiaries have the right and
authority to use the Companies' Intellectual Property in connection with the
conduct of their business and such use has not and will not infringe upon,
constitute a misappropriation of, or otherwise violate
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<PAGE>
the rights of any other person in, any Intellectual Property; and the
Shareholder knows of no past or present occurrences of any probable infringement
or misappropriation of, or violation of any Company's or Subsidiary's rights in
any of the Companies' Intellectual Property.
3.21 Working Relationships. Each Company and Subsidiary enjoys good
---------------------
working relationships under all of its sales agency, broker, sales
representative, and similar agreements or arrangements necessary to the normal
operation of its business.
3.22 Proprietary Information. Prior to or in conjunction with the
-----------------------
Closing, the Shareholder shall have fully disclosed to Purchaser all customer
lists, trade secrets, processes, inventions, formulas, methods, know-how and
other proprietary information used or developed by each Company and Subsidiary
in connection with its business. No Company or Subsidiary has disclosed or
permitted the disclosure of any such proprietary information to any other
Person, and the use by such Company or Subsidiary of its proprietary information
does not violate any other Person's proprietary rights.
3.23 Customers, Etc. Listed on Schedule 3.23 are the names and
--------------
addresses of all of each Company's and Subsidiary's material customers,
suppliers and distributors with whom or which each Company and Subsidiary has
done business since December 31, 1995. The Shareholder does not know, or have
any reasonable grounds to know, that such customer, supplier of distributor has
terminated or expects to terminate a portion of its normal business with any
Company or Subsidiary, as a result of the transactions contemplated in this
Agreement or otherwise.
3.24 Insurance. The tangible real and personal property and assets,
---------
whether owned or leased, of each Company and Subsidiary are insured against the
hazards and in the amounts stated in the policies of insurance listed on
Schedule 3.24. Each Company and Subsidiary carries insurance against personal
injury and property damage to third persons and in respect of its services and
operations and such other insurance as is stated in the policies of insurance
listed on Schedule 3.24. All such insurance is in full force and effect, is
carried with reputable insurers and, in any event, the insurance carried by each
Company and Subsidiary in respect of Its physical properties is of an amount and
character such as to prevent each Company and Subsidiary from being a co-insurer
in respect of any loss thereto. Schedule 3.24 sets forth a true and complete
list of all claims in excess of Five Thousand Dollars ($5,000.00) made by each
Company and Subsidiary during the past year under any such policy,
3.25 Labor Relations. Except as set forth on Schedule 3.25: (a) no
---------------
Company or Subsidiary is a party to, or negotiating, or has obligations under,
any agreement, collective bargaining or otherwise, with any party relating to
the compensation or working conditions of any of the its employees; (b) no
Company or Subsidiary is obligated under any agreement to recognize or bargain
with any labor organization or union on behalf of its employees; (c) the
Shareholder does not know, or have any reasonable grounds to know, of any union
organizational or representational activities underway among any of any
Company's or Subsidiary's employees; and (d) no Company or Subsidiary has been
charged or threatened with a charge of any unfair labor practice. There are no
existing or threatened labor strikes, slowdowns, disputes, grievances or
disturbances affecting or which might affect operations at, or deliveries from
or into, any facility of any Company or Subsidiary. No work
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<PAGE>
stoppage against any Company or Subsidiary or any Company's or Subsidiary's
business is pending or threatened, and no such work stoppage has ever occurred.
No Company or Subsidiary has committed any act or failed to take any
required action with respect to any of its employees which has resulted or which
may result in a material violation of ERISA (as that term is defined in Section
3.26 below), or similar legislation as it affects any employee benefit or
welfare plan of such Company or Subsidiary; the Immigration Reform and Control
Act of 1986; the National Labor Relations Act, as amended; Title VII of the
Civil Rights Act of 1964, as amended; the Occupational Safety and Health Act;
Executive Order 11246; the Fair Labor Standards Act; the Rehabilitation Act of
1973; and all regulations under such Acts, and all other federal, state and
local laws, regulations and executive orders relating to the employment of
labor, including any provisions thereof relating to wages, hours, collective
bargaining, the payment of Social Security and similar taxes, unemployment and
workers' compensation laws, any labor relations laws, or any governmental
regulations promulgated thereunder, as the same affect relationships or
obligations of such Company or Subsidiary with respect to any of its employees,
and which will or reasonably could result in any material liability, penalty,
fine or the like being imposed upon such Company or Subsidiary. No Company or
Subsidiary is liable for any arrearage of wages or taxes or penalties for
failure to comply with any of the foregoing, and there are no proceedings before
any court, governmental agency, instrumentality or arbitrator relating to such
matters, including any unfair labor practice claims, either pending or
threatened.
3.26 Employee Benefit Plans.
----------------------
(a) For purposes of this Section 3.26, the term "employee benefit
plan(s)" shall have the meaning ascribed to it in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations promulgated thereunder, and the term "employee pension benefit
plan(s)" shall have the meaning ascribed to it in Section 3(2) of ERISA.
(b) Schedule 3.26 sets forth a complete list of all employee benefit
plans, policies and practices (whether or not subject to ERISA) applicable to
employees of each Company and Subsidiary, including, without limitation, plans,
funds or programs providing medical, surgical or hospital care or benefits;
benefits in the event of sickness, accident, disability, death or unemployment;
vacation benefits; apprenticeship or other training programs; day care centers;
scholarship funds; prepaid legal services; benefits described in Section 302(c)
of the Labor Management Relations Act; retirement income; income deferral for
periods extending to the termination of covered employment or beyond; severance
pay arrangements; and supplemental retirement income payments which take into
account increases in the cost of living. Each employee benefit plan, policy or
practice which is funded through a policy of insurance is indicated by the word
"insured" placed by the listing of the plan on Schedule 3.26.
(c) True and complete copies of all (i) employee benefit plans and
related trust agreements; (ii) policies and practices; (iii) summary plan
descriptions; (iv) most recent allocation or actuarial reports prepared for each
employee pension benefit plan; (v) insurance policies; and (vi) communications
to or from the Internal Revenue Service (the "IRS") (including the most recent
Form 5500 filed with the IRS and the most recent determination letter received
from the IRS), the Pension
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Benefit Guaranty Corporation (the "PBGC") or the United States Department of
Labor and other governmental filings with respect to the employee benefit plans
have been delivered by each Company and Subsidiary to Purchaser.
(d) Except as specifically provided in the documents described in this
Section 3.26 and delivered to Purchaser, or as otherwise described on Schedule
3.26, there are no amendments, modifications, extensions, changes in benefits or
benefit structures, or other alterations which are currently in effect or which
the Shareholder or any Company or Subsidiary has undertaken to become effective
in the future, or which the Shareholder has knowledge of, to any of the employee
benefit plans, policies or practices.
(e) Each employee benefit plan of each Company and Subsidiary has been
executed, managed and administered in material compliance with the applicable
provisions of ERISA, the Code, and the regulations promulgated thereunder, and
all other applicable laws. The Shareholder has no knowledge of any fact which
would adversely affect the qualified status of any of the employee benefit
plans, or of any threatened or pending claim against any of the employee benefit
plans or their fiduciaries by any participant, beneficiary or government agency.
(f) The Shareholder, the Companies and the Subsidiaries have fully
complied with the notice and continuation requirements of Sections 601 through
608 of ERISA and the proposed regulations thereunder. All reports, statements,
returns and other information required to be furnished or filed with respect to
each Company's and Subsidiary's respective employee benefit plans have been
timely furnished, filed or both in accordance with Sections 101 through 105 of
ERISA and Sections 6057 through 6059 of the Code, and they are true, correct and
complete in all material respects. Records with respect to the employee benefit
plans have been maintained in material compliance with Section 107 of ERISA.
None of the Shareholder, any Company, any Subsidiary or any other fiduciary (as
that term is defined in Section 3(21) of ERISA) with respect to any of any
Company's or Subsidiary's employee benefit plans has any material liability for
any breach of any fiduciary duties under Sections 404, 405 or 409 of ERISA.
(g) None of the Shareholder, any Company or any Subsidiary have, with
respect to any of the employee benefit plans, nor has any administrator of any
of tile employee benefit plans, the related trusts or any trustee thereof,
engaged in any prohibited transaction which would subject the Shareholder, any
Company or Subsidiary, any of the employee benefit plans, any administrator or
trustee or any party dealing with any of the employee benefit plans or any such
trusts to a tax or penalty on prohibited transactions imposed by ERISA, Section
4975 of the Code, or to any other liability under ERISA.
(h) All employee pension benefit plans maintained by or covering
employees Of any Company or Subsidiary which are intended to be qualified under
Section 401(a) or 403(a) Of the Code, and the related trusts which are intended
to be exempt under Section 501(a) of the Code, are, and have been since
adoption, so qualified, and are identified on Schedule 3.25 as "qualified
plans," and the date of the most recent determination letter from the IRS
confirming the qualification of each such plan is set out on Schedule 3.26.
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<PAGE>
(i) Except as set forth on Schedule 3.26, none of the employee pension
benefit plans nor any of the related trusts has been terminated. None of the
employee pension benefit plans has an accumulated funding deficiency (as that
term is defined in Section 302 of ERISA and 412 of the Code), whether or not
waived. No material liability to the PBGC has been incurred with respect to any
of the employee pension benefit plans; there have been no reportable events (as
described in Section 4043 (b) of ERISA); and no event or condition has occurred
which presents a material risk of termination of any of the employee pension
benefit plans by the PBGC.
(j) The present value of all accrued benefits, whether forfeitable or
not, under the employee pension benefit plans subject to Title IV of ERISA do
not exceed the value of the assets of such plans allocable to such accrued
benefits. The actuarial present value of all accrued deferred compensation
entitlements of employees and former employees of the Companies and the
Subsidiaries (and their respective beneficiaries) other than entitlements
accrued pursuant to funded retirement plans subject to the provisions of Section
412 of the Code are fully reflected on the Financial Statements and the Current
Financial Statements.
(k) None of the employee pension benefit plans is, and no Company or
Subsidiary has ever contributed to, a "multi-employer plan," as that term is
defined in Section 3(37) of ERISA (as particularly amended by The Multi-Employer
Pension Plan Amendments Act of 1980).
(1) No Company or Subsidiary is now liable, or has any potential
liability, under Sections 4063 or 4064 of ERISA, and as Company or Subsidiary,
whether by reason of the transactions contemplated by this Agreement or
otherwise, may be treated as a withdrawing substantial employer under an
employee pension benefit plan to which more than one employer makes
contributions by application of Section 4062(f) of ERISA. No Company or
Subsidiary is now, or will at any time be by virtue of any action heretofore
taken or to be taken prior to the Closing Date, subject to a requirement to
provide security under Section 401(a)(29) of the Code, nor shall any asset of
any Company or Subsidiary be subject to a lien by reason of the provisions of
Section 412(n) of the Code.
(m) Each Company and Subsidiary has provided to Purchaser the
information reasonably necessary to determine the accounting treatment which may
be accorded any of such Company's or Subsidiary's retiree welfare benefits
currently in force at such Company or Subsidiary under proposed Financial
Accounting Standards Board guidelines.
(n) Any trust or fund maintained by or contributed to by any Company
or Subsidiary or its employees to fund an employee benefit plan (other than an
employee pension benefit plan) is qualified as an exempt organization under
Section 501(c)(9) of the Code and the regulations thereunder as a Voluntary
Employee's Benefit Association (a "VEBA"). All "welfare benefit funds" within
the meaning of Section 419(a) of the Code (including, but not limited to, any
VEBA), provided by or pursuant to a plan of any Company or Subsidiary have been
maintained in accordance with Section 419 of the Code and no contributions have
been made to such a fund in excess of the "qualified costs" of the benefits
provided for a taxable year (within the meaning of Section 419(b) of the Code),
except as set forth on Schedule 3.26.
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<PAGE>
3.27 Potential Competing Interests. Except as set forth on Schedule 3.27,
-----------------------------
neither the Shareholder, nor any officer, director or employee of any Company or
Subsidiary, has any direct or indirect interest in any entity which competes
with, is a supplier, customer or sales agent of, or is engaged in any business
of the kind being conducted by, any Company or Subsidiary, and neither the
Shareholder, nor any officer, director or employee of any Company or Subsidiary,
has any interest, direct or indirect, in any contract or agreement with,
commitment or obligation of or to, or claim against, any Company or Subsidiary.
Except as set forth on Schedule 3.27, no real or personal property in which the
Shareholder or any officer, director or employee of any Company or Subsidiary
has an interest is used by any Company or Subsidiary in the operation of its
business, or located on or at any premises used by any Company or Subsidiary in
its business, and no such property is significant to the operation of any
Company's or Subsidiary's business. On the Closing Date, all indebtedness of the
Shareholders, and any officer, director or employee of any Company or Subsidiary
to such Company or Subsidiary reflected or which should have been reflected in
the Financial Statements or the Current Financial Statements shall have been
paid in full, or such amounts will be set off against the Purchase Price. All
such indebtedness is set forth on Schedule 3.27.
3.28 Environmental Matters.
---------------------
(a) As used in this Section 3.28, the term "Hazardous Material" shall
mean any substance, chemical or waste (including, without limitation, asbestos,
polychlorinated biphenyls (PCBs) and petroleum) that is designated or defined
(either by inclusion in a list of materials or by reference to exhibited
characteristics) as hazardous, toxic or dangerous, or as a pollutant or
contaminant, in any federal, state or local law, code or ordinance now existing,
and all rules and regulations promulgated thereunder, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. (S)(S) 9601, et seq., and the Kentucky Revised
------
Statutes, Chapter 224.
(b) Each Company and Subsidiary has duly complied with, and to the
best of the Shareholder's knowledge, each Company's and Subsidiary's business,
operations, assets, equipment, leaseholds and facilities, including, without
limitation, all real property used by each Company and Subsidiary, are in full
compliance with, the provisions of all federal, state and local environmental,
health and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder, including, without limitation, all laws and regulations
with respect to reporting releases of Hazardous Materials and the registration,
testing and maintenance of underground storage tanks.
(c) Each Company and Subsidiary has been issued, and will maintain,
all required federal, state and local permits, licenses, certificates and
approvals relating to (i) air emissions; (ii) discharges to surface water or
ground water; (iii) noise emissions; (iv) solid or liquid waste disposal; (v)
the use, generation, storage, transportation or disposal of Hazardous Materials;
and (vi) other environmental, health or safety matters. A true, accurate and
complete list of all such permits, licenses, certificates or approvals is set
forth on Schedule 3.28.
(d) No Shareholder, Company or Subsidiary has received notice of, or
knows of or suspects, any fact(s) which might constitute a violation of any
federal, state or local environmental, health or safety laws, codes or
ordinances, or any rules or regulations promulgated thereunder, which
-25-
<PAGE>
relate to the use, ownership or occupancy of any of the, Real Property, and no
Company or Subsidiary is in violation of any covenants, conditions, easements,
rights of way or restrictions affecting any of the Owned Real Property or Leased
Real Property any rights appurtenant thereto.
(e) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.28, to the best of the
Shareholder's knowledge there has been no 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
servicing the Owned Real Property or the Leased Real Property, of any Hazardous
Material at or from any of the Owned Real Property or the Leased Real Property
(any of which is hereafter referred to as a "Hazardous Discharge").
(f) None of the Shareholder, any Company, any Subsidiary, or to the
best of the Shareholder's knowledge, any other Person, has rendered an
complaint, order, directive, claim, citation or notice by any governmental
authority or any other Person with respect to (i) air emissions; (ii) spills,
releases or discharges to soils or any improvements located thereon, surface
water, ground water or the sewer, septic system or waste treatment, storage or
disposal systems servicing the Real Property; (iii) noise emissions; (iv) solid
or liquid waste disposal; (v) the use, generation, storage, transportation or
disposal of Hazardous Materials; or (vi) other environmental, health or safety
matters, affecting any Company or Subsidiary, any of the Owned Real Property or
the Leased Real Property, any improvements located thereon or the business
conducted thereon (any of which is hereafter referred to as an "Environmental
Complaint").
(g) To the best of the Shareholder's knowledge, all Hazardous
Materials disposed of, treated or stored on or off-site of any real property
owned, ]eased or operated at any time by any Company or Subsidiary have been
disposed of, treated and stored in full compliance with all applicable laws,
codes and ordinances and all rules and regulations promulgated thereunder.
Schedule 3.28 identifies all underground storage tanks owned or operated at any
time by any Company or, to the best of Shareholder's knowledge, any Subsidiary.
(h) Except for supplies listed on Schedule 3.28 that are to be used or
sold in the ordinary course of any Company's or Subsidiary's business and in
full compliance with all applicable laws, codes and ordinances, to the best of
the Shareholder's knowledge, all of the Owned Real Property and Leased Real
Property is free of all (i) Hazardous Materials; (ii) underground storage tanks;
and (iii) underground pipelines owned or operated by any Company or any
Subsidiary. Except for those supplies listed on Schedule 3.28, no Company or
Subsidiary has stored, treated or disposed of any Hazardous Materials on, in or
under the Owned Real Property or the Leased Real Property, or any part thereof,
or has permitted the Owned Real Property or the Leased Real Property, or any
part thereof, to be used for the storage, treatment or disposal of Hazardous
Materials. Except for the supplies listed on Schedule 3.28, to the best of the
Shareholder's knowledge, there has been no storage, treatment, disposal or
release of Hazardous Materials on, in or under the Owned Real Property or the
Leased Real Property at any time by any Person.
(i) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.28, no Company or Subsidiary has
transported or accepted for
-26-
<PAGE>
transport any Hazardous Materials. Schedule 3.28 identifies all of the Persons
for whom or which any Company or Subsidiary has transported (or from whom or
which any Company or Subsidiary has accepted for transport) Hazardous Materials.
Schedule 3.28 identifies all locations to which any Company or Subsidiary has
transported Hazardous Materials.
(j) The Shareholder shall have made available to Purchaser prior to
Closing all information which he possesses or of which he has knowledge
pertaining to the environmental history of all of the Owned Real Property or the
Leased Real Property. The Shareholder shall also promptly furnish to Purchaser
true, accurate and complete copies of all sampling and test results obtained
from all environmental and/or health samples and tests taken at and around any
of the Owned Real Property or the Leased Real Property prior to the Closing. The
Shareholder shall be furnished copies of any environmental audit or report
received by Purchaser, and shall be a beneficiary of any covenant or warranty
contained therein.
3.29 Immigration Matters. Each Company and Subsidiary has complied with
-------------------
all relevant provisions of Section 274A of the Immigration and Nationality Act,
as, amended (the "Act"). Without limiting the foregoing: (a) each "employee" (as
that term is defined in the Act) of each Company and Subsidiary is permitted to
be so employed in the United States under the Act; (b) each Company and
Subsidiary has examined (and made copies of, if applicable) the documents
presented by said employee to establish appropriate employment eligibility under
the Act; (c) each Company and Subsidiary has completed and required each
employee hired on or since November 11, 1986, to complete a Form 1-9 verifying
employment eligibility under the Act; (d) each Company and Subsidiary has
retained each such completed Form 1-9 for the length of time required under the
Act; and (e) no monetary penalties have been assessed against any Company or
Subsidiary for violation of Section 274A of tile Act.
3.30 Permit Blocking. None of the Shareholder, any Company, any Subsidiary
---------------
or any Person "owned or controlled" by the Shareholder, any Company, any
Subsidiary or any Person which "owns or controls" any Company or any Subsidiary
has been notified by the Federal Office of Surface Mining or the agency of any
state administering the Surface Mining Control and Reclamation Act (30 U.S.C.
(S)(S) 1201 et seq.) (or any comparable state statute), that it is (i)
------
ineligible to receive additional surface mining permits; or (ii) under
investigation to determine whether their eligibility to receive such permits
should be revoked, i.e., "permit blocked." As used herein, the terms "owned or
controlled" and "owns or controls" shall be defined as set forth in 30 C.F.R.
(S)773.5 (1991).
3.31 Consents and Notices. All consents, approvals and notices required to
--------------------
be obtained in connection with the sale of the Shares are set forth on Schedule
3.31.
3.32 Transactions with Affiliates. Except as set forth in the notes to the
----------------------------
Financial Statements, Closing Financial Statements or Current Financial
Statements, or in the schedules to this Agreement or the Other Documents, and,
except for arrangements contemplated by this Agreement, none of the Shareholder,
any Company or any Subsidiary has any outstanding contract, agreement or other
arrangement with an Affiliate, other than those that will not have a material
adverse effect on the Shares, the assets, financial condition or business of any
Company or any Subsidiary.
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<PAGE>
3.33 Distributions. Except as listed on Schedule 3.33, from October 31,
-------------
1997, through the date of this Agreement, no Company or Subsidiary has declared,
set aside, or paid any dividends, whether in cash, stock or other securities, or
otherwise made any distributions to its shareholder(s), directly or indirectly,
of any of its property or assets.
3.34 Actions Since October 31, 1997. Except as disclosed on Schedule 3.34,
------------------------------
from October 31, 1997, until the date of this Agreement, the Shareholder, the
Companies and the Subsidiaries have not taken any actions that are not permitted
under Section 5.3 between the date of this Agreement and the Closing Date.
3.35 Completeness of Statements. No statement, Schedule, Annex,
--------------------------
certificate, information, representation or warranty of any Company, any
Subsidiary or the Shareholder contained in this Agreement or the Other
Documents, or furnished by or on behalf of any Company, any Subsidiary or the
Shareholder to Purchaser or any of its agents pursuant hereto or thereto, or in
connection with the transactions contemplated hereby or thereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make a statement contained herein or
therein not misleading. All representations and warranties of the Shareholder
contained in this Agreement and in the Other Documents are true and complete as
of the date hereof, and will be true and complete as of the Closing Date.
ARTICLE 4
Representations and Warranties of Purchaser and Guarantor
---------------------------------------------------------
Purchaser and Guarantor respectively represent and warrant to the
Shareholder as follows:
4.1 Organization. Purchaser is a corporation duly organized and validly
------------
existing under the laws of the state of Delaware and Guarantor is a corporation
duly organized and validly existing under the laws of the Commonwealth of
Kentucky, and each has full corporate power and authority to own and lease its
properties as such properties are now owned and leased, and to conduct its
business as and where its business is now conducted.
4.2 Authority.
---------
(a) Purchaser and Guarantor each has full right, power, authority, and
capacity to execute and deliver this Agreement and the Other Documents, and to
perform its obligations under this Agreement and the Other Documents. This
Agreement and the Other Documents constitute valid and legally binding
obligations of Purchaser and Guarantor, enforceable in accordance with their
terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser and Guarantor will not, (i) violate any
provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of, its Articles of
Incorporation or Bylaws; any contract, agreement, arrangement or undertaking to
which Purchaser or Guarantor is a party or by which it
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<PAGE>
may be bound; any judgment, decree, writ, injunction, order or award of any
arbitration panel, court or governmental authority; or any applicable law,
ordinance, rule or regulation of any governmental body; or (ii) terminate or
cancel, or result in the termination or cancellation of, any agreement or
undertaking to which it is a party.
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Documents have been duly authorized by all requisite corporate action. All other
consents, approvals, authorizations, releases or orders required of or for
Purchaser or Guarantor for the authorization, execution, and delivery of, and
for the performance and consummation of the transactions contemplated by, this
Agreement and the Other Documents will have been obtained by the Closing.
4.3 Permit Blocking. Neither Purchaser nor any Person "owned or
---------------
controlled" by Purchaser or any Person which "owns or controls" Purchaser has
been notified by the Federal Office of Surface Mining or the agency of any state
administering the Surface Mining Control and Reclamation Act (30 U.S.C. (S)(S)
1201 et seq.) (or any comparable state statute), that it is (i) ineligible to
------
receive additional surface mining permits; or (ii) under investigation to
determine whether their eligibility to receive such permits should be revoked,
i.e., "permit blocked." As used herein, the terms "owned or controlled" and
"owns or controls" shall be defined as set forth in 30 C.F.R. (S)773.5 (1991).
4.4 Knowledge of Misrepresentations. Neither Purchaser nor Guarantor has
-------------------------------
knowledge of any material misrepresentation by the Shareholder under this
Agreement.
4.5 Financial Ability. Purchaser and Guarantor each has the financial
-----------------
ability to perform its obligations under this Agreement and the Other Documents,
including but not limited to payment of the Deferred Amount. Shareholder has
been provided a copy of the Purchaser's September 30, 1997 (pro-forma) and the
Guarantor's September 30, 1997, financial statements which have been prepared in
accordance with generally accepted accounting principles consistently applied,
which present fairly and accurately in all material respects the results of
operation of the Purchaser and Guarantor for the period covered thereby. Since
the date of the financial statements, there has been no material adverse change
in the business or operations of the Purchaser or Guarantor, their assets or
their properties.
ARTICLE 5
Covenants of the Shareholder
----------------------------
The Shareholder covenants and agrees with Purchaser that from the date
hereof through the Closing:
5.1 Investigations. The Shareholder shall continue to give Purchaser and
--------------
the employees, accountants, attorneys and other authorized agents and
representatives of Purchaser full access during all reasonable times to all the
premises, properties, books and records (including, without limitation, all
corporate minute books and stock transfer records) of each Company and
Subsidiary' and to furnish Purchaser with such financial and operating data,
analyses and other information of any kind
-29-
<PAGE>
respecting the business and properties of each Company and Subsidiary as
Purchaser shall from time to time request, including, but not limited to, the
work papers of each Company's and Subsidiary's accountants. Any investigation
shall be conducted in a manner which does not unreasonably interfere with the
operation of any Company's or Subsidiary's business. In the event of the
termination of this Agreement, Purchaser shall return to each Company and
Subsidiary all documents, work papers and other materials obtained from any
Company or Subsidiary in connection with the transactions contemplated hereby,
and shall use all reasonable efforts to keep confidential any information
obtained in any Investigation, unless such information is readily ascertainable
from public or published information or trade sources.
5.2 Consents. Subject to Section 7.9, the Shareholder shall use its
--------
reasonable best efforts to procure, upon reasonable terms and conditions
mutually acceptable to the parties, all consents and approvals.
5.3 Conduct of Business in the Ordinary Course. Except as set forth in
------------------------------------------
Schedule 5.3, the Shareholder shall cause each Company and Subsidiary to conduct
its business only in the ordinary course (including but not limited to payment
of legitimate invoices and bills in accordance with their terms and consistent
with prior practice) and to obtain Purchaser's approval before entering into any
agreement regarding the sale of coal which "involves more than ten thousand
(10,000) short tons per month or has a term exceeding ninety (90) days. By way
of amplification and not limitation, except as otherwise provided herein, no
Company or Subsidiary shall, without the prior written consent of Purchaser:
(a) Issue or cause to be issued any stock, or any options, warrants,
or offer rights to subscribe for or purchase any stock, or any securities
convertible into or exchangeable for stock;
(b) Declare, set aside, or pay any dividends, whether in cash, stock
or other securities, or otherwise make any distributions, including payment of
intercompany debts and management fees, directly or indirectly, of any property
of any Company or Subsidiary;
(c) Directly or indirectly redeem, purchase or otherwise acquire any
stock;
(d) Effect a split, reverse split, reclassification or other change of
any stock, or other reorganization or recapitalization;
(e) Amend its Articles of Incorporation or Bylaws;
(f) Grant any increase in the compensation payable or to become
payable to its officers or. salaried employees (including any salary, bonus,
insurance, pension or other benefit plan, payment or arrangement made to, for.
or with any of such officers or employees);
(g) Borrow or agree to borrow any amount of funds other than short-
term loans secured by accounts receivable; directly or indirectly guarantee or
agree to guarantee, any obligations of others; or, except in the ordinary course
of business, incur any obligation or liability;
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<PAGE>
(h) Subject to the first sentence in Section 5.3 or the last sentence
of Section 5.3, enter into any agreement, contract or commitment which, if
entered into prior to the date of this Agreement, would be required to be listed
on a Schedule delivered to Purchaser pursuant to the terms of, or in connection
with, this Agreement, or modify, amend or terminate any agreement required to be
listed in any such Schedule;
(i) Place or suffer to exist on any of the assets or properties of any
Company or Subsidiary any Mortgage, pledge, lien, charge or other encumbrance,
except in connection with a borrowing of funds permitted under Section 5.3(g);
(j) Cancel any material indebtedness owing to any Company or
Subsidiary or any claim which any Company or Subsidiary may have possessed, or
waive any material rights of substantial value, or discharge or satisfy any
material non-current liabilities;
(k) Except in the ordinary course of business, sell or otherwise
dispose of any of its assets;
(l) Commit any act or omit to do any act which would cause a material
breach of any agreement, contract or commitment which is listed on a Schedule
delivered to Purchaser pursuant to the terms of, or in connection with, this
Agreement, or which would have an adverse effect on the business, financial
condition or earnings of any Company or Subsidiary;
(m) Violate any law, statute, rule, governmental regulation or order,
which violation might have a material adverse effect on the business, financial
condition or earnings of any Company or Subsidiary;
(n) Fail to maintain its books, accounts and records on a basis
consistent with that heretofore employed; or
(o) Fall to pay, or to make provisions adequate for the payment of,
all taxes (current or deferred), interest payments and penalties (whether or not
reflected in its returns as filed) due and payable (and/or accruable for all
periods to the Closing Date, including that portion of its fiscal year to and
including the Closing Date) to any city, county, state, foreign country, the
United States or any other taxing authority.
In addition, no Company or Subsidiary shall make (or become obligated to make)
any expenditure of funds exceeding Five Thousand Dollars ($5,000.00) per single
event, except for expenditures required to satisfy payroll obligations, without
consulting with Purchaser prior to making such expenditures.
5.4 Preservation of Business. Without in any way limiting the provisions
------------------------
of Section 5.9, the Shareholder shall cooperate with Purchaser in making any
announcements concerning the transactions contemplated in this Agreement to the
suppliers, distributors. and customers listed on Schedule 3.23. The Shareholder
shall use his best efforts to preserve the possession and control of all of the
assets of the Companies and the Subsidiaries; to preserve the good will of
suppliers,
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<PAGE>
distributors, customers and others having business relations with the Companies
and the Subsidiaries; and to do nothing to impair the ability to keep and
preserve the business of the Companies and the Subsidiaries existing on the date
of this Agreement.
5.5 Notification of Material Changes and Litigation. The Shareholder
-----------------------------------------------
shall provide Purchaser with prompt written notice, accompanied by a detailed
description and analysis, (a) of any adverse or potentially adverse material
change in any Company's or Subsidiary's condition, earnings, prospects or
business; (b) of any event or condition of any character (whether actual,
threatened or contemplated) pertaining to the financial condition, business or
assets of any Company or Subsidiary that has materially adversely affected, or
which can reasonably be expected to materially and adversely affect, its
financial condition, business or assets, or to cause its business to be carried
on materially less profitably than prior to this Agreement; and (c) of all
claims, regulatory proceedings and litigation (whether actual, threatened or
contemplated, and whether or not material) against or possibly involving any
Company or Subsidiary or involving any officer or director of any Company or
Subsidiary where such claims, regulatory proceedings or litigation arise in
connection with actions taken by any officer or director in his capacity as an
officer or director. Such adverse or potentially adverse material changes or
such litigation shall include, without limitation, any adverse or potentially
adverse material change in, or any litigation arising in connection with any
item or matter reported on, any Schedule, Annex or document delivered by any
Company or Subsidiary or the Shareholders to Purchaser in connection with this
Agreement.
5.6 Cooperation. The Shareholder shall cooperate fully, completely and
-----------
promptly with Purchaser in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement.
5.7 Discussions with Other Purchasers. Neither the Shareholder, nor any
---------------------------------
Company's or any Subsidiary's directors, officers, agents or employees, shall
solicit, authorize the solicitation of, or enter into any discussions with any
third party to: (a) purchase any of the capital stock of any Company or
Subsidiary, any option or warrant to purchase any capital stock of any Company
or Subsidiary, any securities convertible into capital stock of any Company or
Subsidiary, or any other equity security of the Company or Subsidiary; (b) make
a tender or exchange offer for any capital stock of any Company or Subsidiary,
or any other equity security of any Company or Subsidiary; (c) purchase, lease
or otherwise acquire all or a substantial portion of the assets of any Company
or Subsidiary; or (d) merge, consolidate, engage in a share exchange or
otherwise combine with any Company or Subsidiary.
5.8 Representations and Warranties. The Shareholder shall not cause or
------------------------------
permit any of his representations and warranties made in this Agreement,
including, without limitation, his representations and warranties contained in
Article 3 of this Agreement to be untrue or incomplete on the Closing Date or at
any time prior thereto.
5.9 Public. Except as required by applicable law, without the prior
------
written consent of Purchaser; the Shareholder shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any third party.
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<PAGE>
5.10 Resignations. At the Closing, the Shareholder shall cause the
------------
individuals identified on subpart (b) of Schedule 3.8 to resign as officers
and/or directors of the Companies and the Subsidiaries, and/or as trustees and
committee members of the Plans, which resignations shall be effective
immediately after the Closing.
5.11 Discussions with Certain Parties. Neither the Shareholder, any
--------------------------------
Company, any Subsidiary or any Person acting on behalf of any such Person shall
discuss the terms of any required consent to the transactions contemplated by
this Agreement and the Other Documents with Kentucky River Coal Corporation, ANR
Coal Company (f/k/a Enterprise Coal Company) or Kycoga Company without giving
Purchaser reasonable advance notice of any meeting or telephone conference for
that purpose and the opportunity to participate in such meeting or conference.
ARTICLE 6
Covenants of Purchaser
----------------------
Purchaser covenants and agrees with the Shareholder that from the date
hereof through the Closing:
6.1 Cooperation. Purchaser shall cooperate fully, completely and
-----------
promptly with the Shareholder in connection with satisfying all conditions to,
and effecting the transactions contemplated by, this Agreement.
6.2 Representations and Warranties. Purchaser will not cause or permit
------------------------------
any of its representations and warranties made in this Agreement, including,
without limitations, its representations and warranties contained in Article 4
of this Agreement, to be untrue or incomplete on the Closing Date or at any time
prior thereto.
6.3 Publicity. Except as required by applicable law, without the prior
---------
written consent of the Shareholder, Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any third party.
6.4 Discussions with Certain Parties. Neither Purchaser nor any Person
--------------------------------
on behalf of Purchaser shall discuss the terms of any required consent to the
transactions contemplated by this Agreement and the Other Documents with
Kentucky River Coal Corporation, ANR Coal Company (f/k/a Enterprise Coal
Company) or Kycoga Company without giving the Shareholder reasonable advance
notice of any meeting or telephone conference for that purpose and the
opportunity to participate in such meeting or conference.
6.5 Ownership and Control. As soon as practicable after the Closing, and
---------------------
in any event within thirty (30) Business Days after the Closing Date, Purchaser
shall take all necessary and appropriate action, pursuant to all applicable
statutes or regulations, to give notice to the Kentucky Natural Resources and
Environmental Protection Cabinet, Department for Surface Mining Reclamation and
Enforcement, and any other appropriate agencies, of the change in ownership and
control of the Companies and Subsidiaries resulting from the transfer of the
Shares from the
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<PAGE>
Shareholder to Purchaser pursuant to this Agreement, and the fact that the
Shareholder is no longer an owner of or affiliated with any of the Companies or
the Subsidiaries. In the event that Purchaser does not comply with the
provisions of this Section 6.5, Purchaser shall be required to indemnify
Shareholder for Losses suffered by the Shareholder to the extent permitted, and
subject to the limits set forth in, Article 10.
6.6 Shareholder Guarantees. As soon as practicable after the Closing,
----------------------
and in any event within thirty (30) days after the Closing Date, Purchaser
shall: (i) replace the Shareholder guaranties listed on Schedule 6.6 with
guaranties of the Guarantor; or (ii) satisfy all obligations required for the
Shareholder to be released from such guaranties.
6.7 Insurance. From the Closing Date until the expiration of the
---------
Shareholder's indemnity obligations under this Agreement, Purchaser agrees to
cause the Companies and the Subsidiaries to maintain insurance coverage that has
terms which are equivalent to or better than the coverage maintained by the
Companies and the Subsidiaries as of the Closing Date.
6.8 Income Tax Representation. In the event of an income tax or other
-------------------------
tax audit by either the Internal Revenue Service, the Kentucky Revenue Cabinet
or other taxing authority covering any period prior to the Closing, the firm of
Faesy, Schmitt & Company, P.S.C. will be retained by the Companies and/or the
Subsidiaries to provide non-exclusive representation, to the extent any
adjustments made by a taxing authority as a result of the audit would have an
adverse impact upon the Shareholder. Any fees of Faesy, Schmitt & Company,
P.S.C. arising from such engagement shall be the responsibility of Purchaser.
Purchaser shall promptly notify the Shareholder and Faesy, Schmitt & Company,
P.S.C. of the receipt of any notice of proposed audit, notice of audit, or
notice of any tax adjustment by any taxing authority where such tax liability,
if any, may be the responsibility of the Shareholder.
6.9 Record Retention. Purchaser will retain all appropriate books and
----------------
records of the Companies and the Subsidiaries that will be necessary for the
Shareholder to explain, support and defend all tax returns (local, state or
federal) prepared on the Companies and/or the Subsidiaries for a period of six
(6) years beyond the year or portion of a year to which the records pertain.
Books and records shall include, but not be limited to, all computer files,
general and subsidiary ledgers, supporting invoices and similar supporting data.
6.10 Final S Corporation Tax Returns. The final S corporation tax
-------------------------------
returns for LRI, as of the date of closeout for tax purposes, (but not any other
corporate tax returns due as a result of the transaction for the sale of the
Company), shall be prepared by Faesy, Schmitt & Company, P.S.C., and appropriate
assistance will be provided by the Companies and the Subsidiaries with respect
to information needed in connection with the filing of such income tax returns).
The Shareholder shall pay the costs directly related to the preparation and
filing of the final S corporation tax return (but no other corporate tax
returns). The Shareholder shall also pay the cost of preparing his individual
tax returns.
6.11 Accounting Personnel. Purchaser shall retain or employ qualified
--------------------
personnel reasonably satisfactory to Shareholder to assist with the preparation
of the Companies' and the Subsidiaries'
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<PAGE>
December 1997 financial statements and to assist with the closing of the books
as contemplated in Section 2.6.
6.12 Return of Documents Upon Termination. In the event of the
------------------------------------
termination of this Agreement, Purchaser shall return to the Companies and the
Subsidiaries all documents, work papers and other materials obtained from them
in connection with the transactions contemplated hereby, and shall use all
reasonable efforts to keep confidential any information obtained in any
investigation, unless such information is readily ascertainable from public or
published information or trade sources.
6.13 Purchaser Letter. Purchaser and Guarantor shall deliver to
----------------
Shareholder at Closing a letter respecting their status as an "accredited
investor" and containing such other representations and warranties as are
appropriate for similar transactions involving private sales of securities.
ARTICLE 7
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of die Shareholder contained in this Agreement shall be true on the
Closing Date, with the same effect as though made at such time, except to the
extent of changes permitted by the terms of this Agreement. The Shareholder
shall have performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by him prior to the Closing. In
addition, the Shareholder shall have delivered to Purchaser a certificate dated
the Closing Date and signed by him to the effect that, except as disclosed in
the certificate, he does not know, and has no reasonable grounds to know, of any
failure or breach of any representation, warranty or covenant made by him.
7.2 No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change since the date of the Closing Financial Statements in
the financial condition, business, assets or results of operations of any
Company or Subsidiary.
7.3 Opinion of Counsel for the Shareholder. Purchaser shall have
--------------------------------------
received opinions from Gullett & Combs and Hollon, Hollon & Collins, counsel for
the Shareholder, dated the Closing Date, substantially in the form attached
hereto as Annex 7.3.
7.4 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated in this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement, and to permit the business
presently carried on by each Company and Subsidiary to continue unimpaired in
all material respects immediately following the Closing, shall have been
obtained, excepting approval by the Kentucky National Resources and
Environmental Protection Cabinet (KNREPC) of the change in ownership and control
of the
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<PAGE>
Companies and/or the Subsidiaries, which shall be sought promptly after the
Closing and diligently pursued by the parties.
7.5 Consulting Agreement. The Shareholder shall have executed and
--------------------
delivered the Consulting Agreement.
7.6 Deliveries. At or before the Closing, the Shareholder shall make all
----------
of his deliveries contemplated in this Agreement.
7.7 Financing. Purchaser shall have arranged financing with such lenders,
---------
in such amounts and upon such terms as Purchaser deems, in Purchaser's sole
discretion, necessary, sufficient and acceptable to consummate the transactions
contemplated in this Agreement.
7.8 Closing. The Closing shall be held on or before January 15, 1998. In
-------
the event the Closing shall not be held on such date, any party may terminate
this Agreement upon written notice to the other parties. If this Agreement is
terminated pursuant to this Section 7.8, all parties shall be released from all
further obligations under this Agreement and the Other Documents and shall have
no further obligation to negotiate any such agreements; provided, however, that
unless the termination of the Agreement shall be due to the breach by
Shareholder of his obligations and his failure to consummate the sale of the
Shares hereunder, the Shareholder shall retain and be under no obligation to
refund any portion of the Deposit to the Purchaser, and the same shall be
considered liquidated damages and Shareholder's sole and exclusive remedy
against Purchaser.
7.9 Third-Party Consents and Approvals. The Parties shall have obtained
----------------------------------
all third-party consents and approvals (all on terms and conditions satisfactory
to Purchaser in its sole and absolute discretion) that are necessary for (a) the
consummation of the transactions contemplated by this Agreement, and (b) the
assignment and transfer of the Shares to Purchaser; provided, however, that,
notwithstanding the foregoing, neither Purchaser nor the Shareholder shall be
required to pay any remuneration to third parties in exchange for such party's
consent or approval, or to file any lawsuit or other action to obtain any such
consent or approval.
7.10 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
purchase and sale of the Shares.
7.11 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the purchase and sale of the Shares shall be pending.
7.12 Due Diligence. Purchaser shall conduct its due diligence in good
-------------
faith and evaluate whether it is satisfied with the results of its due
diligence. (The Shareholder acknowledges that Purchaser intends to commence
coal mining on all of the Leased Real Property as soon as possible.) Purchaser
shall be satisfied, in its sole discretion, with the results of its due
diligence of the Companies' and the Subsidiaries, and their respective assets,
and liabilities, including, without limitation: (i) all rights, title, interests
and liabilities of the Companies and the Subsidiaries under the
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<PAGE>
Transco Purchase Agreement; (ii) the terms and conditions of all agreements to
which each Company and each Subsidiary is a party (including but not limited to
the terms and conditions of all lease agreements under which each Company and
each Subsidiary has any interest, especially terms authorizing Purchaser to
conduct highwall mining under such lease agreements); (iii) the mineability,
quantity and quality of the coal reserves of each Company and each Subsidiary;
(iv) the condition of all of the Tangible Assets; (v) the leasehold and fee
titles to the Leased Real Property and Owned Real Property, respectively; (vi)
the magnitude of the Unknown Liabilities; and (vii) the magnitude of the
reclamation obligations (regardless of whether such obligations are current or
in "deferred status"). However, notwithstanding any other provision of this
Agreement to the contrary, the dissatisfaction of Purchaser with the results of
its due diligence (absent a breach by Shareholder of his obligations and his
failure to consummate the sale of the Shares hereunder) shall not be a basis
upon which to seek refund of any portion of the Deposit, which shall be
considered liquidated damages and Shareholder's sole and exclusive remedy
against Purchaser.
7.13 [intentionally left blank]
ARTICLE 8
Conditions to Obligations of the Shareholder
--------------------------------------------
The obligations of the Shareholder to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing. In addition, Purchaser
shall have delivered to the Shareholder a certificate dated the Closing Date and
signed by its President and Secretary to the effect that, except as disclosed in
the certificate, they do not know, and have no reasonable grounds to know, of
any failure or breach of any representation, warranty or covenant made by
Purchaser.
8.2 Opinion of Counsel for Purchaser. The Shareholder shall have received
--------------------------------
an opinion of Brown, Todd & Heyburn, counsel for Purchaser and Guarantor, dated
the Closing Date, substantially in the form attached hereto as Annex 8.2.
8.3 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by the Shareholder of the transactions contemplated in this
Agreement shall have been fulfilled, and all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies and
authorities required to be obtained in order to permit the consummation by the
Shareholder of the transactions contemplated in this Agreement shall have been
obtained.
8.4 Deliveries. At or before the Closing, Purchaser shall make all of its
----------
deliveries contemplated in this Agreement.
-37-
<PAGE>
8.5 Third-Party Consents and Approvals. The Parties shall have obtained
----------------------------------
all third-party consents and approvals (all on terms and conditions mutually
acceptable to Shareholder in his sole and absolute discretion) that are
necessary f6r (a) the consummation of the transactions contemplated by this
Agreement, and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
the Shareholder shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
8.6 Closing. The Closing shall be held on or before January 15 , 1998.
------- ----
In the event the Closing shall not be held on such date, any party may terminate
this Agreement upon written notice to the other parties. If this Agreement is
terminated pursuant to this Section 8.6, all parties shall be released from all
further obligations under this Agreement and the Other Documents and shall have
no further obligation to negotiate any such agreements; provided, however, that
unless the termination of the Agreement shall be due to the breach by
Shareholder of his obligations and his failure to consummate the sale of the
Shares hereunder, the Shareholder shall retain and be under no obligation to
refund any portion of the Deposit to the Purchaser.
8.7 [intentionally left blank]
ARTICLE 9
The Closing
-----------
9.1 Date and Place. The Closing shall be held on the Closing Date at
--------------
10:00 a,m. (EDT) in the offices of Leslie Resources, Inc., in Hazard, Kentucky,
or at such other place or tune on the Closing Date as the parties may mutually
agree.
9.2 Deliveries. At or before the Closing, the parties shall make all of
----------
the deliveries contemplated in this Agreement.
ARTICLE 10
Survival of Representations and Warranties -- Indemnification
-------------------------------------------------------------
10.1 Survival. Each of the parties' representations, warranties, covenants
--------
and agreements (including undisclosed liabilities) set forth in this Agreement
shall survive the Closing for a period of four (4) years, excepting the
Shareholder's representations and warranties in Sections 3.1, 3.2, 3.3, 3.4,
3.5, 3.13 and 3.28, which shall survive to the maximum extent allowed by
applicable law.
10.2 Indemnity by the Shareholder. The Shareholder shall indemnify and
----------------------------
hold the Companies, the Subsidiaries and Purchaser harmless from and against,
and shall pay to the Companies, the Subsidiaries and Purchaser the full amount
of, any loss, claim, damage, liability or expense (including reasonable
attorneys' fees but excluding all special, exemplary, punitive and consequential
damages) (each, a "Loss") resulting to the Companies, the Subsidiaries or
Purchaser, either directly or indirectly, from (a) any Retained Liabilities, (b)
any undisclosed liabilities, contracts or commitments of any Company or
Subsidiary, including, without limitation, any commitments to existing or former
employees, distributors, customers or suppliers; (c) any material inaccuracy in
any
-38-
<PAGE>
representation or warranty, or any breach of any covenant or agreement, by any
Company, any Subsidiary or the Shareholder contained in this Agreement or in any
of the Other Documents; (d) any liability for any fee or commission owed to a
broker or finder pursuant to an agreement signed by the Shareholder with respect
to the transactions contemplated by this Agreement; and (e) any liability of any
Company, any Subsidiary or the Shareholder not assumed by Purchaser under this
Agreement or the Other Documents. For purposes of this Section 10.2, liabilities
and other matters shall be "undisclosed" if they are not reasonably described on
a Schedule to this Agreement.
10.3 Indemnify by Purchaser. Purchaser shall indemnify and hold the
----------------------
Shareholder harmless from and against, and shall pay to the Shareholder the full
amount of, any Loss resulting to the Shareholder, either directly or indirectly,
from: (a) any Assumed Liabilities, (b) any material inaccuracy in any
representation or warranty, or any breach of any covenant or agreement, by
Purchaser contained in this Agreement or in any of the Other Documents; (c) any
liability for any fee or commission owed to a broker or finder pursuant to an
agreement signed by Purchaser with respect to the transactions contemplated by
this Agreement; (d) any liability of the Shareholder arising from the
Shareholder's maintaining any rights or obligations under Permits until the
approvals for which Purchaser must file under Section 6.5 have been obtained;
(e) any liability for payment or indemnification required by Purchaser to be
paid or made pursuant to Section 2.7; and (e) any liability of any Company or
any Subsidiary assumed or retained by Purchaser under this Agreement or the
Other Documents.
10.4 Limit of Liability. Purchaser's obligation to indemnify Shareholder
------------------
under this Article 10 shall not arise until the Losses for which Shareholder is
liable exceeds One Hundred Thousand Dollars ($100,000.00), and Shareholder's
obligation to indemnify Purchaser under this Article 10 shall not arise until
the Losses for which Purchaser is liable exceed Nine Hundred Thousand Dollars
($900,000.00) (provided, however, that the minimum threshold of Purchaser's
indemnity obligation shall not apply to any liability of the Shareholder arising
from the Purchaser's maintaining any rights or obligations under the Permits
until the approvals for which. Purchaser must file under Section 6.5 have been
obtained). Notwithstanding the foregoing, once Purchaser has incurred Losses
exceeding the minimum threshold of Nine Hundred Thousand Dollars ($900,000.00),
the Purchaser shall be entitled to reach back and recapture Four Hundred
Thousand Dollars ($400,000.00) from Shareholder in addition to any Losses in
excess of Nine Hundred Thousand Dollars ($900,000.00). The Shareholder's and
Purchaser's indemnity obligations under this Agreement shall be limited to the
amount of Purchaser's right of set off against the Deferred Amount, as the same
declines from time to time. The Shareholder's indemnity obligations under this
Agreement shall be reduced by insurance proceeds that Purchaser recovers in
connection with an indemnified matter and from amounts that Purchaser recovers
from all Transco Parties other than the Companies and the Subsidiaries.
Purchaser agrees to seek to recover insurance proceeds or amounts owing from
Transco Parties other than the Companies or the Subsidiaries simultaneously with
pursuing an indemnity claim against the Shareholder under this Agreement and, if
the Shareholder shall be required to pay any amount as a result thereof, the
Shareholder shall be subrogated to the rights of the Purchaser, the Companies or
the Subsidiaries to the extent of any liability of third parties thereunto.
10.5 Remedies; Right of Offset. Upon the occurrence of any event for
-------------------------
which any party is entitled to indemnification under this Agreement, such party
shall have all the rights and remedies in
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<PAGE>
law and in equity available to it. Without limiting the foregoing, each
indemnifying party hereby agrees to pay promptly upon receipt of notice from an
indemnified party, the amounts which the indemnifying party owes to such party
from time to time by reason of the provisions of this Agreement or otherwise. If
the Shareholder fails or refuses to pay any such amounts promptly after the
request of Purchaser, any Company or any Subsidiary, then Purchaser, the
Companies and the Subsidiaries, at their election, may offset any amounts due
and owing to them against the Monthly Payments and the Deficiency Payments.
10.6 Control of Indemnified Matters. If a third party claim is made
------------------------------
against an indemnified party that may result in a loss to the indemnified party,
the indemnifying party will be entitled to participate in the defense thereof,
and if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. If the
indemnifying party elects to assume the defense of such third party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute any third party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third party claim, and making employees
available on a mutually convenient and reasonable basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying party shall have assumed the defense of a third party claim,
the indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such third party claim without the indemnifying party's
prior written consent (which consent shall not be unreasonably withheld).
Notwithstanding any provision in this Section 10.5, an indemnifying party shall
have no right to participate or in any way assume the defense of a third-party
claim if such third party claim relates to the operations of the indemnified
party.
ARTICLE 11
Arbitration
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholder have notified. the
other in writing of such controversy, dispute or claim, shall be submitted for
arbitration in accordance with the rules of the American Arbitration Association
or any successor thereof. Arbitration shall take place at an appointed time and
place in Lexington, Kentucky.
11.2 Selection of Arbitrators. Unless Purchaser and the Shareholder
------------------------
otherwise agree, all controversies, disputes or claims referenced in Section
11.1 shall be heard by a panel of three (3) arbitrators selected in accordance
with the Commercial Arbitration Rules of the American Arbitration
-40-
<PAGE>
Association (the "Rules"). Judgment upon any award of the majority of
arbitrators shall be binding and shall be entered in a court of competent
jurisdiction. Subject to the terms and conditions of this Agreement including
without limitation Section 13.13, the award of the arbitrators may grant any
relief which might be granted by a court of general jurisdiction, including,
without limitation, award of damages and/or injunctive relief, and shall assess,
in addition, the cost of the arbitration, including the reasonable fees of the
arbitrators and reasonable attorneys' fees and costs of all prevailing parties
against all non-prevailing parties.
11.3 Temporary Relief. Nothing herein contained shall bar the right of
----------------
any of the parties to seek and obtain temporary injunctive relief from a court
of competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, pending completion of the arbitration,
and the prevailing party therein shall be entitled to an award of its reasonable
attorneys' fees and costs.
11.4 Rules of Arbitration. All disputes and claims shall be determined
--------------------
by arbitration in accordance with the Rules in effect on the date hereof, except
that such Rules shall be modified by this Agreement.
11.5 Arbitrators' Award. All arbitral proceedings arising under, or in
------------------
connection with, this Agreement shall be governed by the Federal Rules of Civil
Procedure and the United States Arbitration Act. Notwithstanding the previous
sentence, the arbitrators' award shall be made no later than ninety (90) days
after their appointment. Subject to the parties' right to be treated fairly, the
arbitrators may shorten the periods of time otherwise applicable to the arbitral
proceedings under the rules to permit the award to be made within the time
limitation set forth in the previous sentence.
ARTICLE 12
Guaranty
--------
To induce the Shareholder to enter into this Agreement, the Guarantor
unconditionally and irrevocably guarantees payment and performance by Purchaser,
when due, of all of its obligations under this Agreement, pursuant to the terms
and conditions of this Agreement; provided, however, that the obligations of the
Guarantor hereunder shall not exceed the aggregate sum of Eight Million Fifty
Thousand Dollars ($8,050,000.00) (exclusive of costs), which maximum sum shall
be reduced by the same amounts that the Shareholder's indemnity limit is
reduced, from time to time. The obligations of the Guarantor shall not be
impaired, diminished or discharged by any modification or waiver of the terms
hereof, any extension of time or other indulgence granted by the Shareholder, or
by any course of dealing between the Shareholder and Purchaser, and the
Guarantor hereby waives all customary guaranty and suretyship defenses
generally.
The Guarantor agrees to pay on demand (a) any amount which the Shareholder
is required to pay under any bankruptcy, insolvency or other similar law on
account of any amount received by the Shareholder under or with respect to this
Agreement, and (b) all reasonable expenses of collecting and enforcing this
guaranty including, without limitation, reasonable expenses and fees of legal
counsel, court costs and the cost of appellate proceedings.
-41-
<PAGE>
This guaranty is a guarantee of payment and performance and not of
collection. The Shareholder shall not be required to resort to or pursue any of
his rights or remedies under or with respect to any other agreement or any
collateral before pursuing any of his rights or remedies under this guaranty.
The failure or delay by the Shareholder in exercising any of his rights
hereunder in any instance shall not constitute a waiver thereof in that or any
other instance. The Shareholder may not waive any of his rights except by an
instrument in writing signed by him. This guaranty may not be amended without
the written approval of the Shareholder.
ARTICLE 13
Miscellaneous
-------------
13.1 Notices. All notices under this Agreement ("Notices") shall be given
-------
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services, as follows:
(a) If to Purchaser:
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown, President
Telecopy No.: (606) 928-0450
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn, PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telecopy No.: (606) 231-0011
(b) If to the Shareholder:
Mr. Greg Wells
106 Mountain Shadows Drive
Hazard, Kentucky 41701
Telecopy No.:
With a copy to:
Paul R. Collins, Esq.
Hollon, Hollon & Collins
-42-
<PAGE>
P.O. Box 779
Hazard, Kentucky 41702
Telecopy No.: (606) 436-4761
and a copy to:
Ronald G. Combs, Esq.
Gullett & Combs
P.O. Drawer 1039
Hazard, Kentucky 41702-1039
Telecopy No.: (606) 439-4450
(c) If to Guarantor:
Addington Enterprises, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Larry Addington, President
Telecopy No.: (606) 928-G450
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn, PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telecopy No.: (606) 231-0011
All Notices shall be effective and shall be deemed delivered (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission or
overnight courier service, on the next Business Day following dispatch of such
facsimile or overnight courier package; and (iii) if by mail, on the third (3rd)
Business Day after dispatch thereof. Either party may change its address by
Notice to the other party.
13.2 Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
13.3 Expenses. Each party shall assume its respective expenses incurred in
--------
connection with the transactions contemplated by this Agreement.
13.4 Headings; Interpretation. The headings in this Agreement have been
------------------------
included solely for ease of reference and shall not be considered in the
interpretation or construction of this
-43-
<PAGE>
Agreement. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, as applicable.
13.5 Annexes and Schedules. The Annexes and Schedules to this Agreement
---------------------
are incorporated herein by reference and expressly made a part hereof.
13.6 Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or in an Annex or Schedule delivered in connection herewith.
13.7 Representations and Warranties, Etc. The representations and
-----------------------------------
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto; however,
no party may rely on a mistake in a party's representation or warranty if the
relying party has actual knowledge of the mistake. As used in this Agreement,
the term "Shareholder's knowledge," and all other references to matters which
are known by or to the Shareholder, shall refer to matters which are known, or
which with the exercise of reasonable care should have been known, by the
Shareholder after consultation with each Company's and Subsidiary's current
corporate officers, directors, superintendent, mining engineers, land agent and
foreman, and after his due investigation of corporate records (except that if
the Shareholder is required to make "due inquiry" with respect to any matter, he
shall make such additional inquiry as a reasonable person would make under the
circumstances).
13.8 Governing Law. This Agreement shall be governed by, and construed
-------------
and interpreted in accordance with, the laws of the Commonwealth of Kentucky.
Each party agrees that any action brought in connection with this Agreement
against another shall be filed and heard in Fayette County, Kentucky, and each
party hereby submits to the jurisdiction of the Circuit Court of Fayette County,
Kentucky, and the U.S. District Court or the Eastern District of Kentucky,
Lexington Division.
13.9 Brokers. Each party shall indemnify and hold the other parties
-------
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.
13.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
13.11 Benefit and Binding Effect. This Agreement shall be binding upon,
--------------------------
and shall inure to the benefit of, the Shareholder and his heirs, personal
representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express Written
consent of the other parties, which consent shall not be unreasonably withheld.
13.12 Severability. If any provision of this Agreement or its application
------------
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications
-44-
<PAGE>
of that provision, and of all other provisions and applications hereof, will not
in any way be affected or impaired. If any court shall determine that any
provision of this Agreement is in any way unenforceable, such provision shall be
reduced to whatever extent is necessary to make such provision enforceable.
13.13 No Consequential Damages. Except as prohibited by law, each party
------------------------
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
13.14 Assignment and Assumption. Other than as set forth in this Section
-------------------------
13.14, neither party may assign its rights or obligations under this Agreement
or the Other Documents without the express written consent of the other party,
which shall not be unreasonably withheld. For purposes of this Section 13.14,
any sale of more than fifty percent (50%) of the Purchaser or the Guarantor, or
any successor thereof shall be deemed an assignment, excluding any public
offering of Purchaser or Guarantor.
13.15 Superseding Document. This Agreement is intended by the parties to
--------------------
amend and supersede that certain Stock Purchase Agreement among the parties
dated December 18, 1997.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto, but actually on the dates set
forth below.
PURCHASER: AEI HOLDING COMPANY, INC.
By:/s/ Donald P. Brown
-------------------
Donald P. Brown, President
Date: January 15, 1998
--
GUARANTOR: ADDINGTON ENTERPRISES, INC.
By:/s/ Donald P. Brown
-------------------
Donald P. Brown, President
Date: January 15, 1998
--
SHAREHOLDER:
----------------------
GREG WELLS
Date: January 15, 1998
--
-45-
<PAGE>
Exhibit 10.4
NON-NEGOTIABLE PROMISSORY NOTE
$8,050,000.00 JANUARY 15, 1998
HAZARD, KENTUCKY
FOR VALUE RECEIVED, and pursuant to an Amended and Restated Stock Purchase
Agreement effective December 18, 1997 (the "Agreement") among AEI Holding
Company, Inc. ("Maker"), Addington Enterprises, Inc. ("Guarantor") and Greg
Wells (the "Shareholder"), the Maker promises to pay the Shareholder at 106
Mountain Shadows Drive, Hazard, Kentucky 41701 the principal sum of EIGHT
MILLION FIFTY THOUSAND DOLLARS ($8,050,000.00) with interest accruing thereon
and subject to adjustment, as described herein, and shall be due and payable as
follows:
1. MONTHLY PAYMENTS. Maker shall make monthly payments of principal in
----------------
the amount of Forty Cents ($0.40) per ton of coal produced, shipped and sold
from all properties owned, leased or otherwise controlled as of the date of this
Note (the "Properties")(including renewals or extensions of any lease) by Leslie
Resources, Inc. and Leslie Resources Management, Inc., each a Kentucky
corporation (the "Companies") or by [formal names for the Subsidiaries] (each a
"Monthly Payment"). The Monthly Payments shall commence with the first calendar
month following the month of this Note, and shall be due on the twenty-fifth day
of each calendar month for coal shipped during the preceding calendar month and
continuing on the twenty fifth (25th) day of each and every calendar month
thereafter until the outstanding principal balance of this Note is paid in full.
2. MINIMUM ANNUAL PAYMENT. For purposes of this Note, the term "Payment
----------------------
Year" shall mean a twelve-month (12-month) period beginning on the first day of
the calendar month following the calendar month of this Note and ending on the
last day of the twelfth (12th) calendar month thereafter, and each twelve month
period thereafter. If coal shipments from the Properties during any Payment
Year do not yield an aggregate sum of Monthly Payments equal to or greater than
One Million Dollars ($1,000,000.00), Maker shall pay to the Shareholder, within
sixty (60) days after the end of such Payment Year, a payment equal to the
difference (a "Deficiency Payment") between One Million Dollars ($1,000,000.00)
and the aggregate Monthly Payments that were actually paid and attributable to
such Payment Year.
<PAGE>
3. MATURITY DATE. The outstanding principal of this Note, all accrued
-------------
but unpaid interest thereon and all other charges, fees or expenses hereunder
shall be due and payable in full on or before January 15, 2003 (the "Maturity
Date").
4. INTEREST. This Note shall bear interest at a fixed rate equal to six
--------
percent (6.00%) per annum, calculated on a calendar year basis based upon actual
dates that Monthly Payments and Deficiency Payments are made by Maker. The
accrued interest shall be paid on or before February 1 of each year for the
preceding Payment Year based upon the dates of actual payments made during such
year.
5. RIGHT OF OFFSET. If the Deferred Amount is adjusted downward pursuant
---------------
to Article 2 of the Agreement, or pursuant to an offset as permitted under the
Agreement, Maker shall be entitled to withhold and retain (offset) any and all
Monthly Payments up to the amount of such downward adjustment or offset amount.
This right of offset shall be effective and the withholding and retention of
Monthly Payments shall commence on the date that Maker provides written notice
of the adjustment to the Shareholder.
6. PREPAYMENT. All or any part of the outstanding principal of this Note
----------
may be prepaid at any time without prepayment penalty or premium.
7. ACCELERATION. The entire outstanding principal amount, and all
------------
accrued but unpaid interest thereon, of this Note shall be due and payable
immediately upon the closing of a transaction involving the sale of
substantially all of the shares of either the Maker or the Guarantor (excluding
any public offering) or substantially all of the assets of either the Maker or
the Guarantor unless the third party purchaser, after such transaction is
completed, has a net worth equal to or greater than the net worth of the Maker
or, as applicable, Guarantor immediately preceding the transaction.
8. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the
------------------------------
following shall be an "Event of Default" hereunder: (a) failure of Maker to make
any payment when due under this Note; (b) if Maker shall (i) make an assignment
for the benefit of creditors, (ii) have a petition initiating any proceeding
under the Bankruptcy Code filed by or against it, (iii) have a receiver,
trustee, or custodian appointed for all or any material part of its assets, or
(iv) seek to make an adjustment, settlement or extension of its debts with its
creditors generally; or (c) a proceeding being filed
<PAGE>
by or commenced against Maker for dissolution or liquidation, or Maker
voluntarily or involuntarily terminating or dissolving or being terminated or
dissolved. Upon any Event of Default under this Note, the holder of this Note
may, at its option and without notice, declare the outstanding principal of this
Note to be immediately due and payable, in addition to any other remedies
Shareholder may have under applicable law, principles of equity, or otherwise.
9. DEFAULT RATE OF INTEREST. Upon an event of default of Maker failing
------------------------
to make any payment when due under this Note, the principal balance of this Note
shall accrue interest at a rate equal to the Prime Rate plus three percent (3%)
unless and until such default is paid or cured. For purposes of this Note,
Prime Rate shall mean the prime rate of interest as published daily in the
"Money Rates" section of the Wall Street Journal.
-------------------
10. CUMULATIVE REMEDIES. Failure of the holder of this Note to exercise
-------------------
any of its rights and remedies shall not constitute a waiver of any term,
covenant or condition of this Note, or any of the rights and remedies of such
holder, nor shall it prevent the holder of this Note from exercising any rights
and remedies with respect to the subsequent happening of the same or similar
occurrences. All rights and remedies of the holder of this Note shall be
cumulative to the fullest extent allowed by law.
11. WAIVER. The Maker waives presentment, demand, notice of dishonor,
------
protest, notice of protest, notice of nonpayment or nonacceptance, any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under the
laws of the Common wealth of Kentucky, the United States of America or any
state thereof.
12. SINGULAR AND PLURAL TERMS. Wherever used herein, the singular number
-------------------------
shall include the plural, the plural the singular and the use of any gender
shall include all genders.
13. GOVERNING LAW. This Note shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Maker has executed this Note as of December 31, 1997.
AEI HOLDING COMPANY, INC.
-3-
<PAGE>
By /s/ Donald P. Brown
Title: President
GUARANTY
In consideration of the foregoing Promissory Note in the amount of Eight
Million Fifty Thousand Dollars ($8,050,000.00) executed by AEI Holding Company,
Inc., and to induce the Holder to make, extend or continue the loan evidenced by
this Note, the undersigned Guarantor does hereby unconditionally and irrevocably
guarantee payment and performance by Maker, when due, of all of its obligations
under this Note; provided, however, that the obligations of the Guarantor
hereunder shall not exceed the aggregate sum of Eight Million Fifty Thousand
Dollars ($8,050,000.00) (exclusive of costs), which maximum sum shall be reduced
by the same amounts that the Shareholder's indemnity limit under the Agreement
is reduced, from time to time. The obligations of the Guarantor shall not be
impaired, diminished or discharged by any modification or waiver of the terms
hereof, any extension of time or other indulgence granted by the Shareholder, or
by any course of dealing between the Shareholder and Maker, and the Guarantor
hereby waives all customary guaranty and suretyship defenses generally.
The Guarantor agrees to pay on demand (a) any amount which the Shareholder
is required to pay under any bankruptcy, insolvency or other similar law on
account of any amount received by the Shareholder under or with respect to this
Note, and (b) all reasonable expenses of collecting and enforcing this guaranty
including, without limitation, reasonable expenses and fees of legal counsel,
court costs and the cost of appellate proceedings.
This guaranty is a guarantee of payment and performance and not of
collection. The Shareholder shall not be required to resort to or pursue any of
his rights or remedies under or with respect to any other agreement or any
collateral before pursuing any of his rights or remedies under this guaranty.
-4-
<PAGE>
The failure or delay by the Shareholder in exercising any of his rights
hereunder in any instance shall not constitute a waiver thereof in that or any
other instance. The Shareholder may not waive any of his rights except by an
instrument in writing signed by him. This guaranty may not be amended without
the written approval of the Shareholder.
GUARANTOR ADDINGTON ENTERPRISES, INC.
By /s/ Donald P. Brown
Title: President
Date: 1/15/98
-5-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
This is an Employment and Consulting Agreement (this "Agreement") dated as
of January __, 1998, between Leslie Resources, Inc., a Kentucky corporation
("Leslie"), AEI Holding Company, Inc., a Delaware corporation ("AEI"), and Greg
Wells ("Seller"). Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement (as defined below).
RECITALS
--------
A. Pursuant to the terms of an Amended and Restated Stock Purchase
Agreement, dated December 18, 1997, (the "Purchase Agreement") among AEI,
Addington Enterprises, Inc. ("Guarantor"), and Seller, AEI has agreed to
purchase all of the outstanding capital stock of Leslie and Leslie Resources
Management, Inc. ("LRM"). Terms not herein defined shall have the meanings
accorded them in the Purchase Agreement.
B. As a condition to AEI's obligation to close the transactions
contemplated in the Purchase Agreement and the Guarantor's guaranty with respect
thereto, Seller has agreed to enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Employment Seller shall remain as a full-time employee of Leslie
----------
after the Closing in the capacity of Vice-President and General Manager and at
his current level of compensation. While so employed, Seller shall receive the
same fringe benefits that are generally available to Leslie employees serving in
managerial or executive capacities. Sellers employment herein shall be "AT
WILL", and may be terminated by either Seller or Leslie at any time and for any
reason, on thirty (30) days notice. If such termination occurs prior to January
__, 2000, Seller shall still remain obligated to perform the consulting services
contemplated in Paragraph 2 below and otherwise comply with the terms of this
Agreement.
2. Consulting Services. Seller covenants and agrees that, from and after
-------------------
the date of any termination of his employment with Leslie that occurs prior to
January __, 2000, Seller shall provide such consulting services as may
reasonably be requested by officers or directors of Leslie or AEI, including,
without limitation, advising Leslie and AEI in connection with maintaining good
relations with the Companies' and Subsidiaries' employees. Seller's duty to
render consulting services as set forth in this Paragraph 2 shall terminate on
January __, 2000. Leslie or AEI shall pay Seller Five Hundred Dollars ($500)
per day for each day that Leslie or AEI requests, and Seller renders, such
consulting services.
<PAGE>
3. Non-Competition
---------------
(a) Seller covenants and agrees that, from and after the date of this
Agreement for a period of two (2) years, Seller shall not, directly or
indirectly (whether as proprietor, stockholder, director, officer, partner,
employee, trustee, beneficiary, or in any other capacity), acquire coal reserves
in any of Perry, Knott, Letcher, Clay, Leslie, or Breathitt Counties, Kentucky,
conduct coal mining operations in any of Perry, Knott, Letcher, Clay, Leslie, or
Breathitt Counties, Kentucky, or sell coal to any person or entity presently
doing business with Leslie, AEI, Guarantor or any of their Affiliates; provided,
however, that: (i) Seller shall not be prohibited from removing coal from the
properties identified in Exhibit A (the "Properties") in connection with the
development by Seller of the Properties for commercial purposes, provided,
however, that Leslie and AEI shall have the right of first refusal for any coal
removed from the Properties and no such coal may be sold to any Person other
than Leslie and AEI unless Leslie and AEI have been offered to purchase the coal
on terms and conditions identical to the sale to another Person; (ii) Resource
Trucking, Inc., a Kentucky corporation ("Resource Trucking"), shall not be
prohibited from hauling coal; and (iii) Mountain Properties, a Kentucky
corporation, may continue to own and lease properties owned as of the Closing
Date for the mining of coal, but during such period shall not acquire any
additional property to be leased or used as coal reserves or for coal mining
purposes in any of Perry, Knott, Letcher, Clay, Leslie, or Breathitt Counties,
Kentucky, and upon termination or expiration of any such leases, Leslie and AEI
shall have a right of first refusal as to any future sale or lease of such
properties until January __, 2000, or as otherwise mutually agreed in writing.
Nothing contained herein shall be deemed to require AEI, any Company or any
Subsidiary to continue using the services of Resource Trucking after the
Closing, or to require Resource Trucking to continue providing coal hauling
services after the Closing.
(b) Seller covenants and agrees that, from and after the date of this
Agreement for a period of four (4) years, Seller shall not, directly or
indirectly (whether as proprietor, stockholder, director, officer, partner,
employee, trustee, beneficiary, or in any other capacity), hire any employee of
any Company or any Subsidiary or solicit such person to terminate his or her
employment with any Company or Subsidiary, as the case may be. This covenant
shall not preclude Seller from hiring any employee whose employment with the
Company or any subsidiary was involuntarily terminated through firing or layoff
or whose employment was voluntarily terminated by the employee (without
solicitation by Seller) more than six (6) months prior to Seller's hiring of
such employee.
4. Scope of Covenant. Seller acknowledges and agrees that (a) the
-----------------
covenants and agreements of Seller contained in Section 2, which are given in
connection with the transactions contemplated under the Purchase Agreement, are
reasonably necessary to protect the interests of Leslie and AEI in whose favor
such covenants and agreements are imposed; (b) the restrictions imposed by
Section 2 are not greater than are necessary for the protection of Leslie and
AEI in light of the harm that Leslie and AEI will suffer if Seller breaches any
of the provisions of such covenants
<PAGE>
and agreements; (c) the period of restriction contained in Section 2 is
reasonably required for the protection of Leslie and AEI; and (d) the nature,
kind and character of the activities that Seller is prohibited from engaging in
are reasonable and necessary to protect Leslie and AEI.
5. Injunctive Relief. Seller acknowledges that the damage, whether
-----------------
financial or otherwise, to the business of Leslie and AEI could be irreparable
if Seller violates its covenants under this Agreement, and that damages for
violation of such restrictions would not be an adequate remedy. Seller agrees
that Leslie and AEI shall be entitled to an injunction or other equitable relief
if Seller violates the terms of this Agreement, in addition to any other remedy
at law or equity available to Leslie or AEI under this Agreement or under any
applicable law.
6. Offset. If Seller violates its covenants under this Agreement, AEI
------
may offset any amounts due and owing to it against the Deferred Amount. Seller
acknowledges that its liability for breach of this Agreement is not limited to
the Deferred Amount.
7. Early Termination. A party's obligations under this Agreement shall
-----------------
automatically terminate and become null and void if the other party defaults
under any of its obligations, commitments or agreements under the Purchase
Agreement or any of the Other Documents, and the same is not (a) timely cured in
accordance with the terms of such documents (if applicable), or (b) waived by
the non-defaulting party. In addition, each party's obligation under this
Agreement shall automatically terminate and become null and void at such time as
the Deferred Amount equals Zero Dollars ($0.00).
8. Notices. All notices under this Agreement ("Notices") shall be given
-------
by: (a) personal delivery; (b) facsimile transmission; (c) registered or
certified mail, postage prepaid, return receipt requested; or (d) nationally
recognized overnight or other express courier services to the following
addresses:
If to Leslie or AEI:
Donald P. Brown, President
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, KY 41102
Telephone No.: (606) 928-3433
Telecopier No.: (606) 928-0450
3
<PAGE>
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telephone No.: (606) 231-0000
Telecopier No.: (606) 231-0011
If to Seller:
Greg Wells
106 Mountain Shadows Drive
Hazard, Kentucky 41701
Telephone No.:
Telecopier No.:
With a copy to:
Paul R. Collins, Esq.
Hollon, Hollon & Collins
486 Main Street
P. O. Drawer 779
Hazard, KY 41702-0779
Telephone No.: (606) 439-1302
Telecopier No.: (606) 436-4761
All Notices shall be effective and shall be deemed delivered: (i) if by
personal delivery, on the date of delivery if delivered during normal business
hours of the recipient, and if not delivered during such normal business hours,
on the next Business Day following delivery; (ii) if by facsimile transmission
or nationally-recognized overnight courier service, on the next Business Day
following dispatch of such facsimile or overnight courier package; and (iii) if
by mail on the third (3rd) Business Day after dispatch thereof. Any party may
change its address by Notice to the other parties.
9. Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
10. Headings. The headings in this Agreement have been included solely
--------
for ease of reference and shall not be considered in the interpretation or
construction of this Agreement.
4
<PAGE>
11. Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the Commonwealth of Kentucky,
without regard to its conflict of laws rules. Each party agrees that any action
brought in connection with this Agreement against another shall be filed and
heard in Fayette County, Kentucky, and each party hereby submits to the
jurisdiction of the Circuit Court of Fayette County, Kentucky, and the U.S.
District Court for the Eastern District of Kentucky, Lexington Division.
12. Severability. In the event one or more of the provisions contained in
------------
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein. Notwithstanding the immediately preceding sentence, if
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be excessively broad as to time, duration, geographical scope,
activity or subject, this Agreement shall be construed, by limiting and reducing
it, so as to be enforceable to the fullest extent compatible with the applicable
law.
13. Binding Effect. The obligations of this Agreement shall be binding
--------------
upon the parties, and their respective successors, assigns, heirs and legal
representatives, if applicable.
14. Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or on an annex or schedule delivered in connection herewith.
No extension, change, modification, addition or termination of this Agreement
shall be enforceable unless in writing and signed by the party against whom
enforcement is sought.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
16. Limitation On Damages. Except as prohibited by law, each party waives
---------------------
any right it may have to claim or recover any special, exemplary, punitive or
consequential damages, or any damages other than, or in addition to, actual
damages.
17. Arbitration.
-----------
(a) Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement, which have not been resolved within twenty (20) days after (1) Leslie
or AEI, or (2) the Seller have notified the other in writing of such
controversy, dispute or claim, shall be submitted for arbitration in accordance
with the rules of the American Arbitration Association or any successor thereof.
Arbitration shall take place at an appointed time and place in Lexington,
Kentucky.
5
<PAGE>
(b) Selection of Arbitrators. Unless (1) Leslie or AEI, and (2) the
------------------------
Seller otherwise agree, all controversies, disputes or claims referenced in
Section 17(a) shall be heard by a panel of three (3) arbitrators selected in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Judgment upon any award of the majority of
arbitrators shall be binding and shall be entered in a court of competent
jurisdiction. Subject to the terms and conditions of this Agreement, the award
of the arbitrators may grant any relief which might be granted by a court of
general jurisdiction, including, without limitation, award of damages and/or
injunctive relief, and shall assess, in addition, the cost of the arbitration,
including the reasonable fees of the arbitrators and reasonable attorneys' fees
and costs of all prevailing parties against all non-prevailing parties.
(c) Temporary Relief. Nothing herein contained shall bar the right of
----------------
any of the parties to seek and obtain temporary injunctive relief from a court
of competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, pending completion of the arbitration,
and the prevailing party therein shall be entitled to an award of its reasonable
attorneys' fees and costs.
(d) Rules of Arbitration. All disputes and claims shall be determined
--------------------
by arbitration in accordance with the Rules in effect on the date hereof, except
that such Rules shall be modified by this Agreement.
(e) Arbitration's Award. All arbitral proceedings arising under, or
-------------------
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure and the United States Arbitration Act. Notwithstanding the
previous sentence, the arbitrators' award shall be made no later than ninety
(90) days after their appointment. Subject to the parties' right to be treated
fairly, the arbitrators may shorten the periods of time otherwise applicable to
the arbitral proceedings under the rules to permit the award to be made within
the time limitation set forth in the previous sentence.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first set forth above, but actually on the dates set forth below.
LESLIE RESOURCES, INC.
By: /s/ Donald P. Brown
Title: President
Date: January 15, 1998
AEI HOLDING COMPANY, INC.
By: /s/ Donald P. Brown
DONALD P. BROWN, President
Date: January 15, 1998
/s/ Greg Wells
GREG WELLS
Date: January 15, 1998
7
<PAGE>
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
------------------------
This is an Asset Purchase Agreement dated as of December 18, 1997 (this
"Agreement"), between (i) MINING TECHNOLOGIES, INC. ("Purchaser"), a Kentucky
corporation and a wholly owned subsidiary of AEI HOLDING COMPANY, INC.
("Holdco"), a Delaware corporation, and (ii) ADDINGTON ENTERPRISES, INC., a
Kentucky corporation ("Seller").
RECITALS
--------
A. Seller is engaged in the business of manufacturing coal mining
equipment.
B. Seller wishes to sell, and Purchaser wishes to purchase, upon the
terms and conditions set forth in this Agreement, Seller's intellectual property
and certain other assets owned by Seller.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
Parties agree as follows:
Article 1
Definitions
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
(a) "Acquired Assets" shall have the meaning given in Section 2.1(a).
(b) "Acquisition Documents" shall mean this Agreement and the Other
Agreements, collectively.
(c) "Affiliate" shall mean (i) a Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is
controlled by a Person that controls, a Party to this Agreement; (ii) any trust
or estate in which a Party to this Agreement has a beneficial interest or as to
which a Party to this Agreement serves as a trustee or in another fiduciary
capacity.
(d) "Aggregate Basket" shall have the meaning given in Section 10.4.
(e) "Asset Leases" shall have the meaning given in Section 3.4.
(f) "Assignment of Contracts" shall mean the Assignment of Contracts,
substantially in the form attached hereto as Annex 1.1(f), pursuant to which
Seller shall assign to Purchaser the contracts listed on Schedule 2.1(a)(2).
<PAGE>
(g) "Assumed Liabilities" shall have the meaning given in Section
2.4(a).
(h) "Bill of Sale" shall mean the Bill of Sale, substantially in the
form attached hereto as Annex 1.1(h), pursuant to which Seller shall transfer
the Acquired Assets to Purchaser.
(i) "Business Days" shall have the meaning given in Section 1.3(h).
(j) "Charges" shall have the meaning given in Section 3.4.
(k) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(l) "Closing Date" shall mean January 2, 1998, or such other date to
which the Parties may mutually agree.
(m) "Deed" shall mean the General Warranty Deed substantially in the
form attached hereto as Annex 1.1(m), pursuant to which Seller shall convey to
Purchaser the parcels of Real Property that are listed on Schedule 2.1(a)(3).
(n) "DOJ" shall mean the United States Department of Justice.
(o) "Environmental Laws "shall have the meaning given in Section
3.11.
(p) "FTC" shall mean the United States Federal Trade Commission.
(q) "Guaranty Agreement" shall have the meaning given in Section 6.5.
(r) "Hazardous Material" shall have the meaning given in Section
3.11.
(s) "HSR Act" shall mean the Hart-Scott-Rodino Act, as amended.
(t) "Intellectual Property" shall mean trade names, trademarks,
service marks, copyrights, pending or issued registrations for any of the
foregoing, patents and patent applications, unpatented inventions, trade secrets
and other confidential or proprietary information, computer programs, processes,
formulas and methods.
(u) "Leased Tangible Assets" shall have the meaning given in Section
3.4.
(v) "Liabilities" shall mean all accounts payable, notes payable,
liabilities, commitments, indebtedness or obligations of any kind whatsoever,
whether absolute, accrued, contingent, matured or unmatured, direct or indirect,
known or unknown, of Seller to which any of the Acquired Assets are subject.
2
<PAGE>
(w) "Line of Credit" shall mean that line of credit established by
NationsBank of Texas, N.A. on behalf of Holdco, pursuant to the terms of that
certain Credit Agreement dated November 11, 1997.
(x) "Loss" shall have the meaning given in Section 10.2.
(y) "Material" (whether or not capitalized) shall include any matter
which might influence a reasonable purchaser's decision to consummate the
transactions contemplated herein.
(z) "Non-Compete Agreement" shall mean the Non-Competition Agreement,
in the form attached hereto as Annex 1.1(z), to be entered into by Purchaser,
Seller, and Larry Addington at the Closing.
(aa) "Notices" shall have the meaning given in Section 12.1.
(bb) "Other Agreements" shall mean the Assignment of Contracts, the
Bill of Sale, the Guaranty Agreement, the Deed, the Non-Compete Agreement and
all other agreements, certificates, opinions, instruments or documents
contemplated by, required by or referred to in, this Agreement for the
consummation of the transactions contemplated hereby.
(cc) "Owned Tangible Assets" shall have the meaning given in Section
3.4.
(dd) "Parties" shall mean Purchaser and Seller, collectively.
(ee) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(ff) "Purchase Price" shall have the meaning given in Section 2.2.
(gg) "Real Property" shall have the meaning given in Section
2.1(a)(3).
(hh) "Rules" shall have the meaning given in Section 11.4.
(ii) "Seller's Intellectual Property" shall have the meaning given in
Section 3.7.
(jj) "Senior Notes" shall mean the Senior Notes issued by Holdco
pursuant to the terms of that certain Indenture, dated November 12, 1997, among
Holdco, Tennessee Mining, Inc., Addington Mining, Inc., Ikerd-Bandy Co., Inc.
and IBJ Schroder Bank & Trust Company.
(kk) "Single Event Basket" shall have the meaning given in Section
10.4.
(ll) "Tangible Assets" shall mean the Leased Tangible Assets and the
Owned Tangible Assets, collectively.
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(mm) "Transferred Employees" shall have the meaning given in Section
2.7.
(nn) "WARN Act" shall have the meaning given in Section 2.7.
1.2 Additional Terms. Other capitalized terms used in this Agreement but
----------------
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement, or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.
1.3 Rules of Interpretation.
-----------------------
(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) The words "include," "includes" and "including" are not limiting.
(e) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(f) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(g) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(h) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Ashland, Kentucky. References to a
time of day shall mean such time in Ashland, Kentucky.
(i) The Acquisition Documents are the result of negotiations among,
and have been reviewed by, Purchaser and Seller. Accordingly, the Acquisition
Documents shall be deemed to be the product of all Parties thereto, and no
ambiguity shall be construed in favor of or against any Party.
4
<PAGE>
Article 2
Purchase and Sale
-----------------
2.1 Purchase of the Assets.
----------------------
(a) Acquired Assets. Subject to the terms and conditions of this
---------------
Agreement, Seller hereby agrees to sell, transfer and deliver to Purchaser, and
Purchaser hereby agrees to purchase the following assets (collectively, the
"Acquired Assets"): (1) the assets listed in Schedule 2.1(a)(1); (2) all right,
title and interest of Seller under the contracts listed on Schedule 2.1(a)(2);
(3) the real property described in Schedule 2.1(a)(3) (the "Real Property"); (4)
Seller's Intellectual Property listed on Schedule 2.1(a)(4); and (5) any of the
following assets (insofar as they are a part of Seller's Mining Technologies
Division) produced or acquired after the date of this Agreement and before the
Closing Date: (i) production fees (arising from contract mining arrangements)
that have been earned, but not billed; (ii) net accounts receivable not
transferred under the contracts listed on Schedule 2.1(a)(2); (iii) parts
inventory; (iv) shop work-in-process; and (v) prepayments that are subject to
legally effectual transfer to Purchaser.
(b) Excluded Assets. Notwithstanding any other provision of this
---------------
Agreement to the contrary, the Acquired Assets shall not include any assets,
properties, rights or interests of Seller which are not specified in Schedules
2.1(a)(1), (2), (3), and (4).
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Acquired Assets shall be Fifty-One Million Dollars ($51,000,000.00), all of
which shall be paid by Purchaser to Seller in cash in immediately available
funds at the Closing.
2.3 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Acquired Assets as the Parties may mutually agree for all purposes
(including financial accounting and tax purposes). Purchaser and Seller shall
report the transactions contemplated herein for all tax purposes in accordance
with such allocation and, in any proceeding related to the determination of any
tax, neither Purchaser nor Seller shall contend or represent that such
allocation is not a correct allocation.
2.4 Assumption of Liabilities.
-------------------------
(a) Subject to the terms and conditions of this Agreement, Purchaser
shall assume the following liabilities (the "Assumed Liabilities"):
(1) all obligations under the contracts listed in Schedule
2.1(a)(2) accruing after the Closing Date;
(2) all liabilities or obligations of any nature, kind or
description whatsoever, known or unknown, absolute, contingent or otherwise,
which arise or accrue with respect to or are attributable to the ownership and
operation of the Acquired Assets after the Closing Date; and
5
<PAGE>
(3) any liabilities incurred in the ordinary course of business
after the date of this Agreement in relation to the acquisition or construction
of the Acquired Assets.
(b) Seller shall retain and be responsible for, and Purchaser shall
have no responsibility for, all of Seller's liabilities or obligations other
than the Assumed Liabilities.
2.5 Adjustments. The Parties shall prorate and allocate property and ad
-----------
valorem taxes related to the Acquired Assets applicable to the year of Closing
based on the period of time that each Party shall own such assets in the year of
Closing.
2.6 Transfer and Sales Taxes. Seller shall pay any real property transfer
------------------------
taxes payable in connection with the conveyance hereunder. Purchaser shall pay
all recording and other fees in connection therewith and shall also be
responsible for all sales and use taxes payable in connection with the sale,
transfer and assignment of the Acquired Assets to Purchaser.
2.7 Employees of Seller.
-------------------
(a) At the Closing, Purchaser shall be obligated to offer employment
to all persons employed by Seller in connection with the Acquired Assets. Those
persons who accept offers of employment and become employees of Purchaser are
referred to herein as the "Transferred Employees." Purchaser shall have no
obligation to continue the employment of the Transferred Employees for any
particular period of time after the Closing, subject only to the provisions of
paragraph (b) of this Section 2.7.
(b) The Parties shall comply with all applicable requirements under
the Workers Adjustment Retraining and Notification Act (29 U.S.C. (S)2101 et
--
seq.) (the "WARN Act"). Seller shall be responsible for any WARN Act violations
- - ---
based on or arising from termination by Seller of its employees prior to, at or
after the Closing. Purchaser shall be responsible for any WARN Act violations
based on or arising from any termination of the Transferred Employees after the
Closing. At the Closing, Seller shall provide to Purchaser a list of all
employees or former employees terminated by Seller during the ninety (90) day
period prior to the Closing. Purchaser represents and warrants that during the
first ninety (90) days after the Closing it will not terminate any Transferred
Employee whose termination would, in the aggregate with terminations by Seller
during the ninety (90) day period prior to the Closing, result in a violation of
the WARN Act. The Parties acknowledge and agree that Purchaser has not provided
Seller with any notice of any present plans to take any action which would
entitle any employee to notice required under the WARN Act, nor authorized
Seller to provide such notice as agent of Purchaser.
(c) Seller shall provide all notices to its employees and their
dependents upon the termination of an employee's group health care coverage
required by the Consolidated Omnibus Reconciliation Act of 1985, as amended, due
to the termination of their employment, without regard to whether Purchaser
rehires any or all of such employees. Seller specifically undertakes to provide
any continuation coverage under COBRA elected by its employees whose
6
<PAGE>
employment is terminated in connection with the transactions contemplated by
this Agreement and their dependents.
Article 3
Representations and Warranties of Seller
----------------------------------------
Seller represents and warrants to Purchaser as follows:
3.1 Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Commonwealth of Kentucky,
and has full corporate power and authority to own and lease the Acquired Assets,
and to operate the Acquired Assets as and where such assets are currently
operated.
3.2 Authority. Seller has full right, power, authority, and capacity to
---------
execute and deliver this Agreement and the Other Agreements, and to perform its
obligations under this Agreement and the Other Agreements. This Agreement and
the Other Agreements have been duly and validly executed by Seller and
constitute valid and legally binding obligations of Seller, enforceable in
accordance with their terms.
3.3 Validity, Etc.
--------------
(a) The execution and delivery of this Agreement and the Other
Agreements, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations and
undertakings hereunder and thereunder by Seller will not: (i) violate any
provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of (A) the articles of
incorporation or bylaws of Seller; (B) any contract, agreement, arrangement or
undertaking to which Seller is a party or by which it may be bound; (C) any
judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority applicable to Seller; or (D) any applicable law,
ordinance, rule or regulation of any governmental body; (ii) result in the
creation of any claim, lien, charge or encumbrance upon any of the Acquired
Assets; (iii) terminate or cancel, or result in the termination or cancellation
of, any agreement or undertaking which Purchasers shall acquire or assume
pursuant to this Agreement. Other than in connection with the HSR Act, Seller
does not need to give any notice to, make any filing with or obtain any
authorization, consent or approval of, any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(b) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Agreements have been duly authorized by all requisite corporate action of
Seller.
3.4 Tangible Assets. Schedule 2.1(a)(1) includes a correct and complete
---------------
list of the tangible assets to be transferred to Purchaser pursuant to this
Agreement and accurately identifies whether such assets are owned or leased by
Seller (all such owned tangible assets are collectively
7
<PAGE>
referred to as the "Owned Tangible Assets" and all such leased tangible assets
are collectively referred to as the "Leased Tangible Assets"). On the Closing
Date, Seller will have good and marketable title to the Owned Tangible Assets,
free and clear of any claims, liens, charges, mortgages, security interests or
encumbrances whatsoever ("Charges"), and, immediately following the consummation
of the transactions at Closing, Purchaser will have good and marketable title
thereto, free and clear of any Charges. Seller has good leasehold title to all
Leased Tangible Assets, free and clear of all Charges, except charges related to
the leases listed on Schedule 3.4 (the "Asset Leases"), and, immediately
following the consummation of the transactions at Closing, Purchaser will have
good leasehold title thereto, free and clear of any Charges, except charges
related to the Asset Leases. The execution and delivery of this Agreement, and
the consummation of the transactions contemplated by this Agreement, will not
result in the creation of any Charges on such Tangible Assets. No warranty or
representation is made by the Seller, either express or implied, as to the
condition of the Acquired Assets or as to their fitness for any particular use.
Except as specifically provided for herein to the contrary, the conveyance of
the Acquired Assets will be made "as is" and "where is."
3.5 Real Property. Schedule 2.1(a)(3) includes a true, correct and
-------------
complete list of the Real Property. Except as set forth in Schedule 3.5, Seller
generally warrants fee title to the Real Property. No notice of any violation
of any applicable zoning or building law, ordinance or administrative regulation
with regard to the Real Property has been received by Seller, and Seller has no
knowledge of, nor has any reasonable grounds to know of, the threat of any such
notice. All buildings and other improvements on the Real Property are in
satisfactory condition for their current use. No condemnation proceeding has
been instituted or, to the best of Seller's knowledge, is threatened with
respect to any of the Real Property.
3.6 Litigation and Pending Proceedings. Except as set forth on Schedule
----------------------------------
3.6, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations pending or, to the best of Seller's knowledge,
threatened in any court or before any governmental agency or instrumentality or
arbitration panel or otherwise against, by or affecting any of the Acquired
Assets, or which would prevent the performance of this Agreement or the Other
Agreements or any of the transactions contemplated hereby or thereby, or which
declare the same unlawful or cause the rescission thereof.
3.7 Intellectual Property. Schedule 2.1(a)(4) sets forth a true and
---------------------
complete identification and summary description of all Intellectual Property
that will be transferred to Purchaser as part of the Acquired Assets ("Seller's
Intellectual Property"). Except as set forth on Schedule 3.7: (i) all of
Seller's Intellectual Property is owned by Seller and is free and clear of all
liens, security interests, charges, encumbrances, equities and other adverse
claims; (ii) Seller is not a party to any licenses, consents, settlements or
other agreements involving Seller's Intellectual Property; (iii) there are, and
have been, no claims, actions or judicial or adversarial proceedings involving
Seller's Intellectual Property, and no such actions or proceedings are, to
Seller's knowledge, threatened or anticipated; (iv) Seller has the right and
authority to use Seller's Intellectual Property in connection with the conduct
of its business and such use has not and will not infringe upon, constitute a
misappropriation of, or otherwise violate the rights of any other
8
<PAGE>
person in, any Intellectual Property; (v) Seller has taken all necessary and
customary action to maintain and protect each item of Intellectual Property and,
without limitation, has not disclosed any of Seller's Intellectual Property to
any third party not subject to a binding confidentiality undertaking in favor of
Seller; and (vi) Seller has no knowledge of any past or present occurrences of
any probable infringement or misappropriation of, or violation of Seller's
rights in, any of Seller's Intellectual Property. Seller's Intellectual Property
constitutes all of the Intellectual Property in which Seller has registered and
transferrable rights applicable or relating to the Tangible Assets.
3.8 Insurance. The Acquired Assets, whether owned or leased, are insured
---------
against the hazards and in the amounts stated in the policies of insurance
listed on Schedule 3.8. All such insurance is in full force and effect. Seller
has, since the inception of its operations, continually maintained in full force
and effect adequate and statutorily required workers' compensation insurance,
including coverage for black lung and occupational disease, and such insurance
shall be maintained until the Closing.
3.9 Completeness of Statements. No statement, schedule, annex,
--------------------------
certificate, information, representation or warranty of Seller contained in this
Agreement or the Other Agreements, or furnished by or on behalf of Seller to
Purchaser or any of Purchaser's agents pursuant hereto or thereto, or in
connection with the transactions contemplated hereby or thereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary in order to make a statement contained herein or
therein not misleading. All representations and warranties of Seller contained
in this Agreement and in the Other Agreements are true and complete as of the
date hereof, and will be true and complete as of the Closing Date.
3.10 AS-IS. EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT OR IN THE
-----
OTHER AGREEMENTS, PURCHASER ACKNOWLEDGES THAT SELLER HAS MADE NO REPRESENTATION
REGARDING THE VALUE OR CONDITION OF THE ACQUIRED ASSETS. EXCEPT AS EXPRESSLY
SET FORTH IN THIS AGREEMENT, THE ACQUIRED ASSETS WILL BE HELD BY SELLER AT
CLOSING "AS IS, WHERE IS," WITH NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, AS TO TITLE, OWNERSHIP, USE, POSSESSION, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, PROSPECTS, CONDITION, OPERATION, DESIGN, CAPACITY, TAX
TREATMENT OR OTHERWISE, AND ALL SUCH REPRESENTATIONS AND WARRANTIES ARE
EXPRESSLY DISCLAIMED. NOTHING HEREIN SHALL BE CONSIDERED TO DIMINISH OR LIMIT
THE EXPRESS REPRESENTATIONS, WARRANTIES AND COVENANTS CONTAINED IN THIS
AGREEMENT.
3.11 Environmental Matters. As used in this Section 3.11, the term
---------------------
"Hazardous Material" shall mean any substance, chemical or waste (including,
without limitation, asbestos, polychlorinated biphenyls and petroleum) that is
designated or defined (either by inclusion in a list of materials or by
reference to exhibited characteristics) as hazardous, toxic or dangerous, or as
a pollutant or contaminant, in any United States federal, state or local law,
code or ordinance,
9
<PAGE>
presently existing, and all rules and regulations promulgated thereunder,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S)(S) 9601, et seq., and the Kentucky
------
Revised Statutes, Chapter 224. Except as set forth in Schedule 3.11, to the best
of Seller's knowledge: (i) none of the Acquired Assets is the subject of any
investigation evaluating whether any remedial action is needed to respond to a
release of any Hazardous Material into the environment; (ii) Seller has not
received, during the 3-year period preceding the date of this Agreement, any
written communication from any governmental authority that alleges, with respect
to the Acquired Assets, that Seller is not in compliance, in all respects, with
all federal, state, local or foreign laws, ordinances, codes, rules and
regulations relating to the environment ("Environmental Laws"); (iii) there are
no toxic, hazardous or carcinogenic substances or wastes disposed of, stored or
present on, in or under any of the Real Property in violation of, or which
currently requires remediation under, any federal, state or local law or
regulation; (iv) there are no material or reportable releases or threats of
material or reportable releases of any toxic, hazardous or carcinogenic
substances or wastes to the environment from or at any of the Real Property; (v)
with regard to the Real Property, Seller is in compliance in all material
respects with all Environmental Laws; and (vi) there are no pending or
threatened material claims, assessments or litigation against Seller with
respect to any alleged non-compliance with any Environmental Laws with regard to
the Real Property. Seller has provided Purchaser with all information within its
possession pertaining to the environmental history of the Acquired Assets.
3.12 Consents. All consents and approvals that Seller is required to
--------
obtain and notices that Seller is required to give to transfer the Acquired
Assets are listed on Schedule 3.12. Except for such consents and approvals,
Seller has the complete and unrestricted power and the unqualified right to
sell, convey, assign, transfer and deliver the Acquired Assets and the Other
Agreements.
3.13 Liabilities. As of the Closing, except for liabilities arising under
-----------
the Asset Leases or other contracts listed in Schedule 2.1(a)(2), the Acquired
Assets will not be subject to any liability, commitment, indebtedness or
obligation of any kind whatsoever, whether absolute, accrued, contingent, known
or unknown, matured or unmatured, other than those which would not have a
material adverse effect on the Acquired Assets.
3.14 Contracts.
---------
(a) Except as set forth on Schedule 3.14, all of the contracts listed
on Schedule 2.1(a)(2) are in full force and effect, Seller has performed all
obligations required to be performed by it to date under all such contracts,
Seller is not in default under any such contract, and Seller does not know, nor
does Seller have any reasonable grounds to know, that any other party is in
default (or would be in default on the giving of notice or the lapse of time or
both) under any such contract.
(b) True and complete copies of all contracts which are listed on
Schedule 2.1(a)(2) and all amendments or supplements thereto have been delivered
to Purchaser
10
<PAGE>
or made available for Purchaser's inspection, and each such contract is valid
and binding on the parties thereto in accordance with its respective terms.
3.15 Taxes. All federal, state, county, local, foreign and other taxes
-----
that are due and payable by and on behalf of Seller with respect to the Acquired
Assets or with respect to Seller's employment of the Transferred Employees, and
all interest and penalties thereon, have been timely paid in full or timely and
fully withheld and paid, as the case may be.
3.16 Disclosure. To the knowledge of Seller, no representation or warranty
----------
or any other statement by Seller contained in this Agreement or any of the Other
Agreements or in any instrument, certificate or other document furnished or to
be furnished by Seller to Purchaser or its representatives or advisers in
connection herewith or pursuant hereto contains or will contain any untrue or
inaccurate statement of a material fact, or omits to state a fact necessary to
make the statements contained herein or therein not misleading.
3.17 Compliance with Law. With respect to the acquisition, manufacture,
-------------------
construction, use, operation, and maintenance of the Acquired Assets, Seller has
complied in all material respects with, and is not in default under (and has not
been charged and, to the best of Seller's knowledge, Seller has not been
threatened, nor is under any investigation, with respect to any charge
concerning any violation of any provision of) any federal, state or local law,
regulation, ordinance, rule or order (whether executive, judicial, legislative
or administrative) or any order, writ, injunction or decree of any court, agency
or instrumentality, other than those the outcome of which would not individually
or in the aggregate have a material adverse effect on the Acquired Assets or
Purchaser's ownership or use thereof after the Closing.
3.18 Employees.
---------
(a) No industrial awards or rulings, union agreements or employment
or service contracts apply to any of the Transferred Employees.
(b) Each of the Transferred Employees is employed exclusively by
Seller.
(c) Seller has not given any commitment (whether legally binding or
not) to increase or supplement the wages, salaries, vacation, sick leave or
other leave or any other remuneration, compensation or benefits of any
Transferred Employee beyond the amounts and entitlements of such employees as of
the date of this Agreement.
(d) Each employee benefit plan that Seller maintains for the benefit
of any of the Transferred Employees complies in form and in operation in all
material respects with all applicable legal requirements and all contributions
for all periods ending on or before the Closing Date for each such plan have
been paid or will be paid by their due date.
11
<PAGE>
Article 4
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to Seller as follows:
4.1 Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Commonwealth of Kentucky.
Purchaser has full corporate power and authority to own and lease its properties
as such properties are now owned and leased, and to conduct its businesses as
and where such businesses are now conducted.
4.2 Authority. Purchaser has full right, power, authority and capacity to
---------
execute, deliver and consummate this Agreement and the Other Agreements, and to
perform its obligations under this Agreement and the Other Agreements. This
Agreement and the Other Agreements have been duly and validly executed and
delivered by Purchaser and constitute valid and legally binding obligations of
Purchaser, enforceable against Purchaser in accordance with their terms.
4.3 Validity, Etc.
--------------
(a) The execution and delivery of this Agreement and the Other
Agreements, the consummation of the transactions contemplated hereby and
thereby, and the performance and fulfillment of their respective obligations and
undertakings hereunder and thereunder by Purchaser will not violate any
provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of (i) the articles of
incorporation or bylaws of Purchaser; (ii) any contract, agreement, arrangement
or undertaking to which Purchaser is a party or by which it may be bound; (iii)
any judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority applicable to Purchaser; or (iv) any applicable
law, ordinance, rule or regulation of any governmental body.
(b) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Agreements have been duly authorized by all requisite corporate action of
Purchaser.
4.4 Purchaser's Due Diligence. Purchaser has conducted such due diligence
-------------------------
investigations concerning the Acquired Assets as it has determined to be
necessary or desirable. Purchaser acknowledges that Seller is not making any
representations or warranties as to this transaction, except those contained in
Article 3 hereof and in the Other Agreements. In this regard, Purchaser
acknowledges that Seller is not making any express or implied representations or
warranties with respect to title or ownership of the Acquired Assets or the
condition, quality, working order or state of repair of the Acquired Assets,
except as specifically provided in Article 3 hereof. Seller disclaims any
implied warranties of merchantability or fitness for any particular purpose.
Purchaser has relied exclusively upon its own due diligence investigation of the
Acquired Assets, including the advice of such experts or consultants as
Purchaser has determined to be necessary or desirable in its sole discretion.
Purchaser acknowledges that Seller's records and files concerning the Acquired
Assets which have been made available for inspection by
12
<PAGE>
Purchaser contain valuative and interpretative reports, studies and other
material, and that Purchaser has not relied upon such reports, studies or other
material in electing to purchase the Acquired Assets, but has undertaken such
independent analysis and other due diligence inquires concerning the Acquired
Assets as it has determined in its sole discretion to be necessary or desirable.
4.5 Disclosure. To the knowledge of Purchaser, no representation or
----------
warranty or any other statement by Purchasers contained in this Agreement or in
the Other Agreements or in any instrument, certificate or other document
furnished or to be furnished by Purchaser to Seller or its representatives in
connection herewith or pursuant hereto contains or will contain any untrue or
inaccurate statement of a material fact, or omits to state a fact necessary to
make the statements contained herein or therein not misleading.
4.6 No Knowledge of Breach. Purchaser has no knowledge of any breach of
----------------------
any representation or warranty by Seller under this Agreement.
Article 5
Covenants of Seller
-------------------
Seller covenants and agrees with Purchaser that from the date hereof
through the Closing:
5.1 Investigations. Seller shall continue to give Purchaser and the
--------------
employees, accountants, attorneys and other authorized agents and
representatives of Purchaser full access during all reasonable times to all
properties, books and records of Seller regarding the Acquired Assets. In the
event of the termination of this Agreement, Purchaser shall: (i) promptly
return to Seller all documents, work papers and other materials obtained from
Seller in connection with the transactions contemplated hereby (and not retain
copies thereof); (ii) keep confidential all information obtained in any
investigation except for information that is readily ascertainable from public
or published information or trade sources; and (iii) promptly destroy all
analyses, compilations, studies and other documents in the possession of, or
prepared by, Purchaser (or any Affiliate thereof) relating to such confidential
information.
5.2 Notices and Consents. Seller shall give all required notices to third
--------------------
parties and shall use commercially reasonable efforts to obtain all required
third-party consents; provided, however, that notwithstanding the foregoing,
Seller shall not be required to pay any remuneration to third parties in
exchange for such party's consent or execution of a waiver or to file any
lawsuit or other action to obtain any such consent or waiver.
5.3 Notification of Material Changes and Litigation. Seller shall provide
-----------------------------------------------
Purchaser with prompt written notice of any adverse or potentially adverse
material change in any of the Acquired Assets or Assumed Liabilities.
5.4 Cooperation. Seller shall use its best efforts to satisfy all
-----------
conditions to the Closing and effect the transactions contemplated by this
Agreement.
13
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5.5 Discussions with Other Purchasers. Neither Seller nor any of Seller's
---------------------------------
shareholders, directors, officers, agents or employees, shall solicit, authorize
the solicitation of, or enter into any discussions with any third party to
purchase, lease or otherwise acquire any of the Acquired Assets.
5.6 Representations and Warranties. Seller shall not cause or permit any
------------------------------
of its representations and warranties made in this Agreement, including, without
limitation, the representations and warranties contained in Article 3 of this
Agreement, to be untrue or incomplete on the Closing Date or at any time prior
thereto.
5.7 Publicity. Except as required by applicable law, without the prior
---------
written consent of Purchaser, Seller shall not disclose or publish, or permit
the disclosure or publication of, any information concerning the execution and
delivery of this Agreement, or the transactions contemplated by this Agreement,
to any third party.
5.8 Antitrust Notification. To the extent applicable, Seller shall, as
----------------------
promptly as practicable, but in no event later than two (2) Business Days
following the execution and delivery of this Agreement, file with the FTC and
the DOJ its portion of the notification and report form required for the
transactions contemplated hereby and any supplemental information requested in
connection therewith pursuant to the HSR Act. Any such notification and report
form and supplemental information will be in substantial compliance with the
requirements of the HSR Act. Seller shall furnish to Purchaser such necessary
information and reasonable assistance as Purchaser may request in connection
with its preparation of any filing or submission which is necessary under the
HSR Act. Seller shall keep Purchaser apprised of the status of any
communications with, and inquiries or requests for additional information from,
the FTC and the DOJ and shall comply promptly with any such inquiry or request.
Seller shall use its best efforts to obtain any clearance required under the HSR
Act for the purchase and sale of the Acquired Assets. Seller and Purchaser
shall request an early termination of the waiting period under the HSR Act.
5.9 Patent Registration. Following the Closing, Seller shall provide such
-------------------
assistance and execute such documents as Purchaser shall reasonably request to
properly register in the name of Purchaser (with the Patent and Trademark
Office) all of Seller's Intellectual Property that is currently registered in
the name of Seller or any predecessor or Affiliate of Seller.
5.10 Conduct of Business.
-------------------
(a) Seller shall, with respect to the Acquired Assets, conduct its
business only in the ordinary course, and shall (i) consult with and keep
Purchaser informed in relation to decisions about the Acquired Assets and
consider any reasonable suggestions and advice of Purchaser, (ii) maintain and
protect the Acquired Assets, and (iii) fully and timely comply with and observe
all applicable requirements and orders of any governmental agency where non-
compliance would or might impose a Charge or other liability or restriction on
the Acquired Assets.
14
<PAGE>
(b) Seller will not, without the prior written consent of Purchaser,
(i) dispose of any Acquired Asset other than in the ordinary course of business,
(ii) terminate or amend any of the contracts listed in Schedule 2.1(a)(2) other
than in the ordinary course of business, or (iii) make any announcement or do
any other thing that may discourage the Transferred Employees from accepting the
offer of employment referred to in Section 2.7(a) hereof.
Article 6
Covenants of Purchaser
----------------------
Purchaser covenants and agrees with Seller that from the date hereof
through the Closing:
6.1 Cooperation. Purchaser shall use its best efforts to satisfy all
-----------
conditions to the Closing and effect the transactions contemplated by this
Agreement.
6.2 Representations and Warranties. Purchaser will not cause or permit
------------------------------
any of its representations and warranties made in this Agreement, including,
without limitations, its representations and warranties contained in Article 4
of this Agreement, to be untrue or incomplete on the Closing Date or at any time
prior thereto.
6.3 Publicity. Except as required by applicable law, without the prior
---------
written approval of Seller, Purchaser shall not disclose or publish, or permit
the disclosure or publication of, any information concerning the execution and
delivery of this Agreement, or the transactions contemplated by this Agreement,
to any third party.
6.4 Antitrust Notification. To the extent applicable, Purchaser shall as
----------------------
promptly as practicable, but in no event later than two (2) Business Days
following the execution and delivery of this Agreement, file with the FTC and
the DOJ its portion of the notification and report form required for the
transactions contemplated hereby and any supplemental information requested in
connection therewith pursuant to the HSR Act. Any such notification and report
form and supplemental information shall be in substantial compliance with the
requirements of the HSR Act. Purchaser shall furnish to Seller such necessary
information and reasonable assistance as Seller may request in connection with
its preparation of any filing or submission which is necessary under the HSR
Act. Purchaser shall keep Seller apprised of the status of any communications
with, and inquiries or requests for additional information from, the FTC and the
DOJ and shall comply promptly with any such inquiry or request. Purchaser shall
use its best efforts to obtain any clearance required under the HSR Act for the
purchase and sale of the Acquired Assets. Purchaser and Seller shall request an
early termination of the writing period under the HSR Act.
6.5 Holdco Guaranty. Holdco shall guarantee the performance by Purchaser
---------------
of its obligations under this Agreement and the Other Agreements by executing
the guaranty agreement attached hereto as Annex 6.5 (the "Guaranty Agreement")
as of the Closing Date.
15
<PAGE>
Article 7
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Seller contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Seller shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing. In addition, Seller
shall have delivered to Purchaser a certificate dated the Closing Date and
signed by Seller's President and Secretary to the effect that, except as
disclosed in the certificate, they do not know, and have no reasonable grounds
to know, of any failure or breach of any representation, warranty, covenant or
obligation made or to be performed by Seller.
7.2 No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change since the date of this Agreement in the Acquired Assets
or Assumed Liabilities.
7.3 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated by this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement, and to permit the operation of the
Acquired Assets, as presently carried on by Seller, to continue unimpaired in
all material respects immediately following the Closing, shall have been
obtained.
7.4 Other Agreements. Seller shall have executed all Other Agreements
----------------
required to be executed before the Closing Date in connection with the
transactions contemplated in this Agreement.
7.5 Deliveries. At or before the Closing, Seller shall make all of its
----------
deliveries contemplated in this Agreement.
7.6 Closing. The Closing shall occur on or before January 2, 1998. In
-------
the event the Closing shall not occur before January 2, 1998, this Agreement
shall be automatically extended indefinitely unless either Seller or Purchaser
delivers to the other written notice terminating this Agreement. If this
Agreement is terminated pursuant to this Section 7.6, Seller and Purchaser shall
be released from all further obligations under this Agreement and the Other
Agreements and shall have no obligation to further negotiate such agreements.
7.7 Third-Party Consents and Approvals. The Parties shall have obtained
----------------------------------
all third-party consents and approvals listed on Schedule 3.12.
16
<PAGE>
7.8 Transfer Documents. Seller shall have delivered to Purchaser at the
------------------
Closing any and all bills of sale, deeds or other instruments necessary or
otherwise reasonably requested by Purchaser to duly and properly transfer and
convey title to each of the Acquired Assets as contemplated by this Agreement.
7.9 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority of competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
purchase and sale of the Acquired Assets.
7.10 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the purchase and sale of the Acquired Assets shall be
pending which in the written opinion of Purchaser's counsel is reasonably likely
to succeed.
7.11 Financing. Holdco shall have obtained all waivers, consents and
---------
approvals necessary (as determined by Holdco in its sole and absolute
discretion) to allow Holdco to use proceeds from the Line of Credit and the
Senior Notes, in such combination as Holdco shall determine to be appropriate in
its sole and absolute discretion, to contribute to Purchaser funds equal to the
Purchase Price.
Article 8
Conditions to Obligations of Seller
-----------------------------------
The obligations of Seller to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing. In addition, Purchaser
shall have delivered to Seller a certificate, dated the Closing Date and signed
by the President and Secretary of Purchaser, to the effect that, except as
disclosed in the certificate, they do not know, and have no reasonable grounds
to know, of any failure or breach of any representation, warranty, covenant or
obligation made or to be performed by Purchaser.
8.2 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Seller of the transactions contemplated by this Agreement shall
have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Seller of the transactions
contemplated by this Agreement shall have been obtained.
8.3 Deliveries. At or before the Closing, Purchaser shall make all of its
----------
deliveries contemplated in this Agreement.
17
<PAGE>
8.4 Closing. The Closing shall occur on or before January 2, 1998. In
-------
the event the Closing shall not occur before January 2, 1998, this Agreement
shall be automatically extended indefinitely unless either Seller or Purchaser
delivers to the other written notice terminating this Agreement. If this
Agreement is terminated pursuant to this Section 8.4, Seller and Purchaser shall
be released from all further obligations under this Agreement and the Other
Agreements and shall have no obligation to further negotiate such agreements.
8.5 Other Agreements. Purchaser shall have executed all Other Agreements
----------------
required to be executed before the Closing Date in connection with the
transactions contemplated in this Agreement.
8.6 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority of competent jurisdiction shall have been
promulgated or enacted, as of the Closing, which restrains or prohibits the
purchase and sale of the Acquired Assets.
8.7 No Pending Action. No action, suit or other proceeding by any person
-----------------
to restrain or prohibit the purchase and sale of the Acquired Assets shall be
pending which in the written opinion of Seller's counsel is reasonably likely to
succeed.
Article 9
The Closing
-----------
9.1 Date and Place. The Closing shall be held on the Closing Date at
--------------
10:00 a.m. (EDT) in the offices of Brown, Todd & Heyburn PLLC, 2700 Lexington
Financial Center, Lexington, Kentucky, or at such other place or time on the
Closing Date as the Parties may mutually agree.
9.2 Deliveries. At or before the Closing, the Parties shall make all of
----------
the deliveries contemplated in this Agreement.
Article 10
Survival of Representations and Warranties--Indemnification
-----------------------------------------------------------
10.1 Survival. Each of the Parties' representations, warranties, covenants
--------
and agreements set forth in this Agreement shall survive the Closing for a
period of two (2) years, provided that the representations and warranties of
Seller contained in Section 3.15 (Taxes) shall continue in full force and effect
until the expiration of all applicable statutes of limitations.
10.2 Indemnity by Seller. Seller shall indemnify and hold Purchaser
-------------------
harmless from and against, and shall pay to Purchaser the full amount of, any
actual loss, damage, liability or expense (including reasonable attorneys' fees,
but excluding any special, exemplary, punitive or consequential damages, or any
damages other than, or in addition to, actual damages) (hereafter referred to as
a "Loss") resulting to Purchaser, either directly or indirectly, from: (a) any
material
18
<PAGE>
inaccuracy in any representation or warranty, or any breach of any covenant or
agreement, by Seller contained in this Agreement or in any of the Other
Agreements; (b) any liability or obligation of Seller which is not an Assumed
Liability, including any such liability or obligation that becomes a liability
of Purchaser under any common law doctrine of successor liability or otherwise
by operation of law; and (c) any liability for any fee or commission owed to a
broker or finder pursuant to an agreement signed by Seller with respect to the
transactions contemplated by this Agreement.
10.3 Indemnity by Purchaser. Purchaser shall indemnify and hold Seller
----------------------
harmless from and against, and shall pay to Seller the full amount of, any Loss
resulting to Seller, either directly or indirectly, from: (a) any material
inaccuracy in any representation or warranty, or any breach of any covenant or
agreement, by Purchaser in this Agreement or in any of the Other Agreements; (b)
the Assumed Liabilities; and (c) any liability for any fee or commission owed to
a broker or finder pursuant to an agreement signed by Purchaser with respect to
the transactions contemplated by this Agreement.
10.4 Limitations. Seller's liability under Sections 10.2(a) and (b) and
-----------
Purchaser's liability under Sections 10.3(a) and (b) shall be limited to the
following Losses incurred by an indemnified Party: (i) any Loss arising from a
single event which exceeds Three Hundred Thousand Dollars ($300,000.00) (the
"Single Event Basket"); and (ii) Losses which, when aggregated with other Losses
under this Agreement, exceed One Million Five Hundred Thousand Dollars
($1,500,000.00) (the "Aggregate Basket"). Upon an indemnified Party's
successful assertion of a Loss or Losses against the indemnifying Party for an
amount exceeding the Single Event Basket or the Aggregate Basket, as the case
may be, the indemnified Party shall be entitled to recover only the amount
exceeding the Single Event Basket or the Aggregate Basket, as the case may be;
provided, however, that neither Seller's nor Purchaser's aggregate liability for
Losses shall exceed Seven Million Five Hundred Thousand Dollars ($7,500,000.00).
Article 11
Arbitration
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the Parties (or any Person making a claim under or through, whether
derivatively or otherwise, any Party) in connection with, or with respect to,
any provision of this Agreement or any of the Other Agreements, which has not
been resolved within thirty (30) calendar days after Seller or Purchaser has
notified the other in writing of such controversy, dispute or claim, shall be
submitted for arbitration in accordance with the rules of the American
Arbitration Association or any successor thereof. Arbitration shall take place
at an appointed time and place in Lexington, Kentucky.
11.2 Selection of Arbitrators. Purchaser shall select one (1) arbitrator
------------------------
and Seller shall select one (1) arbitrator, and the two (2) so designated shall
select a third arbitrator. No Person shall be allowed to serve as arbitrator if
such Person is counsel for a party to the arbitration. If Purchaser or Seller
shall fail to designate an arbitrator within seven (7) calendar days after
arbitration is requested, or if the two (2) arbitrators shall fail to select a
third arbitrator within
19
<PAGE>
fourteen (14) calendar days after arbitration is requested, then such arbitrator
shall be selected by the American Arbitration Association or any successor
thereto upon application of either Party. Judgment upon any award of the
majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, including
but not limited to Section 12.15, the award of the arbitrators may grant any
relief that a court of general jurisdiction has authority to grant, including,
without limitation, an award of damages and/or injunctive relief, and shall
assess, in addition, the cost of the arbitration, including the reasonable fees
of the arbitrators, reasonable attorneys' fees and costs of all prevailing
Parties, against all non-prevailing parties to the arbitration.
11.3 Temporary Injunctive Relief. Nothing herein contained shall bar the
---------------------------
right of any of the Parties to seek and obtain temporary injunctive relief from
a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing Party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
11.4 Arbitration Rules. All disputes and claims shall be determined by
-----------------
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except that
such Rules shall be modified by this Agreement.
11.5 Arbitration Proceedings. All arbitral proceedings arising under, or
-----------------------
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90) days after their appointment. Subject
to the Parties' right to be treated fairly, the arbitrators may shorten the
periods of time otherwise applicable to the arbitral proceedings under the Rules
or the Federal Rules of Civil Procedure to permit the award to be made within
the time limitation set forth in the previous sentence.
Article 12
Miscellaneous
-------------
12.1 Notices. All notices under this Agreement ("Notices") shall be given
-------
to the Parties at the following addresses (i) by personal delivery; (ii) by
facsimile transmission; (iii) by registered or certified mail, postage prepaid,
return receipt requested; or (iv) by nationally recognized overnight or other
express courier services:
(a) If to Seller:
Addington Enterprises, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attn: Larry Addington
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
20
<PAGE>
(b) If to Purchaser:
Mining Technologies, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attn: Don Brown
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
(c) If to Holdco:
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attn: Don Brown
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
All Notices shall be effective and shall be deemed delivered (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission, on the
next Business Day following dispatch of such facsimile; (iii) if by courier
service, on the third (3rd) Business Day after dispatch thereof; and (iv) if by
mail, on the fifth (5th) Business Day after dispatch thereof. Any Party may
change its address by Notice to the other Parties.
12.2 Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
12.3 Expenses. Each Party shall assume its respective expenses incurred in
--------
connection with the transactions contemplated by this Agreement.
12.4 Headings. The headings in this Agreement have been included solely
--------
for ease of reference and shall not be considered in the interpretation or
construction of this Agreement.
12.5 Annexes and Schedules. The Annexes and Schedules to this Agreement
---------------------
are incorporated herein by reference and expressly made a part hereof.
12.6 Entire Agreement. All prior negotiations and agreements by and among
----------------
the Parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or on an Annex or Schedule delivered in connection herewith or
in the Other Agreements. No extension, change, modification, addition
21
<PAGE>
or termination of this Agreement shall be enforceable unless in writing and
signed by the party against whom enforcement is sought.
12.7 Representations and Warranties, Etc. The representations and
-----------------------------------
warranties of each Party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other Party hereto. As used
in this Agreement, the term "Seller's knowledge," and all other references to
matters which are known by or to Seller, shall refer to matters which are known,
or which with the exercise of reasonable care should have been known, by Seller
after consultation with Seller's current corporate officers, directors, plant
managers, shift supervisors and foremen, and after their due investigation of
corporate records (except that if Seller is required to make "due inquiry" with
respect to any matter, it shall make such additional inquiry as a reasonable
person would make under the circumstances).
12.8 Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the Commonwealth of Kentucky.
Subject to Article 11, each Party agrees that any action brought in connection
with this Agreement against another shall be filed and heard in Fayette County,
Kentucky, and each Party hereby submits to the jurisdiction of the Circuit Court
of Fayette County, Kentucky, and the U.S. District Court for the Eastern
District of Kentucky, Lexington Division.
12.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
12.10 Severability. If any provision of this Agreement or its application
------------
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
12.11 Benefit and Binding Effect. This Agreement shall be binding upon, and
--------------------------
shall inure to the benefit of Purchaser and Seller and each of their respective
successors and assigns; provided, however, that no Party to this Agreement shall
assign its rights or obligations hereunder without the express written consent
of the other Parties, which consent shall not be unreasonably withheld.
12.12 Risk of Loss. The risk of any loss or damage to any of the Acquired
------------
Assets by fire or any other casualty or cause shall be borne by Seller at all
times through the Closing, and by Purchaser thereafter.
12.13 Further Assurances. From time to time at another Party's request and
------------------
without further consideration, a Party shall execute and deliver such further
instruments of conveyance, assignment and transfer, and take such other actions
as the requesting Party may reasonably
22
<PAGE>
request, in order to more effectively convey and transfer any of the Acquired
Assets. In addition, any monies collected by a Party which are due and payable
to another Party will be promptly remitted to such Party upon receipt thereof.
12.14 Specific Performance. Subject to Article 11 and Section 12.15,
--------------------
Purchaser and Seller shall be entitled to specific performance, injunctive
relief and other equitable relief for breaches of the other Party's covenants
and agreements, and such relief may be awarded by the arbitrators pursuant to
Article 11. Therefore, it is agreed that Seller and Purchaser will not, in any
action to enforce this Agreement, assert that there is an adequate remedy at law
for the default on which such action or proceeding is based.
12.15 No Consequential Damages. Except as prohibited by law, each Party
------------------------
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
IN WITNESS WHEREOF, the Parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto.
MINING TECHNOLOGIES, INC., a Kentucky
corporation
By: /s/ Donald P. Brown
Name: Donald P. Brown
Title: President
AEI HOLDING COMPANY, INC., a Delaware
corporation
By: /s/ Donald P. Brown
Name: Donald P. Brown
Title: President
ADDINGTON ENTERPRISES, INC., a Kentucky
corporation
By: /s/ Vic Grubb
Name: Vic Grubb
Title: CFO
23
<PAGE>
LIST OF ANNEXES AND SCHEDULES
Annexes
- - -------
1.1(f) Form of Assignment of Contracts
1.1(h) Form of Bill of Sale
1.1(m) Form of Deed
1.1(y) Form of Non-Compete Agreement
6.5 Form of Guaranty Agreement
Schedules
- - ---------
2.1(a)(1) Assets to be Purchased by Purchaser
2.1(a)(2) Contracts to be Assigned to Purchaser
2.1(a)(3) Real Property to be Purchased by Purchaser
2.1(a)(4) Intellectual Property to be Purchased by Purchaser
3.4 Asset Leases
3.5 Real Property
3.6 Litigation and Pending Proceedings
3.7 Seller's Intellectual Property
3.8 Insurance
3.11 Environmental Matters
3.12 Consents
3.14 Contract Non-Compliance
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
dated as of December 18, 1997
between
ADDINGTON ENTERPRISES, INC.
and
MINING TECHNOLOGIES, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 - Definitions................................................ 1
1.1 Definitions.......................................... 1
1.2 Additional Terms..................................... 4
1.3 Rules of Interpretation.............................. 4
Article 2 - Purchase and Sale.......................................... 5
2.1 Purchase of the Assets............................... 5
(a) Acquired Assets............................. 5
(b) Excluded Assets............................. 5
2.2 Purchase Price....................................... 5
2.3 Allocation of Purchase Price......................... 5
2.4 Assumption of Liabilities............................ 5
2.5 Adjustments.......................................... 6
2.6 Transfer and Sales Taxes............................. 6
2.7 Employees of Seller.................................. 6
Article 3 - Representations and Warranties of Seller................... 7
3.1 Organization......................................... 7
3.2 Authority............................................ 7
3.3 Validity, Etc........................................ 7
3.4 Tangible Assets...................................... 7
3.5 Real Property........................................ 8
3.6 Litigation and Pending Proceedings................... 8
3.7 Intellectual Property................................ 8
3.8 Insurance............................................ 9
3.9 Completeness of Statements........................... 9
3.10 AS-IS................................................ 9
3.11 Environmental Matters................................ 9
3.12 Consents............................................. 10
3.13 Liabilities.......................................... 10
3.14 Contracts............................................ 10
3.15 Taxes................................................ 10
3.16 Disclosure........................................... 11
3.17 Compliance with Law.................................. 11
3.18 Employees............................................ 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 4 - Representations and Warranties of Purchaser.................... 11
4.1 Organization............................................. 11
4.2 Authority................................................ 11
4.3 Validity, Etc............................................ 12
4.4 Purchaser's Due Diligence................................ 12
4.5 Disclosure............................................... 12
4.6 No Knowledge of Breach................................... 13
Article 5 - Covenants of Seller............................................ 13
5.1 Investigations........................................... 13
5.2 Notices and Consents..................................... 13
5.3 Notification of Material Changes and Litigation.......... 13
5.4 Cooperation.............................................. 13
5.5 Discussions with Other Purchasers........................ 13
5.6 Representations and Warranties........................... 13
5.7 Publicity................................................ 13
5.8 Antitrust Notification................................... 14
5.9 Patent Registration...................................... 14
5.10 Conduct of Business...................................... 14
Article 6 - Covenants of Purchaser......................................... 14
6.1 Cooperation.............................................. 14
6.2 Representations and Warranties........................... 14
6.3 Publicity................................................ 15
6.4 Antitrust Notification................................... 15
6.5 Holdco Guaranty.......................................... 15
Article 7 - Conditions to Obligations of Purchaser......................... 15
7.1 Representations, Warranties and Covenants................ 15
7.2 No Material Adverse Change............................... 15
7.3 Statutory Requirements................................... 16
7.4 Other Agreements......................................... 16
7.5 Deliveries............................................... 16
7.6 Closing.................................................. 16
7.7 Third-Party Consents and Approvals....................... 16
7.8 Transfer Documents....................................... 16
7.9 No Injunction............................................ 16
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.10 No Pending Action....................................... 16
7.11 Financing............................................... 16
Article 8 - Conditions to Obligations of Seller........................... 17
8.1 Representations, Warranties and Covenants............... 17
8.2 Statutory Requirements.................................. 17
8.3 Deliveries.............................................. 17
8.4 Closing................................................. 17
8.5 Other Agreements........................................ 17
8.6 No Injunction........................................... 17
8.7 No Pending Action....................................... 17
Article 9 - The Closing................................................... 18
9.1 Date and Place.......................................... 18
9.2 Deliveries.............................................. 18
Article 10 - Survival of Representations and Warranties--Indemnification.. 18
10.1 Survival................................................ 18
10.2 Indemnity by Seller..................................... 18
10.3 Indemnity by Purchaser.................................. 18
10.4 Limitations............................................. 18
Article 11 - Arbitration.................................................. 19
11.1 Dispute Resolution...................................... 19
11.2 Selection of Arbitrators................................ 19
11.3 Temporary Injunctive Relief............................. 19
11.4 Arbitration Rules....................................... 19
11.5 Arbitration Proceedings................................. 19
Article 12 - Miscellaneous................................................ 20
12.1 Notices................................................. 20
12.2 Waivers................................................. 21
12.3 Expenses................................................ 21
12.4 Headings................................................ 21
12.5 Annexes and Schedules................................... 21
12.6 Entire Agreement........................................ 21
12.7 Representations and Warranties, Etc..................... 21
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
12.8 Governing Law............................................. 21
12.9 Counterparts.............................................. 21
12.10 Severability.............................................. 22
12.11 Benefit and Binding Effect................................ 22
12.12 Risk of Loss.............................................. 22
12.13 Further Assurances........................................ 22
12.14 Specific Performance...................................... 22
12.15 No Consequential Damages.................................. 22
</TABLE>
iv
<PAGE>
Exhibit 10.7
ASSIGNMENT OF CONTRACTS
-----------------------
THIS ASSIGNMENT OF CONTRACTS (this "Assignment") is made and entered into
as of January 2, 1998, by and between (i) ADDINGTON ENTERPRISES, INC., a
Kentucky corporation ("Assignor"), and (ii) MINING TECHNOLOGIES, INC., a
Kentucky corporation ("Assignee").
RECITALS
--------
A. Pursuant to the Asset Purchase Agreement, dated December 18, 1997,
between Addington Enterprises, Inc. and Mining Technologies, Inc. (the "Asset
Purchase Agreement"), Assignor agreed to transfer, assign and convey to
Assignee, and Assignee agreed to acquire, all right, title and interest of
Assignor in and to the contracts listed and described on Annex A (the
-------
"Contracts") attached hereto and incorporated herein by reference.
B. Assignor desires to transfer, assign and convey to Assignee all of
Assignor's right, title and interest in and to said Contracts and Assignee
desires to acquire and accept the same.
NOW, THEREFORE, for and in consideration of the performance and observance
of the terms and conditions contained herein, and other good and valuable
consideration, the parties hereto agree as follows:
1. Capitalized Terms. Capitalized terms used and not otherwise defined
-----------------
herein shall have the meanings given to such terms in the Asset Purchase
Agreement.
2. Assignment. Assignor hereby transfers, assigns, sets over and conveys
----------
to Assignee, its successors and assigns, and Assignee hereby accepts, all of
Assignor's right, title and interest in and to the Contracts.
3. Miscellaneous.
-------------
(a) This Assignment shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Kentucky, without regard to its conflict
of laws rules. Each party agrees that any action brought in connection with
this Assignment against another shall be filed and heard in Fayette County,
Kentucky, and each party hereby submits to the jurisdiction of the Circuit Court
of Fayette County, Kentucky, and the U.S. District Court for the Eastern
District of Kentucky, Lexington Division.
(b) This Assignment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same instrument.
<PAGE>
(c) The terms hereof shall bind and inure to the benefit of and be
enforceable by the parties executing (or deemed to have consented to) this
Assignment and their respective successors and assigns.
(d) The failure of either Assignee or Assignor to insist in any
particular instance upon strict performance of any term or provision of this
Assignment shall not be construed as a waiver or relinquishment as to the
performance of any such term or provision in the future.
(e) This Assignment is given pursuant to the Asset Purchase Agreement,
and is subject to the terms and conditions thereof. If any conflict exists
between this Assignment and the Asset Purchase Agreement, the Asset Purchase
Agreement shall control.
(f) If any provision of this Assignment or its application will be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Assignment is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
(g) All prior negotiations and agreements by and among the parties
hereto with respect to the subject matter hereof are superseded by this
Assignment and the Asset Purchase Agreement (and the Other Agreements), and
there are no representations, warranties, understandings or agreements with
respect to the subject matter hereof other than those expressly set forth in
this Assignment and the Asset Purchase Agreement (and the Other Agreements). No
extension, change, modification, addition or termination of this Assignment
shall be enforceable unless in writing and signed by the party against whom
enforcement is sought.
(h) The headings preceding the text of the sections of this Assignment
are inserted solely for convenience of reference and shall not constitute a part
of this Assignment or affect its meaning, construction or effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Assignment as of the date first above written.
ADDINGTON ENTERPRISES, INC.,
a Kentucky corporation
By: /s/Vic Grubb
Name: Vic Grubb
Title: CFO
2
<PAGE>
MINING TECHNOLOGIES, INC.
a Kentucky corporation
By: /s/Donald P. Brown
Name: Donald P. Brown
Title: President
3
<PAGE>
ANNEX A
-------
<TABLE>
<CAPTION>
Original
Parties Contract Termination
Date Date Notes
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A. Consulting Agreements
AEI/Franklin Research & Development
AEI/Richard M. Slagle 12/17/96 12/17/97 Can be extended by mutual consent
02/15/96 See note on previous schedule.
B. Contract Mining Agreements
Mining Technologies/Ikerd Bandy Co., Inc.
Mining Technologies/Martiki coal Company 02/01/97 When reserves are mined
05/24/97 out.
Three years or when
reserves are mined out.
C. Technology Agreements
AEI/ARI/Pittston
Bowie/Amax Coal
AEI/Bluegrass Coal 01/14/97
MTI/Joy Technologies 10/24/95
12/13/96
06/16/92*
D. Miscellaneous Agreements
Mining Technologies/AEP
Mining Technologies/AEP 09/18/95 Annually extended Service @ Coalton Recycling
Mining Technologies/Orkin Pest Control 09/28/95 Annually extended Center
Mining Technologies, Inc./Airgas/Virginia Welding 08/15/96 Annually extended Service@ Coalton Compost Center
Supply 01/12/94 Annually extended Service @ RT 60 West Coalton
Addington Enterprises/AEI Holding Company 10/20/97 Cylinder Rentals
All other contracts relating to he Acquired Assets MSU&L Agreement
E. Asset Leases
All asset leases relating to the equipment listed on
Schedule 2.1(a)(1)
- - ---------------------------------------------------------------------------------------------------------------------------------
* This Agreement was terminated in June of 1995
</TABLE>
4
<PAGE>
Exhibit 10.8
BILL OF SALE, CONVEYANCE AND ASSIGNMENT
---------------------------------------
This Bill of Sale, Conveyance and Assignment (this "Bill of Sale"), dated
January 2, 1998, is between MINING TECHNOLOGIES, INC., a Kentucky corporation,
1500 North Big Run Road, Ashland, Kentucky 41102 ("Purchaser"), and ADDINGTON
ENTERPRISES, INC., a Kentucky corporation, 1500 North Big Run Road, Ashland,
Kentucky 41102 ("Seller"), and is made and delivered pursuant to, and subject
to the terms of, the Asset Purchase Agreement, dated December 18, 1997, between
Addington Enterprises, Inc. and Mining Technologies, Inc. (the "Asset Purchase
Agreement"), pursuant to which Purchaser acquired certain tangible assets and
real property owned by Seller.
NOW THEREFORE, subject to the terms and conditions of the Asset Purchase
Agreement and for the consideration set forth therein, Purchaser and Seller each
hereby agree as follows:
1. Capitalized Terms; Incorporation by Reference. All annexes and
---------------------------------------------
schedules to this Bill of Sale and the terms of the Asset Purchase Agreement,
including all Schedules, Exhibits and Annexes thereto, are incorporated herein
by reference, and capitalized terms not otherwise defined in this Bill of Sale
shall have the meanings given to such terms in the Asset Purchase Agreement.
2. Assignment. For good and valuable consideration given to Seller in
----------
accordance with and subject to the terms and provisions of the Asset Purchase
Agreement, Seller does hereby sell, convey, transfer, assign and deliver to
Purchaser all of its right, title and interest in and to the assets listed on
Annex A (the "Acquired Assets"), to have and to hold unto Purchaser, its
- - -------
successors and assigns forever.
3. Covenant. Purchaser and Seller covenant and agree that the covenants
--------
contained herein shall be binding upon their respective successors and assigns.
4. Asset Purchase Agreement. The sale, transfer, conveyance, assignment
------------------------
and delivery of the Acquired Assets are made in accordance with and subject to
the representations, warranties, covenants and provisions contained in the Asset
Purchase Agreement. To the extent that any provision of this Bill of Sale is
inconsistent or conflicts with the Asset Purchase Agreement, the provisions of
the Asset Purchase Agreement shall control.
5. Governing Law. This Bill of Sale shall be governed by, and construed
-------------
and interpreted in accordance with, the laws of the Commonwealth of Kentucky,
without regard to its conflict of laws principles. Each party agrees that any
action brought in connection with this Bill of Sale against another shall be
filed and heard in Fayette County, Kentucky, and each party hereby submits to
the jurisdiction of the Circuit Court of Fayette County, Kentucky, and the U.S.
District Court for the Eastern District of Kentucky, Lexington Division.
<PAGE>
6. Counterparts This Bill of Sale may be executed in one or more
------------
counterparts (including by means of telecopied signature pages) and all such
counterparts taken together shall constitute one and the same Bill of Sale.
7. Severability. If any provision of this Bill of Sale or its
------------
application will be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of all other applications of that
provision, and of all other provisions and applications hereof, will not in any
way be affected or impaired. If any court shall determine that any provision of
this Bill of Sale is in any way unenforceable, such provision shall be reduced
to whatever extent is necessary to make such provision enforceable.
8. Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Bill of Sale and the Asset Purchase Agreement (and the Other Agreements),
and there are no representations, warranties, understandings or agreements with
respect to the subject matter hereof other than those expressly set forth in
this Bill of Sale and the Asset Purchase Agreement (and the Other Agreements).
No extension, change, modification, addition or termination of this Bill of Sale
shall be enforceable unless in writing and signed by the party against whom
enforcement is sought.
9. Headings. Section headings are not to be considered part of this Bill
--------
of Sale, are solely for convenience of reference, and shall not affect the
meaning or interpretation of this Bill of Sale or any provision in it.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Bill
of Sale as of the date first above written.
SELLER: ADDINGTON ENTERPRISES, INC.,
a Kentucky corporation
By: /s/Vic Grubb
Name: Vic Grubb
Title: CFO
PURCHASER: MINING TECHNOLOGIES, INC.,
a Kentucky corporation
By: /s/Donald P. Brown
Name: Donald P. Brown
Title: President
2
<PAGE>
ANNEX A
-------
[TO BE COMPLETED]
3
<PAGE>
EXHIBIT 10.9
GUARANTY AGREEMENT
------------------
This GUARANTY AGREEMENT (this "Guaranty") is made and entered into as of
January 2, 1998, by AEI HOLDING COMPANY, INC., a Delaware corporation
("Guarantor"), for the benefit of ADDINGTON ENTERPRISES, INC., a Kentucky
corporation ("AEI"). Capitalized terms not otherwise defined herein shall have
the meaning given to such terms in the Agreement (as defined below).
RECITALS
--------
A. Guarantor owns 100% of the issued and outstanding stock of Mining
Technologies, Inc., a Kentucky corporation ("MTI").
B. AEI and MTI entered into an Asset Purchase Agreement, dated December
18, 1997 (the "Agreement"), whereby MTI purchased certain assets of AEI.
C. AEI, as a condition to consummating the transactions contemplated in
the Agreement and the Other Agreements, required that Guarantor execute and
deliver this Guaranty to AEI.
NOW, THEREFORE, in consideration of, and in order to induce AEI to enter
into, the Agreement and the Other Agreements, and as security for the
performance of the obligations of MTI under the Agreement and the Other
Agreements, Guarantor covenants and agrees as follows:
TERMS AND CONDITIONS
--------------------
1. Guarantee. Guarantor, intending to be bound as an accommodation party
---------
for MTI, absolutely and unconditionally guarantees to AEI, its successors,
transferees and assigns the following obligations and liabilities of MTI
(collectively, the "Guaranteed Obligations"): (a) the assumption of the Assumed
Liabilities at the Closing as contemplated by Section 2.4 of the Agreement; (b)
the payment of the sales and other transfer Taxes, as contemplated by Sections
2.5 and 2.6 of the Agreement; (c) the indemnity obligations contained in Section
10.3 of the Agreement; and (d) the due and punctual performance and observance
by MTI of all other terms, covenants and conditions of the Agreement and the
Other Agreements.
2. Guaranty of Payment. This is a guaranty of payment and performance,
-------------------
and not of collection, and the terms, covenants and conditions of this Guaranty
and the obligations of Guarantor hereunder shall be continuing, absolute and
unconditional under any and all circumstances and shall be performed by
Guarantor without regard to (a) the validity, regularity or enforceability of
the Agreement and the Other Agreements or rights of offset with respect thereto
at any time or from time to time held by AEI, (b) any defense, offset or
counterclaim that may at any time be available to or be asserted by MTI against
AEI and which constitutes or might be construed to constitute, an
<PAGE>
equitable or legal discharge of MTI from the Agreement or the Other Agreements
or Guarantor under this Guaranty, in bankruptcy or in any other instance, (c)
any law, regulation or decree, now existing or hereafter in effect, that might
in any manner affect any of the terms, covenants and conditions of the Agreement
or the Other Agreements or the rights, powers or remedies of AEI hereunder or
thereunder as against MTI or that might cause or permit to be invoked any
alteration in the time, amount or manner of payment or performance of the
Agreement, or (d) the election of AEI to proceed hereunder by separate legal
action with respect to each default by MTI. It being the purpose and intent that
the terms, covenants and conditions of this Guaranty and the obligations and
liabilities of Guarantor hereunder shall be continuing, absolute and
unconditional under any and all circumstances, and shall not be discharged
except by payment and performance as provided herein. Guarantor expressly
acknowledges that AEI is relying on the guarantee by Guarantor embodied in this
Guaranty in incurring obligations from MTI, and Guarantor acknowledges and
agrees that said guarantee and the obligations of Guarantor under this Guaranty
shall continue in full force and effect and shall in no way be impaired by any
transfer by MTI of any interest in the Agreement or the Other Agreements which
may be permitted under the Agreement or the Other Agreements.
3. Incorporation of the Agreement and the Other Agreements. The
-------------------------------------------------------
Agreement and the Other Agreements are made a part of this Guaranty by this
reference thereto with the same force and effect as if they were each fully set
forth herein.
4. Consent of Guarantor. Guarantor agrees that the terms, covenants and
--------------------
conditions contained in the Agreement and the Other Agreements may be altered,
extended, changed, modified or released by the Parties to the Agreement without
in any manner affecting this Guaranty or releasing Guarantor herefrom.
5. Cumulative Remedies. All remedies afforded to AEI by reason of this
-------------------
Guaranty (a) are separate and cumulative remedies and no one of such remedies
shall be deemed to be exclusive of any one of the other remedies available to
AEI, and (b) shall in no way limit or prejudice any other legal or equitable
remedies which AEI may possess.
6. Guarantor Not Released. Until each and every term, covenant and
----------------------
condition of this Guaranty is fully performed, Guarantor shall not be released
by (i) any act or thing which might, but for this Paragraph 6, be deemed a legal
or equitable discharge of the surety, (ii) reason of any waiver, extension,
modification, forbearance or delay of AEI, (iii) AEI's failure to proceed
promptly or otherwise, or (iv) reason of any further obligation or agreement
between MTI and AEI relating to the Agreement or the Other Agreements or to any
of the terms, covenants and conditions contained therein. Guarantor expressly
waives and surrenders any defense based upon any of the foregoing acts,
extensions, modifications, agreements, waivers or any of them.
7. Waivers and Agreements. Guarantor hereby unconditionally:
----------------------
(a) Waives any requirement that AEI first seek to enforce remedies
against MTI or any other Person before seeking to enforce this Guaranty against
Guarantor;
(b) Agrees that AEI, in AEI's sole discretion, may enforce remedies
against
2
<PAGE>
Guarantor pursuant to this Guaranty and not enforce similar remedies against any
other guarantor with respect to the Guaranteed Obligations or vice versa.
Guarantor further acknowledges that the enforcement of remedies against
Guarantor in lieu of enforcing remedies against any other guarantor, or vice
versa, shall not affect the validity or enforceability of AEI's rights and/or
remedies under this Guaranty or any other guaranty agreement guarantying any of
the Guaranteed Obligations;
(c) Waives any requirement that AEI enforce its rights in any
particular order before demanding payment from, or seeking to enforce this
Guaranty against, Guarantor;
(d) Agrees that this Guaranty shall remain in full force and effect
without regard to, and shall not be affected or impaired by any invalidity,
irregularity or unenforceability in whole or in part of the Agreement or the
Other Agreements, or any limitation of the liability of MTI thereunder, or any
limitation on the method or terms of payment thereunder which may now or
hereafter be caused or imposed in any manner whatsoever;
(e) Waives any obligation that AEI might otherwise have to marshal
assets or to proceed against any particular Person or assets in any particular
order; and
(f) Waives any defenses Guarantor may have arising out of or in any
way related to any or all of the following:
(i) Any lack of diligence in connection with, or failure to
foreclose or realize upon, any property, whether real or personal, tangible or
intangible, now or hereafter granted to AEI as collateral security for any of
(a) the liabilities or obligations of MTI, or (b) Guarantor's liabilities or
obligations hereunder, or (c) any other guarantor's liabilities or obligations
under any other guaranty agreement relating to all or any part of the Guaranteed
Obligations;
(ii) The voluntary or involuntary discharge or release of any
of the Guaranteed Obligations, or of any co-maker, accommodation party, surety
or any other Person, including but not limited to, any other guarantor, whether
voluntarily or by reason of bankruptcy, insolvency, or other laws affecting the
rights of creditors generally or otherwise;
(iii) The receipt by AEI of any provisional, invalid or
refundable payment if such payment is thereafter revoked or if such payment is
returned by AEI to or for the benefit of MTI, Guarantor or any other guarantor
or their respective creditors;
(iv) Any right of setoff or counterclaim against AEI which
would otherwise impair AEI's rights against Guarantor or any other guarantor;
and
(v) Any change in the composition, ownership or business of
MTI, Guarantor or any other guarantor.
3
<PAGE>
8. Indebtedness of MTI to Guarantor.
--------------------------------
(a) Guarantor Cannot Collect. Until all of the obligations of MTI
------------------------
under the Agreement and the Other Agreements are fully paid and complied with,
Guarantor agrees that at all times from and after the date Guarantor receives
any notice either of a default by MTI under the Agreement or the Other
Agreements, or of any condition or event which, with notice and the passage of
time, would become a default by MTI under the Agreement or the Other Agreements,
then Guarantor shall not ask, demand, sue for, take or receive from MTI, by set-
off or in any other manner, all or any part of any monies, principal or
interest, now or hereafter owing by MTI to Guarantor, nor any security therefor
unless and until Guarantor receives notice from AEI that such default, or event
or condition which could result in a default is waived or cured.
(b) Distributions to Guarantor. Guarantor further agrees that: (i)
--------------------------
in the event of any distribution, division or application, partial or complete,
voluntary or involuntary, by operation of law or otherwise, of all or any part
of the assets of MTI or the proceeds thereof to creditors of MTI or upon any
indebtedness of MTI, by reason of the liquidation, dissolution or other winding
up of MTI or their respective businesses; or (ii) in the event of any sale,
receivership, insolvency or bankruptcy proceeding, or any assignment for the
benefit of its creditors, or any proceeding by or against MTI for any relief
under any bankruptcy or insolvency laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or extension; then and
in any such event, any payment or distribution of any kind or character, either
in cash, securities or other property, which shall be payable or deliverable
upon or with respect to any or all indebtedness of MTI to Guarantor, shall be
paid or delivered directly to AEI for application on the indebtedness evidenced
by the Agreement, due or not due, until such indebtedness is fully paid and
satisfied or secured. In either such event, Guarantor irrevocably authorizes and
empowers AEI to demand, sue for, collect and receive every such payment or
distribution and give acquittance therefor and to file claims and take such
other actions, in the name of Guarantor, AEI or otherwise, as AEI may deem
necessary or advisable for the enforcement of this Guaranty.
(c) Security to AEI. Guarantor shall execute and deliver to AEI such
---------------
powers of attorney, assignment or other instruments as may be requested by AEI
in order to enable AEI to enforce any and all claims upon or with respect to any
or all indebtedness of MTI to Guarantor, and to collect and receive all
payments or distributions which may be payable or deliverable at any time upon
or with respect to any such indebtedness of MTI to Guarantor. Should any
payment or distribution of security or proceeds thereof be received by Guarantor
upon or with respect to any indebtedness of MTI to Guarantor after the date
Guarantor receives notice of a default by MTI pursuant to the Agreement or the
Other Agreements, or of an event or condition which, with notice and the passage
of time, would become a default pursuant to the Agreement or the Other
Agreements, then Guarantor shall forthwith deliver the same to AEI in precisely
the form received (except for endorsement or assignment where necessary), for
application on the indebtedness evidenced by the Agreement, and, until so
delivered, the same shall be held in trust by Guarantor as property of AEI. In
the event of the failure of Guarantor to make any such endorsement or
assignment, then AEI, its officers or employees on behalf of Guarantor, are
irrevocably authorized to make the same.
4
<PAGE>
(d) Restriction on Assignment. Guarantor shall not assign or
-------------------------
transfer, voluntarily or by operation of law, to others any claim Guarantor
possesses or may possess against MTI while any of the obligations under the
Agreement or the Other Agreements remain unpaid, unless such assignment or
transfer is made expressly subject to this Guaranty. All notes or other
evidences of indebtedness accepted by Guarantor from MTI shall contain a
specific statement therein that the indebtedness evidenced thereby is subject to
this Guaranty. The subordination recited herein refers to all obligations of MTI
to Guarantor.
9. Subordination of Guarantor's Advances. In the event that (a)
-------------------------------------
Guarantor shall advance or become obligated to pay any obligation of MTI under
the Agreement, or (b) for any reason MTI is now or shall hereafter become
indebted to Guarantor, then such amount and the amount of such indebtedness
shall at all times be subordinate as to lien, time of payment and in all other
respects, to the amount owing to AEI under the Agreement or the Other Agreements
or any right to participate in any way therein, or in the right, title or
interest of AEI in the Agreement or the Other Agreements, notwithstanding any
payments made by Guarantor under this Guaranty, all rights of subrogation and
participation being expressly waived and released.
10. Benefit and Binding Effect. This Guaranty shall (a) inure to the
--------------------------
benefit of AEI, its legal representatives, successors and assigns, and (b) be
binding upon Guarantor and Guarantor's legal representatives, successors and
assigns.
11. Joint and Several Liability. In the event that more than one
---------------------------
individual, firm, corporation, partnership or other entity executes this
Guaranty on behalf of Guarantor, then the terms, covenants and conditions
contained herein shall be applicable to and binding upon each signatory, jointly
and severally.
12. Governing Law. This Guaranty shall be governed by, and construed in
-------------
accordance with, the laws of the Commonwealth of Kentucky, without regard to its
conflict of laws rules.
13. Miscellaneous.
-------------
(a) AEI may enforce this Guaranty with respect to one or more
breaches either separately or cumulatively.
(b) This Guaranty constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all prior written and
oral agreements regarding the subject matter hereof. No change, modification,
addition or termination of this Guaranty shall be enforceable unless in writing
and signed by the party against whom enforcement is sought.
(c) If any part, term or provision of this Guaranty is unenforceable
or prohibited by any law applicable to this Guaranty, the rights and obligations
of the parties shall be construed and enforced with that part, term or provision
limited so as to make it enforceable to the greatest extent allowed by law, or
if it is totally unenforceable, as if this Guaranty did not contain that
particular part, term or provision. A determination in one jurisdiction that any
part, term or provision
5
<PAGE>
of this Guaranty is unenforceable or prohibited by law does not affect the
validity of such part, term or provision in any other jurisdiction.
(d) The headings in this Guaranty have been included for ease of
reference only, and shall not be considered in the construction or
interpretation of this Guaranty.
(e) This Guaranty may be signed by each party hereto upon a separate
copy, and in such case one counterpart of this Guaranty shall consist of enough
of such copies to reflect the signature of each party.
(f) This Guaranty may be executed by each party in multiple
counterparts, each of which shall be deemed an original. It shall not be
necessary in making proof of this Guaranty or its terms to account for more than
one such counterpart.
(g) GUARANTOR CONSENTS TO ONE OR MORE ACTIONS BEING INSTITUTED AND
MAINTAINED IN THE FAYETTE COUNTY, KENTUCKY, CIRCUIT COURT AND/OR THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY (AT AEI'S DISCRETION)
TO ENFORCE THIS GUARANTY AND/OR THE AGREEMENT OR THE OTHER AGREEMENTS, AND
WAIVES ANY OBJECTION TO ANY SUCH ACTION BASED UPON LACK OF PERSONAL OR SUBJECT
MATTER JURISDICTION OR IMPROPER VENUE. GUARANTOR AGREES THAT ANY PROCESS OR
OTHER LEGAL SUMMONS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING MAY BE
SERVED BY MAILING A COPY THEREOF BY CERTIFIED MAIL, OR ANY SUBSTANTIALLY SIMILAR
FORM OF MAIL, ADDRESSED TO GUARANTOR AS PROVIDED IN SECTION 13(I) BELOW OR MTI
AS PROVIDED IN SECTION 12.1 OF THE AGREEMENT. GUARANTOR ALSO AGREES THAT IT
SHALL NOT COMMENCE OR MAINTAIN ANY ACTION IN ANY COURT, ADMINISTRATIVE AGENCY OR
OTHER TRIBUNAL OTHER THAN THE FAYETTE COUNTY, KENTUCKY, CIRCUIT COURT OR THE
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY WITH RESPECT
TO THIS GUARANTY, THE AGREEMENT OR THE OTHER AGREEMENTS, ANY OF THE TRANSACTIONS
PROVIDED FOR OR CONTEMPLATED IN THE AGREEMENT OR THE OTHER AGREEMENTS, OR ANY
CAUSE OF ACTION OR ALLEGED CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH
ANY DEBTOR AND CREDITOR RELATIONSHIP BETWEEN OR AMONG GUARANTOR, MTI AND/OR AEI
THAT MAY EXIST FROM TIME TO TIME.
(h) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of sale, disposition or other event or thing
giving rise to the requirement of notice.
(i) All notices under this Guaranty ("Notices") shall be given (i) by
personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services. All Notices shall be
effective and shall be deemed delivered (i) if by personal delivery, on the date
of
6
<PAGE>
delivery if delivered during normal business hours of the recipient, and if not
delivered during such normal business hours, on the next Business Day following
delivery; (ii) if by facsimile transmission or nationally-recognized overnight
courier service on the next Business Day following dispatch of such facsimile or
such overnight courier package; and (iii) if by mail, on the third (3rd)
Business Day after dispatch thereof. Either party may change its address by
Notice to the other party. All Notices under this Agreement shall be sent to the
following addresses or to such substituted address as any of the parties has
given to the others in writing in accordance with this Section 13(i):
(i) If to AEI:
Addington Enterprises, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Larry Addington
Telephone No.: (606) 928-3433
Telecopier No.: (606) 928-0450
(ii) If to Guarantor:
AEI Holding Company, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown
Telephone No.: (606) 928-3433
Telecopier No.: (606) 928-0450
(j) GUARANTOR ACKNOWLEDGES THAT GUARANTOR HAS RECEIVED A COPY OF THE
AGREEMENT AND THE OTHER AGREEMENTS, AS FULLY EXECUTED BY THE PARTIES THERETO.
GUARANTOR REPRESENTS AND WARRANTS THAT GUARANTOR (A) HAS READ THE AGREEMENT AND
THE OTHER AGREEMENTS OR HAS CAUSED SUCH DOCUMENTS TO BE EXAMINED BY GUARANTOR'S
REPRESENTATIVES OR ADVISORS; (B) IS THOROUGHLY FAMILIAR WITH THE TRANSACTIONS
CONTEMPLATED IN THE AGREEMENT AND THE OTHER AGREEMENTS; AND (C), TOGETHER WITH
GUARANTOR'S REPRESENTATIVES OR ADVISORS, IF ANY, HAS HAD THE OPPORTUNITY TO ASK
SUCH QUESTIONS TO REPRESENTATIVES OF MTI AND AEI, RESPECTIVELY, AND RECEIVE
ANSWERS THERETO, CONCERNING THE TERMS AND CONDITIONS OF THE TRANSACTIONS
CONTEMPLATED IN THE AGREEMENT AND THE OTHER AGREEMENTS AS GUARANTOR DEEMS
NECESSARY IN CONNECTION WITH GUARANTOR'S DECISION TO ENTER INTO THIS GUARANTY.
IN WITNESS WHEREOF, the parties have executed this Guaranty as of the date
first above written.
AEI HOLDING COMPANY, INC.
By: /s/ Donald P. Brown
7
<PAGE>
Name: Donald P. Brown
Title: President
ADDINGTON ENTERPRISES, INC.
By: /s/ Vic Grubb
Name: Vic Grubb
Title CFO
8
<PAGE>
EXHIBIT 10.10
NON-COMPETITION AGREEMENT
This is a Non-competition Agreement (this "Agreement"), dated as of January
2, 1998, among (i) MINING TECHNOLOGIES, INC., a Kentucky corporation ("MTI"),
(ii) ADDINGTON ENTERPRISES, INC., a Kentucky corporation ("AEI"); and (iii)
LARRY ADDINGTON (AEI and Larry Addington are collectively referred to hereafter
as "Addington"). Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Asset Purchase Agreement (as defined below).
RECITALS
A. Pursuant to an Asset Purchase Agreement, dated December 18, 1997,
between MTI and AEI (the "Asset Purchase Agreement"), MTI agreed to purchase a
substantial portion of the assets (and assume certain specific liabilities)
relating to AEI's Mining Technologies Division.
B. As a condition to the obligation of MTI to close the transactions in
the Asset Purchase Agreement, Addington has agreed to enter into this Agreement.
C. Addington acknowledges that MTI has paid good and valuable
consideration for the covenants contained in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Covenant Not-to-Compete. Addington covenants and agrees that from and
-----------------------
after the date of this Agreement, for a period of five (5) years, Addington
shall not, directly or indirectly (whether as proprietor, stockholder, director,
officer, partner, employee, trustee, beneficiary, or in any other capacity),
engage anywhere in North America in (a) the development of highwall mining
technology, (b) the manufacture or assembly of highwall mining equipment or
machinery, or (c) the highwall mining business (including, without limitation,
contract mining using highwall mining equipment).
2. Scope of Covenant. Addington acknowledges and agrees that (a) the
-----------------
covenants and agreements of Addington contained in Section 1, which are given in
connection with the transactions contemplated under the Asset Purchase
Agreement, are reasonably necessary to protect the interests of MTI in whose
favor such covenants and agreements are imposed; (b) the restrictions imposed by
Section 1 are not greater than are necessary for the protection of MTI in light
of the harm that MTI will suffer if Addington breaches any of the provisions of
this Agreement; (c) the period of restriction contained in Section 1 is
reasonably required for the protection of MTI; (d) the nature, kind and
character of the activities Addington is prohibited from engaging in are
reasonable and
<PAGE>
necessary to protect MTI; and (e) the geographic description contained in
Section 1 is necessary and reasonable in view of the fact that the parties to
this Agreement envision that the highwall mining business will be conducted by
MTI throughout North America.
3. Injunctive Relief. Addington acknowledges that the damage, whether
-----------------
financial or otherwise, to the business of MTI could be irreparable if Addington
violated its covenants under this Agreement, and that damages for violation of
such restrictions would not be an adequate remedy. Addington agrees that MTI
shall be entitled to an injunction or other equitable relief if Addington
violates the terms of this Agreement, in addition to any other remedy at law or
equity available to MTI under this Agreement or under any applicable law.
4. Early Termination. Addington's obligations under this Agreement shall
-----------------
automatically terminate and become null and void should MTI default under any of
its obligations, commitments or agreements under the Asset Purchase Agreement or
any of the Other Agreements, and the same is not (a) timely cured in accordance
with the terms of such documents (if applicable), or (b) waived by AEI.
5. Notices. All notices under this Agreement ("Notices") shall be given
-------
by: (a) personal delivery; (b) facsimile transmission; (c) registered or
certified mail, postage prepaid, return receipt requested; or (d) nationally
recognized overnight or other express courier services to the following
addresses:
If to Addington:
Addington Enterprises, Inc.
Attention: Larry Addington
1500 North Big Run Road
Ashland, Kentucky 41102
Telephone No.: (606) 928-3433
Telecopier No.: (606) 928-0450
If to MTI:
Mining Technologies, Inc.
Attention: Donald P. Brown
1500 North Big Run Road
Ashland, Kentucky 41102
Telephone No.: (606) 928-3433
Telecopier No.: (606) 928-0450
All Notices shall be effective and shall be deemed delivered: (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during
2
<PAGE>
such normal business hours, on the next Business Day following delivery; (ii) if
by facsimile transmission, on the next Business Day following dispatch of such
facsimile; (iii) if by a nationally-recognized courier service, on the third
(3rd) Business Day following dispatch of such courier package; and (iv) if by
mail on the fifth (5th) Business Day after dispatch thereof. Any party may
change its address by Notice to the other parties.
6. Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
7. Headings. The headings in this Agreement have been included solely for
--------
ease of reference and shall not be considered in the interpretation or
construction of this Agreement.
8. Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the Commonwealth of Kentucky,
without regard to its conflict of laws rules. Each party agrees that any action
brought in connection with this Agreement against another shall be filed and
heard in Fayette County, Kentucky, and each party hereby submits to the
jurisdiction of the Circuit Court of Fayette County, Kentucky, and the U.S.
District Court for the Eastern District of Kentucky, Lexington Division.
9. Severability. In the event one or more of the provisions contained in
------------
this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein. Notwithstanding the immediately preceding sentence, if
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be excessively broad as to time, duration, geographical scope,
activity or subject, this Agreement shall be construed, by limiting and reducing
it, so as to be enforceable to the fullest extent compatible with the applicable
law.
10. Authority. Each of MTI and AEI represents and warrants to the other
---------
parties that the individual executing this Agreement on its behalf has the full
power and authority to bind MTI or AEI, as the case may be, to the terms hereof.
11. Binding Effect. The obligations of this Agreement shall be binding
--------------
upon the parties, and their respective successors, assigns, heirs and legal
representatives, if applicable.
12. Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or on an annex or schedule delivered in connection herewith. No
extension, change, modification, addition or termination of this Agreement shall
be enforceable unless in writing and signed by the party against whom
enforcement is sought.
3
<PAGE>
13. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
14. Limitation on Damages. Except as prohibited by law, each party waives
---------------------
any right it may have to claim or recover any special, exemplary, punitive or
consequential damages, or any damages other than, or in addition to, actual
damages.
15. Arbitration.
-----------
(a) Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement which has not been resolved within thirty (30) calendar days after
either MTI or Addington has notified the other in writing of such controversy,
dispute or claim, shall be submitted for arbitration in accordance with the
rules of the American Arbitration Association or any successor thereof.
Arbitration shall take place at an appointed time and place in Lexington,
Kentucky.
(b) Selection of Arbitrators. MTI and Addington each shall select one
------------------------
(1) arbitrator (who shall not be counsel for such party), and the two (2) so
designated shall select a third arbitrator. If MTI or Addington shall fail to
designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions in this Agreement, including
but not limited to Section 14, the award of the arbitrators may grant any relief
that a court of general jurisdiction has authority to grant, including, without
limitation, an award of damages and/or injunctive relief, and shall assess, in
addition, the cost of the arbitration, including the reasonable fees of the
arbitrators, reasonable attorneys' fees and costs of all prevailing parties,
against all non-prevailing parties.
(c) Temporary Injunctive Relief. Nothing herein contained shall bar
---------------------------
the right of any of the parties to seek and obtain temporary injunctive relief
from a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
(d) Arbitration Rules. All disputes and claims shall be determined by
-----------------
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except that
such Rules shall be modified by this Agreement.
(e) Arbitration Proceedings. All arbitral proceedings arising under,
-----------------------
or in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90)
4
<PAGE>
days after their appointment. Subject to the parties' right to be treated
fairly, the arbitrators may shorten the periods of time otherwise applicable to
the arbitral proceedings under the Rules or the Federal Rules of Civil Procedure
to permit the award to be made within the time limitation set forth in the
previous sentence.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first set forth above.
MINING TECHNOLOGIES, INC.,
a Kentucky corporation
By: /s/ Donald P. Brown
Name: Donald P. Brown
Title: President
/s/ Larry Addington
LARRY ADDINGTON
ADDINGTON ENTERPRISES, INC.,
a Kentucky corporation
By: /s/ Vic Grubb
Name: Vic Grubb
Title: CFO
6
<PAGE>
EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
------------------------
This is a (i) Stock Purchase Agreement, dated as of October 17, 1997 (this
"Agreement"), among ADDINGTON ENTERPRISES, INC., a Kentucky corporation
("Purchaser") and (ii) JAMES J. KOCIAN, BERT I. KOENIG and WILLIAM N. RICH,
individuals, who are the sole shareholders (the "Shareholders") of IKERD-BANDY
CO., INC., a Kentucky corporation (the "Company").
RECITALS
--------
A. The Company is engaged in the business of coal mining, and is located
near Manchester, Kentucky.
B. The Shareholders own one hundred percent (100%) of the issued and
outstanding shares of the capital stock of the Company (the "Shares").
C. The Shareholders desire to sell, and Purchaser desires to purchase,
all of the Shares pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
ARTICLE 1
Definitions
-----------
1.1 Definitions. As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Act" shall have the meaning given in Section 3.29.
(b) "Affiliate" shall mean (i) a Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is
controlled by a Person that controls, a party to this Agreement; (ii) any trust
or estate in which a party to this Agreement has a beneficial interest or as to
which a party to this Agreement serves as a trustee or in another fiduciary
capacity; and (iii) any spouse, parent or lineal descendent of a party to this
Agreement.
(c) "Assumed Liabilities" shall have the meaning given in Section
2.4.
(d) "Bonds" shall have the meaning given in Section 3.19(b).
(e) "Business Days" shall have the meaning given in Section l.3(i).
<PAGE>
(f) "CERCLA" shall have the meaning given in Section 3.28(a).
(g) "Charges" shall have the meaning given in Section 3.7(a).
(h) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(i) "Closing Date" shall mean October 17, 1997, or such other date
upon which the parties may mutually agree.
(j) "Current Financial Statements" shall mean the Company's July 31,
1997 unaudited balance sheet, prepared in the ordinary course of business (the
"Current Balance Sheet"), and the Company's July 31, 1997 related unaudited
statement of income, prepared in the ordinary course of business (the "Current
Income Statement"), as prepared consistent with the Company's prior practices,
copies of which shall be delivered to Purchaser at or before the Closing.
(k) "Code" shall have the meaning given in Section 3.9(a).
(l) "Company Coal Sales Agreements" shall have the meaning given in
Section 3.11(a).
(m) "Company Miscellaneous Agreements" shall have the meaning given
in Section 3.11(a).
(n) "Company Permits" shall have the meaning given in Section
3.19(a).
(o) "Company Tangible Assets" shall have the meaning given in Section
3.7(a).
(p) [Intentionally left blank.]
(q) "Deferred Amount" shall have the meaning given in Section 2.2(b).
(r) "Environmental Complaint" shall have the meaning given in Section
3.28(f).
(s) "ERISA" shall have the meaning given in Section 3.26(a).
(t) "Financial Statements" shall mean the audited balance sheet, the
audited statements of income and retained earnings, and the audited statements
of change in financial position of the Company as of its fiscal year ended
December 31, 1996, respectively, as prepared consistent with the Company's prior
practice, copies of which are attached hereto as Annex 1.1(t).
<PAGE>
(u) "Hazardous Discharge" shall have the meaning given in Section
3.28(a).
(v) "Hazardous Material" shall have the meaning given in Section
3.28(e).
(w) "Initial Payment" shall have the meaning given in Section 2.2(a).
(x) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith; copyrights;
pending or issued registrations for any of the foregoing; patents and patent
applications; unpatented inventions; trade secrets and other confidential or
proprietary information, computer programs, processes, formulas and methods; and
all other intangible property rights of any kind.
(y) "IRS" shall have the meaning given in Section 3.26(c).
(z) "Leased Real Property" shall have the meaning given in Section
3.13(a).
(aa) "Leased Tangible Assets" shall have the meaning given in Section
3.7(b).
(bb) "Liabilities" (whether or not capitalized) shall mean all
accounts payable, notes payable, liabilities, commitments, indebtedness or
obligations of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, of the Company, or to which any of Company's properties or
assets are subject.
(cc) "Loss" shall have the meaning given in Section 10.2.
(dd) "Material" (whether or not capitalized) shall include any matter
which might have a significant adverse effect on the Company, its properties or
its prospects, and shall include but not be limited to, any loss or potential
loss in excess of Fifty Thousand Dollars ($50,000.00).
(ee) "Monthly Payment" shall have the meaning given in Section
2.2(b)(i).
(ff) "Notices" shall have the meaning given in Section 12.1.
(gg) "Other Documents" shall mean the Promissory Notes, and all other
agreements, certificates, opinions, instruments or documents contemplated by,
required by or referred to in, this Agreement for the consummation of the
transactions contemplated hereby.
(hh) "Owned Real Property" shall have the meaning given in Section
3.13(b).
(ii) "PBGC" shall have the meaning given in Section 3.26(c).
(jj) "Permits" shall have the meaning given in Section 3.19(a).
3
<PAGE>
(kk) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity
(ll) "Prime Rate" shall mean the prime rate as published daily in the
"Money Rates" section of the Wall Street Journal.
(mm) "Promissory Notes" shall mean the three (3) non-interest bearing,
non-negotiable promissory notes, in the forms attached hereto as Annex 1.1(mm),
payable by the Purchaser to the respective Shareholders in the aggregate amount
of $6,500,000.00 to be executed by Purchaser and delivered to the Shareholders
at the Closing.
(nn) "Purchase Price" shall have the meaning given in Section 2.2.
(oo) [Intentionally left blank.]
(pp) "Rules" shall have the meaning given in Section 11.4.
(qq) "Shareholders' knowledge" shall have the meaning given in Section
12.7.
(rr) "Tangible Assets" shall mean the Company Tangible Assets.
(ss) "Tax" shall have the meaning given in Section 3.9(a).
(tt) "Tax Return" shall have the meaning given in Section 3.9(a).
(uu) "Unknown Liabilities" shall mean all Liabilities that arise or
accrue with respect to, or are attributable to, the ownership or operation of
the Company of which the Shareholders do not have knowledge as of the Closing
Date.
(vv) "VEBA" shall have the meaning given in Section 3.26(n).
1.2 Additional Terms. Other capitalized terms used in this Agreement but
----------------
not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.
1.3 Rules of Interpretation.
-----------------------
(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
4
<PAGE>
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) Except as otherwise defined herein, accounting terms have the
meanings assigned to them by generally accepted accounting principles, as
applied by the accounting entity to which they refer.
(e) The words "include," "includes" and "including" are not limiting.
(f) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(g) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(h) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(i) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in Kentucky.
(j) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser and the Shareholders.
Accordingly, this Agreement and the Other Documents shall be deemed to be the
product of all parties thereto, and no ambiguity shall be construed in favor of
or against any party.
ARTICLE 2
Purchase and Sale
-----------------
2.1 Purchase of the Shares. Subject to the terms and conditions of this
----------------------
Agreement, the Shareholders hereby agree to sell, transfer and deliver to
Purchaser, and Purchaser hereby agrees to purchase, the Shares.
2.2 Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Shares shall be Eleven Million Five Hundred Thousand Dollars ($11,500,000.00),
which shall be paid to the
5
<PAGE>
Shareholders in accordance with their respective percentages of ownership of the
Shares as set forth on Schedule 2.2, and in the manner set forth below:
(a) Initial Payment. At Closing, Purchaser shall pay the Shareholders
---------------
(apportioned as set forth on Schedule 2.2) Five Million Dollars ($5,000,000.00)
in cash or cash equivalent (the "Initial Payment").
(b) Deferred Amount. Subject to a discount pursuant to Section 2.3,
---------------
purchaser shall pay the Shareholders the deferred amount of Six Million Five
Hundred Thousand Dollars ($6,500,000.00) (the "Deferred Amount") (apportioned as
set forth on Schedule 2.2) as follows:
(i) Monthly Payment. Purchaser shall pay the Shareholders a
---------------
monthly payment (each, a "Monthly Payment") in the amount of Eighty Three
Thousand Three Hundred Thirty-Three Dollars ($83,333.00) (apportioned as set
forth on Schedule 2.2), without interest, commencing with the first calendar
month following the month during which the Closing occurs. The Monthly Payment
shall be due on the twenty-fifth (25th) day of each calendar month until the
entire Deferred Amount is paid. The Deferred Amount shall be evidenced by the
Promissory Notes.
(ii) No Interest on Deferred Amount. The unpaid balance of the
------------------------------
Deferred Amount shall not bear interest, except in the event of a default by the
Purchaser in making the Monthly Payments, in which case the entire unpaid
balance of the Deferred Amount may accelerate and shall accrue interest at the
Prime Rate existing at the time of such default, plus three (3) percent unless
and until paid or cured, as provided in the Promissory Notes.
(c) Reduction in Deferred Amount. If the Deferred Amount is offset as
----------------------------
permitted under this Agreement, Purchaser shall be entitled to withhold and
retain any and all Monthly Payments up to the amount of such offset. Such offset
to the Deferred Amount shall be effective on the date that Purchaser provides
written notice of the adjustment to the Shareholders.
2.3 Discount For Early Payment. Purchaser shall have the option to pay the
--------------------------
balance of the Deferred Amount at any time after the Closing Date. If Purchaser
elects to do so, Purchaser shall be required to pay the Shareholders, in
immediately available funds, a sum equal to the then unpaid balance of the
Deferred Amount discounted at the rate of eight percent (8.00%).
2.4 Liabilities. Subject to the terms and conditions of this Agreement,
-----------
Purchaser shall assume the following liabilities (the "Assumed Liabilities"):
all liabilities or obligations of any nature, kind or description whatsoever,
absolute, contingent or otherwise, which arise or accrue with respect to or are
attributable to the ownership and operation of the Company before or after the
Closing Date, including Unknown Liabilities.
6
<PAGE>
2.5 Tax Refunds. The Shareholders shall be entitled to any tax refund
-----------
attributable to operations of the Company prior to Closing. Purchaser shall be
entitled to any tax refund attributable to operations of the Company subsequent
to Closing.
2.6 Closing of Books of Account. Under Code '1377(a)(2) and Temporary
---------------------------
Regulations Section 18.1377-1, the Company shall elect to have the rules in Code
'1377(a)(1) apply as if the taxable year consisted of two taxable years, with
September 30, 1997, being the final day of the first such year. Pursuant to this
Agreement, the Shareholders are disposing of all shares owned in the Company,
and consent to the making of an election under Code '1377(a)(2) by the Company.
2.7 Section 338 Election. Purchaser has stated that it desires to make an
--------------------
election pursuant to I.R.C. Section 338(h)(10) and Shareholders hereby consent
to the making of such an election and to the undertaking of all actions
necessary to give effect to such election to be effective for the period ended
September 30, 1997, subject to the following conditions:
(i) Purchaser agrees to allocate a maximum of $6,500,000.00 of the
purchase price to the property, plant and equipment as supported by Purchaser's
appraisal of such property, plant and equipment. Purchaser also agrees to
allocate a portion of the purchase price to coal inventory and other inventory
not to exceed their net book value at September 30, 1997 to be shown on the
September 30, 1997 balance sheet prepared in accordance with generally accepted
accounting principles consistent with the Company's prior practice; and
(ii) If necessary, Purchaser agrees to cause the Company to take all
actions to cooperate with the Shareholders in defending the election and to bear
all reasonable expense of the Company or the Shareholders necessary to support
the allocation in any challenge before any taxing authority or in any
administrative or judicial proceeding; and
(iii) Purchaser agrees to make no other allocations of the purchase price
(excluding mineral properties and prepaid royalties) which would in any way
result in any additional tax liability to the Shareholders in excess of the
taxes the Shareholders would be liable for had the Section 338(h)(10) election
not been made; and
(iv) Purchaser shall pay to the Shareholders the sum of Eight Hundred
Twenty-Five Thousand and no/100 Dollars ($825,000.00) in cash or cash
equivalents before December 15, 1997.
2.8 Excluded Assets. The "key man" term life insurance policies having no
---------------
cash surrender value identified on Schedule 2.8 shall be assigned to the
respective Shareholders at the Closing.
7
<PAGE>
ARTICLE 3
Representations and Warranties of the Shareholders
--------------------------------------------------
The Shareholders represent and warrant to Purchaser as follows:
3.1 Organization. The Company is a corporation duly organized and validly
------------
existing under the laws of the Commonwealth of Kentucky, and has full corporate
power and authority to own, lease and operate its properties as such properties
are now owned, leased and operated, and to conduct its business as and where its
business is now conducted. The Company is qualified to do business and is in
good standing in all jurisdictions in which the character of the properties
owned or leased by it, or the nature of the activities conducted by it, makes
such qualification necessary. Schedule 3.1 lists the jurisdictions in which the
Company is qualified to do business.
True and complete copies, with all amendments, of the Articles of
Incorporation of the Company (certified as of a recent date by Kentucky's
Secretary of State) and the Bylaws of the Company (certified as of the date
hereof by the Secretary of the Company) are attached hereto as Annex 3.1. The
corporate minute books of the Company correctly reflect all corporate actions
taken by the directors and shareholders of the Company, and correctly record all
resolutions adopted by it, subsequent to the Shareholders' acquisition of the
shares, and, to the best of Shareholders' knowledge, prior to their acquisition
of the Shares. All corporate actions required of the Company have been taken,
and all reports or returns required to be filed by the Company have been filed,
subsequent to the Shareholders' acquisition of the Shares, and, to the best of
Shareholders' knowledge, prior to their acquisition of the Shares. The Company
is not a party to any agreement or instrument, nor is it subject to any charter
or other corporate restriction, or any judgment, decree, writ, injunction,
order, award, law, rule, regulation, code or ordinance which materially
adversely affects, or might reasonably be expected to materially and adversely
affect, the properties or assets, earnings, business, operations, affairs,
prospects or condition (financial or otherwise) of the Company.
3.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of One
Million (1,000,000) shares of common stock with no par value, of which One
Million (1,000,000) shares are issued and outstanding (the "Shares"). All of the
Shares have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding subscription rights, warrants, options,
conversion rights, or other rights or agreements of any kind whatsoever
entitling any Person to purchase or acquire any interest in any of the Shares or
the Capital Stock of the Company (excepting the shareholder agreements
identified on Schedule 3.3 which the Shareholders shall terminate prior to the
Closing (the "Shareholder Agreements")). None of the Shares has been issued in
violation of any federal, state or other law pertaining to the issuance of
securities or in violation of any rights, preemptive or otherwise, of any
Person.
8
<PAGE>
3.3 Title to Stock.
--------------
(a) Except as otherwise identified on Schedule 3.3, the Shareholders
have, and at the Closing will have, good and marketable (legal and beneficial)
title to the Shares, free and clear of all liens, pledges, proxies, voting
trusts, encumbrances, security interests, claims, charges, and restrictions
whatsoever, and there are no outstanding purchase agreements, options, warrants,
or other rights of any kind whatsoever entitling any Person to purchase or
acquire an interest in any of such Shares or restricting their transfer in
accordance with this Agreement (excepting the Shareholders Agreements and the
pledge of the Shares to the Company's principal lender, First Union National
Bank of Virginia). No other Person has owned any shares of the Company at any
time since December 31, 1995.
3.4 No Subsidiaries. Neither Company owns or controls, or has owned or
---------------
controlled, directly or indirectly, any capital stock of any other corporation
or any interest in any other Person subsequent to the acquisition by the
Shareholders of the Shares, nor, to the best of Shareholders' knowledge, prior
to such time.
3.5 Authority.
---------
(a) The Shareholders have full right, power, authority, and capacity
to execute and deliver this Agreement and the Other Documents, and to perform
their respective obligations under this Agreement and the Other Documents. This
Agreement and the Other Documents constitute valid and legally binding
obligations of the Shareholders, enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by the Shareholders and the Company will not, (i)
violate any provision of, or result in the breach of or accelerate or permit the
acceleration of any performance required by the terms of, the Articles of
Incorporation or Bylaws of the Company; any material contract, agreement,
arrangement or undertaking to which any Shareholder or the Company is a party or
by which either of them may be bound; any judgment, decree, writ, injunction,
order or award of any arbitration panel, court or governmental authority; or any
applicable law, ordinance, rule or regulation of any governmental body; (ii)
result in the creation of any claim, lien, charge or encumbrance upon any of the
properties or assets (whether real or personal, tangible or intangible) of the
Company; (iii) terminate or cancel, or result in the termination or cancellation
of, any material agreement or undertaking to which the Company is a party; or
(iv) in any way affect or violate the terms or conditions of, or result in the
cancellation, modification, revocation or suspension of, any of the Permits (as
that term is defined in Section 3.19 below).
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Documents have been duly authorized by all requisite corporate action. All other
consents, approvals, authorizations, releases or orders
9
<PAGE>
required of or for the Company, and the Shareholders for the authorization,
execution, and delivery of, and for the performance and consummation of the
transactions contemplated by, this Agreement and the Other Documents will have
been obtained by the Closing, except as set forth on Schedule 3.5.
3.6 Financial Statements. The Shareholders have delivered to Purchaser,
--------------------
and there are attached hereto as Annexes 1.1(j) and 1.1(t), respectively, true
and complete copies of the Current Financial Statements and the Financial
Statements. The Financial Statements have been examined and reported on as
described in Annex 1.1(t) by Ernst & Young, LLP. The Financial Statements (a)
present fairly and accurately in all material respects the results of operation
of the Company for the period covered thereby and the financial condition of the
Company as of the dates thereof; and (b) were prepared in conformity with
generally accepted accounting principles applied on a basis consistent with
prior periods. The Current Financial Statements have been prepared in the
ordinary course of business in a manner consistent with the preparation by the
Company of such statements for prior periods. The Current Financial Statements
shall present, fairly and accurately in all material respects the results of
operation of the Company for the periods covered thereby and the financial
condition of the Company as of the dates thereof, and the Current Financial
Statements shall accurately reflect, the books and records of account of the
Company.
3.7 Tangible Assets.
---------------
(a) Except as set forth on Schedule 3.7(a), as of the Closing Date
and immediately following the consummation of the transactions at Closing, the
Company will have good and marketable title to all of the fixed assets,
operating assets and other tangible personal property located at or used in
conjunction with the mining operations and related activities of the Company,
including, without limitation, the assets listed on Schedule 3.7(a)(1) (the
"Company Tangible Assets"). On the Closing Date, the Tangible Assets will be
free and clear of all liens, charges, mortgages, security interests or
encumbrances whatsoever (excepting statutory and contractual inchoate landlord's
liens and liens for taxes assessed but not yet due and payable) ("Charges"). The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated by this Agreement, will not result in the creation of
any Charge on any of the Tangible Assets. The Tangible Assets shall be in
substantially the same condition on the Closing Date as they were at the time or
times they were inspected by Purchaser, except for normal wear and tear and
deterioration associated with the operation of such assets in the ordinary
course of the Company's business.
(b) Schedule 3.7(b) sets forth a true and complete list of all
the principal items of machinery, equipment, vehicles, and other tangible
personal property now leased by the Company in its business, together with an
identification of each lease (the "Leased Tangible Assets"). Except as set forth
on Schedule 3.7(b), as of the Closing Date and immediately following the
consummation of the transactions at Closing, the Company will have good and
transferable leasehold interests in all personal property shown on Schedule
3.7(b) as leased by it, in each case under valid leases enforceable against the
lessors thereunder. The execution and delivery of this Agreement, and the
10
<PAGE>
consummation of the transactions contemplated by this Agreement, will not result
in the creation of any Charge on any of the Leased Tangible Assets. The Leased
Tangible Assets shall be in substantially the same condition on the Closing Date
as they were at the time or times they were inspected by Purchaser, except for
normal wear and tear and deterioration associated with the operation of such
assets in the ordinary course of the Company's business.
3.8 Absence of Material Change. Except as set forth on Schedule 3.8,
--------------------------
the Financial Statements, the Current Financial Statements or the other
schedules to this Agreement.
(a) Since December 31, 1996, the business and affairs of the Company's
have been conducted only in the ordinary course.
(b) Since December 31, 1996, (i) there has been no change in the
condition (financial or otherwise), of the assets, liabilities, earnings,
business, operations, affairs or prospects of the Company, other than minor
changes in the ordinary course of business, none of which either singly or in
the aggregate has been materially adverse; and (ii) there has been no damage,
destruction, loss or other occurrence or development (whether or not insured
against), which either singly or in the aggregate materially adversely affects
(and the Shareholders do not know, or have any reasonable grounds to know, of
any threatened occurrence or development which could materially adversely
affect) the assets, liabilities, earnings, business, operations, affairs or
prospects of the Company.
(c) Since July 31, 1997, the Company has not (i) created or incurred
any liability, commitment or obligation (absolute or contingent), except current
liabilities incurred for other than money borrowed or for working capital in the
ordinary course of business; (ii) mortgaged, pledged or subjected to any lien or
otherwise encumbered any of its assets, tangible or intangible; (iii) discharged
or satisfied any lien, security interest or encumbrance, or paid any obligation
or liability (absolute or contingent), other than current liabilities due and
payable in the ordinary course of business; (iv) waived any rights of
substantial value; canceled any debts or claims; or terminated or amended, or
suffered the termination or amendment of, any contract, lease, agreement or
license to which the Company is or was a party; (v) made any capital
expenditures or any capital additions or betterments which individually exceeded
$25,000.00; (vi) sold or otherwise disposed of any of its assets, tangible or
intangible, except in the ordinary course of business; (vii) declared or paid
any dividends or made any other distribution on or in respect of, or directly or
indirectly purchased, retired, redeemed, or otherwise acquired, any Shares of
the Company or capital stock of the Company; (viii) paid or agreed to pay,
conditionally or otherwise, any bonus, extra compensation, pension or severance
pay to any of the Company's present or former stockholders, directors or
officers, whether under any existing pension or other plan or otherwise, or
increased the compensation (including salaries, fees, commissions, bonuses,
profit sharing, incentive, pension, retirement or other similar payments) being
paid as of December 31, 1996, to any of the Company's stockholders, directors,
officers, agents or employees; (ix) renewed, amended, become bound by or entered
into any contract, commitment or transaction other than in the ordinary course
of business;
11
<PAGE>
or (x) changed any accounting practice followed or employed in preparing the
Financial Statements or the Current Financial Statements.
3.9 Tax Matters.
-----------
(a) As used in this Agreement, the term "Code" means the Internal
Revenue Code of 1986, as amended. The term "Tax" means any federal, state, local
or foreign income, gross receipts, license, payroll, employment, excise,
severance, unmined minerals, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Sec. 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. The term "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(b) Except as described on Schedule 3.9, the Company has filed all
Tax Returns that it was required to file; all such Tax Returns were correct and
complete in all material respects; all Taxes owed by the Company (whether or not
shown on any Tax Return) have been paid or provision is made, to the extent
required by generally accepted accounting principles, for future payment in the
Financial Statements or Current Financial Statements; the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return; no claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction; and there are no liens (excepting liens for taxes assessed
but not yet due and payable) on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(c) The Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party, and the Company has
collected and paid all taxes required to have been collected and paid in
connection with any amounts received from any customer or other third party.
(d) There is no dispute or claim concerning any Tax liability of the
Company (i) claimed or raised by any authority in writing, or (ii) as to which
the Shareholders have knowledge based upon personal contact with any agent of
such authority. Schedule 3.9 lists all federal, state, local, and foreign income
Tax Returns filed with respect to the Company for taxable periods ended on or
after December 31, 1994; indicates those Tax Returns that have been audited; and
indicates those Tax Returns that currently are the subject of audit. The
Shareholders have delivered to Purchaser correct and complete copies of all
federal income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company since December 31, 1994.
12
<PAGE>
(e) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(f) The Company has not made any payments, nor is it obligated to
make any payments, nor is it a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code Sec. 280G. The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6661 as to
returns due on or before December 31, 1989, or Code Sec. 6662 as to returns due
after that date. The Company has no liability for unpaid Taxes because it once
was a member of an affiliated group during any part of any consolidated return
year.
3.10 Undisclosed Liabilities.
-----------------------
To the best of Shareholders' knowledge, the Company is not, and the
Company's properties and assets are not, subject to any, material liability,
commitment, indebtedness or obligation of any kind whatsoever, whether absolute,
accrued, contingent, matured or unmatured, which (i) is not shown and adequately
reserved against in the Financial Statements; (ii) is not shown and adequately
reserved against in the Current Financial Statements; (iii) was incurred
subsequent to the date of the Current Financial Statements other than in the
ordinary course of business and not in violation of any provision of this
Agreement; or (iv) is not listed in Schedule 3.10 or the other schedules to this
Agreement.
3.11 Contracts.
---------
(a) All coal sales agreements and bids to which the Company is a
party are listed on Schedule 3.11(a)(1) ("Coal Sales Agreements"). All other
material contracts and commitments to which the Company is a party are set forth
on Schedule 3.11(a)(2) ("Miscellaneous Agreements").
(b) Except as set forth on Schedules 3.11(a)(1) or 3.11(a)(2), the
Company is not a party to or bound by, and the Company's business or assets are
not bound or affected by, any material written or oral contract, agreement or
commitment of any kind whatsoever, including, but not limited to, any (i)
employment agreement; (ii) promotion or advertising agreement; (iii) bonus,
profit sharing, deferred compensation, hospitalization, retirement, insurance,
pension, welfare, stock option or stock purchase plan, arrangement or agreement
or any other plan, arrangement or agreement providing for employee benefits or
for the remuneration, direct or indirect, of its stockholders, directors,
officers or employees; (iv) agreement with any shareholder, director or officer
of the Company; (v) agreement containing covenants by the Company not to compete
in any lines of business or commerce; (vi) franchise or distributorship
agreement; (vii) loan, credit or financing agreement, including all agreements
for any commitments for future loans, credits or financing; (viii) guarantee;
(ix) mortgage or security agreement; or (x) agreement to purchase raw
13
<PAGE>
materials, packaging, supplies or services used regularly in the Company's
business, or to sell the products or services provided by the Company.
(c) Except as set forth on Schedule 3.11(c), all of the Coal Sales
Agreements, and the Miscellaneous Agreements are in full force and effect, the
Company has performed all obligations required to be performed by it to date
under all such contracts and commitments, and the Shareholders do not know, or
have any reasonable grounds to know, that any other party is in default (or
would be in default on the giving of notice or the lapse of time or both) under
any such contract or commitment.
(d) True and complete copies of all contracts and commitments
(including all open bids for coal sales) to which the Company is a party or
which are listed on Schedules 3.11(a)(1) and 3.11(a)(2) or which are otherwise
referred to in this Agreement, including any Schedule or Annex hereto, have been
delivered to Purchaser or made available for Purchaser's inspection, and there
are no amendments to or modifications of, or significant agreements of the
parties relating to, any such contract, agreement or commitment which have not
been disclosed to Purchaser, and each such contract, agreement or commitment is
valid and binding on the parties thereto in accordance with its respective
terms. Schedules 3.11(a)(1) and 3.11(a)(2) include a brief description of the
terms of any unwritten contract or commitment to which the Company is a party or
by which it is bound.
(e) The prices which the Company shall receive or pay under all
outstanding contracts, agreements and commitments with its customers, suppliers
and others have been determined in accordance with the Company's established
pricing principles. After due inquiry, none of the Shareholders or the Company
knows of any adverse change in the availability or cost of any of the Company's
supplies that is likely to occur and that would materially and adversely affect
the operation and financial performance of the Company.
(f) If consent to the transactions contemplated by this Agreement and
the Other Documents is required under any contract or commitment to be
transferred under or in connection with this Agreement and the Other Documents,
the Shareholders shall use their best efforts to obtain such consent (subject to
Section 7.8), and Purchaser shall cooperate with Shareholders regarding same.
3.12 Litigation and Pending Proceedings. Except as set forth on Schedule
----------------------------------
3.12, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations pending or threatened in any court or before any
governmental agency or instrumentality or arbitration panel or otherwise
against, by or affecting the Shareholders or the Company, or the Company's
business, prospects or condition (financial or otherwise), or the Company's
properties or assets, or which would prevent the performance of this Agreement
or the Other Documents or any of the transactions contemplated hereby or
thereby, or which declare the same unlawful or cause the rescission thereof. The
Company has complied with, and the Company is not in default in any material
respect under (and has not been charged or threatened with, and is not under an
investigation with respect to, any
14
<PAGE>
charge concerning any violation of any provision of), any federal, state or
local law, regulation, ordinance, rule or order (whether executive, judicial,
legislative or administrative), or any order, writ, injunction or decree of any
court, agency or instrumentality.
3.13 Real Property.
-------------
(a) Schedule 3.13(a) sets forth a true and complete list of all
leases and other agreements (including wheelage and right-of-way agreements) by
which the Company holds a leasehold interest or other contractual rights in and
to any real property, or has the right to receive income from any third party as
a result of the use on occupancy of any real property by such third party. The
leases and other agreement identified on Schedule 3.13(a), as each may have been
amended, supplemented or otherwise modified by contemporaneous or subsequent
written agreements (copies of which have been provided Purchaser), are
hereinafter referred to as the "Leases," and the property and property rights
granted therein are hereinafter referred to as the "Leased Real Property." As of
the Closing Date, the Shareholders specially warrant the Company's title to its
leasehold interests or other contractual rights in and to the Leased Real
Property, free and clear of all charges other than as may be contained in the
instruments of conveyance of the Leased Real Property.
(b) Schedule 3.13(b) sets forth a true and complete list of all real
property that the Company owns in fee, whether surface or mineral or portion
thereof (the "Owned Real Property"). As of the Closing Date, the Shareholders
specially warrant fee title to the Owned Real Property (except for such
properties acquired by the Company with covenant of general warranty, and in
which cases the Shareholders generally warrant fee title to such properties),
free and clear of all Charges other than as may be contained in the instruments
of conveyance of the Owned Real Properties to the Company.
(c) Except as set forth on Schedule 3.13(a), as of the Closing Date:
(i) there will be no past due payment obligation (including but not limited to
minimum, tonnage or overriding royalties) or other material default under any of
the Leases; (ii) no Shareholder or the Company has received any notice (oral or
written) of, or knows of, any act, omission or condition which constitutes a
material default, or with the passage of time and/or the giving of notice would
constitute a material default, under any Leases; (iii) there will be no Charges
against the Leases or the rights of the Company thereunder; (iv) to the best of
the knowledge of each of the Shareholders, the Company has not mined any coal
that did not belong to it, or mined any coal in such a reckless or imprudent
fashion as to give rise to any material claims for loss or waste by any of its
lessors; (v) each of the Leases will be in good standing, valid and enforceable
against the lessor or other party in accordance with its terms, and (vi) the
Company has valid leases allowing it to mine coal in all areas currently
permitted for mining.
15
<PAGE>
(d) Subject to all of the lessors listed on Schedule 3.31 giving
their consent to the transactions contemplated herein, the acquisition of the
Shares by Purchaser will not constitute a default under the terms of any of the
Leases.
(e) Except as set forth on Schedule 3.13(a), the Company is in actual
and peaceful possession of that portion of the Leased Real Property with respect
to which the Company has Permits and is actively conducting coal mining
operations (the "Permitted Leased Real Property").
3.14 Restrictions on Property. No applicable zoning or building law,
------------------------
ordinance, administrative regulation, urban redevelopment law, or any other law,
regulation, rule, order or decree, prohibits or interferes with, limits or
impairs, or would, if not permitted by any prior nonconforming use, prohibit or
interfere with, or limit or impair, the use, operation, maintenance of or access
to, or affects the value of, the real or personal property owned or leased by
the Company or any item thereof, as now used, operated or maintained by the
Company. No notice of any violation of any applicable zoning or building law,
ordinance, administrative regulation, or any other law, regulation, rule, order
or decree, has been received by the Company, and the Shareholders do not know,
nor have any reasonable grounds to know, of the threat of any such notice. No
condemnation proceeding has been instituted or is threatened with respect to any
Leased Real Property or Owned Real Property.
3.15 Condition of Assets. The tangible real and personal property,
-------------------
including, without limitation, plants, buildings, structures, equipment,
machinery, and vehicles, owned or leased by the Company or used or employed by
the Company in its business shall be acquired by Purchaser "As Is - Where Is"
and Shareholders make no express or implied representations or warranties with
respect to the condition of such equipment or its fitness for a particular
purpose, other than set forth in Section 3.7.
3.16 Inventory. The Company's coal inventory as of the date of the Current
---------
Balance Sheets, and all additions to the Company's coal inventory since such
date, consist solely of coal which is usable or saleable in the ordinary course
of the Company's business.
3.17 Notes and Accounts Receivable. To the best of Shareholders' knowledge,
-----------------------------
except as set forth on Schedule 3.17, all notes and accounts receivable of the
Company shown on the Current Balance Sheets or thereafter acquired by the
Company have been collected or are current and collectible in the ordinary
course (in the case of any such note in accordance with its terms, and in the
case of any such account within 45 days after billing) at the aggregate recorded
amounts thereof on the Company's books, less the bad debt reserves provided
therefor on the Current Balance Sheet, as such reserves may have been adjusted
on the Company's books in the ordinary course of business to date and less
penalties (but not rejections) incurred in the ordinary course of the Company's
coal sales. No note or account receivable of the Company is subject to
counterclaim or setoff.
16
<PAGE>
3.18 Banks, Directors and Officers, Powers of Attorney, Life Insurance and
---------------------------------------------------------------------
Employees. Schedule 3.18 sets forth (a) a list of all banks with which the
- - ---------
Company has an account, deposit, certificate of deposit, or safe deposit box
along with identifying numbers and the names of all persons authorized to draw
thereon or have access thereto; (b) the names of all incumbent directors and
officers of the Company and of all incumbent trustees and committee members
under any of the Plans (as that term is defined in Section 3.26) or related
trusts; (c) the names of all Persons having powers of attorney from the Company
and a summary statement of the terms thereof; (d) a description and
identification of any insurance policies held or paid for by the Company on the
lives of any of the Company's key employees, officers, directors or shareholders
and not set forth on Schedule 2.8; and (e) the names and job titles of all of
the Company's non-hourly employees whose total compensation from the Company for
the fiscal year ending December 31, 1997 will exceed $50,000, together with a
statement of the full amount paid or payable to each such person in respect of
such year. Except for any currently effective collective bargaining agreements
listed on Schedule 3.25, no person is employed by the Company other than at the
will of the Company for an indefinite period of time, and at the option of the
Company or the employee, such employee's employment with the Company may be
terminated with or without cause, and with or without notice, at any time,
except as may be limited by applicable law.
3.19 Permits, Etc.
------------
(a) The Company has all permits, licenses, franchises, approvals,
certificates or authorizations (collectively, "Permits") of any federal, state
or local governmental or regulatory body required in order to permit it to carry
on its business as presently conducted, all of which are in full force and
effect, and none of which will be adversely affected by the transactions
contemplated herein. All current Permits held by the Company are listed on
Schedule 3.19(a) (the "Permits"). No misrepresentations or willful or negligent
omissions were made of any material fact in obtaining any Permit. No action or
claim is pending, threatened or contemplated to revoke, suspend, modify, alter,
amend or terminate any Permit, or to declare any Permit invalid in any respect,
and the Shareholders do not know of any reason for such action.
(b) All reclamation and performance bonds posted by the Company in
connection with its operations are listed on Schedule 3.19(b)(1) (collectively,
the "Bonds"). Except as disclosed on Schedule 3.19(b)(2): (i) the Company has
properly carried out all reclamation with respect to its coal mining and
processing operations required to date by law or good and prudent mining
practices; and (ii) the operation of the Company's coal mining and processing
operations, and the state of reclamation on all of the Leased Real Property and
Owned Real Property are "current" or in "deferred status" regarding reclamation
obligations and otherwise is in material compliance with all applicable mining,
reclamation, health and safety, zoning, land use and all other laws and
regulations (including, without limitation, all aspects of the Federal Coal Mine
Health and Safety Act of 1969, as amended, and the Federal Mine Safety and
Health Act of 1977, as amended, and similar state laws and regulations) and in
accordance with reclamation plans submitted with respect to the Permits.
17
<PAGE>
3.20 Intellectual Property. Schedule 3.20 sets forth a true and complete
---------------------
identification and summary description of all Intellectual Property owned or
utilized by the Company in its business (the "Company's Intellectual Property"),
including a description of the nature of the Company's interest therein. Except
as set forth on Schedule 3.20, all of the Company's Intellectual Property is
owned by the Company and is free and clear of all liens, security interests,
charges, encumbrances, equities and other adverse claims; the Company is not a
party to any license, consent, settlement or other agreement involving the
Company's Intellectual Property; there are, and have been, no claims, actions or
judicial or adversarial proceedings involving any of the Company's Intellectual
Property, and no such actions or proceedings are threatened or anticipated; the
Company has the right and authority to use the Company's Intellectual Property
in connection with the conduct of its business and such use has not and will not
infringe upon, constitute a misappropriation of, or otherwise violate the rights
of any other person in, any Intellectual Property; and the Shareholders know of
no past or present occurrences of any probable infringement or misappropriation
of, or violation of any of the Company's rights in any of the Company's
Intellectual Property.
3.21 Working Relationships. The Company enjoys good working relationships
---------------------
under all of its sales agency, broker, sales representative, and similar
agreements or arrangements necessary to the normal operation of its business.
3.22 Proprietary Information. Prior to or in conjunction with the Closing,
-----------------------
the Shareholders shall have fully disclosed to Purchaser all customer lists,
trade secrets, processes, inventions, formulas, methods, know-how and other
proprietary information used or developed by the Company in connection with its
business. The Company has not disclosed or permitted the disclosure of any such
proprietary information to any other Person, and the use by the Company of its
proprietary information does not violate any other Person's proprietary rights.
3.23 Customers, Etc. The Shareholders do not know, or have any reasonable
--------------
grounds to know, that any such customer, supplier or distributor has terminated
or expects to terminate a portion of its normal business with the Company, as a
result of the transactions contemplated in this Agreement or otherwise.
3.24 Insurance. The tangible real and personal property and assets, whether
---------
owned or leased, of the Company are insured against the hazards and in the
amounts stated in the policies of insurance listed on Schedule 3.24. The Company
carries insurance against personal injury and property damage to third persons
and in respect of its services and operations and such other insurance as is
stated in the policies of insurance listed on Schedule 3.24. All such insurance
is in full force and effect, is carried with reputable insurers and, in any
event, the insurance carried by the Company in respect of its physical
properties is of an amount and character such as to prevent the Company from
being a co-insurer in respect of any loss thereto. Schedule 3.24 sets forth a
true and complete list of all claims in excess of Five Thousand Dollars ($5,000)
made by the Company during the past year under any such policy.
18
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3.25 Labor Relations. Except as set forth on Schedule 3.25: (a) the Company
---------------
is not a party to, nor is it negotiating, or does it have any obligations under,
any agreement, collective bargaining or otherwise, with any party relating to
the compensation or working conditions of any of the its employees; (b) the
Company is not obligated under any agreement to recognize or bargain with any
labor organization or union on behalf of its employees; (c) the Shareholders do
not know, or have any reasonable grounds to know, of any union organizational or
representational activities underway among any of the Company's employees; and
(d) to the best of Shareholders' knowledge, the Company has not been charged or
threatened with a charge of any unfair labor practice during the past year.
There are no existing or threatened labor strikes, slowdowns, disputes,
grievances or disturbances affecting or which might affect operations at, or
deliveries from or into, any facility of the Company. No work stoppage against
the Company or the Company's business is pending or threatened.
The Company has not committed any act or failed to take any required
action with respect to any of its employees which has resulted or which may
result in a material violation of ERISA (as that term is defined in Section 3.26
below), or similar legislation as it affects any employee benefit or welfare
plan of the Company; the Immigration Reform and Control Act of 1986; the
National Labor Relations Act, as amended; Title VII of the Civil Rights Act of
1964, as amended; the Occupational Safety and Health Act; Executive Order 11246;
the Fair Labor Standards Act; the Rehabilitation Act of 1973; and all
regulations under such Acts, and all other federal, state and local laws,
regulations and executive orders relating to the employment of labor, including
any provisions thereof relating to wages, hours, collective bargaining, the
payment of Social Security and similar taxes, unemployment and workers'
compensation laws, any labor relations laws, or any governmental regulations
promulgated thereunder, as the same affect relationships or obligations of the
Company with respect to any of its employees, and which will or reasonably could
result in any material liability, penalty, fine or the like being imposed upon
the Company. The Company is not liable for any arrearage of wages or taxes or
penalties for failure to comply with any of the foregoing, and there are no
proceedings before any court, governmental agency, instrumentality or arbitrator
relating to such matters, including any unfair labor practice claims, either
pending or threatened.
No claim has been asserted again the Shareholders or the Company by the UMWA
Combined Benefit Fund pertaining to any premiums or other amounts allegedly due
said fund pursuant to the Coal Industry Retiree Health Benefits Act of 1992
(commonly referred to as the "Rockefeller Amendment"), relating to coal produced
by the Company.
3.26 Employee Benefit Plans.
----------------------
(a) For purposes of this Section 3.26, the term "employee benefit
plan(s)" shall have the meaning ascribed to it in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations promulgated thereunder, and the term "employee pension benefit
plan(s)" shall have the meaning ascribed to it in Section 3(2) of ERISA.
19
<PAGE>
(b) Schedule 3.26 sets forth a complete list of all employee benefit
plans, policies and practices (whether or not subject to ERISA) applicable to
employees of the Company, including, without limitation, plans, funds or
programs providing medical, surgical or hospital care or benefits; benefits in
the event of sickness, accident, disability, death or unemployment; vacation
benefits; apprenticeship or other training programs; day care centers;
scholarship funds; prepaid legal services; benefits described in Section 302(c)
of the Labor Management Relations Act; retirement income; income deferral for
periods extending to the termination of covered employment or beyond; severance
pay arrangements; and supplemental retirement income payments which take into
account increases in the cost of living. Each employee benefit plan, policy or
practice which is funded through a policy of insurance is indicated by the word
"insured" placed by the listing of the plan on Schedule 3.26.
(c) True and complete copies of all (i) employee benefit plans and
related trust agreements; (ii) policies and practices; (iii) summary plan
descriptions; (iv) most recent allocation or actuarial reports prepared for each
employee pension benefit plan; (v) insurance policies; and (vi) communications
to or from the Internal Revenue Service (the "IRS") (including the most recent
Form 5500 filed with the IRS and the most recent determination letter received
from the IRS), the Pension Benefit Guaranty Corporation (the "PBGC") or the
United States Department of Labor and other governmental filings with respect to
the employee benefit plans have been delivered by the Company to Purchaser.
(d) Except as specifically provided in the documents described in
this Section 3.26 and delivered to Purchaser, or as otherwise described on
Schedule 3.26, there are no amendments, modifications, extensions, changes in
benefits or benefit structures, or other alterations which are currently in
effect or which the Shareholders or the Company have undertaken to become
effective in the future, or which the Shareholders have knowledge of, to any of
the employee benefit plans, policies or practices.
(e) Each employee benefit plan of the Company has been executed,
managed and administered in material compliance with the applicable provisions
of ERISA, the Code, and the regulations promulgated thereunder, and all other
applicable laws. The Shareholders have no knowledge of any fact which would
adversely affect the qualified status of any of the employee benefit plans, or
of any threatened or pending claim against any of the employee benefit plans or
their fiduciaries by any participant, beneficiary or government agency.
(f) The Shareholders and the Company have fully complied with the
notice and continuation requirements of Sections 601 through 608 of ERISA and
the proposed regulations thereunder. All reports, statements, returns and other
information required to be furnished or filed with respect to the Company's
employee benefit plans have been timely furnished, filed or both in accordance
with Sections 101 through 105 of ERISA and Sections 6057 through 6059 of the
Code, and they are true, correct and complete in all material respects. Records
with respect to the employee benefit plans have been maintained in material
compliance with Section 107 of ERISA. None of the
20
<PAGE>
Shareholders, the Company, nor any other fiduciary (as that term is defined in
Section 3(21) of ERISA) with respect to any of the Company's employee benefit
plans has any material liability for any breach of any fiduciary duties under
Sections 404, 405 or 409 of ERISA.
(g) None of the Shareholders or the Company have, with respect to any
of the employee benefit plans, nor has any administrator of any of the employee
benefit plans, the related trusts or any trustee thereof, engaged in any
prohibited transaction which would subject the Shareholders, the Company, any of
the employee benefit plans, any administrator or trustee or any party dealing
with any of the employee benefit plans or any such trusts to a tax or penalty on
prohibited transactions imposed by ERISA, Section 4975 of the Code, or to any
other liability under ERISA.
(h) The Company does not maintain, and has not maintained since
December 31, 1993, any employee pension benefit plans.
(i) The Company has never contributed to a "multiemployer plan," as
that term is defined in Section 3(37) of ERISA (as particularly amended by The
Multiemployer Pension Plan Amendments Act of 1980).
(j) The Company has no benefit commitments to retirees, other than
pursuant to COBRA.
(k) Any trust or fund maintained by or contributed to by the Company
or its employees to fund an employee benefit plan (other than an employee
pension benefit plan) is qualified as an exempt organization under Section
501(c)(9) of the Code and the regulations thereunder as a Voluntary Employee's
Benefit Association (a "VEBA"). All "welfare benefit funds" within the meaning
of Section 419(a) of the Code (including, but not limited to, any VEBA),
provided by or pursuant to a plan of the Company have been maintained in
accordance with Section 419 of the Code and no contributions have been made to
such a fund in excess of the "qualified costs" of the benefits provided for a
taxable year (within the meaning of Section 419(b) of the Code), except as set
forth on Schedule 3.26.
3.27 Potential Competing Interests. Except as set forth on Schedule 3.27,
-----------------------------
neither the Shareholder, nor any officer, director or employee of the Company,
has any direct or indirect interest in any entity which competes with, is a
supplier, customer or sales agent of, or is engaged in any business of the kind
being conducted by the Company, and neither the Shareholders, nor any officer,
director or employee of the Company, has any interest, direct or indirect, in
any contract or agreement with, commitment or obligation of or to, or claim
against, the Company. Except as set forth on Schedule 3.27, no real or personal
property in which the Shareholders or any officer, director or employee of the
Company has an interest is used by the Company in the operation of its business,
or located on or at any premises used by the Company in its business, and no
such property is significant to the operation of the Company's business. On the
Closing Date, all indebtedness of
21
<PAGE>
the Shareholders and any officer, director or employee of the Company to the
Company reflected or which should have been reflected in the Financial
Statements or the Current Financial Statements shall have been paid in full, or
such amounts will be set off against the Purchase Price. All such indebtedness
is set forth on Schedule 3.27.
3.28 Environmental Matters.
---------------------
(a) As used in this Section 3.28, the term "Hazardous Material" shall
mean any substance, chemical or waste (including, without limitation, asbestos,
polychlorinated biphenyls (PCBs) and petroleum) that is designated or defined
(either by inclusion in a list of materials or by reference to exhibited
characteristics) as hazardous, toxic or dangerous, or as a pollutant or
contaminant, in any existing federal, state or local law, code or ordinance, and
all rules and regulations promulgated thereunder, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. " 9601, et seq., and the Kentucky Revised Statutes,
Chapter 224.
(b) The Company has duly complied with, and to the best of the
Shareholders' knowledge, the Company's business, operations, assets, equipment,
leaseholds and facilities, including, without limitation, all real property used
by the Company, are in full compliance with, the provisions of all federal,
state and local environmental, health and safety laws, codes and ordinances, and
all rules and regulations promulgated thereunder, including, without limitation,
all laws and regulations with respect to reporting releases of Hazardous
Materials and the registration, testing and maintenance of underground storage
tanks.
(c) The Company has been issued, and will maintain, all required
material federal, state and local permits, licenses, certificates and approvals
relating to (i) air emissions; (ii) discharges to surface water or ground water;
(iii) noise emissions; (iv) solid or liquid waste disposal; (v) the use,
generation, storage, transportation or disposal of Hazardous Materials; and (vi)
other environmental, health or safety matters. A true, accurate and complete
list of all such permits, licenses, certificates or approvals is set forth on
Schedule 3.28.
(d) No Shareholder nor the Company has received notice of, or knows
of any fact(s) which might constitute a violation of any federal, state or local
environmental, health or safety laws, codes or ordinances, or any rules or
regulations promulgated thereunder, which relate to the use, ownership or
occupancy of any of the Real Property, and the Company is not in violation of
any covenants, conditions, easements, rights of way or restrictions affecting
any of the Owned Real Property or Leased Real Property any rights appurtenant
thereto.
(e) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.28, to the best of the
Shareholders' knowledge there has been no 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
22
<PAGE>
system or waste treatment, storage or disposal system servicing the Owned Real
Property or the Leased Real Property, of any Hazardous Material at or from any
of the Owned Real Property or the Leased Real Property (any of which is
hereafter referred to as a "Hazardous Discharge").
(f) None of the Shareholders nor the Company, or to the best of the
Shareholders' knowledge, any other Person, has rendered any complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person with respect to (i) air emissions; (ii) spills, releases or discharges to
soils or any improvements located thereon, surface water, ground water or the
sewer, septic system or waste treatment, storage or disposal systems servicing
the Real Property; (iii) noise emissions; (iv) solid or liquid waste disposal;
(v) the use, generation, storage, transportation or disposal of Hazardous
Materials; or (vi) other environmental, health or safety matters, affecting the
Company, any of the Owned Real Property or the Leased Real Property, any
improvements located thereon or the business conducted thereon (any of which is
hereafter referred to as an "Environmental Complaint").
(g) To the best of the Shareholders' knowledge, all Hazardous
Materials disposed of, treated or stored on or off-site of any real property
owned, leased or operated at any time by the Company have been disposed of,
treated and stored in full compliance with all applicable laws, codes and
ordinances and all rules and regulations promulgated thereunder. Schedule 3.28
identifies all underground storage tanks owned or operated at any time by the
Company.
(h) Except for supplies that are to be used or sold in the ordinary
course of the Company's business and in full compliance with all applicable
laws, codes and ordinances, to the best of the Shareholders' knowledge, all of
the Owned Real Property and Leased Real Property is free of all (i) Hazardous
Materials; and (ii) underground pipelines owned or operated by the Company.
Except for those supplies listed on Schedule 3.28, the Company has not stored,
treated or disposed of any Hazardous Materials on, in or under the Owned Real
Property or the Leased Real Property, or any part thereof, or has permitted the
Owned Real Property or the Leased Real Property, or any part thereof, to be used
for the storage, treatment or disposal of Hazardous Materials. Except for the
supplies listed on Schedule 3.28, to the best of the Shareholders' knowledge,
there has been no storage, treatment, disposal or release of Hazardous Materials
on, in or under the Owned Real Property or the Leased Real Property at any time
by any Person.
(i) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.28, the Company has not transported
or accepted for transport any Hazardous Materials. Schedule 3.28 identifies all
of the Persons for whom or which the Company has transported (or from whom or
which the Company has accepted for transport) Hazardous Materials. Schedule 3.28
identifies all locations to which the Company has transported Hazardous
Materials.
(j) The Shareholders have made available to Purchaser prior to
Closing all information which they possess or of which they have knowledge. The
Shareholders shall also
23
<PAGE>
promptly furnish to Purchaser true, accurate and complete copies of all sampling
and test results obtained from all environmental and/or health samples and tests
taken at and around any of the Owned Real Property or the Leased Real Property
prior to the Closing. The Shareholders shall be furnished a copy of any
environmental audit or report received by Purchaser, and shall be a beneficiary
of any covenant or warranty contained therein.
3.29 Immigration Matters. The Company has complied with all relevant
-------------------
provisions of Section 274A of the Immigration and Nationality Act, as amended
(the "Act"). Without limiting the foregoing: (a) each "employee" (as that term
is defined in the Act) of the Company is permitted to be so employed in the
United States under the Act; (b) the Company has examined (and made copies of,
if applicable) the documents presented by said employee to establish appropriate
employment eligibility under the Act; (c) the Company has completed and required
each employee hired on or since November 11, 1986, to complete a Form I-9
verifying employment eligibility under the Act; (d) the Company has retained
each such completed Form I-9 for the length of time required under the Act; and
(e) no monetary penalties have been assessed against the Company for violation
of Section 274A of the Act.
3.30 Permit Blocking. None of the Shareholders, the Company, or any
---------------
Person "owned or controlled" by the Shareholders, the Company, or any Person
which "owns or controls" the Company has been notified by the Federal Office of
Surface Mining or the agency of any state administering the Surface Mining
Control and Reclamation Act (30 U.S.C. " 1201 et seq.) (or any comparable state
statute), that it is (i) ineligible to receive additional surface mining
permits; or (ii) under investigation to determine whether their eligibility to
receive such permits should be revoked, i.e., "permit blocked." As used herein,
the terms "owned or controlled" and "owns or controls" shall be defined as set
forth in 30 C.F.R. '773.5 (1991).
3.31 Consents and Notices. All consents, approvals and notices
--------------------
required to be obtained in connection with the sale of the Shares are set forth
on Schedule 3.31.
3.32 Transactions with Affiliates. Except as set forth in the notes
----------------------------
to the Financial Statements or Current Financial Statements, or in the schedules
to this Agreement or the Other Documents, and, except for arrangements
contemplated by this Agreement, none of the Shareholders nor the Company has any
outstanding contract, agreement or other arrangement with an Affiliate, other
than those that will not have a material adverse effect on the Shares, the
assets, financial condition or business of the Company.
3.33 Distributions. Except as listed on Schedule 3.33, from December
-------------
31, 1996, through the date of this Agreement, the Company has not declared, set
aside, or paid any dividends, whether in cash, stock or other securities, or
otherwise made any distributions to its shareholder(s), directly or indirectly,
of any of its property or assets.
24
<PAGE>
3.34 WARN Act. The Shareholders have given to notices of layoff or
--------
termination pursuant to the Worker Adjustment and Retraining Notification Act
("WARN Act") to the persons set forth of Schedule 3.34 on the dates set forth
therein. Purchaser has been provided copies of such notices and Shareholders
(other than in the preceding sentence) make no representation or warranty as to
the sufficiency or effect of such notices.
3.35 Completeness of Statements. No statement, Schedule, Annex,
--------------------------
certificate, information, representation or warranty of the Company or the
Shareholders contained in this Agreement or the Other Documents, or furnished by
or on behalf of the Company or the Shareholders to Purchaser or any of its
agents pursuant hereto or thereto, or in connection with the transactions
contemplated hereby or thereby, contains or will contain any untrue statement of
a material fact, or omits or will omit to state a material fact necessary in
order to make a statement contained herein or therein not misleading. All
representations and warranties of the Shareholders contained in this Agreement
and in the Other Documents are true and complete as of the Closing Date.
ARTICLE 4
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to the Shareholders as follows:
4.1 Organization. Purchaser is a corporation duly organized and
------------
validly existing under the laws of the Commonwealth of Kentucky, and has full
corporate power and authority to own and lease its properties as such properties
are now owned and leased, and to conduct its business as and where its business
is now conducted.
4.2 Authority.
---------
(a) Purchaser has full right, power, authority, and capacity to
execute and deliver this Agreement and the Other Documents, and to perform its
obligations under this Agreement and the Other Documents. This Agreement and the
Other Documents constitute valid and legally binding obligations of Purchaser,
enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser will not, (i) violate any provision of, or
result in the breach of or accelerate or permit the acceleration of any
performance required by the terms of, its Articles of Incorporation or Bylaws;
any material contract, agreement, arrangement or undertaking to which Purchaser
is a party or by which it may be bound; any judgment, decree, writ, injunction,
order or award of any arbitration panel, court or governmental authority; or any
applicable law, ordinance, rule or regulation of any governmental body; or (ii)
25
<PAGE>
terminate or cancel, or result in the termination or cancellation of, any
material agreement or undertaking to which it is a party.
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Documents have been duly authorized by all requisite corporate action. All other
consents, approvals, authorizations, releases or orders required of or for
Purchaser for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Documents will have been obtained by the Closing, except as set
forth on Schedule 4.2.
4.3 Permit Blocking. Neither Purchaser nor any Person "owned or
---------------
controlled" by Purchaser or any Person which "owns or controls" Purchaser has
been notified by the Federal Office of Surface Mining or the agency of any state
administering the Surface Mining Control and Reclamation Act (30 U.S.C. " 1201
et seq.) ("SMCRA") (or any comparable state statute), that it is (i) ineligible
to receive additional surface mining permits; or (ii) under investigation to
determine whether their eligibility to receive such permits should be revoked,
i.e., "permit blocked." As used herein, the terms "owned or controlled" and
"owns or controls" shall be defined as set forth in 30 C.F.R. '773.5 (1991).
4.4 Knowledge of Misrepresentations. Purchaser has no knowledge of any
-------------------------------
material misrepresentation by the Shareholders under this Agreement.
4.5 Financial Ability. Purchaser has the financial ability to perform its
-----------------
obligations under this Agreement and the other Documents, including but not
limited to payment of the Deferred Amount. Shareholders have been provided a
copy of the Purchaser's December 1996 financial statements which have been
prepared in accordance with generally accepted accounting principals
consistently applied, which present fairly and accurately in all material
respects the results of operation of the Purchaser for the period covered
thereby. Since the date of such financial statements, there has been no material
adverse change in the business or operations of the Purchaser, its assets or its
properties.
ARTICLE 5
Covenants of the Shareholders
-----------------------------
The Shareholders covenant and agree with Purchaser that:
5.1 Investigations. The Shareholders have given Purchaser and the
--------------
employees, accountants, attorneys and other authorized agents and
representatives of Purchaser full access during all reasonable times to all the
premises, properties, books and records (including, without limitation, all
corporate minute books and stock transfer records) of the Company, and furnished
Purchaser with such financial and operating data, analyses and other information
of any kind
26
<PAGE>
respecting the business and properties of the Company as Purchaser has from time
to time requested, including, but not limited to, the work papers of each
Company's accountants.
5.2 Consents. Subject to Section 7.8 the Shareholders shall cooperate
--------
with Purchaser and shall use their reasonable best efforts to procure, upon
reasonable terms and conditions mutually acceptable to the parties, all consents
and approvals.
5.3 Conduct of Business in the Ordinary Course. The Shareholders have
------------------------------------------
caused the Company to conduct its business only in the ordinary course, and
obtained Purchaser's approval regarding any binding bid, commitment or agreement
regarding the sale of coal which involves more than five thousand (5,000) tons
per month or has a term exceeding ninety (90) days, since July 31, 1997. By way
of amplification and not limitation, except as otherwise disclosed in any
schedule or provided herein, the Company has not since July 31, 1997:
(a) Issued or caused to be issued any stock, or any options,
warrants, or other rights to subscribe for or purchase any stock, or any
securities convertible into or exchangeable for stock;
(b) Declared, set aside, or paid any dividends, whether in cash,
stock or other securities, or otherwise made any distributions, including
payment of intercompany debts and management fees, directly or indirectly, of
any property of the Company;
(c) Directly or indirectly redeemed, purchased or otherwise acquired
any stock;
(d) Effected a split, reverse split, reclassification or other change
of any stock, or other reorganization or recapitalization;
(e) Amended its Articles of Incorporation or Bylaws;
(f) Granted any increase in the compensation payable or to become
payable to its officers or salaried employees (including any salary, bonus,
insurance, pension or other benefit plan, payment or arrangement made to, for or
with any of such officers or employees);
(g) Borrowed or agreed to borrow any amount of funds other than
short-term loans on existing credit lines secured by accounts receivable;
directly or indirectly guaranteed or agreed to guarantee any obligations of
others; or, except in the ordinary course of business, incurred any obligation
or liability;
(h) Placed or suffer to exist on any of the assets or properties of
the Company any mortgage, pledge, lien, charge or other encumbrance (excepting
statutory or contractual inchoate landlord's liens and liens for taxes assessed
but not yet due and payable), except in connection with a borrowing of funds
permitted under Section 5.3(g);
27
<PAGE>
(i) Made (or became obligated to make) any material expenditures of
funds outside of the ordinary course of business, including, without any
limitation, any capital expenditure;
(j) Canceled any material indebtedness owing to the Company or any
claims which the Company may have possessed, or waived any material rights of
substantial value, or discharged or satisfied any material non-current
liabilities;
(k) Except in the ordinary course of business, sold or otherwise
disposed of any of its assets;
(l) Committed any act or omitted to do any act which would cause a
material breach of any agreement, contract or commitment which is listed on a
Schedule delivered to Purchaser pursuant to the terms of, or in connection with,
this Agreement, or which would have a material adverse effect on the business,
financial condition or earnings of the Company;
(m) Violated any law, statute, rule, governmental regulation or
order, which violation might have a material adverse effect on the business,
financial condition or earnings of the Company;
(n) Failed to maintain its books, accounts and records on a basis
consistent with that heretofore employed; or
(o) Failed to pay, or to make provisions adequate for the payment of,
all taxes (current or deferred), interest payments and penalties (whether or not
reflected in its returns as filed) due and payable (and/or accruable for all
periods to September 30, 1997, including that portion of its fiscal year to and
including September 30, 1997) to any city, county, state, foreign country, the
United States or any other taxing authority.
5.4 Preservation of Business. Without in any way limiting the provisions
------------------------
of Section 5.11, the Shareholders shall cooperate with Purchaser in making any
announcements concerning the transactions contemplated in this Agreement. The
Shareholders have used their best efforts to preserve the possession and control
of all of the assets of the Company; preserved the goodwill of suppliers,
distributors, customers and others having business relations with the Company;
and done nothing to impair the ability to keep and preserve the business of the
Company.
5.5 Notification of Material Changes and Litigation. The Shareholders have
-----------------------------------------------
provided Purchaser with written notice accompanied by description (a) of any
materially adverse or potentially materially adverse material change in the
Company's condition, earnings, prospects or business; (b) of any event or
condition of any character (whether actual, threatened or contemplated)
pertaining to the financial condition, business or assets of the Company that
have materially adversely affected,
28
<PAGE>
or which can reasonably be expected to materially and adversely affect, its
financial condition, business or assets, or to cause its business to be carried
on materially less profitably than prior to this Agreement; and (c) of all
claims, regulatory proceedings and litigation (whether actual, threatened or
contemplated, and whether or not material) against or possibly involving the
Company or involving any officer or director of the Company where such claims,
regulatory proceedings or litigation arise in connection with actions taken by
any officer or director in his capacity as an officer or director.
5.6 Cooperation. The Shareholders shall cooperate fully, completely and
-----------
promptly with Purchaser in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement.
5.7 Discussions with Other Purchasers. Neither the Shareholders, nor
---------------------------------
the Company's directors, officers, agents or employees, has solicited,
authorized the solicitation of, or entered into any discussions with any third
party to: (a) purchase any of the capital stock of the Company, any option or
warrant to purchase any capital stock of the Company, any securities convertible
into capital stock of the Company, or any other equity security of the Company;
(b) tender or exchange offer for any capital stock of the Company, or any other
equity security of the Company; (c) purchase, lease or otherwise acquire all or
a substantial portion of the assets of the Company; or (d) merge, consolidate,
engage in a share exchange or otherwise combine with the Company.
5.8 Representations and Warranties. The Shareholders have not caused or
------------------------------
permitted any of their representations and warranties made in this Agreement,
including, without limitation, the representations and warranties contained in
Article 3 of this Agreement, to be untrue or incomplete on the Closing Date.
5.9 Publicity. Except as required by applicable law, without the prior
---------
written consent of Purchaser, the Shareholders shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any third party.
5.10 Resignations. At the Closing, the Shareholders shall cause the
------------
individuals identified on subpart (b) of Schedule 3.18 to resign as officers
and/or directors of the Company, and/or as trustees and committee members of the
Plans, which resignations shall be effective immediately after the Closing.
5.11 Discussions with Certain Parties. None of the Shareholders, the
--------------------------------
Company, or any Person acting on behalf of any such Person has discussed the
terms of any required consent to the transactions contemplated by this Agreement
and the Other Documents with Kentucky River Coal Corporation, Eastern Kentucky
Power Cooperative or Southern Mississippi Power Association without giving
Purchaser reasonable advance notice of any meeting or telephone conference for
that purpose and the opportunity to participate in such meeting or conference.
29
<PAGE>
5.12 [This section intentionally left blank.]
5.13 WARN Act. Shareholders shall cause the Company to layoff or terminate
--------
such employees that received WARN Act notices as set forth in Schedule 3.34 as
directed by Purchaser.
ARTICLE 6
Covenants of Purchaser
Purchaser covenants and agrees with the Shareholders:
6.1 Cooperation. Purchaser has cooperated fully, completely and promptly
-----------
with the Shareholders in connection with satisfying all conditions to, and
effecting the transactions contemplated by, this Agreement.
6.2 Representations and Warranties. Purchaser has not caused or permitted
------------------------------
any of its representations and warranties made in this Agreement, including,
without limitations, its representations and warranties contained in Article 4
of this Agreement, to be untrue or incomplete on the Closing Date or at any time
prior thereto.
6.3 Publicity. Except as required by applicable law, without the prior
---------
written consent of the Shareholders, Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any third party.
6.4 Discussions with Certain Parties. Neither Purchaser nor any Person
--------------------------------
acting on behalf of Purchaser shall discuss the terms of any required consent to
the transactions contemplated by this Agreement and the Other Documents with
Kentucky River Coal Corporation, Eastern Kentucky Power Cooperative of Southern
Mississippi Electric Power Association without giving the Shareholders
reasonable advance notice of any meeting or telephone conference for that
purpose and the opportunity to participate in such meeting or conference.
6.5 Ownership and Control. Purchaser shall file the appropriate notices
---------------------
with the Kentucky Natural Resources and Environmental Protection Cabinet,
Department for Surface Mining Reclamation and Enforcement, and any other
appropriate agencies, of the change in ownership and control of the Company
resulting from the transfer of the Shares from the Shareholders to Purchaser
pursuant to this Agreement, and the fact that the Shareholders are no longer
owners of or affiliated with the Company, and shall take all necessary and
appropriate actions pursuant to all applicable statutes or regulations, to
effect the same. Such filing shall be made within fifteen (15) business days of
(i) the issuance of pending permit #826-0517, and (ii) an application for
deferment of reclamation is submitted on permit #897-0380 (which application
shall be filed by the Purchaser within fifteen (15) business days of the
Closing). Purchaser shall complete all other regulatory filings, registrations
and certificates, and shall satisfy all other regulatory requirements prescribed
by law, including
30
<PAGE>
obtaining any approval necessary under antitrust laws, which are necessary to
consummate the transactions contemplated in this Agreement and the Other
Documents.
6.6 Shareholder Guarantees and Obligations. At the Closing, Purchaser
--------------------------------------
shall: (i) replace the Shareholder guaranties and the subordination agreement
with First Union National Bank of Virginia listed on Schedule 6.6 with
guaranties or other collateral of the Purchaser; or (ii) satisfy all obligations
required for the Shareholders to be released from such guaranties and
subordination agreement. Purchaser shall also take such actions as soon as
practicable after the Closing and in any event within fifteen (15) business days
of Closing as are necessary to remove and terminate the Shareholder guaranties
with Van American Insurance Company relating to reclamation bonds and the
performance bonds with Eastern Kentucky Power Cooperative Association identified
in Schedule 6.6.
6.7 Insurance. From the Closing Date until the expiration of the
---------
Shareholders' indemnity obligations under this Agreement, Purchaser agrees to
cause the Company to maintain insurance coverage that has terms which are
equivalent to or better than the coverage maintained by the Company as of the
Closing Date.
6.8 Income Tax Representation. In the event of an income tax or other tax
-------------------------
audit by either the Internal Revenue Service, the Kentucky Revenue Cabinet or
other taxing authority covering any period prior to the Closing, the Louisville
office of Ernst & Young, LLP will be retained by the Company to provide
non-exclusive representation to the Company, to the extent any adjustments made
by a taxing authority as a result of the audit would have an adverse impact upon
the Shareholders. Purchaser shall promptly notify the Shareholders and Ernst &
young LLP of the receipt of any notice of proposed audit, notice of audit, or
notice of any tax adjustment by any taxing authority where such tax liability,
if any, may be the responsibility of the Shareholders.
6.9 Record Retention. Purchaser will retain all appropriate books and
----------------
records of the Company that will be necessary for the Shareholders to explain,
support and defend all tax returns (local, state or federal) prepared on the
Company for a period of six (6) years beyond the year or portion of a year to
which the records pertain. Books and records shall include, but not be limited
to, all computer files, general and subsidiary ledgers, supporting invoices and
similar supporting data.
6.10 Final Tax Returns. The final S corporation tax returns for the
-----------------
Company, as of the date of closeout for tax purposes, and any other corporate
tax returns due as a result of the transaction for the sale of the Company,
shall be prepared by Ernst & Young LLP, and appropriate assistance will be
provided by the Company with respect to information needed in connection with
the filing of such income tax returns. The Company shall pay the costs directly
related to the preparation and filing of the final S corporation and other tax
returns (but no other costs of Ernst & Young LLP, excepting any arising events
under Section 6.8 hereof), and the Shareholders shall pay the cost of preparing
their respective individual tax returns.
31
<PAGE>
6.11 Accounting Personnel. Purchaser shall retain or employ qualified
--------------------
personnel reasonably satisfactory to Shareholders to assist with the preparation
of the Company's August and September, 1997 financial statements and to assist
with the closing of the Company's books as contemplated in Section 2.6 and
Section 6.10.
6.12 Return of Documents upon Termination. In the event of the termination
------------------------------------
of this Agreement, Purchaser shall return to the Company all documents, work
papers and other materials obtained from the Company in connection with the
transactions contemplated hereby, and shall use all reasonable efforts to keep
confidential any information obtained in any investigation, unless such
information is readily ascertainable from public or published information or
trade sources.
6.13 Purchaser Letter. Purchaser shall deliver to Shareholders at Closing a
----------------
letter respecting its status as an "accredited investor" and containing such
other representations and warranties as are appropriate for similar transactions
involving private sales of securities.
6.14 WARN Act. Purchaser shall be responsible for any claims arising from
--------
any employee layoffs or terminations effected pursuant to Section 5.13,
excepting any such claims arising from a failure to give a WARN Act notice to
the persons identified in Schedule 3.34.
ARTICLE 7
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Shareholders contained in this Agreement shall be true on the
Closing Date, with the same effect as though made at such time, except to the
extent of changes permitted by the terms of this Agreement. The Shareholders
shall have performed all obligations and complied with all covenants required by
this Agreement to be performed or complied with by them prior to the Closing. In
addition, the Shareholders shall have delivered to Purchaser a certificate dated
the Closing Date and signed by them to the effect that, except as disclosed in
the certificate, they do not know, and have no reasonable grounds to know, of
any failure or breach of any representation, warranty or covenant made by them.
7.2 No Material Adverse Change. There shall not have occurred any material
--------------------------
adverse change since July 31, 1997, in the financial condition, business, assets
or results of operations of the Company.
32
<PAGE>
7.3 Opinion of Counsel for the Shareholders. Purchaser shall have received
---------------------------------------
an opinion from Hollon, Hollon & Collins, counsel for the Shareholders, dated
the Closing Date, substantially in the form attached hereto as Annex 7.3.
7.4 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated in this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement, and to permit the business
presently carried on by the Company to continue unimpaired in all material
respects immediately following the Closing, shall have been obtained, excepting
approval by the Kentucky Natural Resources and Environmental Protection Cabinet
(KNREPC) of the change in ownership and control of the Company, which shall be
sought promptly after the Closing and diligently pursued by the parties.
7.5 Deliveries. At or before the Closing, the Shareholders shall make all
----------
of their deliveries contemplated in this Agreement.
7.6 Financing. Purchaser shall have arranged financing with such lenders,
---------
in such amounts and upon such terms as Purchaser deems, in Purchaser's sole
discretion, necessary, sufficient and acceptable to consummate the transactions
contemplated in this Agreement.
7.7 Closing. The Closing shall occur on or before October 17, 1997. In the
-------
event the Closing shall not occur before October 17, 1997, any party may
terminate this Agreement upon written notice to the other parties. If this
Agreement is terminated pursuant to this Section 7.7, all parties shall be
released from all further obligations under this Agreement and the Other
Documents and shall have no further obligation to negotiate any such agreements.
7.8 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all third-party consents, and approvals (all on terms and conditions
satisfactory to Purchaser in its sole and absolute discretion) that are
necessary for (a) the consummation of the transactions contemplated by this
Agreement, and (b) the assignment and transfer of the Shares to Purchaser such
consents; provided, however, that, notwithstanding the foregoing, neither
Purchaser nor the Shareholders shall be required to pay any remuneration to
third parties in exchange for such party's consent or approval, or to file any
lawsuit or other action to obtain any such consent or approval. The written
consent of Kentucky River Coal Corporation ("KRCC") will not be delivered prior
to the Closing. The parties and KRCC have been in discussions and KRCC has
advised Purchaser and Shareholders that it shall deliver its written consent to
the transactions contemplated hereby, provided that such written consent will be
(i) in the form customarily used by KRCC for similar transactions; (ii) will not
automatically grant highwall mining rights; and (iii) will not be delivered
until the "Eddie Campbell Note" from the Company to KRCC is paid in full.
33
<PAGE>
7.9 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
purchase and sale of the Shares.
7.10 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the purchase and sale of the Shares shall be pending.
7.11 Due Diligence. Purchaser shall be satisfied, in its sole discretion,
-------------
with the results of its due diligence of the Company, and its assets and
liabilities, including, without limitation: (1) all rights, title, interests and
liabilities of the Company; (ii) the terms and conditions of all agreements to
which the Company is a party; (iii) the mineability, quantity and quality of the
coal reserves of the Company; (iv) the condition of all of the Tangible Assets;
(v) the leasehold and fee titles to the Leased Real Property and Owned Real
Property, respectively; and (vi) the magnitude of reclamation obligations
(regardless of whether such obligations are current or in "deferred status").
The Shareholders acknowledge that Purchaser intends to commence coal mining on
the Leased Real Property as soon as possible.
ARTICLE 8
Conditions to Obligations of the Shareholders
---------------------------------------------
The obligations of the Shareholders to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing. In addition, Purchaser
shall have delivered to the Shareholders a certificate dated the Closing Date
and signed by its President and Secretary to the effect that, except as
disclosed in the certificate, they do not know, and have no reasonable grounds
to know, of any failure or breach of any representation, warranty or covenant
made by Purchaser.
8.2 Opinion of Counsel for Purchaser. The Shareholders shall have received
--------------------------------
an opinion of Brown, Todd & Heyburn, counsel for Purchaser, dated the Closing
Date, substantially in the form attached hereto as Annex 8.2.
8.3 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by the Shareholders of the transactions contemplated in this
Agreement shall have been fulfilled, and all authorizations, consents and
approvals of all federal, state, local and foreign governmental
34
<PAGE>
agencies and authorities required to be obtained in order to permit the
consummation by the Shareholders of the transactions contemplated in this
Agreement shall have been obtained.
8.4 Deliveries. At or before the Closing, Purchaser shall make all of its
----------
deliveries contemplated in this Agreement.
8.5 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all third-party consents and approvals (all on terms and conditions mutually
acceptable to the parties in their sole and absolute discretion) that are
necessary for (a) the consummation of the transactions contemplated by this
Agreement, and (b) the assignment and transfer of the Shares to Purchaser;
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
the Shareholders shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval. The written consent of Kentucky
River Coal Corporation ("KRCC") will not be delivered prior to the Closing. The
parties and KRCC have been in discussions and KRCC has advised Purchaser and
Shareholders that it shall deliver its written consent to the transactions
contemplated hereby, provided that such written consent will be (i) in the form
customarily used by KRCC for similar transactions; (ii) will not automatically
grant highwall mining rights; and (iii) will not be delivered until the "Eddie
Campbell Note" from the Company to KRCC is paid in full.
8.6 Closing. The Closing shall occur no later than October 17, 1997. In
-------
the event the Closing shall not occur before October 17, 1997, any party may
terminate this Agreement upon written notice to the other parties. If this
Agreement is terminated pursuant to this Section 8.6, all parties shall be
released from all further obligations under this Agreement and the Other
Documents and shall have no further obligation to negotiate any such agreements.
ARTICLE 9
The Closing
-----------
9.1 Date and Place. The Closing shall be held on the Closing Date at 10:00
--------------
a.m. (EDT) in the offices of Brown, Todd & Heyburn, Lexington, Kentucky, or at
such other place or time on the Closing Date as the parties may mutually agree.
9.2 Deliveries. At or before the Closing, the parties shall make all of
----------
the deliveries contemplated in this Agreement.
35
<PAGE>
ARTICLE 10
Survival of Representations and Warranties -- Indemnification
-------------------------------------------------------------
10.1 Survival. Each of the parties' representations, warranties, covenants
--------
and agreements (including undisclosed liabilities) set forth in this Agreement
shall survive the Closing for a period of four (4) years, excepting the
Shareholders representations and warranties in Sections 3.1, 3.2, 3.3, 3.4, 3.5,
3.13 and 3.28, which shall survive indefinitely.
10.2 Indemnity by the Shareholders. The Shareholders shall indemnify and
-----------------------------
hold the Company and Purchaser harmless from and against, and shall pay to the
Company and Purchaser the full amount of, any loss, claim, damage, liability or
expense (including reasonable attorneys' fees but excluding all special,
exemplary, punitive and consequential damages) (each, a "Loss") resulting to the
Company or Purchaser, either directly or indirectly, from (a) any undisclosed
liabilities, contracts or commitments of the Company, including, without
limitation, any commitments to existing or former employees, distributors,
customers or suppliers; (b) any material inaccuracy in any representation or
warranty, or any material breach of any covenant or agreement, by the Company or
the Shareholders contained in this Agreement or in any of the Other Documents;
and (c) any liability for any fee or commission owed to a broker or finder
pursuant to an agreement signed by the Shareholders with respect to the
transactions contemplated by this Agreement. For purposes of this Section 10.2,
liabilities and other matters shall be "undisclosed" if they are known to
Shareholders but not reasonably described in the Financial Statements, the
Current Financial Statements or on a Schedule to this Agreement.
10.3 Indemnity by Purchaser. Purchaser shall indemnify and hold the
----------------------
Shareholders harmless from and against, and shall pay to the Shareholders the
full amount of, any Loss resulting to the Shareholders, either directly or
indirectly, from: (a) any Assumed Liabilities, (b) any material inaccuracy in
any representation or warranty, or any material breach of any covenant or
agreement, by Purchaser contained in this Agreement or in any of the Other
Documents, including but not limited to those contained in Section 2.7 and 6.14;
(c) any liability for any fee or commission owed to a broker or finder pursuant
to an agreement signed by Purchaser with respect to the transactions
contemplated by this Agreement; (d) shall not apply to any liability of the
Shareholders arising from the Shareholders' maintaining any rights or
obligations under the Permits until the approvals for which Purchasers must file
under Section 6.5 have been obtained; and (e) any liability of the Company
assumed or retained by Purchaser under this Agreement or the Other Documents.
10.4 Limit of Liability. Each party's liability under this Article 10 shall
------------------
not arise until the Losses for which it is liable exceed One Hundred Thousand
Dollars ($100,000.00) (provided, however, that the minimum threshold of
Purchaser's indemnity obligation shall not apply to any liability of the
Shareholders arising from the Shareholders' maintaining any rights or
obligations under the Permits until the approvals for which Purchasers must file
under Section 6.5 have been obtained). The Shareholders' indemnity obligations
under this Agreement shall be several, and not joint, and shall be limited to
Deferred Amount, as the same declines from time to time. The
36
<PAGE>
Shareholders' indemnity obligations under this Agreement shall be reduced by
insurance proceeds that Purchaser recovers in connection with an indemnified
matter and from amounts that Purchaser recovers from all parties other than the
Company. Purchaser agrees to seek to recover insurance proceeds or amounts owing
from parties other than the Company simultaneously with its pursuing of an
indemnity claim against the Shareholders under this Agreement and, if the
Shareholders shall be required to pay any amount as a result thereof, the
Shareholders shall be subrogated to the rights of the Company or the Purchaser
to the extent of any liability of third parties to the Company or to Purchaser.
10.5 Remedies; Right of Offset. Upon the occurrence of any event for which
-------------------------
any party is entitled to indemnification under this Agreement (except for any
payments required to be made by Purchaser to Shareholders pursuant to Section
2.8 for which no setoff or similar right at law or in equity shall be
permitted), such party shall have the right of setoff and all other rights and
remedies in law and in equity available to it. Without limiting the foregoing,
each indemnifying party hereby agrees to pay promptly upon receipt of notice
from an indemnified party, the amounts which the indemnifying party owes to such
party from time to time by reason of the provisions of this Agreement or
otherwise. If any Shareholder fails or refuses to pay any such amounts promptly
after the request of Purchaser or Company, then the Purchaser or the Company, at
its election, may offset any amounts due and owing to them against the Monthly
Payments.
10.6 Control of Indemnified Matters. If a third party claim is made against
------------------------------
an indemnified party that may result in a loss to the indemnified party, the
indemnifying party will be entitled to participate in the defense thereof, and
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. If the
indemnifying party elects to assume the defense of such third party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the indemnified
party shall have the right to participate in the defense thereof and to employ
counsel, at it own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute any third party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third party claim, and making employees
available on a mutually convenient and reasonable basis to provide additional
information and explanation of any material provided hereunder. Whether or not
the indemnifying party shall have assumed the defense of a third party claim,
the indemnified party shall not admit any liability with respect to, or settle,
compromise or discharge, such third party claim without the indemnifying party's
prior written consent (which consent shall not be unreasonably withheld).
Notwithstanding any provision in this Section 10.6, an indemnifying party shall
have no right to participate or in any way assume the
37
<PAGE>
defense of a third party claim if such third party claim relates to the
operations of the indemnified party.
ARTICLE 11
Arbitration
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholders have notified the
other in writing of such controversy, dispute or claim, shall be submitted for
arbitration in accordance with the rules of the American Arbitration Association
or any successor thereof. Arbitration shall take place at an appointed time and
place in Lexington, Kentucky.
11.2 Selection of Arbitrators. Unless Purchaser and the Shareholders
------------------------
otherwise agree, all controversies, disputes or claims referenced in Section
11.1 shall be heard by a panel of three (3) arbitrators selected in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(the "Rules"). Judgment upon any award of the majority of arbitrators shall be
binding and shall be entered in a court of competent jurisdiction. Subject to
the terms and conditions of this Agreement including without limitation Section
12.13, the award of the arbitrators may grant any relief which might be granted
by a court of general jurisdiction, including, without limitation, award of
damages and/or injunctive relief, and shall assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrators and reasonable
attorneys' fees and costs of all prevailing parties against all non-prevailing
parties.
11.3 Temporary Relief. Nothing herein contained shall bar the right of any
----------------
of the parties to seek and obtain temporary injunctive relief from a court of
competent jurisdiction in accordance with applicable law against threatened
conduct that will cause loss or damage, pending completion of the arbitration,
and the prevailing party therein shall be entitled to an award of its reasonable
attorneys' fees and costs.
11.4 Rules of Arbitration. All disputes and claims shall be determined by
--------------------
arbitration in accordance with the Rules in effect on the date hereof, except
that such Rules shall be modified by this Agreement.
11.5 Arbitrators' Award. All arbitral proceedings arising under, or in
------------------
connection with, this Agreement shall be governed by the Federal Rules of Civil
Procedure and the United States Arbitration Act, notwithstanding any choice of
law provision hereunder. Notwithstanding the previous sentence, the arbitrators'
award shall be made no later than ninety (90) days after their appointment.
Subject to the parties' right to be treated fairly, the arbitrators may shorten
the periods of time otherwise applicable to the arbitral proceedings under the
rules to permit the award to be made within the time limitation set forth in the
previous sentence.
38
<PAGE>
ARTICLE 12
Miscellaneous
-------------
12.1 Notices. All notices under this Agreement ("Notices") shall be given
-------
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services, as follows:
(a If to Purchaser:
Addington Enterprises, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown, President
Telecopy No.: (606) 928-0450
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telecopy No.: (606) 231-0011
(b If to the Shareholders:
Mr. James J. Kocian
304 Hillcrest Drive
Richmond, Texas 77469
Telecopy No.: (281) 232-5042
Mr. Bert I. Koenig
c/o Texas Digital Systems
512 West Loop
College Station, Texas 77845
Telecopy No.: (409) 764-8650
Mr. William N. Rich
2120 Rothbury Road
Lexington, Kentucky 40515
Telecopy No.: None
39
<PAGE>
With a copy to:
Paul Collins, Esq.
Hollon, Hollon & Collins
P. O. Drawer 779
Hazard, Kentucky 41702-0779
Telecopy No.: (606) 436-4761
All Notices shall be effective and shall be deemed delivered (i) if by personal
delivery, on the date of delivery if delivered during normal business hours of
the recipient, and if not delivered during such normal business hours, on the
next Business Day following delivery; (ii) if by facsimile transmission or
overnight courier service, on the next Business Day following dispatch of such
facsimile or overnight courier package; and (iii) if by mail, on the third (3rd)
Business Day after dispatch thereof. Either party may change its address by
Notice to the other party.
12.2 Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
12.3 Expenses. Each party shall assume its respective expenses incurred in
--------
connection with the transactions contemplated by this Agreement, except that
Purchaser shall pay Shareholders Twenty-Five Thousand Dollars ($25,000.00)
within thirty (30) days of Closing for Shareholders accounting and similar
professional expenses incurred largely with respect to analysis of the effect on
Purchasers of the contemplated I.R.C. '338(h)(10) election.
12.4 Headings; Interpretation. The headings in this Agreement have been
------------------------
included solely for ease of reference and shall not be considered in the
interpretation or construction of this Agreement. All references herein to the
masculine, neuter or singular shall be construed to include the masculine,
feminine, neuter or plural, as applicable.
12.5 Annexes and Schedules. The Annexes and Schedules to this Agreement are
---------------------
incorporated herein by reference and expressly made a part hereof.
12.6 Entire Agreement. All prior negotiations and agreements by and among
----------------
the parties hereto with respect to the subject matter hereof are superseded by
this Agreement, and there are no representations, warranties, understandings or
agreements with respect to the subject matter hereof other than those expressly
set forth herein or in an Annex or Schedule delivered in connection herewith.
12.7 Representations and Warranties, Etc. The representations and
-----------------------------------
warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto; however,
no party may rely on a mistake in a party's representation
40
<PAGE>
or warranty if the relying party has actual knowledge of the mistake. As used in
this Agreement, the term "Shareholders' knowledge," and all other references to
matters which are known by or to the Shareholders, shall refer to matters which
are known, or which with the exercise of reasonable care should have been known,
by the Shareholders after consultation with the Company's current corporate
officers, directors, superintendents, mining engineers, land agents and foremen,
and after their due investigation of corporate records (except that if the
Shareholders are required to make "due inquiry" with respect to any matter, they
shall make such additional inquiry as a reasonable person would make under the
circumstances).
12.8 Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with, the laws of the Commonwealth of Kentucky. Each
party agrees that any action brought in connection with this Agreement against
another shall be filed and heard in Fayette County, Kentucky, and each party
hereby submits to the jurisdiction of the Circuit Court of Fayette County,
Kentucky, and the U.S. District Court for the Eastern District of Kentucky,
Lexington Division.
12.9 Brokers. Each party shall indemnify and hold the other parties
-------
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
12.11 Benefit and Binding Effect. This Agreement shall be binding upon, and
--------------------------
shall inure to the benefit of, the Shareholders and their heirs, personal
representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld.
12.12 Severability. If any provision of this Agreement or its application
------------
will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
12.13 No Consequential Damages. Except as prohibited by law, each party
------------------------
waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
12.14 Assignment and Assumption. Other than as set forth in this Section
-------------------------
12.14, neither party may assign its rights or obligations under this Agreement
or the Other Documents without the
41
<PAGE>
express written consent of the other party, which shall not be unreasonably
withheld. Purchaser may assign all of its rights and obligations hereunder and
in the Other Documents to AEI Holding Company, Inc., provided, however that
Purchaser shall remain liable for the performance of all such obligations. For
purposes of this Section 12.14, any sale of more than fifty percent (50%) of the
Purchaser, AEI Holding Company, Inc., or any successor thereof shall be deemed
an assignment, excluding any public offering of Purchaser, AEI Holding Company,
Inc., or any successor thereof.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date set forth in the preamble hereto, but actually on the
dates set forth below.
PURCHASER: ADDINGTON ENTERPRISES, INC.
By: /s/ Stephen Addington
Stephen Addington, Vice-President
Date: October 17, 1997
SELLER: /s/ James J. Kocian
JAMES J. KOCIAN
Date: October 17, 1997
SELLER: /s/ Bert I. Koenig
BERT I. KOENIG
Date: October 17, 1997
SELLER: /s/ William N. Rich
WILLIAM N. RICH
Date: October 17, 1997
42
<PAGE>
STOCK PURCHASE AGREEMENT
FOR 100% OF THE
COMMON CAPITAL STOCK
OF
IKERD-BANDY CO., INC.
dated October 17, 1997
among
ADDINGTON ENTERPRISES, INC.
as Purchaser
and
JAMES J. KOCIAN
BERT I. KOENIG
WILLIAM N. RICH
as the Shareholders
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1 Definitions................................................................1
1.1 Definitions...................................................................1
1.2 Additional Terms..............................................................2
1.3 Rules of Interpretation.......................................................2
ARTICLE 2 Purchase and Sale..........................................................2
2.1 Purchase of the Shares........................................................2
2.2 Purchase Price................................................................2
(ii) No Interest on Deferred Amount 2
2.3 Discount For Early Payment....................................................2
2.4 Liabilities...................................................................2
2.5 Tax Refunds...................................................................2
2.6 Closing of Books of Account...................................................2
2.7 Section 338 Election..........................................................2
ARTICLE 3 Representations and Warranties of the Shareholders.........................2
3.1 Organization..................................................................2
3.2 Capitalization................................................................2
3.3 Title to Stock................................................................2
3.4 No Subsidiaries...............................................................2
3.5 Authority.....................................................................2
3.6 Financial Statements..........................................................2
3.7 Tangible Assets...............................................................2
3.8 Absence of Material Change....................................................2
3.9 Tax Matters...................................................................2
3.10 Undisclosed Liabilities.......................................................2
3.11 Contracts.....................................................................2
3.12 Litigation and Pending Proceedings............................................2
3.13 Real Property.................................................................2
3.14 Restrictions on Property......................................................2
3.15 Condition of Assets...........................................................2
3.16 Inventory.....................................................................2
3.17 Notes and Accounts Receivable.................................................2
3.18 Banks, Directors and Officers, Powers of Attorney, Life
Insurance and Employees.......................................................2
3.19 Permits, Etc..................................................................2
3.20 Intellectual Property.........................................................2
3.21 Working Relationships.........................................................2
3.22 Proprietary Information.......................................................2
3.23 Customers, Etc................................................................2
3.24 Insurance.....................................................................2
3.25 Labor Relations...............................................................2
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3.26 Employee Benefit Plans........................................................2
3.27 Potential Competing Interests.................................................2
3.28 Environmental Matters.........................................................2
3.29 Immigration Matters...........................................................2
3.30 Permit Blocking...............................................................2
3.31 Consents and Notices..........................................................2
3.32 Transactions with Affiliates..................................................2
3.33 Distributions.................................................................2
3.34 WARN Act......................................................................2
3.35 Completeness of Statements....................................................2
ARTICLE 4 Representations and Warranties of Purchaser................................2
4.1 Organization..................................................................2
4.2 Authority.....................................................................2
4.3 Permit Blocking...............................................................2
4.4 Knowledge of Misrepresentations...............................................2
4.5 Financial Ability.............................................................2
ARTICLE 5 Covenants of the Shareholders..............................................2
5.1 Investigations................................................................2
5.2 Consents......................................................................2
5.3 Conduct of Business in the Ordinary Course....................................2
5.4 Preservation of Business......................................................2
5.5 Notification of Material Changes and Litigation...............................2
5.6 Cooperation...................................................................2
5.7 Discussions with Other Purchasers.............................................2
5.8 Representations and Warranties................................................2
5.9 Publicity.....................................................................2
5.10 Resignations..................................................................2
5.11 Discussions with Certain Parties..............................................2
5.12 [This section intentionally left blank.]......................................2
5.13 WARN Act......................................................................2
ARTICLE 6 Covenants of Purchaser.....................................................2
6.1 Cooperation...................................................................2
6.2 Representations and Warranties................................................2
6.3 Publicity.....................................................................2
6.4 Discussions with Certain Parties..............................................2
6.5 Ownership and Control.........................................................2
6.6 Shareholder Guarantees........................................................2
6.7 Insurance.....................................................................2
6.14 WARN Act......................................................................2
ARTICLE 7 Conditions to Obligations of Purchaser.....................................2
7.1 Representations, Warranties and Covenants.....................................2
7.2 No Material Adverse Change....................................................2
7.3 Opinion of Counsel for the Shareholders.......................................2
7.4 Statutory Requirements........................................................2
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7.5 Deliveries....................................................................2
7.6 Financing.....................................................................2
7.7 Closing.......................................................................2
7.8 Third-Party Consents and Approvals............................................2
7.9 No Injunction.................................................................2
7.10 No Pending Action.............................................................2
7.11 Due Diligence.................................................................2
ARTICLE 8 Conditions to Obligations of the Shareholders..............................2
8.1 Representations, Warranties and Covenants.....................................2
8.2 Opinion of Counsel for Purchaser..............................................2
8.3 Statutory Requirements........................................................2
8.4 Deliveries....................................................................2
8.5 Third-Party Consents and Approvals............................................2
8.6 Closing.......................................................................2
ARTICLE 9 The Closing................................................................2
9.1 Date and Place................................................................2
9.2 Deliveries....................................................................2
ARTICLE 10 Survival of Representations and Warranties -- Indemnification..............2
10.1 Survival......................................................................2
10.2 Indemnity by the..............................................................2
10.3 Indemnity by Purchaser........................................................2
10.4 Limit of Liability............................................................2
10.5 Remedies; Right of Offset.....................................................2
10.6 Control of Indemnified Matters................................................2
ARTICLE 11 Arbitration................................................................2
11.1 Dispute Resolution............................................................2
11.2 Selection of Arbitrators......................................................2
11.3 Temporary Relief..............................................................2
11.4 Rules of Arbitration..........................................................2
11.5 Arbitrators' Award............................................................2
ARTICLE 12 Miscellaneous..............................................................2
12.1 Notices.......................................................................2
12.2 Waivers.......................................................................2
12.3 Expenses......................................................................2
12.4 Headings; Interpretation......................................................2
12.5 Annexes and Schedules.........................................................2
12.6 Entire Agreement..............................................................2
12.7 Representations and Warranties, Etc...........................................2
12.8 Governing Law.................................................................2
12.9 Brokers.......................................................................2
12.10 Counterparts..................................................................2
12.11 Benefit and Binding Effect....................................................2
12.12 Severability..................................................................2
12.13 No Consequential Damages......................................................2
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ANNEXES
1.1(j) Current Financial Statements
1.1(t) Financial Statements
1.1(mm) Promissory Notes
3.1 Articles and Bylaws
7.3 Opinion of Counsel for the Shareholders
8.2 Opinion of Counsel for Purchaser
SCHEDULES
2.2 Ownership of Shares
2.8 Excluded Assets
3.1 Foreign Qualifications
3.3 Title to Stock
3.5 Authority
3.7(a) Tangible Assets
3.7(b) Leased Tangible Assets
3.8 Material Changes
3.9 Taxes
3.10 Liabilities
3.11(a)(1) Company Coal Sales Agreements
3.11(a)(2) Company Miscellaneous Agreement
3.11(c) Contract Defaults
3.12 Litigation
3.13(a) Leased Real Property
3.13(b) Owned Real Property
3.17 Notes and Accounts Receivable
3.18 Banks, Directors and Officers, Employees, Powers of
Attorney and Life Insurance
3.19 Permits
3.19(b)(1) Bonds
3.19(b)(2) Reclamation Matters
3.20 Intellectual Property
3.24 Insurance
3.25 Labor Relations
3.26 Employee Benefit Plans
3.27 Potential Competing Interests
3.28 Environmental Matters
3.29 Immigration Matters
3.31 Consents and Notices
3.33 Distributions
<PAGE>
3.34 WARN Act
6.6 Shareholder Guarantees
<PAGE>
Exhibit 10.12
NON-NEGOTIABLE PROMISSORY NOTE
$2,600,000.00 OCTOBER 17, 1997
LEXINGTON, KENTUCKY
FOR VALUE RECEIVED, and pursuant to a Stock Purchase Agreement dated
October 17, 1997 (the "Agreement") among Addington Enterprises, Inc. ("Maker")
and James J. Kocian (the "Shareholder"), the Maker promises to pay the
Shareholder at 304 Hillcrest Drive, Richmond, Texas 77469 the principal sum of
TWO MILLION SIX HUNDRED THOUSAND DOLLARS ($2,600,000.00) with no interest
accruing thereon, subject to adjustment as described herein, and shall be due
and payable as follows:
1. PAYMENTS. Maker shall make monthly payments of principal in the
--------
amount of Thirty Three Thousand Three Hundred Thirty-Three Dollars
($33,333.00)(each a "Monthly Payment") beginning on November 25, 1997, and
continuing on the twenty fifth (25th) day of each and every calendar month
thereafter until the outstanding principal balance of this Note is paid in full.
2. RIGHT OF OFFSET. If Shareholder fails or refuses to promptly pay any
---------------
amounts required under Article 10 of the Agreement after request of Maker or
Ikerd-Bandy Co., Inc. (the "Company"), then Maker may offset any amounts due and
owing to Maker or the Company against the Monthly Payments. If such right of
offset arises, Maker shall be entitled to withhold and retain any and all
Monthly Payments up to the offset amount. The right of offset shall be effective
and the withholding and retention of Monthly Payments shall commence on the date
that Maker provides written notice of the adjustment to the Shareholder.
3. PREPAYMENT. All or any part of the outstanding principal of this Note
----------
may be prepaid at any time without prepayment penalty or premium. If Maker
prepays the entire balance of this Note, the then unpaid principal balance of
this Note, when paid, shall be discounted by a discount rate of eight (8.00%).
4. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the
------------------------------
following shall be an "Event of Default" hereunder: (a) failure of Maker to make
any payment when due under this Note; (b) if Maker shall (i) make an assignment
for the benefit of creditors, (ii)
<PAGE>
have a petition initiating any proceeding under the Bankruptcy Code filed by or
against it, (iii) have a receiver, trustee, or custodian appointed for all or
any material part of its assets, or (iv) seek to make an adjustment, settlement
or extension of its debts with its creditors generally; or (c) a proceeding
being filed by or commenced against Maker for dissolution or liquidation, or
Maker voluntarily or involuntarily terminating or dissolving or being terminated
or dissolved. Upon any Event of Default under this Note, the holder of this Note
may, at its option and without notice, declare the outstanding principal of this
Note to be immediately due and payable, in addition to any other remedies
Shareholder may have under applicable law, principles of equity, or otherwise.
5. DEFAULT RATE OF INTEREST. Except in the event of default of Maker
------------------------
failing to make any payment when due under this Note, this Note shall not bear
interest. Upon an event of default of Maker failing to make any payment when due
under this Note, the principal balance of this Note shall accrue interest at a
rate equal to the Prime Rate plus three percent (3%) unless and until such
default is paid or cured. For purposes of this Note, Prime Rate shall mean the
prime rate of interest as published daily in the "Money Rates" section of the
Wall Street Journal.
- - -------------------
6. CUMULATIVE REMEDIES. Failure of the holder of this Note to exercise
-------------------
any of its rights and remedies shall not constitute a waiver of any term,
covenant or condition of this Note, or any of the rights and remedies of such
holder, nor shall it prevent the holder of this Note from exercising any rights
and remedies with respect to the subsequent happening of the same or similar
occurrences. All rights and remedies of the holder of this Note shall be
cumulative to the fullest extent allowed by law.
7. WAIVER. The Maker waives presentment, demand, notice of dishonor,
------
protest, notice of protest, notice of nonpayment or nonacceptance, any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under the
laws of the Common wealth of Kentucky, the United States of America or any state
thereof.
8. SINGULAR AND PLURAL TERMS. Wherever used herein, the singular number
-------------------------
shall include the plural, the plural the singular and the use of any gender
shall include all genders.
-2-
<PAGE>
9. GOVERNING LAW. This Note shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Maker has executed this Note as of October 17, 1997.
ADDINGTON ENTERPRISES, INC.
By /s/ Stephen Addington
Title: Vice President
-3-
<PAGE>
Exhibit 10.13
NON-NEGOTIABLE PROMISSORY NOTE
$2,600,000.00 OCTOBER 17, 1997
LEXINGTON, KENTUCKY
FOR VALUE RECEIVED, and pursuant to a Stock Purchase Agreement dated
October 17, 1997 (the "Agreement") among Addington Enterprises, Inc. ("Maker")
and Bert I. Koenig (the "Shareholder"), the Maker promises to pay the
Shareholder at c/o Texas Digital Systems, 512 West Loop, College Station, Texas
77845 the principal sum of TWO MILLION SIX HUNDRED THOUSAND DOLLARS
($2,600,000.00) with no interest accruing thereon, subject to adjustment as
described herein, and shall be due and payable as follows:
1. PAYMENTS. Maker shall make monthly payments of principal in the
--------
amount of Thirty Three Thousand Three Hundred Thirty-Three Dollars
($33,333.00)(each a "Monthly Payment") beginning on November 25, 1997, and
continuing on the twenty fifth (25th) day of each and every calendar month
thereafter until the outstanding principal balance of this Note is paid in full.
2. RIGHT OF OFFSET. If Shareholder fails or refuses to promptly pay any
---------------
amounts required under Article 10 of the Agreement after request of Maker or
Ikerd-Bandy Co., Inc. (the "Company"), then Maker may offset any amounts due and
owing to Maker or the Company against the Monthly Payments. If such right of
offset arises, Maker shall be entitled to withhold and retain any and all
Monthly Payments up to the offset amount. The right of offset shall be
effective and the withholding and retention of Monthly Payments shall commence
on the date that Maker provides written notice of the adjustment to the
Shareholder.
3. PREPAYMENT. All or any part of the outstanding principal of this Note
----------
may be prepaid at any time without prepayment penalty or premium. If Maker
prepays the entire balance of this Note, the then unpaid principal balance of
this Note, when paid, shall be discounted by a discount rate of eight (8.00%).
4. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the
------------------------------
following shall be an "Event of Default" hereunder: (a) failure of Maker to make
any payment when due under this Note; (b) if Maker shall (i) make an assignment
for the benefit of creditors, (ii)
<PAGE>
have a petition initiating any proceeding under the Bankruptcy Code filed by or
against it, (iii) have a receiver, trustee, or custodian appointed for all or
any material part of its assets, or (iv) seek to make an adjustment, settlement
or extension of its debts with its creditors generally; or (c) a proceeding
being filed by or commenced against Maker for dissolution or liquidation, or
Maker voluntarily or involuntarily terminating or dissolving or being terminated
or dissolved. Upon any Event of Default under this Note, the holder of this Note
may, at its option and without notice, declare the outstanding principal of this
Note to be imme diately due and payable, in addition to any other remedies
Shareholder may have under applicable law, principles of equity, or otherwise.
5. DEFAULT RATE OF INTEREST. Except in the event of default of Maker
------------------------
failing to make any payment when due under this Note, this Note shall not bear
interest. Upon an event of default of Maker failing to make any payment when
due under this Note, the principal balance of this Note shall accrue interest at
a rate equal to the Prime Rate plus three percent (3%) unless and until such
default is paid or cured. For purposes of this Note, Prime Rate shall mean the
prime rate of interest as published daily in the "Money Rates" section of the
Wall Street Journal.
- - -------------------
6. CUMULATIVE REMEDIES. Failure of the holder of this Note to exercise
-------------------
any of its rights and remedies shall not constitute a waiver of any term,
covenant or condition of this Note, or any of the rights and remedies of such
holder, nor shall it prevent the holder of this Note from exercising any rights
and remedies with respect to the subsequent happening of the same or similar
occurrences. All rights and remedies of the holder of this Note shall be
cumulative to the fullest extent allowed by law.
7. WAIVER. The Maker waives presentment, demand, notice of dishonor,
------
protest, notice of protest, notice of nonpayment or nonacceptance, any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under the
laws of the Common wealth of Kentucky, the United States of America or any
state thereof.
8. SINGULAR AND PLURAL TERMS. Wherever used herein, the singular number
-------------------------
shall include the plural, the plural the singular and the use of any gender
shall include all genders.
-2-
<PAGE>
9. GOVERNING LAW. This Note shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Maker has executed this Note as of October 17, 1997.
ADDINGTON ENTERPRISES, INC.
By /s/ Stephen Addingtion
Title: Vice President
<PAGE>
Exhibit 10.14
NON-NEGOTIABLE PROMISSORY NOTE
$1,300,000.00 OCTOBER 17, 1997
LEXINGTON, KENTUCKY
FOR VALUE RECEIVED, and pursuant to a Stock Purchase Agreement dated
October 17, 1997 (the "Agreement") among Addington Enterprises, Inc. ("Maker")
and William N. Rich (the "Shareholder"), the Maker promises to pay the
Shareholder at 2120 Rothbury Road, Lexington, Kentucky 40515 the principal sum
of ONE MILLION THREE HUNDRED THOUSAND DOLLARS ($1,300,000.00) with no interest
accruing thereon, subject to adjustment as described herein, and shall be due
and payable as follows:
1. PAYMENTS. Maker shall make monthly payments of principal in the amount
--------
of Sixteen Thousand Six Hundred Sixty-Seven Dollars ($16,667.00)(each a "Monthly
Payment") beginning on November 25, 1997, and continuing on the twenty fifth
(25th) day of each and every calendar month thereafter until the outstanding
principal balance of this Note is paid in full.
2. RIGHT OF OFFSET. If Shareholder fails or refuses to promptly pay any
---------------
amounts required under Article 10 of the Agreement after request of Maker or
Ikerd-Bandy Co., Inc. (the "Company"), then Maker may offset any amounts due and
owing to Maker or the Company against the Monthly Payments. If such right of
offset arises, Maker shall be entitled to withhold and retain any and all
Monthly Payments up to the offset amount. The right of offset shall be effective
and the withholding and retention of Monthly Payments shall commence on the date
that Maker provides written notice of the adjustment to the Shareholder.
3. PREPAYMENT. All or any part of the outstanding principal of this Note
----------
may be prepaid at any time without prepayment penalty or premium. If Maker
prepays the entire balance of this Note, the then unpaid principal balance of
this Note, when paid, shall be discounted by a discount rate of eight (8.00%).
4. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the
------------------------------
following shall be an "Event of Default" hereunder: (a) failure of Maker to make
any payment when due under this Note; (b) if Maker shall (i) make an assignment
for the benefit of creditors, (ii)
<PAGE>
have a petition initiating any proceeding under the Bankruptcy Code filed by or
against it, (iii) have a receiver, trustee, or custodian appointed for all or
any material part of its assets, or (iv) seek to make an adjustment, settlement
or extension of its debts with its creditors generally; or (c) a proceeding
being filed by or commenced against Maker for dissolution or liquidation, or
Maker voluntarily or involuntarily terminating or dissolving or being terminated
or dissolved. Upon any Event of Default under this Note, the holder of this Note
may, at its option and without notice, declare the outstanding principal of this
Note to be immediately due and payable, in addition to any other remedies
Shareholder may have under applicable law, principles of equity, or otherwise.
5. DEFAULT RATE OF INTEREST. Except in the event of default of Maker
------------------------
failing to make any payment when due under this Note, this Note shall not bear
interest. Upon an event of default of Maker failing to make any payment when due
under this Note, the principal balance of this Note shall accrue interest at a
rate equal to the Prime Rate plus three percent (3%) unless and until such
default is paid or cured. For purposes of this Note, Prime Rate shall mean the
prime rate of interest as published daily in the "Money Rates" section of the
Wall Street Journal.
- - -------------------
6. CUMULATIVE REMEDIES. Failure of the holder of this Note to exercise
-------------------
any of its rights and remedies shall not constitute a waiver of any term,
covenant or condition of this Note, or any of the rights and remedies of such
holder, nor shall it prevent the holder of this Note from exercising any rights
and remedies with respect to the subsequent happening of the same or similar
occurrences. All rights and remedies of the holder of this Note shall be
cumulative to the fullest extent allowed by law.
7. WAIVER. The Maker waives presentment, demand, notice of dishonor,
------
protest, notice of protest, notice of nonpayment or nonacceptance, any other
notice and all due diligence or promptness that may otherwise be required by
law, and all exemptions to which they may now or hereafter be entitled under the
laws of the Common wealth of Kentucky, the United States of America or any state
thereof.
8. SINGULAR AND PLURAL TERMS. Wherever used herein, the singular number
-------------------------
shall include the plural, the plural the singular and the use of any gender
shall include all genders.
-2-
<PAGE>
9. GOVERNING LAW. This Note shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Maker has executed this Note as of October 17, 1997.
ADDINGTON ENTERPRISES, INC.
By /s/ Stephen Addington
Title: Vice President
-3-
<PAGE>
EXHIBIT 10.15
AGREEMENT
This Agreement made and entered into this 6/th/ day of November, 1997, by
and between AEI HOLDING COMPANY, INC., a Delaware corporation, whose address is
1500 North Big Bend Road, Ashland, Kentucky 41102 ("Holdco") and TASK TRUCKING,
INC., a Kentucky corporation, whose address is Rt. 1, Box 1005, Sandy Hook,
Kentucky 41171 ("Task").
WHEREAS, Holdco is in the business of mining coal in the eastern Kentucky
area and is desirous of entering into this Agreement with Task for the
transportation of said coal from its eastern Kentucky mining operations, and
WHEREAS, Task, by this Agreement, agrees to transport Holdco's coal from
designated operations to certain final points of delivery.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein the mutual benefits to be derived, the parties agree as
follows:
I.
As an independent contractor, Task shall, under the terms and conditions
set forth in this Agreement, transport for Holdco, by truck, the coal from
Holdco's eastern Kentucky operations as designated by Holdco from time to time
to a final loading point also to be designated by Holdco. Nothing in this
Agreement shall (i) preclude Task from transporting coal for other entities, or
(ii) require Holdco to use Task for transportation of its coal.
II.
Holdco shall pay Task for the transportation of coal from each designated
mining operation to the final loading point at the tonnage rate listed in
Schedule 1 which is attached hereto and made a part hereof. In the event of
changes in any governmental rules or regulations or the increase in the
<PAGE>
price of fuels that have a sufficient effect on the cost of transportation, the
parties agree to renegotiate in good faith the transportation rates listed in
Schedule 1.
III.
Task shall perform the work required by this Agreement according to its own
manner and methods not inconsistent with the provisions hereof and without
direction or control by Holdco except as may be necessary for Holdco to protect
its property or insure conformity with scheduled deliveries at the final
destination point.
Nothing contained in this Agreement shall be deemed to create a partnership
between he parties hereto, to convey to either party, by operation of law or
otherwise, any interest in, or right to ownership of, any property of the other
party, or to constitute Task as an agent of Holdco for any purpose, it being
understood that Task is an independent contractor. Task, at its sole expense,
shall provide all trucks necessary for delivery of coal from Holdco's mining
operations to the final delivery point and shall use modern and efficient
trucks, employ capable employees, and take all other actions necessary to enable
it to transport and deliver Holdco's coal from the mining operation to the final
destination point.
IV.
Task solely and exclusively shall employ, direct supervise, discharge and
fix compensation and working condition and practices of its employees, shall be
solely responsible for their payment and shall comply with all laws pertaining
to the payment of its employees.
Task shall be responsible for, at its sole cost, pay for and maintain any
and all insurance which may be required for its employees, and with regard
thereto, shall indemnify and save harmless Holdco from any and all claims and
liability.
Page -2-
<PAGE>
Task shall be responsible for, and exercise complete control of its
employees in all matters, disputes or grievances arising out of or in any way
connected with Task's operations.
V.
Task, if required, shall become and remain a subscriber to the Workers'
Compensation Fund for the State of Kentucky or otherwise, when required, provide
worker's compensation coverage for its employees in accordance with applicable
laws, and conduct its operations in full compliance with all other applicable
state and federal laws and regulations, and shall certify to Holdco compliance
therewith with all requirements.
VI.
Task covenants and agrees to indemnify and save harmless Holdco against
claims or liability growing out of or by reason of any act or failure to act of
Task or its agents or employees in connection with any of their obligations or
operations hereunder. Task further covenants and agrees to indemnify and save
harmless Holdco from any liability which may be sought to be imposed relative to
the work to be performed pursuant to the provisions of any law or regulation or
permit relating to operations contemplated hereunder. These covenants of
indemnity shall survive cancellation, termination or expiration of this
Agreement. Holdco shall be entitled to set off any amounts owing to it under
this paragraph against any amounts owing to Task under this Agreement.
Task Agrees to carry liability insurance which will include, without
limitation, coverage for the liability assumed in this section, with any
insurance company licensed to do business in the State of Kentucky and
acceptable to Holdco, with minimal general liability bodily injury limits to
$500,000 per person, $1,000,000 for each occurrence and minimum motor vehicle
liability bodily injury limits of $1,000,000 per person, and $1,000,000 for each
occurrence. Such insurance shall not be deemed
Page -3-
<PAGE>
a limitation on any liability of Task provided for in this Agreement, but shall
be additional security therefore. Task shall provide Holdco with a copy of the
policies of insurance required under this Agreement and written assurance of the
insurance company or companies that Holdco shall be advised in writing not less
than ten (10) days prior to any cancellation of any such insurance. If at any
time Task shall allow such insurance to lapse, Holdco may, at its option,
terminate this Agreement forthwith or purchase such insurance and recover the
cost thereof by deducting such costs from any sums owed to that date or becoming
due to Task in the future for work performed hereunder.
VII.
Holdco shall pay Task for Task's performance for the 1/st/ through the
15/th/ of the month on the 25/th/ day of the month for which coal was
transported for Holdco and for the 16/th/ through the end of the month on the
10/th/ day of the following month, according to the amounts set out in Schedule
1 attached hereto.
VIII.
Unless terminated earlier as provided herein, the initial term of this
Agreement shall be for a period of one (1) year beginning on the 6/th/ day of
November, 1997, and, if not sooner terminated, the term of this Agreement shall
thereafter be automatically extended for successive periods of one (1) year
each, until terminated as provided in this Agreement, provided, however, that
Holdco shall have the right to terminate this Agreement at any time by giving
thirty (30) days written notice of intention to terminate to Task, in which
event this Agreement shall terminate at the expiration of thirty (30) days after
the giving of written notice to terminate.
Page -4-
<PAGE>
IX.
Task shall, at its sole expense, obtain all permits and license required by
the Commonwealth of Kentucky or other governmental entity, and shall be bound by
all the state and federal laws and regulations pertaining to the transportation
of coal and shall perform its work in accordance therewith, and have full
responsibility and shall pay all fees, fines and assessments related thereto.
X.
Task shall pay all taxes, charges, or governmental impositions related to
its employees, income or operations to be conducted under the terms of this
Agreement. If Task fails to pay any tax, assessment or levy of any kind which it
is obligated to pay hereunder, Holdco may, at its option, terminate this
Agreement forthwith or pay such assessment of levy, and recover the amount of
such payment by deducting such sum from any sums owed up to that date or
becoming due to Task in the future for work performed hereunder.
XI.
This Agreement contains the entire agreement between the parties hereto,
and no officer or representative of either party shall have the authority to
subsequently change the same orally and any subsequent change in this Agreement
shall not be valid unless the same be in writing and duly executed by each of
the parties hereto.
This Agreement shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Kentucky, without regard to its conflict of laws
principles.
IN WITNESS WHEREOF, the parties have executed this Agreement this the day
and year first above written.
Page -5-
<PAGE>
TASK TRUCKING, INC.
By: /s/
-------------------------------------
Title: President
AEI HOLDING COMPANY, INC.
By: /s/ DPBrown
-------------------------------------
Title: President
Page -6-
<PAGE>
SCHEDULE 1
Addington Mining, Inc.
Transportation Rates
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Origin Type of Whites Kentucky Sandlick Ashland Pen Skyline
Transportatio Creek May Materials Coal Tipple
n
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Crooked Fork Truck 4.85 4.85 1.77 4.85 4.85 N/A
Gin Fork Truck 4.85 4.85 2.10 4.85 4.85 N/A
Evans Fork Truck 4.35 4.35 N/A 4.35 4.25 N/A
Job-17 South Truck 4.85 4.85 N/A 4.85 4.85 1.25
Job-17 South Rail N/A N/A N/A N/A N/A N/A
Flagknob Truck 5.32 5.32 3.10 5.32 5.32 N/A
- - ----------------------------------------------------------------------------------------------------
</TABLE>
Page -7-
<PAGE>
EXHIBIT 10.16
SERVICE AGREEMENT
-----------------
This Service Agreement, dated October 22,1997 (the "Agreement"), is by and
between (i) MINING MACHINERY, INC., a Colorado corporation ("MMI"), and (ii) AEI
HOLDING COMPANY, INC., a Delaware corporation ("Holdco").
RECITALS
--------
A. Holdco is engaged in the coal mining business.
B. MMI is engage in the business of servicing, repairing and
manufacturing coal mining equipment.
C. Holdco desires to engage MMI to repair its coal mining and related
equipment ("Equipment") and provide replacement parts for such Equipment, and
MMI desires to be so engaged.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties to this Agreement,
the parties hereby agree as follows:
1. Definitions. As used in this Agreement only, the following terms
-----------
shall have the following meanings:
(a) "Affiliate" shall mean (i) any Person that directly, or indirectly
through one or more intermediaries, Controls, is Controlled by, or is Controlled
by a Person that Controls, a party to this Agreement or a Purchaser, and (ii)
any spouse, parent or issue of any party to this Agreement or a Purchaser.
(b) "Control," "Controls" or "Controlled" shall mean the ownership of
fifty percent (50%) or more of the voting rights of a Person.
(c) "Cost" shall mean the direct expenses incurred by MMI in repairing
Equipment for Holdco, plus Overhead.
(d) "Overhead" shall mean the indirect expenses incurred by MMI that
are necessary and customary in the business of servicing, repairing and
providing replacement parts for coal mining equipment, allocated on a per-shop
hour basis.
(e) "Person" shall mean any individual, firm, trust, partnership,
limited liability
company, corporation or other business entity.
2. Obligations of MMI. At the request of Holdco or any Affiliate of
------------------
Holdco, MMI shall transport Equipment to and from any locations designated by
Holdco or such Affiliate, repair Equipment (including providing all parts
required on connection with making such repairs) and provide replacement parts
for Equipment until this Agreement is terminated in accordance with its
<PAGE>
terms. MMI shall use its best efforts to repair Equipment and deliver
replacement parts by the date requested by Holdco or an Affiliate of Holdco.
Neither Holdco nor any Affiliate of Holdco shall have an obligation to purchase
Equipment or parts from, or have Equipment repaired by, or obtain any other
services from, MMI. MMI shall be entitled to provide all goods and services
encompassed by this Agreement to Persons other than Holdco or its Affiliates.
4. Fees. Holdco or an Affiliate of Holdco, as the case may be, shall pay
----
MMI the following fees and costs for the services and parts provided under this
Agreement:
(a) Repair. Holdco or an Affiliate of Holdco, as the case may be,
------
shall pay MMI one hundred ten percent (110%) of MMI's Cost to repair Equipment
for Holdco or such Affiliate.
(b) Parts. For each part that MMI replaces into a piece of Equipment
-----
or otherwise provides to Holdco or any of its Affiliates, Holdco or such
Affiliate, as the case may be, shall pay MMI one hundred ten percent (110%) of
MMI's Cost for such part.
(c) Transportation. Holdco or an Affiliate of Holdco, as the case may
--------------
be, shall pay MMI one hundred ten percent (110%) of MMI's Cost to transport
Equipment requiring repair to MMI's repair shop located at Ashland, Kentucky
(the "Shop"), and to transport repaired Equipment from the Shop to the
destination selected by Holdco or such Affiliate. Holdco or an Affiliate of
Holdco, as the case may ne, shall be required to pay MMI one hundred ten percent
(110%) of MMI's Cost to deliver a replacement part to Holdco or such Affiliate.
5. Payment. MMI shall send Holdco or an Affiliate of Holdco, as the case
-------
may be, an invoice for all fees and costs for repairing or providing replacement
parts for a particular piece of Equipment within thirty (30) days after such
repair is completed or such replacement part is delivered. The party receiving
the invoice shall pay such invoice in full within thirty (30) days after
receipt. Beginning thirty (30) days after the due date for a particular
payment, until such payment is made in full, the party receiving the invoice
shall be required to pay MMI interest on the outstanding balance at the rate of
two percent (2%) plus the interest rate published in the Wall Street Journal as
the prime rate charged by the United States national banks.
6. Term. This Agreement shall terminate on November 30, 2007, unless
----
earlier terminated by MMI, which termination shall become effective upon ninety
(90) days' written notice to Holdco.
7. Disputed Costs.
--------------
(a) Dispute Resolution. Holdco and MMI agree to negotiate in good
------------------
faith to settle any disputed costs, controversies, disputes or claims arising
among the parties in connection with, or with respect to, any provision of this
Agreement, but such negotiations shall not affect Holdco's obligation to pay for
all costs and charges which are not in dispute. All disputes which have not
been resolved within thirty (30) calendar days after either party has notified
the other in writing for such dispute shall be submitted for arbitration in
accordance with the rules of the American
<PAGE>
Arbitration Association or any successor thereof. Arbitration shall take place
at an appointed time and place in Lexington, Kentucky.
(b) Selection of Arbitrators. Holdco and MMI each shall select one
------------------------
(1) arbitrator (who shall not be counsel for such party), and the two (2) so
designated shall select a third arbitrator. If either party shall fail to
designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, including
but not limited to Section 8(d), the award of the arbitrators may grant any
relief that a court of general jurisdiction has authority to grant, including,
without limitation, an award of damages and/or injunctive relief, and shall
assess, in addition, the cost of the arbitration, including the reasonable fees
of the arbitrator, reasonable attorney's fees and costs of all prevailing
parties, against all non-prevailing parties.
(c) Temporary Injunctive Relief. Nothing herein contained shall bar
---------------------------
the right of any of the parties to seek and obtain temporary injunctive relief
from a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
(d) Arbitration Rules. All disputes and claims shall be determined
-----------------
by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association (the "Rules") in effect on the date hereof,
except that such Rules shall be modified by this Agreement.
(e) Arbitration Proceeding. All arbitral proceeding arising under, or
----------------------
in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90) days after their appointment. Subject
to the parties' right top be treated fairly, the arbitrators may shorten the
periods of time otherwise applicable to the arbitral proceedings under the Rules
or the Federal Rules of Civil Procedure to permit the award to be made within
the time limitation set forth in the previous sentence.
8. Relationship of the Parties. It is expressly agreed that MMI will
---------------------------
provide the labor and perform the work and services specified by this Agreement
as an independent contractor. Nothing contained herein shall be construed as
creating a partnership, single enterprise, joint venture or joint employer
relationship between MMI and Holdco, or their respective employees.
9. Miscellaneous.
-------------
(a) Benefit and Binding Effect. This Agreement shall be binding on,
--------------------------
and inure to the benefit of, the parties hereto and their respective heirs,
legal representatives, successors and assigns.
<PAGE>
(b) Notices. Any notice, approval or consent authorized or required
-------
hereunder shall be in writing and (i) delivered personally, (ii) sent postage
prepaid by certified mail or to the other party at its address set forth in this
Section 8(b) or such other addresses or parties as may be designated by either
MMI or Holdco by notice given from time to time in accordance with this Section
8(b):
If to MMI
Mining Machinery, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Randy Brickey
Telephone No.: (606) 928-3433
Facsimile No.: (606) 928-0450
If to Holdco or an Affiliate of Holdco:
AEI Holding Company, Inc.
1500 North Big Bend Road
Ashland, Kentucky 41102
Attention: Don Brown
Telephone No.: (606) 928-3433
Facsimile No.: (606) 928-0450
A notice, approval or consent shall be deemed received (i) upon the delivery
thereof in person, (ii) five (5) days after depositing thereof in any office of
the United States postal Service or any successor governmental agency, or (iii)
three (3) days after giving thereof to a nationally recognized overnight
carrier. Any party may change its address for receiving notices and
communications by giving the other party appropriate written notice thereof.
(c) Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, representations and understandings of the
parties and their principals and affiliates with respect thereto. No amendment
to, or modification of, this Agreement shall be valid or effective unless agreed
to in writing by all of the parties hereto. No waiver of any of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, nor shall any waiver constitute a continuing waiver. No waiver shall
be valid or binding unless agreed to in writing by the party granting the
waiver.
(d) Limitations. Damage made payable as a result of either party's
-----------
default under this Agreement shall be limited to those actual damages incurred
by such party seeking relief. In no event shall any party, its respective
affiliates, agents or attorneys, be liable for any indirect, punitive, special,
extraordinary or consequential damages, or any damages other than, or in
addition to, actual damages under this Agreement or with respect to the
transactions contemplated hereunder.
<PAGE>
EXHIBIT 10.17
AEI HOLDING COMPANY, INC.
STOCK OPTION PLAN
AEI Holding Company, Inc. (the "Company") hereby establishes a stock option
plan (the "Plan") for the benefit of certain employees and advisors of the
Company, its Subsidiaries and its Parent (both as defined below).
Section I -- PURPOSE
-------
The Company adopts this compensation program for the Employees (as defined
below) to, among other things, (a) increase the profitability and growth of the
Company, any Subsidiary and any Parent; (b) provide competitive compensation
while obtaining the benefits of tax deferral; (c) attract and retain exceptional
personnel and encourage excellence in the performance of individual
responsibilities; and (d) motivate key employees to contribute to the success of
the Company, its Subsidiaries and its Parent.
Section 2 -- DEFINITIONS
-----------
For purposes of the Plan, the following terms shall have the meanings below
unless the context clearly indicates otherwise:
2.1 "Addington" shall mean Larry Addington, Robert Addington, Bruce
Addington, Stephen Addington, their ancestors and descendants, their spouses,
the spouses of their descendants, and Addington Enterprises, Inc.
2.2 "Advisor" shall mean an advisor or consultant to the Company, any
Subsidiary or any Parent who has been designated by the Committee, under the
criteria set forth in Section 5, as eligible to participate in the Plan.
2.3 "Affiliate" shall mean, with respect to a particular Person, (i) a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is controlled by a Person that controls, that particular
Person; and (ii) any trust or estate in which that particular Person has a
beneficial interest or as to which that particular Person serves as a trustee or
in another fiduciary capacity.
2.4 "Board" shall mean the Board of Directors of the Company.
2.5 "Chairman" shall mean the Chairman of the Committee or, if there is no
Committee, the Chairman of the Board.
2.6 "Change of Control" shall be deemed to have occurred if. (a) any
"person," as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than Addington or
an Affiliate of Addington and other than any trustee or
<PAGE>
other fiduciary holding securities of the Company under any employee benefit
plan of the Company, becomes the "beneficial owner" as defined in Rule 13d-3
under the Exchange Act, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the
Company's then outstanding stock; (b) the Company sells all or substantially all
of its assets to a Person other than an Affiliate of Addington; or (c) the
Company enters into any merger, consolidation or similar transaction with any
Person other than an Affiliate of Addington, in which the Company is not the
surviving entity or becomes owned entirely by another entity, unless at least
fifty percent (50%) of the outstanding voting securities of the surviving entity
(or its parent) immediately following such merger, consolidation or similar
transaction are beneficially held by such Persons in the same proportion as such
Persons beneficially held the voting securities of the Company immediately prior
to Such merger, consolidation or similar transaction.
2.7 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
2.8 "Committee" shall mean the Benefits Committee appointed by the Board,
pursuant to Section 4.1, to administer the Plan.
2.9 "Disability" shall mean a physical or mental condition of an Employee
or Advisor resulting in bodily injury or disease or mental disorder which
renders such Employee or Advisor incapable of continuing the further performance
of the Employee's or the Advisor's normal activities as an employee of or
advisor to the Company, any Subsidiary or any Parent. The determination of the
Committee on any question involving disability shall be conclusive and binding.
2.10 "Employee" shall mean an employee of the Company, any Subsidiary or
any Parent who has been designated by the Committee, under the criteria listed
in Section 5, as eligible to participate in the Plan.
2.11 "Fair Market Value" shall have the meaning specified in Section 6.1.
2.12 "Fair Value" shall have the meaning specified in Section 9.2.
2.13 "Incentive Stock Option" mean an option to purchase Stock granted
under Section 6 of the Plan which is designated as an Incentive Stock Option and
is intended to meet the requirements of Section 422 of the Code.
2.14 "NationsBank" means NationsBank, N.A. (successor in interest by merger
to NationsBank of Texas, N.A.), individually and as agent under any credit
facilities outstanding or owing from time to time.
2.15 "Nonqualified Stock Option" shall mean an option to purchase Stock
granted under Section 6 of the Plan which is not intended to be an Incentive
Stock Option.
2.16 "Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
-2-
<PAGE>
2.17 "Option Period" shall mean the period from the date of the grant of an
Option to the date when the Option expires as stated in the terms of the Stock
Option Agreement.
2.18 "Option Price" shall have the meaning specified in Section 6.1.
2.19 "Option Stock" shall mean Stock acquired pursuant to the exercise of
an Option.
2.20 "Optionee" shall mean an Employee or Advisor who has been granted an
option to purchase shares of Stock under the provisions of the Plan.
2.21 "Parent" shall mean any corporation that is a "parent corporation," as
defined in Section 424(e) of the Code, with respect to the Company, and
currently includes Addington Enterprises, Inc.
2.22 "Person" shall mean any individual, firm, trust, partnership,
corporation, limited liability company or other business entity.
2.23 "Plan" shall mean this AEI Holding Company, Inc. Stock Option Plan.
2.24 "Pledge Agreement" shall mean the agreement in such form as
NationsBank from time to time may prescribe, by an Optionee being issued Option
Stock and pursuant to which such Optionee grants to NationsBank a pledge of such
Stock to secure any credit facilities and loans from time to time existing or
owing to NationsBank by the Company, its Subsidiaries or its Parent.
2.25 "Retirement" shall mean an Employee's Termination of Employment with
the Company, any Subsidiary or any Parent after attaining age 65 (or earlier
with the consent of the Company, such Subsidiary or such Parent).
2.26 "Stock" shall mean the Company's voting common stock of Zero Dollars
and One Cent ($.01) par value per share.
2.27 "Stock Option Agreement" shall mean an agreement between an Optionee
and the Company covering the specific terms and conditions of an Option.
2.28 "Subsidiary" shall mean any corporation that is a "subsidiary
corporation", as defined in Section 424 (f) of the Code, with respect to the
Company, and currently includes Addington Mining, Inc., Tennessee Mining, Inc.,
Mining Technologies, Inc., Ikerd-Bandy Co., Inc., Leslie Resources, Inc;, Leslie
Resources Management, Inc., Pro-Land, Inc. d/b/a Kem Coal Company, Aceco, Inc.,
Mountain-Clay, Inc. d/b/a Mountain Clay, Inc., Highland Coal, Inc., River Coal
Company, Inc. and Bowie Resources, Limited.
2.29 "Termination of Employment" shall be deemed to have occurred at the
close of business on the last day on which (a) an Employee is carried as an
active employee on the records
-3-
<PAGE>
of the Company, any Subsidiary or any Parent or (b) an Advisor ceases to provide
advisory or consulting services to the Company, any Subsidiary or any Parent.
The Committee shall determine whether an authorized leave of absence, or other
absence on military or government service, constitutes severance of the
employment/advisory relationship between the Employee or Advisor, on the one
hand, and the Company, a Subsidiary or a Parent, on the other hand.
Section 3 -- STOCK SUBJECT TO THE PLAN
-------------------------
3.1 Authorized Stock. Subject to adjustment as provided in Section 3.3,
----------------
neither the aggregate number of shares of Stock subject to Options under the
Plan nor the number of shares covered by Incentive Stock Options shall exceed
sixty thousand (60,000) shares. Stock delivered under the Plan may consist, in
whole or in part, of authorized and unissued shares or shares acquired from
shareholders upon such terms as the Board deems appropriate for reserve in
connection with exercises hereunder.
3.2 Effect of Expirations. If any Option granted under the Plan expires
---------------------
or terminates without exercise, the Stock no longer subject to such Option shall
be available to be re-awarded under the Plan.
3.3 Adjustments in Authorized Shares, Restructuring. In the event of any
-----------------------------------------------
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, split-up, share exchange, or other
change in the corporate structure of the Company affecting the number of shares
of Stock or the kind of shares or securities Issuable upon exercise of an
Option, an appropriate and proportionate adjustment shall be made by the
Committee in the number and kind of shares which may be delivered under the
Plan, and in the number, kind or price of shares subject to outstanding Options;
provided that the number of shares subject to any Option shall always be a whole
number. Any adjustment of an Incentive Stock Option under this Section shall be
made in such a manner so as not to constitute a "modification" within the
meaning of Section 424(h) of the Code. If the Company shall at any time merge,
consolidate with or into another corporation or association, or enter into a
statutory share exchange or any other similar transaction in which shares of
Stock are converted as a matter of law into securities and/or other property
(including, without limitation, an exchange of all the outstanding Stock of the
Company for all of the stock of another company), each Optionee will thereafter
receive, upon the exercise of an Option, the securities or property to which a
holder of the number of shares of Stock then deliverable upon the exercise of
such Option would have been entitled if such Option had been exercised
immediately prior to such merger, consolidation, share exchange or other similar
transaction, and the Company shall take such steps in connection with such
merger, consolidation, share exchange or other similar transaction as may be
necessary to assure that the provisions of this Plan shall thereafter be
applicable, as nearly as is reasonably possible, in relation to any securities
or property thereafter deliverable upon the exercise of such Option. A sale of
all or substantially all the assets of the Company for a consideration (apart
from the assumption of obligations) consisting primarily of securities shall be
deemed a merger or consolidation for the foregoing purposes.
Section 4 -- ADMINISTRATION
--------------
-4-
<PAGE>
4.1 Committee Governance. This Plan shall be administered by the
--------------------
Committee. The Board shall add or remove members from the Committee as the
Board sees fit, and vacancies shall be filled by the Board. The Chairman of the
Committee shall hold meetings at such times and places as he may determine. The
Committee may appoint a secretary and, subject to the provisions of the Plan and
to policies determined by the Board, may make such rules and regulations, for
the conduct of its business as it shall deem advisable. Written action of the
Committee may be taken by a majority of its members, and actions so taken shall
be fully effective as if taken by a vote of a majority of the members at a
meeting duly called and held. A majority of Committee members shall constitute
a quorum for purposes of meeting. The act of a majority of the members present
at any meeting for which there is a quorum shall be a valid act of the
Committee.
4.2 Committee To Interpret Plan. Subject to the express terms and
---------------------------
conditions of the Plan, the Committee shall have sole power to: (a) construe
and interpret the Plan; (b) establish, amend or waive rules for its
administration; (c) determine and accelerate the exercisability of any Option;
(d) correct inconsistencies in the Plan or In any Stock Option Agreement, or any
other instrument relating to an Option; and (e) subject to the provisions of
Section 8, amend the terms and conditions of any outstanding Option, to the
extent such terms and conditions are within the discretion of the Committee as
provided in the Plan. Notwithstanding the foregoing, no action of the Board or
the Committee may, without the consent of the individual or individuals entitled
to exercise any outstanding Option, adversely affect the rights of such
individual or individuals.
4.3 Exculpation. No member of the Board or the Committee shall be liable
-----------
for actions or determinations made in good faith with respect to the Plan, or
for awards under it.
4.4 Selection of Optionees. The Committee shall have the authority to
----------------------
grant Options from time to time to such Employees or Advisors as may be selected
by it in its sole discretion.
4.5 Decisions Binding. All determinations and decisions made by the Board
-----------------
or the Committee pursuant to the provisions of the Plan shall be final,
conclusive and binding on all persons, including the Company, its shareholders,
Optionees and their estates and beneficiaries.
4.6 Stock Option Agreements. Each Option under the Plan shall be
-----------------------
evidenced by a Stock Option Agreement which shall be signed by the Chairman of
the Committee and by the Optionee, and shall contain such terms and conditions
as may be approved by the Committee, which need not be the same in all cases.
Any Stock Option Agreement may be supplemented or amended in writing from time
to time as approved by the Committee, provided that the terms of such Agreements
as amended or supplemented, as well as the terms of the original Stock Option
Agreement, are not inconsistent with the provisions of the Plan. No Employee or
Advisor who receives an Option under the Plan shall, with respect to the Option,
be deemed to have become an Optionee, or to have any rights with respect to the
Option, unless and until such Employee or Advisor has executed a Stock Option
Agreement or other instrument evidencing the Option and delivered an executed
copy thereof to the Company, and has otherwise complied with the applicable
terms and conditions of the Option.
-5-
<PAGE>
The Committee may condition any Option grant upon the agreement by the Optionee
to such confidentiality, noncompetition and non-solicitation covenants as the
Committee deems appropriate.
Section 5 -- ELIGIBILITY
-----------
Employees of, or Advisors to, the Company, any Subsidiary or any Parent who
are expected to contribute substantially to the growth and profitability of the
Company, any Subsidiary or any Parent are eligible for selection by the
Committee under Section 4.4 to receive Options.
Section 6 -- GRANT OF OPTIONS
----------------
6.1 Option Price. The purchase price per share (the "Option Price") of
------------
Stock covered by an Option shall be determined by the Committee but shall not be
less than one hundred percent (100%) of the fair market value (the "Fair Market
Value") of such Stock on the date the Option is granted. The Fair Market Value
shall be determined by the Committee in its sole discretion, provided that, if
the Stock is publicly traded on an established securities market, the Fair
Market Value shall be the closing market price of the Stock as reported on the
date of grant, or, if no trades were reported on that date, the closing price on
the most recent trading day immediately preceding the date of the grant. An
Incentive Stock Option granted to any individual who, at the time the Option is
granted, owns or is deemed to own within the meaning of Section 424(d) of the
Code, stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, any Subsidiary or any Parent,
shall have an exercise price which is at least one hundred ten percent (110%) of
the Fair Market Value of the Stock subject to the Option on the date the Option
is granted.
6.2 Option Period. The Option Period shall be determined by the
-------------
Committee, but no Option shall be exercisable later than ten (10) years from the
date of grant. Notwithstanding the foregoing, in the case of an Optionee owning
(within the meaning of Section 424(d) of the Code), at the time an Incentive
Stock Option is granted, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, any Subsidiary or any
Parent, such Incentive Stock Option shall not be exercisable later than five (5)
years from the date of grant. No Option may be exercised at any time unless
such Option is valid and outstanding as provided in this Plan.
6.3 Limitation on Amount of Incentive Stock Options. The aggregate Fair
-----------------------------------------------
Market Value (determined as of the time the Option is granted) of the Stock with
respect to which an Optionee's Incentive Stock Options are exercisable for the
first time during any calendar year (under this and all other stock option plans
of the Company) shall not exceed One Hundred Thousand Dollars ($100,000.00).
Options or portions of Options exercisable as a result of the vesting schedule
established in the Stock Option Agreement or acceleration under Section 10.8 in
excess of the One Hundred Thousand Dollar ($100,000.00) limit described herein
shall be treated as a Nonqualified Stock Option for tax purposes.
-6-
<PAGE>
6.4 Non-transferability of Options. No Option-shall be transferable by
------------------------------
the Optionee other than by will or by the laws of descent and distribution, and
such Option shall be exercisable, during the Optionee's lifetime, only by the
Optionee.
Section 7 -- EXERCISE OF OPTIONS
-------------------
7.1 Exercise. An Option may be exercised, so long as it is valid and
--------
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the Option may be exercised at a
particular time and to such other conditions (e.g., exercise could be
----
conditioned on performance) as the Committee in its discretion may specify upon
granting the Option or as otherwise provided in this Section 7.
7.2 Method of Exercise. To exercise an Option, the Optionee or the other
------------------
Person(s) entitled to exercise the Option shall give written notice of exercise
to the Committee, specifying the number of full shares to be purchased. Such
notice shall be accompanied by payment in full in cash for the Stock being
purchased (unless the Committee approves some alternate method of payment) plus,
in the case of Nonqualified Stock Options, any required withholding tax as
provided in Section 11. If permitted by the Committee, in its sole discretion,
payment in full or in part may be made in the form of Stock owned by the
Optionee for at least 6 months (based on the Fair Market Value of the Stock on
the date the Option is exercised) evidenced by negotiable Stock certificates
registered either in the sole name of the Optionee or the names of the Optionee
and spouse, or by any combination of cash or such Stock. No shares of Stock
shall be issued unless the Optionee has fully compiled with the provisions of
this Section 7.2.
7.3 Termination of Employment. Except as otherwise specifically provided
-------------------------
in the Stock Option Agreement, after an Optionee's Termination of Employment, an
Option may be exercised (subject to adjustment as provided in Section 3.3 or
10.8) prior to the expiration of the Option as specified in the Stock Option
Agreement, but only with respect to the number of shares of Stock which the
Optionee could have acquired by an exercise of the Option immediately before the
Termination of Employment. Except to the extent different periods are provided
in the Stock Option Agreement by the Committee, an Employee's or an Advisor's
right to exercise an Option upon Termination of Employment shall terminate:
(a) At the sooner to occur of (i) the expiration of the Option Period
and (ii) the expiration of two (2) years after the Employee's or the Advisor's
Termination of Employment due to Disability; provided, however, if an Incentive
Stock Option is not exercised within one (1) year after such Termination of
Employment, it will be treated as a Nonqualified Stock Option for purposes of
the Plan when it is exercised;
(b) At the sooner to occur of (i) the expiration of the Option Period
and (ii), the expiration of two (2) years after the Employee's or the Advisor's
death, if the Employee's or the Advisor's Termination of Employment occurs by
reason of death, provided, however, if an Incentive Stock Option is not
exercised within one (1) year after such Termination of Employment, it will be
treated as a Nonqualified Stock Option for purposes of the Plan when it is
exercised; any Option
-7-
<PAGE>
exercised under this subparagraph (b) may be exercised in full by the legal
representative of the estate of the Employee or the Advisor or by the Person(s)
who acquire(s) the right to exercise such Option by bequest or inheritance; or
(c) At the sooner to occur of (i) the expiration of the Option Period
and (ii) the expiration of two (2) years after the Employee's or the Advisor's
Termination of Employment for any reason other than the reasons set forth in
Sections 7.3(a) and 7.3(b); provided, however, if an Incentive Stock Option is
not exercised within three (3) months after such Termination of Employment, it
will be treated as a Nonqualified Stock Option for purposes of the Plan when it
is exercised.
7.4 Pledge Agreement. Notwithstanding any other provision of this Plan or
----------------
any Stock Option Agreement to the contrary, no shares of stock of AEI Holding
Company, Inc. or its Subsidiaries shall be issued to an Optionee pursuant to
this Plan unless and until such Optionee has executed and delivered to
NationsBank a Pledge Agreement (and all accompanying documents required under
the Pledge Agreement, including without limitation a stock power) in a form
acceptable to NationsBank, provided the provisions of this Section shall only
apply so long as any credit facilities or loans are existing or owing to
NationsBank by the Company, Subsidiaries or its Parent, and further provided
that this Section 7.4 shall not apply to tile issuance of shares of stock of any
parent of AEI Holding Company, Inc.
Section 8 -- AMENDMENTS AND TERMINATION
--------------------------
8.1 Amendments and Termination. The Committee may terminate, suspend,
--------------------------
amend or alter the Plan, but no action of the Committee may:
(a) Impair or adversely affect the rights of an Optionee under an
Option, without the Optionee's consent; or
(b) Without the majority approval of the shareholders of the Company:
(i) Increase the total amount of Stock which may be delivered
under the Plan except as is provided in Section 3 of the Plan;
(ii) Decrease the option price of any Option to less than the
option price on the date the Option was granted;
(iii) Extend the maximum Option Period; or
(iv) Extend the period during which Options may be granted, as
specified in Section 13.
8.2 Conditions on Options. In granting an Option, the Committee may
---------------------
establish any conditions that it determines are consistent with the purposes and
provisions of the Plan, including,
-8-
<PAGE>
without limitation, a condition that the granting of an Option is subject to the
surrender for cancellation of any or all outstanding Options held by the
Optionee. Any new Option made under this section may contain such terms and
conditions as the Committee may determine, including an. exercise price that is
lower than that of any surrendered Option.
8.3 Selective Amendments. Any amendment or alteration of the Plan may be
--------------------
limited to, or may exclude from its effect, particular classes of Optionees.
Section 9 -- RESTRICTIONS ON TRANSFER
------------------------
9.1 Restrictions on Transfer.
------------------------
(a) Subject to Section 9.5, an Optionee shall not sell, assign,
transfer or otherwise dispose of any Option Stock until (i) the Optionee has
delivered to the Company an irrevocable written offer, exercisable at any time
during the 60-day period following the delivery of the offer, to sell any such
shares of Option Stock at a price per share equal to the fair market value of
the Company (the "Fair Value") (which shall be based on a valuation of tile
Company prepared by an independent appraiser selected and paid by tile Company,
who shall make such determination as of the Company's most recent fiscal year
end) divided by the total number of shares of Stock outstanding as of the date
----------
of determination, and (ii) the Company shall have failed to accept such offer
within the 60-day period, in which case the Option Stock so offered may be sold
by the Optionee on the terms offered to the Company within 60 days of the
earlier of the expiration of the 60-day period or the date the Company notifies
the Optionee that it will not exercise its right to purchase the Option Stock.
A bona fide written offer from an independent prospective buyer shall be deemed
to be the Fair Value solely for purposes of this Section 9.1(a). To accept the
offer, the Company shall deliver notice of its acceptance of the offer within 60
days after it is delivered. Payment for the offered Option Stock shall be made
as provided in Section 9.3. The restrictions imposed by this Section 9.1(a)
shall not apply to the transfer by operation of law to a deceased Optionees
personal representative of the Optionee's interest in the Option Stock.
(b) If in connection with any public offering of securities of the
Company (or any successor entity) the underwriter or underwriters managing such
offering so request(s), then each Optionee and each holder of Option Stock will
agree not to sell, assign, transfer or otherwise dispose of any such Option
Stock (other than Option Stock included in such underwriting), without the prior
written consent of such underwriter, for such period of time as may be requested
by the underwriter commencing on the effective date of the registration
statement filed with the Securities and Exchange Commission in connection with
such offering.
9.2 Death, Disability, and Termination. In the event of an Optionee's
----------------------------------
Termination of Employment due to such Optionee's death or Disability, the
Optionee or such Optionee's personal representative shall offer to sell the
Optionee's Option Stock and the Company shall purchase such Option Stock at a
price per share equal to the fair market value of the Company (the "Fair Value")
(which shall be based on a valuation of the Company prepared by an independent
appraiser selected and paid by the Company, who shall make such determination as
of the Company's most recent
-9-
<PAGE>
fiscal year end), divided by the total number of shares of Stock outstanding as
----------
of the date Fair Value is determined; in the event of an Optionee's Termination
of Employment for any other reason, the Company may, at its option, for a two-
year period following such termination, purchase such Optionee's Option Stock at
Fair Value divided by the total number of shares of Stock outstanding as of the
----------
date Fair Value is determined. Payment for the Option Stock shall be made as
provided in Section 9.3. Notwithstanding the first sentence of this Section 9.2,
in the event of the Optionee's Termination of Employment for any reason within
the twelve month period following a Change of Control, where the Change of
Control occurs as a result of the sale of securities of the Company for cash,
the purchase price to be paid by the Company for such Optionee's Option Stock
shall be the greater of (a) Fair Value divided by the number of shares
----------
outstanding as of the date Fair Value is determined and (b) the cash sale price
per share of Stock involved in the Change of Control transaction.
9.3 Payment for Option Stock. Unless otherwise agreed by the Company and
------------------------
the Optionee, the Company shall make payment in cash for any Option Stock that
it purchases pursuant to this Section 9 within thirty (30) days after the date
when the Company delivers notice of its acceptance of the offer given pursuant
to Section 9.2. The Optionee shall surrender certificates representing the
offered Option Stock at the time the Company makes such payment.
9.4 Restriction on Pledge. Except as otherwise provided in this Plan, no
---------------------
Optionee shall, without the prior written consent of the Company, pledge,
mortgage or otherwise encumber any of his Option Stock.
9.5 Termination of Restrictions. The restrictions and obligations imposed
---------------------------
by this Section 9 shall not apply (a) to the transfer by operation of law to a
deceased Optionee's personal representative of the Optionee's interest in the
Option Stock; (b) to any transfer pursuant to a foreclosure of a pledge of the
Option Stock by NationsBank or any other lender that has provided a credit
facility to the Company; (c) beyond one (1) year after a Change of Control
results in the Option Stock being converted into the stock of another entity,
which stock has a public securities market; and (d) after the later to occur of
(i) the expiration of the one year period following the closing of the issuance
of the Company's shares of Stock pursuant to an initial public offering
registered with the United States Securities and Exchange Commission and (ii)
the receipt by an Optionee of any required consent of an underwriter, pursuant
to Section 9.1 (b), to sell, assign, transfer or otherwise dispose of any Option
Stock.
Section 10 -- GENERAL PROVISIONS
------------------
10.1 Unfunded Status of Plan. The Plan is intended to constitute an
-----------------------
"unfunded" plan for incentive compensation, and the Plan is not intended to
constitute a plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and shall not extend, with respect to any
payments not yet made to an Optionee, any rights that are greater than those of
a general creditor of the Company.
-10-
<PAGE>
10.2 Transfers, Leaves of Absence and Other Changes in Employment Status.
-------------------------------------------------------------------
For purposes of the Plan (a) a transfer of an Employee from the Company to a
Subsidiary or a Parent, or vice versa, or from a Parent to a Subsidiary, "or
vice versa, or from one Subsidiary or Parent to another; or (b) a leave of
absence, duly authorized in writing by the Company, a Subsidiary or Parent, for
military service or sickness, or for any other purpose approved by the Company,
a Subsidiary or a Parent if the period of such leave does not exceed ninety (90)
days; or (c) any leave of absence in excess of ninety (90) days approved by the
Company, a Subsidiary or a Parent, shall not be deemed a Termination of
Employment. The Committee, in its sole discretion, subject to the terms of the
Stock Option Agreement, shall determine the disposition of all Options. made
under the Plan in all cases involving any substantial change in employment
status other than as specified herein.
10.3 Securities Law Restrictions, Investment Intent. By accepting an
----------------------------------------------
Option and/or Option Stock under this Plan, the Optionee will be deemed to
represent, warrant and agree that, unless a registration statement is in effect
with respect to the offer and sale of Option Stock: (a) neither the Option nor
any such Option Stock will be freely tradeable and must be held indefinitely
unless such Option and such Option Stock are either registered under the
Securities Act of 1993, as amended (the "Securities Act") or an exemption from
such registration is available; (b) the Company is under no obligation to
register the Option or any such Option Stock; (c) upon exercise of the Option,
the Optionee will purchase the Option Stock for his or her own account and not
with a view to distribution within the meaning of the Securities Act, other than
as may be effected in compliance with the Securities Act and the rules and
regulations promulgated thereunder; (d) no one else will have any beneficial
interest in the Option Stock; (e) the Optionee has no present intention of
disposing of the Option Stock at any particular time; and (f) neither the Option
nor the Option Stock has been qualified under the securities laws of any state
and may only be offered and sold pursuant to an exception from qualification
under applicable state securities laws. No Stock shall be issued or transferred
pursuant to an Option unless the Committee determines, in its sole discretion,
that such issuance or transfer complies with all relevant provisions of law,
including but not limited to, the (a) limitations, if any, imposed in the state
of issuance or transfer, (b) restrictions, if any, imposed by the Securities
Act, the Exchange Act, and the rules and regulations promulgated thereunder, and
(c) requirements of any stock exchange upon which any of the Company's shares of
stock may then be listed. The certificates for such Stock may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
10.4 Assignment Prohibited. Subject to the provisions of the Plan and the
---------------------
Stock Option Agreement, no Option shall be assigned, transferred, pledged or
otherwise encumbered by the Optionee otherwise than by will or by the laws of
descent and distribution, and such Options shall be exercisable, during the
Optionee's lifetime, only by the Optionee. Options shall not be pledged or
hypothecated in any way, and shall not be subject to any execution, attachment,
or similar process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of an Option contrary to the provisions of the Plan, or the
levy of any process upon an Option, shall be null, void and without effect.
-11-
<PAGE>
10.5 Other Compensation Plans. Nothing contained in the Plan shall
------------------------
prevent the Company from adopting other compensation arrangements.
10.6 Limitation of Authority. No person shall at any time have any right
-----------------------
to receive an Option hereunder and no person shall have authority to enter into
an agreement on behalf of the Company for the granting of an Option or to make
any representation or warranty with respect there(6, except as granted by the
Board or the Committee. Optionees shall have no rights in respect to any Option
except as set forth in the Plan and the applicable Stock Option Agreement.
10.7 No Right to Employment. Neither the action of the Company in
----------------------
establishing the Plan, nor any action taken by it or by the Board or the
Committee under the Plan or any Stock Option Agreement, or any provision of the
Plan, shall be construed as giving to any Person the right to be retained in the
employ of, or as an advisor or consultant to, the Company, any Subsidiary or any
Parent.
10.8 Acceleration. If granted by the Committee in the Stock Option
------------
Agreement, in the event of a Change of Control or Termination of Employment,
Options granted under the Plan shall become exercisable in full whether or not
otherwise exercisable at such time, and any such Option shall remain exercisable
in full thereafter until it expires pursuant to its terms.
10.9 Option Period. No Option granted under the Plan shall be exercisable
-------------
or payable more than ten (10) years from the date of grant.
10.10 Not a Shareholder. The Person(s) entitled to exercise, or who have
-----------------
exercised, an Option shall not be entitled to any rights as a shareholder of the
Company with respect to any shares subject to the Option until such Person(s)
shall have become the holder of record of such shares.
10.11 Headings. The headings in this Plan have been Inserted solely for
--------
convenience of reference and shall not be considered in the interpretation or
construction of this Plan.
10.12 Governing Law. The validity, Interpretation, construction and
-------------
administration of this Plan shall be governed by the laws of the Company's state
of incorporation, as it may change from time to time.
Section 11 -- TAXES
-----
11.1 Tax Withholding. All Optionees shall make arrangements satisfactory
---------------
to the Committee to pay to the Company, at the time of exercise in the case of a
Nonqualified Stock Option, any federal, state or local taxes required to be
withheld with respect to any Option. If such Optionee shall fall to make such
tax payments as are required, the Company, all Subsidiaries and all Parents
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Optionee.
-12-
<PAGE>
11.2 Share Withholding. If permitted by the Committee, the tax withholding
-----------------
obligation may be satisfied by the Company retaining shares of Stock with a fair
market value equal to the amount required to be withheld.
Section 12 -- EFFECTIVE DATE OF PLAN
----------------------
The Plan shall be effective or, the date when the Board adopts the Plan
(the "Effective Date"), subject to approval of the Plan by a majority of the
total votes entitled to vote thereon following adoption of the Plan by the
Board, which approval shall be obtained within twelve (12) months of the
Effective Date; provided, however, that Options may be granted before obtaining
shareholder approval of the Plan, but any such Options shall be contingent upon
such shareholder approval being obtained and may not be exercised before such
approval.
Section 13 -- TERM OF PLAN
------------
Unless terminated earlier by the Committee, no Option shall be granted
under the Plan more than ten (10) years after the Effective Date as defined in
Section 12.
* * * * *
Board Approval: /s/ Illegible
------------- -----------------------------
(Date) (Secretary's Initials)
Shareholder Approval: /s/ Illegible
------------- -----------------------------
(Date) (Secretary's Initials)
-13-
<PAGE>
EXHIBIT 10.18
AEI HOLDING COMPANY, INC. STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This is a STOCK OPTION AGREEMENT (the "Agreement"), effective as of
February 5, 1998 (the "Grant Date"), by and between AEI Holding Company, Inc., a
Delaware corporation (the "Company"), and (the "Optionee").
Recitals
--------
A. The Board of Directors (the "Board") and the shareholders of the
Company approved and adopted the AEI Holding Company, Inc. Stock Option Plan
(the "Plan").
B. The Benefits Committee (the "Committee") has determined that it is in
the best interests of the Company and appropriate to the stated purposes of the
Plan that the Company grant to the Optionee an option to purchase shares of the
Company's common stock ("Shares") pursuant and subject to the terms,
definitions, and conditions of the Plan.
C. Any capitalized terms used but not defined herein shall have the
respective meanings given them in the Plan, a copy of which is attached hereto
and incorporated by reference herein in its entirety.
NOW, THEREFORE, the Company and the Optionee do hereby agree as follows:
SECTION 1 -- GRANT OF OPTION
---------------
Subject to the terms and conditions of this Agreement, the Company hereby
grants to the Optionee an option (the "Option") to purchase from time to time
all or any portion of Shares as set forth below:
-----------------------------------------------
TYPE OF OPTION NUMBER OF SHARES
-------------- ----------------
-----------------------------------------------
Incentive Stock Options
Non-qualified Stock Options
-----------------------------------------------
The grant of the Option is contingent upon the Optionee's execution of a
Release Agreement in form and substance satisfactory to the Company.
<PAGE>
SECTION 2 -- OPTION PRICE
------------
The Option Price hereunder is Sixty-Four Dollars and Forty Cents ($64.40)
per Share, which equals one hundred percent (100%) of the fair market value of a
Share, as determined in accordance with the Plan.
SECTION 3 -- DURATION OF OPTION
------------------
Subject to such shorter period as might be provided in Section 8 of this
Agreement (related to Termination of Employment), the Option shall be
exercisable for one hundred percent (100%) of the Shares made available under
this Agreement one hundred twenty (120) days after the Grant Date. Once
exercisable, an Option shall remain exercisable until the tenth (10th)
anniversary of the Grant Date, unless this Agreement is sooner terminated
pursuant to Section 11.
SECTION 4 -- EXERCISE OF OPTION
------------------
During the Option Period, the Optionee may exercise the Option upon
compliance with the following additional terms:
(a) Method of Exercise. The Optionee shall exercise portions of the Option
------------------
by written notice, which shall:
(i) State the election to exercise the Option, the number of Shares
in respect of which it is being exercised, and the Optionee's address and social
security number;
(ii) Contain such representations and agreements, if any, as the
Committee may require concerning the holder's investment intent regarding such
Shares;
(iii) Acknowledge and accept the restrictions on transfer of the
Option Stock as set forth in Section 9 of the Plan;
(iv) State that the Optionee shall, with respect to any shares of
stock of AEI Holding Company, Inc. or any of its Subsidiaries (but not with
respect to shares of stock of any parent of AEI Holding Company, Inc.) and as
long as any credit facility or loan is existing or owing to NationsBank by the
Company, its Subsidiaries or its Parent, execute and deliver to NationsBank a
Pledge Agreement as set forth in Section 7 of the Plan;
(v) Be signed by the Optionee; and
(vi) Be delivered in person or by certified mail to the Chairman of
the Committee.
(b) Payment Upon Exercise of Option. Payment in cash of the full Option
-------------------------------
Price for Shares upon which the Option is exercised plus any income and
employment tax withholding (if applicable) shall accompany the written notice of
exercise described above. The Company shall cause to be issued and delivered to
the Optionee the certificate(s) representing such Shares as soon
<PAGE>
as practicable following the receipt of notice and payment described above,
unless such Shares must be pledged to a creditor of the Company.
SECTION 5 -- NON-TRANSFERABILITY OF OPTION
-----------------------------
The Option shall not be transferable or assignable by the Optionee. The
Option shall be exercisable, during the Optionee's lifetime, only by the
Optionee. The Option shall not be pledged or hypothecated in any way, and shall
not be subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any process upon the Option,
shall be null, void and without effect.
SECTION 6 -- EFFECT OF AMENDMENT, SUSPENSION
-------------------------------
OR TERMINATION OF EXISTING OPTIONS
----------------------------------
No amendment, suspension or termination of the Plan shall, without the
Optionee's written consent, alter or impair the Option granted under the terms
of this Agreement.
SECTION 7 -- RESTRICTIONS ON ISSUING SHARES
------------------------------
Shares shall not be issued pursuant to the exercise of the Option, unless
the issuance and transferability of the Shares shall comply with all relevant
provisions of law, including, but not limited to, the (i) limitations, if any,
imposed by applicable state law; and (ii) restrictions, if any, imposed by the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder by the United
States Securities and Exchange Commission. The Committee may, in its
discretion, determine if such restrictions or such issuance of Shares so
complies with all relevant provisions of law. Any certificate issued upon
exercise of an Option shall bear the following legend (or one substantially
similar) setting forth notice of the restrictions on transfer:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT THE TRANSACTION WOULD NOT BE IN VIOLATION OF THE ACT OR ANY OTHER
STATE SECURITIES LAW. THESE SHARES ARE ALSO SUBJECT TO RESTRICTIONS ON
TRANSFER SET FORTH IN THE AEI HOLDING COMPANY, INC. STOCK OPTION PLAN WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
3
<PAGE>
SECTION 8 -- EXERCISE AFTER TERMINATION OF EMPLOYMENT
----------------------------------------
Upon the Optionee's Termination of Employment for any reason other than
Termination for Cause, an Option may be exercised, prior to the expiration date
of the Option as specified in Section 3, but only with respect to the number of
Shares which the Optionee could have acquired by an exercise of the Option
immediately before the Termination of Employment. The right to exercise will
expire at the earlier of the expiration of the Option Period or two (2) years
after the Optionee's Termination of Employment for any reason other than
Termination for Cause. Any Option exercised under this Section may be exercised
by the legal representative of the estate of the Optionee or by the Person(s)
who acquire the right to exercise such Option by bequest or inheritance. If the
Committee determines in a particular case that the Optionee's Termination of
Employment was the result of Termination for Cause, the right to exercise the
Option shall immediately terminate upon Termination of Employment.
"Termination for Cause" shall mean: (i) in the case of an Optionee who is
an Employee, a termination by the employer of the Optionee's employment for
"cause," as defined by any applicable contract of employment, or, if not defined
therein (or following termination of any such contract of employment), for
Cause, as defined below; and (ii) in the case of an Optionee who is or which is
an Advisor, a termination of the services relationship by the hiring party for
"cause" or breach of contract, as defined by any applicable contract of
engagement between the parties, or, if not defined therein (or following
termination of any such contract of engagement), for Cause, as defined below.
For purposes of this Agreement, "Cause" shall mean that one or more of the
following has occurred: (a) the commission by the Optionee of any act
materially detrimental to the Company, a Subsidiary or a Parent, including
fraud, embezzlement, theft, bad faith, gross negligence, recklessness or willful
misconduct; (b) incompetence or repeated failure or refusal to perform the
duties required of the Optionee by the Company, a Subsidiary or a Parent; (c)
conviction of a felony or of any crime of moral turpitude to the extent
materially detrimental to the Company, a Subsidiary or a Parent; or (d) any
material misrepresentation by the Optionee to the Company, a Subsidiary or a
Parent regarding the operation of the business, provided that the action or
conduct described in clause (b) above will constitute "Cause" only if such
action or conduct continues after the Company, a Subsidiary or a Parent has
provided the Optionee with written notice thereof and a reasonable opportunity
(to be not less than thirty (30) days) to cure the same.
SECTION 9 -- RESTRICTIONS ON TRANSFER OF SHARES
----------------------------------
Shares issued pursuant to the exercise of the Option shall be subject to
the restrictions on transfer set forth in Section 9 of the Plan.
4
<PAGE>
SECTION 10 -- ACKNOWLEDGMENTS
---------------
The Optionee acknowledges receipt contemporaneously herewith of a copy of
the Plan, and the Optionee represents that he/she is familiar with the terms and
provisions thereof and hereby accepts the Option subject to all the terms and
provisions thereof. The Optionee acknowledges that nothing contained in the
Plan or this Agreement shall (a) confer upon the Optionee any rights to
employment by the Company or any corporation related to the Company; or (b)
interfere in any way with the right of the Company, any Subsidiary or any Parent
to terminate the Optionee's employment or advisory relationship with the Company
or such Subsidiary or Parent or change the Optionee's compensation at any time.
The Optionee further acknowledges that, notwithstanding any information provided
in this Agreement, the Plan or any documentation related to or provided in
conjunction with this Agreement or the Plan regarding the Option, the Company
has given no tax advice concerning the Option and has advised the Optionee to
consult with his or her own tax or financial advisor about the tax treatment of
the Option and its exercise.
SECTION 11 -- REPRESENTATIONS AND WARRANTIES OF OPTIONEE
------------------------------------------
The Optionee represents and warrants that he or she is acquiring the
Option, and will acquire any Shares obtained upon exercise of the Option, for
investment purposes only, for the Optionee's own account, and with no view to
the distribution thereof.
SECTION 12 -- TERM OF AGREEMENT
-----------------
This Agreement shall terminate upon the earlier of (i) complete exercise or
termination of the Option; (ii) mutual agreement of the parties; or (iii)
expiration of the Option Period.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
effective as of the date set forth in the preamble hereto.
OPTIONEE AEI HOLDING COMPANY, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
5
<PAGE>
EXHIBIT 23.1
To: AEI Resources Holding, Inc.
As independent public accountants, we hereby consent to the use of our reports
included in this Registration Statement on Form S-4 (Amendment No. 1) for the
registration of 10.5% $200 million Senior Notes due 2005 (Registration
Statement File No. 333-72327) on our audits of the following financial
statements:
Company Report Date
- - ------- -----------
AEI Resources Holding, Inc. April 9, 1999
AEI Holding Company, Inc. April 9, 1999
Employee Benefits Management, Inc. April 9, 1999
Leslie Resources, Inc. and
Leslie Resources Management, Inc. March 20, 1998
Mid-Vol Leasing, Inc. and Affiliates April 23, 1998
/s/ Arthur Andersen LLP
Louisville, Kentucky
April 26, 1999
<PAGE>
Exhibit 23.2(a)
[DELOITTE & TOUCHE LOGO] [DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-72327 of AEI Resources, Inc. and AEI Holding Company, Inc., of our report
dated February 5, 1998 relating to the consolidated financial statements of
Zeigler Coal Holding Company, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Historical
Consolidated Financial Data" and in such Prospectus.
/s/ Deloitte & Touche LLP
April 26, 1999
<PAGE>
EXHIBIT 23.2(b)
[LETTERHEAD OF DELOITTE & TOUCHE LLP APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-72327 of AEI Resources, Inc. and AEI Holding Company, Inc. on Form S-4 of
our report dated April 3, 1998 (May 15, 1998 as to note 6 and August 17, 1998 as
to note 16), appearing in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
Louisville, Kentucky
April 27, 1999
<PAGE>
EXHIBIT 23.2(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statements No.
333-72327 and No. 333-72355 of AEI Resources, Inc. and AEI Holding Company,
Inc. on Forms S-4 of our report dated January 7, 1999 relating to the financial
statements of Martiki Coal Corporation which expresses an unqualified opinion
and includes an explanatory paragraph relating to the non-comparability of
predecessor and successor financial statements due to the business combination
on August 1, 1996 and the resulting application of purchase accounting,
appearing in the Prospectus, which is part of such Registration Statements.
We also consent to the reference to us under the heading "Selected Financial
Data" in such Prospectus.
/s/ Deloitte & Touche LLP
Tulsa, Oklahoma
February 11, 1999
<PAGE>
EXHIBIT 23.4
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made part of this
registration statement.
/s/ Facey, Schmitt & Company, PSC
Facey, Schmitt & Company, PSC
Frankfort, Kentucky
Aril 27, 1999
<PAGE>
Exhibit 23.5
CONSENT OF MARSHALL MILLER & ASSOCIATES
We hereby consent to: (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on:
(a) our reserve report of July 1997, as amended, with respect to the
demonstrated coal reserves of Leslie Resources, Inc. and Leslie Resources
Management, Inc. and its subsidiaries, as such report was updated in September
1998; (b) our reserve report of September 1997, as amended, with respect to the
demonstrated coal reserves of AEI Holding Company, Inc. (the "Company") and its
subsidiaries, as such report was updated in September 1998; (c) our reserve
report of April 1998, with respect to the demonstrated coal reserves of the
various subsidiaries of Cyprus Amax Coal Company acquired by AEI Resources, Inc.
("AEI") on June 29, 1998; (d) our reserve report of November 1997, with respect
to the demonstrated coal reserves acquired by CC Coal Company, an indirect
subsidiary of AEI, from The Battle Ridge Companies on July 24, 1998; (e) our
reserve report of May 1998, with respect to the demonstrated coal reserves of
Mid-Vol Leasing, Inc., Mega Minerals, Inc. and Premium Processing, Inc., which
were acquired by AEI on July 10, 1998; and (f) our reserve report of October
1998, with respect to the demonstrated coal reserves of Martiki Coal
Corporation, which was acquired by AEI on November 6, 1998, all of which are
included in the prospectus of the Company and AEI for the registration of
US$200,000,000 of the 102% Senior Notes of the Company and AEI due 2005, which
prospectus is part of the registration statement to which this consent is an
exhibit.
We further wish to advise that Marshall Miller & Associates was not
employed on a contingent basis and that at the time of preparation of our
report, as well as at present, neither Marshall Miller & Associates nor any of
its employees had or now has a substantial interest in the Company, AEI or any
of their respective subsidiaries.
Respectfully submitted,
Marshall Miller & Associates
By: /s/ J. Scott Nelson
Name: J. Scott Nelson
Title: Vice President
Date: April 21, 1999
<PAGE>
Exhibit 23.6
CONSENT OF WEIR INTERNATIONAL MINING CONSULTANTS
We hereby consent to: (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on
our 1994 reserve report, as updated in May 1998, with respect to the
demonstrated coal reserves of Zeigler Coal Holding Company and its subsidiaries,
which were acquired by Zeigler Acquisition Corporation, a subsidiary of AEI
Resources, Inc. ("AEI"), on September 2, 1998, all of which are included in the
prospectus of AEI Holding Company, Inc. ("the Company") and AEI for the
registration of US$200,000,000 of the 102% Senior Notes of the Company and AEI
due 2005, which prospectus is part of the registration statement to which this
consent is an exhibit.
We further wish to advise that Weir International Mining Consultants was
not employed on a contingent basis and that at the time of preparation of our
report, as well as at present, neither Weir International Mining Consultants nor
any of its employees had or now has a substantial interest in the Company, AEI
or any of their respective subsidiaries.
Respectfully submitted,
Weir International Mining Consultants
By: /s/ Dennis Costich
Name: Dennis Costich
Title: President
Date: April 21, 1999
<PAGE>
Exhibit 23.7
CONSENT OF STAGG ENGINEERING SERVICES, INC.
We hereby consent to: (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on
our reserve report of February 1998, with respect to the demonstrated coal
reserves acquired by CC Coal Company, an indirect subsidiary of AEI Resources,
Inc. ("AEI"), from Addington Enterprises, Inc. (which previously acquired such
assets from Great Western Coal (Kentucky), Inc., d/b/a Crockett Collieries
(Kentucky), Inc. and Harley Land Company) on June 26, 1998, all of which are
included in the prospectus of AEI Holding Company, Inc. (the "Company") and AEI
for the registration of US$200,000,000 of the 102% Senior Notes of the Company
and AEI due 2005, which prospectus is part of the registration statement to
which this consent is an exhibit.
We further wish to advise that Stagg Engineering Services, Inc. was not
employed on a contingent basis and that at the time of preparation of our
report, as well as at present, neither Stagg Engineering Services, Inc. nor any
of its employees had or now has a substantial interest in the Company, AEI or
any of their respective subsidiaries.
Respectfully submitted,
Stagg Engineering Services, Inc.
By: /s/Alan K. Stagg
Name: Alan K. Stagg
Title: President
Date: April 21, 1999
<PAGE>
Exhibit 23.8
CONSENT OF NORWEST MINE SERVICES
We hereby consent to: (1) the reference to us under the captions "Coal
Reserve Data" and "Engineers"; and (2) the use of information from or based on
our reserve report of November 1997, as updated in August 1998, with respect to
the demonstrated coal reserves of Kindill Holding, Inc. and its subsidiaries,
which were acquired by West Virginia-Indiana Coal Holding Company, Inc., a
subsidiary of AEI Resources, Inc. ("AEI"), on September 2, 1998, all of which
are included in the prospectus of AEI for the registration of US$150,000,000 of
AEI's 112% Senior Subordinated Notes due 2006, which prospectus is part of the
registration statement to which this consent is an exhibit.
We further wish to advise that Norwest Mine Services was not employed on a
contingent basis and that at the time of preparation of our report, as well as
at present, neither Norwest Mine Services nor any of its employees had or now
has a substantial interest in AEI or any of its subsidiaries.
Respectfully submitted,
Norwest Mine Services
By: /s/ Thomas Durham
Name: Thomas Durham
Title: Vice President
Date: April 21, 1999
