-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5EjlRGpdVOdPC+B/bCH+xWPIQ0tCTPn5hqESVPMi06BWDnmBb7qO9ou8oKa1S6G Hb3Nws1DyKDHlJCcsAYRFw== 0000950123-99-010701.txt : 19991206 0000950123-99-010701.hdr.sgml : 19991206 ACCESSION NUMBER: 0000950123-99-010701 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 32 FILED AS OF DATE: 19991203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER COAL GROUP INC CENTRAL INDEX KEY: 0001022356 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE SURFACE MINING [1221] IRS NUMBER: 521990183 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067 FILM NUMBER: 99768620 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26508 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VANTRANS INC CENTRAL INDEX KEY: 0001049059 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 222093700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-01 FILM NUMBER: 99768621 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGAN TOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWTHORNE COAL CO INC CENTRAL INDEX KEY: 0001049060 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550742562 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-02 FILM NUMBER: 99768622 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KING KNOB COAL CO INC CENTRAL INDEX KEY: 0001049061 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550488823 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-03 FILM NUMBER: 99768623 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGAN TOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARINE COAL SALES CO CENTRAL INDEX KEY: 0001049062 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133307813 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-04 FILM NUMBER: 99768624 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER WEST VIRGINIA MINING CORP INC CENTRAL INDEX KEY: 0001049063 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550488823 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-05 FILM NUMBER: 99768625 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGAN TOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELROSE COAL CO INC CENTRAL INDEX KEY: 0001049064 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550746947 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-06 FILM NUMBER: 99768626 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQU CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER POWER SERVICES INC CENTRAL INDEX KEY: 0001049065 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550700346 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-07 FILM NUMBER: 99768627 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGAN TOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UPSHUR PROPERTY INC CENTRAL INDEX KEY: 0001049066 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 95448172 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-08 FILM NUMBER: 99768628 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEATHER GLEN RESOURCES INC CENTRAL INDEX KEY: 0001049067 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550746946 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-09 FILM NUMBER: 99768629 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VINDEX ENERGY CORP CENTRAL INDEX KEY: 0001049068 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550753903 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-10 FILM NUMBER: 99768630 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ALLEGHENY LAND HOLDINGS CO INC CENTRAL INDEX KEY: 0001049069 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 311568515 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-11 FILM NUMBER: 99768631 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER GROUP INC CENTRAL INDEX KEY: 0001049071 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132961732 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-12 FILM NUMBER: 99768632 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATRIOT MINING CO INC CENTRAL INDEX KEY: 0001049072 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550550184 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-13 FILM NUMBER: 99768633 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER VIRGINIA MINING CO INC CENTRAL INDEX KEY: 0001049073 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541867395 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-14 FILM NUMBER: 99768634 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANKER ENERGY CORP CENTRAL INDEX KEY: 0001049099 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510217205 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-15 FILM NUMBER: 99768635 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRONCO MINING CO INC CENTRAL INDEX KEY: 0001049100 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 222094405 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-16 FILM NUMBER: 99768636 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JULIANA MINING CO INC CENTRAL INDEX KEY: 0001049101 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 550568083 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-17 FILM NUMBER: 99768637 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMBA GROUP INC CENTRAL INDEX KEY: 0001100331 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE SURFACE MINING [1221] IRS NUMBER: 550753900 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-92067-18 FILM NUMBER: 99768638 BUSINESS ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26508 BUSINESS PHONE: 3045941616 MAIL ADDRESS: STREET 1: 2708 CRANBERRY SQUARE CITY: MORGANTOWN STATE: WV ZIP: 26508 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1999. REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- ANKER COAL GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1222 52-1990183 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
--------------- 2708 CRANBERRY SQUARE MORGANTOWN, WEST VIRGINIA 26508 (304) 594-1616 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) B. JUDD HARTMAN, ESQ. VICE PRESIDENT OF LEGAL AFFAIRS ANKER COAL GROUP, INC. 2708 CRANBERRY SQUARE MORGANTOWN, WEST VIRGINIA 26508 (304) 594-1616 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- WITH A COPY TO: MEREDITH B. CROSS, ESQ. WILMER, CUTLER & PICKERING 2445 M STREET, N.W. WASHINGTON, D.C. 20037 (202) 663-6000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [x] 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 register 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
======================================================================================================= Title Of Each Class Of Securities To Be Amount Proposed Maximum Registered To Be Offering Price Per Registered Unit - ------------------------------------------------------------------------------------------------------- 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through $113,556,000 (2) 100% April 1, 2000)........................................ - ------------------------------------------------------------------------------------------------------- Guarantees of 14.25% Series B Second Priority Senior Secured Notes due 2007 $113,556,000 (2) 100% (PIK through April 1, 2000) (3)....................... =======================================================================================================
======================================================================================================= Title Of Each Class Of Securities To Be Proposed Maximum Amount of Registered Aggregate Offering Registration Fee Price (1) - ------------------------------------------------------------------------------------------------------- 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through $113,556,000 (2) $29,979 April 1, 2000)........................................ - -------------------------------------------------------------------------------------------------------- Guarantees of 14.25% Series B Second Priority Senior Secured Notes due 2007 $113,556,000 (2) $0 (4) (PIK through April 1, 2000) (3)....................... ==========================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) Includes $7,553,000 principal amount of notes that will be paid in lieu of the April 1, 2000 cash interest payment on the notes. (3) See inside facing page for table of additional registrant guarantors. (4) 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 TABLE OF ADDITIONAL REGISTRANT GUARANTORS
STATE OR OTHER ADDRESS INCLUDING ZIP CODE, AND JURISDICTION OF I.R.S. EMPLOYER TELEPHONE NUMBER INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT GUARANTOR INCORPORATION OR IDENTIFICATION REGISTRANT GUARANTOR'S AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES ------------------------------------ ------------------- ------------------ ---------------------------------------- Anker Energy Corporation Delaware 51-0217205 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Anker Group, Inc. Delaware 13-2961732 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Anker Power Services, Inc. West Virginia 55-0700346 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Anker Virginia Mining Company, Inc. Virginia 54-1867395 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Anker West Virginia Mining Company, West Virginia 55-0699931 2708 Cranberry Square Inc. Morgantown, West Virginia 26508 (304) 594-1616 Bronco Mining Company, Inc. West Virginia 22-2094405 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Hawthorne Coal Company, Inc. West Virginia 55-0742562 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Heather Glen Resources, Inc. West Virginia 55-0746946 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Juliana Mining Company, Inc. West Virginia 55-0568083 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 King Knob Coal Co., Inc. West Virginia 55-0488823 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Marine Coal Sales Company Delaware 13-3307813 645 West Carmel Drive Carmel, Indiana 46032 (317) 844-6628 Melrose Coal Company, Inc. West Virginia 55-0746947 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 New Allegheny Land Holding Company, West Virginia 31-1568515 2708 Cranberry Square Inc. Morgantown, West Virginia 26508 (304) 594-1616 Patriot Mining Company, Inc. West Virginia 55-0550184 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Simba Group, Inc. Delaware 55-0753900 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616
i 3 STATE OR OTHER ADDRESS INCLUDING ZIP CODE, AND JURISDICTION OF I.R.S. EMPLOYER TELEPHONE NUMBER INCLUDING AREA CODE, OF EXACT NAME OF REGISTRANT GUARANTOR INCORPORATION OR IDENTIFICATION REGISTRANT GUARANTOR'S AS SPECIFIED IN ITS CHARTER ORGANIZATION NUMBER PRINCIPAL EXECUTIVE OFFICES ------------------------------------ ------------------- ------------------ ---------------------------------------- Upshur Property, Inc. Delaware 95-4484172 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Vantrans, Inc. Delaware 22-2093700 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616 Vindex Energy Corporation West Virginia 55-0753903 2708 Cranberry Square Morgantown, West Virginia 26508 (304) 594-1616
ii 4 SUBJECT TO COMPLETION, DATED DECEMBER 3, 1999 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 SALE IS NOT PERMITTED. PROSPECTUS [ANKER LOGO] ANKER COAL GROUP, INC. --------------- EXCHANGE OFFER FOR 14.25% SECOND PRIORITY SENIOR SECURED NOTES DUE 2007 (PIK THROUGH APRIL 1, 2000) This is an offer to exchange up to $106,003,000 in principal amount of our outstanding, unregistered 14.25% Second Priority Senior Secured Notes Due 2007 (PIK through April 1, 2000) for a like amount of new, substantially identical 14.25% Second Priority Senior Secured Notes that will be free of the transfer restrictions that apply to the outstanding notes. We will also issue, when due, up to $7,553,000 in principal amount of additional new notes in payment of the April 1, 2000 interest payment on the notes. This offer will expire at 5:00 p.m., New York City time, on , unless we extend it. The new notes will not trade on any established exchange. --------------- PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER. --------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES TO BE DISTRIBUTED IN THIS 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. --------------- 5 TABLE OF CONTENTS
PAGE ---- Summary...............................................................................................................3 Risk Factors.........................................................................................................10 Use of Proceeds......................................................................................................20 Capitalization.......................................................................................................21 Unaudited Pro Forma Consolidated Financial Statements................................................................23 Selected Financial Data..............................................................................................28 Historical and Pro Forma Ratio of Earnings to Fixed Charges..........................................................30 Management's Discussion and Analysis of Financial Condition and Results of Operation.................................31 The Coal Industry....................................................................................................42 Business.............................................................................................................47 Management...........................................................................................................62 Security Ownership of Certain Beneficial Owners and Management.......................................................67 Certain Relationships and Related Transactions.......................................................................69 The Exchange Offer...................................................................................................73 Description of the New Notes.........................................................................................79 Description of the Old Notes........................................................................................106 Description of Other Indebtedness...................................................................................108 Description of the Capital Stock....................................................................................112 Description of the Warrants.........................................................................................115 Material United States Federal Income Tax Consequences..............................................................119 Plan of Distribution................................................................................................125 Where You Can Find More Information.................................................................................125 Legal Matters.......................................................................................................125 Experts.............................................................................................................126 Index to Consolidated Financial Statements..........................................................................F-1 Report of Marshall Miller & Associates......................................................................... Annex A
2 6 SUMMARY This summary highlights information contained elsewhere in this prospectus. It may not contain all the information that is important to you. We encourage you to read this entire prospectus carefully. ABOUT ANKER COAL GROUP We are a producer of coal that is used principally to generate electricity and to produce coke for use in making steel. We currently own or control substantial coal reserves in West Virginia, Maryland, Virginia and Kentucky. We currently operate a portfolio of seven deep mines and one surface mine that are located in West Virginia and Maryland. We recently changed from operating our deep mines with our own employees to using contract miners to operate these deep mines for us. Our coal mines and reserves are located in close proximity to rail and water transportation services or are within short trucking distances to power plants. We primarily market and sell our coal to electric utilities located in the Northeastern and mid-Atlantic states. The utilities that we currently sell our coal to use modern generating processes that will allow them to continue using our coal after implementation of Phase II of the Clean Air Act. In addition to selling coal that we produce from our own mines, we also sell coal that we purchase from other producers, which is referred to as brokered coal. In addition, we arrange for coal that others produce to be sold to third parties, which is referred to as commission coal. Based on recent data published by the National Mining Association, we are one of the 30 largest coal producers and one of the 30 largest holders of coal reserves in the United States. We believe that we have the following competitive strengths: - PORTFOLIO OF LONG-TERM CONTRACTS. Our long-term contracts accounted for an average of approximately 75% of our coal sales revenues from 1994 to 1998. Our portfolio of long-term contracts provides us with stable sources of revenues to support the large expenditures needed to open, expand and maintain the mines that service those contracts. - DIVERSE PORTFOLIO OF RESERVES. We have increased our reserve base approximately 246% since 1992. We had approximately 508 million recoverable tons of coal as of October 1, 1999. The majority of our coal reserves are medium sulfur, and we also have coal reserves that comply with the requirements of the Clean Air Act, known as compliance coal. All of our coal is of a quality suitable for use in electricity generating facilities. - EXPERIENCED SENIOR MANAGEMENT TEAM. Our senior management team has many years of experience in the coal industry. Bruce Sparks, our president, has 21 years of experience in the coal industry and has worked with us for the past 14 years. William Kilgore, our chief executive officer and chairman of our board of directors, has 42 years of experience in the coal industry. We were organized as a Delaware corporation in August 1996 in order to effect a recapitalization of Anker Group, Inc., our predecessor. Anker Group, Inc. had been engaged in coal production since 1975. See "Business--Organization." --------------- Our common stock is not publicly traded. Our principal executive offices are located at 2708 Cranberry Square, Morgantown, West Virginia 26508, and our telephone number is (304) 594-1616. --------------- 3 7 THE EXCHANGE OFFER We summarize below the terms of the exchange offer. You should read the detailed description of the offer under "The Exchange Offer."
GENERAL.................................. We are offering up to $106,003,000 aggregate principal amount of new 14.25% second priority senior secured notes, the interest on which will be paid-in-kind with additional new notes instead of cash through April 1, 2000, in exchange for a like principal amount of outstanding, unregistered notes. We will also issue up to $7,553,000 aggregate principal amount of additional new notes as payment for the April 1, 2000 interest payment on the new notes. We issued the old notes on October 28, 1999 in a private exchange, private placement and private stockholder exchange. We are making the exchange offer in order to satisfy our obligations under a registration rights agreement with the holders of the old notes. EXPIRATION DATE.......................... 5:00 p.m., New York City time, on , or any subsequent date to which the exchange offer is extended. CONDITIONS TO THE EXCHANGE OFFER......... The exchange offer is not subject to any conditions other than that the offer does not violate applicable law or any applicable interpretation of the staff of the SEC. The offer is not conditioned upon any minimum principal amount of notes' being tendered. We reserve the right - to delay the acceptance of the notes for exchange, - to terminate the exchange offer, - to extend the expiration date of the exchange offer and retain all tendered notes, subject to the right of tendering holders to withdraw their tendered notes or - to waive any condition or otherwise amend the terms of the exchange offer in any respect. WITHDRAWAL RIGHTS........................ You may withdraw a tender of notes at any time on or prior to the expiration date by delivering a written notice of withdrawal to the exchange agent. PROCEDURES FOR TENDERING OLD NOTES....... In order to tender your notes, you must complete and sign a letter of transmittal in accordance with the letter's instructions. You must forward the letter of transmittal and any other required documents to the exchange agent, together with the notes to be tendered. Brokers, dealers, commercial banks, trust companies and other nominees may also tender notes by book-entry transfer. If your notes are registered in the name of one of these entities, you are urged to contact that person promptly if you wish them to tender notes. Please do not send letters of transmittal and certificates representing notes to us. Send them only to the exchange agent. The exchange agent can answer your questions regarding how to tender your notes. RESALES OF NEW NOTES..................... We believe that the new notes issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, if - you are acquiring the new notes in the ordinary course of your business, - you are not participating, and have no arrangement or understanding to participate, in the distribution of the new notes and - you are not an affiliate of us. An "affiliate" of us is a person that "controls or is controlled by or is under common control with" us. Our belief is based on SEC staff interpretations in no-action letters issued to third parties unrelated to us. The staff has not considered our exchange offer in the context of a no-action letter, and we cannot assure you that the staff would make a similar determination with respect to this exchange offer.
4 8 Each broker-dealer that receives new notes for its own account in exchange for old notes that it acquired as a result of market-making or other trading activities must agree to deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the new notes. See "The Exchange Offer -- Resale of New Notes" and "Plan of Distribution." INTEREST.......................................... We will pay accrued interest on old notes you exchange to, but not including, the issuance date of the new notes. We will pay this interest to you with the first interest payments on the new notes. As noted above, we will make this interest payment by issuing notes. EXCHANGE AGENT.................................... The exchange agent is The Bank of New York. The exchange agent's address and telephone and facsimile numbers are set forth in "The Exchange Offer -- Exchange Agent" and in the letter of transmittal. USE OF PROCEEDS................................... We will not receive any cash proceeds from the issuance of the new notes. The proceeds from the initial sale of notes in the private placement were approximately $11.2 million, which was used to repay outstanding amounts under our senior credit facility. We issued the remaining old notes in a private exchange for $108.5 million in principal amount of our 9 3/4% Series B Senior Notes due 2007 and cancellation of our obligations to a former stockholder. See "Use of Proceeds." MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...................................... We have received a tax opinion from our tax counsel, Wilmer, Cutler & Pickering, on the material United States federal income tax consequences of the exchange offer. You should review the information set forth in "Material United States Federal Income Tax Consequences" prior to tendering old notes in the exchange offer.
5 9 THE NEW NOTES We summarize below the key terms of the new notes. You should read the detailed description of the notes under "Description of the New Notes."
ISSUER................................. Anker Coal Group, Inc. TERMS OF NOTES OFFERED................. The terms of the new notes will be identical in all material respects to the old notes, except that the new notes will not contain transfer restrictions. MATURITY............................... September 1, 2007. INTEREST............................... Payable semi-annually in cash on April 1 and October 1 of each year. We will pay the interest payment on the new notes due April 1, 2000 in kind by issuing $71.25 principal amount of additional new notes in lieu of cash interest due on each $1,000 principal amount of new notes on that date. After that, interest payments will be made in cash. SECURITY............................... The new notes will have a security interest in substantially all of our assets other than - mobile equipment; - cash and cash equivalents, except that there will be a security interest in proceeds of collateral and cash held by the trustee for the new notes; and - real property located in Maryland and those real property interests located in West Virginia that currently cannot be used in our mining operations, as specified in the indenture that governs the new notes, and related coal reserves, fixtures, equipment, improvements, structures, buildings and water processing equipment and systems. If and when we grant a lien on our Maryland real property to secure our senior credit facility, we will also grant a junior lien on the same property to secure the new notes. The lien securing payment of the new notes will rank junior to the lien securing our senior credit facility. While our senior credit facility or any amended or replacement credit facility is outstanding, holders of new notes will be prohibited from exercising remedies against the collateral that secures both the new notes and indebtedness under the senior credit facility. See "Description of the New Notes--Security," "Description of Other Indebtedness--Credit Facility" and "Description of Other Indebtedness--Intercreditor Agreement." RANKING................................ The new notes will rank equally in right of payment with any of our existing and future senior indebtedness and will rank senior to all of our subordinated indebtedness. The lien securing payment of the new notes will rank junior to the lien securing our senior credit facility. While our senior credit facility or any amended or replacement credit facility is outstanding, holders of new notes will be prohibited from exercising remedies against the collateral that secures both the new notes and indebtedness under the senior credit facility. See "Description of the New Notes--Security," "Description of Other Indebtedness--Credit Facility" and "Description of Intercreditor Agreement." GUARANTEES............................. Our obligations under the new notes will be jointly and severally guaranteed, fully and unconditionally, by each of our existing and future wholly-owned subsidiaries, other than those subsidiaries that, both individually and in the aggregate, are inconsequential to our business and financial condition. OPTIONAL REDEMPTION.................... We may redeem any of the notes at any time. If we voluntarily redeem any notes on or before September 30, 2000, the redemption price will be 104% of the principal amount, plus accrued interest. The redemption price will decline each year after 2000 and will be 100% of the principal amount, plus accrued interest, beginning on October 1, 2003. CHANGE OF CONTROL...................... Upon a change of control, as defined later in this prospectus, we are required to make an offer to purchase the notes. The purchase price will equal 101% of the principal amount of the notes on the date of purchase, plus accrued interest. We may not have sufficient funds available at the time of any change of control to make any required debt repayment, including repurchases of the notes.
6 10 COVENANTS.............................. The indenture governing the notes contains covenants with which we must comply, including: - We may not sell assets unless we receive fair market value and at least 75% of the consideration is in cash or assets to be used in our coal mining business. We must use proceeds of permitted assets sales for permitted purposes or to redeem notes. - We may not make restricted payments -- such as cash dividends on capital stock, repurchases or redemptions of stock or investments in or loans to unrestricted entities in which we have an interest -- unless we meet a series of requirements or an exemption applies. These requirements include that there be no default under the indenture either before or after the payment, that we meet a financial test and that all payments in question not exceed a cap calculated based on our income and cash receipts. - We may not incur additional indebtedness or issue stock that we can be required to redeem sooner than 91 days after the notes mature if, treating the transaction as if it had occurred at the beginning of the previous four fiscal quarters, our consolidated cash flow for that four-quarter period would be less than 2.25 times the sum of our consolidated interest expense and the pretax amount necessary to pay cash dividends on our preferred stock. - We may not incur indebtedness that ranks below our senior debt but ahead of the notes. - We may not pledge our assets as collateral for any debt for borrowed money that ranks equally with or below the notes, unless the notes also get the benefit of the pledge. If we grant a lien on real property located in Maryland to secure our senior credit facility, we must also grant a junior lien on the same property to secure the notes. - We generally may not allow our subsidiaries to be subject to restrictions on their ability to pay money or transfer assets to us. - We and our subsidiaries may not enter into transactions with major stockholders or persons they control, are controlled by or are under common control with, unless the transaction is fair and we comply with specified procedures. - Neither we nor our subsidiaries may engage in any business that is not a permitted business, as defined in the indenture, unless that other business would not be material to our subsidiaries and us, taken as a whole. - We may not pay noteholders to waive their rights under, or modify terms of, the indenture unless we make the same offer to all noteholders. Each of these covenants is subject to other qualifications and exceptions, which are set forth in detail in "Description of the New Notes -- Covenants." In addition, our senior credit facility contains covenants that are more restrictive than these. BOOK-ENTRY: DELIVERY AND FORM......... New notes exchanged for old notes will be held in book-entry form by The Depository Trust Company. DTC and its participants will maintain the records of beneficial ownership of the notes and of transfers of notes.
RISK FACTORS You should consider carefully the matters relating to us, our business and an investment in the notes described in "Risk Factors." 7 11 SUMMARY OF HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA The following table is a summary of our historical and unaudited pro forma consolidated financial data for the three years ended December 31, 1998 and for the nine months ended September 30, 1999 and 1998. We derived the historical consolidated financial data for each of the three years in the period ended December 31, 1998 from our audited consolidated financial statements appearing elsewhere in this prospectus. We derived the historical consolidated financial data as of September 30, 1999 and for the nine months ended September 30, 1999 and 1998 from our unaudited consolidated financial statements. The unaudited adjusted combined statements of operations data and other data for the year ended December 31, 1996 combine the audited results of operations of our predecessor, Anker Group, Inc., for the period January 1, 1996 to July 31, 1996, and of us for the period from August 1, 1996 to December 31, 1996. The pro forma statement of operations data and other data for the year ended December 31, 1998 and the nine months ended September 30, 1999 give effect to the following transactions as if each transaction had occurred on January 1, 1998: - the private placement of the old notes and the application of the proceeds from the private placement, - the private stockholder exchange of old notes in exchange for cancellation of the shares of our common stock owned by a stockholder and that stockholder's relinquishment of its right to require us to buy that stock over time and - the private exchange of old notes for our previously issued 9 3/4% notes. We have based the unaudited pro forma adjustments upon available information and assumptions that we believe are reasonable. The pro forma consolidated data do not purport to represent what our consolidated results of operations would have been had the transactions described above actually occurred at the beginning of the relevant period. In addition, the unaudited pro forma financial data do not purport to project our consolidated results of operations for the current year or any future date or period. The adjustments set forth in the following table do not reflect a one-time increase in general and administrative expenses related to the write-off of approximately $1.2 million of fees and other financing costs incurred in connection with the private exchange and private placement. The adjustments also do not include a one-time projected income tax liability of $7.0 million associated with the private exchange. Adjusted EBITDA and Pro Forma Adjusted EBITDA represent our earnings before interest, taxes, depreciation, depletion, amortization, non-cash stock compensation and non-recurring related expenses, loss on impairment of investment and restructuring charges, life insurance proceeds, financial restructuring charges and extraordinary items. Adjusted EBITDA and Pro Forma Adjusted EBITDA should not be considered as alternatives to operating earnings (loss) or net income (loss), as determined in accordance with generally accepted accounting principles, as a measure of our operating performance. Nor should they be considered as alternatives to net cash provided by operating, investing and financial activities, as determined in accordance with generally accepted accounting principles, as a measure of our ability to meet cash needs. We have included Adjusted EBITDA and Pro Forma Adjusted EBITDA because we use Adjusted EBITDA and Pro Forma Adjusted EBITDA to assess our financial performance and some of the covenants in our loan agreement and indentures are tied to similar measures. Since all companies and analysts do not necessarily calculate Adjusted EBITDA and Pro Forma Adjusted EBITDA in the same fashion, Adjusted EBITDA and Pro Forma Adjusted EBITDA as presented in this prospectus may not be comparable to similarly titled measures other companies report. You should read the following information together with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and our consolidated financial statements and related notes included elsewhere in this prospectus. 8 12
ANKER COAL GROUP, INC. ---------------------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ---------------------------- ------------------------------ 1999 1998 1998 1997 ---------- ---------- -------------- ---------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Coal sales and related revenue $174,293 $226,111 $291,426 $322,979 Operating expenses: Cost of operations and selling expenses 157,419 214,443 276,469 295,387 Depreciation, depletion and amortization 13,430 13,009 18,150 17,470 General and administrative 6,781 7,767 9,076 9,462 Loss on impairment of investment and restructuring charges 4,526 7,346 90,717 8,267 Stock compensation and related expenses - - - - ------------ ------------- ------------ ----------- Operating (loss) income (7,863) (16,454) (102,986) (7,607) Interest expense (10,911) (9,421) (13,066) (10,042) Other income, net 2,579 821 2,805 2,083 Life insurance proceeds - - - 15,000 ------------ ------------- ------------ ----------- (Loss) income before income taxes and extraordinary item (16,195) (25,054) (113,247) (566) Income tax (benefit) (200) (7,015) (7,643) (1,242) ----------- ------------ ----------- ----------- (Loss) income before extraordinary item (15,995) (18,039) (105,604) 676 Extraordinary item (1) - - 965 3,849 ------------ ------------- ---------- ----------- Net (loss) income (15,995) (18,039) (106,569) (3,173) Preferred stock dividends and accretion (2) (1,505) (1,454) (1,937) (1,876) Common stock available for repurchase accretion (421) - - - ----------- ------------- ---------- ----------- Net (loss) income available to common stockholders $ (17,921) $ (19,493) $ (108,506) $ (5,049) =========== ============ =========== ============ OTHER DATA: Adjusted EBITDA $ 13,428(3) $ 4,722 $ 8,686 $ 20,213 CASH FLOW DATA: Net cash provided by (used in) operating activities $ (1,543) $ (1,446) $ (5,465) $ ( 5,047) Net cash (used in) provided by investing activities (2,194) (7,442) (8,134) (47,025) Net cash (used in) provided by financing activities 3,743 9,819 13,614 51,516 BALANCE SHEET DATA (AT PERIOD END): Working (deficit) capital $ (8,283) $ (4,262) $ 21,499 Total assets 187,042 201,720 304,650 Total long-term debt (4) 149,591 142,711 133,599 Mandatorily redeemable preferred stock 26,093 24,588 22,651 Common stock available for repurchase (4) 10,586 10,000 - Total stockholder's (deficit) equity (65,797) (47,876) 75,730
ANKER COAL GROUP, INC. PRO FORMA --------------------------------------------- ADJUSTED COMBINED NINE MONTHS FOR THE YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1996 1998 1999 ------------------------ -------------------- -------------------- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Coal sales and related revenue $290,155 $291,426 $174,293 Operating expenses: Cost of operations and selling expenses 259,579 276,469 157,419 Depreciation, depletion and amortization 14,319 18,150 13,430 General and administrative 7,534 9,076 6,025 Loss on impairment of investment and restructuring charges - 90,717 4,526 Stock compensation and related expenses 2,969 - - ----------- --------- --------- Operating (loss) income 5,754 (102,986) (7,107) Interest expense (4,886) (15,932) (13,313) Other income, net 1,480 2,805 2,579 Life insurance proceeds - - - ----------- --------- --------- (Loss) income before income taxes and extraordinary item 2,348 (116,113) (17,841) Income tax (benefit) 351 (7,643) (200) ----------- ---------- ---------- (Loss) income before extraordinary item 1,997 (108,470) (17,641) Extraordinary item (1) - 965 - ----------- --------- --------- Net (loss) income 1,997 (109,435) (17,641) Preferred stock dividends and accretion (2) (891) (1,937) (1,505) Common stock available for repurchase accretion - - - ----------- --------- --------- Net (loss) income available to common stockholders $ 1,106 $(111,372) $ (19,146) =========== ========= ========= OTHER DATA: Adjusted EBITDA $ 24,522 $ 8,686 $ 13,428 CASH FLOW DATA: Net cash provided by (used in) operating activities $ (564) Net cash (used in) provided by investing activities (84,968) Net cash (used in) provided by financing activities 86,088 BALANCE SHEET DATA (AT PERIOD END): Working (deficit) capital $ 7,410 Total assets 259,683 Total long-term debt (4) 88,029 Mandatorily redeemable preferred stock 20,775 Common stock available for repurchase (4) - Total stockholder's (deficit) equity 80,779
- ----------------------------- (1) Represents the write-off of unamortized debt issuance costs related to our credit facility in 1997 and our amended and restated credit facility in 1998. (2) Represents accrued and unpaid dividends and accretion on Class A mandatorily redeemable preferred stock. (3) Adjusted for $0.8 million of financial restructuring charges included in general and administrative expenses. (4) Includes current portion. See our consolidated financial statements included elsewhere in this prospectus. RATIO OF EARNINGS TO FIXED CHARGES Our earnings were insufficient to cover fixed charges for the years ended December 31, 1998 and 1997, and for the nine months ended September 30, 1999 and 1998. See "Historical and Pro Forma Ratio of Earnings to Fixed Charges." 9 13 RISK FACTORS You should consider carefully the risks below, as well as other information included in this prospectus, before making a decision to participate in the exchange offer. RISKS RELATED TO THE EXCHANGE OFFER THERE IS CURRENTLY NO PUBLIC TRADING MARKET FOR THE NOTES. IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THESE NOTES, YOU MAY NOT BE ABLE TO RESELL THEM. No active trading market currently exists for the notes and none may develop. The notes will not be listed on any securities exchange. The trading price may depend upon prevailing interest rates, the market for similar securities, and other factors, including general economic conditions and our financial condition, performance and prospects. If an active trading market does not develop, you may not be able to resell your notes at their fair market value or at all. NOTES THAT YOU DO NOT EXCHANGE WILL CONTINUE TO BE SUBJECT TO TRANSFER RESTRICTIONS AND MIGHT BECOME LESS LIQUID. We did not register the old notes under the Securities Act or any state securities laws. As a result, you may not offer, sell or otherwise transfer the old notes except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or in compliance with an exemption from those registration requirements. Old notes that you do not tender will, after the exchange offer, continue to bear a legend reflecting these restrictions on transfer. If you still hold notes that you have not tendered after the exchange offer, you will not be entitled to any rights to have those notes registered under the Securities Act. See "Description of the Old Notes." We do not intend to register any notes that you have not tendered after the exchange offer. Accordingly, it may be difficult for you to resell your old notes. The old notes are currently, and will remain, eligible for sale pursuant to Rule 144A through the Private Offerings, Resale and Trading through Automated Linkages market of the National Association of Securities Dealers, Inc. Your ability to sell unregistered notes that you have not tendered in the exchange offer could be adversely affected by other holders' tendering and receiving registered notes. We anticipate that most holders of old notes will exchange them for new notes. As more holders of old notes participate in the exchange, the liquidity of the market for any old notes that remain after the completion of the exchange offer may be substantially limited. Any old notes tendered and exchanged in the exchange offer will reduce the aggregate principal amount of the old notes outstanding. RISKS RELATED TO ANKER WE HAVE EXPERIENCED SIGNIFICANT LOSSES AND CASH FLOW PROBLEMS, AND THE OPINION OF OUR INDEPENDENT ACCOUNTANTS CONTAINS A GOING CONCERN EXPLANATORY PARAGRAPH WITH RESPECT TO OUR 1998 CONSOLIDATED FINANCIAL STATEMENTS. We recorded net losses of approximately $106.6 million for the year ended December 31, 1998 and approximately $16.0 million for the nine months ended September 30, 1999. The net losses include a loss on impairment of investment and restructuring charges of approximately $90.7 million for the year ended December 31, 1998, and approximately $4.5 million for the nine months ended September 30, 1999. Our independent public accountants have issued an opinion on our consolidated financial statements for the year ended December 31, 1998 that includes an explanatory paragraph as to our ability to continue as a going concern. As a result of the going concern explanatory paragraph, we will be required to provide security in order to obtain the reclamation bonds required before regulators will issue us new mining permits. This could include posting cash or cash equivalents for all or a part of the amount of the bonds. We have been and will continue to meet with our principal customers and suppliers to explain our financial condition. However, we may not be able to avoid adverse impacts caused by changes in the terms on which we do business with customers and suppliers. WE ARE IN THE PROCESS OF REVALUING OUR NON-OPERATING ASSETS AND WE CONTINUE TO EVALUATE THE CARRYING AMOUNT OF OTHER LONG-LIVED ASSETS, INCLUDING GOODWILL, WHICH COULD RESULT IN DOWNWARD ADJUSTMENTS OF THE VALUE OF THOSE ASSETS ON OUR BALANCE SHEET. In light of our financial condition, we have begun a review of the carrying values of our non-operating assets. We continue to review the carrying value of our other long-lived assets including goodwill by analyzing future cash flows compared to our carrying amounts. 10 14 Although we cannot predict the outcome of these reviews, we may make downward adjustments to the amounts recorded for those assets on our balance sheet. WE ARE HIGHLY LEVERAGED AND HAVE SIGNIFICANT DEBT SERVICE REQUIREMENTS. We have substantial indebtedness and significant debt service obligations. As of November 11, 1999, we had total long-term indebtedness in the amount of $135.9 million including current portion. For the nine-month period ended September 30, 1999, our earnings were insufficient to cover fixed charges in the amount of approximately $16.2 million. The indentures governing our debt securities permit us and our subsidiaries to incur additional indebtedness, including secured indebtedness, subject to limitations. Our high degree of leverage could have important consequences to the holders of our notes, including that - beginning October 1, 2000, a substantial portion of our cash from operations will be committed to the payment of debt service, - our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions is substantially limited, - our levels of indebtedness and interest expense limit our flexibility in reacting to changes in the business environment and - on September 1, 2007, the entire unpaid principal of our 14.25% Second Priority Senior Secured Notes will be due and payable. As of November 11, 1999, the total amount of our secured indebtedness and that of our subsidiaries that have guaranteed our indebtedness which would have effectively ranked senior to the notes was approximately $13.4 million. This includes our obligations and the subsidiary guarantors' obligations under our loan agreement with Foothill Capital Corporation, as agent, as well as other indebtedness secured by permitted liens. The obligations under the loan agreement with Foothill are secured by a first priority lien on substantially all of our assets and those of the subsidiary guarantors, other than real property located in Maryland. Amounts outstanding under the loan agreement with Foothill may be as much as $55.0 million, and the indentures governing our notes would permit us to incur up to $10.0 million of secured purchase money indebtedness with priority over the notes. As of November 11, 1999, the amount outstanding under the loan agreement with Foothill was $13.0 million, all of which was outstanding under the term loan portion. As of that date, there was $17.0 million of undrawn availability under the revolving credit portion of the loan agreement. Any amounts outstanding under our loan agreement with Foothill would effectively rank senior to the new notes and the guarantees of the subsidiaries guaranteeing the obligations under the new notes. Our ability to pay principal and interest on the notes and to satisfy our other debt service obligations, including the payments under the loan agreement with Foothill, will depend upon the future operating performance of our subsidiaries. The operating performance of our subsidiaries could be affected by many factors, including the availability of borrowings under the loan agreement with Foothill or successor facilities. To satisfy our debt service obligations, we may be required to refinance all or a portion of our existing indebtedness, including the notes, at or prior to maturity. We may also satisfy our debt servicing obligations by selling assets or raising equity capital. Additional financing to satisfy our debt service obligations may not be available to us on acceptable terms, if at all. OUR CURRENT FINANCIAL CONDITION HAS HAMPERED OUR DIVESTITURE STRATEGY. IN ADDITION, OUR EXISTING CREDIT FACILITY AND NOTES INDENTURES LIMIT OUR ABILITY TO USE ASSET SALE PROCEEDS IN OUR BUSINESS. Our business plan involves the sale of some of our non-operating assets and selected non-strategic operating properties. The non-operating assets that we are seeking to sell are those that we believe require substantial development costs or have significant holding costs. In our opinion, the operating properties that we plan to sell either complement non-operating assets being held for sale or are not integral to our long-term operating strategy. We have been discussing the sale of these properties with third parties. We believe that our financial condition has hampered our efforts to market these properties to date. Although we believe that we will be successful in selling all or a part of these assets during the next 12 to 24 months, we may not be able to complete these asset sales on terms acceptable to us, if at all. In addition, the loan agreement with Foothill requires us to use the first $5.0 million of asset sale proceeds to reduce our term loan from Foothill. Payments against the term loan cannot be reborrowed and therefore cannot be used to fund our operating costs or other expenses. As a result of this provision, we will not be able to use the first $5.0 million of asset sale proceeds to reinvest in our business, fund operations or service the indebtedness on our outstanding notes. 11 15 Furthermore, the indenture that governs the old notes and new notes requires that, twice per year, we offer to redeem the notes using 60% of excess proceeds, if any, after the first $1.0 million that we receive from asset sales, unless we use the proceeds within 120 days of our receiving them for specified purposes under the indenture. See "Description of the New Notes--Mandatory Redemption From Excess Asset Sale Proceeds." As a result of this provision, we may not be able to use these excess asset sale proceeds to fund operations or in our business, other than for capital expenditures made within 120 days of our receipt of the proceeds. THE TERMS OF THE AGREEMENTS GOVERNING OUR INDEBTEDNESS CONTAIN SIGNIFICANT RESTRICTIONS ON OUR OPERATIONS. The indentures governing our outstanding notes contain covenants that, among other things: - limit our ability and our subsidiaries' ability to incur additional indebtedness and issue preferred stock; - restrict our ability and the ability of our subsidiaries to pay dividends and make other restricted payments, including investments; - limit the ability of our subsidiaries to incur dividend and other payment restrictions that other parties impose; - limit our ability and that of our subsidiaries to conduct transactions with affiliates; - limit our ability and that of our subsidiaries to make asset sales; - limit our ability and that of our subsidiaries to incur liens; - limit our ability and that of our subsidiaries to use proceeds from permitted asset sales; - limit our ability to consolidate or merge with or into, or to transfer all or substantially all of our assets to, another person; and - limit our ability to engage in other lines of business. See "Description of the New Notes--Covenants." In addition, the loan agreement with Foothill contains additional and more restrictive covenants than the indentures and requires us to maintain specified financial ratios and satisfy various tests relating to our financial condition. Our ability to comply with the covenants in the indentures and the loan agreement may be affected by events beyond our control. The breach of any covenants or restrictions, if not cured within any applicable cure period, could result in a default under an indenture or the loan agreement, which would permit the holders of the notes, or the lenders under the loan agreement, to declare all amounts borrowed to be due and payable, together with accrued and unpaid interest. In the case of the lenders under the loan agreement, a default may allow the lenders to terminate their commitments to make further extensions of credit under the loan agreement. If we were unable to repay our indebtedness to the lenders under the loan agreement with Foothill, the lenders could proceed against any or all of the collateral securing the indebtedness under the loan agreement. The collateral consists of substantially all of our assets and those of the subsidiaries guaranteeing amounts borrowed under the loan agreement, other than real property located in Maryland, and includes all of the collateral securing the notes. In addition, if we fail to comply with the financial and operating covenants contained in the loan agreement, we may trigger an event of default under the loan agreement. An event of default could permit the acceleration of the debt incurred under the loan agreement and, in some cases, cross-acceleration and cross-default of indebtedness outstanding under other of our debt instruments, including the notes. See "Description of the New Notes--Covenants." WE ARE ORGANIZED AS A HOLDING COMPANY, AND WE DEPEND ON THE SUCCESS OF OUR OPERATING SUBSIDIARIES. OUR OPERATING SUBSIDIARIES ALSO HAVE SIGNIFICANT INDEBTEDNESS. We are a holding company and conduct all of our operations exclusively through our subsidiaries. Our only significant assets are the capital stock of our wholly-owned subsidiaries. As a holding company, we are dependent on dividends or other distributions of funds from our subsidiaries to meet our debt service and other obligations, including our obligations under the notes. Substantially all of our subsidiaries are guarantors under our outstanding notes. In addition, all of our operating subsidiaries are borrowers under, and other of our subsidiaries guarantee the indebtedness under, the loan agreement with Foothill. All obligations under the loan agreement are secured by a first priority lien on substantially all of our assets and those of our subsidiaries. WE DEPEND ON KEY CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND THE LOSS OF ONE OR MORE OF THEM COULD ADVERSELY AFFECT US. A substantial portion of our coal is sold under long-term coal supply contracts with a few key customers that are important to the stability and profitability of our operations. Our shipments to Potomac Electric Power Company accounted for 10% of our revenues in 1998, and we expect shipments to that customer to account for approximately 27% of our revenues in 1999. Our long-term contracts with companies related to AES Corporation accounted for more than 18% of our revenues in 1998, and we expect them to account for 12 16 approximately 18% of revenues in 1999. Our long-term contract with Virginia Electric Power Company accounted for approximately 11% of our revenues in 1998, and we expect them to account for approximately 10% of revenues in 1999. The loss of these or other long-term contracts could have a material adverse effect on our financial condition and results of operations. See "Business--Coal Marketing and Sales." In August 1999, to resolve disputes under one of our agreements with Virginia Electric Power Company, referred to as VEPCO, we entered into an amendment to that agreement. The amendment, among other things, gives VEPCO the right, but not the obligation, to terminate its contract to purchase coal from us since the West Virginia Division of Environmental Protection did not issue a permit for the resumption of operations at our Grant County surface mine by October 15, 1999. As of the date of this prospectus, the West Virginia Division of Environmental Protection has not issued the permit, although it has indicated by letter to us that it anticipates a favorable consideration of our application for the permit. By letter to us dated October 19, 1999, VEPCO informed us that it was not, as of that date, exercising its right to terminate its contract and that it expects not to do so if the permit is approved and issued in the near term. We do not know how long VEPCO will be willing to wait for us to receive the permit, how long it will take us to get the permit or whether we will ultimately get it. If the West Virginia Division of Environmental Protection's failure to issue the permit continues, however, and VEPCO exercises its right to cancel the contract, we intend to seek replacement buyers for the coal that is the subject of the contract with VEPCO. We cannot assure you, however, that any replacement sales would occur on terms as favorable to us as those of the VEPCO contract, if at all. An official of the West Virginia Division of Environmental Protection has advised us orally that it has decided to issue a permit covering a portion of the Grant County surface mine operation. We have not yet received written confirmation that the permit has been granted. See "--We have been unable to obtain a new mining permit for one of our important properties, which has caused reduced levels of coal production. We are uncertain if or when we will be able to obtain the permit" below. TRANSPORTATION COSTS REPRESENT A SIGNIFICANT PORTION OF THE DELIVERED COST OF COAL, AND INCREASES IN TRANSPORTATION COSTS COULD MAKE OTHER ENERGY SOURCES MORE COMPETITIVE WITH COAL. TRANSPORTATION DISRUPTIONS COULD IMPAIR OUR ABILITY TO SELL COAL. We depend on rail, trucking and barge transportation to deliver shipments of coal to customers. In 1998, we shipped approximately 60% of our coal tonnage by rail and 40% by truck and barge. Disruption of these transportation services, particularly rail, could temporarily impair our ability to supply coal to our customers and adversely affect our business and operating results. Transportation costs are a significant component of the total cost of supplying coal to customers and can affect significantly our competitive position and profitability. Increases in our transportation costs, or changes in our transportation costs relative to transportation costs that providers of competing coal or of other fuels incur, could have an adverse effect on our operations and business. CSX Transportation, Inc. currently ships all of our coal delivered by rail. CSX Transportation, Inc. and Norfolk Southern Corporation recently acquired Conrail, which had been one of our rail transportation providers. The integration of Conrail into CSX Transportation and Norfolk Southern began on June 1, 1999. Although we have not yet experienced any service disruptions because of the merger, disruptions in service may occur during the transition period. We do not know how long the transition period will last. Disruption of transportation services because of problems arising from the integration process or from weather-related problems, strikes, lock-outs or other events could impair our ability to supply coal to customers and could have a material adverse effect on our business, financial condition and results of operations. See "Business--Coal Transportation." OUR USE OF CONTRACT MINERS POSES BUSINESS RISKS, INCLUDING THE RISK OF A DECLINE IN COAL PRODUCTION. Our business plan includes improving cash flow by using contract mining services for all of our underground mining operations. We have converted all of our deep mines to contract mining. There is a risk that the contract miners will not be able to perform their obligations, including the requirements to produce specified amounts of coal, over the life of the contract mining agreements. While we have taken care in selecting the contract miners for our underground mines, each of our contract miners is owned by a single individual. In addition, as a general matter, contract mining companies are usually not well capitalized. If the owner of one of our contract mining companies were to die or if a contract miner began experiencing financial difficulties for any reason, there is a risk that the contract mining company would not be able to perform its obligations to us. In that event, we could experience a material decline in coal production, which could adversely affect our financial position. WE HAVE BEEN UNABLE TO OBTAIN A NEW MINING PERMIT FOR ONE OF OUR IMPORTANT PROPERTIES, WHICH HAS CAUSED REDUCED LEVELS OF COAL PRODUCTION. WE ARE UNCERTAIN IF OR WHEN WE WILL BE ABLE TO OBTAIN THE PERMIT. Coal production tonnage levels were lower in 1999 due in part to the idling of our Grant County surface mine in December 1998. We idled this surface mine because we had mined all of our then permitted coal reserves and were not able to obtain a new mining permit for our adjacent properties. A new mining permit for our adjacent properties would have allowed for the continuation of the surface 13 17 mining operation. With the idling of the surface mine, we have been unable to sell the portion of production from our Grant County deep mine that we previously had blended with coal from the surface mine. As a result of this and other factors, we idled the deep mine in February 1999, which further reduced tonnage levels. We are working with the appropriate regulatory agencies to try to get the necessary permits for the Grant County surface mine. An official with the West Virginia Division of Environmental Protection has advised us orally that this governmental agency has decided to issue a permit covering a portion of the Grant County surface mine operation so that we can resume mining at that operation. We have not yet received written confirmation that the permit has been granted. At this point, we are uncertain of when we will actually receive the necessary permit for the Grant County surface mine. Also, there is a risk that this agency will not issue the permit even though we have been advised that it will. Because this agency did not issue permit by October 15, 1999, VEPCO has the right, but not the obligation, to terminate one of its long-term coal contract with us. See "--We depend on key customers for a significant portion of our revenues, and the loss of one or more of them could adversely affect us" above. WE COULD HAVE INCOME TAX LIABILITY AS A RESULT OF THE RESTRUCTURING OF OUR 9 3/4% SERIES B SENIOR NOTES. As a result of the private restructuring of our 9 3/4% Series B Senior Notes, we may recognize significant cancellation of debt income. As a result of that income, we may incur income tax liabilities. We expect to be required to recognize cancellation of debt income in an amount equal to the difference between the face amount of the 9 3/4% notes and the issue price of the notes issued in exchange for the 9 3/4% notes. We expect to have accumulated net operating losses that would offset a portion of the cancellation of debt income that could result from the private restructuring. As of October 28, 1999, we had estimated that the tax liability could be as much as $7.0 million. That estimate is subject to uncertainty, and the actual tax liability may be less than that amount. We are currently finalizing our determination of the tax liability that will result from the private restructuring transaction. If we are required to pay tax, it will be due and payable on March 15, 2000. We intend to borrow the funds to pay any tax due from the revolving credit facility under the loan agreement with Foothill, which will materially reduce our borrowing availability that would have been available for our business operations. THE COAL MARKETS ARE HIGHLY COMPETITIVE AND AFFECTED BY FACTORS BEYOND OUR CONTROL. The coal industry is highly competitive, with numerous producers in all coal producing regions. Historically, we have competed with many other large producers as well as smaller producers in our region. However, because of significant consolidation in the coal industry over the past few years and other factors, we now compete against producers in other regions. In addition, some of our larger competitors have both the size of reserves and capital resources to utilize mining technologies we cannot which provide low cost production. In addition, the coal markets we serve are affected by many variables beyond our control. The coal markets are presently being affected by: - environmental and other governmental regulations, - deregulation of electric utilities, - consolidation within the rail transportation industry, - the increased role of electricity-based futures trading and - reduced term lengths of long-term sales contracts and a greater proportion of coal being purchased on a spot basis. In addition to these recent developments, other long-term factors will affect the continued demand for our coal and the prices that we will be able to obtain. These long-term factors include - the demand for electricity, - coal transportation costs, - technological developments and - the availability and price of alternative fuel supply sources, such as oil, natural gas, nuclear energy and hydroelectric energy. 14 18 WE ARE CONTROLLED BY ONE GROUP OF SHAREHOLDERS THAT HAS SIGNIFICANT INFLUENCE ON OUR DECISIONS. Approximately 53.24% of our fully-diluted outstanding common stock is owned by American Gas and Oil Investors, L.P., AmGo II, L.P., First Reserve Fund V-2, L.P., First Reserve Fund V, L.P., First Reserve Fund VI, L.P. and First Reserve Fund VII, L.P., all of which are under the common management of First Reserve Corporation. Accordingly, these funds are able to - elect a majority of our directors, - determine our corporate and management policies and - subject to the terms of agreements among our existing shareholders and other investors and with the concurrence of one additional director, make decisions relating to fundamental corporate actions, including any mergers or acquisitions and sales of all or substantially all of our assets. Although the funds managed by First Reserve Corporation have, and will continue to have, substantial control, until the earlier to occur of an initial public offering of our common stock and October 30, 2002, the investor agreement will require a vote of at least 85% of the total outstanding shares of common stock to sell all or a majority of our assets, enter into a merger with or into another entity or sell a majority of our common stock. See "Description of the Warrants." COAL MINING IS DEPENDENT UPON MANY FACTORS AND CONDITIONS BEYOND OUR CONTROL. Coal mining is subject to conditions beyond our control which can affect our cost of mining at particular mines for varying lengths of time. These conditions include - weather conditions, - unexpected maintenance problems, - variations in coal seam thickness, - variations in the amount of rock and soil overlying the coal deposit, - disruption, or increase in the cost of, of transportation services, - variations in geological conditions, the ability to secure new mining permits, - regulatory uncertainties, - price fluctuations, and - labor disruptions. Over the past 18 months, we have been adversely affected by many of the conditions. For example, severe rain forced us to close temporarily one of our surface mining operations, we have been unable to obtain a mining permit for our Grant County surface mine, and we have experienced variations in geological conditions at most of our deep mines and variations in coal seam thickness and in the amount of rock and soil overlying our coal deposits. GOVERNMENT REGULATIONS COULD INCREASE OUR COSTS OF DOING BUSINESS AND MAY DISCOURAGE OUR CUSTOMERS FROM BUYING OUR COAL. We are subject to regulation by federal, state and local authorities on matters including - employee health and safety, - permit 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, which is the sinking or settling of the earth's surface from underground mining, - the effects that mining has on groundwater quality and availability and - benefits for current and retired coal miners. Numerous governmental permits and approvals are required for mining operations. We may be required to prepare and present to federal, state and local authorities data pertaining to the effect or impact that any proposed exploration for, or production of, coal may 15 19 have on the environment. Requirements that any governmental authority imposes may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. Furthermore, new legislation or regulations and orders may be adopted that may materially adversely affect our mining operations, our cost structure or our customers' ability to use coal. New legislation and new regulations under existing laws related to the protection of the environment, which would further regulate or tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs. New environmental legislation or regulations could have a material adverse effect on our business, financial condition and results of operations. In particular, we may be required to modify our operations to comply with permit and emission requirements under the federal Clean Air Act and corresponding state laws that regulate emissions into the air affecting coal mining operations. Direct impact on coal mining and processing operations may occur through the Clean Air Act permit and emissions control requirements relating to particulate matter, including, without limitation, fugitive dust. In July 1997, the U.S. Environmental Protection Agency adopted new, more stringent National Ambient Air Quality Standards for particulate matter and ozone, which were initially expected to be implemented by 2003. The District of Columbia Court of Appeals partially overturned these standards on appeal. We expect there to be further appeals, but we cannot predict at this time what the outcome of any further appeals will be. The impact of any new National Ambient Air Quality Standards on the coal industry will depend on the policies and control strategies that states implement under the Clean Air Act, but it could have a material adverse effect on our business, financial condition and results of operations. In order to comply with limitations on emissions, our customers may buy low-sulfur coal or switch to other fuels. The Clean Air Act affects coal mining operations indirectly by extensively regulating the emission into the air of sulfur dioxide and other compounds, including nitrogen oxides, emitted by coal-fired power plants. The Clean Air Act places limits on sulfur dioxide emissions from electric power generation plants. The initiation of a second phase of emission reductions beginning in 2000 could affect adversely the demand for non-compliant coal as additional coal-burning electric power generation plants become subject to the restrictions of the Clean Air Act. The extent to which the switch by utilities to lower sulfur coal or other low-sulfur fuels would materially adversely affect us would depend upon a number of factors, including the utilities' ability to cost effectively convert non-compliant coal that we produce to compliance coal. The Clean Air Act also affects coal mining operations by requiring utilities that currently are major sources of nitrogen oxides in moderate or higher ozone nonattainment areas to install reasonably available control technology. The Environmental Protection Agency announced a proposal that would require 22 eastern states to reduce substantially nitrogen oxide emissions by the year 2003. We cannot predict the effect that these regulations or other requirements that may be imposed in the future could have on the coal industry in general, and on us in particular. The implementation of the Clean Air Act, the new National Ambient Air Quality Standards or any other future regulatory provisions may materially adversely affect our business, financial condition and results of operation. WE DEPEND ON THE SELECTION, ACQUISITION, DEVELOPMENT AND RETENTION OF COAL RESERVES CONTAINING ECONOMICALLY RECOVERABLE COAL OF QUALITIES THAT WE CAN SELL TO OUR CUSTOMERS. WE MAY NOT BE SUCCESSFUL IN DEVELOPING OR OBTAINING ACCEPTABLE COAL RESERVES. Our future success depends primarily upon our ability to develop our existing coal reserves that are economically recoverable and, to a lesser extent, on our ability to find and develop new coal reserves. Our recoverable reserves will generally decline as reserves are depleted, unless we are able to - prove up existing reserves, - conduct successful exploration or development activities, or - acquire properties containing recoverable reserves. In order to increase reserves and production, we must continue our development and exploration programs or undertake other replacement activities. Our current strategy is to exploit our existing reserve base and to acquire additional reserves where needed to expand or supplement existing operations. Our limited capital resources hamper our ability to acquire new coal reserves. Our planned development, our existing reserves or our exploration projects and acquisition activities may not result in significant additional reserves. In addition, we may not have success developing additional mines. For a discussion of our reserves, see "Business--Coal Reserves." 16 20 A SIGNIFICANT DECLINE IN THE PRICE WE RECEIVE FOR OUR COAL COULD ADVERSELY AFFECT OUR OPERATING RESULTS AND CASH FLOWS. Our results of operations are highly dependent upon the prices we receive for our coal and our ability to improve productivity and reduce costs. The expiration of long-term contracts with prices above current market prices requires that we continue to improve productivity and reduce costs in order to sustain operating margins. Prices for export coal have declined. In addition, demand for coal has decreased because of the warm winters in the northeastern United States in 1998 and 1999. This has resulted in increased inventories that have caused pricing pressures in 1999. All of these factors adversely affected our operating results in the first three quarters of 1999 and may adversely affect operating results for future periods. The declining prices have also adversely affected our ability to generate cash flows necessary to improve productivity and expand operations. The price of coal sold under many of our long-term contracts is above current market prices. Our customers may not extend existing long-term contracts or enter into new long-term contracts. This could adversely affect the stability and profitability of our operations. In addition, changes in regulations governing the electric utility industry may make it more difficult for us to enter into long-term contracts with our electric utility customers, as these customers may become more sensitive to long-term price or quantity commitments in a more competitive environment. A substantial decrease in the amount of coal we sell pursuant to long-term contracts could subject our revenue stream to increased volatility and adversely affect our financial position. See "Business--Coal Contracts." THE EXPIRATION OF LONG-TERM CONTRACTS WITH FAVORABLE PRICING OR CONTRACT PROVISIONS ALLOWING FOR THE RENEGOTIATION OF PRICES COULD REDUCE OUR PROFITABILITY. The profitability of our long-term coal supply contracts depends on a variety of factors. Profitability varies from contract to contract and fluctuates during the contract term, depending on contract provisions, our actual production costs and other factors. In addition, provisions for adjustment or renegotiation of prices and other contractual provisions may increase our exposure to short-term coal price volatility. Virtually all of our long-term contracts include price adjustment provisions that permit an increase or decrease at specified times in the contract price to reflect changes in price or other economic indices, taxes and other charges; and one of our 15 long-term coal supply contracts contains price reopener provisions that provide for the contract price to be adjusted upward or downward at specified times on the basis of market factors. If a substantial portion of our long-term contracts were modified or terminated, we would be affected adversely to the extent that we are unable to find other customers to purchase coal at the same level of profitability. All of our long-term contracts are for prices above current spot market prices. The loss of some our long-term contracts could have a material adverse effect on our business, financial condition and results of operations. Between 1994 and 1998, approximately 75% of our revenues from coal sales were made under long-term contracts, and we expect approximately 80% of our revenues in 1999 to be attributable to coal sales under long-term contracts. Our long-term contracts had a weighted average term of approximately 5.5 years as of October 1, 1999. The balance of sales not made under long-term contracts are made in the spot market, or under contracts based on spot market prices and not under long-term, fixed-price contracts. Accordingly, the prices we receive for a portion of our coal production are dependent upon numerous factors beyond our control. These factors include, but are not limited to, - the level of consumer demand for electricity, - governmental regulations and taxes, - the price and availability of alternative energy sources and - the overall economic environment. 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. The availability of a ready market for our coal production also depends on a number of factors beyond our control, including the demand and supply of low sulfur coal and the availability of pollution credits. 17 21 WE RELY ON ESTIMATES OF ECONOMICALLY RECOVERABLE COAL RESERVES, AND WE CANNOT BE CERTAIN OF THE TRUE EXTENT OF COAL ASSETS WE HAVE AVAILABLE TO FULFILL OBLIGATIONS UNDER OUR CONTRACTS AND SECURE PAYMENT OF OUR SECURED INDEBTEDNESS. There are uncertainties inherent in estimating quantities of recoverable reserves, including many factors beyond our control. Estimates of economically recoverable coal reserves and future net cash flows depend upon a number of variable factors and assumptions, including - geological and mining conditions, which may not be fully identified by available exploration data or may differ from experience, - 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 reserves based on risk of recovery and estimates of future net cash flows expected from reserves prepared by different engineers or by the same engineers at different times may vary substantially. Actual coal tonnage recovered from identified reserve areas or properties, revenues and expenditures with respect to our reserves may vary materially from estimates. See "Business--Coal Reserves." WE DEPEND ON THE LEADERSHIP OF KEY EXECUTIVES, AND IF THEY LEFT US IT COULD HAVE AN ADVERSE EFFECT UPON US. On October 12, 1997, John J. Faltis, who was then our President, Chief Executive Officer and Chairman of the Board of Directors, was killed in a helicopter accident in West Virginia. With Mr. Faltis' death, our success has become increasingly dependent on Bruce Sparks, who succeeded Mr. Faltis as President, and other key personnel. If Mr. Sparks becomes unwilling or unable to serve in his new role, our business, operations and prospects would likely be further adversely affected. Mr. Sparks entered into an employment agreement with us and several of our subsidiaries. See "Management." To address our need for increased depth in management and operations, we hired William D. Kilgore, Jr. to be Chairman of our board of directors and Chief Executive Officer, effective May 1, 1999. Mr. Kilgore has 42 years experience in the coal business, including as a coal mining consultant for several central Appalachian companies, as President/Chief Executive Officer and Director of Agipcoal and as Vice President/General Manager of Enoxy Coal, Inc. Mr. Kilgore entered into an employment agreement with us and several of our subsidiaries. See "Management." If we lost Mr. Kilgore's services, our business, operations and prospects would likely be adversely affected. THE COAL INDUSTRY IS LABOR-INTENSIVE, AND WORK STOPPAGES OR UNIONIZATION WOULD HAVE AN ADVERSE EFFECT UPON US. We are not a party to any collective bargaining agreement and consider our relations with employees to be good. However, some or all of our workforce may unionize in the future. If some or all of our currently non-union operations were to become unionized, we could incur higher labor costs and an increased risk of work stoppages. We recently changed from operating our deep mines ourselves to utilizing contract miners to operate these mines. The labor force for our contract miners is currently not unionized. If some or all of our contract miners' employees were to become unionized, the contract miners could incur higher labor costs and have an increased risk of work stoppages, which could adversely affect our business and costs of operations. THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS. IF OUR EXPECTATIONS REFLECTED IN THESE FORWARD-LOOKING STATEMENTS PROVE TO BE INCORRECT, OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE EXPECTATIONS. This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. The words "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: - the success or failure of our efforts to implement our business plan; - the availability of liquidity and capital resources; - our ability to achieve anticipated cost savings; - whether we are able to obtain new mining permits; 18 22 - adverse geologic conditions; - changes in the industry; - the weather; - unexpected maintenance problems; - reliance on major customers and long-term contracts; - actions our competitors take and our ability to respond to those actions; - risks inherent to mining; and the effects of government regulation. Other matters set forth in this prospectus may also cause actual results in the future to differ materially from those described in the forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur. 19 23 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the new notes. On October 28, 1999, we received proceeds of $11.2 million from the sale of $13.2 million principal amount of old notes in a private placement, all of which we used to repay outstanding indebtedness under the revolving credit portion of our senior credit facility. We issued the remaining old notes in a private exchange for $108.5 million in principal amount of our 9 3/4% Series B Senior Notes due 2007 and cancellation of our obligations to a former stockholder. We incurred expenses of approximately $1.2 million in connection with the private placement and the private exchange. 20 24 CAPITALIZATION This table sets forth our consolidated capitalization as of September 30, 1999 and as adjusted to reflect the private exchange, private placement and private stockholder exchange we consummated on October 28, 1999. In the private exchange, 86.8% of the holders of our 9 3/4% notes exchanged $108.5 million in aggregate principal amount of their 9 3/4% notes for old notes, and we issued to the exchanging noteholders warrants to purchase 20% of our fully diluted common stock at an initial exercise price of $0.01 per share. In the private placement, we sold to Rothschild Recovery Fund L.P., for $11.2 million in cash, $13.2 million in principal amount of old notes and warrants to purchase 10% of our common stock at an initial exercise price of $0.01 per share. We have estimated that the fair value of the warrants issued in the private exchange and private placement approximates par value of $0.01 per share. In the private stockholder exchange, we issued $6.0 million in principal amount of old notes to JJF Group Limited Liability Company in cancellation of shares of our common stock JJF Group owned and in full settlement and satisfaction of JJF Group's right to require us to buy that stock over time for approximately $10.5 million. The "as adjusted" column of the following table does not include (1) the additional notes we will issue to pay interest in kind on the notes due April 1, 2000 or (2) notes that Rothschild Recovery Fund may purchase, at our option and subject to various conditions, on or before October 1, 2000 to fund up to $6.3 million of the October 1, 2000 interest payment on the notes. Since this exchange offer will involve an exchange of outstanding securities for a like amount of new, substantially identical securities, it will have no effect on capitalization. You should read the information set forth below together with "Management's Discussion and Analysis of Financial Condition and Results of Operation," "The Exchange Offer--Accounting Treatment" and our interim condensed consolidated financial statements and consolidated financial statements and the related notes included elsewhere in this prospectus.
SEPTEMBER 30, 1999 (UNAUDITED) --------------------------- (DOLLARS IN MILLIONS) ACTUAL AS ADJUSTED ----------- ----------- Cash and cash equivalents ........................................ $ -- $ -- ------ ------ Accrued Interest ................................................. 6.3 1.0(2) Long-term debt (including current portion): Borrowings under Credit Facility ................................ 24.2 13.0(1) 9 3/4% Series B Senior Notes due 2007 .......................... 125.0 16.5 14.25% Series A Second Priority Senior Secured Notes due 2007 -- 113.8(2) Issued in Private Exchange................................. 14.25% Series A Second Priority Senior Secured Notes due 2007 -- 13.2 Issued for cash............................................ Original Issue Discount.......................................... -- (2.0) 14.25% Series A Second Priority Senior Secured Notes due 2007 -- 6.0(3) issued to JJF Group........................................ Other debt....................................................... 0.4 0.4 Total debt -------- ------- 149.6 160.9 Common stock available for repurchase (including current portion) 10.6 -- Mandatorily redeemable preferred stock (4) 26.1 26.1 Total stockholders' equity Preferred stock ........................................ 23.0 23.0 Common stock............................................ -- -- Paid-in-capital......................................... 47.9 52.5(3) Paid-in-capital -- stock warrants....................... -- -- Treasury stock ......................................... (5.1) (5.1) Accumulated deficit..................................... (131.6) (139.0)(5) ------ ------ Total stockholder's equity ........................................ (65.8) (68.6) ------ ------ Total capitalization............................................... $ 126.8 $ 119.4 ======== =======
21 25 - ------------------------------------- (1) We used the proceeds of the private placement to reduce outstanding amounts under the revolving credit facility under our loan agreement with Foothill. See "Use of Proceeds." (2) In connection with the accounting treatment for the private exchange, we are required to keep the current carrying amounts recorded on our balance sheet and include those amounts for accrued interest not paid as part of the private exchange. Our calculation of interest expense in future periods will be altered for the difference between the carrying amount and the principal amount of the old notes issued in the private exchange. Our as adjusted principal obligations on the new notes are less than the amounts presented. (3) In connection with the accounting treatment for the private stockholder exchange, we recorded the new notes issued at fair value. The difference between the new notes and the common stock available for repurchase, including current portion, increased paid-in-capital. (4) Redemption of our Class A preferred stock, which is a class of our preferred stock that is mandatorily redeemable, is limited by the restricted payments covenant in the Indenture. See "Description of the New Notes-- Covenants." (5) The as adjusted accumulated deficit includes projected income tax expense of $7 million associated with the private exchange and expected additional costs of $0.4 million relating to the private exchange. See "Risk Factors--Risks Related to Anker--We could have income tax liability as a result of the restructuring of our 9 3/4% Series B Senior Notes" and "Material United States Federal Income Tax Consequences." 22 26 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated financial statements are based on the consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1998 and the nine months ended September 30, 1999 give effect to the following transactions as if each transaction had occurred on January 1, 1998: - the private placement of the old notes and the application of the proceeds from the private placement, - the private stockholder exchange of old notes in exchange for cancellation of the shares of our common stock owned by a stockholder and that stockholder's relinquishment of its right to require us to buy that stock over time and - the private exchange of old notes for our previously issued 9 3/4% notes. We have based the unaudited pro forma adjustments upon available information and assumptions that we believe are reasonable. The pro forma consolidated data do not purport to represent what our consolidated results of operations would have been had the transactions described above actually occurred at the beginning of the relevant period. In addition, the unaudited pro forma financial data do not purport to project our consolidated results of operations for the current year or any future date or period. The adjustments set forth in the following table do not reflect a one-time increase in general and administrative expenses related to the write-off of approximately $1.2 million of fees and other financing costs incurred in connection with the private exchange and private placement. The adjustments also do not include a one-time projected income tax liability of $7.0 million associated with the private exchange. Pro Forma Adjusted EBITDA represents our earnings before interest, taxes, depreciation, depletion, amortization, non-cash stock compensation and non-recurring related expenses, loss on impairment of investment and restructuring charges, life insurance proceeds, financial restructuring charges and extraordinary items. Pro Forma Adjusted EBITDA should not be considered as an alternative to operating earnings (loss) or net income (loss), as determined in accordance with generally accepted accounting principles, as a measure of our operating performance. Nor should it be considered as an alternative to net cash provided by operating, investing and financial activities, as determined in accordance with generally accepted accounting principles, as a measure of our ability to meet cash needs. We have included Pro Forma Adjusted EBITDA because we use Pro Forma Adjusted EBITDA to assess our financial performance and some of the covenants in our loan agreement and indentures are tied to similar measures. Since all companies and analysts do not necessarily calculate Pro Forma Adjusted EBITDA in the same fashion, Pro Forma Adjusted EBITDA as presented in this prospectus may not be comparable to similarly titled measures other companies report. You should read the unaudited pro forma consolidated financial statements together with "Management's Discussion and Analysis of Financial Condition and Results of Operation," "The Exchange Offer--Accounting Treatment" and the consolidated financial statements included elsewhere in this prospectus. 23 27 ANKER COAL GROUP, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
ADJUSTMENTS --------------------------------------------------- PRIVATE PRIVATE STOCKHOLDER PRIVATE AS ACTUAL PLACEMENT (1) EXCHANGE (2) EXCHANGE (3) ADJUSTED ------ ------------- ------------ ------------ -------- (DOLLARS IN THOUSANDS) Coal sales and related revenue $ 291,426 - - - $ 291,426 Operating expenses: Cost of operations and selling expenses 276,469 - - - 276,469 Depreciation, depletion and amortization 18,150 - - - 18,150 General and administrative 9,076 - - - 9,076 Loss on impairment of investment and restructuring charges 90,717 - - - 90,717 -------- --------- --------- -------- ---------- Operating loss (102,986) - - - (102,986) Interest expense (13,066) $ (2,201)(a) $ (885)(a) 220(a) (15,932) Other income, net 2,805 - - - 2,805 -------- --------- --------- -------- --------- Loss before income taxes and extraordinary item (113,247) (2,201) (885) 220 (116,113) Income tax expense (benefit) (7,643) - (b) - (b) - (b) (7,643) -------- --------- --------- -------- --------- Net loss before extraordinary item (105,604) (2,201) (885) 220 (108,470) Extraordinary item 965 - - - 965 -------- --------- --------- -------- --------- Net loss (106,569) (2,201) (885) 220 (109,435) Preferred stock dividends and accretion (1,937) - - - (1,937) Common stock available for repurchase accretion - - - - - --------- --------- --------- -------- --------- Net loss available to common stockholders $(108,506) $ (2,201) $ (885) $ 220 $(111,372) ========= ========= ========= ========= ========= OTHER DATA: Pro Forma Adjusted EBITDA - - - - 8,686
24 28 NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (1) Reflects the private placement of old notes and the application of the proceeds from the private placement as if the transaction occurred on January 1, 1998. (a) Reflects an increase in interest expense resulting from borrowings under the notes at an assumed rate of 14.25% with an increase in principal after six months for the interest that will be paid in kind by issuing additional notes in lieu of cash at that time. (b) Reflects the income tax effects of the pro forma adjustments assuming that the interest that is paid in kind is non-deductible, a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. (2) Reflects the private stockholder exchange of old notes to a stockholder in exchange for the relinquishment of that stockholder's right as if the transaction occurred on January 1, 1998. (a) Reflects an increase in interest expense resulting from borrowings under the notes at an assumed rate of 14.25% with an increase in principal after six months for the interest that will be paid in kind by issuing additional notes in lieu of cash at that time. (b) Reflects the income tax effects of the pro forma adjustments assuming that the interest that is paid in kind is non-deductible, a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. (3) Reflects the private exchange of old notes for our previously issued 9 3/4% notes as if the transaction occurred on January 1, 1998. (a) Reflects the reduction of interest expense resulting from the exchange of 9 3/4% notes for old notes at an assumed effective interest rate of 8.76% and an increase in principal after six months for the interest that will be paid in kind by issuing additional notes in lieu of cash at that time. (b) Reflects the income tax effects of the pro forma adjustments assuming that the interest that is paid in kind is non-deductible, a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. 25 29 ANKER COAL GROUP, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
ADJUSTMENTS ------------------------------------------------------------- PRIVATE PRIVATE STOCKHOLDER PRIVATE AS ACTUAL PLACEMENT (1) EXCHANGE (2) EXCHANGE (3) ADJUSTED ------ ------------- ------------ ------------ -------- (dollars in thousands) Coal sales and related revenue $ 174,293 - - - $ 174,293 Operating expenses: Cost of operations and selling expenses 157,419 - - - 157,419 Depreciation, depletion and amortization 13,430 - - - 13,430 General and administrative 6,781 - - $ (756)(a) 6,025 Loss on impairment of investment and restructuring charges 4,526 - - - 4,526 --------- --------- --------- --------- --------- Operating loss (7,863) - - (756) (7,107) Interest expense (10,911) $ (1,701)(a) $ (687)(a) (14)(b) (13,313) Other income, net 2,579 - - - 2,579 --------- --------- --------- --------- --------- Loss before income taxes and extraordinary item (16,195) (1,701) (687) (770) (17,841) Income tax expense (benefit) (200) -(b) -(b) -(c) (200) --------- --------- --------- --------- --------- Net loss (15,995) (1,701) (687) (770) (17,641) Preferred stock dividends and accretion (1,505) - - - (1,505) Common stock available for repurchase accretion (421) - 421 (c) - - --------- --------- --------- --------- --------- Net loss available to common stockholders $ (17,921) $ (1,701) $ (266) $ (770) $ (19,146) ========= ========= ========= ========= ========= OTHER DATA: Pro Forma Adjusted EBITDA - - - - 13,428
26 30 NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (1) Reflects the private placement of old notes and the application of the proceeds from the private placement as if the transaction occurred on January 1, 1998. (a) Reflects an increase in interest expense resulting from borrowings under the notes at an assumed rate of 14.25%. (b) Reflects the income tax effects of the pro forma adjustments assuming a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. (2) Reflects the private stockholder exchange of old notes to a stockholder in exchange for the relinquishment of that stockholder's right as if the transaction occurred on January 1, 1998. (a) Reflects an increase in interest expense resulting from borrowings under the notes at an assumed rate of 14.25%. (b) Reflects the income tax effects of the pro forma adjustments assuming a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. (c) Reflects a decrease in the common stock available for repurchase accretion resulting from a stockholder's relinquishment of it rights before we would have been further obligated to that stockholder. (3) Reflects the private exchange of old notes for our previously issued 9 3/4% notes as if the transaction occurred on January 1, 1998. (a) Reflects a decrease in general and administrative expenses resulting from the $0.8 million of financial restructuring charges. (b) Reflects an increase of interest expense resulting from the exchange of the 9 3/4% notes for old notes at an assumed effective interest rate of 8.76%. (c) Reflects the income tax effects of the pro forma adjustments assuming a 39% tax rate and the establishment of a 100% valuation allowance on all net operating losses. 27 31 SELECTED FINANCIAL DATA The following table is a summary of our historical consolidated financial data for the five years ended December 31, 1998 and for the nine months ended September 30, 1999 and 1998. We derived the historical consolidated financial data for each of the five years in the period ended December 31, 1998 from our audited consolidated financial statements, audited by PricewaterhouseCoopers LLP, independent accountants, appearing elsewhere in this prospectus. We derived the historical consolidated financial data as of September 30, 1999 and for the nine months ended September 30, 1999 and 1998 from our unaudited consolidated financial statements. The unaudited adjusted combined statements of operations data and other data for the year ended December 31, 1996 combine the audited results of operations of our predecessor, Anker Group, Inc., for the period January 1, 1996 to July 31, 1996, and of us for the period August 1, 1996 to December 31, 1996. You should read the following information together with "Management's Discussion and Analysis of Financial Condition and Results of Operation" and our consolidated financial statements and related notes included elsewhere in this prospectus.
Anker Coal Group, Inc. --------------------------------------------------------------- Nine Months Ended Year Ended September 30, December 31, ----------------------------- ----------------------------- 1999 1998 1998 1997 --------- --------- --------- --------- (unaudited) STATEMENT OF OPERATIONS DATA: (dollars in thousands) Coal sales and related revenue $ 174,293 $ 226,111 $ 291,426 $ 322,979 Operating expenses: Cost of operations and selling expenses 157,419 214,443 276,469 295,387 Depreciation, depletion and amortization 13,430 13,009 18,150 17,470 General and administrative 6,781 7,767 9,076 9,462 Loss on impairment of investment and restructuring charges 4,526 7,346 90,717 8,267 Stock compensation and related expenses - - - - --------- --------- --------- --------- Operating (loss) income (7,863) (16,454) (102,986) (7,607) Interest expense, net (10,911) (9,421) (13,066) (10,042) Other income, net 2,579 821 2,805 2,083 Life insurance proceeds - - - 15,000 --------- --------- --------- --------- (Loss) income before income taxes and extraordinary item (16,195) (25,054) (113,247) (566) Income tax (benefit) (200) (7,015) (7,643) (1,242) --------- --------- --------- --------- (Loss) income before extraordinary item (15,995) (18,039) (105,604) 676 Extraordinary item (1) - - 965 3,849 --------- --------- --------- --------- Net (loss) income (15,995) (18,039) (106,569) (3,173) Preferred stock dividends and accretion (2) (1,505) (1,454) (1,937) (1,876) Common stock available for repurchase accretion (421) - - - --------- --------- --------- --------- Net (loss) income available to common stockholders $ (17,921) $ (19,493) $(108,506) $ (5,049) ========= ========= ========= ========= OTHER DATA: Adjusted EBITDA $ 3,428(3) $ 4,722 $ 8,686 $ 20,213 CASH FLOW DATA: Net cash provided by (used in) operating activities $ (1,543) $ (1,446) $ (5,465) $ ( 5,047) Net cash (used in) provided by investing activities (2,194) (7,442) (8,134) (47,025) Net cash (used in) provided by financing activities 3,743 9,819 13,614 51,516 BALANCE SHEET DATA (AT PERIOD END): Working (deficit) capital $ (8,283) $ (4,262) $ 21,499 Total assets 187,042 201,720 304,650 Total long-term debt (4) 149,591 142,711 133,599 Mandatorily redeemable preferred stock 26,093 24,588 22,651 Common stock available for repurchase (4) 10,586 10,000 - Total stockholder's (deficit) equity (65,797) (47,876) 75,730
Anker Coal Anker Group, Inc. Group, Inc. (Our Predecessor) Adjusted ----------- ---------------------------------------------- Combined for the Year Ended Year Ended August 1, 1996 to January 1, 1996 December 31, December 31, December 31, to July 31, -------------------------- 1996 1996 1996 1995 1994 --------- --------- --------- --------- --------- (unaudited) STATEMENT OF OPERATIONS DATA: (dollars in thousands) Coal sales and related revenue $ 290,155 $ 123,246 $ 166,909 $ 248,897 $ 227,499 Operating expenses: Cost of operations and selling expenses 259,579 110,215 149,364 221,315 203,174 Depreciation, depletion and amortization 14,319 6,437 7,882 11,732 12,083 General and administrative 7,534 3,738 3,796 6,843 5,938 Loss on impairment of investment and restructuring charges - - - - - Stock compensation and related expenses 2,969 - 2,969 - - --------- --------- --------- --------- --------- Operating (loss) income 5,754 2,856 2,898 9,007 6,304 Interest expense, net (4,886) (2,090) (2,796) (6,612) (3,523) Other income, net 1,480 373 1,107 3,108u 1,621 Life insurance proceeds - - - - - --------- --------- --------- --------- --------- (Loss) income before income taxes and extraordinary item 2,348 1,139 1,209 5,503 4,402 Income tax (benefit) 351 485 (134) 2,270 1,940 --------- --------- --------- --------- --------- (Loss) income before extraordinary item 1,997 654 1,343 3,233 2,462 Extraordinary item (1) - - - - - --------- --------- --------- --------- --------- Net (loss) income 1,997 654 1,343 3,233 2,462 Preferred stock dividends and accretion (2) (891) (775) (116) (215) (215) Common stock available for repurchase accretion - - - - - --------- --------- --------- --------- --------- Net (loss) income available to common stockholders $ 1,106 $ (121) $ 1,227 $ 3,018 $ 2,247 ========= ========= ========= ========= ========= OTHER DATA: Adjusted EBITDA $ 24,522 $ 9,666 $ 14,856 $ 23,847 $ 20,008 CASH FLOW DATA: Net cash provided by (used in) operating activities $ (564) $ 19,022 $ 2,168 $ 13,421 Net cash (used in) provided by investing activities (84,968) (1,764) 5,021 (32,434) Net cash (used in) provided by financing activities 86,088 (29,795) 4,992 17,808 BALANCE SHEET DATA (AT PERIOD END): Working (deficit) capital $ 7,410 $ 27,599 $ 12,576 Total assets 259,683 187,026 161,372 Total long-term debt (4) 88,029 74,902 69,910 Mandatorily redeemable preferred stock 20,775 8,600 1,600 Common stock available for repurchase (4) - - - Total stockholder's (deficit) equity 80,779 57,203 41,185
28 32 (1) Represents the write-off of unamortized debt issuance costs related to our credit facility in 1997 and our amended and restated credit facility in 1998. (2) Represents accrued and unpaid dividends and accretion on Class A mandatorily redeemable preferred stock. (3) Adjusted for $0.8 million of financial restructuring charges included in general and administrative expenses. (4) Includes current portion. See our consolidated financial statements included elsewhere in this prospectus. 29 33 HISTORICAL AND PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES Our consolidated ratios of earnings to fixed charges for each of the periods indicated are set forth below. For purposes of calculating the ratio of earnings to fixed charges, "earnings" represents income (loss) from continuing operations before income taxes and cumulative effects of accounting changes and extraordinary items plus fixed charges. "Fixed charges" consists of interest expense, amortization of deferred financing costs and the component of rental expense that we believe is representative of the interest component of rental expense.
Anker Coal ----------------- Anker Group, Inc. Group, Inc. ---------------------------------------------------- ----------------- Years Ended January 1, 1996 August 1, 1996 December 31, to to 1994 1995 July 31, 1996 December 31, 1996 ---- ---- ------------- ----------------- (unaudited) Historical Ratio of earnings to fixed charges(a).... 1.8x 1.6x 1.3x 1.4x Pro Forma Ratio of earnings to fixed charges(b)....
Anker Coal Group, Inc. ---------------------------------------------- Years Ended Nine Months Ended Adjusted Combined December 31, September 30, for the Year Ended ------------------ -------------------- December 31, 1996(c) 1997 1998 1998 1999 -------------------- ---- ---- ---- ---- (unaudited) (unaudited) Historical Ratio of earnings to fixed charges(a).... 1.3x -- -- -- - Pro Forma Ratio of earnings to fixed charges(b).... -- -- -- --
- ----------------------------- (a) Earnings were insufficient to cover fixed charges for the years ended December 31, 1997 and 1998, and for the nine months ended September 30, 1998 and 1999. Additional earnings of approximately $0.6 million, $113.2 million (which includes loss on impairment of investment and restructuring of $90.7 million), $16.2 million and $25.1 million would have been required to cover fixed charges in the years ended December 31, 1997 and 1998 and the nine months ended September 30, 1998 and 1999, respectively. (b) Pro forma earnings were inadequate to cover pro forma fixed charges for the year ended December 31, 1998 and the nine months ended September 30, 1999 after giving pro forma effect to the private exchange, private placement and private stockholder exchange of old notes on October 28, 1999 and the application of the net proceeds from the private placement as set forth in "Use of Proceeds" as if they had occurred on January 1, 1998 and 1999, respectively; additional pro forma earnings of $117.1 million, which includes loss on impairment of investment and restructuring of $90.7 million, and $19.3 million would have been required to cover pro forma fixed charges for the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively. (c) The adjusted combined statements of operations data and other data for the year ended December 31, 1996 combine the results of operations of our predecessor, Anker Group, Inc., for the period January 1, 1996 to July 31, 1996, and of us for the period August 1, 1996 to December 31, 1996. 30 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION LIQUIDITY AND CAPITAL RESOURCES We have continued to experience liquidity problems during the calendar year 1999. To address these liquidity problems, on October 28, 1999, we completed a private restructuring of our 9 3/4% Series B Senior Notes due 2007 and a private placement to raise additional capital. As discussed in more detail below, in the transactions, a limited number of qualified noteholders exchanged $108.5 million of their 9 3/4% notes for $86.8 million of the old notes being exchanged in this exchange offer, as well as warrants to purchase our common stock. Exchanging noteholders waived their right to receive the October 1, 1999 interest payment on their notes and also consented to various amendments to the indenture governing the 9 3/4% notes. In addition, we raised $11.2 million in cash through the sale to Rothschild Recover Fund L.P. in a private placement of $13.2 million principal amount of the old notes being exchanged in this exchange offer. The funds raised in the private placement were applied against the revolving credit facility under our loan agreement with Foothill. As a result, as of November 11, 1999, we had $17.0 million of availability under our revolving credit facility. Our loan agreement with Foothill provides us with up to a $55.0 million credit facility. The credit facility consists of a commitment for a $40.0 million working capital revolver and a term loan with an original principal amount of $15.0 million. Commitments under the credit facility will expire in 2002. The credit facility is secured by substantially all of our present and future assets. Borrowings under the revolver are limited to 85% of eligible accounts receivable and 65% of eligible inventory and bear interest, at our option, at either 1% above the prime interest rate or at 3 3/4% above the adjusted Eurodollar rate. For the year ended December 31, 1998, the average interest rate under the revolver was approximately 8.75%. The term loan bears interest at 2 1/2% above the prime interest rate and is payable in monthly installments through 2002. The average interest rate for the term loan for the year ended December 31, 1998 was approximately 10.25%. The following table sets forth the amounts outstanding and borrowing availability under our loan agreement with Foothill as of the dates shown below:
REVOLVING REVOLVING ADDITIONAL CREDIT CREDIT INTERIM DATE TERM LOAN BORROWINGS AVAILABILITY AVAILABILITY ---- --------- ---------- ------------ ------------ (in millions) 12/31/98 $ 15.0 $ 1.9 $ 15.5 -- 03/31/99 14.4 1.4 16.5 -- 06/30/99 13.9 12.9 6.9 -- 09/30/99 13.3 10.9 6.7 2.0 10/31/99 13.2 3.0 14.9 2.0 11/11/99 13.0 -- 17.0 --
The term loan changes are based on the normal amortization of the loan, except that - in July 1999, the term loan was paid down through the application of approximately $1.25 million of asset sale proceeds, and - in September 1999, under the terms of an amendment to the loan agreement, Foothill reversed this payment, which caused the term loan to increase by the same amount, and reapplied the proceeds to reduce revolving credit borrowings in order to provide us with additional liquidity The increase in the revolving credit borrowings since March 31, 1999 is primarily related to 31 35 - our borrowing to make the interest payment on our 9 3/4% notes on April 29, 1999, - performing reclamation in Webster County, West Virginia and - capital expenditures. Revolving credit availability also had been reduced as a result of lower coal production and coal shipments. Changes in coal production and the resulting changes in coal inventory and accounts receivable will impact future revolving credit availability. The loan agreement with Foothill contains covenants that, among other matters, restrict or limit our ability - to pay interest and dividends, - incur indebtedness, - acquire or sell assets and - make capital expenditures. We must also maintain specified cash flow ratios. In particular, the loan agreement provides that in order to advance funds to the guarantors and us under the loan agreement, the borrowers under the loan agreement must have borrowing availability of at least $5.0 million after giving effect to the advances and for the 30 days immediately preceding the advances. With respect to the term loan, in addition to regularly scheduled amortizing principal and interest payments, the loan agreement requires that we apply the first $5.0 million of proceeds from designated asset sales to the repayment of the term loan. As of November 11, 1999, no amounts have been applied to the $5.0 million requirement. Proceeds used to repay the term loan cannot be reborrowed. Our independent public accountants included a going concern explanatory paragraph in their accountants' report on our consolidated financial statements for the year ended December 31, 1998. Specifically, the independent public accountants stated that because we have, among other things, experienced recurring losses and negative cash flow from operations and have a retained deficit, they had substantial doubt about or ability to continue as a going concern. See the consolidated financial statements for the period ended December 31, 1998 included elsewhere in this prospectus for the report of our independent public accountants. The issuance of the explanatory paragraph by our independent public accountants in their report on our consolidated financial statements for the year ended December 31, 1998 caused a default under our agreement with Foothill. Foothill, however, waived this default. CAPITAL EXPENDITURES AND OTHER COMMITMENTS AND CONTINGENCIES We budgeted approximately $9.3 million for capital expenditures for 1999. As of September 30, 1999, we had incurred approximately $5.2 million of capital expenditures. With the transition from operating our own deep mines to contracting with others to run our deep mines, some of the capital expenditures previously budgeted will no longer be necessary. As a result of this and other factors, we expect that capital expenditures for 1999 will be less than the $9.3 million budgeted amount. As a result of the private exchange transaction discussed below, we may incur income tax liabilities. As of October 28, 1999, we estimated that our tax liability could be as much as $7.0 million. That estimate is subject to uncertainty, and the actual tax liability may be less than that amount. We are currently finalizing our determination of the tax liability that will result from the private exchange transaction. If we are required to pay tax, it will be due and payable on March 15, 2000. We intend to borrow the funds to pay any tax due from the revolving credit facility under our loan agreement with Foothill. BUSINESS PLAN In late 1998, in response to poor operating and financial performance during 1998, we developed a plan to improve our operating performance and improve short and long-term liquidity. The plan has four objectives: - obtain more flexible senior financing; - improve cash flow from operations; - raise cash by selling selected assets; and - reduce our debt and secure additional liquidity. We achieved the first objective of the plan in November 1998, when we and our subsidiaries entered into a loan and security agreement with Foothill Capital Corporation, as agent, and other lenders. The credit facilities issued under the loan agreement refinanced and replaced the amended and restated credit facility with The Chase Manhattan Bank and others that had provided for a $71 million line of credit. Our ability to borrow funds under the prior credit facility with Chase was limited by financial ratios we 32 36 were required to meet. Due to our poor financial performance during 1998, we thus had insufficient borrowing availability under that credit facility. The new credit facility with Foothill, on the other hand, provides us with additional flexibility because availability under the facility is based on the value of our assets. As a result, we have additional borrowing availability. For a description of the credit facility, see "Description of Other Indebtedness--Credit Facility." The second objective of our plan is to improve cash flow from operations through the use of contract mining services for our underground mining operations. We believe that our use of contract miners will reduce operating expenses, general and administrative expenses and month-to-month cost fluctuations. In addition, because the contract miners are responsible for mine development and maintenance, we will have reduced capital costs. We have completed this objective of the plan. In early April 1999, we entered into a contract mining agreement for the operations in Garrett County, Maryland, and the contract miner began operations on April 12, 1999. In addition, we have entered into contract mining agreements for our mining operations in Upshur, Barbour and Raleigh counties in West Virginia. The contract miners for the Upshur and Barbour county mines began operations on June 1, 1999, and the contractor for the Raleigh County mine began operations on July 5, 1999. We have also signed a contract mining agreement for our new deep mine in Upshur County, which began operations on September 20, 1999. The third objective of our plan involves the sale of selected non-operating assets and non-strategic operating properties. The non-operating assets that we are seeking to sell are those that require substantial development costs and/or have significant holding costs. The operating properties that we plan to sell either complement non-operating assets being held for sale or are not integral to our long-term operating strategy. We have been discussing the sale of these properties with third parties. In July 1999, we sold selected coal reserves in Preston and Taylor counties, West Virginia for net proceeds of $1.25 million plus royalties on future production. The cash proceeds from this asset sale were applied to reduce the amounts outstanding under the revolving credit facility under our loan agreement with Foothill. We believe that our financial condition has hampered our efforts to market other properties, but we believe that we will be successful in selling all or a part of these assets during the next 12 to 24 months. However, we cannot assure you that asset sales will be completed on terms acceptable to us, if at all. We are also planning to evaluate reasonable offers on other assets as opportunities develop. For a description of requirements under our loan agreement with Foothill regarding our use of asset sale proceeds, see "Description of Other Indebtedness--Credit Facility." The fourth and final objective of the plan involves reducing our overall debt level and securing additional liquidity. We believe that this objective of the plan will be achieved in part through the success of the other objectives of the plan. This objective has also been furthered, in part, through our consummation, on October 28, 1999, of a private restructuring of our 9 3/4% Senior Notes due 2007, a private placement to raise additional capital and a private stockholder exchange. In the private restructuring, a limited number of qualified noteholders exchanged $108.5 million in principal amount of our 9 3/4% Series B Senior Notes due 2007 they held for $86.8 million in principal amount of 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000). Exchanging noteholders waived their right to receive the October 1, 1999 interest payment on the exchanged notes, and they also received warrants to purchase an aggregate of 20% of our common stock at an initial exercise price of $0.01 per share. See "Description of the Warrants." We believe the exercise price represents the fair value of the warrants at the issue date. In connection with the private exchange, the exchanging holders consented to amendments to the indenture governing the remaining $16.5 million outstanding 9 3/4% notes, which, among other things, modify or eliminate various covenants of that indenture. In the private placement, we raised $11.2 million in cash through the sale to Rothschild Recovery Fund L.P., also one of the exchanging noteholders, of $13.2 million principal amount of old notes and warrants to purchase 10% of our common stock at an initial exercise price of $0.01. We plan to conduct a public exchange offer of new notes for the remaining outstanding 9 3/4 % notes, either as an exchange offer registered under the Securities Act or under an exemption from Securities Act registration for exchanges with existing security holders. In the public exchange offer, we plan to offer holders of 9 3/4 % notes $743 in principal amount of new notes for each $1,000 in principal amount of 9 3/4 % notes exchanged. The private stockholder exchange consisted of our issuing $6.0 million aggregate principal amount of old notes to JJF Group Limited Liability Company in exchange for cancellation of the shares of our common stock that JJF Group owned and in full settlement and satisfaction of JJF Group's right to require us to buy that stock over time for approximately $10.5 million, including accrued interest. JJF Group is an entity controlled by the estate of John J. Faltis, our former President and Chief Executive Officer who was killed in a helicopter accident on October 12, 1997 in Upshur County, West Virginia. As a part of the closing of the restructuring of the 9 3/4% notes, Foothill consented to the restructuring transactions and waived existing defaults under the loan agreement. 33 37 The private exchange transaction reduced the stated principal amount of our long-term debt by $21.7 million, and we eliminated approximately $4.0 million of additional obligations through the transaction with JJF Group. However, the additional principal amount of notes issued in the private placement to Rothschild Recovery Fund and the notes to be issued in lieu of the April 1, 2000 interest payment will partially offset the principal reduction accomplished in the private exchange. That principal reduction will also be offset if we issue notes to Rothschild in connection with the October 1, 2000 interest payment as discussed below. The need to make interest payments on the 9 3/4% notes had significantly limited our operating flexibility and substantially reduced our ability to grow or replenish our production base. By completing the restructuring, we believe we have adequate capital resources to meet our short-term liquidity needs. As we continue to implement our business plan, we intend to increase cash flow and improve profitability to the point that we will be able to service the new notes and any remaining 9 3/4% notes, without impairing operations, but our strategy may not be successful. Beginning with the October 1, 2000 interest payment, we will need to fund payments of interest on the new notes from - operating cash flow, - borrowings under credit facilities, - asset sale proceeds or - other sources. Rothschild has agreed to purchase, at our option and subject to various conditions, including the absence of a material adverse change or material liens on the collateral securing the new notes arising after the closing of the private placement, additional new notes to fund up to $6.3 million of the October 1, 2000 interest payment on the notes. Our ability to service our long-term debt on October 1, 2000 and beyond will depend upon a variety of factors, some of which are beyond our control. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COAL SALES AND RELATED REVENUES. Coal sales and related revenues decreased 23.3% from $78.2 million for the three months ended September 30, 1998 to $60.0 million for the three months ended September 30, 1999. For the nine-month periods ended September 30, the decrease was 22.9% from $226.1 million for 1998 to $174.3 million for 1999. The decreases in coal sales and related revenues were due in part to lower tonnage levels, as discussed below, and a reduction in the proportionate share of sales of our higher-priced metallurgical coal to total sales. Coal sales volume decreased 12.5% from 3.2 million tons for the three months ended September 30, 1998 to 2.8 million tons for the three months ended September 30, 1999. For the nine-month periods ended September 30, the decrease was 16.0% from 9.4 million tons for 1998 to 7.9 million tons for 1999. These decreases in coal sales volume were due to the following: - We idled our Webster County surface mine in December 1998. In addition, we completed operations at the contract deep mine in Webster County in the third quarter of 1999, because the mine's reserve base had been depleted. - We idled the Grant County surface mine in December 1998. This surface mine was idled because we had mined all of its then permitted reserves and were not able to obtain a new mining permit for the adjacent properties. We would have been able to continue the surface mining operation with a new mining permit. See "Risk Factors--Risks Related to Anker--We have been unable to obtain a new mining permit for one of our important properties, which has caused reduced levels of coal production. We are uncertain if or when we will be able to obtain the permit." With the idling of the surface mine at Grant County, we were unable to sell the portion of production from the Grant County deep mine that had previously been blended with coal from the idled surface mine. As a result of this and other factors, we idled the deep mine in February 1999, which caused an additional decline in coal production. - We completed one contract mining operation in Preston County during the fourth quarter of 1998. We expect production to cease at the remaining contract deep mine in Preston County at the end of 1999, because the mine's reserve based will be depleted. - We implemented a reduced production schedule at our Raleigh County deep mine. We made this reduction in response to changing geologic and market conditions and to more effectively mine the remaining reserves. The Raleigh County deep mine will continue to produce at a reduced tonnage level throughout 1999. 34 38 While we experienced lower production at the mines, as described above, tonnage levels during 1999 as compared to the same periods for 1998 increased at our Upshur County, West Virginia deep mine and Garrett County, Maryland deep mine. These increases partially offset the decreases described above. COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and selling expenses decreased 26.5% from $73.5 million for the three months ended September 30, 1998 to $54.0 million for the three months ended September 30, 1999. During the nine-month periods ended September 30, the decrease was 26.6% from $214.4 million for 1998 to $157.4 million for 1999. The cost of operations and selling expenses decreased 13.5% from $22.65 per ton shipped for the three months ended September 30, 1998 to $19.60 per ton shipped for the three months ended September 30, 1999. For the nine-month periods ended September 30, the decrease was 12.9% from $22.73 per ton shipped for 1998 to $19.80 per ton shipped for 1999. The decreases resulted from the implementation of our business plan to transition from operating our own deep mines to contracting with third parties to operate our deep mines and from the idling of some of our higher cost mines. OTHER OPERATING EXPENSES. Other operating expenses decreased from $7.5 million for the three months ended September 30, 1998 to $7.4 million for the three months ended September 30, 1999. For the nine-month periods ended September 30, other expenses decreased from $20.8 million for 1998 to $20.2 million for 1999. Other operating expenses includes general and administrative expenses and depreciation, depletion and amortization. General and Administrative Expenses. General and administrative expenses increased 3.7% from $2.7 million for the three months ended September 30, 1998 to $2.8 million for the three months ended September 30, 1999. However, general and administrative expenses decreased 12.8% from $7.8 million for the nine months ended September 30, 1998 to $6.8 million for the nine months ended September 30, 1999. The decrease in general and administrative expenses during the nine-month period primarily resulted from management changes we made as we restructured our mining operations. The increase for the three-month period is primarily related to the costs we incurred in connection with the private restructuring discussed above and are not expected to continue beyond 1999. We recorded approximately $0.8 million as of September 30, 1999, for costs in connection with the private restructuring. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization decreased 4.2% from $4.8 million for the three months ended September 30, 1998 to $4.6 million for the three months ended September 30, 1999. However, depreciation, depletion and amortization increased 3.1% from $13.0 million for the nine months ended September 30, 1998 to $13.4 million for the nine months ended September 30, 1999. As a result of the restructuring of our deep mining operations that took place in 1998, we reviewed the carrying value of long-lived assets to determine whether that value was recoverable from future undiscounted operating cash flows. Based on the results of that review, we impaired those assets in 1998 and adjusted prospectively the remaining asset life based on the cash flow analysis. Accordingly, the useful life of goodwill was reduced from 40 years to a prospective period ranging from 3 to 20 years, and the useful life of various fixed assets was also reduced. These reductions in useful life resulted in higher depreciation, depletion and amortization. LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES. We recorded loss on impairment and restructuring charges of $1.1 million for the three months ended September 30, 1999, and $4.5 million for the nine months ended September 30, 1999. The loss on impairment and restructuring recorded in the third quarter consisted of three items. First, the operating sections of our Barbour County deep mine were moved from one area of the reserve to another. As a result of the move, various unamortized assets were no longer useful in the mining operation, and we recorded a $0.6 million charge. Other unamortized assets associated with this area of the Barbour County operation totaling $1.7 million were not impaired because we believe these assets will be used for future mining activities. Second, in connection with the close down of our operations in Webster County, we recorded $1.0 million of additional charges for reclamation and other close down costs to be incurred over the next seven months. The third component of the loss consists of an income offset of $0.5 million relating to the disposition of coal reserves in Preston and Taylor counties, West Virginia, that were previously impaired during the fourth quarter of 1998. During the second quarter of 1999, we reviewed the carrying value of computer software and determined that, in connection with the use of contract miners at our deep mines, some software would no longer be utilized. As a result, we recorded an impairment loss of $1.1 million. In addition, we recorded an impairment of $2.4 million relating to properties located in Tazewell County, Virginia. We recorded loss on impairment and restructuring charges of $5.5 million for the three months ended September 30, 1998 and $7.3 million for the nine months ended September 30, 1998. As discussed in more detail below, during the first nine months of 1998, we - impaired our remaining investment in Oak Mountain, - initiated steps to reduce general and administrative expenses, 35 39 - recorded an impairment relating to impairment losses on pieces of mining equipment and - recorded a reclamation charge relating to a change in the mine plan for the Webster County. During the third quarter of 1998, we recorded a reclamation charge of $5.1 million relating to a change in the mine plan for our Webster County operation. INTEREST EXPENSE. Interest expense increased 12.1% from $3.3 million for the three months ended September 30, 1998 to $3.7 million for the three months ended September 30, 1999. For the nine-month periods, the increase was 16.0% from $9.4 million for 1998 to $10.9 million for 1999. The increases were due to an increase in the average outstanding indebtedness and average effective interest rate from the periods in 1998 to the same periods in 1999. OTHER INCOME AND EXPENSE. Other income increased 300% from $0.3 million for the three months ended September 30, 1998 to $1.2 million for the three months ended September 30, 1999. For the nine-month periods, the increase was 225% from $0.8 million for 1998 to $2.6 million for 1999. Other income and expense includes - gain or loss from the sale of assets, - interest income, - royalty income, - production tax credits, - timber sales and - miscellaneous income and expense items. INCOME TAXES. The income tax benefit for the three and nine months ended September 30, 1999 is based on the effective tax rate expected to be applicable for the full year. We have established a full valuation allowance on the net operating loss carryforwards, capital loss carryforwards and contribution carryforwards because the realization of these assets is uncertain. In addition, we received a refund of $0.2 million in the first quarter of 1999 related to a prior year federal tax deposit. We established a valuation allowance for these items because we were not certain that we would be able to realize these items. In connection with the expected income tax consequences relating to the restructuring transactions, we may use the carryforwards, which will result in the recognition of a tax benefit. See "Risk Factors--Risks Related to Anker--We could have income tax liability as a result of the restructuring of our 9 3/4% Series B Senior Notes." NET LOSS. Our net loss decreased $3.2 million from $8.1 million for the three months ended September 30, 1998 to $4.9 million for the three months ended September 30, 1999. For the nine-month periods, the decrease was $2.0 million from $18.0 million for 1998 to $16.0 million for 1999. The decreases in net loss are primarily the result of the reduction of operating and selling expenses discussed above. YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 COAL SALES AND RELATED REVENUES. Coal sales and related revenues decreased 9.8% from $323.0 million for the year ended December 31, 1997 to $291.4 million for the year ended December 31, 1998. Coal sales volume decreased 8.2% from 13.4 million tons for the year ended December 31, 1997 to 12.3 million tons for the year ended December 31, 1998. The decreases were due to the following: - We completed one contract mining operation in Preston County during the fourth quarter of 1997. - We implemented a new mining plan at our Barbour County operations during the fourth quarter of 1997, which, as expected, resulted in lower production for 1998. - We experienced significant rainfall at our Webster Country surface mine during the first quarter of 1998, which reduced our ability to dispose of preparation plant refuse and caused an increase in inventory. The inventory handling issues eventually prevented the mine from operating efficiently according to its mine plan. During March 1998, we idled this mine to reduce inventory. The mine restarted operations in May 1998 at reduced levels and continued to produce at reduced levels through the third quarter of 1998. During the fourth quarter of 1998, we idled the surface mining activities in Webster County. - On February 26, 1998, we sold our interest in Oak Mountain, which owned and operated an underground mine in Shelby County, Alabama. 36 40 Increases in production at mines we previously acquired or developed during 1997, including the Grant County and Upshur County operations, and additional sales of coal that we purchased from other producers, partially offset the decline in coal sales described above. COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and selling expenses decreased 6.4% from $295.4 million for the year ended December 31, 1997 to $276.5 million for the year ended December 31, 1998. The cost of operations and selling expenses increased from $22.00 per ton shipped for the year ended December 31, 1997 to $22.43 per ton shipped for the year ended December 31, 1998. This increase was due to a reduction in production as described above and higher operating costs at our Barbour and Raleigh county underground mines. During 1998, we made significant changes in the management of our operations, with an emphasis on adding experienced underground mine managers. Once in place, the new management initiated efforts to - improve safety, - tighten capital expenditure requirements, - improve operational tracking, - revamp budgeting and forecasting processes, and - initiate training programs to improve communications and productivity. These efforts resulted in cost savings in our underground operations that we began realizing in late 1998. We did not believe, however, that the realized savings were large enough or sustainable. As a result, during 1999, we changed from operating these mines ourselves to using contract miners to operate these mines. OTHER OPERATING EXPENSES. Other operating expenses increased from $26.9 million for the year ended December 31, 1997 to $27.2 million for the year ended December 31, 1998. Other operating expenses includes general and administrative expenses and depreciation, depletion and amortization. General and Administrative Expenses. General and administrative expenses decreased 4.4% from $9.5 million for the year ended December 31 1997 to $9.1 million for the year ended December 31, 1998. The decrease in general and administrative costs primarily resulted from changes in our staff necessary to manage the lower mine production in 1998. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased 4.1% from $17.4 million for the year ended December 31, 1997 to $18.1 million for the year ended December 31, 1998. The increase was due to depreciation, depletion and amortization starting in 1998 on the mine developed in Upshur County in 1997 and early 1998. The increase was partially offset by reductions in production at other locations. As indicated below, we recorded losses on impairment and restructuring charges that will impact future depreciation, depletion and amortization. Accordingly, the useful life of goodwill was reduced from 40 years to a prospective period ranging from three to 20 years, and the useful life of various fixed assets was also reduced. LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES. The major components of loss on impairment and restructuring charges were as follows:
1998 1997 ------- --------- (In thousands) Impairment of properties and investment $44,416 $ 8,267 Exit costs 25,411 - Assets to be disposed 15,983 - Equipment leasehold termination costs 3,957 - Other 950 - ------- --------- $90,717 $ 8,267 ======= =========
During 1998, the operational managers at each mine were changed, and the new managers analyzed various operating plans. This reevaluation resulted in a determination that carrying values exceeded the expected discounted cash flows from the market and cost assumptions. As a result, in 1998 we recorded losses on impairments for properties and investments. The properties affected and the related asset categories are as follows: 37 41
ADVANCED PROPERTY, PLANT MINIMUM DESCRIPTION AND EQUIPMENT ROYALTIES GOODWILL TOTAL ----------- ------------- --------- -------- ----- (In thousands) Raleigh County, WV - - $ 5,705 $ 5,705 Upshur County, WV $ 6,036 - - 6,036 Grant County, WV and Garrett County, MD 11,113 $ 7,009 - 18,122 Monongalia County, WV and Preston County, WV 2,652 2,895 9,006 14,553 ------- ------- ------- ------- $19,801 $ 9,904 $14,711 $44,416 ======= ======= ======= =======
Also, in conjunction with the reevaluation, we decided to exit our investment in Webster and Braxton counties in West Virginia. This decision was based on current market conditions and expected mining costs. The exit charges consist of the following:
ASSET CATEGORY AMOUNT - -------------- ------ (In thousands) Property, plant and equipment $ 13,569 Reclamation accrual 5,100 Advanced minimum royalties 1,651 Goodwill 4,896 Other 195 --------- $ 25,411 =========
As part of our liquidity planning, some of our assets have been identified to be held for sale. These assets have been reclassified to a separate asset account and were adjusted to their fair market value. We established the fair market values based on current offers, third party appraisals and other information we believe is relevant to establish these values. The charges for assets held for sale consist of the following:
PROPERTY, ADVANCED PLANT AND MINIMUM ADJUSTMENT DESCRIPTION EQUIPMENT ROYALTIES TOTAL - ----------- --------- --------- ----- (In thousands) Raleigh County $ 1,353 $ 2,419 $ 3,772 Preston County 7,721 4,026 11,747 Other Property 464 - 464 ------- ---------- ------- Total $ 9,538 $ 6,445 $15,983 ======= ========== =======
In conjunction with the mining operational changes described above, we will also incur losses on equipment currently covered by operating leases. These losses were estimated by comparing lease buyout costs with the expected fair market value of the underlying equipment. These differences of approximately $3,957,000 have been recorded as equipment leasehold termination costs. On April 17, 1997, we entered into a joint venture agreement to acquire substantially all of the assets and assume specified liabilities of Oak Mountain Energy Corporation and its affiliates for approximately $40 million, of which we provided $10 million. Subsequent to the initial capitalization, we contributed an additional $255,000. Solely for financial accounting purposes, we identified that we owned an undivided interest in each of the assets and were proportionately liable for our share of each liability of Oak Mountain up to our capital investment. In accordance with industry practice and purchase accounting, we presented our proportionate ownership, amounting to 32.0%, in Oak Mountain in the consolidated financial statements from the date of acquisition. In February 1998, we sold our indirect minority ownership interest in Oak Mountain to a related party for one dollar. We tried unsuccessfully to sell our investment to other unrelated parties during December 1997 and January and February 1998. We recorded an impairment loss of $8,267,000 to adjust our investment to its fair market value less cost to sell as of December 31, 1997. 38 42 INTEREST EXPENSE. Interest expense increased 29.8% from $10.0 million for the year ended December 31, 1997 to $13.0 million for the year ended December 31, 1998. The increase was due to an increase in our average outstanding indebtedness and average effective interest rate from 1997 to 1998. INCOME TAXES. Income tax benefit from operations increased from $1.2 million for the year ended December 31, 1997 to $7.6 million for the year ended December 31, 1998. The change in tax benefit is due to the impairment of the non-deductible goodwill and the increase in the valuation allowance for our state and federal net operating loss carry forwards, contribution carry forwards and capital loss carry forwards. In 1998, we established a valuation allowance for these items because we were not certain that we would be able to realize these items. In connection with the expected income tax consequences relating to the restructuring transactions, we may use the carry forwards, which will result in the recognition of a tax benefit. See "Risk Factors--Risks Related to Anker--We could have income tax liability as a result of the restructuring of our 9 3/4% Series B Senior Notes." EXTRAORDINARY ITEM. For the year ended December 31, 1998, we wrote-off the unamortized portion of debt issuance costs relating to the refinancing of our amended and restated credit facility with The Chase Manhattan Bank and other lenders. The amount written-off was $965,000, net of income taxes. NET LOSS. Our loss increased from $3.2 million for the year ended December 31, 1997 to $106.6 million for the year ended December 31, 1998. The increase in loss was primarily due to the loss on impairment and restructuring charges, increases in operating expenses and decreases in production levels described above. YEAR ENDED DECEMBER 31, 1997 COMPARED TO ADJUSTED COMBINED YEAR ENDED DECEMBER 31, 1996 COAL SALES AND RELATED REVENUES. Coal sales and related revenues increased 11.3% from $290.2 million for the year ended December 31, 1996 to $323.0 million for the year ended December 31, 1997. Coal sales volume increased 15.4% from 11.6 million tons for the year ended December 31, 1996 to 13.4 million tons for the year ended December 31, 1997. The increased volume resulted primarily from - an increase in the sales of coal we arrange between other producers and third parties, - acquisitions of mining operations, - mine expansion and development and - our investment in Oak Mountain. COST OF OPERATIONS AND SELLING EXPENSES. The cost of operations and selling expenses increased 13.8% from $259.6 million for the year ended December 31, 1996 to $295.4 million for the year ended December 31, 1997. The increase primarily resulted from an increased volume of shipments and increased costs related to adverse geological conditions at two of our mines. The cost of operations and selling expenses decreased 1.4% from $22.40 per ton for the year ended December 31, 1996 to $22.09 per ton shipped for the year ended December 31, 1997. OTHER OPERATING EXPENSES. Operating expenses increased 22.8% from $21.9 million for the year ended December 31, 1996 to $26.9 million for the year ended December 31, 1997. General and Administrative Expenses. General and administrative expenses increased 25.6% from $7.5 million for the year ended December 31, 1996 to $9.5 million for the year ended December 31, 1997. The increase in general and administrative costs primarily resulted from the increase in our management staff necessary to manage the additional mines we developed or acquired since December 31, 1996. Depreciation, Depletion and Amortization. Depreciation, depletion and amortization increased 22.0% from $14.3 million for the year ended December 31, 1996 to $17.5 million for the year ended December 31, 1997. The increase in depreciation, depletion and amortization primarily resulted from the amortization of purchase accounting adjustments and goodwill relating to our recapitalization and from acquisitions we made in the year ended December 31, 1997. LOSS ON IMPAIRMENT OF INVESTMENT. On April 17, 1997, we entered into a joint venture agreement to acquire substantially all of the assets and assume specified liabilities of Oak Mountain Energy Corporation and its affiliates for approximately $40 million, of which we provided $10 million. Subsequent to the initial capitalization, we contributed an additional $255,000. Solely for financial accounting purposes, we identified that we owned an undivided interest in each of the assets and were proportionately liable for our share of each liability of Oak Mountain up to our capital investment. In accordance with industry practice and purchase accounting, 39 43 we presented our proportionate ownership, amounting to 32.0%, in Oak Mountain in the consolidated financial statements from the date of acquisition. In February 1998, we sold our indirect minority ownership interest in Oak Mountain to a related party for one dollar. We tried unsuccessfully to sell our investment to other unrelated parties during December 1997 and January and February 1998. We recorded an impairment loss of $8,267,000 to adjust our investment to its fair market value less cost to sell as of December 31, 1997. NON-CASH STOCK COMPENSATION AND NON-RECURRING RELATED EXPENSES. During June 1996, we made a non-cash common stock grant to one of our executive officers in the amount of $1.5 million. This grant was intended to reward the executive officer for past service and to ensure the continuity of our top management. In conjunction with that transaction, we awarded a cash bonus and related expenses in the amount of $1.5 million. These transactions resulted in an expense of $3.0 million in 1996, which did not reoccur in 1997. INTEREST EXPENSE. Interest expense increased 105.5% from $4.9 million for the year ended December 31, 1996 to $10.0 million for the year ended December 31, 1997. The increase was due to an increase in our average outstanding indebtedness and average effective interest rate from 1996 to 1997. LIFE INSURANCE PROCEEDS. On October 12, 1997, John J. Faltis, our President, Chief Executive Officer and Chairman of our Board of Directors, was killed in a helicopter accident in West Virginia. In accordance with a stockholders' agreement, dated as of August 12, 1996, among us, Mr. Faltis, JJF Group and other holders of our capital stock, we maintained key man life insurance on the life of Mr. Faltis in the amount of $15.0 million. Under the stockholders' agreement, we were to use the proceeds from the key man policy to repurchase as much of our common stock that JJF Group owned as possible, based on the fair market value of the common stock. In December 1997, we received $5.0 million in life insurance proceeds, which we used to temporarily reduce the outstanding indebtedness under our amended and restated credit facility with The Chase Manhattan Bank and others. In connection with our recent private exchange, we exchanged $6.0 million in principal amount of notes with JJF Group to settle our obligation to repurchase our common stock from JJF Group. INCOME TAXES. Income taxes decreased from an income tax expense for the year ended December 31, 1996 of $0.4 million to an income tax benefit from operations for the year ended December 31, 1997 of $1.2 million. This decrease was primarily the result of the exclusion of life insurance proceeds and the deductibility of our taxable loss from income. These decreases were partially offset by a valuation allowance established for the Oak Mountain capital loss. EXTRAORDINARY ITEM. For the year ended December 31, 1997, we wrote-off the unamortized portion of debt issuance costs relating to our credit facility dated August 12, 1996. We incurred a loss on the refinancing of approximately $3.9 million, net of income taxes of $1.5 million. NET INCOME. Our net income decreased from $2.0 million of income for the year ended December 31, 1996 to a loss of $3.2 million for the year ended December 31, 1997. The decrease in net income is primarily due to - the increase in operating expenses for items, including (1) adverse geological conditions at two of our mines, (2) general and administrative costs related to increase in management staff and (3) depreciation, depletion and amortization, - the extraordinary loss related to the write off of unamortized debt costs and - the impairment of the Oak Mountain investment. These decreases in net income were partially offset by the recognition of life insurance proceeds. YEAR 2000 The Year 2000, or Y2K, issue is the result of computer programs that were written using two digits, rather than four, to define the applicable year. Any of our computers, computer programs, mining or administration equipment that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. If any of our systems or equipment has date-sensitive software using only two digits, system failures or miscalculations may result. These failures or miscalculations may cause disruptions of operations or disruptions in normal business activities. 40 44 During 1998, we created an internal project team to assess the Y2K issue. The team identified risks in four general categories: - internal business software and systems, - mine operating equipment, - coal processing facilities and - other. INTERNAL BUSINESS SOFTWARE AND SYSTEMS. During July and August of 1998, file servers, hubs, switches, routers and individual personal computers and workstations were tested for Y2K compliance. As of September 30, 1999, the process was complete. A final review of all internal systems as described in the initial Y2K plan is to be conducted during the beginning of the fourth quarter of 1999. Our estimated cost for 1999 is $0.2 million and will be funded through normal operating cash. COAL PROCESSING FACILITIES. The Y2K project team has identified a person to serve as coordinator between the mine sites and vendors to assess Y2K compliance in relation to our coal processing facilities. Coal processing facilities are composed of various components, including electronic belt scales, analyzers and controllers. Each plant and its components have been assessed. As of September 30, 1999, the assessment was completed at all coal processing facilities. The remediation of any Y2K problems at our coal processing facilities should be completed by November 30, 1999. Although we believe our systems and facilities are Y2K compliant, we have developed contingency plans. To date, expenditures on Y2K have been minimal and funded by operating cash. Based on preliminary information, the majority of the project cost will be attributed to the purchase of new software to meet future industry requirements and will be capitalized. We believe that we are devoting the necessary resources to identify and resolve significant Y2K issues in a timely manner. DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES As of September 30, 1999, there were no restrictions affecting the ability of the guarantor subsidiaries of our notes to make distributions to us or other guarantor subsidiaries, except for restrictions in our loan agreement with Foothill and those restrictions provided by law generally, e.g., adequate capital to pay dividends under corporate law. The loan agreement with Foothill provides that, in order to advance funds to us, the borrowers under the loan agreement must have borrowing availability of at least $5.0 million after giving effect to the advances of funds. 41 45 THE COAL INDUSTRY According to data compiled by the Energy Information Administration of the U.S. Department of Energy, U.S. coal production totaled 1.13 billion tons in 1998, a 3.7% increase from the 1.09 billion tons produced in 1997 and a record high. Most of the coal consumed in the United States is used to generate electricity. Factors driving the increase in 1998 coal production include: - the lower cost of generating electricity with coal compared to oil, natural gas and nuclear power; - volatile natural gas prices; and - strong economic growth. Total U.S. coal consumption reached 1.09 billion tons in 1998, a nominal increase from 1997. In 1998, utilities used approximately 83.0% 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 55.2% of total electricity generation in 1998, as compared with 21.1% from nuclear, 10.1% from hydroelectric and 9.8% from gas-fired facilities in 1998. 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 55% from 1988 through 1998, even though production during that same time has increased 17.7%. The United States coal industry has undergone significant consolidation since 1988. The 10 largest coal producers in 1988 accounted for 37.3% of total domestic coal production. The 10 largest coal companies accounted for 61.9% of total domestic coal production in 1998. The following table presents five year U.S. coal consumption by sector. We derived this information from publications of the Energy Information Administration of the U.S. Department of Energy.
FIVE YEAR COAL CONSUMPTION BY SECTOR ------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- (IN MILLIONS OF TONS) Utilities .................. 817.3 829.0 873.7 900.3 910.9 Independent Power Producers 20.9 21.2 24.0 21.6 28.1 Coke Plants ................ 31.7 33.0 31.7 30.2 28.2 Other Industrial Plants .... 75.2 72.8 70.6 70.6 69.2 Residential/Commercial Users 6.0 5.8 5.8 6.5 6.4 ----- ----- ------- ------ ------- Total ....... 951.1 968.1 1,005.8 1029.2 1,042.8 ===== ===== ======= ====== =======
COAL TYPES In general, coal is classified by heat value 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 various characteristics to qualify for use as a metallurgical coal, which is used in coke production. Lignite Coal. Lignite coal is a brownish-black coal with a heat value 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 this low-Btu coal. Subbituminous Coal. Subbituminous coal is a dull black coal with a heat value that ranges from approximately 8,300 to 11,500 Btus per pound. Most subbituminous reserves are located in Montana, Wyoming, Colorado, New Mexico, Washington and Alaska. Subbituminous coal is used almost exclusively by electric utilities and some industrial consumers. 42 46 Bituminous Coal. Bituminous coal is a "soft" black coal with a heat value that ranges from 10,500 to 14,000 Btus per pound. This coal is found in Appalachia, the Midwest, Colorado and Utah, and it 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 is also used 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 heat value that can be as high as 15,000 Btus per pound. Anthracite deposits are found primarily in the Appalachian region of eastern Pennsylvania and are used primarily for utility, industrial and home heating purposes. One hundred percent of our reserves are bituminous and are located east of the Mississippi River. COAL QUALITIES The primary factors considered in determining the value and marketability of coal that utility and industrial customers use to generate steam include the Btu content, the sulfur content and the percentage of small particles of inert material known as ash, 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 (lbs.SO2/MMBtu).
Sulfur Content Classification (lbs.SO2/MMBtus) - -------------- ---------------- Compliance Up to 1.2 Low sulfur Up to 1.6 Medium sulfur Over 1.6 and up to 2.8 High sulfur Over 2.8
Coal that emits no more than 1.2lbs.SO2/MMBtu of sulfur dioxide when burned complies with the Clean Air Act Amendment of 1990 and is referred to as compliance coal. Medium sulfur coal is burned in power plants that have equipment to limit sulfur emissions in the production of electricity. These power plants will be able to continue to burn medium sulfur coal after implementation of Phase II of the Clean Air Act. 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 in northeastern Wyoming and southeastern Montana. Volatile matter, which is 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 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 carefully blending low volatile and high volatile metallurgical coals to create the proper coking characteristics. The lower the volatile characteristics and percentage of ash in coal, the higher the yield 43 47 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, Maryland and Ohio. Coal from this region generally has a sulfur content ranging from low sulfur to high sulfur and has a Btu content of about 12,000 to 13,000 Btus per pound of coal. CENTRAL APPALACHIA. Central Appalachia includes southern West Virginia, eastern Kentucky and Virginia. Coal from this region generally has a low sulfur content and a high Btu content of about 12,000 to 13,500 Btus per pound of coal. SOUTHERN APPALACHIA. Southern Appalachia includes Tennessee and Alabama. Coal from this region also has a low sulfur content and a high Btu content of about 12,000 to 13,000 Btus per pound of coal. THE ILLINOIS BASIN. The Illinois Basin includes western Kentucky, Illinois and Indiana. Coal from this region varies in Btu content from 10,000 to 12,000 Btus per pound of coal and has a high sulfur content. THE ROCKY MOUNTAINS. The Rocky Mountain region consists of Utah and Colorado. The coal from this region has a low sulfur content and varies in Btu content from about 10,500 to 12,800 Btus per pound of coal. THE POWDER RIVER BASIN. The Powder River Basin consists mainly of northeastern Wyoming and southeastern Montana. This coal has a very low sulfur content and a low Btu content of about 8,000 to 9,200 Btus per pound of coal. All of our coal reserves are bituminous and are located east of the Mississippi River in the Northern and Central Appalachian and the Illinois Basin regions of the United States. 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. In general, surface techniques are usually employed when a coal seam is within 200 feet of the earth's surface, and underground techniques are used for deeper seams. We describe the mining methods used at each of our mining operations under "Business--Mining Operations." Surface techniques generally require a favorable ratio of the amount of rock and soil overlying a coal deposit, or overburden, that must be removed to excavate a given quantity of coal. Underground techniques are used for deeper seams. In 1998, surface mining accounted for approximately 61.0% of total U.S. coal production, with underground mining accounting for the balance of production. We estimate that approximately 75.0% of our coal production in 1998 originated from our deep mines, with the balance originating from our surface mines. Surface mining generally costs less and has a higher seam recovery percentage than underground mining. Surface mining typically results in the recovery of 80.0% to 90.0% of the total coal from a particular deposit, while underground mining typically results in the recovery of 50.0% to 60.0%. SURFACE MINING METHODS Surface mining consists essentially of a large-scale earth moving operation in which the overburden is removed by means of large earth-moving machines. The coal exposed by removing the overburden is loaded onto haul trucks or overland conveyers for transportation to processing and loading facilities. The site is then backfilled with the overburden and otherwise restored to its approximate original contour and condition, a process known as "reclamation." Federal law mandates reclamation of all surface mining sites. The most common forms of surface mining are: Mountaintop Removal Mining. Mountaintop removal mining involves removing all material above the coal seam before removal of the coal, leaving a relative level plateau in place of the hilltop after mining. This method achieves a more 44 48 complete recovery of the coal. However, its feasibility depends on the amount of overlying material in relation to the coal to be removed. 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 auger mining. 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 an auger, which is a large, corkscrew-like machine, bores into the side of a hill and extracts coal by "twisting" it out. Auger mining generally permits the extraction of coal to depths of only 300 feet or less. DEEP MINING METHODS Underground or deep mining operations are used when a coal seam is too deep to permit surface mining. There are three basic classifications of deep mining based on the way the coal seam is accessed: - slope mines, where a coal seam is relatively close to the earth's surface and is accessed through a sloped tunnel, - shaft mines, for deeper deposits, which are accessed through a vertical tunnel, and - drift mines, which are accessed through a horizontal entry. Once the coal seam is accessed, there are two types of mining methods to extract coal from deep mines: Room and Pillar Mining. Room and pillar mining uses continuous miners or conventional mining equipment that cut a network of interconnected 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. Longwall Mining. Longwall mining uses powerful hydraulic jacks 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. 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. We do not use the long wall mining method in any of our deep mines. COAL PREPARATION AND BLENDING Depending on coal quality and customer requirements, raw coal may be shipped directly from the mine to the customer. However, the quality of most raw coal does not allow it to be shipped directly to the customer without processing it first in a preparation plant. Preparation plants separate impurities from coal using a gravity process. This processing upgrades the quality and heating value of the coal by removing or reducing sulfur and ash-producing materials, but it 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. 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 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, discharge of materials into the environment, surface subsidence, which is the sinking or settling of the earth's surface 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 45 49 or the ability of coal customers to use coal. See "Risk Factors--Risks Related to Anker--Government regulations could increase our costs of doing business and may discourage our customers from buying our coal" and "Business--Regulation and Laws." 46 50 BUSINESS OVERVIEW We are a producer of coal that is used principally to generate electricity and to produce coke for use in making steel. We currently own or control substantial coal reserves in West Virginia, Maryland, Virginia and Kentucky. We currently operate a portfolio of seven deep mines and one surface mine that are located in West Virginia and Maryland. We recently changed from operating our deep mines with our own employees to using contract miners to operate these deep mines for us. Our coal mines and reserves are located in close proximity to rail and water transportation services or are within short trucking distances to power plants. We primarily market and sell our coal to electric utilities located in the Northeastern and mid-Atlantic states. The utilities that we currently sell our coal to use modern generating processes that will allow them to continue using our coal after implementation of Phase II of the Clean Air Act. See "--Regulation and Law--Environmental Laws--Clean Air Act" for a discussion of Phase II of Title IV of the Clean Air Act. In addition to selling coal that we produce from our own mines, we also sell coal that we purchase from other producers, which is referred to as brokered coal. We also arrange for coal that others produce to be sold to third parties, which is referred to as commission coal. Based on the most recent data published by the National Mining Association, we are one of the 30 largest coal producers and one of the 30 largest holders of coal reserves in the United States. ORGANIZATION We were organized as a corporation in August 1996 under the laws of the State of Delaware. This was done in order to effect a recapitalization of our predecessor, Anker Group, Inc. Anker Group, Inc. had been engaged in the production of coal since 1975. To effect the recapitalization, First Reserve Corporation purchased approximately 54.1% of our common stock and 10,000 shares of our Class B preferred stock for $50 million in cash. In addition, senior management and Anker Holding B.V. exchanged an aggregate of 7.5% of Anker Group's common stock for shares of Anker Coal Group's common stock. Anker Coal Group then acquired the remaining 92.5% of Anker Group's common stock from Anker Holding for approximately $87 million. We partially funded the $87 million by issuing $25 million of Class A preferred stock to Anker Holding. We paid the remaining $62 million in cash, $12 million of which we borrowed under our then existing credit agreement. That credit agreement was subsequently amended and restated on September 25, 1997 and replaced with our current credit facility on November 21, 1998. See "Description of Other Indebtedness." In addition, we assumed $152 million of Anker Group's outstanding liabilities. Our principal offices are located at 2708 Cranberry Square, Morgantown, West Virginia 26508 and our telephone number is (304) 594-1616. COMPETITIVE STRENGTHS We believe that we possess the following competitive strengths: PORTFOLIO OF LONG-TERM CONTRACTS. We have secured long-term coal supply contracts with a weighted average term of approximately 5.5 years as of October 1, 1999. Our long-term contracts have accounted for an average of approximately 75% of our coal sales revenues from 1994 to 1998. Over the same period, approximately 2.6 million tons of our annual coal shipments covered by long-term contracts were up for renewal, and contracts for approximately 2.0 million tons of this coal were rolled over into new long-term contracts upon their expiration. In addition, over the same period, we entered into new long-term contracts for 2.3 million tons of annual coal shipments. We have been successful in negotiating long-term contracts for our medium and high sulfur coal with independent power producers and utilities equipped with sulfur-reduction technologies. As of October 1, 1999, of our 18 long-term contracts, 14 were for our medium and high sulfur coal. These long-term contracts provide us with stable sources of revenues to support the large expenditures needed to open, expand and maintain the mines servicing these contracts. DIVERSE PORTFOLIO OF RESERVES. We have increased our reserve base approximately 246%, from 147 million recoverable products tons as of December 31, 1992 to approximately 508 million recoverable product tons as of October 1, 1999, substantially all of which was due to acquisitions of reserves. As of October 1, 1999, approximately 14% of our coal reserves were compliance coal, and 68% of our reserves were medium sulfur coal. Many of our current customers that possess the technology to scrub higher sulfur coal prefer that 47 51 coal due to its lower cost. All of our coal is of a quality suitable for use in electricity generating facilities. At December 31, 1998, our reserve life index, defined as total recoverable reserves divided by production for 1998, was approximately 76.1 years. EXPERIENCED MANAGEMENT TEAM. Bruce Sparks, our President, has 21 years of experience in the coal industry, has worked at Anker for the past 14 years and owns approximately 8.5% of our fully diluted common stock. William Kilgore, our Chief Executive Officer and the Chairman of our Board of Directors, has 42 years experience in the coal industry, including as a coal mining consultant for several Central Appalachian coal companies. See "Management." COAL RESERVES As of October 1, 1999, we had an estimated reserve base totaling approximately 508 million recoverable product tons. Approximately 14% of that amount consists of compliance coal, 18% of that amount consists of low sulfur coal, which includes the 14% of compliance coal, and 68% of that amount consists of medium sulfur coal. Approximately 96% of these reserves are classified as deep, and 4% are classified as surface mineable. Moreover, steam coal represents approximately 443 million tons, or 87%, of our reserves. Premium quality metallurgical coal, on the other hand, constitutes approximately 65 million tons, or 13%, of our reserves. Assigned reserves, which consist of coal that could reasonably be expected to be processed in existing plants, represent approximately 46% of our reserves. Unassigned reserves, which consist of coal for which additional expenditures will be required for processing facilities, represent the remaining 54% of our reserves. Our engineers and geologists prepare reserve estimates, which are reviewed periodically to reflect additional data obtained and developments affecting the reserves. Accordingly, reserve estimates will change from time to time in response to: - mining activities - analysis of new engineering and geological data - acquisition or divestment of reserve holdings - modification of mining plans or mining methods - market conditions - other factors We engaged Marshall Miller & Associates, an independent mining and geological consultant, to audit our estimates of our coal reserves. The audit verified that we properly estimated our reserve base according to industry-accepted standards. The audit also verified the accuracy of our reserve estimates. The following table summarizes our coal reserves as of October 1, 1999. Estimates of measured, indicated and total recoverable reserves are based on the reserve information contained in the reserve audit report of Marshall Miller & Associates. See Annex A -- Report of Marshall Miller & Associates.
ESTIMATES OF MEASURED, INDICATED AND TOTAL RECOVERABLE COAL RESERVES -------------------------------------------------------------------- Underground Total (UG) or Surface Measured Indicated Recoverable (S) (1) (2) Reserves Surface Underground --- ----- ----- --------- ------- ----------- (in millions of tons) County and State - ---------------- Barbour County, West Virginia UG 23.00 6.98 29.98 29.98 Grant County, West Virginia S/UG 16.21 13.69 29.90 1.30 28.60 Harrison County, West Virginia UG 18.45 38.15 56.60 56.60 Monongalia County, West Virginia S 2.03 0.02 2.05 2.05 Preston County, West Virginia UG 0.68 0.00 0.68 0.68 Raleigh County, West Virginia UG 18.60 12.83 31.43 31.43 Taylor County, West Virginia UG 73.57 144.41 217.98 217.98 Upshur County, West Virginia UG 41.11 24.76 65.87 65.87 Webster County, West Virginia S/UG 2.83 0.11 2.94 2.08 0.86 Allegany County, Maryland S 4.15 0.10 4.25 4.25 Garrett County, Maryland S/UG 19.43 3.26 22.69 9.55 13.14 Muhlenberg County, Kentucky S/UG 7.08 0.83 7.91 0.34 7.57 Tazewell County, Virginia S/UG 25.26 10.44 35.70 0.90 34.80 ----- ----- ----- ---- ----- Totals 252.40 255.58 507.98 20.47 487.51 ====== ====== ====== ===== ======
48 52
Avg. Avg. Mine Avg. Mine Wash Avg. Wash Recovery Recovery Recovery Recovery County and State Surface Underground Surface Underground MET STEAM - ---------------- ------- ----------- -------- ----------- --- ----- Barbour County, West Virginia 54% 73% 29.98 Grant County, West Virginia 85% 55% 76% 65% 29.90 Harrison County, West Virginia 57% 100% 56.60 Monongalia County, West 85% 100% 2.05 Virginia Preston County, West Virginia 55% 73% 0.68 Raleigh County, West Virginia 55% 76% 31.43 Taylor County, West Virginia 60% 70% 217.98 Upshur County, West Virginia 54% 72% 65.87 Webster County, West Virginia 85% 55% 61% 66% 2.94 Allegany County, Maryland 85% 100% 4.25 Garrett County, Maryland 85% 55% 100% 94% 22.69 Muhlenberg County, Kentucky 85% 55% 100% 91% 7.91 Tazewell County, Virginia 85% 64% 100% 87% 33.40 2.30 ----- ------ Totals 64.83 443.15 ===== ======
County and State Assigned Unassigned - ---------------- -------- ---------- Barbour County, West Virginia 29.98 Grant County, West Virginia 29.90 Harrison County, West Virginia 56.60 Monongalia County, West 2.05 Virginia Preston County, West Virginia 0.68 Raleigh County, West Virginia 31.43 Taylor County, West Virginia 217.98 Upshur County, West Virginia 65.87 Webster County, West Virginia 2.94 Allegany County, Maryland 4.25 Garrett County, Maryland 11.38 11.31 Muhlenberg County, Kentucky 0.34 7.57 Tazewell County, Virginia 35.70 ------- -------- Totals 231.17 276.81 ======= ========
(1) "Measured" refers to coal tonnages computed from seam measurements as observed and recorded in drill holes, mine workings, and/or seam outcrop prospect openings. The sites for measurement are so closely spaced and the geologic character so well-defined that the thickness, areal extent, size, shape and depth of coal are well-established. The maximum acceptable distance for projection from seam data points varies with the geologic nature of the coal seam being studied, but generally a radius of 1/4 mile is recognized as the standard. Losses for extraction recovery and wash recovery have been factored into measured reserves. (2) "Indicated" refers to coal tonnages computed by projection of data from available seam measurements for a distance beyond coal classed as measured. The assurance, although lower than for measured, is high enough to assume continuity between points of measurement. The maximum acceptable distance for projection of indicated tonnage is 1/4 to 3/4 mile from points of observation. Further exploration is necessary to place these reserves in a measured category. Losses for extraction recovery and wash recovery have been factored into indicated reserves. We or our subsidiaries own approximately 59% of our total reserves. We lease approximately 41% of our total reserves from third parties. Our reserve leases with third parties generally have terms of between 10 to 20 years. We generally have the right to renew the leases for a stated period or to maintain the lease in force until the exhaustion of mineable and merchantable coal. These leases provide that we must pay royalties to the lessor, either as a fixed amount per ton or as a percentage of the sales price. Many leases also require us to pay a lease bonus or minimum royalties. These lease bonuses and minimum royalties must be paid either at the time the lease is executed or in periodic installments. In most cases, the minimum royalty payments are applied to reduce future production royalties. Consistent with industry practices, we conduct limited investigation of title to third-party coal properties prior to our leasing of these properties. The title of the lessors or grantors and the boundaries of our leased properties are not fully verified until we prepare to mine the reserves. If defects in title or boundaries of undeveloped reserves arise in the future, our control and right to mine these reserves could be materially affected. MINING OPERATIONS COAL PRODUCTION During 1998, we conducted mining operations at nine deep mines and three surface mines in eight counties in West Virginia and in Garrett County, Maryland. Approximately 75% of our production originated from our deep mines, and approximately 25% of our production originated from our surface mines. The following table presents the production, including coal purchased from third parties for blending, from each of the counties in which we produced coal for the previous five years: 49 53
(in thousands of tons) 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- Webster County, West Virginia 2,108 1,889 1,998 2,012 1,271 Barbour County, West Virginia 1,497 1,883 1,787 1,555 1,222 Monongalia County, West Virginia 917 1,288 1,743 1,299 1,134 Raleigh County, West Virginia 123 641 948 1,016 941 Preston County, West Virginia 1,021 893 886 694 512 Garrett County, Maryland 156 293 300 305 286 Harrison County, West Virginia - - - 725 316 Grant County, West Virginia - - - 623 703 Upshur County, West Virginia - - - 204 960 Shelby County, Alabama (1) - - - 182 - ----- ----- ----- ----- ----- Total 5,822 6,887 7,662 8,615 7,345 ===== ===== ===== ===== =====
(1) We indirectly owned a minority interest in Oak Mountain Energy, L.L.C. Oak Mountain operated a deep mine in Shelby County, Alabama. We sold our investment in Oak Mountain in the first quarter of 1998 and recorded an impairment loss of $8,267,000 to adjust our investment to its fair market value as of December 31, 1997. The following is a description of our mining operations. In 1998, we recorded impairment losses and restructuring charges with respect to our operations in Webster, Monongalia, Raleigh, Preston and Grant counties, West Virginia and Garrett County, Maryland. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." WEBSTER COUNTY, WEST VIRGINIA. In 1998, we operated a mining complex in Webster County, West Virginia. The complex consisted of a multiple seam surface mine and a deep mine in the Kittanning Seam operated by a contract miner. Coal from the surface and deep mines were blended to make two products. The first was a premium grade steam coal, the contents of which average 1.33 lbs.SO2/MMBtu, 10% ash, 12,800 Btu per pound, 6.0% moisture and 34 volatility. The second product was a lesser grade steam coal, the contents of which average 1.0% sulfur, 15% ash and 12,000 Btu per pound. Production from the surface and deep mines totaled approximately 1.3 million tons in 1998. We sold approximately 66% of this production to Baltimore Gas & Electric Company, Delmarva Power & Light Company, Atlantic City Electric Company, AES Corporation and Salt City Energy Venture, L.P. As a part of our mining complex, we operated a computer-controlled, 500-tons-per-hour preparation plant located in close proximity to the mines. We also operated an on-site laboratory that allowed us to precisely blend the coal from the surface and deep mines. The complex also had a 100,000 ton unprocessed coal storage capacity and a 100,000 ton processed coal storage capacity. During the second half of 1998, the coal mined at the surface operation began to thin, and the quality of the mined coal began to deteriorate. At the same time, the cost of production began to rise, and the prices at which we could sell the coal began to decrease. As a result, the surface operation became uneconomical, and we idled the mine in December 1998. We are currently reclaiming the properties associated with the idled surface mine and expect to complete the reclamation in the first quarter of 2000. The deep mine continued to operate through September 1999, at which time the reserves in the deep mine were exhausted. In late 1998 and early 1999, we reevaluated our coal reserves in Webster and Braxton counties. Our ability to economically mine these reserves had been adversely affected by the rising cost of production, which is due to the thinning of the seams and the deteriorating quality of the coal. As a result, we determined that we could not economically mine these reserves at that time. Consequently, we impaired the entire carrying value of the properties and have recorded exit costs associated with these operations. BARBOUR COUNTY, WEST VIRGINIA. We own a deep mine complex in Barbour County, West Virginia, known as the Sentinel Mine. The Sentinel Mine produces coal from the Kittanning Seam. This mine produced approximately 1.1 million tons of coal in 1998. We sold approximately 85% of the 1998 production to Potomac Electric Power Company, AES Corporation and Logan Generating Company L.P. Coal from the Sentinel Mine's Kittanning Seam averages 2.0 lbs.SO2/MMBtu, 9% ash, 13,000 Btu per pound, 7.0% moisture and 33 volatility on a fully-washed basis. We entered into a contract mining agreement for the Sentinel Mine, and the contract miner began operation on June 1, 1999. The Barbour County operation has approximately 30.0 million tons of recoverable reserves. All of these recoverable reserves are steam coal, assigned reserves and are classified as deep mineable. In addition to the mining operation, we have an on-site, 1,100 tons-per-hour preparation plant. The plant is fed from a 100,000 ton open stockpile that facilitates the shipment of coal through an attached 3,000 tons-per-hour train loading facility. We also have an on-site 50 54 laboratory that provides sampling and blending capabilities. The total cost of our plant and equipment associated with our Barbour County operations was approximately $13.0 million at December 31, 1998, and its net book value was approximately $8.8 million. We are able to purchase coal from surrounding smaller producers to provide additional sales at various qualities for our utility and industrial customers. With our preparation plant capacity, blending ability, on-site laboratory and large stockpile area, we have the ability to blend the purchased coal with the production from the Sentinel Mine to serve a variety of customers. In 1998, we blended approximately 164,000 tons of brokered coal with production from the Sentinel Mine for shipment to customers. MONONGALIA COUNTY, WEST VIRGINIA. We operate a surface mine in the Waynesburg seam in Monongalia County, West Virginia. This surface mine produced approximately 900,000 tons of coal in 1998. Approximately 10% of this production was shipped by truck to the Morgantown Energy Associates power plant in Morgantown, West Virginia, where it was blended with coal refuse. This was done under a long-term contract with Morgantown Energy Associates. The balance of the production from the surface mine was shipped to our rail and river terminal located on the nearby Monongahela River, known as Anker Rail & River Terminal. The coal was then blended with other brokered coal and shipped by rail and barge to various utilities. Shipments from Anker Rail & River Terminal averaged 2.5 to 4.3 lbs.SO2/MMBtu, 14 to 16% ash and 11,800 to 12,200 Btu per pound. We control approximately 2.0 million tons of recoverable reserves in the Waynesburg seam in Monongalia County with an average quality of 2.3% sulfur, 16.5% ash and 12,500 Btu per pound. All of these reserves are steam coal, assigned reserves and are surface mineable. Anker Rail & River Terminal is designed to enable us to simultaneously load trains of up to 100 cars, referred to as unit trains, on rail lines jointly served by CSX Transportation, Inc. and Norfolk Southern Corporation at a rate of 1,500 tons per hour and onto barges on the Monongahela River at a rate of 1,200 tons per hour. The facility is equipped with crushing, screening and blending equipment, as well as quality control and automated sampling systems. We operate Anker Rail & River Terminal for coal from our surface mine and for third-party brokered coal. We also own the Rosedale and Dippel river facilities. These facilities are adjacent to the Anker Rail & River Terminal and are used for barge staging and additional ground storage. The total cost of the plant and equipment associated with our Monongalia County operations was approximately $3.0 million at December 31, 1998, and its net book value was approximately $2.5 million. RALEIGH COUNTY, WEST VIRGINIA. We own a deep mine in the Beckley seam in Raleigh County, West Virginia, known as the Baybeck Mine. In 1998, this mine produced approximately 941,000 tons of premium quality, low volatility metallurgical coal, which is used in coke production and is known as met coal. We sold the 1998 production from this mine to Citizens Gas and Coke Utility, Drummond Coal Sales, Inc., Koppers Industries, Inc., A.K. Steel, U.S. Steel Corporation and Dofasco Steel Company. Coal from the Baybeck Mine averages 1.0 lbs.SO2/MMBtu, 5.5% ash, 6.0% moisture and 19 vol. We have entered into a contract mining agreement for our mining operations in Raleigh County, and the contract miner began operations on July 5, 1999. The Baybeck Mine has approximately 1.9 million tons of recoverable reserves. We previously controlled an additional block of reserves in the Beckley seam adjacent to our current mine. However, these reserves were separated from our current mining area by a zone of very thin or no coal. In order to access and mine these additional reserves, we would have been required to spend additional capital. As a result of this and other factors, we surrendered these reserves to the lessor in July 1999. We also control approximately 29.0 million tons of coal in the Pocahontas #3 Seam. This is a low volatility metallurgical coal reserve and is adjacent to our Baybeck Mine. This reserve is jointly served by Norfolk Southern and CSX railroads. We are holding this reserve for sale, and, accordingly, it has been adjusted to its estimated fair market value. All of the reserves in Raleigh County are metallurgical coal, assigned reserves and are classified as deep mineable. We own and operate a 300-tons-per-hour preparation plant, with an on-site CSX train loading facility, capable of fast-loading a unit train in four hours. The loading facility is fed from a 150,000 ton open stockpile area adjacent to the preparation plant. The total cost of the plant and equipment associated with our Raleigh County operations was approximately $11.1 million at December 31, 1998, and its net book value was approximately $7.1 million. PRESTON COUNTY, WEST VIRGINIA. In 1998, we operated two deep mines through contract miners in the Upper Freeport seam in Preston County, West Virginia. These deep mines produced a total of 501,000 tons of coal in 1998. We sold approximately 82% of the production from these mines to Potomac Electric Power Company, Allegheny Power Service Corporation and AES Corporation. Coal 51 55 produced from these deep mines averages 2.3 lbs.SO2/MMBtu, 11% ash, 12,800 Btu per pound, 6.0% moisture and 28 volatility on a fully-washed basis. We own and operate a 250-tons-per-hour preparation plant in Preston County, where the coal from our contract mines is processed. The plant has blending capabilities, a sophisticated sampling system and a 1,200-tons-per-hour CSX unit train loading facility. The plant has a 60,000 ton storage capacity. One of the two deep mines ceased production in December 1998 due to the exhaustion of its reserves. The other deep mine is currently operating. However, its reserves are expected to be depleted at the end of 1999. We expect to serve our customers with coal produced from our Barbour and Upshur County mining operations. In July 1999, we sold substantially all of the coal reserves we controlled in Preston County for $1.25 million in cash plus royalties on future production. A gain of approximately $0.5 million from this sale was recognized in the third quarter of 1999. As a result of that sale, we now control 0.68 million tons in Preston County. The total cost of the plant and equipment associated with our Preston County operations was approximately $3.2 million at December 31, 1998, and its net book value was approximately $300,000. GARRETT COUNTY, MARYLAND. We own a deep mine in the Bakerstown seam in Garrett County, Maryland, known as the Steyer Mine. The Steyer Mine produced 286,000 tons of coal in 1998. That coal was shipped by truck to Mettiki Coal Corporation and to our Vindex Mine in Grant County, West Virginia, where it was blended and shipped to Virginia Electric Power Company's Mount Storm Power Station. Coal mined from the Bakerstown seam averages 1.76 lbs.SO2/MMBtu, 25% ash, 10,200 Btu per pound, 5.0% moisture and 15 vol. The Steyer Mine has approximately 10.6 million tons of recoverable reserves. The total cost of the plant and equipment associated with the Steyer Mine was approximately $2.1 million at December 31, 1998, and its net book value was approximately $700,000. We control a total of 22.7 million tons of reserves in Garrett County. All of these reserves are steam coal reserves. Approximately 50% are assigned reserves. Approximately 13.0 million tons, or 58%, of these reserves are deep mineable. We entered into a contract mining agreement for our operations in Garrett County, and the contract miner began operations on April 12, 1999. HARRISON COUNTY, WEST VIRGINIA. We own 50% of a limited liability company that operates a deep mine in the Pittsburgh seam in Harrison County, West Virginia, known as the Sycamore Mine. Production from the Sycamore Mine began in May 1997. The Sycamore Mine has approximately 5.1 million tons of recoverable reserves with an average of 11% ash, 5.8 lbs.SO2/MMBtu, 35 volatility and 12,500 Btu per pound. Coal mined from the Sycamore Mine is sold and delivered by truck to the nearby Harrison Power Station. Allegheny Power Service Corporation owns the Harrison Power Station, which burns more than 5.0 million tons of coal per year. The Harrison Power Station was recently equipped with a scrubber addition, which allows the Harrison Power Station to burn the high sulfur coal produced at the Sycamore Mine. In 1998, the Sycamore Mine shipped by truck a total of approximately 630,000 tons to the Harrison Power Station. We control a total of 56.6 million tons of reserves in Harrison County. All of these reserves are steam coal, assigned reserves and are classified as deep mineable. GRANT COUNTY, WEST VIRGINIA. We own a surface mine in the Kittanning and Freeport seams and a deep mine in the Bakerstown seam in Grant County, West Virginia. The surface mine, known as the Vindex Mine, produced 312,000 tons of coal in 1998. This coal was sold to Virginia Electric Power Company's Mount Storm Power Station. The deep mine, known as the Stony River Mine, produced approximately 333,000 tons of coal in 1998. The coal from the Stony River Mine was sold to Mettiki Coal Corporation and to the Vindex Mine, where it was blended and shipped to Virginia Electric Power Company's Mount Storm Power Station. The blended product averages 3.0 lbs.SO2/MMBtu, 16% ash, 12,000 Btu per pound, 5.0% moisture and 15 volatility. The reserves for the Vindex Mine and the Stony River Mine contain approximately 16.2 million tons of recoverable coal, all of which are located within several miles of the Mount Storm Power Station. All of these reserves are steam coal, assigned reserves. Approximately 1.0 million tons, or 7.0%, of these reserves are surface mineable. We operate a 200-tons-per-hour preparation plant located at the Vindex Mine. The preparation plant processes coal from the Vindex, Steyer and Stony River mines for shipment to Virginia Electric Power Company, referred to as VEPCO. The total cost of the plant and 52 56 equipment associated with our Grant County operations was approximately $6.8 million at December 31, 1998, and its net book value was approximately $5.3 million. In December 1998, we were forced to idle the Vindex Mine because we had mined all of its then permitted coal reserves, and we were unable to secure a new mining permit for our adjacent properties. With the closing of the Vindex Mine, we were unable to sell that portion of the production from the Stony River Mine which had previously been blended with coal from the Vindex Mine and shipped to VEPCO's Mount Storm Power Station. As a result of this and other factors, we idled the Stony River Mine in February 1999. We are working with the appropriate regulatory agencies to try to get the necessary permits for the Grant County surface mine. We have been advised orally by an official of the West Virginia Division of Environmental Protection that this governmental agency has decided to issue a permit covering a portion of the Grant County surface mine operation so that we can resume mining at that operation. The governmental agency has also indicated by letter to us that it anticipates a favorable consideration of our application for the permit. We have not yet, however, received written confirmation that the permit has been granted. At this point, we are uncertain of when we will actually receive the necessary permit with respect to the Grant County surface mine. Also, there is a risk that the agency will not issue the permit even though we have been advised that it will. Because the permit was not issued by October 15, 1999, VEPCO has the right, but not the obligation, to terminate its long-term coal contract with us. Nevertheless, VEPCO has indicated by letter to us dated October 19, 1999, that, in view of the progress being made in obtaining the permit, VEPCO anticipates that it will not terminate its contract as long as we receive the permit in the near term. We control a total of 29.9 million tons of reserves in Grant County. All of these reserves are steam coal and assigned reserves. Approximately 27.4 million tons, or 96.4%, of these reserves are deep mineable. UPSHUR COUNTY, WEST VIRGINIA. In July 1997, we commenced production from a deep mine in the Upper Freeport seam in Upshur County, West Virginia. As of October 1, 1999, the deep mine, known as the Spruce Fork Mine No. 1, had approximately 6.7 million tons of recoverable reserves in the Upper Freeport seam. In 1998, the Spruce Fork Mine No. 1 produced 743,000 tons of coal. We sold approximately 81% of the production from this mine to Baltimore Gas & Electric Company, Lehigh Portland Cement, Logan Generating and Potomac Electric Power Company. The quality of the reserves at the Spruce Fork Mine No. 1 averages 1.8 lbs.SO2/MMBtu, 9% ash, 13,000 Btu per pound, 6.0% moisture and 33 volatility. We entered into a contract mining agreement for our Spruce Fork Mine No. 1, and the contract miner began operations on June 1, 1999. In September 1999, a contract miner commenced production from a new deep mine in the Kittanning seam in Upshur Country. This deep mine, known as the Spruce Fork Mine No. 2, has approximately 16.8 million tons of recoverable reserves. The quality of these reserves averages 1.90 lbs.SO2/MMBtu, 9% ash, 13,000 Btu per pound and 33 volatility. We own and operate a 700-tons-per-hour preparation plant known as the Sawmill Run Plant. We acquired the plant from a subsidiary of Pittston Coal Company, and we have upgraded the plant. We also own and operate a train loading facility on the CSX railroad which is adjacent to the Sawmill Run Plant. The loading facility is a high-speed unit train loading facility with an automatic sampling system. The total cost of the plant and equipment associated with our Upshur County operations was approximately $ 28.0 million at December 31, 1998, and its net book value was approximately $26.0 million. We control approximately 65.9 million tons of recoverable reserves in Upshur County. All of these reserves are steam coal, assigned reserves and classified as deep mineable. OTHER RESERVES. In addition to the reserves discussed above in connection with our existing mining operations, we own or control substantial additional reserves, including approximately 218 million tons of reserves in Taylor County, West Virginia. All of the reserves in Taylor County are steam coal, unassigned and classified as deep mineable. They have an average quality of 1.92 lbs.SO2/MMBtu, 10% ash, 13,000 Btu and 31 volatility. We are not currently producing coal from these reserves and are holding them for future production. CONTRACT MINING We recently converted from operating our deep mines ourselves to using contract miners to operate these mines for us. In each case, the contract miner is a third party that provides coal extraction services at our mines. The contract miner uses its own employees and supplies to mine the coal from our reserves. The contract miner is responsible for making all capital expenditures to advance the mine and continue coal production. As a service provider, the contract miner produces the coal for us, and we own the coal at all times. 53 57 COAL TRANSPORTATION Transportation costs range from 10 to 15% of the cost of a customer's coal for coal trucked to power plants located in coal fields. For eastern utilities supplied by rail, on the other hand, transportation costs range from 25 to 40% of the cost of a customer's coal. Typically, customers receiving coal by truck purchase the coal on a delivered basis, freight included. Customers receiving coal by rail and generally by barge are responsible for transportation charges. As a result, the availability and cost of transportation constitute important factors for the marketability of coal. In 1998, approximately 60% of our tonnage traveled by rail on CSX and Conrail, with the remaining 40% traveling by truck and inland waterway barges. Although all of our mines are currently served only by CSX, we believe that the freight charges we pay are competitive with the charges that other coal producers served by multiple railroads pay. The practices of, and rates set by, the railroad serving a particular mine might affect, either adversely or favorably, our marketing efforts with respect to coal produced from the relevant mine. Effective on or about June 1, 1999, Conrail was divided between CSX and Norfolk Southern. We anticipate that the division of Conrail will give us access to affected markets without having to incur switching costs between railroads, as we have in the past. Thus, we may be able to supply coal into various markets more competitively because of lower rail transportation costs. We also expect that our competitors will similarly benefit from the division of Conrail since they will be able to supply coal into markets where we have in the past had a transportation advantage because there was a single rail line haul into those markets. COAL MARKETING AND SALES We currently conduct our marketing and sales operations primarily in the eastern and mid-western United States. Our sales and marketing staff in Morgantown, West Virginia focus on steam coal sales in the Northeast and mid-Atlantic regions and on metallurgical coal sales across the entire United States and Canada. Our sales and marketing staff in Carmel, Indiana focus on sales in the mid-western United States. Sales of coal in 1998 were 12.3 million tons, including 5.0 million tons shipped under long-term contracts with utilities, 3.1 million tons under long-term contracts with independent power producers, 2.4 million tons under spot market contracts with utilities and 1.8 million tons to metallurgical and industrial customers. Sales of coal in 1997 were 13.4 million tons, and sales of coal in 1996 were 11.6 million tons. Anker Holding BV, which currently owns 6.84% of our fully-diluted common stock, through related parties purchases coal from us for its international trading operations. These purchases amounted to $131,000 in 1998, $9.7 million in 1997 and $16.2 million in 1996. LONG-TERM COAL SUPPLY CONTRACTS During 1999, we have supplied coal to approximately 26 different customers on a regular basis. We have entered into various long-term coal supply contracts with our customers, particularly with our regional utilities and independent power producers. We have secured long-term coal supply contracts with a weighted average remaining life of approximately 5.5 years as of October 1, 1999. Our long-term contracts have accounted for approximately 75% of our coal sales revenues from 1994 to 1998. Over the same period, approximately 2.6 million tons of annual coal shipments covered by long-term contracts were up for renewal, and contracts for approximately 2.0 million tons of this coal were rolled over into new long-term contracts upon their expiration. In addition, over the same period, we entered into new long-term contracts for 2.3 million tons of annual coal shipments. We believe that customers enter into these long-term contracts principally to secure a reliable source of coal at predictable prices. We enter into these contracts to obtain stable sources of revenues required to support the large expenditures we need to open, expand and maintain the mines servicing the contracts. Our long-term contracts with companies related to AES Corporation accounted for approximately 18% of our revenues in 1998 compared to 17% of our revenues in 1997 and 16% of our revenues in 1996, and we expect shipments to these customers to account for approximately 18% of our revenues in 1999. Our shipments to VEPCO accounted for approximately 11% of our revenues in 1998, compared to 6% of our revenues in 1997 and 5% of our revenues in 1996, and we expect shipments to VEPCO to account for approximately 10% of our revenues in 1999. In addition, our shipments to Potomac Electric Power Company accounted for approximately 10% of our revenues in 1998 and 1997 compared to 11% of our revenues in 1996, and we expect shipments to that customer to account for approximately 27% of our revenues in 1999. The loss of these customers and other of our long-term contracts could have a material adverse effect on our financial condition and results of operations. See "Risk Factors--Risks Related to Anker--We depend on key customers for a significant portion of our revenues, and the loss of one or more of them could adversely affect us." 54 58 The following table sets forth information regarding our long-term coal supply contracts as of October 1, 1999:
CONTINUOUS APPROXIMATE EXPIRATION CURRENT ANNUAL YEARS OF TERM OF CURRENT DATE OF CONTRACT SERVICE WITH CONTRACT CURRENT TONNAGE CUSTOMER CUSTOMER (NUMBER OF YEARS) CONTRACT (1) (IN THOUSANDS) - -------- -------- ----------------- ------------ -------------- Allegheny Energy - Harrison Plant 9 2 12/31/99 720 BG&E - Wagner Plant 10 3 12/31/99 300 BG&E - Crane Plant 5 3 12/31/99 300 Citizens Gas 3 2 12/31/99 144 PEPCO - Chalk Point & Morgantown 17 2 12/31/00 2150 Plants Lehigh Portland - Union Bridge Plant 1 2 06/30/01 192 (2) Atlantic Electric - Deepwater Plant 17 6 06/30/01 160 (3) AKSteel - Ashland & Middletown Plants 3 2 12/31/01 480 (2) VEPCO - Mt. Storm Station -Vindex 8 3 12/31/01 360 Contract PP&L - Brunner Island Plant 1 3 12/31/01 320 (4) VEPCO Mt. Storm Plant - Mastellar 8 8 12/31/02 432 Contract Mettiki Coal Corp. 5 7 12/31/02 432 ER&L/AES Thames Plant 11 16 03/03/05 650 (2) MEA Plant 8 15 09/14/07 120 (2) AES Shady Point Plant 9 18 12/31/07 600 (2) Logan Generating Plant 5 21 12/31/14 400 (2) AES Beaver Valley Plant 14 20 12/31/16 576 (5) AES Warrior Run Plant (6) 0 20 12/31/19 650 (2)
- -------------------------------- (1) Reflects existing term of contract and does not assume the customer's exercise of options to extend. (2) Reflects shipments under a "total requirements" contract. Amounts are averages of what the customer has asked for and is expected to ask for in the future. A "total requirements" contract is a contract in which the seller agrees to supply all of the specific goods that the purchaser will need during a specified period at an agreed price, and the purchaser agrees to purchase all of those goods exclusively from the seller. (3) Reflects an 85% requirements contract. (4) Shipments for 2000 at 324,000 tons and 2001 at 162,000 tons. (5) As of April 1, 1999 this contract changed from a coal supply agreement to an agency agreement under which the customer pays a fee to us for all tons delivered to the plant. (6) Contract term is for 20 years from the commercial operation date, which has yet to occur. We are currently shipping coal and expect the commercial operation date to occur before the end of 1999. The terms of long-term coal supply contracts are based on bidding procedures and extensive negotiations with customers. Consequently, the terms of these contracts typically vary significantly from each other in many respects, including their 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. Virtually all of our long-term coal supply contracts are subject to price adjustment provisions. These price adjustment provisions permit an increase or decrease in the contract price at specified times to reflect changes in market price indices or other economic indices, taxes and other charges. Two of our 18 long-term coal supply contracts also contain price reopener provisions. These price reopener provisions provide for the contract price to be adjusted upward or downward at specified times on the basis of market factors. Price reopener provisions might specify an index or other market pricing mechanism on which a new contract price is to be based. 55 59 Frequently, customers send bid solicitations to other suppliers to establish a new price or to establish a right of first refusal. Some price reopener provisions contain limitations on the magnitude of the price change permitted. Contract prices under long-term coal supply agreements frequently vary from the price at which a customer could acquire and take delivery of coal of similar quality in the spot market. Our long-term coal supply contracts specify Btu, sulfur, ash, moisture, volatility and other quality requirements for the coal to be supplied. Most of our contracts specify the approved seams and/or approved locations from which the coal is to be mined. Our long-term coal supply contracts contain "force majeure" provisions that allow us and/or the customer to suspend performance under the contract to the extent necessary while events beyond the reasonable control of the affected party are occurring. From time to time, we have become involved in contract disputes relating to, among other things, coal quality, pricing, source of the coal and quantity. While customer disputes, if unresolved, could result in the termination or cancellation of the contracts to which they relate, our experience has been that curative and/or dispute resolution measures decrease the likelihood of termination or cancellation. In addition, our development of long-term business relationships with many of our customers has generally permitted us to resolve business disputes in a mutually acceptable manner. Nonetheless, we have from time to time been involved in arbitration and other legal proceedings regarding our long-term contracts, and we cannot assure you that existing and future disputes can be resolved in a mutually satisfactory manner. In August 1999, to resolve disputes under an agreement with VEPCO, we entered into an amendment to that agreement. The amendment, among other things, gives VEPCO the right, but not the obligation, to terminate that contract to purchase coal from us if the West Virginia Division of Environmental Protection does not issue a permit for the resumption of operations at our Grant County surface mine. See "Risk Factors--Risks Related to Anker--We depend on key customers for a significant portion of our revenue, and the loss of one or more of them could adversely affect us." The operating profit margins we realize under our long-term coal supply contracts vary from contract to contract and depend upon a variety of factors, including price reopener and other price adjustment provisions, as well as our production costs and the cost of brokered coal. Termination or suspension of deliveries under a high-price contract could have a material adverse effect on earnings and operating cash flow disproportionate to the percentage of production the tonnage delivered under contract represents. REGULATION AND LAWS Federal, state and local authorities regulate the coal mining industry on matters including employee health and safety, permitting and licensing requirements, air quality standards, water pollution, the reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence, which is the sinking or settling of the earth's surface from underground mining and the effects that mining has on groundwater quality and availability. In addition, significant legislation mandating benefits for current and retired coal miners affects the industry. Mining operations require numerous federal, state and local governmental permits and approvals. Our independent operating subsidiaries endeavor to conduct mining operations in compliance with all applicable federal, state and local laws and regulations. However, because of extensive and comprehensive regulatory requirements, violations during mining operations occur from time to time in the industry. Notwithstanding compliance efforts, we do not believe these violations can be completely eliminated. While it is not possible to quantify the costs of compliance with all applicable laws, those costs have been and continue to be significant. MINING HEALTH AND SAFETY STANDARDS Federal legislation has imposed stringent safety and health standards since 1969, when Congress adopted the federal Coal Mine Health and Safety Act of 1969. The 1969 Coal Mine Health and Safety Act resulted in increased operating costs and reduced productivity. The Federal Mine Safety and Health Act of 1977 significantly expanded the enforcement of health and safety standards. The 1977 Federal Mine Safety and Health Act imposes safety and health standards on all mining operations. Regulations are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations and other matters. The Mine Safety and Health Administration monitors compliance with these federal laws and regulations. The Black Lung Benefits Act of 1969 and the Black Lung Benefits Reform Act of 1977 constitute parts of the 1969 Coal Mine Health and Safety Act and the 1977 Federal Mine Safety and Health Act, respectively. In addition to the federal framework, most of the states in which we operate impose regulatory and legal parameters for mine safety and health. 56 60 One of our long-term goals is to achieve excellent health and safety performance, as measured by accident frequency rates and other measures. We believe that our attainment of this goal is inherently tied to our attainment of productivity and financial goals. We seek to implement this goal by, among other measures - training employees in safe work practices; - carrying out periodical safety audits at each operation; - openly communicating with employees; - establishing, following and improving safety standards; - involving employees in establishing safety standards; and - recording, reporting and investigating all accidents, incidents and losses to avoid recurrences. As evidence of the effectiveness of our safety program, the West Virginia Office of Miners' Health, Safety and Training awarded our Osage Mine in Monongalia County, West Virginia the Bart Lay Award. The Osage Mine was recognized as the safest coal mine in West Virginia during 1996 and 1997. In addition, the Mine Safety and Health Administration awarded the Webster County surface mine and the Steyer Mine the Pacesetter Award for lowest accident frequency for 1998. The State of West Virginia awarded the preparation plant associated with the Sentinel Mine the Mountain Guardian Award for lowest accident and violation frequency for 1998. BENEFITS UNDER BLACK LUNG LEGISLATION In order to compensate miners who were last employed as miners prior to 1970, the Black Lung Benefits Revenue Act of 1977 and the Black Lung Benefits Reform Act of 1977, as amended by the Black Lung Benefits Revenue Act of 1981 and the Black Lung Benefits Amendments of 1981, levy a tax on production of $1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal, neither amount to exceed 4.4% of the sales price. In addition, the 1981 Acts provide that some claims for which coal operators had previously been responsible will be obligations of a government trust funded by the tax. The Revenue Act of 1987 extended the termination date of the tax from January 1, 1996 to the earlier of January 1, 2014 and the first January on which the government trust becomes solvent. We maintain a fully-insured program covering all black lung claims through the West Virginia Workers Compensation and the West Virginia Coal Workers' Pneumoconiosis Funds. We have not received any notice of claims for black lung disease which the plans would not cover. The United States Department of Labor has issued proposed amendments to the regulations implementing the federal black lung laws which, among other things, - expand the definition of coal works pneumoconiosis, - liberalize the standards for entitlement to living miners' and widows' benefits, - restrict the number of medical reports a party may use in defending a claim and - expand the types of medical conditions for which treatment must be provided. If adopted, the amendments could have an adverse impact on us, the extent of which we cannot accurately predict. COAL INDUSTRY RETIREE HEALTH BENEFIT ACT OF 1992 Congress enacted the Coal Industry Retiree Health Benefit Act of 1992 in October 1992 to provide for the funding of health benefits for United Mine Workers Association retirees. The Health Benefits Act was enacted to eliminate the funding deficits of the 1950 and 1974 United Mine Workers Association Benefit Trusts by establishing a trust fund to which "signatory operators," are obligated to pay annual premiums for assigned beneficiaries, together with a pro rata share for unassigned beneficiaries who never worked for those employers. The Secretary of Health and Human Services is to determine the amounts of the premiums to be paid on the basis set forth in the Health Benefits Act. "Signatory operators" include operators who are signatory to the current or prior National Bituminous Coal Wage Agreements and "related persons," including entities that we at one time owned which were signatory operators. For the plan year from October 1, 1998 through September 30, 1999, we contributed approximately $386,000 under this legislation, which represented payments that accrued and were owing with respect to prior years. Based upon independent actuarial estimates, we believe that the amount of our obligation under the new plan will be approximately $7.3 million as of December 31, 1998, using a 7% discount rate. This amount is recorded on our consolidated financial statements included elsewhere in this prospectus. We will fund amounts paid in connection with this obligation with cash from operations or borrowings under our credit facility. We are also involved in a lawsuit concerning a dispute over a portion of the premiums we allegedly owe. See "--Legal Proceedings." 57 61 ENVIRONMENTAL LAWS We are subject to various federal environmental laws, including the Surface Mining Control and Reclamation Act, the Clean Air Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act and the Resource Conservation and Recovery Act. We are also subject to state laws of similar scope in each state in which we operate. These laws require governmental approval of many aspects of coal mining operations. As a result, both federal and state inspectors regularly visit our mines and other facilities in order to assure compliance. SURFACE MINING CONTROL AND RECLAMATION ACT. The federal Surface Mining Control and Reclamation Act of 1977, administered by the Office of Surface Mining, establishes mining and reclamation standards for all aspects of surface mining as well as many aspects of deep mining. The Surface Mining Control and Reclamation Act and similar state statutes require, among other things, that mined property be restored in accordance with specified standards and an approved reclamation plan. In addition, the Abandoned Mine Lands Act, which is part of the Surface Mining Control and Reclamation Act, imposes a tax on all current mining operations. The proceeds of the tax 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 underground-mined coal. The Surface Mining Control and 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 Surface Mining Control and Reclamation Act requires that we restore a surface mine to approximate original contour as contemporaneously as practicable. The mine operator must submit a bond or otherwise secure the performance of these reclamation obligations. We must obtain permits for surface mining operations from the federal Office of Surface Mining Reclamation and Enforcement. On the other hand, where state regulatory agencies have adopted federally approved state programs under the Surface Mining Control and Reclamation Act, we must obtain the permits from the appropriate state regulatory authority. We accrue for the liability associated with all end of mine reclamation on a ratable basis as the coal reserve is being mined. We periodically update the estimated cost of reclamation, and the corresponding accrual, on our financial statements. The earliest a reclamation bond can be released is five years after reclamation to the approximate original contour has been achieved. All states in which our active mining operations are located have achieved primary jurisdiction for Surface Mining Control and Reclamation Act enforcement through approved state programs. Under the Surface Mining Control and Reclamation Act, responsibility for any coal operator that is currently in violation of the Act can be imputed to other companies that are deemed, according to regulations, to "own or control" the coal operator. Sanctions can include being blocked from receiving new permits and rescission or suspension of existing permits. Because of a federal court action invalidating the Surface Mining Control and Reclamation Act ownership and control regulations, the scope and potential impact of the "ownership and control" requirements on us are unclear. The Office of Surface Mining has responded to the court action by promulgating interim regulations, which more narrowly apply the ownership and control standards to coal companies. Although the federal action should have a precedential effect on state regulations dealing with "ownership and control," which are in many instances similar to the invalidated federal regulations, we are not certain what impact the federal court decision will have on these state regulations. CLEAN AIR ACT. The 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. Coal mining and processing operations may be directly affected by Clean Air Act permitting requirements and/or emissions control requirements relating to particulate matter, such as fugitive dust. Coal mining and processing may also be impacted by future regulation of fine particulate matter measuring 2.5 micrometers in diameter or smaller. Regulations relating to fugitive dust and coal emissions may restrict our ability to develop new mines or require us to modify our existing operations. The Clean Air Act indirectly affects coal mining operations by extensively regulating the air emissions of coal-fueled electric power generating plants. Title IV of the Clean Air Act Amendments places limits on sulfur dioxide emissions from electric power generation plants. The limits set baseline emission standards for these facilities. Reductions in these sulfur dioxide emissions will occur in two phases. Phase I began in 1995 and currently applies to 445 utility units. Phase II will begin in 2000 and will apply to all facilities, including those subject to the 1995 restrictions. The affected utilities may be able to meet these requirements by, among other things, switching to lower sulfur fuels, installing pollution control devices such as scrubbers, reducing electricity generating levels or by purchasing or trading pollution credits. Specific emissions sources will receive these credits, which utilities and industrial concerns can trade or sell to allow other units to emit higher levels of sulfur dioxide. We cannot ascertain completely the effect of the Clean Air Act Amendments at this time. It was generally anticipated that Phase I of Title IV of the Clean Air Act Amendments would increase prices for low sulfur coal. This price increase, however, did not materialize. When the Clean Air Act Amendments were enacted, many plants switched to low sulfur coal supplied from the Powder River Basin, located predominantly in Wyoming. This compliance strategy generated an unexpectedly large number of pollution credits, which were then marketed together with lower cost, higher sulfur coal and sold in competition with Central Appalachian 58 62 production. We believe these factors reduced or capped the anticipated price increase for Central Appalachian low sulfur coal in Phase I. We believe that in Phase II, the price for low sulfur coal is more likely to increase, and the price for high sulfur coal to decrease, because additional coal-burning electric power plants will be affected by Phase II. However, this is not expected to occur until well into Phase II, after the large bank of pollution credits which has developed in connection with Phase I has been reduced and before utilities electing to comply with Phase II by installing scrubber sulfur-reduction technologies are able to implement this compliance strategy. We do not believe that compliance strategies utilizing scrubbers will result in significant downward pressure on compliance coal prices during initial phases of Phase II. However, if the prices of compliance coal and/or pollution credits rise, scrubber compliance strategies may become more competitive. The expected reduction of the existing bank of pollution credits during Phase II should also help to rationalize the market for compliance coal during the long term to the extent utilities are unable to utilize strategies to create a new bank of pollution credits. This legislation limits the ability of some of our customers to burn higher sulfur coals unless these customers have or are willing to install scrubbers, to blend coal or to bear the cost of acquiring emission credits that permit them to burn higher sulfur coal. We have endeavored to mitigate the potential adverse effects of the legislation's limitations on sulfur dioxide emissions through our acquisition and development of compliance and low sulfur coal reserves and operations in Appalachia. The Clean Air Act Amendments also require that existing major sources of nitrogen oxides in moderate or higher ozone non-attainment areas install reasonably available control technology for nitrogen oxides, which are precursors of ozone. In addition, the Environmental Protection Agency is expected to implement stricter ozone ambient air quality standards by 2003. In September 1998, the EPA issued its final rule on regional nitrogen oxide emission reductions directed at 22 eastern states and the District of Columbia. This rule is intended to further reduce nitrogen oxide emissions by the year 2003. In estimating the impact of this rule on emissions sources, the EPA assumed reductions of approximately 85% from electric generating units, although it is up to the individual states to determine how the reductions are to be imposed on sources within their borders. In addition, in response to petitions filed under Section 126 of the Clean Air Act Amendments, the EPA has proposed to apply additional restrictions on nitrogen oxide emissions from specified individual sources, including electric generating facilities, in various states, including West Virginia. Because the EPA's actions have been challenged, we do not know what the ultimate impact of these actions will be. The installation of reasonably available control technology, and any control measures beyond the reasonably available control technology that the states and the EPA may require, will make it more costly to operate coal-fired power plants. In addition, depending on the requirements of individual state attainment plans and the development of revised new source performance standards, the installation of these measures could make coal a less attractive fuel or alternative in the planning and building of power plants in the future. If coal's share of the capacity for power generation were to be reduced, a material adverse effect on our financial condition and results of operations could result. We cannot predict with certainty the effect this legislation, regulatory action and pending litigation, as well as other legislation that may be enacted in the future, could have on the coal industry in general and on us in particular. We cannot assure you that implementation of the Clean Air Act Amendments, new or revised ambient air quality standards or any other current or future regulatory provision, will not materially adversely affect us. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT. The federal Comprehensive Environmental Response, Compensation and Liability Act and similar state laws may affect coal mining operations by imposing clean-up requirements for threatened or actual releases of hazardous substances that may endanger public health or welfare or the environment. Under the Comprehensive Environmental Response, Compensation and Liability Act, joint and several liability may be imposed on waste generators, site owners and operators and others regardless of fault or the legality of the original disposal activity. Waste substances generated by coal mining and processing are generally not regarded as hazardous substances for purposes of the Comprehensive Environmental Response, Compensation and Liability Act. CLEAN WATER ACT. Both the federal Clean Water Act and corresponding state statutes affect coal mining operations by imposing restrictions on discharges, including acid mine drainage, into surface waters, ground water and wetlands. The Clean Water Act permitting requirements can impact coal mining operations in two primary ways. First, under Section 404 of the Clean Water Act, the dredging, filling or impoundment of waters of the United States requires a permit from the U.S. Army Corps of Engineers. In addition, under Section 402 of the Clean Water Act, a permit must be obtained for a discharge from any point source into waters of the United States. State laws have similar permitting requirements. Regular monitoring, as well as compliance with reporting requirements and performance standards, are included under the Clean Water Act and are preconditions for the renewal of required permits. In addition, to the extent not otherwise regulated by applicable law, West Virginia's Groundwater Protection Act may affect coal mining operations by imposing restrictions to protect groundwater quality. RESOURCE CONSERVATION AND RECOVERY ACT. The federal Resource Conservation and Recovery Act, and corresponding state statutes, may affect coal mining operations by imposing requirements for the treatment, storage and disposal of hazardous wastes. Although many mining wastes are excluded from the regulatory definition of hazardous waste, and coal mining operations covered by Surface 59 63 Mining Control and Reclamation Act permits are exempted from regulation under the Resource Conservation Recovery Act by statute, the EPA is studying the possibility of expanding regulation of mining wastes under the Resource Conservation Recovery Act. TOXIC SUBSTANCES CONTROL ACT. The Toxic Substances Control Act regulates, among other things, the use and disposal of polychlorinated biphenyls, a substance that, in the past, was commonly found in coolants and hydraulic fluids utilized by the mining industry. The penalties imposed under the Toxic Substances Control Act for the improper disposal of polychlorinated biphenyls can be significant. COMPETITION The U.S. coal industry is highly competitive, with numerous producers in all coal-producing regions. Competition in the coal industry is based on a variety of factors, including price, location, transportation, quality and stability of supply. Historically, we have competed with many other larger producers, as well as small producers in our region. Many of our customers are also customers of our competitors. In addition, some of our larger competitors have both the size of reserves and capital resources to utilize mining technologies providing low cost production, which we cannot. The markets in which we sell our coal are highly competitive and affected by factors beyond our control. Continued demand for our coal and the prices that we will be able to obtain will depend primarily on coal consumption patterns of the domestic electric utility industry, which in turn are affected by the demand for electricity, deregulation of electric utilities, coal transportation costs and consolidation within the rail transportation industry, environmental and other governmental regulations, technological developments and the availability and price of competing coal and alternative fuel supply sources such as oil, natural gas, nuclear energy and hydroelectric energy. Although demand for coal has grown over the recent past, the industry has since been faced with over-capacity, which in turn has increased competition and lowered prevailing coal prices. Moreover, because of greater competition for electricity and increased pressure from customers and regulators to lower electricity prices, the term lengths of long-term sales contracts generally have decreased and public utilities are lowering fuel costs by buying higher percentages of spot coal through a competitive bidding process and by buying only the amount of coal necessary to meet their requirements. EMPLOYEES AND LABOR RELATIONS We recently changed from operating our deep mines ourselves to utilizing contract miners to operate these mines. As a result, our employee base has been significantly reduced from 668 employees as of December 31, 1998 to 162 as of September 30, 1999. We are not a party to any collective bargaining agreement. We consider our relations with our employees to be good. If some or all of our currently non-union operations were to become unionized, we could incur higher labor costs and an increased risk of work stoppages. We cannot assure you that our workforce will not unionize in the future. The labor force for our contract miners is currently not unionized. If some or all of our contract miners' employees were to become unionized, the contract miners could incur higher labor costs and have an increased risk of work stoppages, which could adversely affect our business and costs of operations. LEGAL PROCEEDINGS In 1998, two of our subsidiaries, Anker Energy Corporation and King Knob Coal Co., Inc., sued Consolidation Coal Company, known as Consol, the Social Security Administration, which is the administrator of the Coal Industry Retiree Health Benefit Act of 1992, and the Trustees of the United Mine Workers of America Combined Benefit Fund in the U.S. District for the Western District of Pennsylvania. Our subsidiaries claimed that: - Consolis responsible for paying approximately one-third of the subsidiaries' 1992 Coal Act premiums that relate to employees affected by Consol's breach of several contract mining agreements in the early 1980's; - the Social Security Administration should be prohibited from continuing to invoice Anker Energy and King Knob for these payments, which Consol should have made; and - the 1992 Coal Act is unconstitutional. The trustees filed a counterclaim against Anker Energy and King Knob for the amount of premiums they have failed to pay as a result of their claim against Consol. The trial court granted the trustees' motion for summary judgment on this counterclaim, as well as the motions to dismiss that Consol and the Social Security Administration filed. Anker Energy and King Knob appealed to the U.S. Court of Appeals for the Third Circuit. The appeals court reversed the trial court's ruling with respect to Consol but affirmed all of the trial court's other rulings. As a result, Anker Energy and King Knob can pursue 60 64 their claim for reimbursement against Consol, but they must pay the disputed portion of their 1992 Coal Act premiums while the claim is pending. The disputed portion of premiums, including interest and penalties, is currently approximately $1.3 million. Interest accrues at the post judgment rate of nine percent per year. On August 12, 1999, Anker Energy and King Knob filed for a writ of certiorari to the U.S. Supreme Court. The court of appeals' judgment was stayed pending the Supreme Court's disposition of the writ. On November 16, 1999, the Supreme Court denied the writ of certiorari, and we anticipate that Anker Energy and King Knob will have to pay all or a portion of the disputed premiums within the next six months. We have fully accrued the entire judgment in prior years. Anker Energy and King Knob will fund the judgment from borrowings under our revolving credit facility. We and our subsidiaries are also involved in various legal proceedings incidental to our normal business activities. Our management does not believe that the outcome of any of these proceedings will have a material adverse effect on our operations. 61 65 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors are as follows:
NAME AGE POSITION - ---- --- -------- William D. Kilgore 63 Chief Executive Officer and Chairman of the Board P. Bruce Sparks 44 President and Director John A. H. Shober 66 Director Thomas R. Denison 39 Director Willem H. Hartog 37 Director Michael M. Matesic 34 Treasurer and Chief Financial Officer Richard B. Bolen 51 Senior Vice President - Sales, Anker Energy Corporation Gerald Peacock 44 Vice President, Anker Energy Corporation B. Judd Hartman 36 Secretary James A. Walls 37 Assistant Secretary
The term of each of the directors expires annually upon the election and qualification of a successor at the annual meeting of our stockholders. MANAGEMENT BIOGRAPHIES WILLIAM D. KILGORE. Mr. Kilgore was named Chairman of our Board and our Chief Executive Officer, as well as Chief Executive Officer of Anker Energy Corporation, our subsidiary, on May 1, 1999. Mr. Kilgore has 42 years experience in the coal industry. Over the past five years, Mr. Kilgore has served as a consultant to Kanawha Eagle, LLC, Double Eagle, LLC, New Eagle, LLC and Mossy Eagle, LLC, all of which are Central Appalachian coal companies. Mr. Kilgore served as President/Chief Executive Officer and Director of Agipcoal from 1989 to 1994 and as Vice President/General Manager of Enoxy Coal, Inc. from 1985 to 1989. P. BRUCE SPARKS. Mr. Sparks has been our President since October 28, 1997, and he has been a stockholder since 1996. From 1988 to October 1997, he was Executive Vice President of Anker and our predecessor, Anker Group, Inc. Mr. Sparks was the Vice President of Administration and Chief Financial Officer of Anker Group from 1985 until 1988. A 1976 business graduate from Concord College, he spent seven years in various management positions with CoalARBED, Inc., a coal company, the last of which was as Vice President and Chief Financial Officer before joining us. Mr. Sparks has been with us for 14 years. JOHN A. H. SHOBER. Mr. Shober was elected Chairman of the Board on October 28, 1997, and he served as Chairman until June 8, 1999. He has served as one of our Directors since 1996. Mr. Shober is a private investor and corporate director. Mr. Shober serves as a director of Penn Virginia Corporation, a natural resources company; Airgas, Inc., a distributor of industrial gas and industrial gas supplies; Hercules, Inc., a manufacturer of performance chemicals; C&D Technologies, Inc., a manufacturer of stored power systems; Ensign-Bickford Industries, Inc., a manufacturer of detonation devices; and MIBRAG mbH, a German coal mining and power company. He serves as a member of the Advisory Board of First Reserve Corporation, which oversees the investment activities and decisions of First Reserve acting in its capacity as manager for the First Reserve Funds' investment portfolios. THOMAS R. DENISON. Mr. Denison became one of our Directors in August 1998. Mr. Denison is a Managing Director and General Counsel of First Reserve. He joined the firm in January 1998 and opened its Denver office. Prior to joining First Reserve, he was a partner in the international law firm of Gibson, Dunn & Crutcher LLP, which he joined in 1986 as an associate. Mr. Denison received his Bachelor of Science degree in Business Administration from the University of Denver and his Juris Doctorate from the University of Virginia. Mr. Denison also serves as a Director of TransMontaigne, Inc. and Patina Oil & Gas Corporation. WILLEM H. HARTOG. Mr. Hartog was elected one of our Directors on December 31, 1998. Mr. Hartog has been Senior Vice President Finance and Administration of Anker Holding, B.V. and various of its subsidiaries since 1998 and has worked for Anker Holding in various capacities since 1994. Prior to joining Anker Holding, Mr. Hartog was employed by KPMG as a member of its audit staff. MICHAEL M. MATESIC. Mr. Matesic is a Certified Public Accountant and has been our Treasurer and Chief Financial Officer since October 28, 1997 and Secretary/Treasurer of various of our subsidiaries since 1996. From 1990 to October 1997, he was Controller of 62 66 Anker Energy. A 1987 graduate of Duquesne University with a B.S. in Business Administration, he spent two years on the audit staff of Ernst & Young LLP, certified public accountants. Mr. Matesic's responsibilities include accounting, tax, financial administration, human resources and risk management. Mr. Matesic is a member of the American Institute of Certified Public Accountants, Pennsylvania Institute of Certified Public Accountants, and the West Virginia Society of Certified Public Accountants. Mr. Matesic has been with us for 10 years. RICHARD B. BOLEN. Mr. Bolen has been Senior Vice President - Sales of Anker Energy since June 8, 1998. Mr. Bolen joined an affiliate of Anker Energy in 1979 and served as its President from 1980 through 1994. In 1994, he became President of another affiliate, and, in 1995, he assumed the additional duties of Vice President Operations, Southern Region, for Anker Energy. From October 1996 - June 1998, Mr. Bolen was Senior Vice President of Operations of Anker Energy. Mr. Bolen is a 1970 graduate of Virginia Polytechnic Institute with a degree in Mining Engineering. Prior to joining Anker Energy, he served in various management capacities with Consolidation Coal Company, Virginia Electric and Power Company, Jewell Smokeless Coal Corporation and Jno. McCall Coal Company. GERALD PEACOCK. Mr. Peacock joined Anker Energy in June 1998, as Vice President of Operations. He graduated from Southern Illinois University with a B.S. in Mechanical Engineering in 1976. Prior to June, 1998, he was employed by Arch Mineral Corporation for 20 years, serving in several senior positions, including President and Vice President of Catenary Coal Holdings, Inc., one of Arch's operating subsidiaries. B. JUDD HARTMAN. Mr. Hartman was elected as our Secretary effective November 1, 1997. Prior to joining us, Mr. Hartman was a partner with the law firm of Spilman, Thomas & Battle in Charleston, West Virginia, a firm that he joined in 1989 as an associate. Mr. Hartman graduated from Washington and Lee University in 1985 with a Bachelor of Arts degree in Economics and received his Juris Doctorate degree in 1989 from Wake Forest University School of Law. Mr. Hartman has been with us for two years. JAMES A. WALLS. Mr. Walls has been our Assistant Secretary since 1993. He graduated from West Virginia University with a Bachelor of Science/Bachelor of Arts and Juris Doctorate degree in 1989. Prior to March of 1993, he was employed by Spilman, Thomas & Battle in Charleston, West Virginia. Mr. Walls has been with us for six years. 63 67 EXECUTIVE COMPENSATION The following table presents summary information of the compensation that we paid or accrued for services rendered in all capacities for the last three completed fiscal years for our Chief Executive Officer and each of the four other most highly compensated executive officers of us or Anker Energy Corporation, determined as of December 31, 1998.
SUMMARY COMPENSATION TABLE -------------------------- Annual Compensation Long-Term Compensation and Awards ------------------- --------------------------------- Securities Underlying Restricted Options/ Name and Other Annual Stock SARs LTIP All Other Principal Position Fiscal Year Salary Bonus Compensation Awards (#) Payments Compensation - ------------------ ----------- ------ ----- ------------ ------ --- -------- ------------ P. Bruce Sparks 1998 $267,404 $ 15,000 $ 2,391 -- -- -- -- President, Chief Executive 1997 252,885 90,953 3,625 -- -- -- -- Officer(1) 1996 210,005 157,757 1,600 -- -- -- $2,885,000(2) Ben H. Daud(3) 1998 181,731 -- 224 (3) 25(4) -- -- -- Chief Operating Officer 1997 23,557 20,750 450 -- -- -- -- (Anker Energy) 1996 -- -- -- -- -- -- -- Richard B. Bolen(4) 1998 172,115 - 761 25(4) -- -- -- Senior Vice President 1997 175,000 18,052 5,126 -- -- -- -- (Anker Energy) 1996 152,000 20,000 3,036 -- -- -- -- Kim A. Burke(5) 1998 170,192 -- 5,723 -- -- -- -- Senior Vice President 1997 175,000 15,166 4,143 -- -- -- -- (Anker Energy) 1996 136,615 35,000 4,841 -- -- -- -- Gerald Peacock(6) 1998 93,654 15,000 -- 20(4) -- -- -- Vice President 1997 -- -- -- -- -- -- -- (Anker Energy) 1996 -- -- -- -- -- -- --
- ------------------------ (1) Mr. Sparks resigned as Chief Executive Officer and Mr. Kilgore was named Chief Executive Officer and Chairman of our board of directors on May 1, 1999. See "-- Employment Agreements" below for a description of Mr. Kilgore's compensation arrangements. (2) In 1996, Mr. Sparks received a one-time bonus. The bonus consists of $1,385,000 cash and $1,500,000 recognized compensation for stock received in connection with our recapitalization. (3) Mr. Daud was hired by Anker Energy Corporation on November 1, 1997. The listed amounts for 1997 represent only compensation he received from November 1, 1997 through December 31, 1997. We estimate that his annual compensation for 1997 would have been: salary, $175,000; bonus, $22,500; and other annual compensation, $4,841. Mr. Daud resigned from Anker Energy Corporation on July 2, 1999. (4) On October 1, 1998, Mr. Daud, Mr. Bolen and Mr. Peacock received restricted stock awards of common stock under our 1997 Omnibus Stock Incentive Plan. Awards were valued for purposes of the plan at the par value of the common stock, which is $0.01 per share. (5) Mr. Burke's employment with Anker Energy Corporation ended on May 8, 1999. (6) Anker Energy Corporation hired Mr. Peacock on May 11, 1998. The listed amounts for 1998 represent only compensation he received from May 11, 1998 through December 31, 1998. We estimate that his annual compensation for 1998 would have been: salary, $150,000; bonus, $15,000; and other annual compensation, $0. BOARD COMPENSATION All directors are reimbursed for their usual and customary expenses incurred in attending all board and committee meetings. Each director who is not also an officer receives an aggregate annual fee of $12,000 for serving on our board of directors. In addition to the annual fee of $12,000, Mr. Shober received an additional $57,000 for serving as Chairman of the Board in 1998. 64 68 EMPLOYMENT AGREEMENTS Mr. Sparks has an employment agreement with us and our subsidiaries, Anker Group, Inc., Anker Energy Corporation and Simba Group, Inc. The agreement with Anker Energy is dated as of August 1, 1996 and expires on July 31, 2002. The agreement with Anker Energy provides for Mr. Sparks' employment as an executive officer of Anker Energy at an annual salary of: - $250,000 for the period August 1, 1996 through July 31, 1997 - $257,500 for the period August 1, 1997 through July 31, 1998 - $265,200 for the period August 1, 1998 through July 31, 1999 - $273,200 for the period August 1, 1999 through July 31, 2000 - $281,200 for the period August 1, 2000 through July 31, 2001 and - $289,600 for the period August 1, 2001 through July 31, 2002. The agreement with Anker Energy also provides for a quarterly bonus of $3,750 for each calendar quarter during its duration, and a yearly bonus based on our financial performance. Mr. Sparks may terminate his employment upon 30 days' notice. In the event Anker Energy were to terminate Mr. Sparks other than for cause at any time prior to August 1, 2000, Mr. Sparks would be entitled to receive the annual salary, bonuses and benefits that he would have received under the agreement with Anker Energy through July 31, 2002, had Anker Energy not terminated his employment. In the event Anker Energy were to terminate Mr. Sparks other than for cause at any time on or after August 1, 2000, Mr. Sparks would have the option to receive either - 250% of his then current annual salary or - the compensation, bonuses and other benefits he would have been entitled to receive under the agreement with Anker Energy, had Anker Energy not terminated him, for a period of two years. In addition, Mr. Sparks is entitled to participate in any of Anker Energy's pension plans for which he is eligible. Mr. Spark's agreement with Anker Energy also requires him not to compete with Anker Energy during the employment term and for a period of one year following the termination of the agreement. Mr. Sparks also has employment agreements, each without compensation, with us, Anker Group and Simba Group, Inc., providing for his seat on the board of directors of those companies and his employment as an executive officer of those companies. Mr. Kilgore also has an employment agreement with us and Anker Energy Corporation, dated as of May 1, 1999. The term of the agreement ends on December 31, 2002. The agreement provides for Mr. Kilgore's employment as Chief Executive Officer and Chairman of the Board of Directors at an annual salary of $315,000. Mr. Kilgore is entitled to participate in any of Anker Energy's benefits plans for which he is eligible and may be reimbursed for costs of relocating his residence, not to exceed $125,000. Mr. Kilgore also may receive cash bonuses, at Anker Energy's discretion, and an incentive bonus in the event we undergo a change of control. The incentive bonus, which would be calculated based on specified financial tests' being met, can be as much as $2.5 million, and could include an option for Mr. Kilgore to purchase as much as five percent of our then-outstanding common stock at an exercise price of $1.00 per share. In the event that Anker Energy were to terminate Mr. Kilgore's employment other than for cause on or before May 1, 2001, Mr. Kilgore would be entitled to receive, in addition to the salary and bonus he had earned to that date, the amount of his annual salary he would have received for an additional 36 months less the number of months that have elapsed since Mr. Kilgore's employment. In the event that Anker Energy were to terminate Mr. Kilgore's employment other than for cause after May 1, 2001 but before May 1, 2002, Mr. Kilgore would be entitled to the annual salary he would have received for an additional year had he not been terminated. In the event that Anker Energy were to terminate Mr. Kilgore's employment other than for cause after December 31, 2002, Mr. Kilgore would be entitled to the annual salary he would have received for an additional year had he not been terminated. Mr. Kilgore's agreement with Anker Energy also requires him not to compete with Anker Energy during the employment term and for a period of two years following the termination of the agreement. None of our other employees has an employment contract with us or any of our subsidiaries. 65 69 1997 OMNIBUS STOCK INCENTIVE PLAN GENERAL Our 1997 Omnibus Stock Incentive Plan provides for the issuance of restricted stock awards or stock options to designated officers and key employees of us or our affiliates of up to a maximum of 300 shares of authorized but unissued or reacquired shares of our common stock. The plan is intended to motivate, reward and retain participants in the plan for contributing to our long-term success. It does so by providing an opportunity for meaningful capital accumulation linked to our future success and appreciation in shareholder value. Our president is responsible for administering the plan. Subject to the approval of our board of directors, the president has the authority to designate who may participate in the plan and the number of shares of common stock subject to each restricted stock award or stock option. Awards and options are granted based on the fair market value of the common stock as of the date of the award or option. Fair market value is determined by the board of directors. As long as our common stock is not publicly traded, the plan provides that we have a call right, which is the right to purchase at fair market value any vested option and any shares that a participant in the plan owns as a result of the exercise of an option or the grant of an award. We also have a right of first refusal with respect to these shares. The board of directors has the authority to amend the plan, including with respect to the acceleration of vesting of options and awards. No modification will become effective, however, without the prior approval of the participants in the plan if the approval is necessary to comply with any tax or regulatory requirement or rule of any exchange or system on which the stock may be listed. In addition, no amendment may, without a participant's consent, adversely affect any rights that a participant has under any award or grant that is outstanding at the time the amendment is made. RESTRICTED STOCK AWARDS When a participant in the 1997 Omnibus Stock Incentive Plan is granted a restricted stock award, he or she must sign a restricted stock award agreement. Under the agreement and the plan, the shares of common stock subject to the award will be nontransferable, other than by will or the laws of descent and distribution, and subject to forfeiture until the shares are vested. Unless the board of directors accelerates the vesting period, the shares subject to an award will become fully vested on the sixth anniversary of the award if the participant in the plan has been in our continuous employ during that six-year period. Vesting will be accelerated upon the termination of the participant's employment due to - death, disability or retirement - the involuntary termination of the participant's employment during the 90-day period following our merger with another entity - the voluntary termination of the participant's employment at any time after one year following our merger with another entity or - a change of control. Under the plan, a change of control is deemed to occur if any person or group that is not a beneficial owner of our voting securities as of the date of the adoption of the plan becomes the beneficial owner, directly or indirectly, of our securities that represent in the aggregate 75% or more of the total combined voting power of all classes of our then-outstanding securities. Once vested, the shares of common stock are no longer subject to forfeiture and may be transferred. However, the shares will continue to be subject to our call rights and right of first refusal. STOCK OPTIONS When a participant in the 1997 Omnibus Stock Incentive Plan is granted a stock option, he or she must sign a stock option grant agreement. Under the agreement and the plan, the participant's options would become fully vested on the third anniversary of the date the option is granted if the participant has been in our or an affiliate's continuous employ during that three-year period. Vesting for an option will be accelerated on the same basis as vesting is accelerated for restricted stock awards, as discussed above. Once an option is vested, a participant may exercise the option as provided in the plan. Options granted under the plan will expire on the tenth anniversary of the option. After common stock is purchased pursuant to an option, the shares will continue to be subject to our call rights and right of first refusal. 66 70 OUTSTANDING AWARDS AND OPTIONS As of October 31, 1999, a total of 147 shares of common stock were outstanding under the plan. Twelve participants hold these shares, and these shares are fully vested. We have not granted any options under the plan. MANAGEMENT INCENTIVE BONUSES Designated members of our and our subsidiaries' management, including the executive officers set forth under "--Executive Officers and Directors" above, are eligible to receive cash bonuses in addition to their annual salary compensation. These awards are based on the performance of these individuals, as determined by their direct supervisors and other senior management, and our financial performance and that of our subsidiaries. In addition, Mr. Kilgore and Mr. Sparks are entitled to incentive bonuses as described under "--Employment Agreements." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION At a meeting of our board of directors on May 22, 1997, a compensation committee was established. Mr. Macaulay, a former director of Anker, and Mr. Shober were appointed members of the committee. Mr. Shober is currently the only member of the compensation committee. The compensation committee did not hold any meetings in 1998 or 1999. Other than Mr. Sparks, no current or former executive officer or employee of us or any of our subsidiaries participated in deliberations of the board of directors concerning executive officer compensation. Mr. Sparks' compensation is established in accordance with his employment agreement. See "--Employment Agreements" above. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information concerning the ownership of our common stock, as of November 11, 1999, except as otherwise noted, by: - each person known by us to own beneficially more than 5% of the outstanding common stock - each person who is a director or a nominee of Anker - each person who is identified on the executive compensation table above and - all of our directors and executive officers as a group. The percentage of beneficial ownership of common stock is based on 7,108 shares outstanding as of November 11, 1999. In addition, we issued warrants to purchase common stock in connection with the private exchange and private placement consummated on October 28, 1999. The warrants are exercisable immediately, and holders of these warrants are included in the following table to the extent applicable. See "Description of Warrants." 67 71
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF SHARES - ------------------------------------ --------- --------- First Reserve Corporation 475 Steamboat Road, Greenwich, Connecticut 06830 (1) 5,407 76.07% Anker Holding B.V. 695 9.78 P.O. Box 1334 3000 BH Rotterdam, The Netherlands Rothschild Recovery Fund L.P. 1251 Avenue of the Americas, New York, New York 10020 1,782(2) 20.04(2) William D. Kilgore -- -- Thomas Denison -- -- John Shober -- -- Willem H. Hartog -- -- PPK Group Limited Liability Company(3) 859 12.08 Bruce Sparks(4) 859 12.08 Richard B. Bolen 25 0.35 Gerald Peacock 20 0.28 All executive officers and directors as 6,311 88.79 a group ((10) persons)(5)
- ------------------------ (1) Shares of common stock shown as owned by First Reserve are owned of record by American Oil & Gas Investors, Limited Partnership, AmGO II, Limited Partnership, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited. First Reserve is the sole general partner of, and possesses sole voting and investment power for, each of the funds. (2) Represents shares issuable upon exercise of warrants. See "Description of the Warrants." (3) PPK Group Limited Liability Company is a limited liability company controlled by Mr. Sparks. Mr. Sparks has the sole authority to exercise all rights and remedies of PPK Group and all voting rights of the shares owned by PPK Group. (4) Mr. Sparks may be deemed to share beneficial ownership of the shares shown as being owned by PPK Group as a result of his ownership of voting units of PPK Group. (5) Includes 5,407 shares beneficially owned by First Reserve. 68 72 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS STOCKHOLDERS' AGREEMENT On August 12, 1996, we entered into a stockholders' agreement with holders of our capital stock. The stockholder's agreement was amended on October 26, 1999 as part of the restructuring of our 9 3/4% Series B Senior Notes. The following is a summary description of the stockholders' agreement, as amended. It does not restate the entire stockholders' agreement. For a more detailed understanding of the rights of the stockholders that are parties to the agreement, you should read the stockholders' agreement. A copy of the stockholders' agreement is available from us upon request. NOMINATION OF DIRECTORS The funds that First Reserve Corporation manages are entitled to nominate - four of the seven members of our board of directors for as long as they hold in the aggregate more than 50% of our issued and outstanding common stock, - three of the seven members of our board of directors for as long as they hold in the aggregate more than 10% of our issued and outstanding common stock, or - one of the seven members of our board of directors for as long as they hold in the aggregate more than 2% of our issued and outstanding common stock. The stockholders' agreement also provides that PPK Group Limited Liability Company and Anker Holding B.V. may each nominate one director for as long as it holds at least 2% of our issued and outstanding common stock. FUNDAMENTAL ISSUES As long as the funds that First Reserve Corporation manages in the aggregate own 10% or more of our issued and outstanding common stock, or as long as PPK Group in the aggregate owns 10% or more of our issued and outstanding common stock, we may not take, and may not permit to be taken, any actions constituting a fundamental issue without the favorable vote or written consent of at least five-sevenths of the whole number of our directors. Fundamental issues include, but are not limited to, - the sale, lease or exchange of 50% or more of our assets; - any merger, consolidation, liquidation or dissolution; - any amendment to our certificate of incorporation; - the authorization, issuance or sale of shares of our capital stock, any other type of equity or debt securities or options, warrants or other rights to acquire equity or debt securities, except issuances upon conversion of our convertible securities issued prior to the date of the stockholders' agreement and issuances to key members of our management under a stock purchase, stock option or similar plan; - any redemption, repurchase or other acquisition of our capital stock or other equity securities, including any option, warrant or other right to acquire our capital stock or other equity securities, except purchases or redemptions under the terms of securities issued prior to the date of the stockholders' agreement; and - entering into or engaging in business or entering into any transactions with any stockholder that is a party to the stockholders' agreement or any affiliate of those stockholders, except for our inter-company transactions and transactions at arm's length and in the ordinary course of business involving the sale, purchase, exchange or trading of coal or coal-related products. In the event the funds that First Reserve manages own in the aggregate 50% or less of our issued and outstanding common stock and for as long as those funds in the aggregate own at least 10% of our issued and outstanding common stock, each of the following additional actions will be fundamental issues: - any sale, lease, exchange, transfer or disposition by us of (1) any outstanding capital stock or other equity security of any of our subsidiaries or (2) assets or other rights for consideration in excess of $2.0 million, other than dispositions in the ordinary course of business; 69 73 - any purchase, lease, exchange or other acquisition of assets or other rights, including securities, by us for consideration in excess of $2.0 million; - any financing, refinancing or other incurrence of indebtedness by us with a principal amount in excess of $2.0 million; - any capital expenditure by us not provided in an annual budget for our then-current fiscal year approved by our board of directors in accordance with specified procedures if the expenditure is either (1) in excess of $1.0 million or (2) together with the aggregate of all of our and our subsidiaries other non-budgeted capital expenditures in the fiscal year, in excess of $2.0 million; - any amendment to or modification or repeal of any provision of our by-laws which would materially alter the rights of any of the stockholders that are parties to the stockholders' agreement; - any amendment to the employment agreement of Bruce Sparks; - dissolution of Anker Coal Group, the adoption of a plan of liquidation with respect to Anker Coal Group, or any action by us to commence a bankruptcy, receivership or similar proceeding; - the investment of additional funds in, or extension of additional credit to, Anker Capital Corporation or any subsidiary of Anker Capital Corporation or other investment; and - our entry, other than through Anker Capital Corporation, into any business other than mining, processing, shipping, purchasing and selling coal. Furthermore, if we redeem, repurchase or otherwise acquire our capital stock or other of our equity securities, or any option, warrant or other right to acquire capital stock or other equity securities, from any stockholder that is a party to the stockholder's agreement or its affiliate, except purchases or redemptions under the terms of securities issued prior to the date of the stockholders' agreement, the redemption, repurchase or acquisition, and any transactions relating the redemption, repurchase or acquisition, must be approved by a majority of our board of directors, excluding for these purposes any director nominated by a stockholder who is a party to the stockholders' agreement and is interested in the transaction being approved. NON-COMPETITION Each stockholder that is a party to the stockholders' agreement must prevent entities under its control from engaging in specified activities that are competitive with our business. In addition, if any of these stockholders becomes aware of an existing or potential business opportunity in one of these activities, the stockholder must offer the opportunity to us on an exclusive basis. ANTI-DILUTION If we issue any equity securities of any type, class or series, then we must offer all stockholders that are parties to the stockholders' agreement the right to purchase a portion of the securities on the same terms and conditions as we are offering to the purchaser of the securities. However, this right does not apply in the case of - issuances of Class C preferred stock and Class D preferred stock, - securities offered to the public in an initial public offering, - issuances upon conversion of our convertible securities issued prior to the date of the stockholders' agreement, - issuances to key members of our management under a stock purchase, stock option or similar plan, - any issuance of securities as consideration in connection with an acquisition and - except with respect to Anker Holding, issuances of common stock in satisfaction of specified pre-existing contractual obligations. Each stockholder will be entitled to purchase that percentage of the newly-issued securities equal to - if the newly-issued securities are of a type, class or series previously issued, the stockholder's percentage ownership of the total outstanding number of the previously-issued securities, or - in all other events, the stockholder's percentage ownership of the total outstanding number of shares of common stock. RESTRICTIONS ON DISPOSITIONS OF STOCK The stockholders that are parties to the stockholders' agreement may not transfer any shares of common stock except in accordance with the stockholders' agreement. Restrictions on dispositions of stock include the following provisions: 70 74 - Lock-Up Period. Prior to August 12, 2001, except for specified permitted transfers set forth in the stockholders' agreement, no stockholder may transfer any shares without the prior written approval of all the other stockholders that are parties to the stockholders' agreement. - Right of First Refusal. Beginning on August 12, 2001, if a stockholder receives a bona fide offer to purchase any or all of its shares of capital stock and wishes to accept the offer, we and the remaining stockholders that are parties to the stockholders' agreement have the opportunity to purchase the shares offered at the same price per share and on the same terms and conditions as the offer the stockholder received. - Tag Along Rights. Except with respect to specified permitted transfers and in connection with an initial public offering of our common stock, each stockholder has the right to participate in the sale of common stock by another stockholder that is a party to the stockholders' agreement to any third party at the same price per share and on the same terms and conditions as the stockholder initiating the sale to the third party. SALES OF SHARES In the event of the death, total disability, retirement after age 60 or termination of employment of Bruce Sparks, we have obligations and rights to purchase shares of capital stock that PPK Group owns. If Mr. Sparks dies, we are required to use all proceeds from the "key man" life insurance policy we maintain with respect to Mr. Sparks to purchase shares of capital stock that PPK Group owns at fair market value. The indentures governing our notes would permit this repurchase as an exception to the limitation on restricted payments. See "Description of the New Notes--Covenants--Limitation on Restricted Payments." During the eight months following the death of Mr. Sparks, we would have the option to purchase all, but not some, of the shares PPK Group owns at fair market value and, during the 120-day period following expiration of the eight month period, PPK Group would have the right to require us to purchase shares PPK Group owns at fair market value. In the event of the total disability, retirement after age 60 or termination of employment, other than for cause prior to August 12, 2001, of Mr. Sparks, we have the option, for a period of time ranging from three months to nine months depending upon the circumstances, to purchase all, but not some, of the shares of capital stock PPK Group holds at fair market value. In the event of termination of Mr. Sparks' employment for cause prior to August 12, 2001, we have the option, for a period of one year, to purchase the shares of common stock PPK Group holds for the lower of book value and fair market value. In the event of a change of control of any stockholder that is a party to the stockholders' agreement, we have the right but not the obligation, for a period of 60 days after we become aware of the change of control, to purchase all of the stockholder's shares of capital stock at fair market value. SALE OF ALL OF OUR COMMON STOCK After August 12, 2001, under specified circumstances, the funds that First Reserve Corporation manages may compel all stockholders that are parties to the stockholders' agreement to participate in the sale of all of our outstanding common stock to a buyer or buyers that are not our affiliates or affiliates of any of the stockholders that are parties to the stockholders' agreement. Until the earlier to occur of an initial public offering of our common stock and October 30, 2002, however, any sale of a majority of our common stock must be approved by holders of at least 85% of our outstanding common stock. All shares of common stock will be sold at an identical price and on identical terms. In addition, a sale may only be consummated if the buyer or buyers either redeem or purchase the Class A preferred stock and Class B preferred stock. REGISTRATION RIGHTS At any time following an initial public offering of our common stock, upon the written request of PPK Group, Anker Holding B.V. or the funds that First Reserve Corporation manages, we are required, as expeditiously as possible, to use our best efforts to effect the registration, under the Securities Act, of the shares of common stock outstanding as of August 12, 1996 or that any of PPK Group, Anker Holding or the funds that First Reserve Corporation manages acquired after that date. INVESTOR AGREEMENT In connection with the restructuring of our 9 3/4% notes, we entered into an investor agreement with the stockholders that are parties to the stockholders' agreement and the initial holders of our warrants. Some of the parties to the investor agreement, including the funds that First Reserve Corporation manages, PPK Group, Anker Holding B.V. and Rothschild Recovery Fund, L.P., are each beneficial owners of more than 5% of our fully-diluted common stock. The investor agreement contains provisions regarding tag along rights, restrictions on dispositions of shares of common stock issued upon exercise of warrants and restrictions on mergers and 71 75 sales of assets and stock. For a more complete summary of the investor agreement, please see "Description of Warrants -- Investor Agreement." TRANSACTIONS WITH RELATED PARTIES Anker Holding B.V., through parties related to it, purchases coal from us for its trading operations. These purchases are at prices that we believe are no less favorable to us then those that we would have obtained in a comparable transaction with an unrelated person. These purchases amounted to $100,000 in 1998, $9.7 million in 1997 and $16.2 million in 1996. In February 1998, one of our subsidiaries sold its ownership interest in Anker-Alabama, L.L.C., which indirectly owned an interest in Oak Mountain, to a party related to of Anker Holding B.V. for one dollar. We had tried but were unsuccessful in selling our investment to unrelated parties during December 1997 and January and February 1998. We recorded an impairment loss of $8,267,000 to adjust our investment to its fair market value less cost to sell as of December 31, 1997. On October 28, 1999, we issued $6.0 million principal amount of notes to JJF Group in exchange for cancellation of all of our shares of common stock that JJF Group owned up and in full settlement and satisfaction of JJF Group's rights under a put agreement entered into in August 1998. The put agreement required us to purchase the shares of our common stock that JJF Group owned in installments over time for a total of approximately $10.5 million. As part of the October 28, 1999 private restructuring transaction, JJF Group ceased to be a party to the stockholders' agreement. 72 76 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER When we sold the old notes, we entered into a registration rights agreement with the holders of the old notes. We agreed, among other things, to file a registration statement under the Securities Act for an offer to exchange the old notes for new notes with terms identical in all material respects and to have the registration statement remain effective until the closing of the exchange offer. This exchange offer is being made to satisfy our contractual obligations under the registration rights agreement. We will be required to pay penalties to the holders of the old notes in the following cases: - If we fail to file the registration statement under which the exchange offer is made within 20 days from October 26, 1999; - if the registration statement is not declared effective within 45 days from October 26, 1999 if the SEC does not review the registration statement; - if the registration statement is not declared effective within 90 days from October 26, 1999 if the SEC does review the registration statement; or - if the exchange offer is not consummated on or before 30 days after the registration statement has become effective. The penalties start to accrue when we miss a deadline for meeting one of the registration requirements above and continue to accrue until we are no longer in violation of any of the registration requirements. The amount of penalties we will have to pay to each holder of old notes if we do not meet any of the registration requirements above within the time periods specified will be - $.03 per week per $1,000 principal amount of old notes for the first 90 days after we fail to meet a specified time limit; - $.12 per week per $1,000 principal amount of old notes for the second 90-day period after we fail to meet a specified time limit; - $.15 per week per $1,000 principal amount of old notes for the third 90-day period after we fail to meet a specified time limit; and - after the third 90-day period, an additional $.05 per week per $1,000 principal amount of old notes for each subsequent 90-day period until the registration requirement or requirements in question are met. Since we did not meet the 20-day time limit specified above for filing the registration statement, we incurred penalties totaling approximately $9,540 between the 21st day and the date the registration statement was filed. If the registration statement is not declared effective within the time periods specified above, then the penalties will begin to accrue again in the amounts set forth above, and they will continue to accrue until the registration statement is declared effective. After the registration statement is declared effective, if the exchange offer is not consummated within the time period specified above, then these penalties will again begin to accrue and will continue to accrue until the exchange offer is consummated. TERMS OF THE EXCHANGE We offer, upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, to exchange up to $106,003,000 in aggregate principal amount of 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) for a like aggregate principal amount of 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000). In addition, in April 2000, we will issue up to $7,553,000 in aggregate principal amount of additional new notes in payment of the April 1, 2000 interest payment on the notes. The form and terms of the new notes are identical in all material respects to the form and terms of the old notes, except that the new notes have been registered under the Securities Act and therefore will not contain transfer restrictions. We will exchange new notes for old notes properly tendered on or prior to the expiration date and not properly withdrawn in accordance with the procedures described below. We will issue the new notes promptly after the expiration date, and the new notes in payment of the April 1, 2000 interest payment on the notes will be issued when due. The exchange offer is not conditioned upon any minimum principal amount of old notes' being tendered. The exchange offer is not being made to, and we will not accept tenders for exchange from, holders of old notes in any jurisdiction in which the exchange offer or the acceptance of the offer would not be in compliance with the securities or blue sky laws of that jurisdiction. 73 77 Old notes that are not tendered for, or are tendered but not accepted, will remain outstanding and be entitled to the benefits of the note indenture, but those old notes will not be entitled to any further registration rights under the registration rights agreement. We will be considered to have accepted validly tendered old notes if and when we give oral or written notice to the exchange agent. The exchange agent will act as the tendering holders' agent for purposes of receiving the new notes from us. If we do not accept any tendered notes for exchange because of an invalid tender or the occurrence of other events, the exchange agent will return the certificates for unaccepted old notes, without expense, to the tendering holder promptly after the expiration date, or, if unaccepted old notes are uncertificated, those securities will be returned, without expense to the tendering holder, promptly after the expiration date via book entry transfer. Our board of directors does not make any recommendation to holders of old notes as to whether or not to tender all or any portion of their old notes. In addition, no one has been authorized to make any recommendation. Holders of old notes must make their own decision whether to tender their old notes and, if so, the amount of old notes to tender. EXPIRATION DATE The expiration date for the offer is 5:00 p.m., New York City time, on , unless we extend the exchange offer. In that case, the expiration date will be the latest date and time to which the exchange offer is extended. CONDITIONS; EXTENSIONS; AMENDMENTS The exchange offer is not subject to any conditions other than that the offer does not violate applicable law or any applicable interpretations of the SEC staff. The offer is not conditioned upon any minimum principal amount of notes being tendered. We reserve the right in our sole discretion: - to delay the acceptance of the old notes for exchange, - to terminate the exchange offer, - to extend the expiration date and retain all old notes that have been tendered, subject, however, to the right of holders of old notes to withdraw their tendered notes, and - to waive any condition or otherwise amend the terms of the exchange offer in any respect. If we amend the exchange offer in a manner we consider material, or if we waive a material condition of the exchange offer, we will promptly disclose the amendment by means of a prospectus supplement, and we will extend the exchange offer for a period of five to ten business days. Following any delay in acceptance, extension, termination or amendment, we will notify the exchange agent and make a public announcement. In the case of an extension, we will make the announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. We will communicate any public announcement by issuing a release to an appropriate news agency. PROCEDURES FOR TENDERING OLD NOTES To tender in the exchange offer, a holder must, unless the tender is being made in book-entry form, - complete, sign and date the letter of transmittal, or a facsimile of it, - have the signatures guaranteed if required by the letter of transmittal and - mail or otherwise deliver the letter of transmittal or the facsimile, the old notes and any other required documents to The Bank of New York, which is the exchange agent, prior to 5:00 p.m., New York City time, on the expiration date. Any financial institution that is a participant in The Depository Trust Company's Book-Entry Transfer Facility system may make book-entry delivery of the old notes by causing DTC to transfer the old notes into the exchange agent's account. Although delivery of old notes may be effected in this way, the letter of transmittal, or facsimile, with any required signature guarantees and any other required documents must be transmitted to and received or confirmed by the exchange agent at its addresses set forth under the caption "Exchange Agent," below, prior to 5:00 p.m., New York City time, on the expiration date. Delivery of documents to DTC in accordance with its procedures does not constitute delivery to the exchange agent. 74 78 A holder's tender of old notes will constitute an agreement between us and the holder to the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. The method of delivery of old notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holders. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. No letter of transmittal of old notes should be sent to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the tenders for them. Any beneficial owner whose old 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 behalf of the beneficial owner. If the beneficial owner wishes to tender on that owner's own behalf, the owner must, prior to completing and executing the letter of transmittal and delivery of the owner's old notes, either make appropriate arrangements to register ownership of the old notes in the owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signature on a letter of transmittal or a notice of withdrawal must be guaranteed by an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act, unless the old notes are tendered - by a registered holder who has not completed the box entitled "Special Payment Instructions" or "Special Delivery Instructions" on the letter of transmittal, or - for the account of an eligible guarantor institution. In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be 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. If the letter of transmittal for any old notes is signed by a person other than the registered holder, the old notes must be endorsed by the registered holder or accompanied by a properly completed bond power, in each case signed or endorsed in blank by the registered holder. If the letter of transmittal or any old notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, they should so indicate when signing. In addition, these persons must submit evidence satisfactory to us of their authority to act in that capacity with the letter of transmittal. We can waive this requirement. We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, and acceptance and withdrawal of tendered old notes. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes whose acceptance by us would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to any particular old notes either before or after the expiration date. 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 old notes must be cured within a time period we will determine. Although we intend to request the exchange agent to notify holders of defects or irregularities relating to tenders of old notes, neither we, the exchange agent nor any other person will have any duty or incur any liability for failure to give that notification. Tenders of old notes will not be considered to have been made until any defects or irregularities have been cured or waived. Any old notes that the exchange agent receives which are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. By tendering, each holder represents to us that, among other things - the new notes acquired in connection with the exchange offer are being obtained in the ordinary course of business of the person receiving the new notes, whether or not that person is the holder; - that neither the holder nor any other person receiving the new notes has an arrangement or understanding with any person to participate in the distribution of the new notes; and 75 79 - that neither the holder nor any other person receiving the new notes is an "affiliate" of ours. An affiliate is a person that controls, is controlled by or is under common control with us. GUARANTEED DELIVERY PROCEDURES Holders that wish to tender their old notes and: - whose old notes are not immediately available; - that cannot deliver their old notes, the letter of transmittal or any other required documents, to The Bank of New York, which is the exchange agent; or - that cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if: (1) the tender is made through a firm that is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or correspondent in the United States; (2) prior to the expiration date, the exchange agent receives from an institution listed in clause (1) above a properly completed and duly executed notice of guaranteed delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder, the certificate number(s) of the old notes and the principal amount of old notes tendered, stating that the tender is being made this way and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, or a facsimile of it, together with the certificate(s) representing the old notes, or a confirmation of book-entry transfer of the old notes into the exchange agent's account at the book-entry transfer facility, and any other documents required by the letter of transmittal, will be deposited by the institution with the exchange agent; and (3) the exchange agent receives, no later than three New York Stock Exchange trading days after the expiration date, the certificate(s) representing all tendered old notes in proper form for transfer, or a confirmation of book-entry transfer of the old notes into the exchange agent's account at the book-entry transfer facility, together with a letter of transmittal, or a facsimile of it, properly completed and duly executed, with any required signature guarantees, and all other documents required by the letter of transmittal. Holders that wish to tender their old notes according to the guaranteed delivery procedures set forth above may request that the exchange agent send them a notice of guaranteed delivery. RESALES OF NEW NOTES We believe that the new notes issued in the exchange offer for old notes may be offered for resale, resold and otherwise transferred by the holder without compliance with the registration and prospectus delivery requirements of the Securities Act, if - the holder is acquiring the new notes in the ordinary course of its business, - the holder is not participating, and has no arrangement or understanding to participate, in the distribution of the new notes, and - the holder is not an affiliate of ours. Our belief is based on interpretations by the SEC staff in no-action letters issued to third parties unrelated to us. The staff has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the staff would make a similar determination with respect to this exchange offer. Any holder of the old notes using the exchange offer to participate in a distribution of new notes cannot rely on the no-action letters referred to above. This includes a broker-dealer that acquired old notes directly from us, but not as a result of market-making activities or other trading activities. Consequently, the holder must comply with the registration and prospectus delivery requirements of the Securities Act in the absence of an exemption from these requirements. Each broker-dealer that receives new notes for its own account in exchange for old notes that it acquired as a result of market-making activities or other trading activities, must acknowledge 76 80 that it will deliver a prospectus in connection with any resale of those new 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 new notes received in exchange for old notes where the old notes were acquired by the broker-dealer as a result of market-making activities or other trading activities. The letter of transmittal states that by acknowledging that it will deliver a prospectus, a broker-dealer will not be considered to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed that for a period of 180 days after the date the registration statement under which the exchange offer is made is declared effective, we will make this prospectus available to broker-dealers for use in connection with any resale covered by these rules. See "Plan of Distribution." Except as described above, this prospectus may not be used for an offer to resell, resale or other retransfer of new notes. WITHDRAWAL RIGHTS Except as otherwise provided in this prospectus, tenders of old notes may be withdrawn at any time on or prior to 5:00 p.m., New York City time, on the expiration date. For a holder to withdraw a tender of old notes, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address below before 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must - specify the name of the person who deposited the old notes to be withdrawn; - identify the old notes to be withdrawn, including the certificate number or numbers and principal amount of the old notes; - be signed by the depositor in the same manner as the original signature on the letter of transmittal by which the old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee register the transfer of the old notes into the name of the person withdrawing the tender; and - specify the name of which any withdrawn old notes are to be registered, if different from that of the depositor. We will determine all questions as to the validity, form and eligibility, including time of receipt, of withdrawal notices. Any old notes so withdrawn will be considered not to have been validly tendered for purposes of the exchange offer, and no new notes will be issued unless the old notes withdrawn are validly re-tendered. Any old notes that have been tendered but that are not accepted for exchange or that are withdrawn 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. Properly withdrawn old notes may be re-tendered by following one of the procedures described above under the caption "Procedures for Tendering" at any time prior to the expiration date. EXCHANGE AGENT The Bank of New York has been appointed as exchange agent for the exchange offer. Delivery of the letter of transmittal and any other required documents, questions, requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notice of guaranteed delivery should be directed to the exchange agent as follows:
BY OVERNIGHT COURIER OR BY FACSIMILE TO CONFIRM BY TELEPHONE BY HAND DELIVERY: REGISTERED/CERTIFIED MAIL: TRANSMISSION: OR FOR INFORMATION: The Bank of New York The Bank of New York (212) 815-6339 (212) 815-6331 101 Barclay Street 101 Barclay Street New York, New York 10286 New York, New York 10286 Ground Level Attn: Reorganization Unit -- 7E Corporate Trust Services Window Attn: Reorganization Unit -- 7E
Delivery other than to the above addresses or facsimile number will not constitute a valid delivery. FEES AND EXPENSES We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer. We will pay other expenses to be incurred in the exchange offer, including the fees and expenses of the exchange agent, accounting fees and legal fees. Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes. If, however, new notes are to be delivered to, 77 81 or issued in the name of, any person other than the registered holder of the old notes tendered, tendered old notes are registered in the name of any person other than the person signing the letter of transmittal or a transfer tax is imposed for any reason other than the exchange of old notes in connection with the exchange offer, then the amount of any transfer taxes, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of these taxes or exemption from them is not submitted with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder. ACCOUNTING TREATMENT The new notes will be recorded at the same carrying value as that of the old 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 upon completion of the exchange offer. The expenses related to the issuance of the notes and of the exchange offer will be capitalized and amortized over the term of the notes. We recorded the private placement, the private exchange and the private stockholder exchange in accordance with FAS-15 "Accounting By Debtors and Creditors For Troubled Debt Restructurings." In the private exchange, the carrying amount of $125.0 million principal amount of 9 3/4% notes and the accrued and unpaid interest of approximately $6.1 million will be compared to the principal and interest payments on the old notes over time. To the extent the carrying amount is less than the interest and principal on the old notes, we will adjust the carrying amount. We do not expect to change our carrying amount in connection with the private exchange. The private exchange had tax ramifications that we expect to result in the recording of income tax expense on our financial statements. See "Risk Factors--Risks Related to Anker--We could have income tax liability as a result of the restructuring of our 9 3/4% Series B Senior Notes." The issuance of old notes for cash in the private placement is expected to result in financial statement recognition of original issue discount. This discount will be accreted over the term of the notes. We recorded the private stockholder exchange in a manner similar to the private exchange described above. All of these transactions will have an effect on our recorded annual interest expense. In connection with the accounting treatment for the private stockholder exchange, we recorded the notes we issued at their face value. The difference between the notes and the common stock available for repurchase, including current portion, increased paid-in capital. 78 82 DESCRIPTION OF THE NEW NOTES The new notes will be issued under the Indenture between us and The Bank of New York, as Trustee. The terms of the notes include those terms stated in the Indenture and those terms made part of the Indenture by reference to the Trust Indenture Act of 1939. You can find the definitions of capitalized terms used in this description below under "-- Definitions." This section contains a summary and a more detailed description 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. You may obtain a copy of the Indenture from us. GENERAL We are a holding company that owns stock of subsidiary corporations. All of our wholly owned subsidiaries have guaranteed payment of the notes and performance of our other obligations under the Indenture and related security documents. The have also granted liens on their assets to secure those obligations. These liens do not apply to all of their assets and are junior to the liens that Foothill holds. The scope and terms of these liens are described in more detail below under the heading "Security." The notes are being issued in two series: Series A, which are the old notes and Series B, which are the new notes. The terms and conditions of the two series of notes are identical. The difference between the two series is that the Series A old notes have not been registered under the Securities Act of 1933 and are not freely tradable, while the Series B new notes will be either registered or issued under an exemption from registration that will permit them to be freely tradable. The old notes were issued on October 28, 1999 to holders of our 9 3/4% Series B Senior Notes due 2007 in exchange for cancellation of most of those notes; to Rothschild Recovery Fund L.P. in return for approximately $13.2 million in cash; and to JJF Group Limited Liability Company in return for cancellation of its shares of our common stock and its right to require us to purchase those shares in installments over time for approximately $10 million plus accrued interest. The new notes will be issued - in this exchange offer, - under an exemption from registration requirements or in a registered exchange under the Securities Act in exchange for cancellation of any remaining 9 3/4% notes that holders of those notes wish to exchange; and - at our option, to Rothschild Recovery Fund L.P. in return for an additional cash payment of up to $6.3 million on or about October 1, 2000. The interest payment due April 1, 2000 on the new notes will be paid in kind in the form of additional notes. The amount of additional notes issued as payment of interest will be $71.25 for each $1,000 principal amount of notes outstanding. The notes issued as payment of interest will be of the same series as the notes on which the interest is being paid. PRINCIPAL, MATURITY AND INTEREST The notes - have a maximum aggregate principal amount of $118.3 million plus the amount of notes issued to pay interest on April 1, 2000 and the amount of notes to be sold to Rothschild Recovery Fund L.P. on October 1, 2000; - will mature on September 1, 2007; and - accrue interest at a rate of 14.25% per year, payable semi-annually on April 1 and October 1. We can issue up to $118,258,800 million of notes under the Indenture. This amount does not include the additional notes that we will issue to pay interest due April 1, 2000 or the additional notes that we may sell to Rothschild Recovery Fund L.P. on October 1, 2000. The amount of these additional notes cannot be calculated in advance. The amount of the April 1, 2000 interest payment will depend on the total amount of old and new notes outstanding on that date. The amount of notes to be sold to Rothschild Recovery Fund L.P. will depend upon the price at which the notes trade during a period of approximately 30 days before October 1, 2000. The sale to Rothschild Recovery Fund L.P. is intended to raise a fixed amount of cash, and the notes will be sold at 95% of the average trading price, so we will need to issue more notes if the average trading price is lower than we will if the price is higher. The new notes mature on September 1, 2007. Interest on the new notes accrues at the rate of 14.25% per annum and is payable twice each year -- on April 1 to persons who held notes on March 15 of that year, and on October 1 to persons who held notes on September 15 of that year. The first interest payment is due April 1, 2000 and will be made in the form of additional notes with a face amount of 79 83 $71.25 for each $1,000 of notes on which interest is being paid. All other interest payments will be made in cash. Except for the notes that are issued in payment of interest due April 1, 2000 and the notes that are to be sold to Rothschild Recovery Fund L.P. on October 1, 2000, interest on the notes accrues from October 1, 1999. Interest on the notes to be issued in payment of the interest due April 1, 2000 will accrue from that date. Interest on the notes to be sold to Rothschild Recovery Fund L.P. on October 1, 2000 will accrue from the date those notes are issued. Interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Principal, premium, if any, and interest and liquidated damages, if any, on the notes is payable, and the notes may be presented for transfer or exchange, at our office or agency maintained for that purpose within the city and state of New York. At our option, payment of interest may be made by check mailed to registered holders of the notes at the addresses set forth on the registry books maintained by the Trustee, who will initially act as registrar for the notes. However, payments to holders that have provided wire transfer instructions will be made according to those instructions. No service charge will be made for any exchange or registration of transfer of notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with the exchange or registration. Unless we otherwise designate, our office or agency will be the corporate trust office of the Trustee. Except for the notes issued in payment of interest due April 1, 2000, the secured notes will be issued in denominations of $1,000, $800 or $743 or integral multiples of those amounts. Notes issued in payment of interest will be issued in integral multiples of $1. NO MANDATORY SINKING FUND We are not required to make sinking fund payments for the notes. SECURITY - The notes are secured by liens in favor of the Trustee on almost all of our assets and those of our subsidiaries that have guaranteed the notes. - These liens do not apply to mobile equipment, coal leases and other contracts and permits that prohibit these liens or assignments, real property located in Maryland, and some specific parcels of real property and related improvements located in other states. - Although we have provided the best descriptions of real property collateral available to us, some of those descriptions may be inaccurate or insufficient to create valid liens on the property. - The liens that secure the notes are junior to the liens that secure our commercial loan facility and to all other liens that existed on October 28, 1999. This means that holders of these senior liens are entitled, if we default, to be paid in full from proceeds of collateral before any payments are made on the notes. - We have the right to obtain the release of collateral without replacing it as long as we comply with the restrictions and procedural requirements of the Indenture. - The Trustee's ability to enforce the liens and to retain proceeds of any enforcement action it takes is limited by an intercreditor agreement with our lenders that hold senior secured debt. - The Trustee's willingness to enforce the liens against individual parcels of real property may also be limited by concerns about becoming liable for dealing with environmental problems at the property. COLLATERAL The collateral for the notes includes all of our and the guarantor subsidiaries' right, title and interest in and to each of the following: - Accounts - books and records - equipment, not including mobile equipment - General Intangibles - Inventory - Negotiable Collateral - cash collateral - Investment Property, including, all capital stock in subsidiaries - Real Property Collateral, not including real estate located in Maryland and specified parcels of real property and related improvements located elsewhere - any money or other of our assets and those of the guarantor subsidiaries which come into the possession, custody or control of the Collateral Agent 80 84 - the proceeds and products, whether tangible or intangible, of any of the items above, including proceeds of insurance covering any or all of the collateral, and any and all Accounts, books, Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection or other disposition of any of the items above or any portion of or interest in those items and the proceeds of those items. In the case, however, of any coal supply agreement, coal brokerage agreement, other agreement or leasehold interest or permit the terms of which prohibit or would give the other party the right to terminate if the contract or permit were assigned or subjected to a lien, then unless the other party's consent has been obtained or the restriction is found to be unenforceable, the liens securing the notes apply solely to the proceeds of the contract or permit. Furthermore, the liens securing the notes may not be effective against some parcels of real property because (1) we do not have accurate or adequate legal descriptions of those parcels, and (2) some of our leasehold interests or those of the guarantor subsidiaries may not be properly recorded in the land records. It should be noted, however, that the property descriptions that we used to create the liens securing the notes are essentially the same as the ones we used to create the liens securing the loan from our commercial lender, so any problems caused by those descriptions would apply to both kinds of debt. The collateral release provisions of the Indenture permit the release of collateral without substitution of collateral of equal value under specified circumstances. See "--Possession, Use and Release of Collateral-Release of Collateral." As described under the subsection entitled "Repurchase at the Option of Holders--Asset Sales," the net cash proceeds of specified asset sales may be utilized for various purposes, including for the purpose of making an offer to purchase notes. To the extent that cash proceeds remain after we have purchased all notes that are tendered in response to a purchase offer, the unutilized net cash proceeds may be released to us, free of the lien securing the notes. If an event of default occurs under the Indenture, the Collateral Agent may take action to protect and enforce its rights in the collateral, including the institution of foreclosure proceedings, except to the extent it is prohibited from doing so by the terms of the intercreditor agreement between Foothill and the Trustee. See "--Intercreditor Agreement." As long as the intercreditor agreement remains in effect, proceeds of foreclosure on collateral must be applied in accordance with that agreement, which generally means net proceeds must be paid to our lenders that hold senior secured debt until their loans have been paid in full before any proceeds can be applied by the Collateral Agent under the Indenture. Collateral proceeds that are available to the Collateral Agent are to be used first to pay the expenses of the foreclosure and fees and other amounts then payable to the Trustee under the Indenture and, after that, to pay the principal of and interest on, and other amounts due with respect to, the notes. Real property pledged as security for debt may be subject to known and unforeseen environmental risks. Under federal environmental laws, a secured lender may be held liable, in limited circumstances, for the costs of cleaning up or preventing releases or threatened releases of hazardous substances at or from a mortgaged property. There may be similar risks under various state laws and common law theories. Lender liability may be imposed where the lender actually participates in the management or operation of the mortgaged property, with some exceptions. Under the Indenture, the Trustee may, before taking specified actions, request that holders of notes provide an indemnification against its costs, expenses and liabilities. It is possible that environmental cleanup costs could become a liability of the Trustee and cause a loss to any holders of notes that provided indemnification. In addition, the holders may act directly rather than through the Trustee, in specified circumstances, in order to pursue a remedy under the Indenture. If noteholders exercised that right, they could, under some circumstances, be subject to the risks of environmental liability discussed above. LIEN SUBORDINATION The liens securing our Senior Secured Indebtedness have priority over the liens securing the notes with respect to all collateral. The Senior Secured Indebtedness currently consists of a term loan and a revolving credit facility extended by Foothill and other lenders. The principal amount outstanding under this credit facility may be as much as $55 million. The agent for our lenders that hold senior secured debt and the Trustee have entered into an intercreditor agreement relating to the administration, preservation and disposition of the collateral. See "--Intercreditor Agreement" below. The Trustee and each noteholder acknowledge that, as more fully set forth in the intercreditor agreement, regardless of the order or manner of attachment or perfection, the liens of the Trustee on the collateral are subject to and subordinate in all respects to the liens of the lenders that hold senior secured debt. Until the Senior Secured Indebtedness has been paid in full and the credit facilities have been terminated, the Collateral Agent will be prohibited from taking any action to enforce the liens securing the notes. 81 85 The liens on the collateral that secure senior secured debt have priority over the liens securing the notes. In the event we default on the notes, or enter into bankruptcy, liquidation or reorganization, our assets would be used to pay the Senior Secured Indebtedness before any payment from those assets could be made on the notes. The relative priorities of the lenders that hold senior debt and the noteholders with respect to the collateral are set forth in the intercreditor agreement. As of November 11, 1999, we and our subsidiaries had outstanding Senior Secured Indebtedness, including amounts outstanding under the loan agreement with Foothill and other Indebtedness secured by prior liens, of approximately $13.0 million. The Indenture permits us and our Restricted Subsidiaries to incur additional Indebtedness, including secured Indebtedness, subject to limitations. Specifically, Indebtedness under the loan agreement with Foothill may be as much as $55 million. Under some circumstances, we can designate current or future subsidiaries as unrestricted subsidiaries. Unrestricted subsidiaries are not subject to the restrictive covenants set forth in the Indenture. All of our subsidiaries currently are restricted subsidiaries. INTERCREDITOR AGREEMENT The intercreditor agreement between Foothill and the Trustee provides - the relative priorities of the parties to the agreement in and to the collateral, - the conditions under which the parties to the agreement will consent to the release of or granting of any Lien in any of the collateral and - the conditions under which the parties to the agreement will enforce their rights with respect to the collateral and the Indebtedness secured by the collateral. The intercreditor agreement imposes significant limitations on the ability of the Collateral Agent to enforce the liens securing the secured notes while amounts remain outstanding under our credit facilities. See "Description of Other Indebtedness--Intercreditor Agreement." BANKRUPTCY LIMITATIONS The rights of the Collateral Agent to repossess and dispose of the collateral upon the occurrence of an event of default would be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were commenced by or against us before the Collateral Agent has repossessed and disposed of the collateral. Under the U.S. Bankruptcy Code, a secured creditor such as the Collateral Agent is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from the debtor, without the bankruptcy court's approval. Moreover, the U.S. Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security to replace value of existing collateral that is lost as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the Collateral Agent could repossess or dispose of the collateral or whether or to what extent holders of notes would be compensated for any delay in payment or loss of value of the collateral through the requirement of "adequate protection." SUBSIDIARY GUARANTEES Our payment obligations under the notes are jointly and severally guaranteed, fully and unconditionally, on a secured basis, by our wholly owned subsidiaries. Each of the subsidiaries that have guaranteed the secured notes is a borrower under the loan agreement with Foothill and is liable for amounts due under the loan agreement on a senior secured basis. As a result, the subsidiaries' guarantees of the notes are effectively subordinated to the prior payment in full of all Senior Secured Indebtedness. The obligations of each subsidiary guarantor are limited in order not to constitute a fraudulent conveyance under applicable law. The Indenture prohibits the guarantor subsidiaries from merging with other entities that are not guarantors unless specified tests are met and the surviving entity becomes a guarantor of the notes. The Indenture also provides that, in the event of a sale or other disposition of all of the stock or assets of any guarantor subsidiary, the stock or assets will be released from the liens securing the notes as long as the proceeds of the sale are to be applied in accordance with the applicable provisions of the Indenture. See "--Security" and "--Repurchase at the Option of Holders--Asset Sales." 82 86 OPTIONAL REDEMPTION We may redeem any of the notes at our option. The initial redemption price is 104% of the principal amount, plus accrued interest and liquidated damages, if any. The redemption price will decline each year after 2000 and will be 100% of the principal amount, plus accrued interest and liquidated damages, if any, beginning on October 1, 2003. We may redeem all or part of the notes upon our giving not fewer than 30 nor more than 60 days' notice at the redemption prices, expressed as percentages of principal amount, set forth below:
YEAR PERCENTAGE ---- ---------- Until October 1, 2000......................................104% Beginning October 1, 2000..................................103% Beginning October 1, 2001..................................102% Beginning October 1, 2002..................................101% Beginning October 1, 2003 and thereafter...................100%
MANDATORY REDEMPTION We must redeem, or offer to redeem, notes from excess asset sale proceeds or upon a change of control. MANDATORY REDEMPTION FROM EXCESS ASSET SALE PROCEEDS - During the first 15 days of January and July of each year, we may be required to offer to redeem notes out of excess proceeds of asset sales we received by the end of the immediately preceding month that have not been previously used to make an offer to redeem. - Asset sale proceeds do not have to be used for this purpose if they are used within 120 days of receipt (1) to make a permanent paydown of senior secured debt, (2) to buy back secured notes in the market at a time when no senior secured debt is outstanding or (3) to pay for capital expenditures relating to our coal mining activities or that of any of the guarantor subsidiaries. - In addition, we can use the first $1 million plus 40% of the excess over $1 million of what would otherwise be excess asset sale proceeds for general corporate purposes rather than to redeem notes. - We must pay 100% of outstanding principal plus accrued interest and any liquidated damages on notes that we redeem out of excess asset sale proceeds. - If the total redemption price of notes tendered in response to an offer to redeem is less than the amount of excess proceeds, we can use the remaining excess proceeds for general corporate purposes. Within 120 days after the receipt of any proceeds from an asset sale, we or a guarantor subsidiary may apply the proceeds, at our option, (1) to repay Senior Secured Indebtedness, and to correspondingly permanently reduce commitments with respect to that Senior Secured Indebtedness in the case of term borrowings, (2) at any time when no Senior Secured Indebtedness is outstanding and no default or event of default has occurred or is continuing, to offer to purchase notes in the market in accordance with the terms of the Indenture at a price and in an amount we determine, or (3) to the making of a capital expenditure in a Permitted Business relating to our coal mining activities and that of the guarantor subsidiaries if deemed necessary and appropriate for use in the ordinary course of our business and that of our subsidiaries by our board of directors or to reimburse the cost of a capital expenditure made during the 120 days before the proceeds were received. The property and assets that are the subject of that capital expenditure and any other non-cash consideration received as a result of the asset sale, however, must be made subject to the liens securing the notes. Pending the final application of any asset sale proceeds, we may temporarily reduce Indebtedness under our credit facilities or invest the proceeds in any manner that is not prohibited by the Indenture. We must use 60% of the excess over $1.0 million of net proceeds from asset sales that are not applied or invested as provided in the preceding paragraph to make offers to redeem notes. The amount of proceeds required to be used for this purpose is calculated twice each year, as of June 30 and December 31. If the amount of excess proceeds exceeds $1 million on either date, we must make an offer to all holders of notes within 15 days after that date to purchase the maximum principal amount of notes that may be purchased out of the excess proceeds, at an offer price in cash in an amount equal to 100% of principal plus accrued and unpaid interest and liquidated damages on those notes, if any, to the date of purchase, in accordance with the applicable procedures set forth in the Indenture. To the extent that the aggregate amount of notes tendered in response to the offer is less than the amount of excess proceeds available to purchase those notes, we may use any remaining excess proceeds for general corporate purposes. If the aggregate principal amount of 83 87 notes tendered by holders in response to the offer exceeds the amount of excess proceeds available to purchase notes, the Trustee will select the notes to be purchased on a pro rata basis. Upon completion of the offer to purchase, the amount of excess proceeds will be reset at zero. MANDATORY REDEMPTION UPON A CHANGE OF CONTROL - Upon a change of control, holders have the right to require us to redeem their notes at 101% of principal plus accrued interest and any liquidated damages. Upon the occurrence of a Change of Control, each holder of notes will have the right to require us to repurchase all or any part of that holder's notes at an offer price in cash equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest and liquidated damages, if any, on the notes to the date of purchase. Within 30 days following any Change of Control, we will mail a notice to each noteholder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date the notice is mailed, in accordance with the procedures required by the Indenture and described in the notice. We will comply with the requirements of Rule 14e-1 under the Securities Exchange Act of 1934 and any other securities laws and regulations to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. 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 our assets and those of our subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. As a result, the ability of a noteholder to require us to repurchase those notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of our assets and those of our subsidiaries taken as a whole to another person or entity or group may be uncertain. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the noteholders to require that we repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction. - Our commercial loan agreement prohibits us from redeeming notes unless there is no existing default and specified financial tests are met. The loan agreement with Foothill prohibits us from purchasing any notes unless specified conditions are satisfied. The loan agreement also provides that Change of Control events with respect to us would constitute a default under the loan agreement. Among other things, we are not permitted to purchase notes unless there is no existing event of default and, after taking account of the use of funds for the purchase, the subsidiaries would have the ability to borrow at least $5.0 million, in the case of purchases funded by asset sale proceeds, or $10.0 million, in all other cases, under the revolving credit facility of the loan agreement. Any future credit agreements or other agreements to which we become a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when we are prohibited from purchasing notes, we could seek the consent of our lenders to the purchase of notes, or we could attempt to refinance the borrowings that contain the prohibition. If we do not obtain a consent or repay the borrowings, we will remain prohibited from purchasing notes. In that case, our failure to purchase tendered notes would constitute an event of default under the Indenture, which would, in turn, constitute a default under the loan agreement with Foothill. PROCEDURES FOR REDEEMING NOTES If fewer than all of the notes are to be redeemed or repurchased in an offer to purchase at any time, the Trustee will make the selection of notes for redemption or repurchase in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed. If the notes are not so listed, the selection will be made on a pro rata basis. No notes that have been previously reissued at less than their original principal amount, however, will be redeemed except as part of the redemption of all notes held by the same holder. Notices of redemption or repurchase will be mailed by first class mail at least 30, but not more than 60, days before the redemption date or repurchase date to each holder of notes to be redeemed or repurchased at its registered address. If any note is to be redeemed or repurchased in part only, the notice of redemption or repurchase that relates to that note will state the portion of the principal amount of the note to be redeemed or repurchased. A note in principal amount equal to the unredeemed or unrepurchased portion will be issued in the name of the noteholder upon cancellation of the original note. On and after the redemption or repurchase date, interest ceases to accrue on notes or portions of notes called for redemption or repurchase. 84 88 DEFINITIONS Set forth below is a summary of some terms used in this description of the notes. We refer you to the Indenture for the full definition of these terms. "ACCOUNTS" means all accounts, contract rights and all other forms of obligations owing to us and the subsidiaries that have guaranteed the notes arising out of the sale or lease of goods or the rendition of services by us and those subsidiaries, irrespective of whether earned by performance, and any and all related credit insurance, guaranties or security. "APPRAISER" means an engineer, appraiser or other expert who, except as otherwise expressly provided in the Indenture, we may employ. "ASSET SALE" means (1) the sale, lease, conveyance or other disposition of any assets or rights, including a sale and leaseback or a contract settlement, other than in the ordinary course of business; however, the sale, lease, conveyance or other disposition of all or substantially all of our assets will be treated either as a Change of Control or as a merger or consolidation rather than as an Asset Sale; and (2) the issue or sale by us or any of our Restricted Subsidiaries of equity interests of any of our Restricted Subsidiaries, in the case of either clause (1) or (2), whether in a single transaction or a series of related transactions that have a fair market value, as determined in good faith by our board of directors, in excess of $1.0 million or for net cash proceeds in excess of $100,000. The following kinds of transactions are not treated as Asset Sales even if they meet the tests described in the first sentence of this definition: - our transfer of assets to a subsidiary that has guaranteed the notes or a transfer by that subsidiary to us or to another guarantor subsidiary; - a guarantor subsidiary's issuance of equity interest to us or to another guarantor subsidiary; - a Restricted Payment that is permitted by the covenant described under "--Covenants--Limitation on Restricted Payments;" - a disposition of cash equivalents; - a disposition in the ordinary course of business of either obsolete equipment or equipment otherwise no longer useful in the business; - a disposition in the ordinary course of business of mineral rights or real property no longer useful in the business for net proceeds not to exceed $50,000 in the aggregate in any calendar year; - any sale of equity interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary; - any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of the asset; - contribution of Excluded Assets to an entity engaged in a Permitted Business in exchange for an equity interest in that entity which is subjected to the liens securing the notes; and - any disposition of Inventory or Accounts in the ordinary course of our or the guarantor subsidiaries' business. "CAPITAL LEASE OBLIGATION" means, as of any measurement date, the amount of the liability under a capital lease that would be required to be capitalized on a balance sheet in accordance with generally accepted accounting principles. "CHANGE OF CONTROL" means the occurrence of any of the following: (1) the sale, lease, transfer, conveyance or other disposition, other than by merger or consolidation, in one or a series of related transactions, of all or substantially all of our assets and those of our Restricted Subsidiaries taken as a whole to any "person," as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, other than to the Permitted Holders; (2) the adoption of a plan relating to our liquidation or dissolution; (3) the consummation of any transaction, including any merger or consolidation, the result of which is that any person or entity, other than the Permitted Holders, becomes the "beneficial owner," as that term is defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, directly or indirectly, of more than 80% of our voting stock, as measured by voting power rather than number of shares; or 85 89 (4) we consolidate with, or merge with or into, any person or entity, other than the Permitted Holders, or any person or entity, other than the Permitted Holders, consolidates with, or merges with or into, us in connection with a transaction in which our outstanding voting stock is converted into or exchanged for cash, securities or other property. This does not include, however, any transaction in which our voting stock outstanding immediately before the transaction is converted into or exchanged for voting stock of the surviving or transferee entity constituting a majority of the outstanding shares of the voting stock of the surviving or transferee entity, immediately after giving effect to the issuance. "COAL ACQUISITION PREFERRED STOCK" means preferred stock that (1) is issued to a seller of coal properties or assets as part of the consideration or financing of the acquisition of the properties or assets and (2) provides for the payment of dividends calculated by reference to the revenues from coal production of those properties or assets, as long as the aggregate purchase price is fair to us. Our Class C preferred stock, par value $13,000 per share, and Class D preferred stock, par value $7,000 per share, each as in effect on October 1, 1999, are each Coal Acquisition Preferred Stock. "COLLATERAL AGENT" means the Trustee, as Collateral Agent for the noteholders, or any successor Collateral Agent. "CONSOLIDATED CASH FLOW" means, for any particular period, the result of the following calculation: Start with our Consolidated Net Income for the period in question and (1) add back extraordinary losses and net losses in connection with Asset Sales which were deducted in computing Consolidated Net Income for the period; (2) add back accrued taxes based on income or profits that were deducted in computing Consolidated Net Income for the period; (3) add back consolidated interest expense, including 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, commissions, discounts and other fees and charges incurred with respect to letter of credit or bankers' acceptance financings and net payments, if any, under Hedging Obligations, that were deducted in computing Consolidated Net Income for the period; (4) add back depreciation, depletion and amortization, including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period, and other non-cash expenses, excluding any non-cash expense 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, that were deducted in computing Consolidated Net Income for the period; and (5) subtract non-cash revenues, other than non-cash income that represents an accrual of cash revenues in any future period, that was included in Consolidated Net Income for the period. Notwithstanding the calculation above, taxes based on the income or profits of, and the depreciation and amortization and other non-cash charges of, our subsidiaries will be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent, and in the same proportion, that the Net Income of each subsidiary was included in calculating the Consolidated Net Income and only if the subsidiary would not be prohibited from paying that amount to us as a dividend. "CONSOLIDATED NET INCOME" means, for any period, our Net Income and that of our Restricted Subsidiaries, on a consolidated basis, determined in accordance with generally accepted accounting principles, adjusted as follows: (1) the Net Income of any subsidiary that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash, or to the extent converted into cash, to us or our wholly owned subsidiary; (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the Restricted Subsidiary's declaration or payment of dividends or similar distributions of its Net Income is prohibited; (3) the Net Income of any person or entity acquired in a pooling of interests transaction for any period before the date of the acquisition will be excluded; (4) the cumulative effect of a change in accounting principles will be excluded; and (5) any net after-tax extraordinary gains or losses will be excluded. 86 90 "EQUIPMENT" means all of our and the guarantor subsidiaries' machinery, machine tools, motors, equipment, furniture, furnishings, loading facilities, tipples, processing plants and similar structures, fixtures, tools, parts, goods, other than consumer goods, farm products or Inventory, wherever located. Equipment does not include, however, Mobile Equipment. "FIXED CHARGES" means, for any period, the sum, without duplication, of the following charges or expenses: (1) our consolidated interest expense and that of our Restricted Subsidiaries, whether paid or accrued, including 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, commissions, discounts and other fees and charges in connection with letter of credit or banker's acceptance financings and net payments, if any, under Hedging Obligations; (2) our consolidated interest expense and that of our Restricted Subsidiaries which was capitalized during that period; (3) any interest expense on Indebtedness of another person or entity which we or one of our Restricted Subsidiaries guarantees or which is secured by a lien on our assets or that of one of our Restricted Subsidiaries, whether or not the guarantee or lien is called upon; (4) the product of (a) all cash dividend payments, on any series of our preferred stock or that of any of our Restricted Subsidiaries, other than dividend payments on equity interests payable solely in our equity interests, multiplied by (b) a fraction, the numerator of which is one and the denominator of which is one minus our then current combined federal, state and local effective tax rate, expressed as a decimal. "FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of our Consolidated Cash Flow and that of our Restricted Subsidiaries to their Fixed Charges. In the event that we or any of our Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness, other than revolving credit borrowings, or issues or redeems preferred stock after the start of the period for which the Fixed Charge Coverage Ratio is being calculated but before the date as of which the Fixed Charge Coverage Ratio is being calculated, then the Fixed Charge Coverage Ratio will be calculated as if that incurrence, assumption, guarantee or redemption of Indebtedness, or the issuance or redemption of preferred stock had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (1) acquisitions and Investments that we or any of our Restricted Subsidiaries has made, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or between the reference period and the calculation date, will be treated as if they had occurred on the first day of the four-quarter reference period, and Consolidated Cash Flow for the reference period will 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 generally accepted accounting principles, and operations or businesses disposed of before the calculation date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with generally accepted accounting principles, and operations or businesses disposed of before the calculation date, will be excluded, but only to the extent that the obligations giving rise to the Fixed Charges will not be obligations of any of our Restricted Subsidiaries or us following the calculation date. "GENERAL INTANGIBLES" means all of our and the guarantor subsidiaries' present and future general intangibles and other personal property, including rights under coal supply contracts, coal brokerage agreements and other contract rights, rights arising under common law, statutes or regulations, choses or things in action, goodwill, permits, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds and tax refund claims, other than goods, Accounts and Negotiable Collateral. "HEDGING OBLIGATIONS" means the obligations of a person or entity under (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of the Indenture and (2) other agreements or arrangements designed to protect against fluctuation in interest rates or the value of foreign currencies purchased or received in the ordinary course of business. "INDEBTEDNESS" means, for any person or entity, as of any date, 87 91 - any indebtedness, whether or not contingent, for borrowed money or evidenced by bonds, notes, debentures or similar instruments, letters of credit or reimbursement agreements for letters of credit, other than standby letters of credit issued in the ordinary course of business that either have not been drawn upon or, if drawn upon, were reimbursed no later than the tenth business day after the issuer of the letter of credit demanded reimbursement, bankers' acceptances, Capital Lease Obligations, the deferred and unpaid portion of the purchase price of property, other than trade payables, and Hedging Obligations, if and to the extent any of these forms of indebtedness, other than letters of credit and Hedging Obligations, would appear as a liability upon a balance sheet of the person or entity prepared in accordance with generally accepted accounting principles; and - all indebtedness of others secured by a lien on any asset of that person or entity, whether or not that person or entity assumes the indebtedness, and, to the extent not otherwise included, the person or entity's guarantee of any indebtedness of any other person or entity. The amount of any Indebtedness outstanding as of any date will be (1) the accredited value of the Indebtedness, in the case of any Indebtedness that does not require current payment of interest, and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "INDEPENDENT" means a person or entity that - is in fact independent, - does not have any direct financial interest or any material indirect financial interest in us or in any subsidiary that has guaranteed the notes or in any affiliate of us or a guarantor subsidiary, and - is not connected with us or any guarantor subsidiary as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever an opinion or certificate of an Independent person or entity is required under the Indenture, that person or entity must be appointed by an order signed by two of our officers and approved by the Trustee in the exercise of reasonable care. The opinion or certificate must state that the signer has read this definition and that the signer is independent as that term is defined in the Indenture. "INTERCREDITOR AGREEMENT" means the intercreditor agreement dated as of October 1, 1999, between the Collateral Agent and Foothill Credit Corporation, as collateral agent for the senior commercial lenders, substantially in the form attached to the Indenture, as it may be amended, waived or otherwise modified from time to time in accordance with the provisions of the agreement, or any similar agreement with lenders under any replacement credit facility on terms which, taken as a whole, are not materially less favorable to the noteholders in any material respect than the form attached as an exhibit to the Indenture. "INVENTORY" means all of our and the guarantor subsidiaries' present and future inventory, whether in the form of raw materials, work-in-process or finished and semi-finished inventory of any kind, nature or description, wherever located, including the following: - all minerals in whatever form, including coal, fly ash, bottom ash or other ash, methane, sulfur, sulfur dioxide and other by-products resulting from the processing of the coal we and the subsidiaries that have guaranteed the notes mine and other minerals and chemicals resulting from the mining or processing of coal; - cast iron fittings, paint, belts and hoses, bolts and nuts, wire and wire products, welding supplies, tools, steel, rope, timber, railroad, spikes, railroad car parts and railroad crane parts, baghouse parts, pump parts, compressor parts, electrical parts, bearings, drills, bits and accessories and other parts and supplies; - all wrapping, packaging, advertising and shipping materials; and - any other personal property held for sale, exchange or lease or furnished or to be furnished or used or consumed in the business or in connection with the manufacturing, packaging, shipping, advertising, selling or finishing of goods, inventory, merchandise and other personal property, and all names or marks affixed to or to be affixed to these items for purposes of our and the guarantor subsidiaries selling these items and all right, title and interest to them. Inventory also includes all coal (1) in which we and the subsidiaries that have guaranteed the notes have any interest which has been mined, (2) that is in a coal stockpile and (3) that is held for sale in the ordinary course of business, together with all other present and future goods we and the guarantor subsidiaries hold for sale in the ordinary course of business, wherever located. "INVESTMENT PROPERTY" means "investment property" as that term is defined in Section 9-115 of the New York Uniform Commercial Code. 88 92 "INVESTMENTS" means all investments by a person or entity in other persons or entities, including affiliates, in the forms 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 and 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 generally accepted accounting principles. If we or any of our Restricted Subsidiaries sells or otherwise disposes of any equity interests of any of our direct or indirect Restricted Subsidiaries so that, after giving effect to the sale or disposition, the person or entity is no longer a Restricted Subsidiary, we will be deemed to have made an Investment on the date of the sale or disposition equal to the fair market value of the equity interests of the Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described below under "--Covenants --Limitation on Restricted Payments." "LIQUIDATED DAMAGES" means additional amounts we must pay to noteholders as a result of delays in the registration of the notes or the consummation of the exchange of registered notes for unregistered notes, as described under "--Registration Rights." "MOBILE EQUIPMENT" means all equipment that is (1) mobile, and (2) used or useful in connection with our coal mining, extraction, development, construction or environmental remediation activities or that of any Restricted Subsidiary. Mobile Equipment includes any of the following, whether the equipment is on wheels, is track mounted or is skid mounted: bulldozers, drills, pans, augers, high wall miners, continuous miners, shuttle cars, roof bolters, mobile roof supporters, rock dusters, man trips, scoops, backhoes, shovels, front end loaders, continuous haulage units, underground locomotives, loaders, trailers, trucks, other motor vehicles and other mining, construction, earthmoving or excavating equipment of a similar nature. "NEGOTIABLE COLLATERAL" means letters of credit, notes, drafts, instruments, Investment Property, documents, and chattel paper issued to us or any of our subsidiaries that have guaranteed the notes; personal property leases under which we or our subsidiary is the lessor; and the books relating to any of these items. "NET INCOME" means, for any person or entity and any period, the net income (loss) of the person or entity, determined in accordance with generally accepted accounting principles and before deducting preferred stock dividends, excluding, however, the following items: (1) any extraordinary gain, but not loss, together with any related provision for taxes on that gain, but not loss, realized in connection with any Asset Sale or disposition of any securities or the extinguishment of any Indebtedness; and (2) any extraordinary gain, but not loss, together with any related provision for taxes on the extraordinary gain, but not loss. In determining Consolidated Net Income for the purpose of the covenant described under "--Covenants --Limitation on Restricted Payments" only, however, items (1) and (2) will not be so excluded. "PERMITTED BUSINESS" means coal producing, coal mining, coal brokering or mine development or any business that is reasonably similar or is a reasonable extension, development or expansion or is ancillary to these activities, including ash disposal and/or environmental remediation, and participation in the ownership and operation of coal-fired electric power generating facilities that purchase coal or other inventory from us or any Restricted Subsidiary. "PERMITTED HOLDERS" means the Estate of John J. Faltis, JJF Group Limited Liability Company, P. Bruce Sparks, PPK Group Limited Liability Company, Anker Holding B.V., First Reserve Corporation, American Oil & Gas Investors, Amgo II, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited Partnership, any of the entities that received warrants on October 28, 1999 to purchase our common stock and any of their affiliates and their successors and assigns. "PERMITTED INVESTMENTS" means (1) any Investment in Anker Coal Group or in a subsidiary that is a guarantor of the notes; (2) any Investment in cash equivalents; (3) any Investment by us or any guarantor subsidiary in a person or entity, if as a result of the Investment (a) the person or entity becomes a subsidiary that guarantees the notes or (b) the person or entity is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, us or a subsidiary that is a guarantor of the notes; 89 93 (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made in compliance with the covenant described under "--Mandatory Redemption--Asset Sales;" (5) any acquisition of assets solely in exchange for the issuance of our equity interests; (6) any Investment existing on October 1, 1999; (7) any Investment acquired by us or any of our Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable held by us or any Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of the 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 us or any of our Restricted Subsidiaries with respect to the secured Investment; (8) Hedging Obligations permitted under the covenant described under "--Covenants--Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock;" (9) 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; (10) any guarantees permitted to be made pursuant to the covenant described under "--Covenants--Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock;" (11) any Investment of Excluded Assets, other than Mobile Equipment, in any person or entity engaged in the ownership and operation of a coal-fired power generation facility that purchases coal or other inventory from us or any Restricted Subsidiary; however, any ownership interest in that person or entity we or a subsidiary guarantor making the Investment receives will be subjected to the liens securing the notes; and (12) other Investments in any person or entity, including Investments in Unrestricted Subsidiaries, primarily engaged in a Permitted Business having an aggregate fair market value, measured on the date each Investment was made and without giving effect to subsequent changes in value, when taken together with all other Investments made pursuant to this clause (12) that are at the time outstanding, do not exceed $10.0 million. "PERMITTED LIENS" means (1) liens securing senior Indebtedness that is permitted by clauses (1), (2), (7) and (9) under "--Covenants--Permitted Debt" and the liens securing the notes; (2) liens in favor of us; (3) liens on property of an entity existing at the time it is merged into or consolidated with us or any of our subsidiaries, as long as the liens were in existence before the contemplation of the merger or consolidation and do not extend to any assets other than those of the person or entity merged into or consolidated with us; (4) liens on property existing at the time it was acquired by us or any of our subsidiaries, as long as the liens were in existence before the contemplation of the acquisition; (5) liens to secure the performance of statutory or regulatory obligations, leases, surety or appeal bonds, performance bonds or other obligations of a similar nature incurred in the ordinary course of business; (6) liens to secure Indebtedness, including Capital Lease Obligations, permitted by clause (4) under "--Covenants--Permitted Debt" covering only the assets acquired with that Indebtedness; (7) liens existing on October 1, 1999; (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, as long as any reserve or other appropriate provision required in conformity with generally accepted accounting principles has been made; (9) liens incurred in our ordinary course of business or that of any of our subsidiaries with respect to obligations that do not exceed $5 million at any one time outstanding and 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 of the property in our or the subsidiary's operation of business; (10) liens on assets of Unrestricted Subsidiaries which secure non-recourse debt of Unrestricted Subsidiaries; (11) liens on assets of subsidiaries that have guaranteed the notes which would be Permitted Liens if they were liens or assets of us to secure senior Indebtedness that was permitted to be incurred by clauses (1), (2), (7) and (9) under "--Covenants--Permitted Debt;" and (12) liens securing Permitted Refinancing Indebtedness to the same extent, as long as the lien is not secured by any additional assets, and with the same or lower priority as liens securing the Indebtedness that was 90 94 exchanged or extended, refinanced, renewed, replaced, defeased or refunded with the net proceeds of the Permitted Refinancing Indebtedness. "PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of us or any of our Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund, Indebtedness of us or any of our Restricted Subsidiaries, as long as (1) the principal amount, or accreted value, if applicable, of the Permitted Refinancing Indebtedness does not exceed the principal amount of, or accreted value, if applicable, plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded, plus the amount of reasonable expenses incurred, including premiums paid, if any, to the holders of the Indebtedness; (2) the Permitted Refinancing Indebtedness has a final maturity date at or 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, the Permitted Refinancing Indebtedness has a final maturity date later than 91 days after the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the noteholders as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) the Indebtedness is incurred either by us or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "REAL PROPERTY COLLATERAL" means the parcel or parcels of real property and related improvements described in the mortgages securing the notes and any real property we and the subsidiaries that have guaranteed the notes acquire in the future, including leasehold interests, together with all buildings, structures, fixtures and other improvements relating to the property, and all metals and minerals that are in, under, upon, or to be produced from the real property to the extent of our rights and those of the subsidiaries that have guaranteed the notes to the same, including all coal, but only to the extent the metals and minerals have not been extracted from the real property, wherever located, including our real property and related assets and that of the subsidiaries that have guaranteed the notes, as more particularly described in the mortgages securing the notes. Real Property Collateral will not include, however, the specified interests in real property listed in Schedule B to the Indenture or any non-assignable property. The Real Property Collateral also will not include any real property located in the State of Maryland which is not subject to the liens securing the Senior Secured Indebtedness. "RESTRICTED SUBSIDIARY" of a person or entity means any Subsidiary of us or of our subsidiary that is not an Unrestricted Subsidiary. "SENIOR SECURED INDEBTEDNESS" means all amounts we and the subsidiaries that have guaranteed the notes owe under debt or commercial paper facilities providing for term loans, revolving credit loans or letters of credit, including amounts arising after the filing of a bankruptcy or similar case, whether or not allowable as a claim in the case, not to exceed an aggregate principal amount of $55 million at any one time outstanding. "UNRESTRICTED SUBSIDIARY" means any of our subsidiaries that our board of directors designates as an Unrestricted Subsidiary through a board resolution, but only to the extent that the subsidiary: - has no Indebtedness other than non-recourse debt; - is not party to any agreement, contract, arrangement or understanding with us or any of our Restricted Subsidiaries, unless the terms of the agreement, contract, arrangement or understanding are no less favorable to us or the Restricted Subsidiary than those that might be obtained at the time from persons or entities that are not affiliates; - is a person or entity with respect to which neither we nor any of our Restricted Subsidiaries has any direct or indirect obligation (1) to subscribe for additional equity interests or (2) to maintain or preserve the person or entity's financial condition or to cause the person or entity to achieve any specified levels of operating results; and - has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of us or any of our Restricted Subsidiaries. If, at any time, any Unrestricted Subsidiary would fail to meet the conditions referred to above as an Unrestricted Subsidiary, it will then cease to be an Unrestricted Subsidiary for purposes of the Indenture, and any Indebtedness of the subsidiary will be deemed to be incurred by our Restricted Subsidiary as of that date. If the Indebtedness is not permitted to be incurred as of that date under the 91 95 covenant described under "--Covenants--Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock," we will be in default of that covenant. Our board of directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary. In that case, the designation will be deemed to be an incurrence of Indebtedness by our Restricted Subsidiary of any outstanding Indebtedness of the Unrestricted Subsidiary, and the designation will only be permitted if (1) the Indebtedness is permitted under the covenant described under "--Covenants--Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock," calculated on a pro forma basis as if the designation had occurred at the beginning of the four-quarter reference period, and (2) no default or Event of Default under the Indenture would exist following the designation. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing - the sum of the products obtained by multiplying (1) the amount of each then-remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, by (2) the number of years, calculated to the nearest one-twelfth, that will elapse between that date and the making of the payment, by - the then-outstanding principal amount of the Indebtedness. COVENANTS The Indenture contains covenants with which we must comply. Here are summaries and more detailed descriptions of the principal covenants. LIMITATION ON ASSET SALES. We may not sell assets unless we receive fair market value and at least 75% of the consideration is in cash or assets to be used for our coal mining business. Proceeds of permitted Asset Sales must be used for permitted purposes or to redeem notes, as described above under "-Mandatory Redemption - Asset Sales." The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, consummate an Asset Sale unless - we or the Restricted Subsidiary, as the case may be, receives consideration at the time of the Asset Sale at least equal to the fair market value, as determined in good faith by our board of directors, of the assets or equity interests issued or sold or otherwise disposed of, and - at least 75% of the consideration we or the Restricted Subsidiary receives is in the form of (1) cash or cash equivalents or (2) property or assets to be used in the ordinary course of our or the subsidiary's coal mining business. For purposes of determining compliance with this covenant, the following types of consideration are treated as cash or cash equivalents: - any liabilities of the seller, other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any guarantee of the notes, which the transferee assumes under an agreement that releases the seller from further liability; and - any securities, notes or other obligations the seller receives from the transferee which are converted into cash within 90 days after the Asset Sale. Proceeds of permitted Asset Sales must be used for permitted purposes or to redeem notes, as described above under a "--Mandatory Redemption--Asset Sales." LIMITATION ON RESTRICTED PAYMENTS. We may not make restricted payments - such as cash dividends on capital stock, repurchases or redemptions of stock or investments in or loans to unrestricted entities in which we have an interest, unless a series of requirements are met or a specific exemption applies. The requirements are as follows: - There can be no default under the Indenture either before or after the payment; - We must be able to meet the financial test to incur additional debt, even if the payment is treated as having been made at the beginning of the previous four quarters; and - The payment in question, together with all other restricted payments, would not exceed a cap that is calculated by reference to our income and cash receipts. 92 96 Even if these general requirements are not met, we can make some kinds of payments that would otherwise be restricted as long as they qualify under one of the specific exemptions in the covenant. Most of the exemptions apply only if there is no existing event of default under the Indenture. The exemptions include: - Payments of dividends on stock that were permissible under the Indenture when declared; - Payments to retire debt or preferred stock which are made out of proceeds of sale of our common stock; - Refinancing of our 9 3/4% Series B Senior Notes due 2007 or of subordinated debt; - Redemption of stock our officers, directors and employees own under specified circumstances; - Redemption of our Series A and Series B preferred stock following a Change of Control and redemption of all notes that are tended for redemption as a result of the Change of Control; and - Payment of dividends on our Coal Acquisition Preferred Stock. The restrictions of the covenants in the Indenture apply only to us and subsidiaries that our board of directors has designated as Restricted Subsidiaries. Our board can change the designation of any subsidiary and make these restrictions inapplicable, but only if our investment in, and other transactions with, the subsidiary would be permissible under the terms of the Indenture. The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, take any of the following actions unless the tests set forth below are satisfied: (1) declare or pay any dividend or make any other payment or distribution to direct or indirect shareholders on account of their equity interests, other than dividends or distributions payable in our stock that is not mandatorily redeemable until at least 91 days after the notes mature; (2) purchase, redeem or otherwise acquire or retire for value any of our equity interests or that of any direct or indirect parent of us; (3) make any principal payment on, or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any of our 9 3/4% Series B Senior Notes due 2007 or Indebtedness that is subordinated to the notes, except a scheduled repayment of principal or a payment of principal at stated maturity; or (4) make any Investment other than a Permitted Investment. All of the following tests must be satisfied in order for us or our Restricted Subsidiaries to be permitted to make any of the payments specified above: - No default or event of default under the Indenture can be continuing or would result from the payment; - At the time of making the payment and after giving effect to the payment as if it had been made at the beginning of the applicable four-quarter period, we would be permitted to incur at least $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test, as set forth below under "--Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock;" and - The payment, together with the aggregate amount of all other restricted payments we and our Restricted Subsidiaries make after October 1, 1999, excluding restricted payments permitted by clauses (2), (3), (4) and (6) of the next succeeding paragraph, is less than the sum, without duplication, of the following: (1) 50% of our Consolidated Net Income for the period, taken as one accounting period, from the beginning of the first fiscal quarter commencing after October 1, 1999 to the end of our most recently ended fiscal quarter for which internal financial statements are available at the time of the restricted payment, or, if the Consolidated Net Income for the period is a deficit, less 100% of that deficit, plus (2) 100% of the aggregate net cash proceeds and the fair market value of marketable securities, as we determine in good faith, we receive from the issue or sale to a person or entity other than a Restricted Subsidiary since October 1, 1999 of our stock, other than stock that we can be required to redeem, or of our debt securities that have been converted into stock; however, proceeds used to acquire or redeem our 9 3/4% notes or subordinated debt or equity interests under the exemption provided below are to be excluded from this calculation; plus (3) 100% of the aggregate net cash proceeds and the fair market value of marketable securities, as we determine in good faith, we receive as an equity contribution from a holder or holders of our equity interests, other than a contribution with respect to stock that we can be required to redeem; plus (4) to the extent that any Restricted Investment that was made after October 1, 1999 is sold or otherwise liquidated or repaid, the aggregate amount of cash and the fair market value of marketable securities, 93 97 as we determine in good faith, we receive as the return of capital with respect to the Restricted Investment, less the cost of disposition, if any; plus (5) the amount resulting from redesignations of Unrestricted Subsidiaries, as long as the amount does not exceed the amount of Investments we or any Restricted Subsidiary made in the Unrestricted Subsidiary since October 1, 1999 which was treated as a Restricted Payment under the Indenture, plus (6) the amount of the net reduction in Investments in Unrestricted Subsidiaries resulting from the payment of cash dividends we or any of our Restricted Subsidiaries received from the Unrestricted Subsidiaries. The following kinds of payments are exempt from the restrictions of this covenant even if they would otherwise be prohibited: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the payment would have complied with the provisions of the Indenture; (2) as long as no event of default is continuing, the redemption, repurchase, retirement, defeasance or other acquisition of any of our 9 3/4% notes, subordinated indebtedness or equity interests in exchange for, or out of the net cash proceeds of, the substantially concurrent sale, other than to any of our Restricted Subsidiaries, of our other equity interests, other than stock that we can be required to redeem; however, the amount of any net cash proceeds that are utilized under this exemption to make any redemption, repurchase, retirement, defeasance or other acquisition will be excluded in calculating the maximum amount of restricted payments permitted by the restricted payments covenant; (3) as long as no event of default is continuing, the defeasance, redemption, repurchase or other acquisition of our 9 3/4% notes or subordinated indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by any of our subsidiaries to the holders of its common equity interests on a pro rata basis; (5) as long as no event of default is continuing, the repurchase, retirement or other acquisition or retirement for value of our common equity interests held by any of our future, present or former employees or directors or any of our Restricted Subsidiaries or the estate, heirs or legatees of, or any entity controlled by, any of these employees or directors, under any management equity plan or stock option plan or any other management or employee benefit plan or agreement in connection with the termination of that person's employment for any reason, including by reason of death or disability. The aggregate Restricted Payments made under this clause to any person other than PPK Group Limited Liability Company may not exceed $100,000 in any calendar year, and the aggregate Restricted Payments made under this clause to PPK Group may not exceed the cash proceeds of key man life insurance policies we receive after October 1, 1999, less the amount of any Restricted Payments previously made to PPK Group Limited Liability Company pursuant to this clause; (6) as long as no event of default is continuing, in the event of a Change of Control under the Indenture, the making of mandatory redemptions on our Class A preferred stock and our Class B preferred stock, par value $1,000 per share, in each case in accordance with the terms of the change of control provisions of the preferred stock as in effect on October 1, 1999. No redemption may be made until after we have redeemed all notes tendered under the Change of Control provisions of the Indenture; (7) as long as no event of default is continuing, the declaration and payment of dividends on and the making of scheduled mandatory redemptions of our Coal Acquisition Preferred Stock in accordance with the terms of that stock; and (8) repurchases of equity interests deemed to occur upon exercise of stock options if those equity interests represent a portion of the exercise price of the options. The payment restrictions in this covenant apply only to us and to our Restricted Subsidiaries. They do not apply to Unrestricted Subsidiaries. Our board of directors may redesignate any Restricted Subsidiary as an Unrestricted Subsidiary if the designation is permitted by this covenant and otherwise would not cause a default under the Indenture. For purposes of determining whether redesignation is permissible, all outstanding Investments we and our Restricted Subsidiaries make, except to the extent repaid in cash, in the subsidiary to be redesignated will be deemed to be Restricted Payments at the time of the redesignation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant. The amount of the Investments will be equal to the fair market value of the Investments at the time of the redesignation. The redesignation will only be permitted if a Restricted Payment to an Unrestricted Subsidiary in that amount would be permitted at that time and if the subsidiary to be redesignated otherwise meets the definition of an Unrestricted Subsidiary. 94 98 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 we or a Restricted Subsidiary, as the case may be, proposes to be transferred or issued under the Restricted Payment. The fair market value of any non-cash Restricted Payment will be based on the good faith determination of our board of directors. Not later than the date of making any Restricted Payment, we must deliver to the Trustee an officers' certificate stating that the Restricted Payment is permitted and setting forth the basis upon which the calculations required by this covenant were computed. LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF MANDATORILY REDEEMABLE STOCK. We may not incur additional Indebtedness or issue stock that we can be required to redeem sooner than 91 days after the notes mature if, treating the transaction as if it had occurred at the beginning of the previous four fiscal quarters, our consolidated cash flow for that four-quarter period would be less than 2.25 times the sum of our consolidated interest expense plus the pretax amount necessary to pay cash dividends on our preferred stock. These restrictions do not apply to Indebtedness that falls within the definition of Permitted Debt. The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness, including Acquired Debt, and that we will not, and will not permit any of our Restricted Subsidiaries to issue any shares of stock that the issuer can be required to redeem before the 91st day after the notes mature. We or any of the subsidiaries that have guaranteed the notes, may incur Indebtedness, including Acquired Debt, or issue shares of stock if the Fixed Charge Coverage Ratio for our most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which the additional Indebtedness is incurred or the stock is issued would have been at least 2.25 to 1, determined as if the additional Indebtedness had been incurred or the stock had been issued and the proceeds had been received and applied at the beginning of the four-quarter period. LIMITATION ON LAYERING. We cannot create Indebtedness that ranks below the Senior Secured Debt but ahead of the notes. The Indenture also provides that neither we nor any subsidiary that has guaranteed the notes may incur any Indebtedness that is contractually subordinated to any other Indebtedness of us or the subsidiary, unless the Indebtedness is also contractually subordinated to the notes or the guarantee of the subsidiary on substantially identical terms. No Indebtedness of us or any guarantor subsidiary, however, will be deemed to be contractually subordinated to any other Indebtedness of our or the guarantor subsidiary solely by virtue of its being unsecured. PERMITTED DEBT. We and our Restricted Subsidiaries can incur some kinds of Indebtedness even if we or they do not meet the consolidated cash flow test described above. The restrictions on incurrence of Indebtedness do not apply to any of the following items of Indebtedness: (1) Indebtedness under debt or commercial paper facilities providing for term loans, revolving credit loans or letters of credit in a principal amount of up to $55 million; (2) Indebtedness that existed on October 1, 1999; (3) Indebtedness under the Indenture and related documents; (4) Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price, lease or cost of construction or improvement of property, plant or equipment used in our business or that of a subsidiary that has guaranteed the notes, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; (5) 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 the Indenture permitted to be incurred; (6) intercompany Indebtedness between or among us and any of our subsidiaries that have guaranteed the notes; however, (a) if we are the obligor on the Indebtedness, the 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 Indebtedness, being held by a person or entity other than us or a subsidiary that has guaranteed the notes and (ii) any sale or other transfer of any Indebtedness to a person or entity that is not either a guarantor subsidiary or us will be deemed, in each case, to constitute an incurrence of Indebtedness by us or the guarantor subsidiary, as the case may be; (7) Hedging Obligations; (8) Indebtedness incurred in connection with performance, surety and similar bonds and completion guarantees we or any Restricted Subsidiary provides in the ordinary course of business; 95 99 (9) the issuance by our Unrestricted Subsidiaries of non-recourse debt; however, if any of this Indebtedness ceases to be non-recourse debt of an Unrestricted Subsidiary, that event will be deemed to constitute an incurrence of Indebtedness by our Restricted Subsidiary; and (10) Guarantees of Indebtedness that another provision of this covenant permitted to be incurred. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of permitted debt described in clauses (1) through (10) above or is entitled to be incurred pursuant to the first paragraph of the covenant described under this section, we can choose which provision will apply to the item of Indebtedness. Accrual of interest, the accretion of accredited value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. LIMITATION ON LIENS. We may not pledge our assets as collateral for any debt for borrowed money that ranks equally with or below the notes, unless the notes also get the benefit of the pledge. If we grant a lien on real property in Maryland to secure our senior credit facility, we must also grant a junior lien on the same property to secure the notes. The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any lien securing Indebtedness or trade payables on any asset now owned or acquired in the future, or any income or profits from that asset or assign or convey any right to receive income from that asset, except Permitted Liens, unless the notes are secured equally and ratably with, or before in the case of subordinated indebtedness, the obligation or liability secured by the lien. In the event that we or any subsidiary that has guaranteed the notes grants a lien on any real property located in the state of Maryland to secure the Senior Secured Indebtedness, that grantor must immediately grant a junior lien in favor of the Collateral Agent to secure the obligations under the Indenture. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. We generally cannot allow our subsidiaries to be subject to restrictions on their ability to pay money or transfer assets to us. The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, be subject to any agreement or other consensual arrangement that restricts our or their ability to do any of the following: - (1) pay dividends or make any other distributions to us or any of our Restricted Subsidiaries based upon stock ownership or its profits, or (2) pay any indebtedness owed to us or any of our Restricted Subsidiaries, - make loans or advances to us or any of our Restricted Subsidiaries, - transfer any of our or their properties or assets to us or any of our Restricted Subsidiaries. The following kinds of restrictions are permissible under this covenant even if they would otherwise fall within one of the three categories set forth above: - restrictions imposed by the terms of Indebtedness as in effect on October 1, 1999; - restrictions imposed by the terms of our senior credit facility; - restrictions imposed by the Indenture and the notes; - restrictions imposed by applicable law, rules or regulations or any order or ruling by a governmental authority; - restrictions imposed by agreements to which a Restricted Subsidiary was already subject at the time it was acquired and that do not apply to us or any other Restricted Subsidiary; - customary non-assignment provisions in leases, licenses, encumbrances, contracts or similar agreements entered into or acquired in the ordinary course of business; - purchase money obligations for property acquired in the ordinary course of business which impose transfer restrictions on the acquired property; - customary restrictions included in contracts for the sale of assets by us or a Restricted Subsidiary; - restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business; - customary provisions in joint venture agreements at the time of creation of the joint venture and other similar agreements entered into in the ordinary course of business; and - renewals or replacements of agreements that impose restrictions that are otherwise permissible under this covenant. LIMITATION ON MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. We may not merge or consolidate with other companies unless (1) we are not in default under the notes, (2) the surviving corporation assumes our obligations under the Indenture and (3) we could incur 96 100 additional Indebtedness under the debt covenant described under "-- Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock." The Indenture provides that we may not consolidate or merge with or into, whether or not we are the surviving corporation, or sell or otherwise dispose of all or substantially all of our properties or assets in one or more related transactions, to another corporation, person or entity or entity unless all of the following tests are met: - we must be the surviving corporation or the surviving corporation or other party to the transaction must be organized under U.S. law; - the surviving corporation or other party to the transaction must assume all our obligations under the notes and the Indenture; - immediately after closing of the transaction there would be no default under the Indenture; and - we or the surviving corporation or other party to the transaction would be able to incur additional Indebtedness under the covenant described above under the heading "-- Limitation on Incurrence of Indebtedness and Issuance of Mandatorily Redeemable Stock" with the financial ratio specified in that covenant calculated as if the transaction had been completed at the start of the four-quarter measurement period. This covenant does not prohibit (1) a Restricted Subsidiary from merging with or transferring property to us, or (2) us from merging with an affiliate that was incorporated solely for the purpose of reincorporating us in another state of the United States, as long as the amount of our Indebtedness and that of our Restricted Subsidiaries is not increased. LIMITATION ON TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS. We and our subsidiaries may not enter into transactions with major stockholders or persons we or they control, are controlled by or are under common control with, unless the transaction is fair and we comply with specified procedures. The Indenture provides that we will not, and will not permit any of our Restricted Subsidiaries to, make any payment to or Investment in, or sell, lease, transfer or otherwise dispose of any of our or 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 person or entity that directly or indirectly controls, is controlled by, or is under common control with us or the Restricted Subsidiary unless - the transaction is on terms that are no less favorable to us or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction with an unrelated person or entity; - if the total consideration involved in the transaction exceeds $5 million, the transaction must be approved by a majority of the members of our board of directors or that of the Restricted Subsidiary who do not have an interest in the transaction, and one of our officers must certify that fact in writing to the Trustee; and - if the total consideration involved in the transaction exceeds $10 million, we must deliver to the Trustee an opinion from an engineer, appraiser or other expert who has no interest in, or connection with, us or our subsidiaries to the effect that the transaction is fair from a financial point of view. The following kinds of transactions are not subject to the restrictions of this covenant: - any employment agreement entered into by us or any of our Restricted Subsidiaries in the ordinary course of business; - transactions between or among us and/or our Restricted Subsidiaries; - Restricted Payments that are permitted by the provisions of the Indenture described above under "--Limitation on Restricted Payments;" - any payments made in connection with the notes, warrants to purchase our common stock issued October 28, 1999, or any related agreements; - the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, our officers, directors or employees or those of any Restricted Subsidiary; - transactions in which we or any of our Restricted Subsidiaries delivers to the Trustee a letter from an engineer, appraiser or other expert who has no interest in or connection with us or our subsidiaries to the effect that the terms of the transaction are no less favorable to us or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction with an unrelated person or entity; 97 101 - loans to employees (1) under our employee relocation policy as in effect on October 1, 1999 or (2) for any other purpose, as long as the loans are not in excess of $100,000 in the aggregate at any one time outstanding and are approved by a majority of our or the Subsidiary's board of directors, as applicable, in good faith; - any agreement as in effect as of October 1, 1999 or any amendment to that agreement, as long as the amendment is no less favorable to the holders of the notes in any material respect than the original agreement as in effect on October 1, 1999, or any transaction contemplated by that agreement; - the existence of, or the performance by us or any of our Restricted Subsidiaries of our or its obligations under the terms of, the stockholders' agreement, dated as of August 12, 1996, as in effect on October 1, 1999, and any amendments or similar agreements that are no less favorable to the noteholders and that are entered into after October 1, 1999; and - coal supply agreements with Anker Holding B.V. and its affiliates in the ordinary course of business and otherwise in compliance with the terms of the Indenture on arms-length terms. LIMITATION OF BUSINESS ACTIVITIES Neither we nor any of our subsidiaries can engage in any business that does not fall within the definition of "Permitted Business" unless that other business would not be material to us and our subsidiaries taken as a whole. LIMITATION ON PAYMENTS FOR CONSENT. We cannot pay noteholders to waive rights under, or modify the terms of, the Indenture unless we make the same offer to all noteholders. The Indenture provides that neither we nor any of our subsidiaries may, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any 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 the consideration is offered to be paid or 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 the consent, waiver or agreement. ADDITIONAL SUBSIDIARY GUARANTEE The Indenture provides that if we or any of our Restricted Subsidiaries acquires or creates another Restricted Subsidiary after October 1, 1999, then the newly acquired or created Restricted Subsidiary must guarantee the notes. REPORTS As long as any of the notes are outstanding, we are required to file with the SEC the annual reports, quarterly reports and other documents that we would have been required to file with the SEC under Section 13(a) or 15(d) of the Exchange Act if we were subject to these sections. We must also provide to all noteholders and file with the Trustee copies of these reports. In addition, until the effectiveness of a registration statement that permits holders of unregistered notes to exchange them for registered notes or to sell their notes without restriction, we must furnish to the holders of the notes and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. EVENTS OF DEFAULT AND REMEDIES We will be in default under the notes if specified events occur. These events include(1) failure to pay principal on the notes when due, (2) failure to pay interest within 30 days after it is due, (3) breaches of covenants, (4) defaults under other indebtedness, (5) failure to pay judgments and (6) bankruptcy. Bankruptcy causes automatic acceleration of the notes. Any other event of default will give the Trustee or 25% of the holders the right to call the notes and take other enforcement action, including foreclosing on the collateral. The Indenture provides that each of the following is an "Event of Default": - failure to pay interest or Liquidated Damages on the notes within 30 days after the date due; - failure to pay principal or premium, if any, on the notes when due; - failure to comply with the mandatory redemption requirements applicable to Asset Sales and Changes of Control, as described above; - failure to comply with any other provision of the notes or the Indenture unless cured within 60 days after written notice by the Trustee or by the holders of at least 25% of notes then outstanding; 98 102 - failure to comply with any provision of the documents creating the liens that secured the notes unless cured within 30 days after written notice by the Trustee or by the holders of at least 25% of notes then outstanding; - a payment default in connection with Indebtedness of $5.0 million or more, or any other kind of default that results in the acceleration of Indebtedness of $5.0 million or more; - failure to pay within 60 days final judgments that exceed applicable insurance coverage by more than $5.0 million unless those judgments have been discharged or stayed within that 60-day period; - if the guarantee of the notes by any significant subsidiary becomes, or is claimed by the subsidiary to be, invalid or unenforceable; - various events of bankruptcy or insolvency with respect to us or any of our significant subsidiaries; and - we or any of our subsidiaries initiates any suit or proceeding challenging the legality, validity, or enforceability of the notes, the Indenture or the liens that secure the notes. The holders of a majority in amount of the notes may waive any existing default or Event of Default and its consequences under the Indenture, except a continuing payment default. Payment defaults can only be waived by individual holders; waiver by a majority of the holders is not effective to bind those who do not consent. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding notes may declare all of the notes to be due and payable immediately. If the Event of Default relates to bankruptcy of us or a significant subsidiary, the notes automatically become due and payable immediately without any action by the Trustee or the holders. In addition to calling the notes, the Trustee may take the following enforcement actions as a result of an Event of Default: - sue us and the subsidiaries that have guaranteed the notes to collect and otherwise enforce the terms of the notes; - except as limited by the intercreditor agreement, foreclose upon the collateral that secures the notes or seek appointment of a receiver for the collateral or any other assets of us and the subsidiaries that have guaranteed the notes; or - pursue any other remedy that is available under the Indenture or applicable law. No holder of a note can act to enforce the Indenture unless the following requirements are met: - the holder has notified the Trustee of a continuing Event of Default; - the holders of at least 25% in amount of the notes have requested the Trustee to take enforcement action and offered to indemnify the Trustee in connection with that action; - holders of a majority in amount of the notes have not instructed the Trustee not to take enforcement action; and - the Trustee has failed to take enforcement action within 60 days. However, the above limitations do not apply to a suit instituted by a holder of a note to collect unpaid amounts due under the holder's notes. Holders of a majority in amount of the notes may direct the Trustee in its exercise of any trust or power under the Indenture, but the Trustee can refuse to follow those directions if they would conflict with law or the Indenture, injure other holders or expose the Trustee to personal liability. The Trustee may withhold from noteholders 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. We are required to certify to the Trustee annually that we are in compliance with the Indenture and to notify the Trustee whenever we become aware of any default or Event of Default. NO RECOURSE AGAINST OTHERS Holders of notes have no legal recourse against our directors, officers, employees or stockholders. The Indenture provides that none of our directors, officers, employees or stockholders, in those capacities, will have any liability for any of our obligations under the notes or the Indenture or for any claim based on, in respect of or by reason of those obligations or their creation. Each holder, by accepting the notes, waives and releases all of this liability. 99 103 LEGAL DEFEASANCE AND COVENANT DEFEASANCE. We can be relieved of our obligations under the Indenture if we deposit with the Trustee sufficient money or government securities to pay the principal of and interest on the notes as they become due. At any time while the notes are outstanding, we may be relieved of almost all of our obligations under the Indenture or obtain a more limited release from some covenants by delivering cash to the Trustee and complying with other procedures. The broader release, which is referred to in the Indenture as "Legal Defeasance," would leave us with only those obligations relating to the issuance and replacement of notes, administration of payments and cooperation with, and payment of the fees and expenses of, the Trustee. The narrower release, which is referred to as "Covenant Defeasance," would relieve us of our reporting and certification obligations, the financial covenants and restrictions on operations and transactions, but it would leave us subject to the other provisions of the Indenture. In order to exercise either Legal Defeasance or Covenant Defeasance, we must comply with all of the following requirements: (1) We must deposit with the Trustee enough cash to pay when due all amounts required to be paid under notes and the Indenture; (2) Depending on whether we are seeking Legal Defeasance or Covenant Defeasance, we must deliver to the Trustee one of the following tax opinions: - in order to get the narrower release from specified covenants, we must deliver a legal opinion confirming that the deposit of funds with the Trustee and the related release of our obligations will not be a taxable event for the note holders; or - in order to get the broader release from the requirements of the Indenture, we must deliver a legal opinion stating that the lack of tax consequences for noteholders has been confirmed by the Internal Revenue Service or is the result of a change in applicable law since October 1, 1999; (3) We and the subsidiaries that have guaranteed the notes cannot be in default under the notes or the Indenture when we make the cash deposit; (4) The deposit of funds and our release from obligations under the Indenture cannot be a violation of any of our material contracts or those of any of our subsidiaries; (5) In addition to the tax opinion referred to above, we must deliver to the Trustee a legal opinion to the effect that - after the 91st day following the deposit, the funds deposited with the Trustee will not be subject to recovery in a bankruptcy or similar proceeding of us or any of the subsidiaries that have guaranteed the notes; and - all of the requirements for Legal Defeasance or Covenant Defeasance, whichever is applicable, have been satisfied; (6) We must deliver to the Trustee an officers' certificate stating that - the deposit of funds was not made with the intent of preferring the noteholders over the other creditors or with the intent of defeating, hindering, delaying or defrauding creditors; - all of the requirements for Legal Defeasance or the Covenant Defeasance, whichever is applicable, have been satisfied. POSSESSION AND USE OF COLLATERAL Unless the notes have been accelerated, we and our subsidiaries can keep and use the collateral as long as the use does not violate the restrictions and covenants in the Indenture. In addition, we and they can transfer collateral from one Restricted Subsidiary to another without the Trustee's consent. Collateral that we or our subsidiaries use or that is transferred from one subsidiary to another remains subject to the liens securing the notes. 100 104 DISPOSITION AND RELEASE OF COLLATERAL We and our subsidiaries can sell or transfer collateral free and clear of the liens securing the notes if we and they comply with the requirements described below. The applicable requirements depend upon the kind of collateral and its value. In general, we must receive fair value in exchange for collateral and, except in the case of collateral that we sell in the ordinary course of our business, we must deliver to the Trustee evidence that the price was fair and that the release of the collateral will not impair the liens securing the notes. If we comply with the applicable requirements, the Trustee must release the lien on the particular item of collateral. DISPOSITION OF COLLATERAL WITHOUT RELEASE As long as the notes have not been accelerated, we and our subsidiaries can take the following actions or sell or transfer the following kinds of collateral free and clear of the liens securing the notes without obtaining the Trustee's consent or a formal release of liens: (1) dispose of worn-out or obsolete machinery, equipment, furniture, apparatus, tools or implements, materials, supplies or other similar property or nonproductive real property, as long as the value does not exceed the greater of $25,000 or 1% of the outstanding notes in any given year; (2) sell or dispose of inventory and collect or write off accounts receivable in the ordinary course of business, as long as we certify to the Trustee every six months that our inventory and receivables transactions during the preceding six-month period were in the ordinary course of business and that we used the proceeds from those transactions for purposes that are permitted under the Indenture; (3) grant rights-of-way, restrictions on use, subleases, easements or other encumbrances on real estate that do not impair the usefulness of the property or prejudice the interests of the noteholders; (4) give up, amend or exchange contractual rights or rights in real property, as long as any net proceeds or substitute property received in the transaction in excess of the greater of $25,000 or 1% of the outstanding notes becomes subject to the liens of the notes; (5) give up or modify any franchise, license or permit, the loss of which will not affect our continuing business operations, as long as any net proceeds received in the transaction in excess of the greater of $25,000 or 1% of the outstanding notes becomes subject to the liens of the notes; (6) alter, repair, replace, change the location or position of and add to our plants, structures, machinery, systems, equipment, fixtures and related property, as long as the property in question continues to be subject to the lien of the notes; or (7) demolish, dismantle, tear down, scrap or abandon any worthless collateral, including mineral rights, leases and other real property interests. RELEASES OF COLLATERAL. We may obtain the release of collateral from the liens of the notes either by substituting cash or other property worth at least as much as the collateral to be released or by complying with procedures to demonstrate that we are receiving the fair value of the collateral at issue and the noteholders will not be harmed by the release. Release by Substitution of Property. In order to substitute property for collateral to be released from the liens of the notes, we must provide evidence to the Trustee of the fair value of the property to be released and the fair value of the substitute property. If the fair value of the collateral being released or substituted is at least equal to the greater of $25,000 or 1% of the outstanding notes, or if the fair value of all collateral released through substitution of property is at least 10% of the outstanding notes, the fair values must be certified by an engineer, appraiser or other expert who is not employed by or affiliated with us or our subsidiaries. Otherwise, the fair values can be established by our qualified personnel. In addition, we must deliver to the Trustee officers' certificates, corporate resolutions, opinions of counsel and any documents necessary to create the lien on the substitute collateral. Release by Substitution of Cash. We are not permitted to substitute cash for collateral unless our senior secured credit facilities have been paid off and terminated. At that point, we can - obtain a release of all the collateral, other than cash, by depositing with the Trustee an amount sufficient to pay all obligations under the Indenture; - obtain a release of particular items of collateral by depositing with the Trustee an amount at least equal to the fair value of the collateral to be released; - obtain a release of particular items of collateral being sold for cash equal to their fair value if all net proceeds of the sale are deposited with the Trustee to replace the property being sold. 101 105 Cash deposited as collateral is to be held by the Trustee in a segregated account. As long as we and our subsidiaries are not in default under the Indenture, we and they can select from among permissible investments of cash deposited as collateral and are entitled to receive interest earned on investments of that cash. We and our subsidiaries can substitute cash or cash equivalents for other forms of cash collateral. Release of Collateral Without Substitution. We can sell, exchange or otherwise dispose of collateral, and the Trustee must release its liens upon the collateral being sold, as long as we deliver the following documents to the Trustee and, if applicable, comply with the mandatory redemption requirements described above under "- Mandatory Redemption from Excess Asset Sale Proceeds." - If the property to be released has a book value in excess of the greater of $25,000 and 1% of the outstanding notes, a board resolution requesting the release; - An officers' certificate identifying the property to be released, specifying its fair value, describing the terms of the proposed transaction and stating that the transaction and release comply with the terms of the Indenture; - If the total fair value of all the property plus all other collateral except inventory and accounts receivable released from the liens of the notes in the current calendar year is at least 10% of the amount of the outstanding notes, and the value of the property to be released is at least equal to the greater of $25,000 and 1% of the outstanding notes, we must provide a certificate from an engineer, appraiser or other expert who is not employed by or affiliated with us or our subsidiaries specifying the fair value of the property and stating that the proposed release will not impair the liens of the notes on the remaining collateral; - If the book value of the collateral that is the subject of the release is more than the greater of $25,000 and 1% of the outstanding notes, a legal opinion that the release complies with the terms of the Indenture and that the Trustee will have a valid lien on any substitute collateral. CASH HELD BY THE TRUSTEE Cash or cash equivalents deposited with or received by the Trustee will be held in a collateral account for the benefit of the holders and, where applicable, the lenders that hold senior secured debt, as part of the collateral. As long as we and our subsidiaries are not in default under the Indenture, we and they can obtain the release of cash from the Trustee if release is permitted under the provisions of the Indenture described above under "-- Mandatory Redemption from Excess Asset Sale Proceeds" and "-- Disposition and Release of Collateral." We can also obtain the release of insurance or condemnation proceeds in order to replace the property that was destroyed or taken. If we or any of our subsidiaries fails to perform any of the covenants in the Indenture, the Trustee may use cash it holds as collateral to correct the omission and, if that cash is insufficient, the Trustee may advance funds and charge interest at 14.25% on the advance. TRANSFER AND EXCHANGE A holder may transfer or exchange notes in accordance with the Indenture. As described under "-- Book-Entry; Delivery and Form," as long as notes are in book-entry form, registration of transfers and exchanges of notes will be made through direct participants and indirect participants in The Depository Trust Company. For notes in definitive form, the Registrar and the Trustee may require a noteholder to furnish appropriate endorsements and transfer documents. In addition, we may require a noteholder to pay any taxes and fees required by law or permitted by the Indenture. We are not required to register the transfer of or exchange any note selected for redemption. Also, we are not required to issue, register the transfer of 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. AMENDMENT, SUPPLEMENT AND WAIVER Except for payment provisions, most provisions of the Indenture and related documents can be amended or waived by holders of a majority in amount of the outstanding notes. Provisions relating to payments and similar matters cannot be amended or waived without the consent of all holders. The Trustee can unilaterally amend the Indenture and related documents in order to perform its duties under the Indenture. AMENDMENTS AND WAIVERS BY THE MAJORITY OF HOLDERS. Except as described below, the holders of a majority in amount of the outstanding notes can permit the Indenture, the subsidiary guarantees, the notes, the intercreditor agreement or any of the security 102 106 documents to be amended or supplemented and can waive any existing default or Event of Default under those documents other than a payment default. AMENDMENTS AND WAIVERS THE REQUIRE THE CONSENT OF ALL AFFECTED HOLDERS. Amendments and waivers cannot do any of the following things without the consent of each noteholder affected by the amendment or waiver: - reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver; - reduce the principal of or change the fixed maturity of any note or alter the provisions for redemption of the notes other than mandatory redemptions out of excess asset sale proceeds or upon a Change of Control; - reduce the rate of, or change the time for payment of, interest on any note; - waive a payment default, except a rescission of acceleration of the notes by the holders of at least a majority in principal amount of the outstanding notes and a waiver of the payment default that resulted from the acceleration; - make any note payable in money other than U.S. dollars; - make any change in the provisions of the Indenture relating to waivers of the rights of noteholders to receive payments of principal of or premium, if any, or interest on the notes; - waive a redemption payment with respect to any note, other than mandatory redemption out of excess asset sale proceeds or upon a Change of Control; - release any subsidiary from any of its obligations under its guarantee of the notes, or amend the provisions of the Indenture relating to the release of subsidiaries that have guaranteed the notes; - permit the release or termination of all or substantially all of the liens for the benefit of the noteholders, other than as expressly provided in the Indenture; or - make any change in these amendment and waiver provisions, except to increase the percentage of outstanding notes required for these actions or to provide that other provisions of the Indenture cannot be modified or waived without the consent of the holder of each outstanding note. AMENDMENTS BY THE TRUSTEE WITHOUT CONSENT The Trustee can amend the Indenture, the subsidiary guarantees or the notes without anyone's consent in order to do any of the following: - cure any ambiguity, defect or inconsistency; - provide for uncertificated notes in addition to, or in place of, certificated notes; - provide for the assumption of our or a guarantor subsidiary's obligations to noteholders in the case of a merger or consolidation; - make any change that would provide any additional rights or benefits to the noteholders or that does not adversely affect the legal rights under the Indenture of any noteholder; - comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939; - further secure the notes or to add guarantees with respect to the notes; - establish or maintain the liens securing the notes, correct or amplify the description of the collateral, or subject additional property to the liens; or - add to our covenants for the benefit of the parties to the intercreditor agreement. In addition, the Trustee can amend or supplement any of the security documents without anyone's consent in order to do any of the following: - cure any ambiguity, defect or inconsistency; - provide for the assumption of our or a guarantor subsidiary's obligations in case of a merger or consolidation; - make any change that would provide any additional rights or benefits to noteholders or that does not adversely affect the legal rights and liens of the notes; - add holders of permitted senior secured Indebtedness as parties to the intercreditor agreement; - further secure or add guarantees of the notes; - establish or maintain the liens securing the notes, correct or amplify the description of the collateral, or subject additional property to the liens; or 103 107 - establish or provide for an amended, restated, modified, renewed or replaced credit facility permitted to be incurred by the Indenture; give holders of Permitted Refinancing Indebtedness liens with the same or lower priority as the liens securing the indebtedness so - refinanced; and - add to our covenants for the benefit of the parties to the intercreditor agreement. THE TRUSTEE The duties, rights, powers and limitations of the Trustee are governed by the Indenture. The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only the duties specifically set forth in the Indenture. The holders of a majority of the notes have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to specified exceptions. The Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any noteholder unless the holder has agreed to indemnify the Trustee against any loss, liability or expense. During the continuance of an Event of Default, the Trustee must exercise its rights under the Indenture with the same degree of care and skill as a prudent person would exercise under the circumstances in the conduct of the person's own affairs. The Indenture contains limitations on the rights of the Trustee, should it become a creditor of ours, to obtain payment of claims in specified cases or to realize on specified property it receives in connection with any claim as security or otherwise. The Trustee is permitted to engage in other transactions with us or any of our subsidiaries or affiliates. If the Trustee acquires any conflicting interest, as defined in the Indenture or in the Trust Indenture Act, however, the Trustee must eliminate the conflict within 90 days or resign. BOOK-ENTRY; DELIVERY AND FORM New notes exchanged for old notes will be held in book-entry form by The Depository Trust Company. DTC and its participants will maintain the records of beneficial ownership of the notes and of transfers of the notes. New notes exchanged for old notes will be represented by one or more permanent global notes in definitive, fully registered form, deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company. Beneficial interests in permanent global notes will be shown on, and transfers will be effected through, records maintained by DTC and its participants. The certificates representing the new notes will be issued in fully registered form without interest coupons. New notes received in the exchange offer in exchange for old notes originally issued in reliance on Rule 144A and Regulation D will be represented by one or more permanent global notes in definitive, fully registered form without interest coupons and will be deposited with the Trustee as custodian for, and registered in the name of a nominee of, DTC. New notes exchanged in offshore transactions in reliance on Regulation S under the Securities Act will initially be represented by one or more permanent global notes in definitive, fully registered form without interest coupons and will be deposited with the Trustee as custodian for, and registered in the name of a nominee of, DTC for the accounts of Euroclear and Cedel Bank. Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC or persons who hold interests through DTC participants. Ownership of beneficial interests in a global note will be shown on, and the transfer of that ownership will be effected only through, records DTC or its nominee maintains with respect to interests of participants and the records of participants with respect to interests of persons other than participants. Qualified institutional buyers may hold their interests in a global note directly through DTC if they are participants in that system or indirectly through organizations that are participants in that system. Investors may hold their interests in a Regulation S global note directly through Cedel Bank or Euroclear, if they are participants in those systems, or indirectly through organizations that are participants in those systems. Cedel Bank and Euroclear will hold interests in the Regulation S global notes on behalf of their participants through DTC. So long as DTC, or its nominee, is the registered owner or holder of a global note, DTC or its nominee, as the case may be, will be considered the sole owner or holder of the new notes represented by the global note for all purposes under the Indenture and the new 104 108 notes. No beneficial owner of an interest in a global note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture and, if applicable, those of Euroclear and Cedel Bank. Payments of the principal of, and interest on, a global note will be made to DTC or its nominee, as the case may be, as the registered owner of the global note. Neither we, the Trustee nor any paying agent will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in a global note or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests. We expect that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a global note, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global note as shown on the records of DTC or its nominee. We also expect that payments participants make to owners of beneficial interests in the global note held through those participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for those customers. These payments will be the responsibility of those participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. Transfers between participants in Euroclear and Cedel Bank will be effected in the ordinary way in accordance with their respective rules and operating procedures. We expect that DTC will take any action permitted to be taken by a holder of new notes, including the presentation of notes for exchange as described below, only at the direction of one or more participants to whose account the DTC interests in a global note is credited and only in respect of that portion of the aggregate principal amount of new notes as to which the participant or participants has or have given that direction. However, if there is an Event of Default under the notes, DTC will exchange the applicable global note for certificated notes, which it will distribute to its participants and which may bear legends restricting their transfer. DEPOSITORY TRUST COMPANY DTC will facilitate the exchange of new notes for old notes in the exchange offer using its standard procedures. Neither we nor the Trustee is responsible for DTC's performance of its obligations. We understand that DTC is a limited purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered under the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, eliminating the need for physical movement of certificates and some other organizations. Indirect access to the DTC system is available to others, such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a participant, either directly or indirectly. Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing procedures in order to facilitate transfers of interests in a global note among participants of DTC, Euroclear and Cedel Bank, they are under no obligation to perform or continue to perform those procedures, and those procedures may be discontinued at any time. Neither we nor the Trustee will have any responsibility for the performance by DTC, Euroclear or Cedel Bank or their participants or indirect participants of their obligations under the rules and procedures governing their operations. If DTC is at any time unwilling or unable to continue as a depositary for the global notes and we do not appoint a successor depositary within 90 days, we will issue certificated notes, which may bear legends restricting their transfer, in exchange for the global notes. Holders of an interest in a global note may receive certificated notes, which may bear legends restricting their transfer, in accordance with the DTC's rules and procedures in addition to those provided for under the Indenture. 105 109 DESCRIPTION OF THE OLD NOTES The terms of the old notes are identical in all material respects to those of the new notes, except that the old notes - have not been registered under the Securities Act and, accordingly, contain transfer restrictions, and - are entitled to registration rights under the registration rights agreement, which rights will terminate upon consummation of the exchange offer. REGISTRATION RIGHTS We agreed with the holders of the notes, that we will, at our cost, file and cause to become effective a registration statement with respect to the exchange offer. The exchange offer will effectuate an exchange of the old notes for an issue of new notes with terms identical to the old notes, except that the new notes will not bear legends restricting their transfer. Upon the registration statement's being declared effective, we will offer the new notes in return for surrender of the old notes. The exchange offer will remain open for not fewer than 20 business days after the registration statement is declared effective. For each old note surrendered under the exchange offer, the holder will receive a new note of equal principal amount. In the event that applicable interpretations of the SEC staff do not permit the exchange offer, or under some other circumstances, we will, at our cost, file and use our best efforts to cause to become effective a shelf registration statement with respect to resales of the notes and to keep the shelf registration statement effective until the earliest to occur of October 26, 2001, the expiration of the time period referred to in any amendment to Rule 144(k) under the Securities Act and the period that will terminate when all notes covered by the shelf registration statement have been sold in connection with the shelf registration statement. We will, in the event of a shelf registration, provide to each holder copies of the prospectus, notify each holder when the shelf registration statement for the notes has become effective and take other actions as are required to permit resales of the notes. A holder that sells its notes in connection with the shelf registration statement generally 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 civil liability provisions under the Securities Act in connection with those sales and will be bound by the provisions of the registration rights agreement which are applicable to the holder, including specified indemnification obligations. We will be required to pay penalties to the holders of the old notes in the following cases: - If we fail to file the registration statement under which the exchange offer is made within 20 days from October 26, 1999; - if the registration statement is not declared effective within 45 days from October 26, 1999 if the SEC does not review the registration statement; - if the registration statement is not declared effective within 90 days from October 26, 1999 if the SEC does review the registration statement; or - if the exchange offer is not consummated on or before 30 days after the registration statement has become effective. The penalties start to accrue when we miss a deadline for meeting one of the registration requirements above and continue to accrue until we are no longer in violation of any of the registration requirements. The amount of penalties we will have to pay to each holder of old notes if we do not meet any of the registration requirements above within the time periods specified will be - $.03 per week per $1,000 principal amount of old notes for the first 90 days after we fail to meet a specified time limit; - $.12 per week per $1,000 principal amount of old notes for the second 90-day period after we fail to meet a specified time limit; - $.15 per week per $1,000 principal amount of old notes for the third 90-day period after we fail to meet a specified time limit; and - after the third 90-day period, an additional $.05 per week per $1,000 principal amount of old notes for each subsequent 90-day period until the registration requirement or requirements in question are met. Since we did not meet the 20-day time limit specified above for filing the registration statement, we incurred penalties totaling approximately $9,540 between the 21st day and the date the registration statement was filed. If the registration statement is not declared effective within the time periods specified above, then the penalties will begin to accrue again in the amounts set forth above, and they will continue to accrue until the registration statement is declared effective. After the registration statement is declared 106 110 effective, if the exchange offer is not consummated within the time period specified above, then these penalties will again begin to accrue and will continue to accrue until the exchange offer is consummated. TRANSFER RESTRICTIONS The old notes have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. 107 111 DESCRIPTION OF OTHER INDEBTEDNESS CREDIT FACILITY On November 21, 1998, Anker and Foothill Capital Corporation, as agent, entered into a loan and security agreement whereby the lenders under the agreement have provided to Anker up to a $55.0 million credit facility. The credit facility consists of a commitment for a $40.0 million working capital revolver and a term loan with an original principal amount of $15.0 million. Commitments under the credit facility will expire in 2002. The credit facility is secured by collateral that consists of substantially all of our present and future assets. Borrowings under the revolver are limited to 85% of eligible accounts receivable and 65% of eligible inventory. Borrowings bear interest, at our option, at either 1% above the prime interest rate or at 3 3/4% above the adjusted Eurodollar rate. For the year ended December 31, 1998, the average interest rate under the revolver was approximately 8.75%. As of November 11, 1999, there was no outstanding indebtedness under the revolver. The term loan bears interest at 2 1/2% above the prime interest rate and is payable in monthly installments through 2002. The average interest rate for the term loan for the year ended December 31, 1998 was approximately 10.25%. As of November 11, 1999, the outstanding indebtedness under the term loan was approximately $13.0 million. The following table sets forth the amounts outstanding and borrowing availability under the credit facility as of the dates specified:
Revolving Revolving Additional Credit Credit Interim Date Term Loan Borrowings Availability Availability ---- --------- ---------- ------------ ------------ (in millions) 12/31/98 $ 15.0 $ 1.9 $ 15.5 __ 03/31/99 14.4 1.4 16.5 __ 06/30/99 13.9 12.9 6.9 __ 09/30/99 13.3 10.9 6.7 2.0 10/31/99 13.2 3.0 14.9 2.0 11/11/99 13.0 __ 17.0 __
The term loan changes are based on the normal amortization of the loan, except that - in July 1999 the term loan was paid down through the application of approximately $1.25 million of asset sale proceeds; and - in September 1999, under the terms of the August 27, 1999 amendment to the loan agreement with Foothill described below, Foothill reversed this $1.25 million payment, which caused the term loan to increase by the same amount, and Foothill reapplied the proceeds to reduce revolving credit borrowings in order to provide us with additional liquidity. The increase in the revolving credit borrowings since March 31, 1999 is primarily related to - our borrowing to make the interest payment on April 29, 1999 on our 9 3/4% Senior Notes due 2007, - performing reclamation in Webster County, West Virginia and - capital expenditures. Lower coal production and coal shipments have also reduced revolving credit availability. Future revolving credit availability will be impacted by changes in coal production and the resulting changes in coal inventory and accounts receivable. 108 112 The loan agreement with Foothill contains covenants that, among other matters, restrict or limit our ability to - pay interest and dividends, - incur indebtedness, - acquire or sell assets - and make capital expenditures. We must also maintain cash flow ratios specified in the loan agreement. In particular, the loan agreement provides that, in order to advance funds to us and the other guarantors under the loan agreement, the borrowers under the loan agreement must have borrowing availability of at least $5.0 million after giving effect to the advances and for the 30 days immediately preceding the advances. With respect to the term loan, in addition to regularly scheduled amortizing principal and interest payments, the loan agreement requires that we apply the first $5.0 million of proceeds from designated asset sales to the repayment of the term loan. As of November 11, 1999, no amounts have been applied to the $5.0 million requirement. Proceeds used to repay the term loan cannot be reborrowed. On August 27, 1999, we entered into an amendment to the loan agreement with Foothill. Under the amendment, Foothill and the other lenders agreed to provide us with up to $3.25 million of additional liquidity, $2.0 million of which, if drawn, we would have been required to repay on or before November 2, 1999. We also entered into a consent and amendment to the loan agreement with Foothill as of October 1, 1999. Under that consent and amendment, Foothill and the other lenders consented to our issuance of the old notes in the private exchange and the private placement, provisions of the loan agreement were amended to take into account the issuance of the notes, and Foothill and the other lenders waived various defaults under the loan agreement existing as of that date. The former amended and restated credit facility, which was repaid with funds from our existing credit facility with Foothill, provided for a line of credit up to $71.0 million. The average interest rate on borrowings under the amended and restated credit facility was 8.1% in 1998 and 8.89% in 1997. We incurred a loss on the refinancing of approximately $965,000, net of income taxes of $375,000. The loss was classified as an extraordinary item in our consolidated financial statements in 1998. 9 3/4% SENIOR NOTES DUE 2007 On September 25, 1997, we issued $125.0 million of unsecured 9 3/4% Series A Senior Notes due October 1, 2007. We used the proceeds from the issuance of these notes to repay all outstanding indebtedness, together with accrued interest and fees associated with the repayment, under our amended and restated credit facility. We incurred a loss on the refinancing of approximately $3.9 million, net of income taxes of $1.5 million. The loss was classified as an extraordinary item in our consolidated financial statements in 1997. On March 11, 1998, we consummated an exchange offer registered under the Securities Act in which we exchanged $125.0 million of our unsecured 9 3/4% Series B Senior Notes due 2007 for the $125 million of unsecured 9 3/4% Series A Senior Notes due 2007 we previously issued. Interest on the 9 3/4% Series B Senior Notes is payable semiannually on April 1 and October 1 of each year, commencing April 1, 1998. We may redeem the 9 3/4% Series B Senior Notes, in whole or in part, at any time on or after October 1, 2002 at the redemption price as specified in the indenture governing the notes, plus accrued and unpaid interest and other charges. At any time on or prior to October 1, 2000, we may redeem, with proceeds of an initial public offering, up to 35% of the aggregate principal amount of the 9 3/4% Series B Senior Notes at a redemption price equal to 109.75% of the principal amount plus accrued and unpaid interest and other charges. The 9 3/4% Series B Senior Notes mature on October 1, 2007. The 9 3/4% Series B Senior Notes contain cross-default provisions related to our outstanding credit facility. Our obligations under the 9 3/4% Series B Senior Notes are jointly and severally guaranteed, fully and unconditionally on a senior unsecured basis, by each of our wholly-owned subsidiaries, other than those subsidiaries that, both individually and in the aggregate, are inconsequential to our business and financial condition. See the consolidated financial statements included elsewhere in this prospectus for information regarding the guaranteeing subsidiaries. On October 28, 1999, we consummated a private exchange, with a limited number of qualified holders, of our 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) for outstanding unsecured 9 3/4% Series B Senior Notes. Holders of $108.5 million aggregate principal amount of unsecured 9 3/4% Series B Senior Notes exchanged their notes for $86.8 million aggregate principal amount of 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) and warrants to purchase their pro rata share of 20% of our common stock at an initial exercise price of $0.01 per share. In connection with the private exchange, the exchanging noteholders consented to amendments to the indenture governing the 9 3/4% Series B Senior Notes 109 113 that, among other things, modify or eliminate various covenants contained in the indenture. As of the date of this prospectus, $16.5 million aggregate principal amount of unsecured 9 3/4% Series B Senior Notes remain outstanding. NOTE PAYABLE TO SELLER In conjunction with an acquisition we made, we assumed an outstanding note payable with an original principal amount of $2.8 million, which bears interest at 7.47% and is payable in monthly installments through April 1, 2000. The principal amount outstanding as of September 30, 1999 was approximately $0.4 million. The note is secured by a first lien on the coal reserve acquired in the transaction. INTERCREDITOR AGREEMENT At the closing of the private placement and the private exchange of the old notes, Foothill Capital Corporation, as agent for the lenders under the loan agreement, and The Bank of New York, as collateral agent under the indenture governing the notes, entered into an intercreditor agreement dated as of October 1, 1999. The intercreditor agreement defines the rights of the lenders under the loan agreement in relation to the rights of the noteholders with respect to the collateral that secures our and our guarantor subsidiaries' obligations under both the loan agreement and the indenture. The following description summarizes the material terms of the intercreditor agreement. It does not restate the intercreditor agreement in its entirety. We urge you to read the intercreditor agreement because it, and not this description, defines the rights of noteholders, in relation to the senior lenders, to the collateral. You may obtain a copy of the intercreditor agreement from us. Under the intercreditor agreement, Foothill acknowledges the lien that the collateral agent holds on the collateral to secure the notes and the obligations under the indenture and related security documents. The collateral agent and each noteholder, by accepting a note, - acknowledge the lien that Foothill holds on the collateral to secure the obligations under the loan agreement and related security documents, - agree to all of the terms of the intercreditor agreement, as it may be amended from time to time, and - acknowledge that the collateral agent has not been granted a lien on some of our property and that of the subsidiary guarantors which is subject to Foothill's lien. Under the intercreditor agreement, Foothill and the collateral agent agree that Foothill's lien on the collateral has priority over the collateral agent's lien on the collateral to secure the senior debt under the loan agreement up to an aggregate principal amount of $55.0 million, plus interest, fees, expenses and related costs. Foothill's priority is not affected by - the order, time or manner of attachment, perfection or recording of Foothill or the collateral agent's lien; - any amendments to the terms of the loan agreement or the indenture or any other documents governing our obligations or those of the guarantor subsidiaries to either the lenders or the noteholders; or - any action or inaction of either Foothill or the collateral agent with respect to the collateral. The intercreditor agreement also provides that each of Foothill and the collateral agent is solely responsible for perfecting and maintaining the perfection of its lien on the collateral. In addition, neither Foothill nor the collateral agent may contest the validity, perfection, priority or enforceability of the liens of the other or the obligations that the liens secure. The intercreditor agreement provides that, until the debt under the loan agreement has been paid in full and the commitments under the loan agreement have been terminated, - Foothill has the exclusive right to control, manage and liquidate the collateral; - the collateral agent and the holders of the notes may not seek to foreclose or realize upon the collateral or assert any interest in the collateral or exercise any rights to setoff, recoupment or counterclaim or deduction against the collateral or the proceeds of the collateral, other than to preserve the collateral agent's lien on the collateral; and - prior to the occurrence of a payment default under the notes indenture, the collateral agent and the noteholders may not commence any action or proceeding under the U.S. Bankruptcy Code or state insolvency laws against us, the guarantor subsidiaries or any of the collateral. The intercreditor agreement provides that proceeds of collateral are to be applied to pay the senior debt under the loan agreement in full. Moreover, until the loan agreement and the related documents evidencing the senior debt have been terminated, proceeds of 110 114 collateral are to be used to provide for payment of our and the guarantor subsidiaries' contingent liabilities under those agreements before payment of any amounts owed under the notes indenture and related documents. If the collateral agent receives any proceeds of collateral while the senior debt under the loan agreement remains outstanding, the collateral agent must turn those proceeds over to Foothill. Despite this requirement, to the extent a court equitably subordinates any of the senior debt under the loan agreement to our obligations under the notes indenture, the collateral agent may retain and apply proceeds of collateral in payment of our obligations under the notes before the subordinated portion of the senior debt is paid. If we and the guarantors become debtors in a bankruptcy case and Foothill or other lenders under the loan agreement are willing to permit the use of cash collateral or provide bankruptcy financing on terms that contemplate the continuation of the collateral agent's lien on the collateral during the bankruptcy case, then, until the senior debt has been paid in full and the commitments under the loan agreement have been terminated, the collateral agent waives any right to object to that financing on the ground that its interest in the collateral is not adequately protected as long as the total outstanding principal of that financing, including amounts already outstanding under the loan agreement, does not exceed $55.0 million. If either Foothill or the collateral agent gives notice to us or the guarantors of a default, event of default, acceleration of indebtedness or its intention to exercise its enforcement rights, it must give concurrent notice to the other. The failure to give notice to the other, however, will not affect the validity of the notice as against us and the guarantors or the relative priorities of the liens of Foothill and the collateral agent in the collateral. OPTION AGREEMENT Simultaneously with the execution of the intercreditor agreement, Foothill entered into an option Agreement with Rothschild Recovery Fund L.P., a participant in the private exchange and private placement. The following description summarizes the material terms of the option agreement. It does not restate the option agreement in its entirety. You may obtain a copy of the option agreement from us. The option agreement grants Rothschild or its designee an option to purchase all, but not less than all, of the senior debt under our loan agreement with Foothill on the following terms: - The option to purchase the senior debt must be exercised in writing within 10 days after the collateral agent under the notes indenture receives a written notice from Foothill of Foothill's intention to exercise its remedies under the loan agreement and related documents. - Unless the notice of exercise of the option is previously revoked, closing of the purchase of the senior debt must occur within 30 days after Rothschild gives notice of its exercise of the option. - During the 30-day period, Foothill must forbear from exercising its remedies with respect to the shared collateral, other than accounts and inventory, under the loan agreement and related documents. At closing, Rothschild must: - pay to Foothill the outstanding balance of the senior debt, including early termination fees, attorneys fees of Foothill and other amounts payable under the loan documents, - furnish substitute letters of credit or cash collateral to replace or secure all letters of credit outstanding under the loan documents and - agree to reimburse Foothill and the lenders for any other fees, expenses, or losses for which we and the guarantors would be liable under the loan documents which Foothill or the lenders incur after closing of the purchase. Upon closing of the purchase, Rothschild will become the holder of the senior debt and Foothill's liens upon, and other interests in, the collateral. 111 115 DESCRIPTION OF THE CAPITAL STOCK The following description of our capital stock contains a summary of the material provisions of our certificate of incorporation and the certificates of designations, preferences and rights of each class of our preferred stock. It does not restate these documents in their entirety. You should read these documents, copies of which you may obtain from us, in their entirety to understand all of the rights that holders of our capital stock are entitled to. In addition, the following summary is subject to applicable provisions of Delaware law. Our authorized capital stock consists of - 100,000 shares of common stock with a par value of $0.01 per share - 10,000 shares of Class A preferred stock with a par value of $2,500 per share - 10,000 shares of Class B preferred stock with a par value of $1,000 per share - 1,000 shares of Class C preferred Stock with a par value of $13,000 per share and - 1,000 shares of Class D Preferred Stock with a par value of $7,000 per share. As of October 31, 1999, - 7,108 shares of common stock were issued and outstanding, - all of the authorized shares of Class A, B and D preferred stock were issued and outstanding and - we owned all of the authorized shares of Class C preferred stock. COMMON STOCK Each share of common stock has equal voting, dividend, distribution and liquidation rights. Each share of common stock is not redeemable and has no preemptive, conversion or cumulative voting rights, except as described under "Certain Relationships and Related Transactions-Stockholders' Agreement." Covenants in the note indentures and our loan agreement with Foothill prohibit the declaration and payment of dividends. In the event of our liquidation, dissolution or winding up, the holders of the common stock are entitled to share equally and ratably in our assets, if any, that remain after the payment of all of our debts and liabilities and the liquidation preference of any outstanding preferred stock. PREFERRED STOCK CLASS A PREFERRED STOCK Holders of Class A preferred stock are generally not entitled to voting rights. However, we may not take any of the following actions without the affirmative vote of at least 50% of the Class A preferred stock outstanding: - amend, alter or repeal any provision of our certificate of incorporation or bylaws, or pass any stockholders' resolution, that would adversely affect the preferences, special rights, or powers of the Class A preferred stock; - increase or decrease, other than by redemption or conversion, the total number of authorized shares of Class A preferred stock; or - issue any capital stock that ranks senior to, or on parity with, the Class A preferred stock with respect to the payment of dividends or the right to receive distributions upon liquidation. Holders of Class A preferred stock are entitled to annual cash dividends. These dividends are payable on December 31 and accrue whether or not they have been declared. The dividend per share is calculated by multiplying the total of the sum of $2,500 plus all accrued and unpaid dividends by five percent. As of September 30, 1999, there were approximately $4.2 million of accrued and unpaid dividends on the Class A preferred stock. Dividends cannot be paid on any of our equity securities, other than our Class C preferred stock and Class D preferred stock, if accrued dividends on the Class A preferred stock have not been declared and paid. Each share of Class A preferred stock is entitled to a liquidation preference over the Class B preferred stock and common stock, and junior to the Class C preferred stock and Class D preferred stock, equal to $2,500 plus accrued and unpaid dividends. Furthermore, we must redeem all shares of Class A preferred stock in the event of bankruptcy or if all common stock is transferred to a single 112 116 person. The amount paid per share will be $2,500 plus any accrued and unpaid dividends. However, Class A preferred stock may not be redeemed until we have paid all accrued and unpaid dividends on Class C preferred stock and Class D preferred stock. On May 31, 2006, we must redeem 10% of all outstanding Class A preferred stock. After that, on every May 31, we must redeem the same number of shares of Class A preferred stock until all outstanding shares have been redeemed. The price per share for redemption will be $2,500 plus any accrued and unpaid dividends. The indenture governing the notes prohibits us from making any dividend or redemption payments on the Class A preferred stock unless we meet a coverage test described under "Description of the New Notes--Covenants--Limitation on Restricted Payments." We are also prohibited from making any dividend or redemption payments on the Class A preferred stock upon the occurrence, and during the continuance, of any default or event of default under the indenture. In the event we conduct a public offering of our common stock, holders of Class A preferred stock will have the right to convert their shares into shares of common stock. The number of shares of common stock offered for each share of Class A preferred stock will be determined by the following formula: 1.5(2,500)/offering price of the common stock. However, the number of shares of common stock issued upon conversion of the Class A preferred stock may not exceed 20% of the total number of shares of common stock that we offer for sale in the public offering. CLASS B PREFERRED STOCK The Class B preferred stock is generally non-voting and is entitled to no dividends. However, we may not take any of the following actions without the affirmative vote of at least 50% of the Class B preferred stock outstanding: - amend, alter or repeal any provision of our certificate of incorporation or bylaws, or pass any stockholders' resolution, that would adversely affect the preferences, special rights or powers of the Class B preferred stock; - increase or decrease, other than by redemption, the total number of authorized shares of Class B preferred stock; - issue any capital stock, other than Class A preferred stock, Class C preferred stock or Class D preferred stock, that ranks senior to, or on a parity with, the Class B preferred stock with respect to the right to receive distributions upon liquidation; or - enter into, authorize or permit any sale of Anker A sale of Anker is deemed to have occurred at any time that - both any third party that is not an affiliate of the First Reserve Corporation or the First Reserve Funds acquires beneficial ownership of a majority of our outstanding common stock and PPK Group Limited Liability Company and Anker Holdings B.V. and their permitted transferees beneficially own in the aggregate less than 20% of our common stock; - we are merged with or into any other entity and, following the consummation of the merger, any third party that is not an affiliate of First Reserve or the First Reserve Funds owns a majority of the outstanding common stock, partnership interests or other comparable securities of the resulting or surviving entity and PPK Group and Anker Holdings B.V. and their permitted transferees beneficially own in the aggregate less than 20% of the outstanding common stock, partnership interests or other comparable securities of the resulting or surviving entity; or - there is a sale, transfer or other disposition to one or more third parties not affiliated with First Reserve or the First Reserve Funds in a transaction or series of transactions of more than 75% of the assets, valued on a consolidated basis prior to the transaction or series of transactions, of us and our direct or indirect subsidiaries. Each share of Class B preferred stock is entitled to a liquidation preference of $1,000 over shares of common stock and any preferred stock junior to the Class B preferred stock. Furthermore, the Class B preferred stock is mandatorily redeemable for cash at a price per share of $1,375 in the event we enter into bankruptcy or there is a sale of Anker. The Class B preferred stock is not redeemable upon a sale, however, as long as the First Reserve Funds are entitled to designate a majority of our board of directors, unless a majority of the directors not designated by the First Reserve Funds approves the sale. Moreover, the Class B preferred stock is not redeemable to the extent that - we have not effected all of the required redemptions of our Class A preferred stock and Class D preferred stock prior to or simultaneously with the redemption of the Class B preferred stock, - there are any accrued but unpaid dividends on the Class A preferred stock, Class C preferred stock or Class D preferred stock, or - we do not have funds legally available to redeem the Class B preferred stock. 113 117 The Class B preferred stock is also redeemable, in whole but not in part, at our option for cash at a price of $1,375 per share; however, we may not elect to redeem the Class B preferred stock for so long as the First Reserve Funds are entitled to designate a majority of our board of directors, unless a majority of the directors not designated by the First Reserve Funds approves the redemption. In addition, in the event of a public offering of our common stock, the Class B preferred stock is redeemable for common stock at our option or the option of the holders of the Class B preferred stock; however, we may not elect to redeem the Class B preferred stock for so long as the First Reserve Funds are entitled to designate a majority of our board of directors, unless a majority of the directors not designated by the First Reserve Funds approves the redemption. Moreover, the holders of the Class B preferred stock may not elect to have us redeem the Class B preferred stock for so long as the First Reserve Funds are entitled to designate a majority of our board of directors, unless a majority of the directors not designated by the First Reserve Funds approves the public offering. The indenture governing the notes prohibits the making of any dividend or redemption payments on the Class B preferred stock unless we meet a coverage test described under "Description of the New Notes--Covenants--Limitation on Restricted Payments". We are also prohibited from making any dividend or redemption payments on the Class Be preferred stock upon the occurrence, and during the continuance, of any default or event of default under the indenture. CLASS D PREFERRED STOCK In connection with our purchase of assets from Phillips Resources, Inc., we issued 1,000 shares of Class D preferred stock to Glenn Springs Holdings, Inc., which owns Phillips. The Class D preferred stock is non-voting, except as required by applicable law. The Class D preferred stock is entitled to receive: - for a period of 15 years from and after January 1, 1996, quarterly cumulative cash dividends in an amount of equal to 2 1/2% of the gross realization from coal sales from properties in Upshur and Randolph counties for the immediately preceding calendar quarter and - after that, quarterly cumulative cash dividends equal to 1 1/2% of the gross realization from coal sales from properties in Upshur and Randolph counties for the immediately preceding calendar quarter. Each share of Class D preferred stock is entitled to a liquidation preference over all other classes of our capital stock equal to the redemption price described below. If aggregate dividends of $5.0 million or more on the Class D preferred stock are not paid on or before December 31, 2005, then we must, if a holder of Class D preferred stock requests, redeem that holder's shares over the five year period beginning December 31, 2006 by redeeming 20% of that holder's shares on that date and on December 31 of the succeeding four years, at a price per share equal to $7,000 plus all accrued and unpaid dividends. If aggregate dividends of $5.0 million or more on the Class D preferred stock are paid on or before December 31, 2005, then we must redeem the Class D preferred stock over the five year period beginning December 31, 2011 by redeeming 20% of the issued and outstanding shares of Class D preferred stock on that date and on December 31 of each succeeding year, at the same redemption price described in the previous sentence. Furthermore, the Class D preferred stock is redeemable at any time at our option at a price per share equal to this same redemption price. No dividends have been paid on the Class D preferred stock as of the date of this prospectus. The indenture governing the notes prohibits the payment of dividends on the Class D preferred stock after the occurrence, and during the continuance, of any default or event of default under the indenture. STOCK PURCHASE WARRANT On August 12, 1996, we issued a stock purchase warrant to the First Reserve Funds. The stock purchase warrant is exercisable for that number of shares of our common stock equal to 8.333% of the total number of shares of common stock issued to the holders of Class A preferred stock upon their conversion of Class A preferred stock into shares of our common stock. The exercise price is $0.01 per share of common stock. The First Reserve funds may exercise the stock purchase warrant concurrently with each conversion of shares of Class A preferred stock into shares of common stock. The stock purchase warrant expires on the date that all of our Class A preferred stock ceases to be outstanding. 114 118 DESCRIPTION OF THE WARRANTS The following is summary description of the material provisions of the warrants and the material rights of holder of warrants and shares of common stock issued upon exercise of the warrants. It does not restate the terms of the warrants and the rights of the holders in their entirety. For more details regarding the rights of holders of warrants and shares of common stock issued upon exercise of warrants, please read the warrant, the warrant agreement, the common stock registration rights agreement, the investor agreement and the stockholders' agreement. You may obtain copies of these agreements from us. GENERAL In connection with the restructuring of our 9 3/4% notes and the private placement of the notes being exchanged in this exchange offer, we issued warrants to purchase 3,047 shares of our common stock, which is equivalent to 30% of our fully diluted common stock. The initial exercise price of the warrants is $0.01 per share, payable in cash. The warrants are exercisable at any time or from time to time before October 28, 2009. We will not issue fractional shares upon exercise of the warrants, but we will pay a cash adjustment for any fractional share that would otherwise be issuable. The cash amount will be equal to the same fraction of the per share exercise price. ANTI-DILUTION The exercise price and the number of shares of common stock for which the warrants are exercisable are subject to adjustment upon the occurrence of any of the following events: - our issuance of any shares of common stock for no consideration or for a consideration per share less than the market price, as defined below, including (1) our issuance of any warrants, rights or options to subscribe for or to purchase common stock or other securities exercisable, convertible into or exchangeable for common stock at an exercise price per share of common stock less than the market price, but not including grants or exercises of employee stock options; and (2) our issuance of any securities exercisable, convertible into or exchangeable for common stock at an exercise, conversion or exchange price per share of common stock less than the market price; - the subdivision or combination of the common stock; and - the payment in shares of common stock of a dividend or distribution. Market price, as of any date, means (3) the average of the closing bid prices for the shares of common stock as reported to The Nasdaq National Market for the ten trading days immediately preceding the relevant date; (4) if The Nasdaq National Market is not the principal trading market for the common stock, the average of the last reported bid prices on the principal trading market for the common stock during the same period, or, if there is no bid price for the period, the average of the last reported sales price on each trading day for the period; or (5) if market value cannot be calculated as of the relevant date on any of the bases above, the market price means the average fair market value as reasonably determined by an investment banking firm we select and reasonably acceptable to the holders of a majority in interest of the warrants. In the case of any transaction, including a merger, consolidation, sale of all or substantially all of our assets, liquidation or recapitalization of the common stock, in which the common stock is changed into or, under the operation of law or the terms of the transaction, exchanged for other of our securities or common stock or other securities of any other company or interests in a non-corporate entity or other property, then each holder of warrants will be entitled, upon exercise of warrants, to receive the aggregate amount of stock, securities, cash and/or any other property that the holder would have received in the transaction if it had exercised the warrants immediately prior to consummation of the transaction. Similarly, if we declare or make any distribution of our assets to holders of common stock, then each holder of warrants is entitled, upon exercise of warrants, to receive the amount of assets that would have been payable to the holder had the holder owned the shares of common stock received upon exercise of the warrants on the record date for determination of stockholders entitled to the distribution. 115 119 If our Class A preferred stock is converted into common stock, each warrant will be exercisable for additional shares of common stock in an amount equal to each warrant's pro rata share, based on the number of warrants originally issued, of 30% of the aggregate number of shares of common stock into which the Class A preferred stock is converted. The exercise price will be the implied conversion price per share of common stock at which the Class A preferred stock is converted. This exercise price will be payable in cash or by delivery by the holder of notes. If we redeem our Class B preferred stock at a redemption price payable in shares of common stock, each warrant will be exercisable for additional shares of common stock in an amount equal to each warrant's pro rata share, based on the number of warrants originally issued, of 30% of the aggregate number of shares for which the Class B preferred stock is redeemed. The exercise price will be the redemption price per share of common stock at which the Class B preferred stock is redeemed. This exercise price will be payable in cash or by delivery by the holder of notes. If the warrant issued to the funds that First Reserve Corporation manages becomes exercisable upon a conversion of Class A preferred stock, each warrant will be exercisable for additional shares of common stock in an amount equal to each warrant's pro rata share, based on the number of warrants originally issued, of 30% of the aggregate number of shares for which the First Reserve funds' warrant is exercised. The exercise price will be $.01 per share of common stock. This exercise price will be payable in cash or by delivery by the holder of notes. If we issue any equity securities of any type, class or series, we must offer each holder of warrants or of shares of common stock issued upon exercise of warrants, along with some other stockholders, the right to purchase a portion of the securities on the same terms and conditions as we offer to the purchasers of the newly-issued securities. Each holder of warrants or of shares of common stock issued upon exercise of warrants would be entitled to purchase that portion of the newly-issued securities equal to - if the newly-issued securities are of a type, class or series previously issued, the holder's percentage ownership of the total outstanding number of the previously-issued securities or - in all other events, the holder's percentage of ownership of our total outstanding common stock. For the purposes of this calculation, all warrants will be deemed to have been exercised for shares of common stock, and each holder of warrants will be deemed to hold the number of shares of common stock issuable upon exercise of the holder's warrants and any other shares of common stock held by the holder. The exercise price for the warrants will not, however, be adjusted - upon the grant or exercise of any employee stock options, as long as a majority of the non-employee members of our board of directors or a majority of the members of a committee of non-employee directors established for that purpose approves of the grant of exercise; - upon the exercise of the options to purchase common stock under Mr. Kilgore's employment agreement; - upon the issuance of common stock or warrants in accordance with the terms of the agreement under which the initial warrant holders received their warrants; or - upon exercise of the warrants. RESTRICTIONS ON TRANSFER We have not registered the warrants or the shares of common stock issuable upon exercise of the warrants under the Securities Act. Each holder of warrants or shares of common stock issuable upon exercise of the warrants agrees that it will offer to sell the warrants or the shares of common stock only to, and will solicit offers to buy the warrants or shares of common stock only from, qualified institutional buyers, institutional accredited investors, or purchasers under Regulation S. Furthermore, all initial holders of warrants have entered into an investor agreement, and any holder of shares of common stock issuable upon exercise of a warrant which transfers any of those shares of common stock must require the transferee to agree in writing to be bound by all the provisions of the investor agreement and the common stock registration rights agreement described below. In addition, each holder of warrants has agreed not to transfer warrants or shares of common stock issuable upon exercise of warrants to any person or entity that, to the knowledge of the holder, is engaged in any business in the states of West Virginia, Maryland, Pennsylvania, Virginia or Kentucky involving 116 120 - the purchase for resale, sale, operation or maintenance for resale of coal, coal reserves, coal inventories, coal mines, coal mining operations, coal processing operations or processing or disposing of ash produced from the consumption of coal; - the conduct or performance of coal mining, coal loading, coal processing or contract coal mining or processing; - the employment of independent contractors in connection with any of the activities above; - the conduct of coal trading; or - the holding of any equity investment constituting a controlling equity interest in any entity or business that, at the time the transfer is proposed to be made, is engaged in any of the above activities. INVESTOR AGREEMENT The initial holders of the warrants entered into an investor agreement. Upon exercise of the warrants and purchase of shares of common stock issued upon exercise, the holder of the common stock must also enter into the investor agreement. The investor agreement contains the following provisions: RESTRICTIONS ON MERGER AND SALE OF ASSETS AND STOCK Until the earlier to occur of an initial public offering of our common stock and October 30, 2002, the investor agreement prohibits - us from consolidating or merging with or into, or selling, assigning, transferring, leasing, conveying or otherwise disposing of all or a majority of our properties or assets in one or more related transactions, to another corporation, person or entity, except (1) in accordance with the terms of the indenture governing the notes and (2) upon the affirmative written vote or consent of the holders of at least 85% of our outstanding common stock as of the record date, as defined below, and - us or any of our shareholders, in one transaction or a series of related transactions, from selling, transferring or otherwise disposing of more than 50% of our outstanding common stock, except upon the affirmative written vote or consent of at least 85% of the holders of the outstanding common stock as of the record date. We or the shareholders are required to give written notice to all holders of warrants at least 30 days' prior to the record date. For these purposes, the record date means the date fixed for a stockholder vote in accordance with the terms of our certificate of incorporation and by-laws. TAG ALONG RIGHTS In accordance with the terms of the investor agreement, other than in connection with permitted transfers and with an initial public offering of our common stock, each holder of shares of common stock issuable upon exercise of warrants has the right to participate in a sale of common stock by another holder of common stock to any third party at the same price per share and on the same terms and conditions as the stockholder initiating the sale to the third party. Each stockholder is entitled to sell that number of shares of common stock so that the ratio of the number of shares sold by the stockholder to the aggregate number of shares sold to the third party is equal to the ratio of the number of shares owned by the stockholder to the total number of shares of common stock outstanding. REGISTRATION RIGHTS The initial holders of the warrants entered into a common stock registration rights agreement with us. Upon exercise of the warrants and purchase of common stock issued upon exercise, the holder of the common stock must also enter into the common stock registration rights agreement. The agreement grants them demand and incidental registration rights with respect to the shares of common stock issuable upon exercise of the warrants and any other shares of common stock held by the holders of those shares. These shares of common stock are referred to as registrable securities. DEMAND REGISTRATION At any time following the earlier of October 28, 2002 or an initial public offering of our common stock, the holders of at least 25% of the registrable securities may demand that we register their shares of common stock under the Securities Act. Holders of registrable securities collectively may only demand registration of their shares twice, and we are not obligated file a registration statement relating to a request, other than on Form S-3 or a similar short-form registration statement, within a period of six months after the effective date of any other registration statement that was not effected on Form S-3 or a similar short-form registration statement. We are obligated to register all shares of registrable securities requested to be included by the holders initially demanding registration and 117 121 any other holder of registrable securities that has properly notified us that its securities should also be included. In the event of an underwritten offering, however, we may register fewer than all shares requested to be included if the managing underwriter advises us that the number of securities requested to be included in the registration exceeds the maximum number that can be offered without having an adverse effect on the offering of shares, including the price at which the shares can be sold. INCIDENTAL REGISTRATION If we at any time register any of our securities under the Securities Act, other than a registration on Form S-4 or S-8 or any successor or similar form and other than a request for registration described in the preceding paragraph, we are required include in the registration statement any registrable securities owned by holders that have properly notified us that their securities should be included. If the registration is an underwritten registration, holders of registrable securities will sell their shares to the underwriters on the same terms and conditions as apply to us. We are obligated to register all shares of registrable securities requested to be included by the holders. In the event of an underwritten offering, however, we may register fewer than all shares requested to be included if the managing underwriter advises us that the number of securities requested to be included in the registration exceeds the maximum number that can be offered without having an adverse effect on the offering of shares, including the price at which the shares can be sold. 118 122 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion sets forth the anticipated material U.S. federal income tax consequences of the exchange of the old notes for new notes, as well as the ownership and disposition of the notes. The following discussion constitutes the opinion of Wilmer, Cutler & Pickering regarding these material tax consequences. This discussion is based on laws, regulations, rulings and decisions now in effect, all of which are subject to change, possibly with retroactive effect. There can be no assurance that the Internal Revenue Service will not challenge one or more of the tax consequences described below, and we have not obtained, nor do we intend to obtain, a ruling from the Internal Revenue Service as to any U.S. federal income tax consequences relating to the notes. This discussion may not apply to all holders of new notes because: - this discussion does not address the tax consequences to subsequent purchasers of the new notes and is limited to investors who will hold the new notes as capital assets, as defined in Section 1221 of the Internal Revenue Code; - this discussion does not discuss the tax consequences to holders that may be subject to special tax rules, such as financial institutions, insurance companies, tax exempt entities, dealers in securities or foreign currencies or persons who hold the notes as a position in a straddle or as part of a "conversion transaction" or that have hedged the interest rate on the notes; - this discussion does not address all aspects of U.S. federal income taxation that may be relevant to holders of the notes in light of their particular circumstances; and - this discussion does not address any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction. Because this discussion may not apply to all new note holders, prospective holders should consult their own tax advisors as to the particular tax consequences to them of acquiring, holding or disposing of the new notes. DEFINITIONS A "United States Holder" of a note means: - a citizen or resident of the United States, including, in some cases, former citizens and former long-time residents, - a corporation, partnership or other entity created or organized under the laws of the United States or any political subdivision, - an estate if its income is subject to U.S. federal income taxation, or - a trust if (1) a U.S. court is able to exercise primary supervision over the administration of the trust and (2) one or more U.S. persons have the authority to control all substantial decisions of the trust. A "Foreign Holder" is a holder that is not a United States Holder. The term "note(s)" by itself refers to both new notes and exchanged old notes. CONSEQUENCES OF THE EXCHANGE OFFER The exchange of old notes for new notes will result in no federal income tax consequences for holders. An exchange of old notes for new notes in connection with the exchange offer will not be treated as an "exchange" for federal income tax purposes because the new notes are not materially different from the old notes. Rather, the new notes will be treated as a continuation of the old notes. Exchanging holders will have the same tax basis and holding period in the new notes as they had in the old notes. QUALIFIED STATED INTEREST United States Holders will generally be taxed on any "qualified stated interest" as ordinary income from domestic sources at the time it is paid or accrued, in accordance with the United States Holder's method of accounting for tax purposes. Qualified stated interest is stated interest that is unconditionally payable at least annually at a single fixed rate that appropriately takes into account the length of the interval between payments. 119 123 The new notes will pay interest semiannually at a stated rate of 14.25 percent per annum, with the exception of the first interest payment due on April 1, 2000. We expect to satisfy the April 1, 2000 interest payment on the new notes by issuing additional new notes. Because of the ability to make this initial payment in kind, the annual amount of qualified stated interest on the new notes will generally equal the combined semiannual October 1 interest payment on the notes. The remaining interest payments made will be taken into account under the original issue discount rules, discussed below. ORIGINAL ISSUE DISCOUNT For U.S. federal income tax purposes, the excess of the stated redemption price at maturity of a note over its issue price constitutes original issue discount. Interest payments not considered qualified stated interest are included in the stated redemption price at maturity, and they are taken into account under the original discount rules. Because the old notes were issued with original issue discount, the new notes will also have original issue discount. For U.S. federal income tax purposes, subject to the discussion below under "High Yield Discount Obligation Rules" and "Acquisition Premium on Notes," each United States Holder of a note must include in gross income a portion of the original issue discount that accrues on the note during each taxable year, determined by using a constant yield to maturity method, regardless of whether the holder receives cash payments attributable to this original issue discount. The original issue discount included in income for each year will be calculated under a compounding formula that will result in the allocation of less original issue discount to the earlier years of the term of the note and more original issue discount to later years. Any amount included in income as original issue discount will increase a United States Holder's tax basis in the note. We intend to take the position that the issue price of all of the old notes is based on the cash price Rothschild Recovery Fund paid for its notes in the private placement, less the portion of that cash purchase price that is properly allocable to the warrants we issued in the private placement. We cannot assure you, however, that the Internal Revenue Service will respect this determination. If the Internal Revenue Service were to successfully assert that the issue price of the old notes issued in the private exchange must be separately determined, those old notes, and the new notes issued in exchange for those old notes in the exchange offer, could bear additional original issue discount. Holders of new notes would be required to include this additional original issue discount in their income under the rules described above. HIGH YIELD DISCOUNT OBLIGATION RULES The new notes are likely to constitute high yield discount obligations. Accordingly, we may not be entitled to deduct a portion of the original issue discount and may further be required to defer deductions on another portion until amounts attributable to the original issue discount are paid in cash. Subject to otherwise applicable limitations, a corporate holder will be entitled to a dividend received deduction with respect to the disqualified portion of the accrued original issue discount if we have sufficient current or accumulated earnings and profits. To the extent that our earnings and profits are insufficient, any portion of the original issue discount that otherwise would have been recharacterized as a dividend for purposes of the dividend received deduction will continue to be treated as ordinary original issue discount income in accordance with the rules described above under "Original Issue Discount." MARKET DISCOUNT If a United States Holder purchases a note subsequent to its original issuance and the note's issue price, increased by the amount of any accrued original issue discount, exceeds the holder's purchase price, the note will be considered to have market discount equal to that excess. Any gain recognized by the holder on the disposition of a note having market discount generally will be treated as ordinary income to the extent of the market discount that accrued on the note while held by the holder. Alternatively, the holder may elect to include market discount in income currently over the life of the note. This election will apply to all market discount notes the holder acquires on or after the first day of the first taxable year to which the election applies and is revocable only with the consent of the Internal Revenue Service. Market discount will accrue on a straight-line basis unless the holder elects to accrue the market discount on a constant yield method. A constant yield election will apply only to notes to which it is made and is irrevocable. Unless a holder elects to include market discount, if any, in income on a current basis, as described above, the holder could be required to defer the deduction of a portion of the interest paid on any indebtedness incurred or maintained to purchase or carry notes. 120 124 ACQUISITION PREMIUM ON NOTES A United States Holder that purchases a note for an amount in excess of the note's "adjusted issue price" as of the purchase date will be considered to have purchased the note at an acquisition premium to the extent of this excess. The "adjusted issue price" is the issue price increased by original issue discount accrued on the note and reduced by payments on the notes other than qualified stated interest. The amount of original issue discount the holder must include in its gross income with respect to that note for any taxable year is generally reduced by the portion of the acquisition premium properly allocable to that year. Alternatively, a holder may elect to amortize and deduct the acquisition premium over the remaining term of the note on a constant yield method. Holders of new notes should consult their own tax advisors regarding the amount of any acquisition premium and reduction in original issue discount with respect to the new notes. AMORTIZABLE BOND PREMIUM A United States Holder that purchases a note for more than the amount payable at maturity will be considered to have purchased the note at a "premium." A United States Holder generally may elect to amortize the premium over the remaining term of the note on a constant yield method. However, if the note may be optionally redeemed for more than its amount payable at maturity at the time it is purchased, the amortization of the premium might, depending on the timing and pricing of the purchase relative to the redemption provisions of the notes, have to be deferred. The amount amortized for a year will be treated as a reduction of interest income from the note. If the United States Holder does not elect amortization, the premium will decrease the gain or increase the loss otherwise recognized upon the disposition of the note. The election to amortize premium on a constant yield method, once made, applies to all debt obligations held or acquired by the electing United States Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service. SALE, EXCHANGE AND RETIREMENT OF NOTES When a United States Holder disposes of a note, that holder generally will recognize capital gain or loss equal to the difference between: (A) the amount of cash and the fair market value of any property received, except to the extent that amount is attributable to accrued and unpaid interest which is taxable as ordinary income, and (B) the holder's adjusted tax basis in the note. A United States Holder's adjusted tax basis in a note will, in general, be the cost of the note increased by - any amounts included in income as original issue discount and - any market discount previously included in the holder's income and decreased by - any principal and non-qualified stated interest the holder receives and - any amortized premium previously deducted from income by that holder. The capital gain or loss generally will be long-term capital gain or loss if the holding period of the note exceeds one year at the time of the disposition. Some noncorporate taxpayers, including individuals, are eligible for preferential rates of taxation of the long-term capital gain. The deductibility of capital losses is subject to limitations. FOREIGN HOLDERS Any gain or income realized on a Foreign Holder's disposition of a note generally will not be subject to U.S. federal income tax provided - The gain is not effectively connected with the holder's conduct of a trade or business in the United States and - in the case of gains realized by an individual, the individual is not present in the United States for 183 days or more in the taxable year of the disposition. 121 125 Under present U.S. federal income and estate tax law, and subject to the discussion below concerning backup withholding, (1) no U.S. federal withholding tax will be imposed with respect to payment of principal, premium, if any, or interest, including original issue discount, on a note owned by a Foreign Holder, provided that - the Foreign Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote, within the meaning of section 871(h)(3) of the Internal Revenue Code and the related regulations, - the Foreign Holder is not a controlled foreign corporation that is related, directly or indirectly, to us through stock ownership, - the Foreign Holder is not a bank whose receipt of interest on a note is described in section 881(c)(3)(A) of the Internal Revenue Code, and - the Foreign Holder satisfies the statement requirement, described generally below, set forth in sections 871(h) and 881(c) of the Internal Revenue Code and the related regulations; (2) no U.S. federal withholding tax will be imposed generally with respect to any gain or income realized by a Foreign Holder upon the disposition of a note; and (3) a note beneficially owned by an individual who at the time of death is a Foreign Holder will not be subject to U.S. federal estate tax as a result of the individual's death, provided that: - the individual does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote, within the meaning of section 871(h)(3) of the Internal Revenue Code, and - the interest payments with respect to the note would not have been, if received at the time of the individual's death, effectively connected with the conduct of a U.S. trade or business by the individual. To satisfy the statement requirement referred to in (1) above, the beneficial owner of the note, or a financial institution holding the note on behalf of the beneficial owner, must provide, in accordance with specified procedures, our paying agent with a statement to the effect that the beneficial owner is a Foreign Holder. Under current Treasury regulations, this statement will satisfy the certification requirements if (A) the beneficial owner provides its name and address, and certifies, under penalties of perjury, that it is a Foreign Holder, which certification may be made on an Internal Revenue Service Form W-8 or Form W-8BEN, or (B) a financial institution holding the note on behalf of the beneficial owner certifies, under penalties of perjury, that it has received the statement and furnishes a paying agent with a copy. With respect to notes held by a foreign partnership, under current law, the foreign partnership may provide the Form W-8 or a Form W-8IMY. However, for interest and disposition proceeds paid with respect to a note after December 31, 2000, unless the foreign partnership has entered into a withholding agreement with the Internal Revenue Service, a foreign partnership will be required, in addition to providing an intermediary Form W-8 or Form W-8IMY, to attach an appropriate certification by each partner. Prospective investors, including foreign partnerships and their partners, should consult their tax advisors regarding possible additional reporting requirements. If a Foreign Holder cannot satisfy the requirements of the portfolio interest exception described in (1) above, payments on a note, including payments of original issue discount, made to that holder will be subject to a 30% withholding tax unless the beneficial owner of the note provides us or the paying agent, as the case may be, with a properly executed (A) IRS Form 1001 or Form W-8BEN claiming an exemption from, or reduction of, withholding under the benefit of a tax treaty or (B) IRS Form 4224 or Form W-8ECI stating that interest paid on the note is not subject to withholding tax because it is effectively connected with the beneficial owner's conduct of a trade or business in the United States. Treasury regulations that will become generally effective for payments made beginning January 1, 2001, modify various certification requirements described above. In general, these new regulations do not significantly alter the substantive withholding and information reporting requirements, but rather unify current certification procedures and forms and clarify reliance standards. In addition, the new regulations impose different conditions on the ability of financial intermediaries acting for a Foreign Holder to provide certifications on behalf of the Foreign Holder, which may include entering into an agreement with the Internal Revenue Service to audit selected documentation with respect to these certifications. It is possible that we and other withholding agents may request new withholding exemption forms from holders in order to qualify for continued exemption from withholding under the Treasury regulations when they 122 126 become effective. Foreign Holders should consult their own tax advisors to determine the effects of the application of the new regulations to their particular circumstances. If a Foreign Holder is engaged in a trade or business in the United States, and payment on a note, including payments of original issue discount, is effectively connected with the conduct of that trade or business, the Foreign Holder, although exempt from U.S. federal withholding tax as discussed above, generally will be subject to U.S. federal income tax on that payment on a net income basis in the same manner as if it were a United States Holder. In addition, if the Foreign Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% or applicable lower tax treaty rate on its effectively connected earnings and profits for the taxable year, subject to adjustments. For this purpose, the payment on a note will be included in the foreign corporation's earnings and profits. INFORMATION REPORTING AND BACKUP WITHHOLDING UNITED STATES HOLDERS. In general, information reporting requirements will apply to payments on a note, to accrued original issue discount and to the proceeds of the sale of a note to some noncorporate United States Holders. A 31% backup withholding tax may apply to the payments if the United States Holder: - fails to furnish or certify its correct taxpayer identification number to the payer in the manner required, - is notified by the Internal Revenue Service that it has failed to report payments of interest and dividends properly, or - under some circumstances, fails to certify that it has not been notified by the Internal Revenue Service that it is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules will be allowed as a credit against the holder's U.S. federal income tax. Provided that the holder has filed a return and the required information is furnished to the Internal Revenue Service, the holder may be entitled to a refund of the excess of the amount withheld over the holder's federal income tax liability. FOREIGN HOLDERS. Under current regulations, no information reporting or backup withholding will apply to payments to Foreign Holders if a statement described in the previous section regarding Foreign Holders has been received and the payor does not have actual knowledge that the beneficial owner is a U.S. person. If these conditions are not satisfied, information reporting and backup withholding will apply. These rules also apply to payments on a note paid to the beneficial owner by a U.S. office of an agent or broker. In addition, backup withholding and information reporting will not apply if payments on a note are paid or collected by a foreign agent on behalf of the beneficial owner of the note, or if a foreign office of a broker, as defined in applicable U.S. Treasury regulations, pays the proceeds of the sale of a note to the owner of the note. Information reporting, however, may be required in some circumstances. If the agent or broker is, for U.S. federal income tax purposes: - a United States person, - a controlled foreign corporation, - a foreign person that derives 50% or more of its gross income for specified periods from the conduct of a trade or business in the United States, or - with respect to payments made beginning January 1, 2000, a foreign partnership if, at any time during its tax year, one or more of its partners are "U.S. persons," as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership if, at any time during the tax year, the partnership is engaged in a U.S. trade or business, - the payments will be subject to information reporting, but not backup withholding, unless (1) the agent or broker has documentary evidence in its records that the beneficial owner is not a U.S. person and other conditions are met or (2) the beneficial owner otherwise establishes an exemption. The Treasury regulations that will become generally effective for payments made beginning January 1, 2000 modify some of the certification requirements for backup withholding. It is possible that we and other withholding agents may request a new withholding exemption form from holders in order to qualify for continued exemption from backup withholding under Treasury regulations when they become effective. THIS DISCUSSION MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. PROSPECTIVE UNITED STATES HOLDERS AND FOREIGN HOLDERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE 123 127 ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE EFFECTS OF CHANGES IN THOSE LAWS. 124 128 PLAN OF DISTRIBUTION Each broker-dealer that receives new notes for its own account in connection with the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by broker-dealers in connection with resales of new notes received in exchange for old notes if old notes were acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities. We have agreed that this prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer in connection with resales of new notes for a period ending on the earlier of 180 days from the date on which the registration statement under which the exchange offer is made is declared effective and the date when all broker-dealers receiving new notes for their own accounts in connection with the exchange offer have sold all of those new notes held by them. See "The exchange offer -- Resales of New Notes." New notes that broker-dealers receive for their own accounts in connection with 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 new notes or a combination of these methods of resale. These resales may be at market prices prevailing at the time of resale, at prices related to the prevailing market prices or at negotiated prices. Any of these resales 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 broker-dealer and/or the purchasers of any new notes. Any broker-dealer that resells new notes that were received by it for its own account in connection with the exchange offer and any broker or dealer that participates in a distribution of new notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any resale of new notes and any commissions or concessions received by any of these persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We shall not be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related new notes, and each of these persons may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the new notes to be issued. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports and other information with the SEC under the Securities Exchange Act of 1934. The file number for our SEC filings is 333-39643. You can inspect and copy all of this information at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a web site that contains reports, proxy statements and information statements and other information regarding issuers, like us, that file electronically with the SEC. The address of this web site is http://www.sec.gov. This prospectus is a part of a registration statement on Form S-4 that we filed with the SEC under the Securities Act of 1933. The rules of the SEC allow us to leave some of the information contained in the registration statement out of this prospectus. Therefore, you should review the registration statement and its exhibits for further information about us. Copies of the registration statement and its exhibits are on file at the offices of the SEC and you can view them at the SEC's website. You should read the exhibits for a more complete description of the matters involved. You should rely only on the information or representations provided in this prospectus and the registration statement. We have not authorized anyone to provide you with different information. LEGAL MATTERS Wilmer, Cutler & Pickering, Washington, D.C., will pass upon the validity of the new notes for us. 125 129 EXPERTS The consolidated financial statements of Anker Coal Group, Inc. as of December 31, 1998 and 1997 and for the period from August 1, 1996 to December 31, 1996 and the consolidated financial statements of Anker Group, Inc. for the period from January 1, 1996 to July 31, 1996 included in this prospectus have been so included in reliance on the reports, which contain an explanatory paragraph relating to our ability to continue as a going concern, as described in Note 14 to the financial statements, of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The reserve reports and estimates of our coal reserves included in this prospectus have, to the extent described in the prospectus, been prepared by us and audited by Marshall Miller & Associates. Summaries of these estimates contained in Marshall Miller & Associates' audit report have been included in this prospectus as Annex A. We have relied on Marshall Miller & Associates as an expert with respect to the matters contained in the audit report. 126 130 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------ AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Accountants............................................................................ F-2 Report of Independent Accountants............................................................................ F-3 Consolidated Balance Sheets at December 31, 1998 and 1997.................................................... F-4 Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 and for the period August 1, 1996 (date of acquisition) through December 31, 1996 and for the period January 1, 1996 through July 31, 1996.......................................................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997 and for the period August 1, 1996 (date of acquisition) through December 31, 1996........................................................................... F-6 Consolidated Statements of Stockholders' Equity for the period January 1, 1996 through July 31, 1996............................................................... F-7 Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 and for the period from August 1, 1996 (date of acquisition) through December 31, 1996 and for the period January 1, 1996 through July 31, 1996................................... F-8 Notes to Consolidated Financial Statements................................................................... F-9 UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet at September 30, 1999................................................... F-27 Condensed Consolidated Statements of Operations for the nine and three months ended September 30, 1999 and 1998.................................................. F-28 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998................................................................... F-29 Notes to Condensed Consolidated Financial Statements......................................................... F-30 FINANCIAL STATEMENT SCHEDULES Schedules have been omitted because the information required in the schedules is not applicable or is shown in the financial statements or the notes to the financial statements.
F-1 131 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Anker Coal Group, Inc. and Subsidiaries: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Anker Coal Group, Inc. and its subsidiaries (the Company) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998 and the five month period ended December 31, 1996, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, and assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the Company has experienced recurring losses from operations, negative cash flows from operations and has a retained deficit that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 14. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania March 29, 1999 F-2 132 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Anker Group, Inc. and Subsidiaries: We have audited the accompanying consolidated statement of operations, stockholders' equity, and cash flows of Anker Group, Inc. and Subsidiaries (Predecessor) for the period January 1, 1996 through July 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion of these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their cash flows of Anker Group, Inc. and Subsidiaries (Predecessor) for the period January 1, 1996 through July 31, 1996 in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania February 28, 1997 F-3 133 ANKER COAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (IN THOUSANDS) ASSETS
1998 1997 --------- --------- Current assets: Cash and cash equivalents $ 15 - Accounts receivable: Trade 27,845 $ 31,029 Affiliates 42 223 Inventories 5,876 10,717 Current portion of long-term notes receivable 986 791 Life insurance proceeds receivable - 10,000 Prepaid expenses and other 1,989 3,443 Deferred income taxes 3,683 399 --------- --------- Total current assets 40,436 56,602 Properties: Coal lands and mineral rights 62,398 101,324 Machinery and equipment 72,355 83,370 --------- --------- 134,753 184,694 Less allowances for depreciation, depletion and amortization 26,161 17,333 --------- --------- 108,592 167,361 Other assets: Assets held for sale 10,000 - Advance minimum royalties 4,453 19,050 Goodwill, net of accumulated amortization of $2,517 and $1,408 in 1998 and 1997, respectively 21,572 43,010 Other intangible assets, net of accumulated amortization of $694 and $432 in 1998 and 1997, respectively 6,268 6,553 Notes receivable 3,735 5,056 Other assets 6,664 7,018 --------- --------- Total assets $ 201,720 $ 304,650 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade 10,982 16,254 Affiliates 480 1,572 Cash overdraft 5,111 3,919 Accrued interest 3,365 3,530 Accrued expenses and other 11,287 8,674 Accrued leasehold termination 3,957 - Accrued reclamation expenses 5,234 355 Current maturities of long-term debt 2,777 799 Common stock available for repurchase 1,505 - --------- --------- Total current liabilities 44,698 35,103 Long-term debt 139,934 132,800 Other liabilities: Accrued reclamation expenses 17,367 18,619 Deferred income taxes 8,242 12,976 Other 6,272 6,771 --------- --------- Total liabilities 216,513 206,269 Commitments and contingencies - - Mandatorily redeemable preferred stock 24,588 22,651 Common stock available for repurchase 8,495 - Stockholders' equity: Preferred stock 23,000 23,000 Common stock - - Paid-in capital 47,900 57,900 Treasury stock (5,100) - Accumulated deficit (113,676) (5,170) --------- --------- Total stockholders' equity (47,876) 75,730 --------- --------- Total liabilities and stockholders' equity $ 201,720 $ 304,650 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-4 134 ANKER COAL GROUP, INC. AND SUBSIDIARIES AND PREDECESSOR CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
THE COMPANY THE COMPANY THE COMPANY PREDECESSOR ----------- ----------- ----------- ----------- PERIOD PERIOD YEAR YEAR AUGUST 1 JANUARY 1 ENDED ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, 1998 1997 1996 1996 ------------ ------------ ------------ ----------- Coal sales and related revenue $ 291,426 $ 322,979 $ 123,246 $ 166,909 Expenses: Cost of operations and selling expenses 276,469 295,387 110,215 149,364 Depreciation, depletion and amortization 18,150 17,470 6,437 7,882 General and administrative 9,076 9,462 3,738 3,796 Stock compensation and related expenses - - - 2,969 Loss on impairment and restructuring charges 90,717 8,267 - - --------- --------- --------- -------- Total expenses 394,412 330,586 120,390 164,011 Operating (loss) income (102,986) (7,607) 2,856 2,898 Interest, net of $386 and $760 capitalized in 1998 and 1997, respectively (13,066) (10,042) (2,090) (2,796) Life insurance proceeds - 15,000 - - Other income, net 2,805 2,083 373 1,107 --------- --------- --------- -------- (Loss) income before income taxes and extraordinary item (113,247) (566) 1,139 1,209 Income tax (benefit) expense (7,643) (1,242) 485 (134) --------- --------- --------- -------- Net (loss) income before extraordinary item (105,604) 676 654 1,343 Extraordinary loss, net of taxes of $375 and $1,497 in 1998 and 1997, respectively 965 3,849 - - --------- --------- --------- -------- Net (loss) income (106,569) (3,173) 654 1,343 Less mandatorily redeemable preferred stock dividends 1,337 1,276 512 116 Less mandatorily redeemable preferred stock accretion 600 600 263 - --------- --------- --------- -------- Net (loss) income available to common Stockholders $(108,506) $ (5,049) $ (121) $ 1,227 ========= ========= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 135 ANKER COAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND FOR THE PERIOD AUGUST 1, 1996 THROUGH DECEMBER 31, 1996 (IN THOUSANDS)
PREFERRED COMMON PAID-IN TREASURY ACCUMULATED STOCK STOCK CAPITAL STOCK DEFICIT TOTAL ---------- -------- ----------- --------- ----------- ---------- Balance at August 1, 1996 - - - - - - Initial Company capitalization $23,000 - $ 57,900 - - $ 80,900 Net income - - - - $ 654 654 Mandatorily redeemable preferred stock dividends - - - - (512) (512) Mandatorily redeemable preferred stock accretion - - - - (263) (263) -------- ------- --------- ------- --------- ---------- Balance at December 31, 1996 23,000 - 57,900 - (121) 80,779 Net loss - - - - (3,173) (3,173) Mandatorily redeemable preferred stock dividends - - - - (1,276) (1,276) Mandatorily redeemable preferred stock accretion - - - - (600) (600) -------- ------- --------- ------- --------- ---------- Balance at December 31, 1997 23,000 - 57,900 - (5,170) 75,730 Net loss - - - - (106,569) (106,569) Mandatorily redeemable preferred stock dividends - - - - (1,337) (1,337) Mandatorily redeemable preferred stock accretion - - - - (600) (600) Issuance of Class A common stock awards - - - - - - Reclassification of Class A common stock to common stock available for repurchase - - (15,000) - - (15,000) Repurchase of Class A common stock - - 5,000 (5,000) - - Repurchase of Class C preferred stock - - - (100) - (100) -------- ------- --------- ------- --------- ---------- Balance at December 31, 1998 $23,000 - $ 47,900 $(5,100) $(113,676) $ (47,876) ======== ======= ========= ======= ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-6 136 PREDECESSOR CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1996 THROUGH JULY 31, 1996 (IN THOUSANDS)
PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS TOTAL -------- -------- -------- -------- -------- Balance at December 31, 1995 $14,122 $ 50 $40,007 $ 3,024 $57,203 Stock compensation - - 1,500 - 1,500 Net income - - - 1,343 1,343 Mandatorily redeemable preferred stock dividends - - - (116) (116) -------- -------- -------- -------- -------- Balance at July 31, 1996 $14,122 $ 50 $41,507 $ 4,251 $59,930 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-7 137 ANKER COAL GROUP, INC. AND SUBSIDIARIES AND PREDECESSOR CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THE COMPANY THE COMPANY THE COMPANY PREDECESSOR ----------- ----------- ----------- ----------- YEAR YEAR PERIOD PERIOD ENDED ENDED AUGUST 1 THROUGH JANUARY 1 DECEMBER 31, DECEMBER 31, DECEMBER 31, THROUGH JULY 31, 1998 1997 1996 1996 ----------- ----------- ----------- ----------- Cash flows from operating activities: Net (loss) income $(106,569) $ (3,173) $ 654 $ 1,343 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Extraordinary item, net of taxes 965 3,849 - - Loss on impairment and restructuring charges 90,717 8,267 - - Depreciation, depletion and amortization 18,150 17,470 6,437 7,882 Minority interest - - 31 (5) Life insurance proceeds - (15,000) - - Deferred taxes (8,018) (2,739) 485 (257) Gain on sale of property, plant and equipment (302) (352) (203) (806) Loss on sale of investment - 1,069 - - Stock compensation - - - 2,969 Tax refund received 722 - - - Changes in operating assets and liabilities (net of assets and liabilities acquired and disposed of): Accounts receivable 3,365 (5,536) (434) 2,153 Inventories, prepaid expenses and other 5,105 (7,511) 5,515 (1,258) Advance minimum royalties (2,915) (3,777) (2,095) (706) Accounts payable, accrued expenses and other (6,186) 2,513 (10,087) 8,095 Other liabilities (499) (127) (867) (388) -------- --------- -------- -------- Net cash (used in) provided by operating activities (5,465) (5,047) (564) 19,022 -------- --------- -------- -------- Cash flows from investing activities: Purchase of Anker Group, Inc., including related acquisition cost of $7,534, net of cash acquired of $6,980 and liabilities assumed of $151,873 - - (66,554) - Acquisitions - (9,883) (4,262) - Purchases of properties (11,795) (45,203) (6,769) (3,046) Proceeds from sales of property, plant and equipment 2,535 2,549 213 1,560 Proceeds from sale of investment - 3,551 - - Issuances of notes receivable (38) (2,156) (4,991) (671) Payments received on notes receivable 1,164 5,134 518 889 Intangible assets - (927) (277) - Other assets - (90) (2,846) (496) -------- --------- -------- -------- Net cash used in investing activities (8,134) (47,025) (84,968) (1,764) -------- --------- -------- -------- Cash flows from financing activities: Proceeds from revolving line of credit and long-term debt 155,698 174,259 81,460 49,389 Principal payments on revolving line of credit and long-term debt (146,586) (249,199) (45,372) (79,184) Proceeds from issuance of Senior Notes - 125,000 - - Cash overdraft 1,192 2,135 - - Debt issuance costs (1,590) (5,679) - - Purchase of treasury stock (5,100) - - - Proceeds from issuance of preferred and common stock - - 50,000 - Proceeds received from life insurance 10,000 5,000 - - -------- --------- -------- -------- Net cash provided by (used in) financing activities 13,614 51,516 86,088 (29,795) -------- --------- -------- -------- Increase (decrease) in cash and cash equivalents 15 (556) 556 (12,537) Cash and cash equivalents at beginning of period - 556 - 13,526 -------- --------- -------- -------- Cash and cash equivalents at end of period $ 15 - $ 556 $ 989 ======= ========= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-8 138 ANKER COAL GROUP, INC. AND SUBSIDIARIES AND PREDECESSOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION Anker Coal Group, Inc. and Subsidiaries (the "Company") was formed in August 1996. The Company was capitalized with approximately $50 million in cash and $14.1 million of preferred and common stock exchanged for similar stock in Anker Group, Inc. and Subsidiaries (the "Predecessor"). Subsequently, the Company acquired the remaining 92.5% of the common stock of the Predecessor for approximately $87 million, which was funded by the issuance of $25 million of Class A mandatorily redeemable preferred stock and the payment of $62 million in cash, $12 million of which was borrowed under the Company's credit facilities. The acquisition was effective on August 12, 1996 but for accounting purposes, the Company has designated August 1, 1996 as the effective date of the acquisition. The acquisition of the Predecessor was accounted for using the purchase method of accounting as prescribed under Accounting Principles Bulletin No. 16, "Accounting for Business Combinations." The operating results of this acquisition are included in the Company's consolidated results of operations from the date of acquisition. The following unaudited adjusted results have been prepared to illustrate results of operations had the acquisition been made on January 1, 1996 and do not purport to be indicative of what would have occurred had the acquisition been made as of those dates or of results which may occur in the future.
1996 -------------- (IN THOUSANDS) UNAUDITED Coal sales and related revenue $290,155 ======== Operating income $ 5,754 ======== Net income $ 1,997 ========
The Company's operations, which are principally located in West Virginia and Maryland, consist of mining and selling coal from mineral rights which it owns and/or leases, as well as brokering coal from other producers. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements as of December 31, 1998, 1997 and for the period August 1, 1996 (date of acquisition) through December 31, 1996 include the accounts of Anker Coal Group, Inc. and its wholly and majority-owned subsidiaries. The consolidated financial statements for the period January 1, 1996 through July 31, 1996 include the accounts of the Predecessor. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. The Company must maintain a lockbox account and direct all cash receipts to this account. Control of this account has been transferred to the Foothill Capital Corporation, as agent, under the Company's Credit Facility. INVENTORIES: Coal inventories are stated at the lower of average cost or market and amounted to approximately $4,415,000 and $8,822,000 at December 31, 1998 and 1997, respectively. Supply inventories are stated at the lower of average cost or market and amounted to approximately $1,461,000 and $1,895,000 at December 31, 1998 and 1997, respectively. F-9 139 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED PROPERTIES: Properties are recorded at cost, which includes the allocated purchase price for the acquisition described in Note 1. Coal lands represent the investment in land and related mineral and/or surface rights, including capitalized mine development costs, which are being mined or will be mined. Mine development costs of $24.9 million and $40.7 million at December 31, 1998 and 1997, respectively, represent expenditures incurred, net of revenue received and amortization, in the development of coal mines until the principal operating activity becomes coal production. Depletion and amortization of coal lands is computed on a tonnage basis calculated to amortize its costs fully over the estimated recoverable reserves. Provisions for machinery and equipment depreciation are based upon the estimated useful lives of the respective assets and are computed by the straight-line method. Upon sale or retirement of properties, the cost and related accumulated depreciation or depletion are removed from the respective accounts, and any gain or loss is included in other non-operating income. GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of the purchase price over the fair value of the net assets acquired related to the acquisition described in Note 1. Due to the restructuring of the Company's mining operations, goodwill will be prospectively amortized over 3 to 20 years in conjunction with the expected useful lives of existing mineral rights and sales contracts. Other intangible assets consist of debt issuance costs which are being amortized using the straight line method over the life of the associated debt, which approximates the effective interest method. During the period January 1 through July 31, 1997, adjustments were made to increase goodwill due to changes in assumptions or underestimates relating to certain preacquisition, contingent assets and liabilities. Accordingly, goodwill was increased by approximately $4,789,000, net of income taxes. ACCRUED RECLAMATION EXPENSES: Provisions to reclaim disturbed acreage remaining after production has been completed and related mine closing costs are accrued during the life of the mining operation or recorded in conjunction with the acquisition of related properties. The annual provision included in cost of operations is made at a rate per ton equivalent to the estimated end-of-mine-life reclamation cost divided by the estimated tonnage to be mined. The estimated liability of the Company is not discounted or reduced for possible recoveries from insurance carriers. INCOME TAXES: Deferred tax assets and liabilities are determined based on temporary differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. USE OF ESTIMATES: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. F-10 140 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash equivalents approximates fair value. The fair value of current and long term debt is less than the carrying value by approximately $56.3 million at December 31, 1998. The fair value of current and long term debt exceeded the carrying value by approximately $1.3 million at December 31, 1997. The fair value of the Company's borrowings under its senior notes, credit agreement and other notes payable is estimated using the current market rate and discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. ADVANCE MINIMUM ROYALTIES: Advance minimum royalties represent payments, ranging from 2% to 10% of coal yield, made by the Company to landowners for the right to mine on the landowners' property. These payments are initially capitalized then expensed over future production or are expensed as incurred when mine properties are held for sale. IMPAIRMENT OF LONG-LIVED ASSETS: The Company periodically reviews the carrying value of long-lived assets, based on whether they are recoverable from expected future undiscounted operating cash flows and will recognize impairments when the expected future operating cash flow derived from such long-lived assets is less than their carrying value. See Note 13 for the results of the current year evaluation. EARNINGS PER SHARE: The presentation of earnings per share is not required as the Company's stock is not publicly traded. NEW ACCOUNTING PRONOUNCEMENTS: In 1998, the Financial Accounting Standards Boards (FASB) issued its Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. As the Company has no items of other comprehensive income, the requirements of SFAS No. 130 are not applicable. In 1998, FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This pronouncements establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company operates within one industry segment only and, as such, the requirements of SFAS No. 131 are not applicable. In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 enhances the disclosure requirements for pensions and postretirement benefits. The adoption of SFAS No. 132 has no impact on the measurement or recognition of benefits. In 1998, the American Institute of Certified Public Accountants issued its Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on expensing and capitalizing the costs associated with developing or obtaining internal-use software. This pronouncement will be effective for the year ended December 31, 1999. Management is currently assessing the impact that the adoption of this pronouncement will have on the consolidated financial statements. RECLASSIFICATION: Certain amounts in the 1997 consolidated financial statements have been reclassified to conform to the 1998 presentation. F-11 141 3. COAL SALES AND RELATED REVENUE Coal sales and related revenue consists of the following:
THE COMPANY THE COMPANY THE COMPANY PREDECESSOR ----------- ----------- ----------- ----------- PERIOD PERIOD YEAR YEAR AUGUST 1 JANUARY 1 ENDED ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, 1998 1997 1996 1996 ----------- ----------- ----------- ----------- (IN THOUSANDS) Coal mining revenue $207,102 $234,091 $ 85,175 $126,500 Brokered coal revenue 81,220 85,411 36,521 37,697 Ash disposal and waste fuel revenue 3,104 3,477 1,550 2,712 ----------- ----------- ----------- ----------- $291,426 $322,979 $123,246 $166,909 =========== =========== =========== ===========
Included in revenue are sales to unconsolidated affiliated companies aggregating approximately $0.1 million for the year ended December 31, 1998, $9.7 million for the year ended December 31, 1997, $9.2 million for the period August 1, 1996 through December 31, 1996, and $7 million for the period January 1, 1996 through July 31, 1996. The Company recognizes revenue either upon shipment or customer receipt of coal, based on contractual terms. The Company's coal mining revenue is substantially generated from long-term coal supply contracts with domestic utilities and Independent Power Producers throughout the northeastern United States. These contracts range from one to twenty years with fixed based prices which change based on certain industry and government indices. Receivables generally are due within 30 to 45 days. Sales to three customers represented 39.7%, 32.4% and 29.7% of total revenue for years ended December 31, 1998 and 1997, and for the two periods ended December 31, 1996 combined, respectively. The Company performs credit evaluations on all new customers, and credit losses have historically been minimal. 4. FEDERAL EXCISE TAXES Federal excise taxes, included in cost of operations and selling expenses, amounted to $5,786,000 in 1998, $5,896,000 in 1997, $2,188,000 for the period August 1, 1996 through December 31, 1996, and $3,378,000 for the period January 1, 1996 through July 31, 1996. 5. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, DECEMBER 31, 1998 1997 ----------- ------------ (IN THOUSANDS) Senior notes $125,000 $125,000 Foothill Credit Facility 16,911 - Amended and Restated Credit Facility - 7,000 Notes payable to seller 800 1,388 Other notes payable to affiliates - 211 ----------- ------------ 142,711 133,599 Less current maturities of long-term debt 2,777 799 ----------- ------------ $139,934 $132,800 =========== ============
F-12 142 5. LONG-TERM DEBT, CONTINUED SENIOR NOTES: On September 25, 1997, the Company issued $125,000,000 of unsecured 9 3/4% Senior Notes due October 1, 2007. In connection therewith, the Company repaid all outstanding indebtedness together with accrued interest and fees associated with such repayment under the Company's existing credit agreement. The Company incurred a loss on the refinancing of approximately $3.9 million, net of income taxes of $1.5 million. The loss has been classified as an extraordinary item in the consolidated financial statements in 1997. Interest on the Senior Notes is payable semiannually on April 1 and October 1 of each year, commencing April 1, 1998. The Senior Notes are redeemable by the Company, in whole or in part, at any time on or after October 1, 2002 at the redemption price as specified in the agreement plus accrued and unpaid charges. At any time on or prior to October 1, 2000, the Company may redeem up to 35%, through an initial public offering, of the aggregated principal amount of the Senior Notes originally issued at a redemption price equal to 109.75% of the principal amount plus accrued and unpaid charges. The Senior Notes contain certain cross-default provisions related to the Company's outstanding Credit Facility. The Company's obligations under the Senior Notes are jointly and severally guaranteed fully and unconditionally on a senior unsecured basis, by the wholly-owned subsidiaries of the Company that have executed a subsidiary guarantee. See Note 11 for the financial statements of the Company and its guarantor and nonguarantor subsidiaries. CREDIT FACILITY: On November 21, 1998, the Company and Foothill Capital Corporation, as agent, entered into a loan and security agreement whereby the lenders will provide to the Company a $55 million credit facility (the "Credit Facility"). The Credit Facility consists of a $40 million working capital revolver and a $15 million term loan. Commitments under the Credit Facility will expire in 2002. The Credit Facility is collateralized by substantially all of the Company's present and future assets. Borrowings under the revolver are based on 85% of eligible accounts receivable and 65% of eligible inventory and bear interest at the Company's option at either 1% above the prime interest or at 3 3/4% above the adjusted Eurodollar rate. For the year ended December 31, 1998, the average interest rate was approximately 8.75%. As of December 31, 1998, the outstanding indebtedness under the revolver was approximately $1.9 million. The term loan bears interest at 2 1/2% above the prime interest rate and is payable in monthly installments through 2002. The average interest rate for the term loan for the year ended December 31, 1998 was approximately 10.25%. As of December 31, 1998, the outstanding indebtedness under the term loan was approximately $15 million. The Credit Facility contains covenants which, among other matters, restrict or limit the ability of the Company to pay interest, dividends, incur indebtedness, or acquire or sell assets and make capital expenditures. The Company must also maintain certain cash flow ratios. The Credit Facility also contains covenants that require the Company to receive an unqualified audit opinion on its annual financial statements. The issuance of the going-concern opinion by the Company's independent accountants for the year ended December 31, 1998 is a violation of this covenant. However, Foothill has agreed to accept the going concern opinion and the Company has obtained a waiver for this violation from Foothill. AMENDED AND RESTATED CREDIT FACILITY: The Amended and Restated Credit Facility, which was repaid by the Credit Facility, provided for a line of credit up to $71 million. The average interest rate on borrowings under the Amended and Restated Credit Facility was 8.1% in 1998 and 8.89% in 1997. The Company incurred a loss on the refinancing of approximately $965,000, net of income taxes of $375,000. The loss has been classified as an extraordinary item in the consolidated financial statements in 1998. NOTE PAYABLE TO SELLER: In conjunction with an acquisition, the Company assumed an outstanding note payable, which bears interest at 7.47% and is payable in monthly installments through April 1, 2000. F-13 143 5. LONG-TERM DEBT, CONTINUED OTHER MATTERS: Future minimum required principal payments on long-term debt are: $2,777,000 in 1999; $2,309,000 in 2000; $2,142,900 in 2001; $10,482,000 in 2002 and $125,000,000 thereafter. 6. MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND TREASURY STOCK Mandatorily redeemable preferred stock, common stock and treasury stock as of December 31, 1998 and 1997 consist of the following:
DESCRIPTION 1998 1997 PAR VALUE 1998 1997 - -------------------------------------------------- -------- -------- --------- -------- --------- NUMBER OF SHARES (IN THOUSANDS) AUTHORIZED, ISSUED AND OUTSTANDING Common Stock: Class A 10,199 10,000 $ 0.01 - - ======= ======= ======= ======= Preferred Stock: Class B 10,000 10,000 1,000 $ 10,000 $ 10,000 Class C - 1,000 13,000 13,000 13,000 ------- ------- ------- ------- 10,000 11,000 $ 23,000 $ 23,000 ======= ======= ======= ======= Mandatorily Redeemable Preferred Stock: Class A 10,000 10,000 2,500 $ 28,125 $ 26,788 Class D 1,000 1,000 7,000 7,000 7,000 Less preferred stock discount - - 10,537 11,137 ------- ------- ------- ------- 11,000 11,000 $ 24,588 $ 22,651 ======= ======= ======= ======= Treasury Stock: Common Stock Class A (1,013) - 4,936 $(5,000) - Preferred Stock Class C (1,000) - 100 (100) - ------- ------- ------- ------- (2,013) - $(5,100) - ======= ======= ======= =======
PREFERRED STOCK: Class B preferred stock is nonvoting, with no dividends, redeemable at $1,375 per share upon the event of liquidation or other action described in the preferred stock agreement. Class B stockholders shall be entitled to receive liquidation distributions senior to common stockholders. Class C preferred stock is nonvoting with 4% cumulative dividends, calculated on the gross realization from certain coal sales, redeemable at par value upon the event of liquidation or other action described in the preferred stock agreement. During 1998, the Company repurchased all of the outstanding Class C preferred stock for $100 per share. MANDATORILY REDEEMABLE PREFERRED STOCK: Class A preferred stock is nonvoting with 5% cumulative dividends, mandatorily redeemable at par value over ten years beginning May 31, 2006. Dividends are predicated on meeting certain established debt covenants. Dividends in arrears as of December 31, 1998 and 1997 amounted to $3,125,000 and $1,788,000, respectively, in the aggregate and $313 and $179, respectively, per share. With regards to rights to receive distributions upon liquidation of the Company, Class A shares rank junior to Class D preferred stockholders and senior to Class B preferred and common stockholders. Upon public offering by the Company of its common stock, each holder of Class A preferred stock shall have the right to convert each Class A share to common shares based on a specified formula. F-14 144 6. MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND TREASURY STOCK, CONTINUED Class D preferred stock is nonvoting with 2 1/2% cumulative dividends through 2011, reducing to 1 1/2% cumulative dividends thereafter, calculated on the gross realization from certain coal sales, redeemable at par value over five years beginning December 31, 2006, if aggregate dividends paid on or before December 31, 2005 are less than $5,000,000; otherwise mandatorily redeemable at par value over five years beginning December 31, 2011. With regards to rights to receive distributions upon liquidation of the Company, Class D stockholders rank senior to Class B and common stockholders. The mandatorily redeemable preferred stock was recorded at estimated fair market value, which is less than redemption value. This difference of $12 million is being accreted over the remaining life of the preferred stock. 7. COMMON STOCK AVAILABLE FOR REPURCHASE AND LIFE INSURANCE PROCEEDS On October 12, 1997, John Faltis, the Company's President, Chief Executive Officer and Chairman of the Board of Directors, was killed in a helicopter accident in West Virginia. In accordance with the Stockholders' Agreement, dated as of August 12, 1996, among the Company, Mr. Faltis ("Faltis"), JJF Group Limited Company, a West Virginia limited liability company formerly controlled by Mr. Faltis and now controlled by his estate ("JJF Group"), and others (the "Stockholders' Agreement") the Company maintained key man life insurance on the life of Mr. Faltis in the amount of $15 million. For the year ended December 31, 1997 $15 million was included within the consolidated statement of operations. In accordance with the Stockholders' Agreement, the Company was to use proceeds received from the insurance policy to repurchase common stock owned by JJF Group. In lieu of the certain provisions in the Stockholders' Agreement regarding the purchase and sale of the Company's common stock owned by JJF Group upon the death of Faltis, the Company and JJF Group entered into a Put Agreement dated as of August 25, 1998 (the "Put Agreement") pursuant to which the Company granted to JJF Group the right to require the Company to purchase such common stock. On September 15, 1998, pursuant to the Put Agreement, the Company acquired 1,013 shares of the Company's common stock from JJF Group. The schedule for the remaining payments under the Put Agreement is as follows:
MAXIMUM NUMBER OF SHARES SUBJECT TO PER SHARE PUT OPTION DATE PUT OPTION NOTICE PUT OPTION PRICE TOTAL PURCHASE PRICE - --------------- ----------------- ---------------- -------------------- (IN THOUSANDS) August 1, 1999 305 $ 4,936 $ 1,505 August 1, 2000 325 4,936 1,604 August 1, 2001 1,396 4,936 6,891 ------- ------- 2,026 $10,000 ======= =======
Under the Put Agreement, if JJF Group fails or elects not to put any of its common stock to the Company on or before the applicable date, JJF Group shall not have the right to put those shares to the Company after that date. The Put Agreement also requires the Company to pay interest on the outstanding balance of the total purchase price at the "blended annual rate" established by the Internal Revenue Service. The interest rate will be adjusted on July 25 of each year during the term of the Put Agreement based on the blended annual rate in effect as of that time. For the year ended December 31, 1998, the interest rate for the Put Agreement was 5.63%. F-15 145 8. INCOME TAXES: The (benefit) provision for taxes is comprised of the following:
THE THE THE COMPANY COMPANY COMPANY PREDECESSOR ----------- ---------- ------------ ------------- PERIOD PERIOD YEAR YEAR AUGUST 1 JANUARY 1 ENDED ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, 1998 1997 1996 1996 ----------- ---------- ------------ ------------- (IN THOUSANDS) Current: Federal - - - $ 123 Deferred: Federal and state $(15,597) $ 2,557 $ 1,253 (45) Tax benefit from recognition of net operating losses (18,193) (7,146) (768) (212) Valuation allowance 26,147 3,347 - - ----------- ---------- ------------ ------------ Provision for income taxes before extraordinary item (7,643) (1,242) 485 (134) Tax benefit of extraordinary charge (375) (1,497) - - ----------- ---------- ------------ ------------ $ (8,018) $ (2,739) $ 485 $ (134) =========== ========== ============ =============
In the period January 1 through July 31, 1996, the Predecessor was subject to alternative minimum taxes; accordingly, the $123,000 represents amounts payable under the alternative tax structure, which is a creditable tax that can be used to reduce any future regular income taxes. The reconciliation of the federal statutory tax rate to the consolidated effective tax rate is as follows:
THE THE COMPANY COMPANY THE COMPANY PREDECESSOR ---------- ----------- -------------- ------------- PERIOD PERIOD YEAR YEAR AUGUST 1 JANUARY 1, ENDED ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, 1998 1997 1996 1996 ------- ------- -------- -------- Federal statutory tax rate $(38,992) $ (192) $ 387 $ 411 Goodwill 377 348 122 - Impairment of goodwill 6,667 - - 8 Business meals exclusion 42 55 50 (604) Use of percentage depletion 85 (313) (95) - Loss disallowance - 416 - - Life insurance proceeds - (5,100) - - Valuation allowance 26,147 3,347 - - Mine development amortization - 132 - - Other 223 644 - - State taxes (2,567) (579) 21 51 -------- -------- -------- -------- $(8,018) $(1,242) $ 485 $ (134) ======== ======== ======== ========
F-16 146 8. INCOME TAXES, CONTINUED The components of net deferred tax assets and liabilities as of December 31, 1998 and 1997 are as follows:
1998 1997 --------- ---------- (IN THOUSANDS) Inventory $ 57 $ 77 Other current liabilities 532 322 Accrued reclamation 2,050 - Leasehold termination 1,044 - -------- --------- $ 3,683 $ 399 ======== ========= Depreciation, depletion and amortization (16,089) (14,436) Advance minimum royalties - (611) Accrued reclamation 884 1,071 Other long-term assets (939) 953 Fair market value (6,921) (8,663) Capital loss 1,214 2,871 Contribution carryforwards 301 228 Other long-term liabilities (453) (453) Impairment of assets 14,325 - Restructuring charges 951 - Net operating loss 27,979 9,411 -------- --------- 21,252 (9,629) Valuation allowance (29,494) (3,347) -------- --------- $(8,242) $(12,976) ======== =========
The Company has a federal and state net operating loss carryforwards of approximately $27,726,000 that is available to off set future taxable income beginning in 1999 and will begin to expire in 2006. In addition, the Company has alternative minimum tax credit carryforwards of approximately $253,000 as of December 31, 1998. The Company received a federal tax refund of $722,000 in 1998 through the utilization of previously unrecognized net operating loss carryforwards. This refund was allocated directly to goodwill. The Company has established a full valuation allowance on the net operating loss carryforwards, capital loss carryforwards and contribution carryforwards because the future realization of these assets is uncertain. 9. BENEFIT PLANS DEFINED CONTRIBUTION PLANS The Company has a contributory defined contribution retirement plan covering all employees who meet eligibility requirements. The plan provides for employer contributions representing 5% of compensation. The Company's contributions amounted to $1,452,000 for the year ended December 31, 1998, $1,218,000 for the year ended December 31, 1997, $577,000 for the period August 1, 1996 through December 31, 1996, and $547,000 for the period January 1, 1996 through July 31, 1996. The Company also has a 401(k) savings plan for all employees who meet eligibility requirements. The plan provides for mandatory employer contributions to match 50% of employee contributions up to a maximum of 2% of each participant's compensation. In addition, the Company may make discretionary contributions up to 5% of employee compensation. The Company's contributions amounted to $473,000 for the year ended December 31, 1998, $418,000 for the year ended December 31, 1997, $185,000 for the period August 1, 1996 through December 31, 1996, and $182,000 for the period January 1, 1996 through July 31, 1996. F-17 147 9. BENEFIT PLANS, CONTINUED In addition, the Company has a 401(h) savings plan for the purpose of providing retiree health care benefits. The plan is a defined contribution plan for all employees who meet eligibility requirements and provides for mandatory employer contributions between .237% and 1.66% of each participant's compensation, based on years of service. The Company's contributions amounted to $309,000 for the year ended December 31, 1998, $302,000 for the year ended December 31, 1997, $143,000 for the period August 1, 1996 through December 31, 1996, and $150,000 for the period January 1, 1996 through July 31, 1996. STOCK BENEFIT PLAN In May 1997, the Company's Board of Directors approved a Stock Incentive Plan (the Plan) which provides for grants of restricted stock and nonqualified, compensatory stock options to key employees of the Company and affiliates. During 1998, 199 shares of restricted stock were granted at par value, which approximated fair value. 10. COMMITMENTS AND CONTINGENCIES COAL INDUSTRY RETIREE HEALTH BENEFIT ACT: Current and projected operating deficits in the United Mine Workers of America Benefit Trust Funds (the Funds) resulted in the Coal Industry Retiree Health Benefit Act of 1992 (the Act). The Act created a multiemployer benefit plan called the United Mine Workers of America Combined Benefit Fund (the Combined Fund). The Combined Fund provides medical and death benefits for all beneficiaries of the earlier trusts who were actually 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 (referred to as orphans) to companies using a formula included in the legislation. The Act requires that responsibility for funding those payments be assigned to companies that had been signatories to the National Bituminous Coal Wage Agreement (Agreement). Although the Company does not currently have any operations which are signatory to the Agreement, it is subject to certain liabilities as a result of being signatory to a prior agreement. A company's annual cost of benefits is based on the number of beneficiaries assigned to the company plus a percentage of the cost of unassigned beneficiaries, which is a function of the number of orphans times the per-beneficiary premium. As part of the acquisition described in Note 1, the Company recorded a liability of approximately $7.3 million to recognize the anticipated unfunded obligations under this Act. The Company paid $352,000 for the year ended December 31, 1998, $352,000 for the year ended December 31, 1997, $725,000 for the period August 1, 1996 through December 31, 1996, and $470,000 for the period January 1, 1996 through July 31, 1996. In 1997, the Company brought suit against the Combined Fund for continuing to charge the Company for premiums which, the Company contends, should be paid by the former employer of assigned and unassigned beneficiaries. The Combined Fund filed a counterclaim for the amount of the premiums that the Company has refused to pay as well as penalties and interest. As noted above, the Company has previously recorded all anticipated unfunded obligations under this Act, including the premiums, interest and penalties under dispute. Penalties and interest will accrue until final resolution. ADVANCE MINIMUM ROYALTIES: The Company made royalty payments of approximately $12,254,000 during 1998, $13,233,000 during 1997, $5,307,000 for the period August 1, 1996 through December 31, 1996, and $4,687,000 for the period January 1, 1996 through July 31, 1996. Required minimum royalty payments, over the next five years, on the leases are: $5,258,000 in 1999; $4,933,000 in 2000; $4,056,000 in 2001; $3,066,000 in 2002; and $3,082,000 in 2003. OPERATING LEASES: The Company has office and mining equipment operating lease agreements. Total rent expense approximated $12,467,000 for the year ended December 31, 1998, $9,189,000 for the year ended December 31, 1997, $3,277,998 for the period August 1, 1996 through December 31, 1996, and $5,002,472 for the period January 1, 1996 through July 31, 1996. Minimum annual rentals for office and mining equipment leases for the next five years, including payments for leases for in Accrued Leasehold Termination (See note 13), are approximately $9,722,000 in 1999; $6,987,000 in 2000; $3,194,000 in 2001; $1,472,000 in 2002; and $259,000 in 2003. F-18 148 10. COMMITMENTS AND CONTINGENCIES, CONTINUED CONTINGENCIES: The Company is a party to various lawsuits and claims incidental to its business. While it is not possible to predict accurately the outcome of these matters, management believes that none of these actions will have a material effect on the Company's consolidated financial position, results of operations or cash flows. 11. SUBSIDIARY GUARANTEES The Company is a holding company with no assets other than its investments in its subsidiaries. The Company's $125 million Senior Notes due October 2007 (the "Senior Notes") are guaranteed by certain subsidiaries of the Company (collectively, the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is a wholly-owned subsidiary of the Company and has fully and unconditionally guaranteed the Senior Notes on a joint and several basis. The following tables summarize the financial position, results of operations and cash flows for the Company, the Guarantor Subsidiaries and the subsidiaries of the Company which did not guarantee the Senior Notes (collectively, "Non-Guarantor Subsidiaries"). The Company has not presented separate financial statements and other disclosure regarding the Guarantor Subsidiaries because management has determined that such information is not material to investors. As of December 31, 1998, there were no restrictions affecting the ability of the Guarantor Subsidiaries to make distributions to the Company or other Guarantor Subsidiaries except to the extent provided by law generally (e.g., adequate capital to pay dividends under corporate law). F-19 149 11. SUBSIDIARY GUARANTEES, CONTINUED
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998 ----------------------------------------------------------------- (IN THOUSANDS) ANKER ANKER COAL COAL GUARANTOR NON-GUARANTOR CONS GROUP GROUP SUBS. SUBS. ADJUST. CONS. ---------- ---------- ---------- ---------- --------- BALANCE SHEET Total current assets $ 3,683 $ 31,642 - $ 5,111 $ 40,436 Investment in subsidiaries 55,925 - - (55,925) - Properties, net - 101,302 $ 7,290 - 108,592 Other assets - 52,692 - - 52,692 --------- ---------- --------- --------- ---------- Total assets $ 59,608 $ 185,636 $ 7,290 $(50,814) $ 201,720 ========= ========== ========= ========= ========== Total current liabilities 4,719 34,544 324 5,111 44,698 Long-term debt - 139,934 - - 139,934 Intercompany payable, net (54,985) 47,324 7,661 - - Other long-term liabilities 6,745 25,136 - - 31,881 Mandatorily redeemable preferred stock 24,588 - - - 24,588 Common stock available for repurchase 8,495 - - - 8,495 Total stockholders' equity 70,046 (61,302) (695) (55,925) (47,876) --------- ---------- --------- --------- ---------- Total liabilities and stockholders' equity $ 59,608 $ 185,636 $ 7,290 $(50,814) $ 201,720 ========= ========== ========= ========= ========== STATEMENT OF OPERATIONS Coal sales and related revenues - 291,426 - - 291,426 Cost of operations and operating expenses - 393,637 775 - 394,412 --------- ---------- --------- --------- ---------- Operating income (loss) - (102,211) (775) - (102,986) Other (income) expense 2,302 8,675 (716) - 10 ,261 --------- ---------- --------- --------- ---------- Income (loss) before taxes and extraordinary item (2,302) (110,886) (59) - (113,247) Income tax (benefit) expense (7,643) - - - (7,643) --------- ---------- --------- --------- ---------- Income (loss) before extraordinary item $ 5,341 (110,886) (59) - (105,604) Extraordinary item, net of tax of $1,497 - 965 - - 965 --------- ---------- --------- --------- ---------- Net income (loss) $ 5,341 $(111,851) $ (59) $ - $(106,569) ========= ========== ========= ========= ========== STATEMENT OF CASH FLOWS Net cash (used in) provided by operating activities $ 5,255 $ (10,565) $ (155) - $ (5,465) ========= ========== ========= ========= ========== Net cash used in investing activities - $ (8,134) - - $ (8,134) ========= ========== ========= ========= ========== Net cash provided by financing activities $ (5,255) $ 18,714 $ 155 - $ 13,614 ========= ========== ========= ========= ==========
F-20 150 11. SUBSIDIARY GUARANTEES, CONTINUED
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 ---------------------------------------------------- (IN THOUSANDS) ANKER NON- ANKER COAL COAL GUARANTOR GUARANTOR CONS. GROUP GROUP SUBS. SUBS. ADJUST. CONS. --------- --------- --------- --------- --------- BALANCE SHEET Total current assets $ 399 $ 56,194 $ 9 $ - $ 56,602 Investment in subsidiaries 55,925 - - (55,925) - Properties, net - 160,071 7,290 - 167,361 Other assets - 80,687 - - 80,687 --------- --------- --------- --------- --------- Total assets $ 56,324 $ 296,952 $ 7,299 $(55,925) $ 304,650 ========= ========= ========= ========= ========= Total current liabilities - 34,962 141 - 35,103 Long-term debt - 132,800 - - 132,800 Intercompany payable, net (62,167) 54,108 8,059 - - Other long-term liabilities 14,473 23,893 - - 38,366 Mandatorily redeemable preferred stock 22,651 - - - 22,651 Total stockholders' equity 81,367 51,189 (901) (55,925) 75,730 --------- --------- --------- --------- --------- Total liabilities and $ 56,324 $ 296,952 $ 7,299 $(55,925) $ 304,650 stockholders' equity ========= ========= ========= ========= ========= STATEMENT OF OPERATIONS Coal sales and related revenues - 313,781 9,198 - 322,979 Cost of operations and operating expenses - 310,869 19,717 - 330,586 --------- --------- --------- --------- --------- Operating income (loss) - 2,912 (10,519) - (7,607) Other (income) expense - (7,403) 362 - (7,041) --------- --------- --------- --------- --------- Income (loss) before taxes and extraordinary item - 10,315 (10,881) - (566) Income tax (benefit) expense (1,242) - - - (1,242) --------- --------- --------- --------- --------- Income (loss) before extraordinary item 1,242 10,315 (10,881) - 676 --------- Extraordinary item, net of tax of $1,497 - 3,849 - 3,849 --------- --------- --------- --------- Net income (loss) $ 1,242 $ 6,466 $(10,881) - $ (3,173) ========= ========= ========= ========= ========= STATEMENT OF CASH FLOWS Net cash (used in) provided by operating activities $ 10,000 $(16,992) $ 1,945 - $ (5,047) ========= ========= ========= ========= ========= Net cash used in investing activities $(10,000) $(31,384) $(15,641) $ 10,000 $(47,025) ========= ========= ========= ========= ========= Net cash provided by financing activities - $ 38,400 $ 13,116 - $ 51,516 ========= ========= ========= ========= =========
F-21 151 11. SUBSIDIARY GUARANTEES, CONTINUED
FOR THE PERIOD AUGUST 1, 1996 THROUGH DECEMBER 31, 1996 --------------------------------------------------------- (IN THOUSANDS) ANKER NON- ANKER COAL COAL GUARANTOR GUARANTOR CONS. GROUP GROUP SUBS. SUBS. ADJUST. CONS. ----- --------- --------- ------- ---------- STATEMENT OF OPERATIONS Coal sales and related revenues - $ 118,997 $ 4,249 - $ 123,246 Cost of operations and operating expenses - 115,886 4,504 - 120,390 ----------- ------------- -------------- -------- ---------- Operating income - 3,111 ( 255) - 2,856 Other (income) expense - 1,870 (153) - 1,717 ----------- ------------- -------------- -------- ---------- Income (loss) before taxes - 1,241 (102) - 1,139 Income tax expense (benefit ) $ 485 - - - 485 ----------- ------------- -------------- -------- ---------- Net (loss) income $ (485) $ 1,241 $ ( 102) - $ 654 =========== ============= ============== ======== ========== STATEMENT OF CASH FLOWS Net cash (used in) provided by operating activities - $ ( 5,709) $ 5,145 - $ (564) =========== ============= ============== ======== ========== Net cash used in investing activities - $ (80,379) $ ( 4,589) - $ (84,968) =========== ============= ============== ======== ========== Net cash provided by financing activities - $ 86,088 - - $ 86,088 =========== ============= ============== ======== ==========
12. RELATED PARTIES In July 1997, mineral reserve estimates were audited by John T. Boyd Company. On December 1, 1997, James W. Boyd, President of John T. Boyd Company, and executor of John Faltis' estate, was elected to the Company's Board of Directors. In February 1998, the Company sold its investment in Oak Mountain, LLC to an affiliate for $1. See Note 13 for further information. F-22 152 13. LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES The major components of loss on impairment and restructuring charges were as follows:
1998 1997 --------- --------- (IN THOUSANDS) Impairment of properties and investment $ 44,416 $ 8,267 Exit costs 25,411 - Assets to be disposed 15,983 - Equipment leasehold termination costs 3,957 - Other 950 - --------- --------- $ 90,717 $ 8,267 ========= =========
IMPAIRMENT OF PROPERTIES AND INVESTMENT: The impairments on properties and investments became necessary when the Company reevaluated its business plans as a result of operational and management changes. This reevaluation has resulted in excess carrying values as compared to the expected discounted cash flows. The properties affected and the related asset categories are as follows:
PROPERTY, ADVANCED PLANT AND MINIMUM DESCRIPTION EQUIPMENT ROYALTIES GOODWILL TOTAL - ------------------------------ --------- --------- -------- ----- (IN THOUSANDS) Raleigh County, WV - - $ 5,705 $ 5,705 Upshur County, WV $ 6,036 - - 6,036 Grant County, WV and Garrett County, MD 11,113 $ 7,009 - 18,122 Monongalia County, WV and Preston County, WV 2,652 2,895 9,006 14,553 -------- --------- -------- -------- $ 19,801 $ 9,904 $ 14,711 $ 44,416 ======== ========= ======== ========
EXIT COSTS: Also, in conjunction with the reevaluation, the Company, based on current market conditions and expected mining costs, decided to exit its investment in Webster and Braxton Counties, West Virginia. The exit charges consist of the following:
Asset Category AMOUNT -------------- -------------- (IN THOUSANDS) Property, plant and equipment $ 13,569 Reclamation accrual 5,100 Advanced minimum royalties 1,651 Goodwill 4,896 Other 195 --------- $ 25,411 =========
F-23 153 13. LOSS ON IMPAIRMENT AND RESTRUCTURING CHARGES, CONTINUED ASSETS TO BE DISPOSED: As part of the Company's liquidity planning, certain assets have been identified to be held for sale. These assets have been reclassified to a separate asset account and were adjusted to their fair market value. The fair market values were established by management based on current offers, third party appraisals and other information management believes relevant to establish these values. The asset held for sale charges consist of the following:
PROPERTY, ADVANCED PLANT AND MINIMUM DESCRIPTION EQUIPMENT ROYALTIES TOTAL --------------- --------- --------- ----- (IN THOUSANDS) Raleigh County, WV $ 1,353 $ 2,419 $ 3,772 Preston County , WV 7,721 4,026 11,747 Other Property 464 - 464 -------- -------- ------- $ 9,538 $ 6,445 $15,983 ======== ======== =======
EQUIPMENT LEASEHOLD TERMINATION COSTS: In conjunction with the mining changes described, the Company will also incur losses on equipment currently covered by operating leases. These losses were estimated by comparing lease buyout costs with the expected fair market value of the underlying equipment. These differences totaling $3,957 have been recorded as equipment leasehold termination costs. OAK MOUNTAIN ENERGY, L.L.C. On April 17, 1997, the Company, an affiliate and unrelated parties entered into a joint venture agreement to acquire substantially all of the assets and assume certain liabilities of Oak Mountain Energy Corporation and its affiliates for approximately $40 million, of which $10 million was provided by the Company. Subsequent to the initial capitalization, the Company contributed an additional $255,000. The Company owns an undivided interest in each of the assets and is proportionately liable for its share of each liability of Oak Mountain Energy, L.L.C. ("Oak Mountain") up to its capital investment. In accordance with industry practice and purchase accounting, the Company has presented their proportionate ownership, amounting to 32.0%, in Oak Mountain in the consolidated financial statements from the date of acquisition. In February 1998, the Company sold its investment in Oak Mountain to an affiliate for $1. The Company tried unsuccessfully to sell its investment to other unrelated parties during December 1997 and January and February 1998. The Company has recorded an impairment loss of $8,267,000 to adjust the Company's investment to its fair market value less cost to sell as of December 31, 1997. F-24 154 14. GOING CONCERN Beginning in late 1997 and early 1998, the Company's financial position began to deteriorate due primarily to poor operating performance and excessive capital expenditures. In response to its financial problems, the Company developed a plan to improve operations. This plan consisted of reducing general and administrative expenses and making significant changes in the management of the Company's operations, with an emphasis on adding experienced underground mine managers. Once in place, the new management initiated efforts to improve safety, tighten capital expenditure requirements, improve operational tracking, revamp budgeting and forecasting processes, and initiate training programs to improve communications and productivity. While these efforts improved the Company's operations, the results were not as significant as needed and were not realized in the timeframes projected. In light of that and its continued financial difficulties, the Company revised the plan to insure that it would have adequate long-term liquidity. The revised plan consists of four components: (1) obtain more flexible senior financing; (2) improve cash flow from operations; (3) raise cash by selling certain assets; and (4) reduce the Company's debt. The first component was achieved in November 1998 with the closing of the Credit Facility. The new Credit Facility helps provide the needed flexibility by enabling the Company to borrow against its asset base. The second component of the Company's plan is to utilize contract mining services for its underground operations. By utilizing contractors, the Company expects to reduce both operating and general and administrative expenses, reduce month-to-month cost fluctuations, and minimize future capital expenditures thus improving cash flow from operations. The Company believes it will complete this analysis and engage contractors for certain of its underground operations during the second quarter of 1999. The third component of the Company's plan is to sell certain non-operating assets and select non-strategic operating properties. The non-operating assets which the Company is seeking to sell are those that require substantial development costs and/or have significant holding costs. The operating properties which the Company plans to sell either complement the non-operating assets being held for sale or are not integral to the Company's long-term operating strategy. The Company believes that its efforts to date to market these properties have been hampered by the Company's deteriorated financial position. The Company believes it will be successful in selling all or a part of these assets during the next twelve to eighteen months. The Company will also evaluate reasonable offers on other assets as opportunities develop. The final component of the plan involves reducing the Company's overall debt level. This will be achieved in part through the success of the other components of the plan. Based upon the expected results in the next two years, the Company is also exploring the possibility of restructuring its Senior Notes in order to reduce its long-term debt. The significant annual interest charges from the Senior Notes severely limit the Company's operating flexibility and substantially reduce the Company's ability to grow or replenish its production base. The Company believes that a restructuring of its Senior Notes would improve liquidity. However, there can be no assurance that the Company will be able to restructure its Senior Notes on terms acceptable to it, if at all. The Company and its Board of Directors are committed to this plan and believe the results will provide the foundation for an improved financial position. F-25 155 15. SUPPLEMENTAL CASH FLOW INFORMATION:
THE COMPANY THE COMPANY THE COMPANY PREDECESSOR ----------- ----------- ----------- ----------- PERIOD PERIOD YEAR YEAR AUGUST 1 JANUARY 1 ENDED ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, 1998 1997 1996 1996 ----------- ----------- ----------- ---------- (IN THOUSANDS) Cash paid for interest $ 13,617 $ 7,641 $ 2,747 $ 2,983 Cash paid for taxes - 17 202 8 Details of acquisitions: Fair value of assets - 14,354 8,476 - Liabilities - 4,354 4,214 - -------- -------- --------- ----------- Cash paid - 10,000 4,262 - Less cash acquired - 117 - - -------- -------- --------- ----------- - $ 9,883 $ 4,262 - ======== ======== ========= =========== Non cash activities: Stock exchange in purchase of Anker Group, Inc. - - $ 50,900 - Redeemable preferred stock dividends and accretion $1,937 $ 1,876 $ 775 $ 116 Assets written off to goodwill - $ 4,789 - -
16. QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for 1998 and 1997:
1998 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER - ---------------------------------------------- ------------ ------------ ------------ ----------- Coal sales and related revenue $ 71,574 $ 76,320 $ 78,217 $ 65,315 Loss before extraordinary items (4,206) (5,689) (8,144) (87,565) Net loss (4,206) (5,689) (8,144) (88,530) Net loss available to common stockholders (4,691) (6,173) (8,628) (89,014) 1997 - ---------------------------------------------- Coal sales and related revenue $ 69,980 $ 79,927 $ 90,911 $ 82,161 Income (loss) before extraordinary items 783 (1,260) (948) 2,101 Net income (loss) 783 (1,260) (4,797) 2,101 Net income (loss) available to common stockholders 314 (1,729) (5,269) 1,635
F-26 156 ANKER COAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 ASSETS (UNAUDITED, IN THOUSANDS) Current assets: Cash and cash equivalents $ 21 Accounts receivable 25,431 Inventories 3,279 Current portion of long-term notes receivable 682 Prepaid expenses and other 3,271 Deferred income taxes 3,683 --------------------------- Total current assets 36,367 Properties: Coal lands and mineral rights 62,535 Machinery and equipment 71,893 --------------------------- 134,428 Less allowances for depreciation, depletion and amortization 34,023 --------------------------- 100,405 Other assets: Assets held for sale 9,000 Advance minimum royalties 5,963 Goodwill, net of accumulated amortization of $3,700 at September 30, 1999 20,389 Other intangible assets, net of accumulated amortization of $1,419 at September 30, 1999 5,493 Notes receivable 3,495 Other assets 5,930 ----------------------------- Total assets $ 187,042 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade 10,319 Affiliate 547 Cash overdraft 2,928 Accrued interest 6,310 Accrued expenses and other 10,150 Accrued leasehold termination 3,214 Accrued reclamation expenses 5,015 Current maturities of long-term debt 2,472 Common stock available for repurchase 3,695 --------------------------- Total current liabilities 44,650 Long-term debt 147,119 Other liabilities: Accrued reclamation expenses 15,396 Deferred income taxes 8,242 Other 4,448 --------------------------- Total liabilities 219,855 Commitments and contingencies - Mandatorily redeemable preferred stock 26,093 Common stock available for repurchase 6,891 Stockholders' equity: Preferred stock 23,000 Common stock - Paid-in capital 47,900 Treasury stock (5,100) Accumulated deficit (131,597) --------------------------- Total stockholders' equity (65,797) --------------------------- Total liabilities and stockholders' equity $ 187,042 ===========================
The accompanying notes are an integral Part of the consolidated financial statements. F-27 157 ANKER COAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 -------------- -------------- ------------- -------------- Coal sales and related revenue $ 60,070 $ 78,217 $ 174,293 $ 226,111 Expenses: Cost of operations and selling expenses 53,971 73,512 157,419 214,443 Depreciation, depletion and amortization 4,591 4,792 13,430 13,009 General and administrative 2,836 2,679 6,781 7,767 Loss on impairment and restructuring 1,065 5,517 4,526 7,346 -------------- -------------- ------------- -------------- Total expenses 62,463 86,500 182,156 242,565 -------------- -------------- ------------- -------------- Operating loss (2,393) (8,283) (7,863) (16,454) Interest, net of $386 capitalized for the nine months September 30,1998 (3,711) (3,301) (10,911) (9,421) Other income, net 1,158 273 2,579 821 -------------- -------------- ------------- -------------- Loss before income taxes (4,946) (11,311) (16,195) (25,054) Income tax benefit - (3,167) (200) (7,015) -------------- -------------- ------------- -------------- Net loss (4,946) (8,144) (15,995) (18,039) Mandatorily redeemable preferred stock dividends (352) (334) (1,055) (1,004) Mandatorily redeemable preferred stock accretion (150) (150) (450) (450) Common stock available for repurchase accretion (142) - (421) - -------------- -------------- ------------- -------------- Net loss available to common stockholders $ (5,590) $ (8,628) $ (17,921) $ (19,493) ============== ============== ============= ==============
The accompanying notes are an integral part of the consolidated financial statements. F-28 158 ANKER COAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 ---------------- ---------------- Cash flows from operating activities: Net loss $ (15,995) $ (18,039) Adjustments to reconcile net loss to net cash used in operating activities: Loss on impairment and restructuring 4,526 7,346 Depreciation, depletion and amortization 13,430 13,009 Gain on sale of property, plant and equipment (77) (101) Debt issuance costs 756 - Deferred taxes - (7,015) Changes in operating assets and liabilities: Accounts receivable 2,456 (670) Inventories, prepaid expenses and other 1,315 4,298 Advance minimum royalties (1,893) (1,875) Accounts payable, accrued expenses and other (1,116) 2,711 Accrued reclamation (3,121) (968) Other liabilities (1,824) (142) ---------------- ---------------- Net cash used in operating activities (1,543) (1,446) Cash flows from investing activities: Purchases of properties (5,222) (8,134) Proceeds from sales of property, plant and equipment 1,690 345 Issuance of notes receivable - (20) Payments received on notes receivable 544 1,010 Other assets 794 (310) Investment in affiliate - (333) ---------------- ---------------- Net cash used in investing activities (2,194) (7,442) Cash flows from financing activities: Proceeds from revolving line of credit and long-term debt 187,538 84,600 Principal payments on revolving line of credit and long-term debt (180,658) (75,341) Cash overdraft (2,183) (3,919) Payment of debt issuance costs (954) (421) Treasury stock purchase - (5,100) Proceeds received from life insurance proceeds - 10,000 ---------------- ---------------- Net cash provided by financing activities 3,743 9,819 Increase in cash and cash equivalents 6 931 Cash and cash equivalents at beginning of period 15 - ---------------- ---------------- Cash and cash equivalents at end of period $ 21 $ 931 ================ ================
The accompanying notes are an integral part of the consolidated financial statements. F-29 159 ANKER COAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ACCOUNTING POLICIES The unaudited interim consolidated financial statements presented herein have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-Q and do not include all of the information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. In the opinion of management, these consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's consolidated financial position, results of operations and cash flows. These unaudited interim consolidated financial statements should be read in conjunction with the other disclosures contained herein and with the Company's audited consolidated financial statements and notes thereto contained in the Company's Annual Form 10-K for the year ended December 31, 1998. Operating results for interim periods are not necessarily indicative of results that may be expected for the entire fiscal year. The preparation of financial statements in conformity with generally accepted accounting principles necessarily 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 periods. Actual results could differ from these estimates. Certain amounts in the 1998 consolidated financial statements have been reclassified to conform with the 1999 presentation. 2. INCOME TAXES Income taxes are provided for financial reporting purposes based on management's best estimate of the effective tax rate expected to be applicable for the full calendar year. The Company has established a full valuation allowance on the net operating loss carryforwards, capital loss carryforwards and contribution carryforwards because the realization of these assets are uncertain. 3. INVENTORIES Coal inventories are stated at the lower of average cost or market and amounted to approximately $2.9 million and $4.4 million at September 30, 1999 and December 31, 1998, respectively. Supply inventories are stated at the lower of average cost or market and amounted to approximately $0.4 million and $1.5 million at September 30, 1999 and December 31, 1998, respectively. 4. LOSS ON IMPAIRMENT AND RESTRUCTURING The Company recorded loss on impairment and restructuring charges of $1.1 million and $4.5 million for the three and nine months ended September 30, 1999. The loss on impairment and restructuring recorded in the third quarter consisted of three items. First, the operating sections of the Company's Barbour County deep mine were moved from one area of the reserve to another. As a result of the move, certain unamortized assets were no longer useful in the mining operation, and the Company recorded a $0.6 million charge. Other unamortized assets associated with this area of the Barbour County operation totaling $1.7 million were not impaired because the Company believes these assets will be used for future mining activities. Second, in connection with the close down of the Company's operations in Webster County, the Company recorded $1.0 million of additional charges for reclamation and other close down costs to be incurred over the next seven months. The third component of the loss consists of an income offset of $0.5 million relating to the disposition of certain coal reserves in Preston and Taylor Counties, West Virginia, that were previously impaired during the fourth quarter of 1998. During the second quarter of 1999, the Company reviewed the carrying value of computer software and determined that, in connection with the use of contract miners at the Company's deep mines, certain software would no longer be utilized. As a result, the Company recorded an impairment loss of $1.1 million. In addition, the Company recorded an impairment of $2.4 million relating to properties located in Tazewell County, Virginia. F-30 160 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED The Company recorded loss on impairment and restructuring charges of $5.5 million and $7.3 million for the three and nine months ended September 30, 1998. During 1998, the Company impaired its remaining investment in Oak Mountain of $0.3 million and initiated steps to reduce general and administrative expenses by making management changes resulting in $0.2 million of restructuring charges. In addition, the Company recorded an impairment of $2.4 million in the second quarter of 1998 relating to impairment losses on certain pieces of mining equipment. During the third quarter of 1998, a reclamation charge of $5.1 million was recorded relating to the Company's operations in Webster County. This reclamation charge was a result of a change in the mine plan for the Webster County surface mine. 5. SUBSIDIARY GUARANTEES The Company is a holding company with no assets other than its investments in its subsidiaries. The Company's $125 million principal amount of 9.75% Senior Notes due October 2007 (the "Old Notes") are guaranteed by certain subsidiaries of the Company (collectively, the "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is a wholly-owned subsidiary of the Company and has fully and unconditionally guaranteed the Old Notes on a joint and several basis. The following tables summarize the financial position, results of operations and cash flows for the Company, the Guarantor Subsidiaries and the subsidiaries of the Company which did not guarantee the Old Notes (collectively, "Non-Guarantor Subsidiaries"). The Company has not presented separate financial statements and other disclosure regarding the Guarantor Subsidiaries because management has determined that such information is not material to investors. The restrictions affecting the ability of the Guarantor Subsidiaries to make distributions to the Company or other Guarantor Subsidiaries are set forth in the Loan and Security Agreement dated November 21, 1998, among the Company, Foothill Capital Corporation ("Foothill") and the lenders named therein (the "Foothill Loan Agreement"). The ability of the Guarantor Subsidiaries to make distributions is also affected by law generally (e.g., adequate capital to pay dividends under corporate law). See Note 7 for information on the recent private exchange of $108.5 million of Old Notes for New Secured Notes.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 -------------------------------------------- (IN THOUSANDS) ANKER COAL ANKER COAL GUARANTOR NON-GUARANTOR CONS. GROUP GROUP SUBS. SUBS. ADJUST. CONS. -------- --------- ------- ---------- --------- BALANCE SHEET Total current assets $ 3,683 $ 29,755 - $ 2,929 $ 36,367 Investment in subsidiaries 55,925 - - (55,925) - Properties, net - 93,115 $ 7,290 - 100,405 Other assets - 50,270 - - 50,270 -------- --------- ------- ---------- --------- Total assets $ 59,608 $ 173,140 $ 7,290 $(52,996) $ 187,042 ======== ========= ======= ========== ========= Total current liabilities 3,696 37,965 60 2,929 44,650 Long-term debt - 147,119 - - 147,119 Intercompany payable (receivable), net (54,169) 45,954 8,215 - - Other long-term liabilities 6,745 21,341 - - 28,086 Mandatorily redeemable preferred stock 26,093 - - - 26,093 Common stock available for repurchase 6,891 - - - 6,891 Total stockholders' equity 70,352 (79,239) (985) (55,925) (65,797) -------- --------- ------- ---------- --------- Total liabilities and stockholders' equity $ 59,608 $ 173,140 $ 7,290 $(52,996) $ 187,042 ======== ========= ======= ========== ========= STATEMENT OF OPERATIONS Coal sales and related revenues - $ 174,293 - - $ 174,293 Cost of operations and operating expenses - 181,976 $ 180 - 182,156 -------- --------- ------- ---------- --------- Operating loss - (7,683) (180) - ( 7,863) Other expense $ - (8,332) - - (8,332) -------- --------- ------- ---------- --------- Loss before taxes - (16,015) (180) - (16,195) Income tax benefit 200 - - - 200 -------- --------- ------- ---------- --------- Net income (loss) $ 200 $(16,015) $ (180) - $(15,995) ======== ========= ======= ========== ========= STATEMENT OF CASH FLOWS Net cash provided by (used in) operating activities 200 $ (1,743) - - $ (1,543) ======== ========= ======= ========== ========= Net cash used in investing activities - $ (2,194) - - $( 2,194) ======== ========= ======= ========== ========= Net cash provided by financing activities - $ 3,743 - - $ 3,743 ======== ========= ======= ========== =========
F-31 161 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED 6. COMMITMENTS AND CONTINGENCIES In 1998, certain subsidiaries of the Company (the "Plaintiffs") sued Consolidation Coal Company ("Consol"), the Social Security Administration (the administrator of the Coal Industry Retiree Health Benefits Act of 1992 (the "1992 Coal Act")), and the Trustees of the United Mine Workers of America Combined Benefit Fund (the "Trustees") in the United States District for the Western District of Pennsylvania claiming that (i) Consol is responsible for paying certain of the Plaintiffs' 1992 Coal Act premiums relating to employees that were affected by Consol's breach of several contract mining agreements in the early 1980s (approximately 1/3 of the Plaintiffs' entire premium); (ii) the Social Security Administration should be enjoined from continuing to invoice the Plaintiff for these payments that should be made by Consol; and (iii) the 1992 Coal Act is unconstitutional. The Trustees filed a counterclaim against the Plaintiffs for the amount of premiums they have failed to pay as a result of their claim against Consol. The court granted the Trustee's motion for summary judgment on their counterclaim, and the court granted the motions to dismiss filed by Consol and the Social Security Administration. The Plaintiffs appealed to the United States Third Circuit Court of Appeals. The appeals court reversed the trial court ruling with respect to Consol. However, the appeals court affirmed all other trial court rulings. Thus, the appeals court ruled that the Plaintiffs can pursue their reimbursement claim against Consol, but while that claim is proceeding they must pay the disputed portion of their 1992 Coal Act premiums. At this time, the disputed portion of premiums, including interest and penalties, is approximately $1.3 million. Interest accrues at the post judgment rate of 9% per year. The Plaintiffs filed a petition for appeal with the United States Supreme Court on August 12, 1999. The Third Circuit's judgment has be stayed pending the Supreme Court denial of the writ or otherwise ruling against the Plaintiffs. The entire judgment has been fully accrued by the Company in prior years. In the event the Plaintiffs are required to pay this judgment, the Plaintiffs will fund the judgment from borrowings under the revolving credit facility under the Foothill Loan Agreement. The Company and its subsidiaries are party to various other lawsuits and claims incidental to the conduct of their business. While it is not possible to predict accurately the outcome of these matters, the Company's management does not believe that these matters will have a material effect on the Company's consolidated financial position, results of operations or cash flows. 7. SUBSEQUENT EVENTS On October 28, 1999, the Company completed a private restructuring of the Old Notes and a private placement to raise additional capital. In the transactions, a limited number of qualified noteholders exchanged $108.5 million of their Old Notes for $86.8 million of 14.25% Series A Second Priority Senior Secured Notes due 2007 (paid in kind ("PIK") through April 1, 2000) ("New Secured Notes"). The New Secured Notes are guaranteed by all of the subsidiaries of the Company. Exchanging noteholders waived their right to receive the October 1, 1999 interest payment on the Old Notes. Exchanging noteholders also received warrants to purchase 20% of the common stock of the Company at a nominal exercise price. The Company believes that the nominal exercise price represents the fair value of the warrants at the time of issuance. In connection with the private exchange, exchanging noteholders consented to amendments to the indenture for the Old Notes that, among other things, modified or eliminated various covenants. Following the private exchange, approximately $16.5 million of the Old Notes remain outstanding. The Company also paid the October 1, 1999 cash interest payment on the remaining Old Notes on October 28, 1999, prior to the expiration of the grace period for that interest payment. The Company expects to record the private exchange transaction described above in accordance with FAS-15 "Accounting By Debtors and Creditors For Troubled Debt Restructurings." In the private exchange, the carrying amount of the Old Notes ($125.0 million) and the accrued and unpaid interest of approximately $6.1 million is compared with the New Secured Notes principal and interest payments over time. To the extent the carrying amount is less than the New Secured Notes interest and principal, the Company can adjust its carrying amount. The Company does not expect to change its carrying amount in connection with the private exchange. In conjunction with the private exchange, the Company raised $11.2 million in cash through the sale to Rothschild Recovery Fund L.P. ("RRF") in a private placement of $13.2 million principal amount of New Secured Notes and warrants to purchase 10% of the common stock of the Company at a nominal exercise price. The funds raised in the private placement were applied against the revolving credit facility under the Foothill Loan Agreement. The issuance of the New Secured Notes for cash in the private placement is expected to result in the financial statement recognition of original issue discount. This discount will be accreted over the term of the New Secured Notes. F-32 162 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED The Company also issued $6.0 million of New Secured Notes to JJF Group Limited Liability Company ("JJF Group"), a shareholder of the Company controlled by the estate of John J. Faltis, the former Chairman and Chief Executive Officer of the Company. The New Secured Notes were issued to JJF Group in exchange for cancellation of JJF Group's common stock in the Company and its rights to require the Company to buy that stock for approximately $10.5 million under a Put Agreement dated as of August 25, 1998 (the "Put Agreement"). In connection with the expected accounting treatment for the private exchange with JJF Group, the Company will record the New Secured Notes issued at their face value, and the difference between the New Secured Notes and the common stock available for repurchase (including current portion) will increase paid-in-capital F-33 163 ANNEX A AUDIT OF DEMONSTRATED RESERVES CONTROLLED BY ANKER COAL GROUP, INC. December 1, 1999 Prepared for ANKER COAL GROUP, INC. 2708 Cranberry Square Morgantown, West Virginia 26505 Prepared by MARSHALL MILLER & ASSOCIATES P.O. Box 848 Bluefield, Virginia 24605 164 MARSHALL MILLER & ASSOCIATES LOGO December 1, 1999 Mr. Bruce Sparks, President ANKER COAL GROUP, INC. 2708 Cranberry Square Morgantown, West Virginia 26505 Dear Mr. Sparks: MARSHALL MILLER & ASSOCIATES (MM&A) has completed an audit of reserves controlled by ANKER COAL GROUP, INC. (ANKER). A reserve audit verifies that the audited reserve base has been properly estimated according to industry-accepted standards and that the reserves, as presented, may be used with reasonable geologic assurance for mine planning and/or economic forecasting. This audit was based on a thorough review of an extensive amount of geologic data documenting the Anker reserves as well as Anker's in-house reserve estimations, which were provided by Anker to facilitate the audit. The audit demonstrated that Anker's geologic modeling and reserve estimation methodologies are performed within industry-accepted standards. Moreover, MM&A's independent checks verified the Anker reserve estimates, since differences between the MM&A and Anker estimates were typically less than the generally-accepted margin of error for the estimation of measured reserves. This letter provides a summary of those portions of the audited reserve base that qualify as DEMONSTRATED reserves. - -------------------------------------------------------------------------------- CONCLUSIONS ================================================================================ Our audit of the subject coal properties has confirmed that Anker controls a total demonstrated reserve base of 507.98 million tons of potentially recoverable coal. The demonstrated reserves are reasonably well established by exploration with 50 percent having measured status and 50 percent having indicated status. The table below presents MM&A's estimates of the Anker demonstrated reserve base, which were prepared during the course of this audit. The reserve estimate accounts for mine depletion through September 1999 and is therefore based on Anker's reserves as of October 1, 1999. 165 Mr. Bruce Sparks, President ANKER COAL GROUP, INC. December 1, 1999 Page 2 SUMMARY OF DEMONSTRATED RESERVES (MILLIONS OF TONS)
- -------------------------------------------------------------------------------------------------------------------------- UNDERGROUND TOTAL (UG) OR RECOVERABLE COUNTY AND STATE SURFACE (S) MEASURED INDICATED RESERVES SURFACE UNDERGROUND - -------------------------------------------------------------------------------------------------------------------------- Barbour County, West Virginia UG 23.00 6.98 29.98 29.98 Grant County, West Virginia S/UG 16.21 13.69 29.90 1.30 28.60 Harrison County, West Virginia UG 18.45 38.15 56.60 56.60 Monongalia County, West Virginia S 2.03 0.02 2.05 2.05 Preston County, West Virginia UG 0.68 0.00 0.68 0.68 Raleigh County, West Virginia UG 18.60 12.83 31.43 31.43 Taylor County, West Virginia UG 73.57 144.41 217.98 217.98 Upshur County, West Virginia UG 41.11 24.76 65.87 65.87 Webster County, West Virginia S/UG 2.83 0.11 2.94 2.08 0.86 Allegheny County, Maryland S 4.15 0.10 4.25 4.25 Garrett County, Maryland S/UG 19.43 3.26 22.69 9.55 13.14 Muhlenberg County, Kentucky S/UG 7.08 0.83 7.91 0.34 7.57 Tazewell County, Virginia S/UG 25.26 10.44 35.70 0.90 34.80 - -------------------------------------------------------------------------------------------------------------------------- TOTALS 252.40 255.58 507.98 20.47 487.51 - --------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- DEFINITIONS ================================================================================ Definitions(1) of key terms and criteria applied in this audit are as follows: - RESERVE - Reserve is defined as virgin and/or accessed parts of a coal reserve base that could be economically extracted or produced at the time of determination considering environmental, legal, and technological constraints. DEMONSTRATED RESERVES are the sum of coal reserves classified as measured and indicated as explained below. - RESERVE RELIABILITY CATEGORIES - The reliability categories are related to the level of geologic assurance for the existence of a quantity of resources. Assurance is based on the distance from points where coal is measured or sampled and on the abundance and quality of geologic data as related to thickness of overburden, rank, quality, thickness of coal, areal extent, geologic history, structure, and correlation of coal beds and enclosing rocks. The degree of assurance increases as the proximity to points of control, abundance, and quality of geologic data increase. The reserve reliability categories include: >> MEASURED COAL - Reserve estimates in this category have the highest degree of geologic assurance. Measured coal lies within 1/4 mile of a valid point of measurement or point of observation (such as previously mined areas) supporting such measurements. The sites for thickness measurement are so closely spaced, and the geologic character is so well defined, that the average thickness, areal extent, size, shape, and depth of coal beds are well established. - -------- (1) Source: U.S. Geological Survey Circular 891, "Coal Resource Classification of the U.S. Geological Survey," 1983. 166 Mr. Bruce Sparks, President ANKER COAL GROUP, INC. December 1, 1999 Page 3 >> INDICATED COAL - Reserve estimates in this category have a moderate degree of geologic assurance. There are no sample and measurement sites in areas of indicated coal. However, a single measurement can be used to classify coal lying beyond measured as INDICATED. Indicated coal lies more than 1/4 mile, but less than 3/4 mile, from a point of thickness measurement. Further exploration is necessary to place indicated coal into the measured category. - -------------------------------------------------------------------------------- METHODOLOGY AND QUALIFICATIONS ================================================================================ The reserve estimates presented herein are based on a thorough review and checking of an extensive amount of geologic data provided by Anker to document its reserve estimations. For each reserve area, seam correlations, thickness, and mineable limits were cross-checked by MM&A to the geologic database and maps provided by Anker. Reserve acreage by measured and indicated status, average seam thickness, average seam density, and average mine and wash recovery percentage were verified by MM&A to prepare a check calculation of each reserve. MM&A has previously prepared a number of proprietary reserve reports covering some of the subject reserve areas. A comparison of the geologic data, coal mapping, and reserve estimations from these reports to Anker's in-house reserve mapping and estimations demonstrated that Anker's estimates have been performed within industry-accepted methodologies. Checking of those reserve areas not previously evaluated by MM&A also supported this conclusion. Our audit of the Anker's reserves was planned and performed to obtain reasonable geologic assurance on the subject coal properties. The audit included examination by certified professional geologists of all supplied reserve maps and supporting data using industry-accepted standards. Although the audit methodology is inherently not as exhaustive as a detailed reserve evaluation, in our opinion the audit was conducted in sufficient detail and with independent verification on a test basis of the underlying supporting evidence to provide reasonable assurance for the subject reserves. The reserve audit did not include independent verification of property ownership; we have relied on property information supplied by Anker and considered this information to be accurate. Sincerely, MARSHALL MILLER & ASSOCIATES ENERGY & MINERAL RESOURCES GROUP /s/ J. Scott Nelson /s/ Peter B. Taylor J. Scott Nelson, C.P.G. Peter B. Taylor, K.P.G. Vice President Supervisory Geologist 167 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Anker's Amended and Restated Certificate of Incorporation provides for indemnification of the directors, officers, employees and agents of Anker to the full extent authorized or permitted by law. Section 145 of the Delaware General Corporation Law ("DGCL") empowers a Delaware corporation to indemnify any person who was or is, or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, such person had no reasonable cause to believe his conduct was unlawful. A Delaware corporation may indemnify such persons against expenses (including attorneys' fees) in actions brought by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and to the extent the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Chancery or other such court shall deem proper. To the extent such person has been successful on the merits or otherwise in defense of any action referred to above, or in defense of any claim, issue or matter therein, the corporation must indemnify such person against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. The indemnification and advancement of expenses provided for in, or granted pursuant to, Section 145 is not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 145 also provides that a corporation may maintain insurance against liabilities for which indemnification is not expressly provided by the statute. In addition, Anker's Amended and Restated Certificate of Incorporation, as permitted by Section 102(b) of the DGCL, limits directors' liability to Anker and its stockholders by eliminating liability in damages for breach of fiduciary duty. Section 8 of Anker's Amended and Restated Certificate of Incorporation provides that neither Anker nor its stockholders may recover damages from Anker's directors for breach of their fiduciary duties in the performance of their duties as directors of Anker. As limited by Section 102(b) of the DGCL, this provision cannot, however, have the effect of indemnifying any director of Anker in the case of liability (i) for a breach of the director's duty of loyalty, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL or (iv) for any transactions for which the director derived an improper personal benefit. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The exhibits to this registration statement are listed in the Exhibit Index to this registration statement, which Exhibit Index is hereby incorporated by reference. ITEM 22. Undertakings. The undersigned registrant hereby undertakes: 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 II-1 168 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 a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (1) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) 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. 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 registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, 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. II-2 169 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER COAL GROUP, INC. By: /S/ P. Bruce Sparks ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------------------- ---------------- /S/ William D. Kilgore Chairman and Chief Executive Officer (Principal December 3, 1999 - ------------------------------------ Executive Officer) William D. Kilgore /S/ P. Bruce Sparks President and Director (Principal Executive Officer) December 3, 1999 - ------------------------------------ P. Bruce Sparks /S/ Michael M. Matesic Treasurer (Principal Financial and Accounting December 3, 1999 - ------------------------------------ Officer) Michael M. Matesic /S/ John A. H. Shober Director December 3, 1999 - ------------------------------------ John A.H. Shober /S/ Thomas R. Denison Director December 3, 1999 - ------------------------------------ Thomas R. Denison /S/ Willem H. Hartog Director December 3, 1999 - ------------------------------------ Willem H. Hartog
II-3 170 SIGNATURES Power Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER ENERGY CORPORATION By: /S/ Michael M. Matesic --------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ William D. Kilgore Chief Executive Officer (Principal December 3, 1999 - ------------------------------------ Executive Officer) William D. Kilgore /S/ P. Bruce Sparks President and Director (Principal Executive December 3, 1999 - ------------------------------------ Officer) P. Bruce Sparks /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-4 171 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER GROUP, INC. By: /S/ P. Bruce Sparks ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ P. Bruce Sparks President and Director (Principal Executive December 3, 1999 - ------------------------------------ Officer) P. Bruce Sparks /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-5 172 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER POWER SERVICES, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Richard B. Bolen President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Richard B. Bolen /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-6 173 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER VIRGINIA MINING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Pat Leedy President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Pat Leedy /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-7 174 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. ANKER WEST VIRGINIA MINING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------ Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Gerald Peacock President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Gerald Peacock /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-8 175 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. BRONCO MINING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ P. Bruce Sparks President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director P. Bruce Sparks /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) Michael M. Matesic
II-9 176 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. HAWTHORNE COAL COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Chuck Dunbar President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Chuck Dunbar /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-10 177 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. HEATHER GLEN RESOURCES, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Jeffrey P. Kelly President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Jeffrey P. Kelley /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-11 178 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. JULIANA MINING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Gerald Peacock President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Gerald Peacock /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-12 179 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. KING KNOB COAL CO., INC. By: /S/ Michael M. Matesic ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------- ---------------- /S/ Michael M. Matesic President (Principal Executive Officer), December 3, 1999 - ------------------------------------ Treasurer (Principal Financial and Michael M. Matesic Accounting Officer) and Director
II-13 180 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Carmel, state of Indiana, on December 3, 1999. MARINE COAL SALES COMPANY By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Larry Kaelin President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Larry Kaelin /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic /S/ P. Bruce Sparks Director December 3, 1999 - ------------------------------------ P. Bruce Sparks
II-14 181 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. MELROSE COAL COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------- ---------------- /S/ Michael M. Matesic President (Principal Executive Officer), December 3, 1999 - ------------------------------------ Treasurer (Principal Financial and Michael M. Matesic Accounting Officer) and Director /S/ B. Judd Hartman Secretary (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director B. Judd Hartman
II-15 182 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. NEW ALLEGHENY LAND HOLDING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------- ---------------- /S/ Michael M. Matesic President (Principal Executive Officer), December 3, 1999 - ------------------------------------ Treasurer (Principal Financial and Michael M. Matesic Accounting Officer) and Director /S/ B. Judd Hartman Secretary (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director B. Judd Hartman
II-16 183 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. PATRIOT MINING COMPANY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Gerald Peacock President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Gerald Peacock /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-17 184 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. SIMBA GROUP, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ P. Bruce Sparks President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director P. Bruce Sparks /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic /S/ William D. Kilgore Director December 3, 1999 - ------------------------------------ William D. Kilgore
II-18 185 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. UPSHUR PROPERTY, INC. By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Jeffrey P. Kelley President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Jeffrey P. Kelley /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-19 186 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. VANTRANS, INC. By: /S/ Michael M. Matesic ------------------------------- Title: President POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ---------------------------------------- ---------------- /S/ Michael M. Matesic President (Principal Executive Officer), December 3, 1999 - ------------------------------------ Treasurer (Principal Financial and Michael M. Matesic Accounting Officer) and Director /S/ P. Bruce Sparks Director December 3, 1999 - ------------------------------------ P. Bruce Sparks
II-20 187 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Morgantown, state of West Virginia, on December 3, 1999. VINDEX ENERGY CORPORATION By: /S/ Michael M. Matesic ------------------------------- Title: Treasurer POWER OF ATTORNEY We, the undersigned directors and/or officers of the registrant, hereby severally constitute and appoint P. Bruce Sparks and Michael M. Matesic, and each of them individually, with full powers of substitution and resubstitution, our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-4 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of debt securities and/or guaranties of the registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them individually, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitutes, shall do or cause to be done by virtue of this Power of Attorney. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------ ------------------------------------------- ---------------- /S/ Gerald Peacock President (Principal Executive Officer) and December 3, 1999 - ------------------------------------ Director Gerald Peacock /S/ Michael M. Matesic Treasurer (Principal Financial and December 3, 1999 - ------------------------------------ Accounting Officer) and Director Michael M. Matesic
II-21 188 Exhibit Index
Exhibit No. Description - ------- ------------------------------------------------------------------------------------------------------------------- 3.1 Amended and Restated Certificate of Incorporation of Anker Coal Group, Inc. (Anker) (b) 3.2 First Restated and Amended Bylaws of Anker (b) 3.2.2 Amendment No. 1 to First Restated and Amended By-laws of Anker (h) 3.2.3 Amendment No. 2 to First Restated and Amended Bylaws of Anker (h) 3.5 Certificate of Designation, Preferences and Rights of Class C Preferred Stock of Anker (a) 3.6 Certificate of Designation, Preferences and Rights of Class D Preferred Stock of Anker (a) 3.7 Certificate of Incorporation of Anker Group, Inc. (b) 3.8 Bylaws of Anker Group, Inc. (b) 3.9.1 Certificate of Incorporation of Anker Energy Corporation (b) 3.9.2 Certificate of Ownership and Merger merging Anker Mining and Development Co., Inc. into Anker Energy Corporation (b) 3.9.3 Certificate of Merger of Energy Resource Management Services, Inc. into Anker Energy Corporation (b) 3.10 Bylaws of Anker Energy Corporation (b) 3.11 Articles of Incorporation of Bronco Mining Company, Inc. (b) 3.12 Bylaws of Bronco Mining Company, Inc. (b) 3.13 Articles of Incorporation of Anker Power Services, Inc. (b) 3.14 Bylaws of Anker Power Services, Inc. (b) 3.15.1 Articles of Incorporation of Anker West Virginia Mining Company, Inc. (b) 3.15.2 Articles of Merger of Anker West Virginia Mining Company, Inc. and Advantage Energy Corporation (b) 3.15.3 Articles of Merger of Anker West Virginia Mining Company, Inc. and Beckley Smokeless Limited Liability Company (b) 3.15.4 Articles of Merger of Anker West Virginia Mining Company, Inc. and Pine Valley Coal Company, Inc. (b) 3.15.5 Articles of Merger of Anker West Virginia Mining Company, Inc. and Spruce Fork Coal Company, Inc. (b) 3.16 Bylaws of Anker West Virginia Mining Company, Inc. (b) 3.17 Articles of Incorporation of Juliana Mining Company, Inc. (b) 3.18 Bylaws of Juliana Mining Company, Inc. (b) 3.19.1 Articles of Incorporation of King Knob Coal Co., Inc. (b) 3.19.2 Articles of Merger of Brook Coal Company into King Knob Coal Co., Inc. (b) 3.19.3 Articles of Merger of King Aviation Inc. into King Knob Coal Co., Inc. (b) 3.19.4 Articles of Merger of Peaser Branch Coal Company into King Knob Coal Co., Inc. (b) 3.19.5 Articles of Merger of Sparta Mining Company, Inc. into King Knob Coal Co., Inc. (b) 3.20 Bylaws of King Knob Coal Co., Inc. (b) 3.21 Certificate of Incorporation of Vantrans, Inc. (b) 3.22 Bylaws of Vantrans, Inc. (b) 3.23 Articles of Incorporation of Melrose Coal Company, Inc. (b) 3.24 Bylaws of Melrose Coal Company, Inc. (b) 3.25.1 Certificate of Incorporation of Marine Coal Sales Company (b) 3.25.2 Certificate of Merger of Leflore Energy Corporation into Marine Coal Sales Company (b) 3.26 Bylaws of Marine Coal Sales Company (b) 3.27 Articles of Incorporation of Hawthorne Coal Company, Inc. (b) 3.28 Bylaws of Hawthorne Coal Company, Inc. (b) 3.29 Certificate of Incorporation of Upshur Property, Inc. (b) 3.30 Bylaws of Upshur Property, Inc. (b) 3.31 Articles of Incorporation of Heather Glen Resources, Inc. (b) 3.32 Bylaws of Heather Glen Resources, Inc. (b) 3.33 Articles of Incorporation of New Allegheny Land Holding Company, Inc. (b) 3.34 Bylaws of New Allegheny Land Holding Company, Inc. (b) 3.35.1 Articles of Incorporation of Patriot Mining Company, Inc. (b) 3.35.2 Articles of Merger of Ajax Mining Company, Inc. into Patriot Mining Company, Inc. (b) 3.35.3 Articles of Merger of Sandy Creek Land Company, Inc. into Patriot Mining Company, Inc. (b) 3.36 Bylaws of Patriot Mining Company, Inc. (b) 3.37 Articles of Incorporation of Vindex Energy Corporation (b) 3.38 Bylaws of Vindex Energy Corporation (b)
II-22 189
Exhibit No. Description - ------- ------------------------------------------------------------------------------------------------------------------- 3.39 Articles of Incorporation of Anker Virginia Mining Company, Inc. (b) 3.40 Bylaws of Anker Virginia Mining Company, Inc. (b) 3.41 Articles of Incorporation of Simba Group, Inc. 3.42 Bylaws of Simba Group, Inc. 4.1 Indenture for 14.25% Second Priority Senior Secured Notes Due 2007 (PIK through April 1, 2000), dated as of October 1, 1999, including form of Notes 5.1 Form of Opinion of Wilmer, Cutler & Pickering as to the legality of the securities being registered 8.1 Form of Opinion of Wilmer, Cutler & Pickering as to certain tax matters 10.1 Stockholders Agreement among Anker Coal Group, Inc., John J. Faltis, JJF Group Limited Liability Company, P. Bruce Sparks, PPK Group Limited Liability Company, Anker Holding B.V., First Reserve Corporation, American Oil & Gas Investors, Limited Partnership, AMGO II, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited Partnership, dated as of August 12, 1996 (a) 10.2 Employment Agreement between P. Bruce Sparks, Anker Energy Corporation and Anker Coal Group, dated August 1, 1996 (b) 10.3 Anker Coal Group, Inc. Omnibus Stock Incentive Plan (b) 10.4 Form of Restricted Stock Award Agreement (b) 10.5 Form of Stock Option Grant Agreement (b) 10.6 Asset Purchase Agreement among Oak Mountain Energy, L.L.C., Oak Mountain Energy Corporation, *Boone Resources, Inc., Kodiak Coal, Inc., Cahaba Coal Engineering & Land Surveying, Inc., Coal Handling and Processing, Inc., Mountaineer Management, Inc. and Jimmie R. Ryan and Duane Stranahan, Jr., dated February 20, 1997 (b) 10.7.1 Operating Agreement of Oak Mountain Energy, L.L.C., dated February 20, 1997 (b) 10.7.2 Amendment No. 1 to Operating Agreement of Oak Mountain Energy, L.L.C., dated April 9, 1997 (b) 10.8.1 Operating Agreement of Shelby Energy Group, L.L.C., dated February 20, 1997 (b) 10.8.2 Amendment No. 1 to Operating Agreement of Shelby Energy Group, L.L.C., dated April 9, 1997 (b) 10.9 Registration Rights Agreement, dated as of August 12, 1996, by and among Anker Coal Group, Inc., JJF Group Limited Liability Company, PPK Group Limited Liability Company, Anker Holding, B.V., American Oil and Gas Investors, Limited Partnership, AMGO II, Limited Partnership, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund, VI, Limited Partnership, and First Reserve Fund VII, Limited Partnership (b) 10.10 Stock Purchase Warrant, dated as of August 12, 1996 (b) 10.11 Loan and Security Agreement dated as of November 21, 1998, among certain subsidiaries of Anker Coal Group, Inc., Foothill Capital Corporation and others (d) 10.12 Amendment No. 1 to Loan Documents dated as of August 4, 1999 amending the Loan and Security Agreement, dated as of November 21, 1998 by and among certain Subsidiaries of Anker Coal Group, Inc., certain financial institutions party thereto and Foothill Capital Corporation, as agent (g) 10.13 Amendment No. 2 to Loan Documents dated as of August 26, 1999, amending the Loan and Security Agreement, dated as of November 21, 1999, by and among certain Subsidiaries of Anker Coal Group, Inc., certain financial institutions party thereto and Foothill Capital Corporation, as agent. (f) 10.14 Registration Rights Agreement, dated as of October 26, 1999, between Anker, the Guarantors listed on Schedule A thereto and the Purchasers and Exchanging Noteholders listed on Schedule B thereto 10.15 Exchange and Purchase Agreement, dated as of October 26, 1999, by and among Anker, the Guarantors listed on Schedule I thereto, the Exchanging Noteholders listed on Schedule III thereto and the Purchaser listed on Schedule II thereto 10.16 JJF Group Exchange Agreement, dated as of October 26, 1999, by and among Anker, the Guarantors listed on Schedule I thereto and JJF Group Limited Liability Company (JJF Group) 10.17 Termination and Cancellation Agreement, dated as of October 26, 1999, by and between Anker and JJF Group 10.18 Supplemental Indenture, dated as of October 1, 1999, amending and supplementing the Indenture dated as of September 25, 1997 for 9 3/4% Senior Notes Due 2007 by and among Anker, the Guarantors signatory thereto and HSBC Bank USA (formerly known as Marine Midland Bank), as Trustee 10.19 Form of Stock Purchase Warrant 10.20 Warrant Agreement, dated as of October 26, 1999, by and between Anker and The Bank of New York, as Warrant Agent 10.21 Common Stock Registration Rights Agreement, dated as of October 26, 1999, by and among Anker and the
II-23 190
Exhibit No. Description - ------- ------------------------------------------------------------------------------------------------------------------- Exchanging Noteholders and Purchaser signatory thereto 10.22 Investor Agreement, dated as of October 26, 1999, by and among Anker and the Holders of Warrant Shares named therein 10.23 Intercreditor Agreement, dated as of October 1, 1999, by and between Foothill Capital Corporation (Foothill) and The Bank of New York, as Collateral Agent 10.24 Consent and Amendment No. 3 to Loan Documents, dated as of October 1, 1999 by Foothill, the Borrowers and the Lender Group 10.25 Option Agreement, dated as of October 1, 1999, between Foothill Capital Corporation and Rothschild Recovery Fund L.P. 10.26 General Security Agreement, dated as of October 1, 1999, by and among Anker, The Bank of New York, as Trustee and Collateral Agent, and the Guarantors signatory thereto 10.27 Pledge and Security Agreement, dated as of October 1, 1999, among the entities set forth on Schedule A thereto, in favor of The Bank of New York, as Trustee 10.28 Pledge and Security Agreement, dated as of October 1, 1999, by Anker West Virginia Mining Company, Inc. in favor of The Bank of New York, as Trustee 10.29 Contract Mining Agreement dated as of June 25, 1999 by and between Anker West Virginia Mining Company, Inc. ("AWVMC") and Baylor Mining, Inc. for contract mining services to be provided at the underground coal mining operation and related surface facilities in Raleigh County, West Virginia, known as the "BayBeck Mine."* (g) 10.30 Contract Mining Agreement dated as of June 24, 1999 by and between AWVMC and BJM Coal Company for contract mining services to be provided in connection with coal reserves in the Middle Kittanning seam in Upshur County, West Virginia.* (g) 10.31 Contract Mining Agreement dated as of April 9, 1999 by and between AWVMC and Steyer Fuel, Inc. for contract mining services to be provided at the underground mining operation in the Bakerstown seam of coal in Garrett County, Maryland, known as the "Steyer Mine."* (g) 10.32 Contract Mining Agreement, dated May 5, 1999, between Anker West Virginia Mining Company, Inc. ("AWVMC") and Wayne Processing, Inc. ("Independent Contractor"), for contract mining services to be provided by Independent Contractor at the underground coal mining operation in Upshur County, West Virginia, known as the "Spruce Mine No. 1." *(e) 10.33 Contract Mining Agreement, dated May 5, 1999, between Anker West Virginia Mining Company, Inc. ("AWVMC") and Wayne Processing, Inc. ("Independent Contractor"), for contract mining services to be provided by Independent Contractor at the underground coal mining operation in Barbour County, West Virginia, known as the "Spruce Mine."*(e) 10.34 Employment Agreement dated as of May 1, 1999 by and between Anker Energy Corporation and William D. Kilgore (g) 10.35 Put Agreement dated as of August 25, 1998 between Anker Coal and JJF Group LLC (c) 10.36 Coal Sales Agreement, dated as of October 22, 1999, by and between Anker Energy Corporation and AK Steel Corporation* 10.37 Coal Supply Agreement by and among Anker Energy Corporation, Anker West Virginia Mining Company, Inc., Juliana Mining Company, Inc. and Potomac Electric Power Company* 10.38 Coal Sales Agreement dated as of September 15, 1989 by and between Anker Energy Corporation and Morgantown Energy Associates* 10.39 Coal Supply Agreement dated April 1, 1992 between Anker Energy Corporation and Keystone Energy Service Company, L.P.* 10.40 Coal Supply and Services Agreement dated as of December 1, 1990 between Anker Energy Corporation and ER&L Thames, Inc.* 21 List of Subsidiaries of Anker 23.1 Consent of Wilmer, Cutler & Pickering (included in Exhibits 5.1 and 8.1) 23.2 Consent of PricewaterhouseCoopers LLP (successor to Coopers & Lybrand L.L.P.), as independent auditors for Anker 23.3 Consent of Marshall Miller & Associates 24 Powers of Attorney (included in the signature pages of this registration statement)
- -------- * A portion of the exhibit, as indicated therein, has been redacted pursuant to a request for confidential treatment filed with the Commission. II-24 191
Exhibit No. Description - ------- ------------------------------------------------------------------------------------------------------------------- 25 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee under the Indenture 99.1 Form of Letter of Transmittal 99.2 Form of Notice of Guaranteed Delivery 99.3 Form of Exchange Agent Agreement (i)
(a) Incorporated by reference from the registrant's Registration Statement on Form S-4 /A (File No. 333-39643) first filed with the Commission on January 12, 1998. (b) Incorporated by reference from the registrant's Registration Statement on Form S-4 /A (File No. 333-39643) first filed with the Commission on February 10, 1998. (c) Incorporated by reference from the registrant's Form 8-K filed with the Commission on September 22, 1998. (d) Incorporated by reference from the registrant's Form 8-K filed with the Commission on December 10, 1998. (e) Incorporated by reference from the registrant's Form 8-K filed with the Commission on June 7, 1999. (f) Incorporated by reference from the registrant's Form 8-K filed with the Commission on August 27, 1999. (g) Incorporated by reference from the registrant's Form 10-Q filed with the Commission on August 16, 1999. (h) Incorporated by reference from the registrant's Form 10-Q filed with the Commission on November 15, 1999. (i) To be filed by Amendment. II-25 EX-3.41 2 ARTICLES OF INCORPORATION OF SIMBA GROUP, INC. 1 EXHIBIT 3.41 CERTIFICATE OF INCORPORATION OF SIMBA GROUP, INC. THE UNDERSIGNED, in order to form a corporation for the purposes hereinafter stated, under and pursuant to the provisions of the General Corporation Law of the State of Delaware, does hereby certify as follows: 1. The name of the Corporation is SIMBA GROUP, INC. 2. The address of its registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware, 19801. The name of its registered agent at such address is Corporation Trust Company. 3. 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. 4. The total number of shares of all classes of capital stock which the Corporation is authorized to issue is one thousand (1,000) shares, which shall consist of one class as follows: 1,000 shares of common stock, par value $100 per share. Each holder of any of the shares of any class or series of the capital stock of the corporation shall be entitled to a preemptive right to purchase or subscribe for any additional issue of shares of such class or series, or securities convertible into shares of such class or series; provided, however, that there shall be no such preemptive right with respect to the issuance of shares or options to any officer or employee of the corporation or its subsidiaries pursuant to any compensation or incentive plan adopted by the board of directors. 2 5. The name and mailing address of the incorporator are as follows: NAME MAILING ADDRESS Bruce Sparks c/o Anker Energy Corporation 2708 Cranberry Square Morgantown, WV 26505 6. The Corporation is to have perpetual existence. 7. The Corporation shall indemnify to the full extent authorized or permitted by the laws of the State of Delaware, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, domestic or foreign, against expenses, attorneys' fees, court costs, judgments, fines, amounts paid in settlement and other losses actually and reasonably incurred by him in connection with such action, suit or proceeding and shall advance expenses incurred by an officer or director in defending such civil or criminal action, suit or proceeding to the full extent authorized or permitted by the laws of the State of Delaware upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized by Section 145 of the Delaware General Corporation Law. 8. A director shall have no personal liability to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; however, the foregoing provision shall not eliminate the liability of a director (i) for breach of the 2 3 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 an improper personal benefit. 9. The principal place of business of the Corporation may be located within or outside the State of Delaware. Meetings of the stockholders may be held within or outside the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any applicable provision of law) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. 10. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, its directors and its stockholders, it is further provided that (a) the board of directors of the Corporation is expressly authorized and empowered to adopt, amend or repeal by-laws subject to the power of the stockholders to amend or repeal by-laws made by the board of directors and (b) elections of directors of the Corporation need not be by written ballot. IN WITNESS WHEREOF, I, the undersigned, hereby make this Certificate, declaring and certifying that this is my act and deed and that the facts herein stated are true, and accordingly I have hereunto set my hand this 26th day of June, 1996. /s/ Bruce Sparks ---------------------------- Bruce Sparks EX-3.42 3 BYLAWS OF SIMBA GROUP, INC. 1 EXHIBIT 3.42 BY-LAWS OF SIMBA GROUP, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office shall be established and maintained at 1209 Orange Street, Wilmington, Delaware, 19801. Corporation Trust Company shall be the registered agent of this corporation in charge thereof. SECTION 2. OTHER OFFICES. The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose other than the election of directors may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. 2 SECTION 3. VOTING. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder. Upon the demand of any stockholder, the vote for directors, and the vote upon any question before the meeting, shall be by ballot. All elections for directors and all other questions shall be decided by majority vote except as otherwise provided in any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, the Certificate of Incorporation or the laws of the State of Delaware. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be opened to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, 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 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 4. QUORUM. Except as otherwise required by law, by the Certificate of Incorporation, by these By-Laws or by any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, the presence, in person or by proxy, of stockholders holding all of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than 2 3 announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes may be called by an officer of the corporation, or by resolution of the Board of Directors. SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. 3 4 ARTICLE III DIRECTORS SECTION 1. NUMBER AND TERM. The number of directors shall be not less than two (2) and not more than five (5). Except as provided in any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, the directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his successor shall be elected and qualified. Directors need not be stockholders. SECTION 2. REMOVAL. Except as provided in any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose, and the vacancies thus created may be filled, at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote. SECTION 3. INCREASE OF NUMBER. The number of directors may be increased by amendment of these By-Laws by the affirmative vote of a majority of the directors, though less than a quorum, or, by the affirmative vote of a majority in interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors shall have been elected and qualified. SECTION 4. POWERS. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, by the Certificate of Incorporation of the corporation, by these By-Laws or by any valid written agreement among all of the stockholders of the corporation 4 5 or among such stockholders and the corporation conferred upon or reserved to one or more of the stockholders or their designees. SECTION 5. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The Board 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 or committees. The member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to amend the Certificate of Incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or to amend the By-Laws of the corporation; and, unless the resolution, these By-Laws, or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 6. MEETINGS. The newly-elected directors shall hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after 5 6 the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent in writing of all the directors. Regular meetings of the directors may be held without notice at such places and times as shall be determined from time to time by resolution of the directors. Special meetings of the Board may be called by an officer of the corporation on the written request of any two directors on at least two days' notice to each director and shall be held at such place or places as may be determined by the directors, or as shall be stated in the call of the meeting. SECTION 7. QUORUM. A majority of the directors shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the directors present at such meeting will constitute a decision of the Board of Directors. If at any meeting of the Board of Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. SECTION 8. COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the Board of Directors a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors, or of 6 7 such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. SECTION 10. PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of Directors of the corporation, or any committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting shall constitute presence in person at such meeting. ARTICLE IV OFFICERS SECTION 1. OFFICERS. The officers of the corporation shall be a President, a Treasurer and a Secretary, all of whom shall be elected by the Board of Directors and who shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect such Vice Presidents, Assistance Secretaries and Assistant Treasurers as it may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. More than two offices may be held by the same person. SECTION 2. OTHER OFFICERS AND AGENTS. Except as otherwise provided in the any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, the Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 7 8 SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4. PRESIDENT. The President shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of president of a corporation. He shall preside at all meetings of the stockholders if present thereat, and, in the absence or non-election of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts in behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. SECTION 5. VICE PRESIDENT. Each Vice President, if any, shall have such powers and shall perform such duties as shall be assigned to him by the directors. SECTION 6. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or 8 9 whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. SECTION 7. SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V MISCELLANEOUS SECTION 1. RESIGNATIONS. Any director, member of a committee or corporate officer may, provided the same would not result in a breach of any contract to which said person is a party, resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. 9 10 SECTION 2. VACANCIES. Except as otherwise provided in any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, if the office of any director becomes vacant, by reason of death, disability or otherwise, the vacancy may be filled by the affirmative vote of a majority in interest of the stockholders entitled to vote. If the office of any corporate officer becomes vacant, by reason of death, disability or otherwise, the Board of Directors may appoint any qualified person to fill such vacancy, who shall hold office for the unexpired term and until his successor shall be duly chosen. SECTION 3. CERTIFICATES OF STOCK. Certificates of stock, signed by the Chairman of the Board of Directors, or the President or any Vice President, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. When such certificates are countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, the signatures of such officers may be facsimiles. SECTION 4. LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock represented by such certificate, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. SECTION 5. TRANSFER OF SHARES. The shares of stock of the corporation shall be transferable only as permitted under any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, and the Certificate of 10 11 Incorporation. Such shares shall be transferable only upon the books of the corporation by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. SECTION 6. STOCKHOLDERS RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. 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. SECTION 7. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation and any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the 11 12 directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the corporation. SECTION 8. SEAL. The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 9. FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. In the absence of such determination, the fiscal year shall be the calendar year. SECTION 10. CHECKS. 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 be determined from time to time by resolution of the Board of Directors. SECTION 11. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his 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 mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-Laws, a 12 13 waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VI INDEMNIFICATION Except as provided in any valid written agreement among all of the stockholders of the corporation or among such stockholders and the corporation, to the full extent permitted by law, the corporation may indemnify any person, or his heirs, distributees, next of kin, successors, appointees, executors, administrators, legal representatives and assigns, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, domestic or foreign, against expenses, attorneys' fees, court costs, judgments, fines, amounts paid in settlement and other losses actually and reasonably incurred by him in connection with such action, suit or proceeding and shall advance expenses including attorney's fees) incurred by an officer or director in defending such civil, criminal, administrative or investigative action, suit or proceeding of the full extent authorized or permitted by the laws of the State of Delaware upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized by Section 145 of the Delaware General Corporation Law. 13 14 ARTICLE VII AMENDMENTS These By-Laws may be altered or repealed and new By-Laws may be made at any annual meeting of the stockholders or at any special meeting thereof by the affirmative vote of the holders of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors. 14 EX-4.1 4 INDENTURE 1 EXHIBIT 4.1 - -------------------------------------------------------------------------------- ANKER COAL GROUP, INC., AS ISSUER AND THE GUARANTORS SIGNATORY HERETO ------------- 14.25% SECOND PRIORITY SENIOR SECURED NOTES DUE 2007 (PIK THROUGH APRIL 1, 2000) INDENTURE DATED AS OF OCTOBER 1, 1999 ------------- THE BANK OF NEW YORK, AS TRUSTEE - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.................................................................1 SECTION 1.1 Definitions..............................................................................1 SECTION 1.2 Other Definitions.......................................................................25 SECTION 1.3 Incorporation by Reference of Trust Indenture Act.......................................26 SECTION 1.4 Rules of Construction...................................................................27 ARTICLE II THE NOTES................................................................................................27 SECTION 2.1 Form and Dating.........................................................................27 SECTION 2.2 Execution and Authentication............................................................29 SECTION 2.3 Registrar and Paying Agent..............................................................30 SECTION 2.4 Paying Agent to Hold Money in Trust.....................................................30 SECTION 2.5 Holder Lists............................................................................31 SECTION 2.6 Transfer and Exchange...................................................................31 SECTION 2.7 Replacement Notes.......................................................................46 SECTION 2.8 Outstanding Notes.......................................................................46 SECTION 2.9 Treasury Notes..........................................................................46 SECTION 2.10 Temporary Notes.........................................................................47 SECTION 2.11 Cancellation............................................................................47 SECTION 2.12 Defaulted Interest......................................................................47 SECTION 2.13 CUSIP Numbers...........................................................................48 SECTION 2.14 Record Date.............................................................................48 ARTICLE III REDEMPTION AND PREPAYMENT...............................................................................48 SECTION 3.1 Notices to Trustee......................................................................48 SECTION 3.2 Selection of Notes to be Redeemed.......................................................48 SECTION 3.3 Notice of Redemption....................................................................49 SECTION 3.4 Effect of Notice of Redemption..........................................................50 SECTION 3.5 Deposit of Redemption Price.............................................................50 SECTION 3.6 Notes Redeemed in Part..................................................................50 SECTION 3.7 Optional Redemption.....................................................................50 SECTION 3.8 Mandatory Redemption....................................................................51 SECTION 3.9 Offer to Purchase by Application of Excess Proceeds.....................................51 ARTICLE IV COVENANTS................................................................................................53 SECTION 4.1 Payment of Notes........................................................................53 SECTION 4.2 Maintenance of Office or Agency.........................................................53 SECTION 4.3 Reports.................................................................................54 SECTION 4.4 Compliance Certificate; Notices of Default under Senior Secured Indebtedness; Reporting Requirements..................................................................54 SECTION 4.5 Taxes...................................................................................55 SECTION 4.6 Stay, Extension and Usury Laws..........................................................55 SECTION 4.7 Limitation on Restricted Payments.......................................................56 SECTION 4.8 Dividend and Other Payment Restrictions Affecting Subsidiaries..........................58 SECTION 4.9 Incurrence of Indebtedness and Issuance of Disqualified Stock...........................59
3 SECTION 4.10 Asset Sales.............................................................................61 SECTION 4.11 Transactions with Affiliates............................................................63 SECTION 4.12 Liens...................................................................................64 SECTION 4.13 Business Activities.....................................................................64 SECTION 4.14 Corporate Existence.....................................................................64 SECTION 4.15 Offer to Repurchase upon Change of Control..............................................65 SECTION 4.16 Payments for Consent....................................................................65 SECTION 4.17 Additional Subsidiary Guarantees........................................................66 SECTION 4.18 Use of Trust Moneys and Advances by Collateral Agent....................................66 SECTION 4.19 Insurance...............................................................................66 ARTICLE V SECURITY..................................................................................................68 SECTION 5.1 Security Interest.......................................................................68 SECTION 5.2 Lien Subordination......................................................................68 SECTION 5.3 Enforcement of Security.................................................................69 SECTION 5.4 Possession and Use of Collateral........................................................70 SECTION 5.5 Disposition of Collateral Without Release...............................................70 SECTION 5.6 Release of Collateral Generally.........................................................72 SECTION 5.7 Procedures for Release of Collateral....................................................73 SECTION 5.8 Substitute Collateral...................................................................76 SECTION 5.9 Substitution of Cash Collateral.........................................................78 SECTION 5.10 Discharge of Security Interest..........................................................79 SECTION 5.11 Reliance on Opinion of Counsel..........................................................79 SECTION 5.12 Intercreditor Arrangements Among Senior Lenders.........................................79 SECTION 5.13 Purchaser May Rely......................................................................80 SECTION 5.14 Payment of Expenses.....................................................................80 SECTION 5.15 Suits to Protect the Collateral.........................................................80 SECTION 5.16 Trustee's and Collateral Agent's Duties.................................................80 SECTION 5.17 Eminent Domain and Other Governmental Takings...........................................81 SECTION 5.18 Powers Exercisable by Receiver or Trustee...............................................82 SECTION 5.19 Disposition of Collateral on Discharge of Prior Liens...................................82 SECTION 5.20 Disposition of Obligations Received.....................................................83 ARTICLE VI SUCCESSORS...............................................................................................83 SECTION 6.1 Merger, Consolidation, or Sale of Assets................................................83 SECTION 6.2 Successor Corporation Substituted.......................................................84 ARTICLE VII DEFAULTS AND REMEDIES...................................................................................84 SECTION 7.1 Events of Default.......................................................................84 SECTION 7.2 Acceleration............................................................................86 SECTION 7.3 Other Remedies..........................................................................86 SECTION 7.4 Waiver of Past Defaults.................................................................87 SECTION 7.5 Control by Majority.....................................................................87 SECTION 7.6 Limitation on Suits.....................................................................88 SECTION 7.7 Rights of Holders of Notes to Receive Payment...........................................88 SECTION 7.8 Collection of Indebtedness and Suits for Enforcement by Trustee.........................88 SECTION 7.9 Trustee May File Proofs of Claim........................................................89
4 SECTION 7.10 Priorities..............................................................................90 SECTION 7.11 Undertaking for Costs...................................................................90 ARTICLE VIII TRUSTEE AND COLLATERAL AGENT...........................................................................90 SECTION 8.1 Duties of Trustee.......................................................................90 SECTION 8.2 Rights of Trustee.......................................................................92 SECTION 8.3 Individual Rights of Trustee............................................................93 SECTION 8.4 Trustee's Disclaimer....................................................................93 SECTION 8.5 Notice of Defaults......................................................................93 SECTION 8.6 Reports by Trustee to Holders of the Notes..............................................94 SECTION 8.7 Compensation and Indemnity..............................................................94 SECTION 8.8 Replacement of Trustee..................................................................95 SECTION 8.9 Successor Trustee by Merger, Etc........................................................96 SECTION 8.10 Eligibility Disqualification............................................................96 SECTION 8.11 Preferential Collection of Claims against Company.......................................96 ARTICLE IX..........................................................................................................97 ARTICLE IX LEGAL DEFEASANCE AND COVENANT DEFEASANCE.................................................................97 SECTION 9.1 Option to Effect Legal Defeasance or Covenant Defeasance................................97 SECTION 9.2 Legal Defeasance and Discharge..........................................................97 SECTION 9.3 Covenant Defeasance.....................................................................97 SECTION 9.4 Conditions to Legal or Covenant Defeasance..............................................98 SECTION 9.5 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions...................................................99 SECTION 9.6 Repayment to Company...................................................................100 SECTION 9.7 Reinstatement..........................................................................100 ARTICLE X APPLICATION OF TRUST MONEYS..............................................................................100 SECTION 10.1 "Trust Moneys" Defined.................................................................100 SECTION 10.2 Retirement of Notes; Release of Proceeds of Asset Sales................................101 SECTION 10.3 Withdrawal of Insurance Proceeds and Condemnation Awards...............................102 SECTION 10.4 Powers Exercisable Notwithstanding Event of Default....................................104 SECTION 10.5 Powers Exercisable by Collateral Agent or Receiver.....................................105 SECTION 10.6 Disposition of Notes Retired...........................................................105 SECTION 10.7 Condemnation of All Collateral.........................................................105 SECTION 10.8 Investment of Trust Moneys.............................................................105 ARTICLE XI AMENDMENT, SUPPLEMENT AND WAIVER........................................................................106 SECTION 11.1 Supplemental Indentures and Amendments Without Consent of Holders of Notes....................................................................106 SECTION 11.2 Supplement or Amendment to Security Documents Without Consent of Holders of Notes............................................................107 SECTION 11.3 With Consent of Holders of Notes.......................................................108 SECTION 11.4 Compliance with Trust Indenture Act....................................................110 SECTION 11.5 Revocation and Effect of Consents......................................................110 SECTION 11.6 Notation or Exchange of Notes..........................................................110
5 SECTION 11.7 Trustee to Sign Amendments, Etc........................................................110 ARTICLE XII SUBSIDIARY GUARANTEES..................................................................................111 SECTION 12.1 Guarantees.............................................................................111 SECTION 12.2 Limitation of Guarantor's Liability....................................................112 SECTION 12.3 Execution and Delivery of Subsidiary Guarantees........................................112 SECTION 12.4 Guarantors May Consolidate, Etc, on Certain Terms......................................113 SECTION 12.5 Releases Following Sale of Assets......................................................114 SECTION 12.6 "Trustee" to Include Paying Agent......................................................114 ARTICLE XIII MISCELLANEOUS.........................................................................................114 SECTION 13.1 Trust Indenture Act Controls...........................................................114 SECTION 13.2 Notices................................................................................115 SECTION 13.3 Communication by Holders of Notes with Other Holders of Notes..........................116 SECTION 13.4 Certificate and Opinion as to Conditions Precedent.....................................116 SECTION 13.5 Statements Required in Certificate or Opinion..........................................116 SECTION 13.6 Rules by Trustee and Agents............................................................117 SECTION 13.7 No Personal Liability of Directors, Officers, Employees and Stockholders...............117 SECTION 13.8 Governing Law..........................................................................117 SECTION 13.9 No Adverse Interpretation of Other Agreements..........................................117 SECTION 13.10 Successors.............................................................................117 SECTION 13.11 Severability...........................................................................117 SECTION 13.12 Counterpart Originals..................................................................117 SECTION 13.13 Table of Contents, Headings, Etc.......................................................118 EXHIBIT A Forms of Note EXHIBIT B General Security Agreement EXHIBIT C Pledge and Security Agreements EXHIBIT D Intercreditor Agreement EXHIBIT E Form of Certificate of Transfer (Owner) EXHIBIT F Form of Certificate of Transfer (Transferor) EXHIBIT G Form of Subsidiary Guarantee EXHIBIT H Form of Opinion of Counsel
6 INDENTURE dated as of October 1, 1999 among Anker Coal Group, Inc., a Delaware corporation (the "Company"), the entities listed on Schedule A hereto (each a "Guarantor" and collectively, the "Guarantors"), and The Bank of New York, as trustee (the "Trustee"). WHEREAS, the Company has duly authorized the creation and issuance of up to $119,200,000 aggregate principal amount of 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) plus the Secondary Notes and the Optional Notes, and to provide therefor and to secure the Notes (as hereinafter defined), the Company and each Guarantor have duly authorized the execution and delivery of this Indenture; WHEREAS, the Company and the Guarantors desire by this Indenture, among other things, (i) to provide for the authentication and delivery of the Notes by the Trustee to the Holders (as hereinafter defined) against payment therefor and (ii) to provide for the guarantee of the Notes by the Guarantors; and WHEREAS, to secure the prompt payment of the principal of (and premium, if any) and interest on, and all other amounts due with respect to, all the Notes from time to time outstanding hereunder and the performance and observance by the Company and each of the Guarantors of all the agreements, covenants and provisions contained herein (including, without limitation, the Trustee's rights to indemnification hereunder), in the Notes and in the Security Documents (as hereinafter defined), and for the uses and purposes and subject to the terms and provisions hereof, and in consideration of the premises and of the covenants herein contained and of the acceptance of the Notes by the Holders thereof, each of the Company and the Guarantors has, or has caused to be, granted, conveyed, mortgaged, sold, assigned, transferred, pledged, deposited and confirmed, and does hereby grant, convey, mortgage, sell, assign, transfer, pledge, deposit and confirm, unto the Trustee, its successors and assigns, for the security and benefit of the Holders from time to time of the Notes, a security interest in and Lien (as hereinafter defined) on all Collateral (as hereinafter defined) whether now existing or hereafter subjected to the Lien of the Security Documents. NOW, THEREFORE, IT IS HEREBY COVENANTED AND AGREED, for and in consideration of the foregoing premises and the purchase of the Notes by the Holders thereof, for the ratable benefit of all Holders, as follows: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. "144A Global Note" means the Global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Series A Notes sold in reliance on Rule 144A. 1 7 "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to the Company and the Guarantors arising out of the sale or lease of goods or the rendition of services by the Company and the Guarantors, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. "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 became 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. "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. "Agent" means any Registrar, Paying Agent or co-registrar. "Amendments to Deeds of Trust" means the documents executed, acknowledged, delivered and recorded amending the Mortgages to include the Optional Notes as additional obligations secured by the Mortgages. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel Bank that apply to such transfer or exchange. "Appraiser" means an engineer, appraiser or other expert who (except as otherwise expressly provided in this Indenture) may be employed by or affiliated with the Company. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, by way of (A) a sale and leaseback or (B) a Contract Settlement) other than 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 Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 hereof and/or the provisions of Article VI hereof and not by Section 4.10 hereof), and (ii) 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 (i) or (ii), whether in a single transaction or a series of related transactions that have a fair market value (as determined in good faith by the Board of Directors) in excess of $100,000 or for net cash proceeds in excess of $100,000. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Guarantor or by a Guarantor to the Company or to another Guarantor, (ii) an issuance of Equity Interests by a Guarantor to the Company or to another Guarantor, (iii) a Restricted Payment that is permitted 2 8 by Section 4.7 hereof, (iv) a disposition of Cash Equivalents, (v) a disposition in the ordinary course of business of either obsolete equipment or equipment otherwise no longer useful in the business, (vi) a disposition in the ordinary course of business of mineral rights or Real Property no longer useful in the business for Net Proceeds not to exceed $50,000 in the aggregate in any calendar year, (vii) any sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary, (viii) any sale and leaseback of an asset within 90 days after the completion of construction or acquisition of such asset, (ix) a contribution of Excluded Assets to an entity engaged in a Permitted Business in exchange for an equity interest in such entity that is subjected to the Lien of the Security Documents and (x) any disposition permitted by Section 5.5(a)(ii) or (iii) shall not be considered an Asset Sale. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company, or any authorized committee of the Board of Directors. "Books" means all of the Company's and the Guarantors' books and records including: ledgers; records indicating, summarizing, or evidencing the Company's and the Guarantors' properties or assets (including the Collateral) or liabilities; all information relating to the Company's and the Guarantors' business operations or financial condition; and all computer programs, disk or tape files, printouts, runs or other computer prepared information. "Business Day" means any day other than a Legal Holiday. "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 (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited) and (iv) 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 Collateral" means United States legal tender or Cash Equivalents which have been deposited in the Collateral Account. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above 3 9 entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") and in each case maturing within six months after the date of acquisition, (vi) investment funds investing substantially all of their assets in securities of the types described in clauses (i)-(v) above and (vii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P. "Cedel Bank" means Cedel Bank, societe anonyme. "Change of Control" means the occurrence of any of the following: (i) 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 Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange Act), other than to the Permitted Holders, (ii) the adoption of a plan relating to the liquidation or dissolution of the Company, (iii) 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 Permitted Holders, becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 80% of the Voting Stock of the Company (measured by voting power rather than number of shares) or (iv) the Company consolidates with, or merges with or into, any Person, other than the Permitted Holders, or any Person, other than the Permitted Holders, consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which 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). "Closing Price" of any Notes means, on any date of determination, (i) the average of the closing bid prices in the over the counter market, as quoted to the Company for such date by such of the following investment banking firms as are quoting closing bid prices for Notes on such date: Goldman, Sachs & Co., Bear Stearns & Co., Donaldson Lufkin & Jenrette Securities Corporation and Jeffries & Company, or (ii) if no such quotes are available, the market value of the Notes on such date as determined by Donaldson Lufkin & Jenrette Securities Corporation retained for this purpose by and at the sole expense of the Company. "Coal Acquisition Preferred Stock" means preferred stock which (i) is issued to a seller of coal properties or assets for the entire equity interest in a Person owning such properties or assets, as part of the consideration or financing of the acquisition thereof and (ii) provides for the payment of dividends in an amount not to exceed a percentage of the revenues from coal production of the properties or assets referred to in clause (i), which percentage is determined in good faith by the Board of Directors of the Company to yield, together with any other consideration paid by the Company therefor an aggregate purchase price that is fair to the Company. For purposes of this Indenture, the Company's Class C Preferred Stock, par value 4 10 $13,000 per share, and Class D Preferred Stock, par value $7,000 per share, each as in effect on the Issue Date, are each Coal Acquisition Preferred Stock. "Code" means the New York Uniform Commercial Code, as may be in effect from time to time. "Collateral" means all of the Company's and the Guarantors' right, title, and interest in and to each of the following: (i) the Accounts, (ii) the Books, (iii) the Equipment, (iv) the General Intangibles, (v) the Inventory, (vi) the Negotiable Collateral, (vii) Cash Collateral, (viii) the Investment Property (including, without limitation, all Stock in Subsidiaries), (ix) the Real Property Collateral, (x) any money or other assets of the Company and the Guarantors that now or hereafter come into the possession, custody, or control of the Collateral Agent, and (xi) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof; provided, however, that with respect to any coal supply agreement, coal brokerage agreement, any other non-assignable agreement and leasehold interest entered into, or non-assignable Permit held, by the Company or any of the Guarantors with, or issued by, any Person who is not an Affiliate of the Company or any of the Guarantors, if, and only if, (x) the valid grant of a Lien in or Mortgage upon such agreement, interest or Permit is prohibited (or the consent of the other party to such agreement or of the issuer of such Permit to any of the foregoing is required) and such prohibition has not been or is not waived, or such consent of the other party to such agreement or of the issuer of such Permit has not been or is not obtained (each, a "Non-assignable Property"), and (y) by the terms of such Non-assignable Property, the Company's or any of the Guarantor's grant of a Lien therein would result in the right of the other Person party to such agreement or of the issuer of such Permit to terminate such Non-assignable Property, then the Liens granted pursuant to the Security Documents to the Collateral Agent, for the benefit of the Holders, shall attach solely to the proceeds of such Non-assignable Property and the Company's and the Guarantors' rights thereto including, without limitation, any and all Accounts arising under or pursuant to such Non-assignable Property, except that, if the relevant provisions contained in any Non-assignable Property that prohibit the valid grant of a Lien therein or a Mortgage thereon or that require the consent of the other party thereto to (as applicable) any of the foregoing are determined to be unenforceable, invalid, or otherwise not binding upon the Company or any of the Guarantors, pursuant to a final judgment or decree of any court of competent jurisdiction, then such Non-assignable Property shall in all events constitute part of the Collateral; provided further that there shall be excluded from the Collateral the Excluded Assets. "Collateral Agent" means The Bank of New York, as Collateral Agent, until a successor Collateral Agent shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Collateral Agent shall mean such successor Collateral Agent. "Collateral Debt" means at any time any obligations, whether matured or unmatured, contingent or liquidated, of the Company and the Guarantors hereunder and under the Senior 5 11 Secured Indebtedness, whether for principal, interest, expenses, premiums, indemnities, fees, or other amounts, whether or not such amounts are due and payable at such time. "Company" means Anker Coal Group, Inc., a Delaware corporation, and its successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. "Company Order" and "Company Request" mean, respectively, a written order or request signed in the name of the Company and/or any Guarantor or Guarantors, as applicable, by the Chairman of the Board, the President or a Vice-President, and by the Treasurer, an Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary of the Company and/or any Guarantor or Guarantors, as applicable, and delivered to the Trustee. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (i) 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 (ii) 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 (iii) 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 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, 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 (iv) depreciation, depletion and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense 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, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income, minus (v) non-cash revenues increasing such Consolidated Net Income for such period (excluding any non-cash income to the extent it represents an accrual of cash revenues in any future period), in each case, on a consolidated basis and determined in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization and other non-cash charges of, a Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Subsidiary was included in calculating the Consolidated Net Income of such Person and only if a corresponding amount would be permitted at the date of determination to be dividended to the Company by such Subsidiary without prior approval (that has not been obtained), 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; provided that any contingent restriction contained in any thereof shall not be deemed to prevent any such dividend until the applicable contingency shall have occurred. 6 12 "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted 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 Restricted 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 (or to the extent converted into cash) to the referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) 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 its 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 unless waived; provided that any contingent restriction contained in any thereof shall not be deemed to prevent any such dividend until the applicable contingency shall have occurred, (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) any net after-tax extraordinary gains or losses shall be excluded. "Contract Settlement" means the termination (direct or indirect, in one transaction or a series of transactions), for which the Company or any of its Restricted Subsidiaries receives any cash consideration, of any agreement under which the Company or any of its Restricted Subsidiaries is to sell coal. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 13.2 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation, the Loan Agreement) or commercial paper facilities with banks, financial institutions or other institutional lenders providing for revolving credit loans, term loans 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. "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. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.6 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.3 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. 7 13 "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 Notes mature. "Equipment" means all of the Company's and the Guarantors' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, loading facilities, tipples, processing plants and like structures, fixtures, tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including, (a) any interest of the Company and the Guarantors in any of the foregoing, and (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing; provided, however, that Equipment shall not include Mobile Equipment. "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). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Exchanging Noteholders" means the entities listed on Schedule III to the Purchase Agreement. "Excluded Assets" means Mobile Equipment, cash and Cash Equivalents (other than Cash Collateral or proceeds of Collateral) and the coal reserves, fixtures, equipment and specified interests in Real Property listed on Schedule B hereto, including, without limitation, the improvements, fixtures, structures, buildings, water treatment facilities and other appurtenances situated thereon or thereunto belonging. "Existing Indebtedness" means the Indebtedness under the Loan Agreement and other Indebtedness of the Company and the Guarantors which is outstanding on the Issue Date. "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 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, commissions, discounts and other fees and charges incurred in respect of letter of credit or banker's acceptance financings, and net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, and (iii) any interest expense on Indebtedness of another Person that is Guaranteed by such person or one of its Restricted 8 14 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) and (iv) the product of (a) all cash dividend payments, 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 (other than Disqualified Stock) of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local effective tax rate of such Person, 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 Person for any period, the ratio for 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 Company 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 making the computation referred to above, (i) acquisitions and Investments 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 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 (iii) of the proviso set forth in the definition of Consolidated Net Income, and (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, and (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 Restricted Subsidiaries following the Calculation Date. "Foothill" means Foothill Capital Corporation, a California corporation, and its successors and assigns. "Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a jurisdiction other than the United States or a state thereof or the District of Columbia and with respect to which more than 80% of any of its sales, earnings or assets (determined on a consolidated basis in accordance with GAAP) are located in, generated from or derived from operations located in territories outside the United States of America and jurisdictions outside the United States of America. "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 9 15 Accountants and statements and 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 Issue Date. "General Intangibles" means all of the Company's and the Guarantors' present and future general intangibles and other personal property (including rights under coal supply contracts, coal brokerage agreements and other contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Permits, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A-1 hereto issued in accordance with Section 2.1, 2.6(b), 2.6(d) or 2.6(f) hereof. "Global Note Legend" means the legend set forth in Section 2.6(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged and which have a remaining Weighted Average Life to Maturity of not more than three years from the date of investment therein and are not callable or redeemable at the option of the issuer thereof. "Governmental Authority" means any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "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, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantor Senior Indebtedness" means all Indebtedness of a Guarantor other than Guarantor Subordinated Indebtedness. "Guarantor Subordinated Indebtedness" means all Indebtedness of a Guarantor that is subordinated in right of payment to the Guarantee of such Guarantor. "Guarantors" means each of the Subsidiaries of the Company that executes this Indenture, and their respective successors and assigns, including, without limitation, a receiver, 10 16 trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. "Hedging Obligations" means with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements with respect to Indebtedness that is permitted by the terms of this Indenture and (ii) other agreements or arrangements designed to protect such Person against fluctuation in interest rates or the value of foreign currencies purchased or received by such Person in the ordinary course of business. "Holder" means a Person in whose name a Note (or a portion of a Note) is registered and "Holders" means Persons in whose names Notes are registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit or reimbursement agreements in respect thereof (other than letters of credit securing obligations not constituting Indebtedness that are issued in the ordinary course of business by a Person to the extent not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit) or bankers' acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payment of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Independent" when used with respect to any specified Person means such a Person who (i) is in fact independent, (ii) does not have any direct financial interest or any material indirect financial interest in the Company or in any other obligor upon the Notes or in any Affiliate of the Company or of such other obligor and (iii) is not connected with the Company or such other obligor as an officer, employee, promoter, underwriter, trustee, partner, director or person performing similar functions. Whenever it is herein provided that any Independent Person's opinion or certificate shall be furnished to the Trustee, such Person shall be appointed by a Company Order and not objected to by the Holders of a majority in aggregate principal amount of the Notes and such opinion or certificate shall state that the signer has read this definition and that the signer is independent within the meaning thereof. 11 17 "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Intercreditor Agreement" means the Intercreditor Agreement dated as of October 1, 1999, between the Collateral Agent and the Senior Collateral Agent, substantially in the form of Exhibit D hereto, and as it may be amended, waived or otherwise modified from time to time in accordance with the provisions thereof, or any similar agreement with lenders under any replacement Credit Facility on terms which taken as a whole are not materially less favorable to the Holders than Exhibit D hereto. "Inventory" means all of the Company's and the Guarantors' present and future inventory, wherever located, including, without limitation, all raw materials, work-in-process, and finished and semi-finished inventory of any kind, nature or description, wherever located, including, without limitation, (i) all minerals in whatever form, and including, without limitation, coal, fly ash, bottom ash or other ash, methane, sulfur, sulfur dioxide, and other by-products resulting from the processing of the coal mined by the Company and the Guarantors and other minerals and chemicals resulting from the mining or processing of coal, (ii) cast iron fittings, paint, belts and hoses, bolts and nuts, wire and wire products, welding supplies, tools, steel, rope, timber, railroad, spikes, railroad car parts and railroad crane parts, baghouse parts, pump parts, compressor parts, electrical parts, bearings, drills, bits and accessories and other parts and supplies, (iii) all wrapping, packaging, advertising and shipping materials, and (iv) any other personal property held for sale, exchange or lease or furnished or to be furnished or used or consumed in the business or in connection with the manufacturing, packaging, shipping, advertising, selling or finishing of such goods, inventory, merchandise and other personal property, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the Company and the Guarantors and all right, title and interest therein and thereto; and further including, without limitation, all coal in which the Company and the Guarantors have any interest which has been extracted from the Real Property, is in a coal stockpile and is held for sale by the Company and the Guarantors in the ordinary course of business, together with all other present and future goods held for sale by the Company and the Guarantors in the ordinary course of business wherever located. "Investment Property" means "investment property" as that term is defined in Section 9-115 of the Code. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or such 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 12 18 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 Section 4.7 hereof. "Investor Agreement" means the agreement dated as of October 26, 1999 among the Company, the stockholders of the Company named therein, the Purchasers and the other parties named therein. "Issue Date" means with respect to any Note, the date on which such Note was authenticated and delivered under this Indenture. "JJF Purchase Agreement" means the Exchange and Purchase Agreement dated as of October 26, 1999 by and among the Company, the Guarantors and the JJF Group Limited Liability Company, as amended, waived or otherwise modified from time to time in accordance with the provisions thereof. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Legal Requirements" means all applicable international, foreign, federal, state and local laws, judgments, decrees, orders, statutes, ordinances, rules, regulations or Permits. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Series A Notes for use by such Holders in connection with the Private Exchange. "Lien" means, with respect to any asset, any mortgage, lien (statutory or other), deed of trust, pledge, charge, hypothecation, assignment, deposit arrangement, security interest or encumbrance (including, but not limited to, easements, rights of way and the like), security agreement or transfer intended as security 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). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "Loan Agreement" means that certain loan and security agreement dated as of November 21, 1998 by and among certain of the Restricted Subsidiaries, as borrowers, and the financial institutions named therein, as lenders, and Foothill, as agent, including any related notes, guarantees, collateral documents, instruments, agreements executed in connection therewith, and in each case as amended, extended, modified, renewed, refunded, replaced or refinanced from time to time. 13 19 "Market Price" means an amount equal to the average of the Closing Prices of the Notes for the 20 trading days ending 5 trading days prior to October 1, 2000. "Maximum Optional Notes Amount" means the principal amount of Optional Notes required to be issued pursuant to the Purchase Agreement which would be sufficient to provide cash proceeds to the Company at a purchase price of 95% of the Market Price in an amount equal to the lesser of (i) $6.3 million or (ii) the amount of interest due on all Outstanding Notes on October 1, 2000; provided, however, that the foregoing $6.3 million limitation may be waived by the Purchaser in its sole discretion. "Mobile Equipment" means all equipment which is (a) mobile, and (b) which is used or useful in connection with the coal mining, extraction, development, construction or environmental remediation activities of the Company or any Restricted Subsidiary and shall in any event include any of the following, whether such equipment is on wheels, is track mounted or is skid mounted: bulldozers, drills, pans, augers, high wall miners, continuous miners, shuttle cars, roof bolters, mobile roof supporters, rock dusters, man trips, scoops, backhoes, shovels, front end loaders, continuous haulage units, underground locomotives, loaders, trailers, trucks, other motor vehicles and other mining, construction, earthmoving or excavating equipment of a similar nature. "Mortgages" means one or more mortgages, deeds of trust, or deeds to secure debt, executed by the Company and the Guarantors in favor of the Collateral Agent, the form and substance of which shall be satisfactory to the Collateral Agent, that encumber the Real Property Collateral and the related improvements thereto, and shall specifically include, but is not limited to, Amendments to Deeds of Trust. "Negotiable Collateral" means all of the Company's and the Guarantors' present and future letters of credit, notes, drafts, instruments, Investment Property, documents, personal property leases (wherein such Person is the lessor), chattel paper, and the Books relating to any of the foregoing. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any extraordinary gain (but not loss), together with any related provision for taxes on such gain (but not 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 Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss); provided, further, that in determining Consolidated Net Income for the purpose of Section 4.7 hereof only, items (i) and (ii) shall not be so excluded. "Net Proceeds" means the aggregate cash proceeds 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 non-cash consideration received in any Asset Sale), or, in the case of a Contract Settlement, 65% of such aggregate cash proceeds, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and 14 20 investment banking fees, and sale commissions and other required expenditures relating to the Assets to be sold including, without limitation, reclamation expenses) 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), amounts required to be applied to the repayment of Indebtedness (other than Indebtedness under the Credit Facilities) secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-assignable Property" has the meaning set forth in the definition of Collateral set forth in this Section 1.1. "Non-Recourse Debt" means Indebtedness (i) 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), (b) is directly or indirectly liable (as a guarantor or otherwise), as reflected in the express terms of the instrument governing such Indebtedness, 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 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. "Non-U.S. Person" means a person who is not a U.S. Person. "Note Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Notes" means, collectively, the Series A Notes, the Series B Notes (including the Public Notes and the Optional Notes) and the Secondary Notes and shall include all 144A Global Notes, Definitive Notes, Global Notes, RSTD Global Notes, Regulation S Permanent Global Notes, Regulation S Temporary Global Notes, Restricted Definitive Notes, Restricted Global Notes, Unrestricted Definitive Notes and Unrestricted Global Notes, as the same now exist or hereafter exist or may hereafter be amended, modified, supplemented, extended, renewed, restated, substituted for or replaced. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, Assistant Secretary or any Vice-President of such Person, as applicable. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal 15 21 financial officer or the principal accounting officer of the Company, that meets the requirements of Section 13.5 hereof. "Old Notes" means the Company's 9 3/4% Series B Senior Notes due 2007 issued pursuant to an Indenture dated as of September 25, 1997 among the Company, as issuer, the Guarantors signatory thereto and HSBC Bank USA (formerly Marine Midland Bank), as Trustee, as amended by a Supplemental Indenture dated as of October 1, 1999. "Optional Notes" means the Series B Notes, if any, issued on October 1, 2000 pursuant to Section 2(b) of the Purchase Agreement. The mortgage liens related to the Optional Notes shall be pari passu in all respects to the mortgage liens securing the other Notes issued under this Indenture, as more particularly stated in Section 5.1(c) below, even though the obligations related thereto are added as obligations secured by the Mortgages by Amendments to Deeds of Trust recorded on or about the time the Optional Notes are issued. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.5 hereof. The counsel may be an employee of or counsel to the Company (or any Guarantor, if applicable), any Subsidiary of the Company or the Trustee. "Participant" means, with respect to DTC, Euroclear or Cedel Bank, a Person who has an account with DTC, Euroclear or Cedel Bank, respectively (and, with respect to DTC, shall include Euroclear and Cedel Bank). "Permits" of a Person shall mean all rights, franchises, permits, authorities, licenses, certificates of approval, consents, orders or authorizations, including licenses and other authorizations issuable by a Governmental Authority, which pursuant to applicable Legal Requirements are necessary to permit such Person lawfully to conduct and operate its business as currently conducted and to own and use its assets. "Permitted Business" means coal producing, coal mining, coal brokering or mine development, or any business that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto (including ash disposal and/or environmental remediation) and participation in the ownership and operation of coal-fired electric power generating facilities that purchase coal or other inventory from the Company or any Restricted Subsidiary. "Permitted Holders" means the Estate of John J. Faltis, JJF Group Limited Liability Company, P. Bruce Sparks, PPK Group Limited Liability Company, Anker Holding B.V., First Reserve Corporation, American Oil & Gas Investors, Amgo II, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited Partnership, any of the Purchasers, any of the Exchanging Noteholders and any of their respective Affiliates and their successors and assigns. "Permitted Investments" means (i) any Investment in the Company or in a Guarantor; (ii) any Investment in Cash Equivalents; (iii) any Investment by the Company or any Guarantor in a Person, if as a result of such Investment (a) such Person becomes a Guarantor or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of 16 22 its assets to, or is liquidated into, the Company or a Guarantor; (iv) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; (v) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (vi) any Investment existing on the date of this Indenture; (vii) 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; (viii) Hedging Obligations permitted under Section 4.9 hereof, (ix) 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; (x) any guarantees permitted to be made pursuant to Section 4.9 hereof; and (xi) any investment of Excluded Assets (other than Mobile Equipment) in any Person engaged in the ownership and operation of a coal-fired power generation facility that purchases coal or other inventory from the Company or any Restricted Subsidiary; provided, however, that any ownership interest in such Person received by the Company or Guarantor making such Investment shall be subjected to the Lien of the Security Documents; (xii) other Investments in any Person (including, without limitation, Investments in Unrestricted Subsidiaries) primarily engaged in a Permitted Business having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (xii) that are at the time outstanding, not to exceed $10.0 million. "Permitted Liens" means (i) Liens on assets of the Company or any of its Subsidiaries securing Senior Indebtedness that was permitted to be incurred by the terms of clauses (i), (ii), (vii) and (ix) of the third paragraph of Section 4.9 hereof and the Security Interest contemplated by this Indenture and the Security Documents; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any 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; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company, provided that such Liens were in existence prior to the contemplation of such acquisition; (v) Liens to secure the performance of statutory or regulatory obligations, leases, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (vi) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the third paragraph of Section 4.9 hereof covering only the assets acquired with such Indebtedness; (vii) Liens existing on the date of this Indenture; (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 incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding and 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 17 23 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 Subsidiary; (x) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xi) Liens on assets of Guarantors which would be Permitted Liens if they were Liens on assets of the Company to secure Guarantor Senior Indebtedness of such Guarantors that was permitted to be incurred by clauses (i), (ii), (vii) and (ix) of the third paragraph of Section 4.9 hereof; and (xii) Liens securing Permitted Refinancing Indebtedness to the same extent (and provided such Lien is not secured by any additional assets) and with the same or lower priority as Liens securing the Indebtedness that was exchanged or extended, refinanced, renewed, replaced, defeased or refunded with the net proceeds of such Permitted Refinancing Indebtedness. "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 Indebtedness of the Company or any of its Restricted Subsidiaries; 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 on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith including premiums paid, if any, to the holders thereof); (ii) such Permitted Refinancing Indebtedness has a final maturity date at or 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 Notes, such Permitted Refinancing Indebtedness has a final maturity date later than 91 days after 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 (iv) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary which is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects Subchapter S status under the Internal Revenue Code of 1986 (as amended), limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof (including any subdivision or ongoing business of any such entity or substantially all of the assets of any such entity, subdivision or business). "Pledge Agreements" means the following Pledge Agreements, each dated as of the date of this Indenture and each as amended, waived or otherwise modified from time to time in accordance with the provisions thereof: (i) Pledge and Security Agreement among those entities set forth on Schedule A thereto, in favor of the Trustee, and (ii) Pledge and Security Agreement by Anker West Virginia Mining Company, Inc., in favor of the Trustee, substantially in the forms attached hereto as Exhibit C-1 and Exhibit C-2. 18 24 "PPK Group" means PPK Group Limited Liability Company, a Delaware limited liability company, and its successors and assigns. "Prior Lien" means any Permitted Lien on any of the Collateral ranking prior to the Lien of the Security Documents. "Private Exchange" means the issuance and sale upon the terms and subject to the conditions set forth in the Private Placement Memorandum to exchange for each $1,000 principal amount of Old Notes, $800 principal amount of Series A Notes and Warrants. "Private Placement Memorandum" means that certain Private Exchange and Private Placement Memorandum and Consent Solicitation dated October 26, 1999. "Private Placement" means the issuance and sale upon the terms and subject to the conditions set forth in the Private Placement Memorandum of $13,199,000 principal amount of additional Series A Notes and Warrants. "Private Placement Legend" means the legend set forth in Section 2.6(g)(i) to be placed on all Series A Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Exchange Offer" means the proposed offer by the Company to exchange pursuant to Section 3(a)(9) or other available exemption or a registration statement under the Securities Act, $743 principal amount of Public Notes for each $1,000 principal amount of any Old Notes which were not exchanged in the Private Exchange. "Public Notes" means the Series B Notes issued pursuant to the Public Exchange Offer to holders of the Old Notes. "Purchase Agreement" means the Exchange and Purchase Agreement dated October 26, 1999 by and among the Company, the Guarantors, the Purchasers and the Exchanging Noteholders, as amended, waived or otherwise modified from time to time in accordance with the provisions thereof. "Purchasers" means the entities listed on Schedule II to the Purchase Agreement and their successors and assigns. "Put Agreement" means the Put Agreement dated as of August 25, 1998 by and between the Company and JJF Group Limited Liability Company, as amended, waived or otherwise modified from time to time in accordance with the provisions thereof. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "RSTD Global Note" means the Global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend, the Private Placement Legend and the legend set forth in Section 2.6(g)(iv) hereto and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes transferred or exchanged by the Company or any of its Subsidiaries, pursuant to an effective 19 25 registration statement under the Securities Act or pursuant to Regulation D or Rule 144 under the Securities Act. "Real Property" means any estates or interests in real property or mineral rights owned or acquired in the future by the Company or any of the Guarantors. "Real Property Collateral" means the parcel or parcels of real property and related improvements thereto described in the Mortgages, and any Real Property hereafter acquired by the Company and the Guarantors, including leasehold interests, together with all buildings, structures, fixtures and other improvements relating thereto, and all metals and minerals which are in, under, upon, or to be produced from such Real Property to the extent of the rights of the Company and the Guarantors to the same, including all coal (but only to the extent such metals and minerals have not been extracted from the real property), wherever located, including, without limitation, the Real Property and related assets of the Company and the Guarantors more particularly described in the Mortgages; provided that Real Property Collateral shall not include the specified interests in Real Property listed in Schedule B hereto or Non-assignable Property; provided, further, that, subject to Section 4.12 hereof, the Real Property Collateral shall not include any Real Property located in the State of Maryland that is not subject to the liens securing the Senior Secured Indebtedness. "Registered Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of October 26, 1999, by and among the Company, the Guarantors and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation D" means Regulation D promulgated under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-1 hereto bearing the Global Note Legend, the Private Placement Legend and the legend set forth in Section 2.6(g)(iv) hereto and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend, the Private Placement Legend and the legends set forth in Section 2.6(g)(iii) and (iv) hereto, and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. 20 26 "Responsible Officer," when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the General Security Agreement dated as of the date of this Indenture, among the Company, the Trustee, the Collateral Agent and each Guarantor, substantially in the form attached hereto as Exhibit B. "Security Documents" means, collectively, the Security Agreement, the Pledge Agreements, the Intercreditor Agreement and the Mortgages, as any of the foregoing may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. "Security Interest" means the security interest in the Collateral, including the priority thereof, created by the Security Documents, in favor of the Collateral Agent for the benefit of the Holders. 21 27 "Senior Collateral Agent" means Foothill in its capacity as Agent for the lenders under the Loan Agreement and any successor collateral agent for lenders under any Credit Facility. "Senior Indebtedness" means all Indebtedness of the Company other than Subordinated Indebtedness, plus interest thereon and costs, expenses, fees and other charges related thereto for which the Company is liable under the terms of the agreements governing such Senior Indebtedness (including, but not limited to, attorneys' fees and legal expenses). "Senior Secured Indebtedness" means all amounts owing by the Company and the Guarantors under the Credit Facilities whether arising before, during or after the initial or any renewal term of the Senior Creditor Agreements (as defined in the Intercreditor Agreement) or after the commencement of any case with respect to the Company or any Guarantor under the U.S. Bankruptcy Code or any similar statute (including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowed or allowable, in whole or in part in any such case or proceeding) and related agreements or replacements thereof, not to exceed an aggregate principal amount of $55 million at any one time outstanding, plus interest thereon and costs, expenses, fees and other changes related thereto for which the Company is liable under the terms of the agreements governing such Senior Indebtedness (including, but not limited to, attorneys' fees and legal expenses). "Senior Secured Lenders" means the holders of any Senior Secured Indebtedness or the representative of the holders of any Senior Secured Indebtedness. "Senior Security Interest" means any Liens on the Collateral or any part thereof created by any document relating to the grant of a security interest in favor of any Senior Secured Lender. "Series A Notes" means the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) issued pursuant to this Indenture, and any Secondary Notes issued in lieu of payment of cash interest thereon. "Series B Notes" means the Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) issued pursuant to this Indenture, including the Optional Notes and the Public Notes, and any Secondary Notes issued in lieu of payment of cash interest thereon. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "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. 22 28 "Stock" means all shares, options, warrants, interests, participations, interests in limited liability companies or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or non-voting, including common stock, preferred stock or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "Subordinated Indebtedness" means all Indebtedness of the Company that is subordinated in right of payment to Senior Indebtedness. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other equity interests 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 (ii) 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 of one or more Subsidiaries of such Person (or any combination thereof). "Subsidiary Guarantee" means, individually and collectively, the Guarantees given by the Guarantors pursuant to Article X hereof, including a notation in the Notes substantially in the form attached hereto as Exhibit G. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Section 9.3 hereof. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Global Note" means a permanent Global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, but does not bear the Private Placement Legend. "Unrestricted Subsidiary" means (i) 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: (a) has no Indebtedness other than Non-Recourse Debt; (b) 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; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests or (y) to maintain or 23 29 preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors 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 foregoing conditions and was permitted by Section 4.7 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing conditions as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this 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 Section 4.9 hereof, 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 (i) such Indebtedness is permitted under Section 4.9 hereof, 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. "U.S. Person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. Person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. Person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. Person (other than a trust of which at least one trustee is a non-U.S. Person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settler, if the trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non-discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person, (vii) any discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. Person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. Person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated and owned, by "accredited investors" within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided, however, that the term "U.S. Person" shall not include (A) a branch or agency of a U.S. Person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. "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. 24 30 "Warrant Agent" means The Bank of New York, as Warrant Agent under the Warrant Agreement, until a successor replaces it in accordance with the applicable provisions of the Warrant Agreement and thereafter means the successor serving thereunder. "Warrant Agreement" means the Warrant Agreement dated as of October 26, 1999 between the Company and the Warrant Agent, as amended, waived or otherwise modified from time to time in accordance with the provisions thereof. "Warrants" means warrants to purchase shares of the Company's Common Stock issued pursuant to the Private Placement Memorandum in accordance with the Warrant Agreement. "Warrant Shares" means shares of the Company's Common Stock issuable upon exercise of the Warrants. "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 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. "Wholly Owned Subsidiary" of any Person means a 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 Subsidiaries of such Person or by such Person and one or more Wholly Owned Subsidiaries of such Person. SECTION 1.2 Other Definitions. Defined In Term Section "Affiliate Transaction"............................. 4.11 "Asset Sale Offer".................................. 3.9 "Change of Control Offer"........................... 4.15 "Change of Control Payment"......................... 4.15 "Change of Control Payment Date".................... 4.15 "Class A Preferred Stock"........................... 4.7 "Collateral Account"................................ 10.1 "Collateral Proceeds"............................... 4.10 "Covenant Defeasance"............................... 9.3 25 31 Defined In Term Section "DTC"............................................... 2.1 "Event of Default".................................. 7.1 "Excess Proceeds"................................... 4.10 "Incur"............................................. 4.9 "Legal Defeasance".................................. 9.2 "Non-Collateral Proceeds"........................... 4.10 "Offer Amount"...................................... 3.9 "Offer Period"...................................... 3.9 "Paying Agent"...................................... 2.3 "Payment Default"................................... 7.1 "Permitted Business Investment"..................... 4.10 "Permitted Debt".................................... 4.9 "Purchase Date"..................................... 3.9 "Registrar"......................................... 2.3 "Restricted Payments"............................... 4.7 "Secondary Notes"................................... 2.2 "Six-Month Period".................................. 5.5 "Substitute Collateral"............................. 5.8 "Trust Moneys"...................................... 10.1 SECTION 1.3 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company or any Guarantor and any successor obligor upon Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. 26 32 SECTION 1.4 Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; (e) provisions apply to successive events and transactions; and (f) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. ARTICLE II THE NOTES SECTION 2.1. Form and Dating. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 or Exhibit A-2 hereto. The notation on each Note relating to the Subsidiary Guarantees shall be substantially in the form set forth on Exhibit G, which is a part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, or usage, as designated by the Company. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof, except that (i) the Series A Notes may also be issued in denominations of $800 or integral multiples thereof, (ii) the Series B Notes may also be issued in denominations of $743 or $800 or integral multiples thereof and (iii) the Secondary Notes may be issued in denominations of $1.00 or integral multiples thereof. The terms and provisions contained in the Notes (including the Subsidiary Guarantees) shall constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors, and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. The Notes of each series issued hereunder shall be substantially identical except (i) as to denomination, (ii) that Series A Notes will initially be issued in the form of a Restricted Global Note and (iii) that Series A Notes will have the benefits of the Registration Rights Agreement, including any applicable Liquidated Damages thereunder. 27 33 Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend and the "Schedule of Exchanges in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.6 hereof. Notes offered and sold to QIBs shall be issued initially in the form of one or more Global Notes, which shall be deposited with the Trustee, as custodian for The Depositary Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to the accounts of DTC's participants. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors), which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Within a reasonable time after expiration of the Restricted Period the Regulation S Temporary Global Notes will be exchanged for the Regulation S Permanent Global Notes upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or a RSTD Global Note bearing a Private Placement Legend, all as contemplated by Section 2.6(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following such period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial 28 34 interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by the agent members through Euroclear or Cedel Bank. SECTION 2.2 Execution and Authentication. One Officer shall sign the Notes for the Company by manual or facsimile signature, which signature shall be attested to by the secretary or an assistant secretary of the Company. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time such Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by two Officers, authenticate the Series A Notes (excluding Secondary Notes) for original issue up to $119,200,000 in aggregate principal amount and shall authenticate the Series B Notes (excluding Secondary Notes and Optional Notes) for original issue up to $119,200,000, in each case with the Subsidiary Guarantees endorsed thereon; provided that (a) the Series A Notes (other than Secondary Notes) shall be issuable only (i) to the Purchaser in the Private Placement and to JJF Group pursuant to the JJF Purchase Agreement or (ii) to Exchanging Noteholders in the Private Exchange upon the valid surrender in the Private Exchange for cancellation of Old Notes of an aggregate principal amount equal to $1,000 for every $800 aggregate principal amount of Series A Notes; (b) Public Notes will be issuable only to holders of Old Notes that participate in the Public Exchange Offer upon the valid surrender for cancellation of Old Notes of an aggregate principal amount equal to $1,000 for every $743 aggregate principal amount of Public Notes; and (c) Series B Notes (other than Public Notes, Optional Notes and Secondary Notes) will be issuable only to holders of Series A Notes that participate in the Registered Exchange Offer. The aggregate principal amount of Notes outstanding at any time may not exceed $119,200,000 except for the issuance of Secondary Notes and Optional Notes hereunder and as provided in Section 2.7 hereof. The aggregate principal amount of Optional Notes, if any, issued on October 1, 2000, shall not exceed the Maximum Optional Notes Amount. As provided in paragraph 1 of the Notes, the Company shall, prior to and including April 1, 2000, in lieu of the payment in whole or in part of interest in cash on the Notes, on April 1, 2000, pay interest on the Notes though the issuance of additional Notes having the same terms and conditions as the Notes (the "Secondary Notes"), in an aggregate principal amount equal to the amount of interest that would be payable with respect to such Notes if such interest were paid in cash. On April 1, 2000 the Trustee shall authenticate Secondary Notes for original issuance to each Holder of Notes (including, without limitation, outstanding Secondary Notes) on the preceding record date, as shown by the records of the Registrar, in the amount required to pay such interest. Notwithstanding any other provision of this paragraph or the Indenture to the contrary, the Company shall pay cash in lieu of issuing Secondary Notes in any denomination of less than $1.00 (which shall be determined with respect to the aggregate amount of Notes held by each Holder as shown by the records of the Trustee). 29 35 If the Company fails to make the payment of interest in Secondary Notes within 30 days of the relevant interest payment date, the Company shall then be obligated to pay the interest in cash, subject to the provisions of Section 7.1(a). The Trustee shall upon a written order of the Company signed by two officers, authenticate the Optional Notes, if any, for original issue on October 1, 2000 up to but not exceeding the Maximum Optional Notes Amount. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes and Secondary Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. The Notes shall be issuable only in fully registered form, without coupons, in denominations of $1,000 and integral multiples thereof, except that (i) Series A Notes may also be issued in denominations of $800 or integral multiples thereof, (ii) Series B Notes may also be issued in denominations of $743 or $800 or integral multiples thereof and (iii) the Secondary Notes may be issued in denominations of $1.00 or integral multiples thereof. SECTION 2.3 Registrar and Paying Agent. The Company and the Guarantors shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes are to be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional Paying Agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of the Guarantors may act as Paying Agent or Registrar. The Company initially appoints DTC to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes, and by its signature hereto, the Trustee agrees to so act. The Trustee is authorized to enter into a letter of representations with DTC in the form provided to the Trustee by the Company and to act in accordance with such letter. SECTION 2.4 Paying Agent to Hold Money in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held 30 36 by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Company or the Guarantors in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Guarantor) shall have no further liability for the money. If the Company or a Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.5 Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company and/or the Guarantors shall furnish to the Trustee at least three Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company and the Guarantors shall otherwise comply with TIA Section 312(a). SECTION 2.6 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary, (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates determined by the Company to be required pursuant to Rule 903 under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, the Company will notify the Trustee in writing that Definitive Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) shall be issued in such names as the Depositary and the participants shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.7 and 2.11 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to Section 2.7 or 2.11 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.6(a), however, beneficial 31 37 interests in a Global Note may be transferred and exchanged as provided in Section 2.6(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as subparagraph (iii) or (iv), as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person. Beneficial interests in any Unrestricted Global Note may be transferred only to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.6(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests (other than a transfer of a beneficial interest in a Global Note to a Person who takes delivery thereof in the form of a beneficial interest in the same Global Note), the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates determined by the Company to be required pursuant to Rule 903 under the Securities Act; provided, further, that in no event shall an Indirect Participant who holds a beneficial interest in the Regulation S Temporary Global Note transfer or exchange such interest to a U. S. Person who takes delivery in the form of an interest in U. S. Global Notes prior to the satisfaction of clauses (x) and (y) in the immediately preceding proviso. Upon a 32 38 Registered Exchange Offer by the Company in accordance with Section 2.6(f) hereof, the requirements of this Section 2.6(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture, the Notes and otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.6(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of clause (ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit F hereto, including the certifications in item 1 thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit F hereto, including the certifications in item 2 thereof, and (C) if the transferee will take delivery in the form of a beneficial interest in the RSTD Global Note, then the transferor must deliver (x) a certificate in the form of Exhibit F hereto, including the certifications and certificates required by item 3 or item 4 thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of clause (ii) above and: (A) such exchange or transfer is effected pursuant to the Registered Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes, or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; 33 39 (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit E hereto, including the certifications in item 1(a) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit F hereto, including the certifications in item 5 thereof, and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note, a certificate from such holder in the form of Exhibit E hereto, including the certifications in item 2(a) thereof; 34 40 (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 1 thereof, (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 2 thereof, (D) if such beneficial interest is being transferred to an institutional investor that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 4 thereof, (E) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(a) thereof, (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(b) thereof, or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.6(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.6(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.6(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.6(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be (A) exchanged for a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates determined by the Company to be required pursuant to Rule 903(c)(3)(B) under the Securities Act or (B) transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to the conditions set forth in clause 35 41 (A) above or unless the transfer is pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Notwithstanding 2.6(c)(i) hereof, a holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Registered Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit E hereto, including the certifications in item 1(b) thereof; (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit F hereto, including the certifications in item 5 thereof, and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company, to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act. (iv) If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.6(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.6(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a 36 42 Definitive Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.6(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.6(c)(iv) shall not bear the Private Placement Legend. A beneficial interest in an Unrestricted Global Note cannot be exchanged for a Definitive Note bearing the Private Placement Legend or transferred to a Person who takes delivery thereof in the form of a Definitive Note bearing the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) if any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 2(b) thereof, (B) if such Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 1 thereof; (C) if such Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 2 thereof; (D) if such Definitive Note is being transferred to an institutional investor that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 4 thereof; (E) if such Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(a) thereof, (F) if such Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(b) thereof; or 37 43 (G) if such Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit F hereto, including the certifications in item 3(c) thereof, the Trustee shall cancel the Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the RSTD Global Note. (ii) A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Registered Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in Item 1(c) thereof, (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit F hereto, including the certifications in item 5 thereof, and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Definitive Notes are being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. 38 44 Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.6(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of beneficial interests transferred pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.6(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present on surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, pursuant to the provisions of this Section 2.6(e). (i) Restricted Definitive Notes may be transferred to and registered in the name of Persons who take delivery thereof if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit F hereto, including the certifications in item 1 thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit F hereto, including the certifications in item 2 thereof; (C) if the transfer will be made pursuant to Regulation D under the Securities Act to an institutional investor that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act which delivers a certificate in the form of Exhibit F hereto, including the certifications in item 4 thereof; and 39 45 (D) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit F hereto, including the certifications, certificates and Opinion of Counsel required by item 3 thereof, if applicable. (ii) Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Registered Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, is not (1) a broker-dealer, (2) a Person participating in the distribution of the Series B Notes, or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Restricted Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit E hereto, including the certifications in item 1(a) thereof, (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit F hereto, including the certifications in item 5 thereof, and (3) in each such case set forth in this subparagraph (D), an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act, that the restrictions on transfer contained herein and in the Private Placement Legend are not required in order to maintain compliance with the Securities Act, and such Restricted Definitive Note is being exchanged or transferred in compliance with any applicable blue sky securities laws of any State of the United States. (iii) A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request for such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. Unrestricted 40 46 Definitive Notes cannot be exchanged for or transferred to Persons who take delivery thereof in the form of a Restricted Definitive Note. (f) Registered Exchange Offer. Upon the occurrence of the Registered Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.2 and an Officers' Certificate, the Trustee shall authenticate (i) one or more Unrestricted Global Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by persons that are not (x) broker-dealers, (y) Persons participating in the distribution of the Series B Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in the Registered Exchange Offer and (ii) Definitive Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes tendered for acceptance by persons that are not (x) broker-dealers, (y) persons participating in the distribution of the Series B Notes or (z) Persons who are affiliates (as defined in Rule 144) of the Company and accepted for exchange in the Registered Exchange Offer. Concurrent with the issuance of such Series B Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN 41 47 COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF TRANSFER (THE FORM OF WHICH CERTIFICATE CAN BE OBTAINED FROM THE TRUSTEE) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED 42 48 HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.6 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A NOTE IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." 43 49 (iv) Legend Relating to Security. Each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear a legend in substantially the following form: "THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED BELOW), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED BELOW). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part, each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note, by the Trustee or by the Depositary at the direction of the Trustee, to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes (in each case, accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.6, 4.10, 4.15 and 11.6 hereof). (iii) The Registrar shall not be required (A) to register the transfer of or exchange Notes during a period beginning at the opening of business 15 days before the day of mailing of notice of redemption and ending at the close of business on the day of such mailing, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being 44 50 redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (iv) All Global Notes and Definitive Notes (in each case, accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company and the Guarantors, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of mailing of notice of redemption and ending at the close of business on the day of such mailing, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of, Liquidated Damages, if any, and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes (in each case, accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in accordance with the provisions of Section 2.2 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.6 to effect a transfer or exchange may be submitted by facsimile, provided original copies are promptly sent to the Registrar. (ix) Each Holder of a Note agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Note in violation of any provision of this Indenture and/or applicable United States federal or state securities law. (x) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 45 51 SECTION 2.7 Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers of the Company, shall authenticate a replacement Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) if the Trustee's requirements are met. An indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Guarantors, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and the Guarantors and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.8 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds such Note. If a Note is replaced pursuant to Section 2.7 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.1 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay all of the principal, Liquidated Damages, if any, and interest and premium, if any, due on the Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Secondary Notes shall be deemed outstanding as of the April 1, 2000 interest payment date with respect to which they are authenticated and delivered in lieu of a cash payment of interest. SECTION 2.9 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, by any Guarantor or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in 46 52 relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded; provided, however, that no Holder shall be deemed to have control solely by reason of holding any Warrants or Warrant Shares issued or sold pursuant to the Purchase Agreement. SECTION 2.10 Temporary Notes. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirements of the Exchange Act). Certification of the destruction of all Notes shall be delivered to the Company. Subject to Section 2.7 hereof, the Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12 Defaulted Interest. If either the Company or any Guarantor defaults in a payment of interest on the Notes, it or they (to the extent of their obligations under the Subsidiary Guarantees) shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest (which with respect to interest due on April 1, 2000 may be payable in Secondary Notes), to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.1 hereof. Such defaulted interest, and the interest thereon, may be paid by the Company, at its election in each case, as provided in clause (i) or (ii) below. (i) The Company shall notify the Trustee in writing of the amount of defaulted interest, plus interest payable thereon, proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or 47 53 cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid; or (ii) The Company may make payment on any defaulted interest and on the interest thereon in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner shall be deemed practicable by the Trustee. SECTION 2.13 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. SECTION 2.14 Record Date. The record date for purposes of determining the identity of Holders of Notes entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA Section 316(c). ARTICLE III REDEMPTION AND PREPAYMENT SECTION 3.1 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at least 45 days (unless a shorter period is agreed to by the Trustee) but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.2 Selection of Notes to be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis. 48 54 The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; and, provided further, that Series A Notes may be redeemed in amounts of $800 or whole multiples thereof, Series B Notes may be redeemed in amounts of $800 or $743 or whole multiples thereof, and Secondary Notes may be redeemed in amounts of $1.00 or whole multiples of $1.00; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, $800 or $743 shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.3 Notice of Redemption. Subject to the provisions of Section 3.9 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed (including CUSIP numbers) and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting 49 55 that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.4 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. If a redemption date is not a Business Day, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such redemption date to the next succeeding Business Day. SECTION 3.5 Deposit of Redemption Price. On or prior to 10:00 a.m. Eastern time on the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of, Liquidated Damages, if any, and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph and payment of the Notes called for redemption is not otherwise prohibited or prevented, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.1 hereof. Any interest accrued on Notes redeemed on or prior to April 1, 2000 may be paid by the Company, at its option, in lieu of payment in whole or in part in cash, through the issuance of Secondary Notes. SECTION 3.6 Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.7 Optional Redemption. (a) The Notes will be redeemable at any time at the option of the Company, upon not less than 30 nor more than 60 days' notice, in whole or in part, if redeemed on or prior to September 30, 2000 at a redemption price of 104% of the principal amount plus accrued and 50 56 unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date and thereafter at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date if redeemed during the twelve month period beginning on October 1 of the years indicated below: YEAR PERCENTAGE 2000........................................................... 103% 2001........................................................... 102% 2002........................................................... 101% 2003 and thereafter............................................ 100% (b) Any redemption pursuant to this Section 3.7 shall be made pursuant to the provisions of Section 3.1 through 3.6 hereof. (c) Any interest accrued on Notes redeemed on or prior to April 1, 2000 may be paid by the Company in lieu of payment in whole or part in cash, through the issuance of Secondary Notes. SECTION 3.8 Mandatory Redemption. Except as set forth below under Sections 4.10 and 4.15, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. SECTION 3.9 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be permitted or required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall (i) if the Asset Sale Offer is made at the request of the Company when no Senior Secured Indebtedness is outstanding and no Default or Event of Default shall have occurred and be continuing, identify the terms (including purchase price) and amount of the Asset Sale Offer, or (ii) if the Asset Sale Offer is required by the terms of Section 4.10, purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. 51 57 Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee which shall forward a copy of the Asset Sale Offer to each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.9 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest on or after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Trustee shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased, except that (i) the Series A Notes may also be purchased in denominations of $800 or integral multiples thereof and Series B Notes may also be purchased in denominations of $800 or $743 or integral multiples thereof and (ii) the Secondary Notes may be purchased in denominations of $1.00 or integral multiples thereof); and (i) that Holders whose Notes were purchased only in part shall be issued new Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). 52 58 On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.9. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note (in each case, accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors), and the Trustee, upon written request form the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.9, any purchase pursuant to this Section 3.9 shall be made pursuant to the provisions of Section 3.1 through 3.6 and Section 4.10 hereof. ARTICLE IV COVENANTS SECTION 4.1 Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Company or any Guarantor thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate borne by the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company or the Guarantors in respect of the Notes 53 59 and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.3. SECTION 4.3 Reports. Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall promptly furnish to the Trustee and Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC 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" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the SEC's rules and regulations. In addition, whether or not required by the rules and regulations of the SEC, at any time after the effectiveness of the Registered Exchange Offer contemplated by the Registration Rights Agreement, the Company shall file a copy of such information and report with the SEC for public availability within the time periods set forth in the SEC's rules and regulations (unless the SEC will not accept such a filing). In addition, until the effectiveness of the Exchange Offer Registration Statement, the Company and the Guarantors shall furnish to the Holders of the Series A Notes and to prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 4.4 Compliance Certificate; Notices of Default under Senior Secured Indebtedness; Reporting Requirements. (a) The Company and the Guarantors shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company or such Guarantor, as the case may be, has kept, observed, performed and fulfilled its obligations under this Indenture and the Subsidiary Guarantees, respectively, and further stating, as to each 54 60 such Officer signing such certificate, that to the best of his or her knowledge the Company or such Guarantor, as the case may be, is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company or such Guarantor, as the case may be, is taking or proposes to take with respect thereto. (b) The year-end financial statements delivered pursuant to Section 4.3 above shall be accompanied by a written report of the Company's independent public accountants (which shall be a firm of established national reputation) that shall not be qualified by any reference to any violation by the Company of any provisions of Article IV or Article VI hereof. (c) Each of the Company and the Guarantors shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of the Company or any Guarantor becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. (d) If a default or event of default has occurred and is continuing under the Senior Secured Indebtedness, and notice to the Company of such default or event of default is given by the Senior Secured Lenders in accordance with the terms of the Credit Facilities, the Company shall mail a copy of such notice to the Trustee within two Business Days following the receipt of such notice from the Senior Secured Lenders. (e) In addition, each of the Company and the Guarantors will comply with the reporting requirements as set forth in TIA Section 314, including the delivery to the Trustee of an Opinion of Counsel substantially in the form of Exhibit H hereto, by January 31st of each calendar year, the first such delivery hereunder to occur in January 2001. SECTION 4.5 Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. SECTION 4.6 Stay, Extension and Usury Laws. Each of the Company and the Guarantors covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that would prohibit or forgive the Company or any Guarantor from paying all or any portion of the principal of, Liquidated Damages, if any, premium, if any, or interest on the Notes or any amounts due under the Guarantees as contemplated herein; and each of the 55 61 Company and the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.7 Limitation on Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) 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 dividend or distribution in connection with any merger or consolidation involving the Company) 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); (ii) 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; (iii) make any principal payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Old Notes or Indebtedness that is subordinated to the Notes, except a scheduled repayment of principal or a payment of principal at Stated Maturity; 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; and (b) the Company 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 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 Section 4.9 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of this Indenture (excluding Restricted Payments permitted by clauses (ii), (iii), (iv) and (vii) of the next succeeding paragraph) is less than the sum (without duplication) of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this 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 (ii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company from the issue or sale since the date of this Indenture of Equity Interests of the Company (other than Disqualified Stock) or 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 Restricted Subsidiary of 56 62 the Company, other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock, in each case pursuant to the terms of such securities, and other than Equity Interests to the extent the cash proceeds of which have been applied to the making of Restricted Payments by virtue of clause (v)(A) of the next succeeding paragraph), plus (iii) 100% of the aggregate net cash proceeds and the fair market value of marketable securities (as determined in good faith by the Company) received by the Company as an equity contribution from a holder or holders of Equity Interests of the Company (other than Disqualified Stock), plus (iv) to the extent that any Restricted Investment that was made after the date of this Indenture is sold or otherwise liquidated or repaid, the aggregate amount of cash and the fair market value of marketable securities (as determined in good faith by the Company), received as the return of capital with respect to such Restricted Investment (less the cost of disposition, if any), plus (v) the amount resulting from redesignations of Unrestricted Subsidiaries, such amount not to exceed the amount of Investments made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary since the date of this Indenture that was treated as a Restricted Payment under this Indenture, plus (vi) the amount of the net reduction in Investments in Unrestricted Subsidiaries resulting from the payment of cash dividends received by the Company or any Restricted Subsidiary of the Company from such Unrestricted Subsidiaries. The foregoing provisions shall 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 Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Old Notes, 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 Restricted Subsidiary of the Company) of, other Equity Interests of the Company (other than any 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 (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Old Notes or Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the repurchase, retirement or other acquisition or retirement for value of common Equity Interests of the Company held by any future, present or former employee or director of the Company or any of the Company's Restricted Subsidiaries or the estate, heirs or legatees of, or any entity controlled by, any such employee or director, pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement in connection with the termination of such person's employment for any reason (including by reason of death or disability); provided, that (i) the aggregate Restricted Payments made under this clause (v) to all Persons in the aggregate other than PPK Group shall not exceed $100,000 in any calendar year and (ii) the aggregate Restricted Payments made under this clause (v) to PPK Group shall not exceed the cash proceeds of key man life insurance policies received by the Company after the date of this Indenture less the amount of any Restricted Payments previously made to PPK Group pursuant to this clause (v); (vi) in the event of a Change in Control under this Indenture, the making of mandatory redemptions on the Company's Class A Preferred Stock and the Company's Class B Preferred Stock, par value $1,000 per share, in each case in accordance with the terms of the change of control provisions thereof as in effect on the date of this Indenture; provided, however, that (A) no such redemption shall be made until after the applicable Change of Control Payment Date and (B) on the applicable Change of Control 57 63 Payment Date no restrictions shall exist on the repurchase of Notes pursuant to a Change of Control Offer; (vii) the declaration and payment of dividends on, and the making of scheduled mandatory redemptions of, the Company's Coal Acquisition Preferred Stock in accordance with the terms thereof; and (viii) 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; provided, however, no Restricted Payment under clauses (ii), (iii), (v), (vi) or (vii) of this paragraph shall be made while any Default or Event of Default shall have occurred and be continuing. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation is permitted by this covenant and otherwise would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted 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 4.7. 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, if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary and provided that no Event of Default shall have occurred and be continuing. 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 the Company or such Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment shall be based on the good faith determination of the Board of Directors. Not later than the date of making any Restricted Payment, the Company shall 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 Section 4.7 were computed. SECTION 4.8 Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to the Company or any of its Restricted 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 the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Indebtedness as in effect on the date of this Indenture, (b) the Loan Agreement as in effect as of 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 with respect to such dividend and other payment restrictions than those contained in the Loan Agreement as in effect on the date of this Indenture, (c) this Indenture and 58 64 the Notes, (d) applicable law, rules or regulations, or any order or ruling by a governmental authority, (e) any instrument of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (but not created 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 this Indenture to be incurred, (f) customary nonassignment provisions in leases, licenses, encumbrances, contracts or similar agreements entered into or acquired in the ordinary course of business, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) on the property so acquired, (h) contracts for the sale of assets, including, without limitation, customary restrictions with respect to a Subsidiary pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (i) restrictions on cash or other deposits imposed by customers under contracts entered into in the ordinary course of business, (j) customary provisions in joint venture agreements at the time of creation of such joint venture and other similar agreements entered into in the ordinary course of business; and (k) any encumbrances or restrictions of the type referred to in clauses (i), (ii) and (iii) above 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 (j) 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, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. SECTION 4.9 Incurrence of Indebtedness and Issuance of Disqualified Stock. The Company shall not, and shall 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) and shall not, and shall not permit any of its Restricted Subsidiaries to issue any shares of Disqualified Stock; provided, however, that the Company or any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified 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 is issued would have been at least 2.25 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 had been issued, as the case may be, at the beginning of such four-quarter period. Neither the Company nor any Guarantor shall incur any Indebtedness that is contractually subordinated to any other Indebtedness of the Company or such Guarantor, respectively, unless such Indebtedness is also contractually subordinated to the Notes or the Subsidiary Guarantee of such Guarantor, respectively, on substantially identical terms; provided, however, that no Indebtedness of the Company or any Guarantor shall be deemed to be contractually subordinated 59 65 to any other Indebtedness of the Company or such Guarantor, respectively, solely by virtue of being unsecured. The provisions of the first paragraph of this covenant shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company or any of the Guarantors (and the guarantee thereof by Guarantors or the Company) of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and the Guarantors thereunder) under all Credit Facilities; provided that the aggregate principal amount of all Indebtedness and letters of credit outstanding at any one time under all Credit Facilities after giving effect to such incurrence, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any other Indebtedness incurred pursuant to this clause (i), does not exceed an amount equal to the greater of (A) $40.0 million and (B) the amount permitted by the terms thereof to be borrowed thereunder up to a maximum of $55 million (plus interest thereon and costs, expenses, fees and other charges related thereto for which the Company is liable under the terms of the agreements governing such Senior Indebtedness (including, but not limited to, attorneys' fees and legal expenses), less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness (or any such Permitted Refinancing Indebtedness) pursuant to Section 4.10 hereof; (ii) the incurrence by the Company and the Guarantors of Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes and the incurrence by the Guarantors of the Subsidiary Guarantees; (iv) the incurrence by the Company or any of the Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price, lease or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Guarantor, in an aggregate principal amount not to exceed $10.0 million at any time outstanding; (v) the incurrence by the Company or any of the Guarantors 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 this Indenture to be incurred; (vi) the incurrence by the Company or any of the Guarantors of intercompany Indebtedness between or among the Company and any of the Guarantors; provided, however, that (i) 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 (ii)(A) 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 Guarantor and (B) any sale or other transfer of any such Indebtedness 60 66 to a Person that is not either the Company or a Guarantor shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Guarantor, as the case may be; (vii) incurrence by the Company or any of the Guarantors of Hedging Obligations; (viii) Indebtedness incurred in respect of performance, surety and similar bonds and completion guarantees provided by the Company or any Restricted Subsidiary in the ordinary course of business; (ix) 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; (x) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Guarantor of the Company that was permitted to be incurred by another provision of this covenant; and (xi) the incurrence by the Company of the Optional Notes and the Secondary Notes. For purposes of determining compliance with this covenant, 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 covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph of this Section 4.9. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.9. SECTION 4.10 Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) 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 (as determined in good faith by the Board of Directors) of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of (a) cash or Cash Equivalents or (b) property or assets referred to in clause (c) of the following paragraph; provided that the amount of (x) 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 guarantee thereof) that are assumed by the transferee of any such assets pursuant to an agreement that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that 61 67 are converted by the Company or such Restricted Subsidiary into cash within 90 days after such Asset Sale (to the extent of the cash received), shall be deemed to be cash for purposes of this provision; provided further that the Company and the Restricted Subsidiaries shall comply with the requirements of the TIA. Net Proceeds from an Asset Sale involving the sale, transfer or other disposition of Collateral are herein referred to as "Collateral Proceeds." Net Proceeds from an Asset Sale not involving the sale, transfer or other disposition of Collateral are herein referred as "Non-Collateral Proceeds." Subject to Section 5.2(a) hereof, the provisions of the Intercreditor Agreement and the requirements of any Prior Lien, all Collateral Proceeds shall constitute Trust Moneys and shall be delivered by the Company (or the applicable Subsidiary) to the Collateral Agent and shall be deposited in the Collateral Account as Trust Moneys in accordance with this Indenture. Collateral Proceeds so deposited may be withdrawn from the Collateral Account and released to the Senior Collateral Agent, the Collateral Agent, the Company or the Trustee, as the case may be, for any purpose permitted by the Intercreditor Agreement, or this Section 4.10 or Article X. Non-Collateral Proceeds shall be delivered to the Company. Within 120 days after the receipt of any Collateral Proceeds and/or Non-Collateral Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds, at its option, (a) to repay Senior Secured Indebtedness (and to correspondingly permanently reduce commitments with respect thereto in the case of term borrowings), or (b) at any time when no Senior Secured Indebtedness is outstanding and no Default or Event of Default shall have occurred and be continuing, to offer to purchase Notes in the market pursuant to Section 3.9 at a price and in an amount determined by the Company, or (c) to the making of a capital expenditure in a Permitted Business relating to the coal mining activities of the Company and the Guarantors if deemed necessary and appropriate for use in the ordinary course of business of the Company and its subsidiaries by the Board of Directors (each, a "Permitted Business Investment") or to the reimbursement of the cost of Permitted Business Investments made by the Company or any Guarantor during the 120-day period immediately preceding the date of receipt of such Net Proceeds; provided that the property and assets constituting such Permitted Business Investment and any other non-cash consideration received as a result of such Asset Sale (other than Excluded Assets) are made subject to the Lien of the Security Documents and shall constitute Collateral under the terms of this Indenture and under the terms of the Security Documents; provided, further, that if at any time any non-cash consideration received by the Company or any such Restricted Subsidiary, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash more than 90 days after such Asset Sale, then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Proceeds thereof shall be applied in accordance with this Section 4.10. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Indebtedness under the Credit Facilities or invest such Net Proceeds in any manner that is not prohibited by this Indenture. Sixty percent of the excess over $1,000,000 of Net Proceeds from Asset Sales that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." If at the end of any six month period ending June 30 or December 31 commencing with the six month period ended December 31, 1999, the aggregate amount of Excess Proceeds exceeds $1,000,000 the Company shall be required to commence an Asset Sale Offer within 15 days after the end of such six month period to all Holders of Notes pursuant to Section 3.9 to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the 62 68 principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Any such remaining Excess Proceeds constituting Collateral Proceeds shall (subject to the provisions of the Intercreditor Agreement or any Prior Lien) remain in or be redeposited in the Collateral Account to be applied for any purpose permitted under this Indenture. For this purpose, Collateral Proceeds shall be deemed to be applied first in any Asset Sale Offer. SECTION 4.11 Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to or Investment in, 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 no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) 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 $5.0 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 Independent Appraiser. The foregoing provisions shall not apply to the following: (i) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary; (ii) transactions between or among the Company and/or its Restricted Subsidiaries; (iii) Restricted Payments that are permitted by Section 4.7 hereof; (iv) any payments made to holders of Notes, Warrants and Warrant Shares pursuant to such instruments or any related agreements or involving any exercise of rights by such holders pursuant to such agreements; (v) the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, officers, directors, or employees of the Company or any Restricted Subsidiary; (vi) transactions in which the Company or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Appraiser stating that such transaction meets the requirements of clause (i) of the preceding paragraph; (vii) loans to employees (a) pursuant to the Company's employee relocation policy as in effect on the date of this Indenture or (b) for any other purpose, provided such loans are not in excess of $100,000 in the aggregate at any one time outstanding and are approved, in each case, by a 63 69 majority of the Board of Directors of the Company or of the board of directors of any Guarantor (as applicable) in good faith; (viii) any agreement as in effect as of the date of this Indenture or any amendment thereto (so long as any such amendment is no less favorable to the holders of the Notes in any material respect than the original agreement as in effect on the Issue Date) or any transaction contemplated thereby; (ix) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, the Stockholders' Agreement, dated as of August 12, 1996, as in effect on the date of this Indenture, and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the date of this Indenture shall only be permitted by this clause (ix) so long as the terms of any such amendment or new agreement are no less favorable to the holders of the Notes in any material respect than the original agreement as in effect on the date of this Indenture; and (x) coal supply agreements with Anker Holding B.V. and its Affiliates in the ordinary course of business and otherwise in compliance with the terms of this Indenture which comply with the requirements of clause (i) of the preceding paragraph. SECTION 4.12 Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness or trade payables on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens, unless the Notes are secured equally and ratably with (or prior to in the case of Subordinated Indebtedness) the obligation or liability secured by such Liens. In the event that the Company or any Guarantor grants a Lien on any real Property located in the State of Maryland to secure the Senior Secured Indebtedness, such grantor shall grant a lien immediately junior thereto in favor of the Collateral Agent to secure the obligations under this Indenture. SECTION 4.13 Business Activities. The Company shall not, and shall not permit any Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. SECTION 4.14 Corporate Existence. Subject to Article V and Article X hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of such entity. 64 70 SECTION 4.15 Offer to Repurchase upon Change of Control. Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or integral multiples thereof, except that (i) the Series A Notes may also be repurchased in denominations of $800 or integral multiples thereof (ii) the Series B Notes may also be repurchased in denominations of $800 or $743 or integral multiples thereof, and (iii) the Secondary Notes may be repurchased in denominations of $1.00 or integral multiples thereof), of such Holder's Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-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 shall, 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 shall 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 the unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or integral multiples thereof, except that (i) the Series A Notes and may also be issued in denominations of $800 or integral multiples thereof, (ii) the Series B Notes may also be issued in denominations of $800 or $743 or integral multiples thereof, and (iii) the Secondary Notes may be issued in denominations of $1.00 or integral multiples thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company shall 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 this 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. SECTION 4.16 Payments for Consent. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any 65 71 Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or 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. SECTION 4.17 Additional Subsidiary Guarantees. If the Company or any of its Restricted Subsidiaries shall acquire or create another Restricted Subsidiary (other than a Foreign Subsidiary) after the date of this Indenture, then such newly acquired or created Restricted Subsidiary (other than a Foreign Subsidiary) shall execute a Subsidiary Guarantee and deliver an Opinion of Counsel, in accordance with the terms of this Indenture. SECTION 4.18 Use of Trust Moneys and Advances by Collateral Agent. If the Company shall fail to perform any of its covenants in this Indenture, the Collateral Agent may (but shall not be required to), at any time and from time to time, use and apply any Trust Moneys held by it under Article X or make advances to effect performance of any such covenant on behalf of the Company; and all moneys so used or advanced by the Collateral Agent, together with interest at the rate of 14.25% per annum on advances, shall be repaid by the Company upon demand and such advances shall be secured under the Security Agreement prior to the Notes. For repayment of all such advances the Collateral Agent shall have the right to use and apply any Trust Moneys at any time held by it under Article X but no such use of Trust Moneys or advances shall relieve the Company from any Default. SECTION 4.19 Insurance. The Company and the Guarantors will use their reasonable best efforts to keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as are ordinarily insured against by other owners in similar businesses. The Company and the Guarantors also shall maintain business interruption, public liability, product liability, and property damage insurance relating to the Company's and the Guarantors' ownership and use of the Collateral, as well as insurance against larceny, embezzlement, and criminal misappropriation, as may be available on reasonable terms from time to time, as is prudent in the business circumstances of the Company. The Company and the Guarantors shall obtain and maintain (i) insurance of the type necessary to insure the Improvements and Chattels (as such terms are defined in the Mortgages), for the actual cash value thereof, against any loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator collision, and other risks from time to time included under "extended coverage" policies, in amounts sufficient to prevent the Company and the Guarantors from becoming a co-insurer under such policies, (ii) combined single limit bodily injury and property damages insurance against any loss, liability, or damages on, about, or relating to each parcel of Real Property Collateral, in an amount of not less than the amount of such insurance in effect on the Issue Date; and (iii) insurance for such other risks as may be customary in the coal mining industry in the Eastern United States. 66 72 Neither the Company nor any of the Guarantors shall take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 4.19, unless the Collateral Agent is included thereon as named insured with the loss payable to Collateral Agent (subject to the terms and provisions (and the rights of holders) of the Senior Secured Indebtedness or any Prior Liens) under, as applicable, a lender's loss payable or mortgagee endorsement or its local equivalent. All policies or other contracts for such insurance upon any part of the Collateral shall provide that the proceeds of such insurance (except in the case of any particular casualty resulting in damage or destruction not exceeding $500,000 in the aggregate) shall be payable, subject to the terms and provisions (and the rights of holders) of the Senior Secured Indebtedness and any Prior Lien, to the Collateral Agent as its interest may appear (by means of a standard mortgagee clause or other similar clause acceptable to the Collateral Agent, without contribution). Each policy or other contract for such insurance, or such mortgagee clause, shall contain an agreement by the insurer that, notwithstanding any right of cancellation reserved to such insurer, such policy or contract shall continue in force for the benefit of the Collateral Agent for at least ten days after written notice to the Collateral Agent of cancellation. As soon as practicable after the execution of this Indenture, and within 90 days after the close of each fiscal year thereafter, and at any time upon the request of the Trustee, the Company will file with the Trustee an Officers' Certificate containing a detailed list of the insurance in force upon the Collateral on a date therein specified (which date shall be within 30 days of the filing of such Certificate), including the names of the insurers with which the policies and other contracts of insurance on the Collateral are carried, the numbers, amounts and expiration dates of such policies and other contracts and the property and hazards covered thereby, and stating that the insurance that is listed complies with this Section. Any appraisal or adjustment of any loss or damage of or to any part of the Collateral in any settlement in respect thereof which may be agreed upon between the Company and any insurer, as evidenced by an Officers' Certificate, shall be delivered to the Collateral Agent. Subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, all proceeds of insurance received by the Collateral Agent shall be held and paid over or applied by the Collateral Agent as provided in Article X. All proceeds of any insurance on any part of the Collateral not payable to the Collateral Agent or the trustee, mortgagee or other holder of a Prior Lien shall be applied by the Company to the repair, rebuilding or replacement of the property destroyed or damaged or, subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, shall be deposited with the Collateral Agent to be held and paid over or applied by it as provided in Article X. 67 73 ARTICLE V SECURITY SECTION 5.1 Security Interest. (a) In order to secure the obligations under this Indenture, the Company has granted and has caused and/or will cause each Guarantor, pursuant to the Security Documents, to grant the Security Interest to the Collateral Agent for the benefit of the Holders. The Collateral Agent, the Trustee and each Holder, by accepting a Note, acknowledge the binding effect of the Security Documents and the Subsidiary Guarantee as in effect and in existence on the date hereof, or in effect and coming into existence by reason of the Amendments to Deeds of Trust; provided, that, except for releases of Inventory and Accounts made in accordance with Section 5.5(a)(ii), in the event of a conflict between the provisions of any of the Security Documents and the provisions of the TIA, the provisions of the TIA will control. (b) The Trustee and each Holder, by accepting a Note, acknowledge and agree that, as more fully set forth in this Indenture and the Security Documents, the Senior Secured Lenders have certain rights in and to the Collateral and that the rights of the Senior Secured Lenders in the Collateral are senior to those of the Holders, the Collateral Agent and the Trustee. The rights of the Collateral Agent, the Trustee and the Holders in the Collateral are subject to the rights of holders of Prior Liens (including the Senior Secured Lenders) and the terms and conditions of the Intercreditor Agreement. (c) Subject to subsection (b) of this Section 5.1, the Collateral will be held for the equal and ratable benefit and security of the Holders without preference, priority, or distinction of any thereof over any other by reason of difference in time of issuance, sale, or otherwise, and for the enforcement of the obligations under this Indenture. The relative rights of the Holders and of the other holders of Collateral Debt with respect to the Collateral are governed by, and subject to the terms and conditions of, the applicable instrument under which the particular Collateral Debt held by any such holder was issued and, with respect to the Senior Secured Lenders under the Senior Secured Indebtedness, the terms and conditions of the Intercreditor Agreement. SECTION 5.2 Lien Subordination. (a) The Senior Security Interest shall be senior and prior in right to the Security Interest. The Trustee and each Holder acknowledge that (as more fully set forth in the Intercreditor Agreement) the rights of the Senior Secured Lenders to receive proceeds from the disposition of Collateral are senior to the rights of the Holders to receive proceeds from the disposition of the Collateral. (b) The priorities set forth in this Section 5.2 are applicable irrespective of the order of creation, attachment or perfection of any Liens or security interests or any priority that might otherwise be available to the Holders, the Trustee or any Senior Secured Lender under applicable law. 68 74 SECTION 5.3 Enforcement of Security. (a) The Company and each of the Guarantors has executed, delivered, filed, and recorded or will execute, deliver, file, and record, all instruments and documents, and has done or will do all such acts and other things, at the Company's and the Guarantors' expense, as are necessary to subject the Collateral to the Security Interest. The Company and each of the Guarantors will execute, deliver, file, and record all instruments and do all acts and other things as may be reasonably necessary to perfect, maintain, and protect the Security Interest. (b) In addition to their respective obligations under the Security Documents, the Company and each of the Guarantors will furnish to the Trustee and the Collateral Agent with respect to the Collateral promptly after the execution and delivery of this Indenture and any other instrument of further assurance or amendment or waiver of any provision of this Indenture or the Security Documents relating to the Security Interest in the Collateral for the benefit of the Holders of the Notes, an Opinion of Counsel either (A) stating that, in the opinion of such Counsel, this Indenture, the Security Documents, any financing statements, any continuation statements, and any other instruments of further assurance or amendment have been properly recorded, registered, and filed with respect to such types of Collateral (including collateral substituted for other Collateral pursuant to Sections 5.8 or 5.9), and that all such other acts and things have been done, to the extent necessary under applicable law to perfect and make effective the Security Interest therein and reciting the elements of such action in reasonable detail, or (B) stating that, in the opinion of such Counsel, no such action is necessary under applicable law to perfect or make effective the Security Interest. Any such opinion may be based upon reasonable assumptions not inconsistent with the terms of this Indenture or the Security Documents as to future matters and as to actions taken or to be taken by the Company and the Guarantors, or by the Collateral Agent or any other Person, and may set forth the reasons underlying such opinion. (c) In addition to their respective obligations under the Security Documents, the Company and each of the Guarantors will furnish to the Trustee and the Collateral Agent with respect to the Collateral (including collateral substituted for other Collateral pursuant to Section 5.8) within 30 calendar days after May 1, in each year beginning with the year 2000, an Opinion of Counsel, dated as of such date, either (A) stating that, in the opinion of such Counsel, such action has been taken with respect to the recording, registering, filing, rerecording, registering, and refiling of the Indenture, all supplemental indentures, the Security Documents, financing statements, continuation statements, and all other instruments of further assurance as is necessary under applicable law to maintain the Security Interest and reciting the elements of such action in reasonable detail, and stating that all financing statements and continuation statements have been executed and filed and such other acts and things have been done that are necessary under applicable law fully to preserve and protect the rights of the Holders and the Trustee hereunder and under the Security Documents, or (B) stating that, in the opinion of such Counsel, no such action is necessary under applicable law to maintain the Security Interest. Any such opinion may be based upon reasonable assumptions not inconsistent with the terms of this Indenture or the Security Documents as to future matters and as to actions taken or to be taken by the Company and the Guarantors, or by the Collateral Agent or any other Person, and may set forth the reasons underlying such opinion. 69 75 SECTION 5.4 Possession and Use of Collateral. (a) Until an acceleration of the Notes pursuant to Section 7.2, the Company and the Guarantors shall have the right to remain in possession and retain exclusive control of the Collateral (other than any Trust Moneys or other cash and securities constituting part of the Collateral and deposited with the Collateral Agent) with power freely and without let or hindrance on the part of the Trustee or the Holders to operate, manage, develop, use and enjoy the Collateral and to collect, receive, use, invest and dispose of the reversions, remainders, rates, interest, rents, issues, profits, revenues, proceeds and other income thereof. (b) Nothing in this Indenture or any of the Security Documents shall prohibit the Company or any of the Guarantors from transferring, by conveyance or otherwise, subject to the Lien of the Security Documents, any of the assets constituting the Collateral to any Restricted Subsidiary, for so long as the Restricted Subsidiary is a Restricted Subsidiary, without any release or consent of the Trustee or the Collateral Agent. SECTION 5.5 Disposition of Collateral Without Release. (a) Notwithstanding the provisions of Sections 5.6, 5.7, 5.8 or 5.9, at any time and from time to time until an acceleration of the Notes pursuant to Section 7.2, the Company and any of the Guarantors may without any release or consent by the Trustee or the Collateral Agent: (i) sell or otherwise dispose of any machinery, equipment, furniture, apparatus, tools or implements, materials, supplies or other similar property subject to the Lien hereof, which may have become worn out or obsolete or nonproductive Real Property, not exceeding in value in any one calendar year the greater of $25,000 or 1% of the principal amount of the Notes at the time outstanding; (ii) (1) deal in, sell, dispose of or otherwise use Inventory in the ordinary course of the Company's or the Guarantors' business, or (2) collect, liquidate or otherwise dispose of Accounts in the ordinary course of the Company's or the Guarantors' business; (iii) grant rights-of-way, restrictions on use, subleases, easements and other encumbrances which do not represent Liens intended to secure Indebtedness (other than Permitted Liens) over or in respect of any Real Property Collateral; provided, however, that such grant will not, in the reasonable opinion of the Company or the relevant Guarantors, as applicable, impair the usefulness of such property in the conduct of the Company's or the Guarantors' business and will not be prejudicial to the interests of the Holders; (iv) abandon, surrender, terminate, cancel, release or make alterations in or substitutions of any leases, contracts or of rights-of-way subject to the Lien of any of the Security Documents; provided, however, that any altered or substituted leases, contracts or rights-of-way shall forthwith, without further action, be subject to the Lien of the Security Agreement to the same extent as those previously existing and provided, further, that, if the Company or any of the Guarantors shall receive any money or 70 76 property in excess of the Company's or any of the Guarantor's expenses in connection with such abandonment, surrender, termination, cancellation, release, alteration or substitution as consideration or compensation for such termination, cancellation, release, alteration or substitution, such money or property, to the extent it exceeds the greater of $25,000 or 1% of the principal amount of the Notes at the time outstanding, forthwith upon its receipt by the Company or any of the Guarantors, shall, subject to Article X be deposited with the Collateral Agent (unless otherwise required by a Prior Lien) or otherwise subjected to the Lien of any of the Security Documents; (v) surrender or modify any franchise, license or permit subject to the Lien of any of the Security Documents which it may own or under which it may be operating; provided, however, that, after the surrender or modification of any such franchise, license or permit, (A) the Company and the Guarantors shall still, in the good faith judgment of the Company and the Guarantors, be entitled, under some other or without any franchise, license, or permit, to conduct its business in the territory in which it is then operating, or (B) in the good faith judgment of the Company and the Guarantors, it is no longer in the best interests of the Company or the Guarantors to conduct its business in such territory and provided, further, that, if the Company or the Guarantors shall be entitled to receive any money or property in excess of the Company's or the Guarantors' expenses in connection with such surrender or modification as consideration or compensation for such surrender or modification, such money or property, to the extent that it exceeds the greater of $25,000 or 1% of the principal amount of the Notes at the time outstanding, forthwith upon its receipt by the Company or any of the Guarantors, shall, subject to Article X be deposited with the Collateral Agent (unless otherwise required by a Prior Lien) or otherwise subjected to the Lien of any of the Security Documents; (vi) alter, repair, replace, change the location or position of and add to its plants, structures, machinery, systems, equipment, fixtures and appurtenances; provided, however, that no change in the location of any such property subject to the Lien of the Security Documents shall be made which (1) removes such property into a jurisdiction in which any instrument by law to preserve the Lien of any of the Security Documents on such property, including all necessary financing statements, continuation statements and any other instruments of further assurance of amendment has not been recorded, registered or filed in the manner required by law to preserve the Lien of any of the Security Documents on such property unless the Company or relevant Guarantor records, registers or files such instrument or document within the time allowed and in a manner required by law to preserve the Lien of any of the Security Documents on such property or (2) otherwise impairs the Lien thereof; or (vii) demolish, dismantle, tear down or scrap any Collateral, or abandon or surrender any thereof, including mineral rights, other real property interests, or interests in land (including leases), if, in the reasonable determination of the Company and the Guarantors, such demolition, dismantling, tearing down, scrapping, abandonment or surrender is in the best interests of the Company and the Guarantors and the value and utility of the Collateral as an entirety and the security for the Notes will not thereby be impaired. 71 77 Notwithstanding the foregoing, the Company's and the Guarantors' right to rely upon Subsection (a)(ii)(1) and (2) of this Section for each six-month period beginning on January 1 and July 1 (a "Six-Month Period") shall be conditioned upon the Company and the Guarantors' delivering to the Trustee and the Collateral Agent, within 30 days following the end of such Six-Month Period, an Officers' Certificate to the effect that all sales of Inventory and all collections and other dispositions of Accounts by the Company and the Guarantors during such Six-Month Period were in the ordinary course of the Company's and the Guarantors' business and that all proceeds therefrom were used by the Company and the Guarantors in the ordinary course of their business or to make other cash payments permitted by this Indenture. (b) In the event that the Company or any of the Guarantors has sold, exchanged, or otherwise disposed of or proposes to sell, exchange or otherwise dispose of (i) any portion of the Collateral which under the provisions of this Section 5.5 may be sold, exchanged or otherwise disposed of by the Company or any of the Guarantors without any release or consent of the Collateral Agent or (ii) any property or assets which do not constitute Collateral, and the Company requests the Trustee to instruct the Collateral Agent to furnish a written disclaimer, release or quitclaim of any interest in such property under any of the Security Documents, the Trustee shall instruct the Collateral Agent to execute such an instrument, upon delivery to the Trustee and the Collateral Agent of an Officers' Certificate by the Company reciting the sale, exchange or other disposition made or proposed to be made and describing in reasonable detail the property affected thereby, and stating and demonstrating that such property is property which by the provisions of this Section 5.5 may be sold, exchanged or otherwise disposed of or dealt with by the Company and the Guarantors without any release or consent of the Collateral Agent in conformity with a designated subsection of Section 5.5(a). All sales, exchanges or other dispositions made in compliance with this Section 5.5(a) shall be deemed to be free and clear of the Lien of the Security Documents. All cash received by the Collateral Agent pursuant to this Section 5.5 shall, subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, be held by the Collateral Agent as Trust Moneys under Article X subject to application as therein provided. All purchase money and other obligations received by the Collateral Agent pursuant to this Section 5.5 shall be held by the Collateral Agent as Collateral subject to disposition as provided in Section 5.20. Any disposition of Collateral made in compliance with the provisions of this Section 5.5 shall be deemed not to impair the Security Interest in contravention of the provisions of this Indenture and the Security Documents. SECTION 5.6 Release of Collateral Generally. In addition to its obligations under the Security Documents, in connection with any release of Collateral other than pursuant to Section 5.5, the Company and each of the Guarantors will deliver to the Trustee and the Collateral Agent the certificate or opinion, if any, required by Section 314 of the TIA as to the fair value of any Collateral to be released, together with the other documents required by Section 5.7, 5.8 or 5.9, as applicable. Any release of Collateral made in compliance with the applicable provisions of this Article V and the Security Documents will be deemed not to impair the Security Interest in contravention of the provisions of this Indenture and the Security Documents. 72 78 SECTION 5.7 Procedures for Release of Collateral. In addition to its rights under Sections 5.5, 5.8 and 5.9, the Company and each of the Guarantors shall have the right, at any time and from time to time, to sell, exchange or otherwise dispose of any of the Collateral (other than Trust Moneys), upon compliance with the requirements and conditions of this Section 5.7 and, in the case of an Asset Sale, upon compliance with the requirements and conditions of Section 4.10, and the Trustee shall instruct the Collateral Agent to release the same from the Lien of any of the Security Documents upon receipt by the Trustee and the Collateral Agent of an application of the Company requesting such release and describing the property to be so released, together with: (a) If the property to be released has a book value in excess of the greater of $25,000 or 1% of the principal amount of the Notes at the time outstanding, a resolution of the Board of Directors or of the board of directors of the Guarantor which owns the property being released, as the case may be, requesting such release, and authorizing an application to the Trustee and the Collateral Agent therefor. (b) An Officers' Certificate, dated not more than 30 days prior to the date of the application for such release, stating in substance as follows: (i) that the Company or a Guarantor has sold or disposed of or has contracted to sell or dispose of the property so requested to be released, and if such sale or disposition is an Asset Sale subject to Section 4.10, stating that all Net Proceeds from such sale or disposition will be applied pursuant to Section 4.10 and, if applicable, Section 3.9; (ii) that either (1) other property is to be substituted as Substitute Collateral in accordance with Section 5.8, 5.9 and, if applicable, Section 4.10, or (2) if the property to be released is not being replaced by other property (other than property described in Section 5.7(d)) in compliance with Sections 4.10, 5.8 or 5.9, that either (A) the Net Proceeds are not required to be deposited with the Collateral Agent in connection with an Asset Sale or (B) the Company will make an Asset Sale Offer in accordance with Sections 4.10 and 3.9 or (C) such property is not necessary for the efficient operation of the Company's remaining property or in the conduct of the business of the Company; (iii) either (1) that the Company has disposed of or will dispose of the property so to be released for permitted consideration representing, in the opinion of the signers, its fair value and describing such consideration, which consideration shall comply with Section 4.10 to the extent applicable and, subject to Section 4.10, may consist of any one or more of the following: (A) cash, and (B) any other property that, upon acquisition thereof by the Company, would be subject to the Lien of any of the Security Documents, and subject to no Lien other than Permitted Liens, all of such consideration to be briefly described in the certificate, or (2) that the property so to be released has been or is to be disposed of without consideration (or for consideration less than fair value), in which event such certificate shall state the reason for its disposition without consideration or at less than fair value; 73 79 (iv) that no Event of Default has occurred and is continuing; (v) the fair value, in the opinion of the signers, of the property to be released at the date of such application for release and that, in the opinion of the signers, the proposed release of property will not impair the Security Interest in contravention of the provisions of this Indenture or the Security Documents; provided, however, that it shall not be necessary under this clause (v) to state the fair value of any property whose fair value is certified in a certificate of an Appraiser or Independent Appraiser under Section 5.6 or 5.7(c); (vi) whether the aggregate fair value of all the property to be released and of all other property (other than Inventory or Accounts disposed of pursuant to Section 5.5(a)(ii)) released from the Lien of any of the Security Documents since the commencement of the then current calendar year is (1) 10% or more of the aggregate principal amount of the Notes outstanding on the date of the application and (2) whether said fair value of the property to be released is at least $25,000 and at least 1% of the aggregate principal amount of the Notes outstanding on the date of the application, and if such is the case, that a certificate of an Independent Appraiser as to the fair value of the property to be released will be furnished under Section 5.7(c), and (vii) that all conditions precedent herein provided for relating to the release of the property in question have been complied with. (c) If (i) the fair value of the property to be released and of all other property (other than Inventory or Accounts disposed of pursuant to Section 5.5(a)(ii)) released from the Lien of any of the Security Documents since the commencement of the then current calendar year, as shown by certificates required by Section 5.7(b), is 10% or more of the aggregate principal amount of the Notes outstanding on the date of the application, and (ii) the fair value of the property to be so released, as shown by the certificate filed pursuant to Subsection (b) of this Section, is at least $25,000 and at least 1% of the aggregate principal amount of the Notes outstanding on the date of the application, a certificate of an Independent Appraiser, stating: (1) the then fair value, in the opinion of the signer, of the property to be released; and (2) that such release, in the opinion of the signer, will not impair the Security Interest under this Indenture and the Security Documents in contravention of the terms hereof and thereof. (d) Either (i) the Substitute Collateral and all related documents pursuant to Sections 5.8 and 5.9, (ii) the Net Proceeds unless otherwise permitted by Section 4.10 (except to the extent that the assignment thereof would violate the terms thereof or any agreement relating thereto or would require the consent of any other party to any such agreement which consent has not been obtained for any property so to be released) or if the property so to be released is subject to a Prior Lien, an Officers' Certificate to the effect that the holder of such Prior Lien has received such Net Proceeds (except to the extent that the assignment thereof would violate the terms thereof or any agreement relating thereto or would require the consent of any other party to 74 80 any such agreement which consent has not been obtained for any property so to be released) and has been irrevocably authorized by the Company to pay over to the Collateral Agent any balance of such Net Proceeds remaining after the discharge of such Prior Lien; and, if any property other than Excluded Assets is included in such Net Proceeds, such instruments of conveyance, assignment and transfer, if any, as may be necessary to subject to the Lien of any of the Security Documents all the right, title and interest of the Company in and to such property, or (iii) an Officer's Certificate to the effect that the Collateral Proceeds are not required to be made available to repurchase Notes pursuant to an Asset Sale Offer in accordance with Sections 4.10 and 3.9, and are being immediately applied to another specified permitted purpose pursuant to such Section 4.10 in which event the Collateral Proceeds shall be released to the Company to be used for the purposes specified in Section 4.10. (e) If the property to be released has a book value in excess of the greater of 1% of the principal amount of the Notes at the time outstanding or $25,000, an Opinion of Counsel substantially to the effect (as applicable) (i) either (x) that such instruments of conveyance, assignment and transfer as have been or are then delivered to the Collateral Agent are sufficient to subject to the Lien of the Security Documents all the right, title and interest of the Company and the Guarantors in and to any property, other than Excluded Assets, that is included in the consideration for the property so to be released and is to be received by the Collateral Agent pursuant to Section 5.7(d), subject to no Lien other than Permitted Liens or (y) that no instruments of conveyance, assignment or transfer are necessary for such purpose, (ii) that the Company has corporate power to own all property included in the consideration for such release, (iii) in case any part of the money referred to in Section 5.7(d) has been deposited with a trustee or other holder of a Prior Lien, that, to the best knowledge of the opinion provider, the property to be released, or a specified portion thereof, is or immediately before such release was subject to such Prior Lien and that such deposit is required by such Prior Lien or such funds are to be applied to the payment of the obligations secured by such Prior Lien and (iv) that, to the best knowledge of the opinion provider, all conditions precedent herein provided for relating to the release of the property have been complied with. In case an Event of Default shall have occurred and shall not have been cured or waived, the Company, while in possession of the Collateral (other than cash, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent under the Security Documents or with the trustee, mortgagee or other holder of a Prior Lien or Permitted Lien), may do any of the things enumerated in this Section 5.7, if the Holders of a majority in aggregate principal amount of the Notes then outstanding, by appropriate action of such Holders, shall consent to such action, in which event any certificate filed under such Section shall omit the statement to the effect that no Event of Default has occurred that has not been cured. This paragraph shall not apply, however, during the continuance of an Event of Default of the type specified in Section 7.1(a) or (b). Subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, all cash received by the Collateral Agent pursuant to this Section 5.7 shall be held by the Collateral Agent as Trust Moneys under Article X subject to disposition as provided therein and in Sections 4.10 (in the case of Collateral Proceeds) and 5.7. 75 81 Any releases of Collateral made in compliance with the provisions of this Section 5.7 shall be deemed not to impair the Security Interest in contravention of the provisions of this Indenture and the Security Documents. Notwithstanding anything contained in this Indenture to the contrary, (a) the provisions of Section 5.6, this Section 5.7, Section 5.8 and Section 5.9 will not be applicable to any release or withdrawal of Inventory and Accounts pursuant to Section 5.5(a)(ii) and (b) the fair value of Inventory and Accounts disposed of pursuant to Section 5.5(a)(ii), need not be considered in determining whether the aggregate Collateral released in any calendar Year exceeds the 10% threshold specified in Section 314(d)(1) of the Trust Indenture Act; provided, that the Company's and the Guarantors' right to rely on this paragraph will be conditioned upon the Company delivering to the Trustee and the Collateral Agent, within 30 calendar days following the end of each six-month period beginning on January 1 and July 1 of any year, an Officer's Certificate to the effect set forth in the last paragraph of Section 5.5(a). SECTION 5.8 Substitute Collateral. (a) Each of the Company and the Guarantors may, at its option, obtain a release of any of the Collateral (excluding any Trust Moneys or Cash Collateral) by subjecting other property, if such substitute property has a fair value equal to or greater than the property to be released (the "Substitute Collateral"), to the Lien of any of the Security Documents in place of and in exchange for any of the Collateral to be released, all in accordance with this Section 5.8. (b) Substitute Collateral may be substituted for other Substitute Collateral (other than Trust Moneys and Cash Collateral) on the terms set forth in this Section 5.8. The substitution of Cash Collateral is governed by Section 5.9 (c) The Trustee shall instruct the Collateral Agent to release any such Collateral from the Lien of any of the Security Documents and accept the Substitute Collateral subject to the Lien of any of the Security Documents upon receipt thereof by the Trustee and the Collateral Agent of: (i) an application of the Company requesting such substitution of Substitute Collateral for any of the Collateral and describing the property to be so released and the property to be substituted therefor; (ii) the resolutions, certificates, opinions and other statements listed in Section 5.7(a), (b), (c) and (e), as and to the extent applicable, in respect of any of the Collateral to be released; (iii) an Officers' Certificate, dated not more than 30 days prior to the date of the application for the substitution, and signed also by an Appraiser, stating in substance the fair value to the Company, in the opinion of the signers, of the Substitute Collateral as of a reasonably current date which shall be not more than 90 days prior to the date of the application for substitution unless the fair value is established by an Independent Appraiser within a date as current as practicable; provided, however, that if the fair value to the Company of such Substitute Collateral, together with all other Substitute Collateral substituted since the commencement of the current calendar year 76 82 pursuant to this Section 5.8 to release Collateral, as set forth in such Officers' Certificate or Opinion of Counsel required by this Section 5.8 is 10% or more of the aggregate principal amount of the Notes at the time outstanding, and in either case the fair value to the Company of such Substitute Collateral is at least $25,000 and at least 1% of the aggregate principal amount of the Notes outstanding on the date of the application, then, such certificate as to the fair value of the Substitute Collateral shall be made by an Independent Appraiser; and provided further, however, that if (x) within six months prior to the acquisition thereof by the Company, the Substitute Collateral has been used or operated by a Person or Persons other than the Company, in a business similar to that of the Company, and (y) the fair value to the Company of such Substitute Collateral, as set forth in such Officer's Certificate, is not less than $25,000 and not less than 1% of the aggregate principal amount of the Notes outstanding on the date of the application, then such certificate shall be made by an Independent Appraiser; (iv) if the Substitute Collateral is a real property interest, the Company shall also deliver to the Trustee and the Collateral Agent: (1) a Mortgage, Deed of Trust or other instrument in recordable form sufficient for the Lien of any of the Security Documents to cover the Substitute Collateral which, if the real property interest is a leasehold or easement interest, shall include normal and customary provisions with respect thereto; (2) evidence of payment or a closing statement indicating payments to be made by the Company of recording charges, transfer taxes and other costs and expenses, including reasonable legal fees and disbursements of the attorney for the Collateral Agent, that may be incurred to validly and effectively subject the Substitute Collateral to the Lien of any of the Security Documents; and (v) if the Substitute Collateral is a personal property interest, the Company shall also deliver to the Trustee and the Collateral Agent: (1) if necessary, an instrument in recordable or other form sufficient for the Lien of the Security Documents to cover the Substitute Collateral and evidence of the filing of all such financing statements and other documents as may be necessary to perfect such Liens; (2) if the property to be substituted has a book value in excess of the greater of 1% of the principal amount of the Notes outstanding or $25,000, an Opinion of Counsel either stating that in the opinion of such counsel the Indenture has been properly recorded and filed so as to make effective the lien on such Substitute Collateral intended to be created thereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make the lien on such Substitute Collateral effective. (3) evidence of payment or a closing statement indicating payments to be made by the Company of all filing fees, recording charges, transfer taxes and other costs and expenses, including reasonable legal fees and disbursements of the 77 83 attorney for the Collateral Agent, that may be incurred to validly and effectively subject the Substitute Collateral to the Lien of the Security Documents and to perfect such Lien. Any releases of Collateral or Substitute Collateral made in compliance with this Section 5.8 shall be deemed not to impair the Security Interest in contravention of the provisions of this Indenture and the Security Documents. SECTION 5.9 Substitution of Cash Collateral. At any time that there is no Senior Secured Indebtedness outstanding and the commitments thereunder have been terminated: (a) Each of the Company and the Guarantors may, at its option, obtain the release of Collateral (other than Trust Moneys or Cash Collateral) in accordance with the provisions and conditions of this Section 5.9 upon delivery to the Collateral Agent of Cash Collateral as follows: (i) each of the Company and the Guarantors may obtain the release of all Collateral by delivering to the Collateral Agent Cash Collateral in an amount sufficient to pay all obligations under this Indenture in compliance with Article IX; (ii) each of the Company and the Guarantors may obtain the release of a portion of the Collateral by delivering Cash Collateral to a Collateral Account or the Collateral Agent in an amount such that the fair value of the Cash Collateral so delivered is at least equal to the fair value of the Collateral to be released; or (iii) each of the Company and the Guarantors may obtain the release of a portion of the Collateral by delivering Cash Collateral to a Collateral Account or the Collateral Agent without regard to subparagraphs (i) and (ii) if the Cash Collateral is all of the Net Proceeds from the sale or other disposition of that portion of the Collateral that is being released and if (A) the Net Proceeds of the sale or other disposition of Collateral released include only cash and (B) the Company and the Guarantors deliver all of such proceeds to a Collateral Account or the Collateral Agent as Collateral in place of and in exchange for the released Collateral. (b) Each of the Company and the Guarantors shall deliver a Company Request to the Trustee and the Collateral Agent stating that the Company and the Guarantors intend to substitute Cash Collateral for a portion of the Collateral specifically described therein and shall comply with Section 5.7, including delivery of the resolutions, certificates and other statements listed in Section 5.7(a), (b), (c) and (e), as and to the extent applicable in respect of any of the Collateral to be released. (c) In its discretion, each of the Company and the Guarantors may invest any Cash Collateral it holds in the Collateral Account or otherwise, or may instruct the Collateral Agent in writing to invest any Cash Collateral in its possession, in Cash Equivalents. 78 84 (d) Interest earned on such Cash Collateral, Substitute Collateral or Cash Equivalents shall not be held by the Company and the Guarantors or the Collateral Agent, as the case may be, for the benefit of the Holders so long as no Event of Default hereunder shall have occurred. Any such interest shall be retained, in the case of the Company and the Guarantors, or paid, in the case of the Collateral Agent, by or to the Company and the Guarantors, as the case may be. In the case of the Collateral Agent, the Company and the Guarantors shall deliver to the Trustee and the Collateral Agent a Company Request for the payment of any such interest held by the Collateral Agent, stating that no Event of Default has occurred and is continuing and requesting the Trustee to instruct the Collateral Agent to pay such interest to the Company and the Guarantors. After an Event of Default hereunder, any interest on the Cash Collateral, Substitute Collateral or Cash Equivalents held by the Company and the Guarantors, the Trustee or the Collateral Agent shall be held by them as part of the Cash Collateral so long as such Event of Default continues. (e) Any Cash Collateral, Substitute Collateral or Cash Equivalents in the possession of the Collateral Agent shall be held by the Collateral Agent in the Collateral Account or a separate custodial account or accounts maintained by the Collateral Agent on behalf of the Holders. Any releases of Collateral or Substitute Collateral made in compliance with this Section 5.9 shall be deemed not to impair the Security Interest in contravention of the provisions of this Indenture and the Security Documents. SECTION 5.10 Discharge of Security Interest. In the event that (a) the Company and the Guarantors comply with Article IX or (b) the obligations under this Indenture have been terminated and there are no other Indenture Obligations under the Security Documents that remain outstanding, the Trustee will, upon Company Request, deliver to the Collateral Agent a notice stating that the Trustee, on behalf of the Holders, disclaims and gives up any and all rights it has in or to the Collateral and any rights it has under the Security Documents relating thereto. Upon and after the receipt by the Collateral Agent of such notice, the Collateral Agent will not be deemed to hold the Security Interest in the Collateral on behalf of the Trustee for the benefit of the Holders. SECTION 5.11 Reliance on Opinion of Counsel. The Trustee and the Collateral Agent will, before taking any action under this Article V, be entitled to receive an Opinion of Counsel, stating the legal effect of such actions and that such action will not be in contravention of the provisions hereof or of the Security Documents. Any such opinion will be full protection to the Trustee and the Collateral Agent for any action taken or omitted to be taken in reliance thereon. SECTION 5.12 Intercreditor Arrangements Among Senior Lenders. Nothing in this Article V shall be construed so as to limit Senior Secured Lenders in setting forth their respective priorities in the Collateral in any intercreditor agreements, among any of them, including without limitation, the Intercreditor Agreement. 79 85 SECTION 5.13 Purchaser May Rely. A purchaser in good faith of the Collateral or any part thereof or interest therein which is purported to be transferred, granted or released by the Collateral Agent as provided in this Article V shall not be bound to ascertain, and may rely on the authority of the Collateral Agent to execute the transfer, grant or release, or to inquire as to the satisfaction of any conditions precedent to the exercise of such authority, or to see the application of the purchase price therefor. SECTION 5.14 Payment of Expenses. On demand of the Trustee and the Collateral Agent, the Company and the Guarantors forthwith will pay or satisfactorily provide for all reasonable expenditures incurred by the Trustee and the Collateral Agent under this Indenture and all such sums will be a Lien upon the Collateral and will be secured thereby. SECTION 5.15 Suits to Protect the Collateral. Subject to Sections 5.1 and 5.2(a) and the provisions of the Security Documents, the Trustee and the Collateral Agent will have power to enter into any agreement or take any action required by the Security Documents or as may be reasonably requested by the Collateral Agent pursuant to the terms of the Security Documents and to institute and to maintain such suits and proceedings, to the extent permitted under the terms of the Security Documents, as it may deem expedient to prevent any impairment of the Collateral, by any acts which may be unlawful or in violation of the Security Documents or this Indenture, including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule, or order that may be unconstitutional or otherwise invalid or if the enforcement of, or compliance with, such enactment, rule, or order would impair the Security Interest in contravention of this Indenture or be prejudicial to the interests of the Holders or of the Trustee. SECTION 5.16 Trustee's and Collateral Agent's Duties. The powers conferred upon the Trustee and the Collateral Agent by this Article V are solely to protect the Security Interest and will not impose any duty upon the Trustee or the Collateral Agent to exercise any such powers except as expressly provided in this Indenture. Neither the Trustee nor the Collateral Agent will be under any duty to the Company or the Guarantors whatsoever to make or give any presentment, demand for performance, notice of nonperformance, protest, notice of protest, notice of dishonor, or other notice or demand in connection with any Collateral, or to take any steps necessary to preserve any rights against prior parties except as expressly provided in this Indenture. Neither the Trustee nor the Collateral Agent will be liable to the Company or the Guarantors for failure to collect or realize upon, or to cause the Collateral Agent to collect or realize upon, any or all of the Collateral or for any delay in so doing, nor will the Trustee or the Collateral Agent be under any duty to the Company or the Guarantors to take any action whatsoever with regard thereto. Neither the Trustee nor the Collateral Agent has any duty to the Company or the Guarantors or to the Holders to comply with any recording, filing, or other legal requirements necessary to establish or maintain the 80 86 validity, priority, or enforceability of, or the Trustee's or the Collateral Agent's rights in or to, any of the Collateral. SECTION 5.17 Eminent Domain and Other Governmental Takings. Should any of the Collateral be taken by eminent domain or be sold pursuant to the exercise by the United States of America or any State, municipality or other governmental authority of any right which it may then have to purchase, or to designate a purchaser or to order a sale of, all or any part of the Collateral, the Trustee shall instruct the Collateral Agent to release the property so taken or purchased, but only upon receipt by the Trustee and the Collateral Agent of the following: (a) an Officers' Certificate stating that such property has been taken by eminent domain and the amount of the award therefor, or that such property has been sold pursuant to a right vested in the United States of America, or a State, municipality or other governmental authority to purchase, or to designate a purchaser, or order a sale of such property and the amount of the proceeds of such sale, and that all conditions precedent herein provided for relating to such release have been complied with; (b) the award for such property or the proceeds of such sale; provided, however, that, in lieu of all or any part of such award or proceeds, the Company and the Guarantors shall have the right to deliver to the Trustee and the Collateral Agent an Officer's Certificate stating that such award or proceeds or a specified part thereof, has been deposited with the trustee, mortgagee or other holder pursuant to the requirements of a Prior Lien or in payment of obligations under the Senior Secured Indebtedness, in which case the balance of the award, if any, shall be delivered to the Trustee and the Collateral Agent; and (c) An Opinion of Counsel substantially to the effect: (1) that such property has been taken by eminent domain, or has been sold pursuant to the exercise of a right vested in the United States of America or a State, municipality or other governmental authority to purchase, or to designate a purchaser or order a sale of, such property; (2) in the case of any such taking by eminent domain, that the award for the property so taken has become final or that appeal from such award is not advisable in the interests of the Company and the Guarantors; (3) in the case of any such sale, that the amount of the proceeds of the property so sold, is not less than the amount to which the Company and the Guarantors are legally entitled under the terms of such right to purchase or designate a purchaser, or under the order or orders directing such sale, as the case may be; (4) in case, pursuant to Section 5.17(b), the award for such property or the proceeds of such sale, or a specified portion thereof, shall be certified to have been deposited with the trustee, mortgagee or other holder of a Prior Lien or applied to the Senior Secured Indebtedness, that the property to be released, or a 81 87 specified portion thereof, is or immediately before such taking or purchase was subject to such Prior Lien; and that such deposit or application is required by the terms of such Prior Lien; and (5) that the instruments or the instruments and the award or proceeds of such sale which have been or are therewith delivered to and deposited with the Collateral Agent conform to the requirements of any of the Security Documents and that, upon the basis of such application, the Collateral Agent is permitted by the terms of the Security Agreement to execute and deliver the release requested, and that all conditions precedent herein provided for relating to such release have been complied with. In any proceedings for the taking or purchase or sale of any part of the Collateral, by eminent domain or by virtue of any such right to purchase or designate a purchaser or to order a sale, the Collateral Agent may be represented by counsel who may be counsel for the Company and the Guarantors. All cash received by the Collateral Agent pursuant to this Section 5.17 shall be held by the Collateral Agent as Trust Moneys under Article X subject to application as therein provided. All purchase money and other obligations received by the Collateral Agent pursuant to this Section 5.17 shall be held by the Collateral Agent as Collateral subject to disposition as provided in Section 5.19. SECTION 5.18 Powers Exercisable by Receiver or Trustee. In case the Collateral shall be in the possession of a receiver or trustee, lawfully appointed, the powers conferred in this Article V upon the Company and the Guarantors with respect to the release, sale or other disposition of such property may be exercised by such receiver or trustee, and an instrument signed by such receiver or trustee shall be deemed the equivalent of any similar instrument of the Company and the Guarantors or of any Officer or Officers thereof required by the provisions of this Article V; and if the Collateral Agent shall be in the possession of the Collateral under any provision of the Security Agreement, then such powers may be exercised by the Collateral Agent. SECTION 5.19 Disposition of Collateral on Discharge of Prior Liens. Subject to the requirements of the Intercreditor Agreement, upon the cancellation and discharge of any Prior Lien (other than in connection with the incurrence of Permitted Refinancing Indebtedness secured by a Prior Lien that is a Permitted Lien), the Company and the Guarantors will cause all Collateral then held by the trustee, mortgagee or other holder of such Prior Lien, which constitute part of the Collateral (including all proceeds of or substitutions for any thereof), to be paid to or deposited with and pledged to the Collateral Agent, such Collateral to be held and paid over or applied by the Collateral Agent as provided in this Article V and in Article X. 82 88 SECTION 5.20 Disposition of Obligations Received. Subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, all purchase money and other obligations received by the Collateral Agent under this Article V shall be held by the Collateral Agent as part of the Collateral. Upon payment by or on behalf of the Company to the Collateral Agent of the entire unpaid principal amount of any such obligation or otherwise in accordance with the terms of such obligation or payment to Prior Lien (net of amounts required to be paid to holders of Prior Liens on the same obligations), the Collateral Agent shall release and transfer such obligation and any mortgage securing the same upon Company Request. Any cash received by the Collateral Agent in respect of the principal of any such obligations shall be held by the Collateral Agent as Trust Moneys under Article X subject to application as therein provided. All interest and other income on any such obligations, when received by the Collateral Agent, shall be paid from time to time upon Company Request, until the Notes are accelerated pursuant to Section 7.2. If the Notes have been accelerated pursuant to Section 7.2, any such interest or other income not theretofore paid upon Company Request, when collected by the Collateral Agent, shall be applied by the Trustee in accordance with Section 7.10. ARTICLE VI SUCCESSORS SECTION 6.1 Merger, Consolidation, or Sale of Assets. The Company shall not consolidate or merge with or into (whether or not the Company 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) the Company is the surviving corporation or the entity 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 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 the Company) 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 the Company under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) except in the case of a merger of the Company with or into a Wholly Owned Subsidiary of the Company, the Company or the entity or 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 will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, 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 4.9 hereof. Notwithstanding the foregoing clause (iv), (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another State of the 83 89 United States so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. SECTION 6.2 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 6.1 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" or the Guarantor, as the case may be, shall refer instead to the successor corporation and not to the Company or applicable Guarantor, as the case may be), and may exercise every right and power of the Company or the applicable Guarantor, as the case may be, under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company and predecessor Subsidiaries that are Guarantors shall not be relieved from the obligation to pay the principal of, Liquidated Damages, if any, and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 6.1 hereof ARTICLE VII DEFAULTS AND REMEDIES SECTION 7.1 Events of Default. Each of the following constitutes an "Event of Default": (a) a default for 30 days in the payment when due of interest (including the payment of interest by issuance of Secondary Notes in lieu of cash payments) on, or Liquidated Damages, if any, with respect to, the Notes; (b) a default in payment when due of the principal of or premium, if any, on the Notes; (c) the Company or any of its Restricted Subsidiaries fail to comply with any of the provisions of 3.9, 4.10, 4.15 or 6.1 hereof; (d) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice by the Trustee or by the Holders of at least 25% of Notes then outstanding to comply with any of its other agreements in this Indenture or the Notes; (e) one or more defaults in the performance, or one or more breaches, of any covenant or agreement of the Company or any of the Guarantors contained in the Security Documents (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in this Indenture) and continuance of such default or breach for a period of 30 days after written notice shall have been given to the Company by the Trustee 84 90 or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (f) a 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), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or Guarantee now exists or is created hereafter, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to 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 prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any such other Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $5.0 million or more; (g) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $5.0 million net of applicable insurance coverage which is acknowledged in writing by the insurer to cover such judgments, which judgments are not paid, discharged or stayed for a period of 60 days; (h) except as permitted by this Indenture, any Subsidiary Guarantee by a Significant Subsidiary or any Subsidiaries that, taken together, would constitute a Significant Subsidiary, 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 that is a Significant Subsidiary or any Guarantors that taken together would constitute a Significant Subsidiary, or any Person acting on behalf of any such Guarantor or Guarantors, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (i) the Company, any Guarantor, or any of the Company's Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (j) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 85 91 (i) is for relief against the Company, any Guarantor, or any of the Company's Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a custodian of the Company, any Guarantor, or any of the Company's Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company, any Guarantor, or any of the Company's Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company, any Guarantor, or any of the Company's Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. (k) the Company or any of its Subsidiaries initiates any suit or proceeding challenging the legality, validity, or enforceability of any of the foregoing or the attachment, perfection, or priority of any Liens granted to secure payment and performance of the Notes. SECTION 7.2 Acceleration. If any Event of Default (other than an Event of Default specified in clause (i) or (j) of Section 7.1 hereof with respect to the Company, any Guarantor, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) 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. Upon any such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, if an Event of Default specified in clause (i) or (j) of Section 7.1 hereof occurs with respect to the Company, any Guarantor constituting a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. SECTION 7.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not 86 92 impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders under this Indenture, the Subsidiary Guarantee and the Security Documents by such appropriate private or judicial proceedings as the Trustee shall deem most effectual to protect and enforce such rights, including, without limitation, seeking recourse against the Guarantors pursuant to the terms of the Subsidiary Guarantee, whether for the specific enforcement of any covenant or agreement in the Security Documents or in aid of the exercise of any power granted therein, or to enforce any other proper remedy, including appointment of a receiver for the Collateral and foreclosure, realization and sale of Collateral pursuant to the terms of the Security Documents. The Trustee shall be entitled to sue and recover judgment as aforesaid or sue to enforce any Lien of the Security Documents, in either case, either before, after or during the pendency of any other proceeding for the enforcement of any Lien of the Security Documents, and the right of the Trustee to recover such judgment shall not be affected by any sale under any of the Security Documents or by the exercise of any right, power or remedy for the enforcement of the provisions of any of the Security Documents, or the foreclosure or enforcement of any Lien of the Security Documents. No recovery of any such judgment upon any property of the Issuer or any Guarantor shall affect or impair the Lien on the Collateral or any rights, powers or remedies of the Trustee or the Holders. If an Event of Default occurs and is continuing, the Trustee is hereby authorized to appoint a receiver for the purpose of enforcing any Lien of the Security Documents or realizing on any property and assets of the Issuer or any Guarantor subject thereto. SECTION 7.4 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 7.5 Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. 87 93 SECTION 7.6 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request, the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 7.7 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 7.8 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (a) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Note at the Stated Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, with interest upon the overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, 88 94 disbursements and advances of the Trustee, the Collateral Agent and their respective agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and, subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may, subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 7.9 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company or any of the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matter and to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.7 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.7 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 89 95 SECTION 7.10 Priorities. If the Trustee collects any money pursuant to this Article, it shall pay out the money, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid, in the following order: First: to the Trustee and the Collateral Agent, their agents and attorneys for amounts due under Section 8.7 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee or the Collateral Agent and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any, and interest, respectively; and Third: to the Company or to such party as may be lawfully entitled thereto. The Trustee may fix a record date and payment date for any payment to holders of Notes pursuant to this Section 7.10. SECTION 7.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 7.7 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE VIII TRUSTEE AND COLLATERAL AGENT SECTION 8.1 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are 90 96 specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein or otherwise verify the contents thereof). (c) The Company hereby designates and appoints the Trustee to act as Collateral Agent and the Trustee hereby accepts such designation and appointment, to serve as Collateral Agent of the Trustee for the benefit of Holders in the manner and upon the terms and conditions set forth in this Indenture and in the other Security Documents. Except as expressly provided herein, the Collateral Agent shall have the same rights, duties and standards as apply to the Trustee, specifically including Sections 8.1, 8.2, 8.3, 8.4, 8.5, 8.7 and 8.8. The Trustee, on behalf of the Holders hereby irrevocably authorizes, and each Holder, by its acceptance of any Note, shall be deemed irrevocably to have authorized the Trustee to authorize and direct the Collateral Agent, upon written instructions from the Trustee, to exercise any and all powers and exercise all remedies, including without limitation the right to foreclose or realize on the Collateral set forth in the Security Documents and to exercise such powers and to perform such duties under any Security Document as specifically set forth therein and such other powers as are reasonably incidental thereto. (d) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.5 hereof. (e) Neither the Collateral Agent nor any of its officers, directors, employees or agents shall be liable damages, penalties, actions, judgments, for any claims, losses, suits, liabilities, obligations, costs or expenses of any kind or nature whatsoever resulting from any action the Collateral Agent takes or omits to take under any Security Document or in connection therewith, unless caused by its or their gross negligence, bad faith or willful misconduct. The Collateral Agent may perform any of its duties hereunder by or through its agent or employees 91 97 (f) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (e) of this Section. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request or direction of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense including reasonable attorneys' fees that might be incurred by it in compliance with such request or direction. (h) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (i) The Trustee or the Collateral Agent shall upon receipt of a Company Order pay any money or deliver any Secondary Notes received by it to the Holders of the Notes pursuant to the terms of this Indenture. (j) The Trustee and the Collateral Agent shall enter into the Intercreditor Agreement concurrently with the execution and delivery of this Indenture. SECTION 8.2 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. The Trustee shall receive and retain financial reports and statements of the Company as provided herein, but it shall have no duty to review or analyze such reports or statements to determine compliance with covenants or other obligations of the Company. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. 92 98 (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company or any Guarantor shall be sufficient if signed by an Officer of the Company or any Guarantor. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses (including reasonable attorneys' fees) and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. SECTION 8.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Guarantors or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 8.10 and 8.11 hereof. SECTION 8.4 Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes, the Subsidiary Guarantees, any Security Document or the Collateral. It shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. SECTION 8.5 Notice of Defaults. (a) If a Default or Event of Default occurs and is continuing and if it is actually known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. (b) If a default or event of default has occurred and is continuing under the Credit Facilities, and notice to the Trustee of such default or event of default is given by the Company in accordance with Section 4.4(d) hereof, the Trustee shall mail a copy of such notice 93 99 to the Holders of the Notes as promptly as practicable but in no event later than five Business Days following the receipt of such notice from the Company. SECTION 8.6 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail reports as required by TIA Section 313(c). (b) The Trustee will submit to the Holders, as hereinafter provided, a brief report with respect to the release, or release and substitution, of Collateral (and the consideration therefor, if any) made since the date of the last report transmitted pursuant to the provisions of Section 8.6(a) (or if no such report has yet been so transmitted, since the date of execution of this Indenture) unless the fair value of such Collateral, as set forth in the certificate or opinion required in Section 5.7, is less than 10% of the principal amount of Notes outstanding at the time of such release or release and substitution, such report to be transmitted within 90 calendar days after such time. (c) A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. SECTION 8.7 Compensation and Indemnity. The Company and the Guarantors shall pay to the Trustee from time to time such reasonable compensation as shall be agreed upon in writing between the Company and the Trustee for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company and the Guarantors shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company and the Guarantors shall indemnify each of the Trustee or any predecessor Trustee against any and all losses, damages, claims, liabilities or expenses (including taxes (other than taxes based on the income of the Trustee)) incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 8.7) and defending itself against any claim (whether asserted by the Company, any Guarantor, or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so 94 100 notify the Company shall not relieve the Company and the Guarantors of their obligations hereunder. The Company and the Guarantors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company and the Guarantors shall pay the reasonable fees and expenses of such counsel. The Company and the Guarantors need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. The obligations of the Company and the Guarantors under this Section 8.7 shall survive the satisfaction and discharge of this Indenture. To secure the Company's and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. The Trustee's right to receive payment of any amounts under this Section 8.7 shall not be subordinate to any other liability or indebtedness of the Company (even though the Trustee's Lien on the Collateral may be subordinated to Liens securing such other liability or indebtedness). Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 7.1(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 8.8 Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 8.10 hereof, (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then 95 101 outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, any Guarantor or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 8.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 8.7 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 8.8, the Company's and the Guarantors' obligations under Section 8.7 hereof shall continue for the benefit of the retiring Trustee. SECTION 8.9 Successor Trustee by Merger, Etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall, if such successor corporation is otherwise eligible hereunder, be the successor Trustee. SECTION 8.10 Eligibility Disqualification. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). SECTION 8.11 Preferential Collection of Claims against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 31l(a) to the extent indicated therein. ARTICLE IX 96 102 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 9.1 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at its option and at any time, elect to have either Section 9.2 or 9.3 hereof be applied to all outstanding Notes and Security Documents upon compliance with the conditions set forth below in this Article IX. SECTION 9.2 Legal Defeasance and Discharge. Upon the Company's exercise under Section 9.1 hereof of the option applicable to this Section 9.2, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 9.4 hereof, be deemed to have been discharged from their respective obligations with respect to all outstanding Notes, Subsidiary Guarantees and the Security Documents, as applicable, on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 9.5 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes, the Security Documents and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 9.4 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest and Liquidated Damages on such Notes when such payments are due, (b) the Company's and the Guarantors' obligations with respect to such Notes under Article II and Section 4.2 hereof, 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, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith and (d) this Article IX. Subject to compliance with this Article IX, the Company may exercise its option under this Section 9.2 notwithstanding the prior exercise of its option under Section 9.3 hereof SECTION 9.3 Covenant Defeasance. Upon the Company's exercise under Section 9.1 hereof of the option applicable to this Section 9.3, the Company and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 9.4 hereof, be released from their obligations under the covenants contained in Sections 4.3, 4.4, 4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.15, 6.1(iii) and 6.1(iv) hereof with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, " Covenant Defeasance"), and the Notes shall thereafter be deemed not "Outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply 97 103 with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 7.1 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 9.1 hereof of the option applicable to this Section 9.3 hereof, subject to the satisfaction of the conditions set forth in Section 9.4 hereof, Sections 7.1(d) through 7.1(f) hereof shall not constitute Events of Default. SECTION 9.4 Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 9.2 or 9.3 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of Notes, cash in United States 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 Liquidated Damages, and interest 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; (b) in the case of an election under Section 9.2 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change in the applicable federal income tax laws, 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; (c) in the case of an election under Section 9.3 hereof, 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; (d) no Default or Event of Default shall have occurred and be continuing 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 insofar as Sections 7.1(h) or 7.1(i) hereof are concerned, at any time in the period ending on the 91st day after the date of deposit; 98 104 (e) 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 this 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; (f) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors the Company or the Guarantors or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or the Guarantors; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. SECTION 9.5 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 9.6 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 9.5, the "Trustee") pursuant to Section 9.4 hereof in respect of the outstanding Notes shall be in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, Liquidated Damages and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and the Guarantors shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 9.4 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article IX to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 9.4 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 9.4(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. 99 105 SECTION 9.6 Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, Liquidated Damages or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, Liquidated Damages or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a secured creditor, look only to the Company or Guarantors for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.7 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 9.2 or 9.3 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture, the Notes and the Subsidiary Guarantees, as applicable, shall be revived and reinstated as though no deposit had occurred pursuant to Section 9.2 or 9.3 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 9.2 or 9.3 hereof, as the case may be, provided, however, that, if the Company or the Guarantors make any payment of principal of, premium, if any, Liquidated Damages or interest on any Note following the reinstatement of its obligations, the Company and the Guarantors shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE X APPLICATION OF TRUST MONEYS SECTION 10.1 "Trust Moneys" Defined. Subject to Section 5.2(a) and the provisions of the Intercreditor Agreement, all moneys received by the Collateral Agent: (a) pursuant to any of the Security Documents (whether upon release of property from the Lien thereof or otherwise), including all moneys received in respect of the principal of all purchase money, governmental and other obligations; or (b) as compensation for, or proceeds of sale of, any part of the Collateral taken by eminent domain or purchased by, or sold pursuant to an order of, a governmental authority or otherwise disposed of, or 100 106 (c) as proceeds of insurance upon any part of the Collateral; or (d) as Collateral Proceeds of an Asset Sale or as Excess Proceeds pursuant to Section 4.10; or (e) for application under this Article as elsewhere herein provided, or whose disposition is not elsewhere otherwise specifically provided for in this Indenture; (all such moneys being herein sometimes called "Trust Moneys"), shall be held by the Collateral Agent for the benefit of the Holders and, where applicable, the Senior Secured Lenders, as a part of the Collateral and, upon any entry or sale of the Collateral or any part thereof under Article VII, said Trust Moneys shall be applied in accordance with the terms of the Intercreditor Agreement prior to application in accordance with Section 7.10; but, prior to any such entry or sale, all or any part of the Trust Moneys may be withdrawn, and, subject to the requirements of Section 314(d) of the TIA, shall be released, paid or applied by the Trustee or the Collateral Agent, as the case may be, from time to time as provided in Sections 4.10 (in the case of Net Proceeds of an Asset Sale that are Collateral Proceeds), 5.7, 5.8, 5.9, 10.2 to 10.5, inclusive, and may be applied by the Collateral Agent as provided in Section 4.18. On the date of this Indenture there shall be established and, at all times hereafter until this Indenture shall have terminated, there shall be maintained with the Collateral Agent an account which shall be entitled the "Collateral Account" (the "Collateral Account"). The Collateral Account shall be established and maintained by the Collateral Agent at its corporate trust offices. All Trust Moneys which are received by the Collateral Agent shall be deposited in the Collateral Account and thereafter shall be held, applied and/or disbursed by the Trustee in accordance with the terms of this Article X. SECTION 10.2 Retirement of Notes; Release of Proceeds of Asset Sales. The Trustee shall instruct the Collateral Agent to apply Trust Moneys from time to time to the payment of the principal of any such Note at the maturity date or to the redemption of any Notes pursuant to Article III or to the redemption or purchase thereof pursuant to Sections 3.7 and 4.15 or, in the case of Collateral Proceeds only, for the purposes set forth in Sections 3.9 and 4.10, upon Company Request and upon receipt by the Trustee and the Collateral Agent of the following: (a) A resolution of the Board of Directors directing the application pursuant to this Section of a specified amount of Trust Moneys and, in case any such moneys are to be applied to payment or redemption, designating the Notes so to be paid or redeemed and, in case any such moneys are to be applied to the purchase of Notes, prescribing the method of purchase, the price or prices to be paid and the maximum principal amount of Notes to be purchased and in case any Collateral Proceeds are to be otherwise applied pursuant to Section 4.10, stating the purpose of such application and, if applicable, a description of any Substitute Collateral to be substituted in accordance with Section 5.8 pursuant to the requirements of said Section 4.10. (b) If Trust Moneys are required to be used to purchase or redeem Notes, cash in an amount equal to the maximum amount of the accrued interest, if any, required to be paid in 101 107 connection with any such redemption or purchase, which cash shall be held by the Collateral Agent in trust for such purpose. (c) An Officer's Certificate, dated not more than 30 days prior to the date of the relevant application, stating (i) that no Event of Default exists; (ii) that no part of such Trust Moneys has been, or is required to be, set aside under Section 10.7; and (iii) that all conditions precedent herein provided for relating to such application of Trust Moneys have been complied with. (d) An Opinion of Counsel stating that the documents and the cash, if any, which have been or are therewith delivered to and deposited with the Collateral Agent for the purposes of payment of the principal and interest on Notes at stated Maturity or to the redemption or purchase thereof pursuant to Sections 3.7 and 4.15 (or in the case of Collateral Proceeds, Sections 3.9 and 4.10), conform to the requirements of this Indenture and that all conditions precedent herein provided for relating to such application of Trust Moneys have been complied with. Upon compliance with the foregoing provisions of this Section, the Trustee shall instruct the Collateral Agent to apply Trust Moneys as directed and specified by such resolution of the Board of Directors, up to, but not exceeding, the principal amount of the Notes so paid or redeemed or purchased, using the cash deposited pursuant to Subsection (b) of this Section, to the extent necessary, to pay any accrued interest required in connection with such redemption or purchase. A resolution of the Board of Directors expressed to be irrevocable directing the application of Trust Moneys under this Section to the payment of the principal of or the redemption of particular Notes or a resolution of the Board of Directors or of the board of directors of the applicable Guarantor, as the case may be, to use Collateral Proceeds as provided in Section 4.10 shall for all purposes of this Indenture be deemed the equivalent of the deposit of money with the Collateral Agent in trust for such purpose. Such Trust Moneys and any cash deposited with the Collateral Agent pursuant to Subsection (b) of this Section for the payment of accrued interest shall not, after compliance with the foregoing provisions of this Section, be deemed to be part of the Collateral or Trust Moneys. SECTION 10.3 Withdrawal of Insurance Proceeds and Condemnation Awards. To the extent that any Trust Moneys consist of either (a) the proceeds of insurance upon any part of the Collateral or (b) any award for or the proceeds from any of the Collateral (other than for all or substantially all of the Collateral the use of which shall be governed by Section 10.7) being taken by eminent domain or sold pursuant to the exercise by the United States of America or any State, municipality or other governmental authority of any right which it may then have to purchase, or to designate a purchaser or to order a sale of any part of the Collateral, such Trust Moneys may be withdrawn by the Company and shall be paid by the Collateral Agent 102 108 upon Company Request to reimburse the Company for expenditures made, or to pay costs incurred, by the Company to repair, rebuild or replace the property destroyed, damaged or taken, upon receipt by the Trustee and the Collateral Agent of the following: (a) an Officers' Certificate, dated not more than 30 days prior to the date of the application for the withdrawal and payment of such Trust Moneys and signed also in the case of the following clauses (i), (iv) and (vi), by an Appraiser, setting forth: (i) that expenditures have been made, or costs incurred, by the Company in a specified amount for the purpose of making certain repairs, rebuildings and replacements of the Collateral, which shall be briefly described, and stating the fair value thereof to the Company at the date of the acquisition thereof by the Company; except that it shall not be necessary under this paragraph to state the fair value of any of such repairs, rebuilding or replacements that are separately described pursuant to paragraph (vi) of this subsection and whose fair value is stated in the Independent Appraiser's certificate under the following subsection (b) of this Section; (ii) that no part of such expenditures, in any previous or then pending application, has been or is being made the basis for the withdrawal of any Trust Moneys pursuant to this Section 10.3; (iii) that no part of such expenditures or costs has been paid out of either the proceeds of insurance upon any part of the Collateral not required to be paid to the Collateral Agent under Section 4.19 or any award for or the proceeds from any of the Collateral being taken not required to be paid to the Collateral Agent under Section 5.17, as the case may be; (iv) that there is no outstanding indebtedness, other than costs for which payment is being requested, known to the Company, after due inquiry, for the purchase price or construction of such repairs, rebuilding or replacements, or for labor, wages, materials or supplies in connection with the making thereof, which, if unpaid, might become the basis of a vendors', mechanics', laborers', materialmen's, statutory or other similar Lien upon any of such repairs, rebuilding or replacement, which Lien might, in the opinion of the signers of such certificate, materially impair the security afforded by such repairs, rebuilding or replacement; (v) that the property to be repaired, rebuilt or replaced is necessary or desirable in the conduct of the Company's business; (vi) whether any part of such repairs, rebuilding or replacements, within six months before the date of acquisition thereof by the Company, has been used or operated by others than the Company in a business similar to that in which such property has been or is to be used or operated by the Company, and whether the fair value to the Company, at the date of such acquisition, of such part of such repairs, rebuilding or replacement is at least $25,000 and 1% of the aggregate principal amount of the Notes at the time outstanding; and, if all of such facts are present, such part of said repairs, rebuilding or replacements shall be separately described, and it shall be stated that an 103 109 Independent Appraiser's Certificate as to the fair value to the Company of such separately described repairs, rebuilding or replacements will be furnished under the following subsection (b) of this Section 10.3; (vii) that no Event of Default has occurred that has not been cured or waived; (viii) that no part of such Trust Moneys has been, or is required to be, set aside under Section 10.7; and (ix) that all conditions precedent herein provided for relating to such withdrawal and payment have been complied with. (b) In case any part of such repairs, rebuilding or replacements is separately described pursuant to the foregoing paragraph (vi) of subsection (a) of this Section, a certificate of an Independent Appraiser stating the fair value to the Company, in such Independent Appraiser's opinion, of such separately described repairs, rebuildings or replacements at the date of the acquisition thereof by the Company. (c) An Opinion of Counsel substantially stating: (i) that the instruments that have been or are therewith delivered to the Collateral Agent conform to the requirements of this Indenture or any Security Document, and that, upon the basis of such Company Request and the accompanying documents specified in this Section 10.3, all conditions precedent herein provided for relating to such withdrawal and payment have been complied with, and the Trust Moneys whose withdrawal is then requested may be lawfully paid over under this Section 10.3; and (ii) that all of the Company's right, title and interest in and to said repairs, rebuilding or replacements, or combination thereof, are then subject to the Lien of any of the Security Documents. Upon compliance with the foregoing provisions of this Section, the Trustee shall instruct the Collateral Agent to pay on Company Request an amount of Trust Moneys of the character aforesaid equal to the amount of the expenditures or costs stated in the Officer's Certificate required by paragraph (i) of subsection (a) of this Section 10.3, or the fair value to the Company of such repairs, rebuildings and replacements stated in such Officer's Certificate (and in such Independent Appraiser's Certificate, if required by subsection (b) of this Section 10.3), whichever is less. SECTION 10.4 Powers Exercisable Notwithstanding Event of Default. In case an Event of Default shall have occurred and shall not have been cured, the Company, while in possession of the Collateral (other than cash, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent under the Security Agreement or with the trustee, mortgagee or other holder of a Prior Lien or Permitted Lien), may do any of the things enumerated in Sections 10.2 and 10.3, if the Collateral Agent in 104 110 its discretion, or the Holders of a majority in principal amount of the Notes then outstanding, by appropriate action of such Holders, shall consent to such action, in which event any certificate filed under any of such Sections shall omit the statement to the effect that no Event of Default has occurred that has not been cured. This Section 10.4 shall not apply, however, during the continuance of an Event of Default of the type specified in Section 7.1(a), (b), (h) or (j). SECTION 10.5 Powers Exercisable by Collateral Agent or Receiver. In case the Collateral (other than any cash, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or with the trustee, mortgagee or other holder of a Prior Lien or Permitted Lien) shall be in the possession of a receiver or trustee lawfully appointed, the powers hereinbefore in this Article conferred upon the Company with respect to the withdrawal or application of Trust Moneys may be exercised by such receiver or trustee, in which case a certificate signed by such receiver or trustee shall be deemed the equivalent of any Officers' Certificate required by this Article X. If the Collateral Agent shall be in possession of the Collateral under any of the Security Documents, such powers may be exercised by the Collateral Agent in its discretion. SECTION 10.6 Disposition of Notes Retired. All Notes received by the Collateral Agent and for whose purchase Trust Moneys are applied under this Article, if not otherwise cancelled, shall be promptly delivered to the Trustee and cancelled by the Trustee and thereafter shall be disposed of as directed by Company Request. SECTION 10.7 Condemnation of All Collateral. In the event that all or substantially all of the Collateral (other than any cash, securities and other personal property held by, or required to be deposited or pledged with, the Collateral Agent hereunder or with the trustee, mortgagee or other holder of a Prior Lien or Permitted Lien) shall be taken by eminent domain, the Company shall deliver the applicable documents in accordance with Section 5.17 and shall pay over or assign the award or compensation to the Collateral Agent. The proceeds of any award or compensation received shall be held by the Collateral Agent as Trust Moneys and shall be applied in accordance with Article X. SECTION 10.8 Investment of Trust Moneys. The Trustee shall instruct the Collateral Agent that all or any part of any Trust Moneys held by the Collateral Agent hereunder (except such as may be held for the account of any particular Notes) shall from time to time at the written request of the Company, signed by the Treasurer or an Assistant Treasurer of the Company, be invested or reinvested by the Collateral Agent in any Cash Equivalents as may be specified in such request. Unless an Event of Default occurs and is continuing, any interest on such Cash Equivalents (in excess of any interest paid at the time of purchase) which may be received by the Collateral Agent shall be forthwith paid to the Company. Such Cash Equivalents shall be held by the Collateral Agent as a part of the Collateral, subject to the same provisions hereof as the cash used by it to purchase such Cash Equivalents; but upon a like request of the Company, the Trustee shall instruct the Collateral Agent to sell all or any designated part of the same and the proceeds of such sale shall be held by 105 111 the Collateral Agent subject to the same provisions hereof as the cash used by it to purchase the Cash Equivalents so sold. If, in accordance with the provisions of this Indenture, the Company directs that any Trust Moneys held by the Collateral Agent and so invested or reinvested be applied in accordance with Section 10.2, the Trustee shall instruct the Collateral Agent that forthwith upon the receipt of a written request of the Company, signed by the Treasurer or an Assistant Treasurer of the Company, and delivered to the Trustee and the Collateral Agent no later than the close of business on the day preceding the day that such sale is to be made, sell such Cash Equivalents in an amount equivalent to such Trust Moneys. The Collateral Agent shall not be liable or responsible for any loss resulting from such investments or sales except only for its own negligent action, its own negligent failure to act or its own willful misconduct in complying with this Section 10.8. ARTICLE XI AMENDMENT, SUPPLEMENT AND WAIVER SECTION 11.1 Supplemental Indentures and Amendments Without Consent of Holders of Notes. Notwithstanding Section 11.3 of this Indenture, the Company and the Guarantors and the Trustee may amend or supplement this Indenture, the Subsidiary Guarantees, or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article II hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article VI hereof, (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (f) to further secure the Notes or to add guarantees with respect thereto; (g) to establish or maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents or to subject additional property to the Liens of the Security Documents; and 106 112 (h) to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to the Intercreditor Agreement. Upon Company Request accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 8.2 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that adversely affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 11.2 Supplement or Amendment to Security Documents Without Consent of Holders of Notes. Notwithstanding Section 11.3 of this Indenture, the Company and the Guarantors and the Trustee may amend or supplement any of the Security Documents without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article VI hereof; (c) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of a Note; provided that no such action shall be permitted if it causes the Lien of the Security Documents to cease to be a perfected Lien or diminishes the security afforded by the Liens of the Security Documents; (d) subject to the provisions of Section 4.9, to permit holders of additional Senior Secured Indebtedness to become parties to the Intercreditor Agreement and receive the benefit of the other Security Documents and to otherwise effect transactions permitted by Section 4.9; (e) to further secure the Notes or to add guarantees with respect thereto; (f) to establish or maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents or to subject additional property to the Liens of the Security Documents; (g) to establish or provide for an amended, restated, modified, renewed, refunded, replaced or refinanced Credit Facility permitted to be incurred pursuant to this Indenture; 107 113 (h) to establish or maintain the Permitted Lien securing any Permitted Refinancing Indebtedness permitted to be incurred pursuant to this Indenture with the same or lower priority as Liens securing the Indebtedness that was exchanged or extended, refinanced, renewed, replaced, defeased or refunded with the net proceeds of such Permitted Refinancing Indebtedness; provided that the Senior Secured Indebtedness permits the establishment and maintenance of such Permitted Lien; (i) to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to the Intercreditor Agreement. (j) to include the Optional Notes as additional obligations secured by the Mortgages and the other Security Documents. Upon Company Request accompanied by a resolution of the Board of Directors of the Company or of the board of directors of each Guarantor which is a party to such amended or supplemented Security Document, as the case may be, authorizing the execution of any such amended or supplemental Security Document to which it is a party, and upon receipt by the Trustee of the documents described in Section 8.2 hereof, the Trustee shall join with the Company and each of such Guarantors in the execution of any amended or supplemental Security Document authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Security Document that adversely affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 11.3 With Consent of Holders of Notes. Except as provided below in this Section 11.3, the Company, the Guarantors and the Trustee may amend or supplement this Indenture (including Sections 3.9, 4.10 and 4.15 hereof), the Subsidiary Guarantees, the Notes and any of the Security Documents with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes), and, subject to Sections 7.4 and 7.7 hereof, 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, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Subsidiary Guarantees, the Notes or any of the Security Documents may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon Company Request accompanied by a resolution of the Board of Directors of the Company and each of the Guarantors authorizing the execution of any such amended or supplemental Indenture, Subsidiary Guarantee, Note or Security Document and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 11.7 hereof, the Trustee shall join with the Company and each of the Guarantors in the execution of such amended or supplemental Indenture, Subsidiary Guarantee, Note or Security Document unless such amended or supplemental Indenture, Subsidiary Guarantee, Note or Security Document 108 114 affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture, Subsidiary Guarantee, Note or Security Document. It shall not be necessary for the consent of the Holders of Notes under this Section 11.3 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture, Subsidiary Guarantee, Note or Security Document or waiver. Subject to Sections 7.4 and 7.7 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes, except as provided above with respect to Sections 3.9, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) 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 then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this 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; (g) waive a redemption payment with respect to any Note (other than a payment required by the covenants contained in Sections 3.9, 4.10 or 4.15 hereof); (h) release any Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, or amend the provisions of this Indenture relating to the release of Guarantors; 109 115 (i) permit the release or termination of all or substantially all of the Liens for the benefit of the Holders granted pursuant to the Security Documents, other than as expressly permitted by Article V, Section 9.2 or Article X; or (j) make any change in Section 7.4 or 7.7 hereof or in the foregoing amendment and waiver provisions, except to increase the percentage of outstanding Notes required for such actions or to provide that other provisions of the Indenture cannot be modified or waived without the consent of the Holder of each outstanding Note. SECTION 11.4 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture, the Subsidiary Guarantees, or the Notes shall be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 11.5 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. SECTION 11.6 Notation or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes (accompanied by a notation of the Subsidiary Guarantees duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 11.7 Trustee to Sign Amendments, Etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article XI if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company and the Guarantors may not sign an amendment or supplemental Indenture, Subsidiary Guarantee or Security Document until the Board of Directors of the Company or the Guarantor executing the amendment approves it. In executing any amended or supplemental Indenture, Subsidiary Guarantee or Security Document, the Trustee shall be entitled to receive and (subject to Section 8.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture, Subsidiary Guarantee or Security Document is authorized or permitted by this Indenture. 110 116 ARTICLE XII SUBSIDIARY GUARANTEES SECTION 12.1 Guarantees. Subject to the provisions of this Article XII, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium and Liquidated Damages, if any, and interest on the Notes will be promptly paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, redemption or otherwise, and interest on the overdue principal of, premium and Liquidated Damages, if any, and interest on the Notes, if any, and all other obligations of the Company to the Holders or the Trustee under this Indenture and the Notes will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes, to the extent lawful; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or otherwise. Failing payment when due (after giving effect to any applicable grace period) of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions of this Indenture and the Notes, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that the Subsidiary Guarantees will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company or Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or Guarantors, any amount paid by either the Trustee or such Holder, these Subsidiary Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VII hereof for the purposes of these Subsidiary Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any 111 117 declaration of acceleration of such obligations as provided in Article VII hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of these Subsidiary Guarantees. The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under these Subsidiary Guarantees. SECTION 12.2 Limitation of Guarantor's Liability. Each Guarantor and, by its acceptance hereof, each Holder hereof, hereby confirm that it is their intention that the Subsidiary Guarantee by such Guarantor and the Security Interest granted by the Security Documents by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to the Subsidiary Guarantees and/or to said Security Interest. To effectuate the foregoing intention, each such person hereby irrevocably agrees that the obligation of such Guarantor under its Subsidiary Guarantee and under the Security Documents under this Article XII and under said documents shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any rights to contribution of such Guarantor pursuant to any agreement providing for an equitable contribution among such Guarantor and other Affiliates of the Company of payments made by guarantees by such parties, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent conveyance. Each Holder, by accepting the benefits hereof, confirms its intention that, in the event of bankruptcy, reorganization or other similar proceeding of the Company or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such claims will not be fully satisfied, each such claimant with a valid claim against the Company shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. SECTION 12.3 Execution and Delivery of Subsidiary Guarantees. (a) To evidence the Subsidiary Guarantees set forth in Section 12.1 hereof, each Guarantor hereby agrees that a notation of the Subsidiary Guarantees substantially in the form of Exhibit G shall be endorsed by an officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Guarantor by its President or one of its Vice Presidents. Each Guarantor hereby agrees that the Subsidiary Guarantees set forth in Section 12.1 shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of the Subsidiary Guarantees. If an officer or Officer whose signature is on this Indenture or on the Subsidiary Guarantees no longer holds that office at the time the Trustee authenticates the Note on which the Subsidiary Guarantees are endorsed, the Subsidiary Guarantees shall be valid nevertheless. 112 118 The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantees set forth in this Indenture on behalf of the Guarantors. (b) Any Person that was not a Guarantor on the Issue Date may become a Guarantor by executing and delivering to the Trustee (i) a supplemental indenture in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Guarantor and (ii) an Opinion of Counsel and Officers' Certificate to the effect that such supplemental indenture has been duly authorized and executed by such Person and constitutes the legal, valid, binding and enforceable obligation of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion and provided that no opinion need be rendered concerning the enforceability of the Guarantee). SECTION 12.4 Guarantors May Consolidate, Etc, on Certain Terms. (a) Except as set forth in Articles IV and VI hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to the Company. (b) Except as set forth in Articles IV and VI hereof, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into a corporation or corporations other than the Company (whether or not affiliated with the Guarantor), or successive consolidations or mergers in which a Guarantor or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety, to a corporation other than the Company (whether or not affiliated with the Guarantor) authorized to acquire and operate the same; provided, however, that such transaction meets all of the following requirements: (i) each Guarantor hereby covenants and agrees that, upon any such consolidation, merger, sale or conveyance, the Subsidiary Guarantee endorsed on the Notes, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture and the Registration Rights Agreement to be performed by such Guarantor, shall be expressly assumed (in the event that the Guarantor is not the surviving corporation in the merger), by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the corporation formed by such consolidation, or into which the Guarantor shall have been merged, or by the corporation which shall have acquired such property; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) the Company would be permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.9 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantees endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor corporation 113 119 thereupon may cause to be signed any or all of the Subsidiary Guaranties to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guaranties so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guaranties theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guaranties had been issued at the date of the execution hereof. SECTION 12.5 Releases Following Sale of Assets. Concurrently with any sale or disposition of assets (including, if applicable, all of the Capital Stock of any Guarantor) by way of merger, consolidation or otherwise, upon compliance with Article V, any Liens in favor of the Trustee in the assets sold thereby shall be released; provided that in the event of an Asset Sale, the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 hereof. If the assets sold in such sale or other disposition include all or substantially all of the assets of any Guarantor or all of the Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition by way of merger, consolidation or otherwise of all or substantially all of the assets of a Guarantor) shall be released and relieved of its obligations under its Subsidiary Guarantee and this Indenture or Section 12.4 hereof, as the case may be; provided that the Net Proceeds from such sale or other disposition are treated in accordance with the provisions of Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including, without limitation, Section 4.10 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantees and this Indenture. Any Guarantor not released from its obligations under its Subsidiary Guarantee and this Indenture shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article XII. SECTION 12.6 "Trustee" to Include Paying Agent. In case at any time any Paying Agent other than the Trustee shall have been, appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article XII shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully and for all intents and purposes as if such Paying Agent were named in this Article XII in place of the Trustee. ARTICLE XIII MISCELLANEOUS SECTION 13.1 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. 114 120 SECTION 13.2 Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, to the other party's address: If to the Company or any Guarantor: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Telecopier No.: (304) 594-1685 Attention: P. Bruce Sparks With a copy to: Klett Lieber Rooney & Schorling, a Professional Corporation One Oxford Centre 40th Floor Pittsburgh, Pennsylvania 15219-6498 Telecopier No.: (412) 392-2128 Attention: Craig S. Heryford If to the Trustee or the Collateral Agent: The Bank of New York 101 Barclay Street Corporate Finance Unit - 21st Floor New York, New York 10286 Telecopier No.: (212) 815-5915 Attention: Steve Giurlando The Company, any Guarantor, the Trustee, or the Collateral Agent by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to the Trustee or to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to the Trustee or Collateral Agent shall be deemed to have been duly given when received at the Corporate Trust Office of the Trustee. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also 115 121 be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time. SECTION 13.3 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 13.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company or any Guarantor to the Trustee to take any action under this Indenture, the Company or such Guarantors shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.5 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.5 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 13.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and 116 122 (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied; provided, however, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 13.6 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 13.7 No Personal Liability of Directors, Officers, Employees and Stockholders. No director, officer, employee, incorporator or stockholder of the Company or the Guarantors, as such, shall have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture or the Subsidiary Guarantee 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. SECTION 13.8 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES. SECTION 13.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture or the Subsidiary Guarantees. SECTION 13.10 Successors. All agreements of the Company and the Guarantors in this Indenture, the Notes and the Subsidiary Guarantees shall bind their successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.11 Severability. In case any provision in this Indenture, the Notes or the Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 13.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 117 123 SECTION 13.13 Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [SIGNATURES ON FOLLOWING PAGE] 118 124 SIGNATURES IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ANKER COAL GROUP, INC. By: /s/ Bruce Sparks --------------------------------- Name: Bruce Sparks Title: President ANKER GROUP, INC. By: /s/ Bruce Sparks --------------------------------- Name: Bruce Sparks Title: President ANKER ENERGY CORPORATION By: /s/ Bruce Sparks --------------------------------- Name: Bruce Sparks Title: President BRONCO MINING COMPANY, INC. By: /s/ Bruce Sparks --------------------------------- Name: Bruce Sparks Title: President ANKER POWER SERVICES, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary ANKER WEST VIRGINIA MINING COMPANY By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary 119 125 JULIANA MINING COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary KING KNOB COAL CO., INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary VANTRANS, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary MELROSE COAL COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary MARINE COAL SALES COMPANY By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary HAWTHORNE COAL COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary UPSHUR PROPERTY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary 120 126 HEATHER GLEN RESOURCES, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary NEW ALLEGHENY LAND HOLDING COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary PATRIOT MINING COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary VINDEX ENERGY CORPORATION By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary ANKER VIRGINIA MINING COMPANY, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary SIMBA GROUP, INC. By: /s/ B. Judd Hartman --------------------------------- Name: B. Judd Hartman Title: Secretary THE BANK OF NEW YORK, as Trustee By: /s/ JoAnn Manieri --------------------------------- Name: JoAnn Manieri Title: Assistant Vice President 121 127 SCHEDULE A GUARANTORS
COMPANY STATE OF INCORPORATION Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
128 EXHIBIT A-1 ANKER COAL GROUP, INC. 14.25% Second Priority Senior Secured Notes due 2007, Series A (PIK through April 1, 2000) CUSIP 035396 AC 4 No. ________ $________________ Anker Coal Group, Inc., a Delaware corporation (the "Company"), promises to pay to Cede & Co. or registered assigns, the principal sum of ______________ Dollars on September 1, 2007. Interest Payment Dates: April 1 and October 1 Record Dates: March 15 and September 15 UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A NOTE IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN 129 RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF TRANSFER (THE FORM OF WHICH CERTIFICATE CAN BE OBTAINED FROM THE TRUSTEE) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE 130 TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED BELOW), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED BELOW). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. Dated as of __________________, ______. 131 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. (SEAL) ANKER COAL GROUP, INC. By: __________________________ Name: Title: Attest: By: _________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION The Bank of New York, as Trustee, certifies that this is one of the 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) referred to in the within-mentioned Indenture. The Bank of New York, as Trustee By:__________________________ Dated: _______________________ Authorized Signatory 132 1. Interest. The Company promises to pay interest on the principal amount of this Note at 14.25% per annum from the date hereof until the principal hereof is duly provided for and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on April 1 and October 1 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Notes will accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further, that the first Interest Payment Date shall be April 1, 2000. The Company shall pay interest, to the extent lawful, (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne by the Notes. It shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. If, pursuant to Section 3.4 of the Indenture, a notice of redemption is mailed and the redemption date is not a Business Day, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such redemption date to the next succeeding Business Day. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall, prior to and including April 1, 2000, in lieu of the payment in whole or in part of interest in cash on the Notes, on April 1, 2000, pay interest on the Notes though the issuance of additional Notes having the same terms and conditions as the Notes (the "Secondary Notes"), in an aggregate principal amount equal to the amount of interest that would be payable with respect to such Notes if such interest were paid in cash. On April 1, 2000 the Trustee shall authenticate Secondary Notes for original issuance to each Holder of Notes (including, without limitation, outstanding Secondary Notes) on the preceding record date, as shown by the records of the Registrar, in the amount required to pay such interest. Notwithstanding any other provision of this paragraph or the Indenture to the contrary, the Company shall pay cash in lieu of issuing Secondary Notes in any denomination of less than $1.00 (which shall be determined with respect to the aggregate amount of Notes held by each Holder as shown by the records of the Trustee). If the Company fails to make the payment of interest in Secondary Notes on the April 1, 2000 Interest Payment Date, the Company shall then be obligated to pay such interest in cash, subject to the provisions of Section 7.1(a) of the Indenture. Any such Secondary Notes will be governed by the Indenture and shall be subject to the same terms as this Note. The term "Notes" shall include the Secondary Notes that may be issued under the Indenture. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on March 15 or September 15, next preceding the Interest Payment Date. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest at the office or 133 agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts (or pursuant to paragraph 1 hereof, in Secondary Notes). The payment of principal on the Notes shall be payable only upon presentation and surrender of the Notes at the office of the Paying Agent. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of October 1, 1999 ("Indenture") among the Company, the Guarantors and the 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, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes (excluding Secondary Notes and Optional Notes) are obligations of the Company limited to $119,200,000 in aggregate principal amount. The aggregate principal amount of Optional Notes, if any, issued on October 1, 2000, shall not exceed the Maximum Optional Notes Amount. 5. Optional Redemption. The Notes will be redeemable at any time at the option of the Company, upon not less than 30 nor more than 60 days' notice, in whole or in part, if redeemed on or prior to September 30, 2000 at a redemption price of 104% of the principal amount plus accrued and unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date, and thereafter at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date if redeemed during the twelve month period beginning on October 1 of the years indicated below:
YEAR PERCENTAGE 2000...................................................... 103% 2001...................................................... 102% 2002...................................................... 101% 2003 and thereafter....................................... 100%
134 Any such redemption will comply with Article III of the Indenture and any interest accrued on Notes redeemed on or prior to April 1, 2000 may be paid by the Company in lieu of payment in whole or in part in cash, through the issuance of Secondary Notes. 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. Repurchase at the Option of Holders. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or integral multiples thereof, except that (i) the Series A Notes may also be repurchased in denominations of $800 or integral multiples thereof, (ii) the Series B Notes may also be repurchased in denominations of $800 or $743 or integral multiples thereof, and (iii) the Secondary Notes may be repurchased in denominations of $1.00 or integral multiples thereof), of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase. Within 30 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 date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice. (b) If at the end of any six month period ending June 30 or December 31 commencing with the six month period ended December 31, 1999, the aggregate amount of Excess Proceeds exceeds $1,000,000, the Company shall be required to commence an Asset Sale Offer within 15 days after the end of such six month period to all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. (c) Any such remaining Excess Proceeds constituting Collateral Proceeds shall (subject to the provisions of the Intercreditor Agreement or any Prior Lien) remain in or be redeposited in the Collateral Account to be applied for any purpose permitted under the Indenture. For this purpose, Collateral Proceeds shall be deemed to be applied first in any Asset Sale Offer. 8. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000, except that (i) the Series A Notes may also be issued in denominations of $800 or integral multiples thereof, (ii) the Series B Notes may also be issued in denominations of $800 or $743 or integral multiples thereof, and (iii) 135 the Secondary Notes may be issued in denominations of $1.00 or integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption or during the period between a record date and the corresponding Interest Payment Date. 9. Collateral. Upon the terms and subject to the conditions set forth in the Security Documents, the payment and performance of the obligations of the Company under the Notes and the Indenture are secured by the Collateral and have the benefit of the Subsidiary Guarantee. The Collateral has been pledged to the Collateral Agent upon the terms and subject to the conditions set forth in the Security Documents, for the benefit of the Holders and the Senior Secured Lenders. In certain circumstances set forth in the Indenture or the Security Documents, the Collateral may be released in whole or in part or other collateral may be substituted therefor. The Collateral is subject to the Prior Lien of the Senior Secured Indebtedness referred to in the Indenture and subject to the terms and conditions of the Intercreditor Agreement. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees, the Notes and any of the Security Documents may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents contained in connection with a purchase of, or tender offer or exchange offer for the Notes) and, subject to Sections 7.4 and 7.7 of the Indenture, 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, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture, the Subsidiary Guarantees, the Notes or any of the Security Documents may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees, or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article II of the Indenture (including the related definitions) in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation pursuant to Article VI of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any Holder of a Note, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to further secure the Notes or to add guarantees with respect thereto, to establish or maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents or to subject additional property to the Liens of the 136 Security Documents, and to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to the Intercreditor Agreement. Without the consent of any Holder of a Note, any of the Security Documents may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article VI of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any Holder of the Note; provided that no such action shall be permitted if it causes the Lien of the Security Documents to cease to be a perfected Lien or diminishes the security afforded by the Liens of the Security Documents, subject to the provisions of Section 4.9 of the Indenture, to permit holders of additional Senior Secured Indebtedness to become parties to the Intercreditor Agreement and receive the benefit of the Security Documents and to otherwise effect transactions permitted by Section 4.9 of the Indenture, to further secure the Notes or to add guarantees with respect thereto, to establish or maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents or to subject additional property to the Liens of the Security Documents, to establish or provide for an amended, restated, modified, renewed, refunded, replaced or refinanced Credit Facility permitted to be incurred pursuant to the Indenture, to establish or maintain the Permitted Lien of any Permitted Refinancing Indebtedness permitted to be incurred pursuant to the Indenture with the same or lower priority as Liens securing the Indebtedness that was exchanged or extended, refinanced, renewed, replaced, defeased or refunded with the net proceeds of such Permitted Refinancing Indebtedness; provided that the Senior Secured Indebtedness permits the establishment and maintenance of such Permitted Lien, and to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to the Intercreditor Agreement. 12. Events of Default and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest (including the payment of interest by issuance of Secondary Notes in lieu of cash payments) on, or Liquidated Damages, if any, with respect to, the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 3.9, 4.10, 4.15 or 6.1 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice by the Trustee or by the Holders of at least 25% of Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) one or more defaults in the performance, or one or more breaches, of any covenant or agreement of the Company or any of the Guarantors contained in the Security Documents (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in the Indenture) and continuance of such default or breach for a period of 30 days after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes when outstanding; (vi) 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), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default or (b) results in the 137 acceleration of such Indebtedness, prior to 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 $5.0 million or more; (vii) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $5.0 million net of applicable insurance coverage which is acknowledged in writing by the issuer to cover such judgments, which judgments are not paid, discharged or stayed for a period of 60 days; (viii) except as permitted by the Indenture, any Subsidiary Guarantee by a Significant Subsidiary or any Subsidiaries that, taken together, would constitute a Significant Subsidiary, 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 that is a Significant Subsidiary or any Guarantors that, taken together, would constitute a Significant Subsidiary, or any Person acting on behalf of any Guarantor or Guarantors, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (x) the Company or any of its Subsidiaries initiates any suit or proceeding challenging the legality, validity, or enforceability of any of the foregoing or the attachment, perfection, or priority of any Liens granted to secure payment and performance of the Notes. If any Event of Default (other than an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Guarantor, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) 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. Upon such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Guarantor constituting a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. 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 then outstanding Notes 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. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 138 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of October 26, 1999, among the Company, the Guarantors and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Attention: Secretary 139 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint ______________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:_________________ Your Signature:_________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:____________________________ 140 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $________________ Date:____________ Your Signature:_________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:____________________ Signature Guarantee:_______________________ 141 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of Amount of Amount of this Global Note decrease in increase in following such Signature of Principal Amount Principal Amount decrease (or authorized signatory Date of Exchange of this Global Note of this Global Note increase) of Trustee or Note Custodian - ---------------- ------------------- ------------------- --------- ----------------------------
142 EXHIBIT A-2 ANKER COAL GROUP, INC. 14.25% Second Priority Senior Secured Notes due 2007, Series A (PIK through April 1, 2000) CUSIP UO352L AB 0 No. ________ $________________ Anker Coal Group, Inc., a Delaware corporation (the "Company"), promises to pay to Cede & Co. or registered assigns, the principal sum of __________________ Dollars on September 1, 2007. Interest Payment Dates: April 1 and October 1 Record Dates: March 15 and September 15 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF TIES REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A NOTE IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE 143 ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF TRANSFER (THE FORM OF WHICH CERTIFICATE CAN BE OBTAINED FROM THE TRUSTEE) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE (2)(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, 144 THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED BELOW), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED BELOW). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. Dated as of __________________, _____. 145 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. (SEAL) ANKER COAL GROUP, INC. By: __________________________ Name: Title: Attest: By: _________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION The Bank of New York, as Trustee, certifies that this is one of the 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) referred to in the within-mentioned Indenture. The Bank of New York, as Trustee By:__________________________ Dated: _______________________ Authorized Signatory 146 1. Interest. The Company promises to pay interest on the principal amount of this Note at 14.25% per annum. from the date hereof until the principal hereof is duly provided for and shall pay the Liquidated Damages payable pursuant to Section 5 of the Registration Rights Agreement referred to below. The Company will pay interest and Liquidated Damages semi-annually on April 1 and October 1 of each year (each an "Interest Payment Date"), or if any such day is not a Business Day, on the next succeeding Business Day. Interest on the Notes will accrue from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from the date of issuance; provided that if there is no existing Default in the payment of Interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further, that the first Interest Payment Date shall be April 1, 2000. The Company shall pay interest, to the extent lawful, (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne by the Notes; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. If, pursuant to Section 3.4 of the Indenture, a notice of redemption is mailed and the redemption date is not a Business Day, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such redemption date to the next succeeding Business Day. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall, prior to and including April 1, 2000, in lieu of the payment in whole or in part of interest in cash on the Notes, on April 1, 2000, pay interest on the Notes though the issuance of additional Notes having the same terms and conditions as the Notes (the "Secondary Notes"), in an aggregate principal amount equal to the amount of interest that would be payable with respect to such Notes if such interest were paid in cash. On April 1, 2000 the Trustee shall authenticate Secondary Notes for original issuance to each Holder of Notes (including, without limitation, outstanding Secondary Notes) on the preceding record date, as shown by the records of the Registrar, in the amount required to pay such interest. Notwithstanding any other provision of this paragraph or the Indenture to the contrary, the Company shall pay cash in lieu of issuing Secondary Notes in any denomination of less than $1.00 (which shall be determined with respect to the aggregate amount of Notes held by each Holder as shown by the records of the Trustee). If the Company fails to make the payment of interest in Secondary Notes on the April 1, 2000 Interest Payment Date, the Company shall then be obligated to pay such interest in cash, subject to the provisions of Section 7.1(a) of the Indenture. Any such Secondary Notes will be governed by the Indenture and shall be subject to the same terms as this Note. The term "Notes" shall include the Secondary Notes that may be issued under the Indenture. 2. Method of Payment. The Company will pay interest on the Notes (except defaulted interest) and Liquidated Damages to the Persons who are registered Holders of Notes at the close of business on March 15 or September 15, next preceding the Interest Payment Date. The Notes will be payable as to principal, premium and Liquidated Damages, if any, and interest 147 at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Liquidated Damages may be made by check mailed to the Holders at their addresses set forth in the register of Holders, and provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Company or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts (or pursuant to paragraph 1 hereof, in Secondary Notes). The payment of principal on the Notes shall be payable only upon presentation and surrender of the Notes at the office of the Paying Agent. 3. Paying Agent and Registrar. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of the Guarantors may act in any such capacity. 4. Indenture. The Company issued the Notes under an Indenture dated as of October 1, 1999 ("Indenture") among the Company, the Guarantors and the 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, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes (excluding Secondary Notes and Optional Notes) are obligations of the Company limited to $119,200,000 in aggregate principal amount. The aggregate principal amount of Optional Notes, if any, issued on October 1, 2000, shall not exceed the Maximum Optional Notes Amount. 5. Optional Redemption. The Notes will be redeemable at any time at the option of the Company, upon not less than 30 nor more than 60 days' notice, in whole or in part, if redeemed on or prior to September 30, 2000 at a redemption price of 104% of the principal amount plus accrued and unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date and thereafter at the redemption prices (expressed as percentages of principal amounts) set forth below plus accrued and unpaid interest and Liquidated Damages on Series A Notes, if any, thereon to the applicable redemption date if redeemed during the twelve month period beginning on October 1 of the years indicated below:
YEAR PERCENTAGE 2000.............................................................. 103% 2001.............................................................. 102% 2002.............................................................. 101% 2003 and thereafter............................................... 100%
148 Any such redemption will comply with Article III of the Indenture and any interest accrued on Notes redeemed on or prior to April 1, 2000 may be paid by the Company in lieu of payment in whole or in part in cash, through the issuance of Secondary Notes. 6. Mandatory Redemption. Except as set forth in paragraph 7 below, the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. Repurchase at the Option of Holders. (a) Upon the occurrence of a Change of Control, each Holder of Notes shall have the right to require the Company to repurchase all or any part (equal to $1,000 or integral multiples thereof, except that (i) the Series A Notes may also be repurchased in denominations of $800 or integral multiples thereof, (ii) the Series B Notes may also be repurchased in denominations of $800 or $743 or integral multiples thereof, and (iii) the Secondary Notes may be repurchased in denominations of $1.00 or integral multiples thereof), of such Holder's Notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase. Within 30 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 date specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice. (b) If at the end of any six month period ending June 30 or December 31 commencing with the six month period ended December 31, 1999, the aggregate amount of Excess Proceeds exceeds $1,000,000, the Company shall be required to commence an Asset Sale Offer within 15 days after the end of such six month period to all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. (c) Any such remaining Excess Proceeds constituting Collateral Proceeds shall (subject to the provisions of the Intercreditor Agreement or any Prior Lien) remain in or be redeposited in the Collateral Account to be applied for any purpose permitted under the Indenture. For this purpose, Collateral Proceeds shall be deemed to be applied first in any Asset Sale Offer. 8. Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000, except that (i) the Series A Notes may also be issued in denominations of $800 or integral multiples thereof, (ii) the Series B 149 Notes may also be issued in denominations of $800 or $743 or integral multiples thereof, and (iii) the Secondary Notes may be issued in denominations of $1.00 or integral multiples thereof. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption or during the period between a record date and the corresponding Interest Payment Date. 9. Collateral. Upon the terms and subject to the conditions set forth in the Security Documents, the payment and performance of the obligations of the Company under the Notes and the Indenture are secured by the Collateral and have the benefit of the Subsidiary Guarantee. The Collateral has been pledged to the Collateral Agent upon the terms and subject to the conditions set forth in the Security Documents, for the benefit of the Holders and the Senior Secured Lenders. In certain circumstances set forth in the Indenture or the Security Documents, the Collateral may be released in whole or in part or other collateral may be substituted therefor. The Collateral is subject to the Prior Lien of the Senior Secured Indebtedness referred to in the Indenture and subject to the terms and conditions of the Intercreditor Agreement. 10. Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes. 11. Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture, the Subsidiary Guarantees, the Notes and any of the Security Documents may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for the Notes) and, subject to Sections 7.4 and 7.7 of the Indenture, 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, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of the Indenture, the Subsidiary Guarantees, the Notes or any of the Security Documents may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Without the consent of any Holder of a Note, the Indenture, the Subsidiary Guarantees, or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article II of the Indenture (including the related definitions) in a manner that does not materially adversely affect any Holder, to provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes in case of a merger or consolidation pursuant to Article VI of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any Holder of a Note, or to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to further secure the Notes or to add guarantees with respect thereto, to establish or 150 maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents and to subject additional property to the Liens of the Security Documents, and to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to the Intercreditor Agreement. Without the consent of any Holder of a Note, any of the Security Documents may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article VI of the Indenture, to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any Holder of the Note; provided that no such action shall be permitted if it causes the Lien of the Security Documents to cease to be a perfected Lien or diminishes the security afforded by the Liens of the Security Documents, subject to the provisions of Section 4.9 of the Indenture, to permit holders of additional Senior Secured Indebtedness to become parties to the Intercreditor Agreement and receive the benefit of the other Security Documents and to otherwise effect transactions permitted by Section 4.9 of the Indenture, to further secure the Notes or to add guarantees with respect thereto, to establish or maintain the Liens of the Security Documents (including the perfection and priority contemplated by the Security Documents) or to correct or amplify the description of the Collateral subject to the Liens of the Security Documents or to subject additional property to the Liens of the Security Documents, to establish or provide for an amended, restated, modified, renewed, refunded, replaced or refinanced Credit Facility permitted to be incurred pursuant to the Indenture, to establish or maintain the Permitted Lien of any Permitted Refinancing Indebtedness permitted to be incurred pursuant to the Indenture with the same or lower priority as Liens securing the Indebtedness that was exchanged or extended, refinanced, renewed, replaced, defeased or refunded with the net proceeds of such Permitted Refinancing Indebtedness; provided that the Senior Secured Indebtedness permits the establishment and maintenance of such Permitted Lien, and to add to the covenants of the Company for the benefit of the holders of the Indebtedness which are parties to Intercreditor Agreement. 12. Events of Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest (including the payment of interest by issuance of Secondary Notes in lieu of cash payments) on, or Liquidated Damages, if any, with respect to, the Notes; (ii) default in payment when due of the principal of or premium, if any, on the Notes; (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 3.9, 4.10, 4.15 or 6.1 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice by the Trustee or by the Holders of at least 25% of Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; (v) one or more defaults in the performance, or one or more breaches, of any covenant or agreement of the Company or any of the Guarantors contained in the Security Documents (other than a default in the performance, or breach, of a covenant or warranty which is specifically dealt with elsewhere in the Indenture) and continuance of such default or breach for a period of 30 days after written notice shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Notes when outstanding; (vi) 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 151 Company or any of its Restricted Subsidiaries), other than Indebtedness owed to the Company or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default or (b) results in the acceleration of such Indebtedness, prior to 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 $5.0 million or more; (vii) failure by the Company or any of its Subsidiaries to pay final judgments aggregating in excess of $5.0 million net of applicable insurance coverage which is acknowledged in writing by the insurer to cover such judgments, which judgments are not paid, discharged or stayed for a period of 60 days; (viii) except as permitted by the Indenture, any Subsidiary Guarantee by a Significant Subsidiary or any Subsidiaries that, taken together, would constitute a Significant Subsidiary, 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 that is a Significant Subsidiary or any Guarantors that, taken together, would constitute a Significant Subsidiary, or any Person acting on behalf of any Guarantor or Guarantors, shall deny or disaffirm its obligations under its Subsidiary Guarantee; (ix) certain events of bankruptcy or insolvency with respect to the Company or any of its Significant Subsidiaries; and (x) the Company or any of its Subsidiaries initiates any suit or proceeding challenging the legality, validity, or enforceability of any of the foregoing or the attachment, perfection, or priority of any Liens granted to secure payment and performance of the Notes. If any Event of Default (other than an Event of Default arising from certain events of bankruptcy or insolvency with respect to the Company, any Guarantors, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) 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. Upon such declaration, the Notes shall become due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Company, any Guarantor constituting a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. 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 then outstanding Notes 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. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required upon becoming aware of any 152 Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 13. Trustee Dealings with Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. 14. No Recourse Against Others. A director, officer, employee, incorporator or stockholder of the Company or the Guarantors, as such, shall not have any liability for any obligations of the Company or the Guarantors under the Notes, the Indenture or the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 16. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 17. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement dated as of October 26, 1999, among the Company, the Guarantors and the parties named on the signature pages thereof (the "Registration Rights Agreement"). 18. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 153 The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Attention: Secretary 154 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to (Insert assignee's soc. sec. or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint _________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:_________________ Your Signature:________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:___________________________ 155 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________ Date:_________________ Your Signature:_________________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:_________________________ Signature Guarantee:____________________________ 156 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Amount of Amount of Principal Amount of decrease in increase in this Global Note Signature of Principal Amount Principal Amount following such authorized signatory Date of Exchange of this Global Note of this Global Note decrease (or increase) of Trustee or Note Custodian - ---------------- ------------------- ------------------- ---------------------- ----------------------------
157 EXHIBIT B GENERAL SECURITY AGREEMENT 158 EXHIBIT C PLEDGE AND SECURITY AGREEMENTS 159 EXHIBIT D INTERCREDITOR AGREEMENT 160 EXHIBIT E FORM OF CERTIFICATE OF TRANSFER (OWNER) Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 The Bank of New York, as Trustee 101 Barclay Street Corporate Finance Unit - 21st Floor New York, NY 10286 Re: 14.25% Second Priority Senior Secured Notes due 2007, Series A (PIK through April 1, 2000) of Anker Coal Group, Inc. Reference is hereby made to the Indenture, dated as of October 1, 1999 (the "Indenture"), between Anker Coal Group, Inc., as issuer (the "Company"), certain subsidiaries of the Company named therein (the "Guarantors"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. _______________ (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $_______ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] Check if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions 161 applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with-any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST ON A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note, [ ] Regulation S Global Note, [ ] RSTD Global Note, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United 162 States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Trustee and the Company. ____________________________________________ [Insert Name of Transferor] By: _______________________________________ Name: Title: Dated: __________________ 163 EXHIBIT F FORM OF CERTIFICATE OF TRANSFER (TRANSFEROR) Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 The Bank of New York, as Trustee 101 Barclay Street Corporate Finance Unit - 21st Floor New York, NY 10286 Re: 14.25% Second Priority Senior Secured Notes due 2007, Series A (PIK through April 1, 2000) of Anker Coal Group, Inc. Reference is hereby made to the Indenture, dated as of October 1, 1999 (the "Indenture") between Anker Coal Group, Inc., as issuer (the "Company"), certain subsidiaries of the Company named therein (the "Guarantors"), and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________ (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $_______ in such Note[s] or interests (the "Transfer"), to ____________ (the "Transferee") as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 164 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act, and (iv) if the proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RSTD GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act. 4. [ ] CHECK AND COMPLETE CERTIFICATE ATTACHED HERETO AS ANNEX B IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RSTD GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION D. The Transfer is being effected pursuant to and in accordance with Regulation D under the Securities Act and, accordingly, the Transferor hereby further certifies that such Transferee is an institutional investor that is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act which delivers a certificate in the form of Annex B hereto. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Definitive Note and in the Indenture and the Securities Act. 165 5. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Trustee and the Company. _____________________________________________ [Insert Name of Transferor] By: ________________________________________ Name: Title: Dated: __________________ 166 ANNEX A TO CERTIFICATE OF TRANSFER ANNEX A TO EXHIBIT F 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP 035396 AC 4), or (ii) [ ] Regulation S Global Note (CUSIP UO352L AB 0), or (iii) [ ] RSTD Global Note (CUSIP 035396 AD 2) or (b) [ ] Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP 035396 AC 4), or (ii) [ ] Regulation S Global Note (CUSIP UO352L AB 0), or (iii) [ ] RSTD Global Note (CUSIP 035396 AD 2), or (iv) (CUSIP _______), or Unrestricted Global Note (CUSIP _____); or (b) [ ] Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. 167 ANNEX B TO CERTIFICATE OF TRANSFER ANNEX B TO EXHIBIT F [Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors] The Bank of New York, as Trustee 101 Barclay Street Corporate Finance Unit - 21st Floor New York, NY 10286 Re: Anker Coal Group, Inc. Ladies and Gentlemen: In connection with our proposed purchase of 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Notes") of Anker Coal Group, Inc. (the "Company"), we confirm that: 1. We have received a copy of the Private Placement Memorandum (the "Placement Memorandum"), dated October __, 1999 relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages __ of the Placement Memorandum and in the section entitled "Transfer Restrictions on the Notes" of the Placement Memorandum including the restrictions on duplication and circulation of the Placement Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (as described in the Placement Memorandum) and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes prior to the date which is two years after the original issuance of the Notes, we will do so only (i) to the Company or any of its subsidiaries, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the 168 Trustee (as defined in the Indenture relating to the Notes), a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (iv) outside the United States in accordance with Rules 903 and 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 4. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as described in Section 3 of the Employee Retirement Income Security Act of 1974), except as permitted in the section entitled "Transfer Restrictions on the Notes" of the Placement Memorandum. 5. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 6. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 7. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ____________________________ Name: 169 EXHIBIT G FORM OF SUBSIDIARY GUARANTEE Each of the corporations listed on Schedule I hereto (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture (the "Indenture") referred to in the Note upon which this notation is endorsed), has unconditionally guaranteed (a) the due and punctual payment of the principal of, premium, Liquidated Damages, if any, and interest on the Notes, whether at maturity or on an Interest Payment Date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of, premium and Liquidated Damages, if any, and interest on the Notes, to the extent lawful, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. ANKER GROUP, INC. By: ______________________________ Name: Title: EACH OTHER ENTITY LISTED ON SCHEDULE A HERETO, as Guarantors By: ______________________________ Name: Title: 170 SCHEDULE I GUARANTORS
COMPANY STATE OF INCORPORATION Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
171 EXHIBIT H FORM OF OPINION OF COUNSEL EX-5.1 5 FORM OF OPINION OF WILMER, CUTLER & PICKERING 1 EXHIBIT 5.1 [Form of Legal Opinion] , 1999 Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26505 Re: Exchange Offer Registered on Form S-4 Ladies and Gentlemen: We have acted as special counsel to Anker Coal Group, Inc., a Delaware corporation (the "Company"), in connection with the preparation and filing of a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "Commission") with respect to the offer and sale of (a) up to $113,556,000 principal amount of the Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Notes") and (b) guarantees of the New Notes (the "Guarantees") by the Company's existing and future wholly-owned subsidiaries, other than those subsidiaries that are inconsequential to the Company's business and financial condition, in each case to be offered pursuant to an indenture, dated as of October 1, 1999 (the "Indenture"), by and among the Company, the Guarantors (as defined therein) and The Bank of New York, as trustee. Up to $106,003,000 principal amount of New Notes will be issued in exchange (the "Exchange Offer") for a like principal amount of the Company's outstanding 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Old Notes"), and up to $7,553,000 principal amount of additional New Notes will be issued in lieu of the April 1, 2000 cash interest payment on the New Notes. In so acting, we have examined originals or copies of the (1) the Registration Statement; (2) the Prospectus that is a part of the Registration Statement (the "Prospectus"); (3) the Indenture; and (4) the Registration Rights Agreement dated as of October 26, 1999 by and among the Company, the Guarantors and the Purchasers and Exchanging Noteholders (as defined therein). 2 Anker Coal Group, Inc. , 1999 Page 2 We have also examined original, reproduced or certified copies of resolutions adopted by the Company's and the Guarantors' boards of directors and such other documents, corporate records, certificates of public officials, officers and representatives of the Company and other instruments as we have deemed necessary or appropriate to render the opinions set forth below, and have considered such questions of law as we have deemed necessary to enable us to render the opinions expressed below. In our examination of documents and records, we have assumed, without investigation, the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity with originals of all documents submitted to us as telecopied, certified, photostatic or reproduced copies and the authenticity of all such documents. We have also assumed, but not independently verified, that all documents executed by a party other than the Company or the Guarantors were duly and validly authorized, executed and delivered by such party, that such party has the requisite power and authority to execute, deliver and perform such agreements and other documents, and that such agreements and other documents are legal, valid and binding obligations of such party and enforceable against such party in accordance with their respective terms. This opinion is limited to the federal laws of the United States of America, the laws of the state of New York, and the general corporation law of the State of Delaware. In this regard, we note that many of the Guarantors are incorporated in West Virginia and one of the Guarantors is incorporated in Virginia. For purposes of our opinion herein, we have assumed that the laws of West Virginia and Virginia are each identical in all relevant respects to the general corporation law of Delaware. We express no opinion whatsoever as to the laws or regulations of any other jurisdiction or as to laws relating to choice of law or conflicts of law principles. Based upon the foregoing, subject to the assumptions, limitations and exceptions contained herein, and subject to the issuance by the Commission of an order declaring the Registration Statement effective, we are of the opinion that, when the New Notes and the Guarantees, in the forms filed as exhibits to the Indenture, have been duly executed and authenticated in accordance with the Indenture and have been duly issued and delivered in exchange for an equal principal amount of Old Notes pursuant to the terms of the Indenture and the Exchange Offer or in payment of the April 1, 2000 interest payment on the New Notes, the New Notes and the Guarantees will (x) be the legal and binding obligations of the Company and the Guarantors enforceable against the Company and the Guarantors, as the case may be, in accordance with their terms except as (a) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally, and (b) rights of acceleration, if applicable, and the availability of equitable remedies may be limited by equitable principles of general applicability, as well as concepts of materiality, reasonableness, good faith and fair dealing, and (y) be entitled to the benefits of the Indenture. 3 Anker Coal Group, Inc. , 1999 Page 3 The information set forth herein is as of the date hereof. We assume no obligation to advise you of changes which may hereafter be brought to our attention. Our opinions are based on statutory and judicial decisions in effect at the date hereof, and we do not opine with respect to any law, regulation, rule or governmental policy or decision which may be enacted, determined or adopted after the date hereof, nor assume any responsibility to advise you of future changes in our opinions. This opinion is furnished by us, as special counsel to the Company, to you and is for your benefit in connection with the Exchange Offer. We hereby consent to the use of this opinion as an exhibit to the Registration Statement. We also consent to any and all references to our firm under the caption "Legal Matters" in the Prospectus. Very truly yours, WILMER, CUTLER & PICKERING By: ------------------------------- Meredith B. Cross, a partner EX-8.1 6 FORM OF OPINION OF WILMER, CUTLER & PICKERING 1 Exhibit 8.1 FORM OF LEGAL OPINION , 1999 Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Dear Ladies and Gentlemen: We have acted as special counsel to Anker Coal Group, Inc. (the "Company") in connection with the preparation and filing with the Securities and Exchange Commission (the "Commission") of a Prospectus, dated December , 1999, and all amendments thereto (the "Prospectus"), to the Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of (i) the Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Notes") which are to be offered in exchange for all the Company's outstanding 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Old Notes"); (ii) the additional New Notes to be issued by the Company in lieu of the cash interest payment on the New Notes due on April 1, 2000; and (iii) the guarantees of the New Notes by the Company's existing and future wholly-owned subsidiaries, other than those subsidiaries that are inconsequential to the Company's business and financial condition. All capitalized terms not otherwise defined herein shall have the same meaning ascribed to such terms in the Prospectus. 2 Anker Coal Group, Inc. December , 1999 Page 2 We have examined copies of the following documents: (1) the Prospectus; (2) the Registration Statement; and (3) such other documents as we have deemed relevant for purposes of the opinion set forth herein. In our examination of such documents, we have assumed, without independent inquiry, the genuineness of all signatures, the proper execution of all documents, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies, the authenticity of the originals of any such copies, and the legal capacity of all natural persons. Based on and subject to the foregoing, we hereby confirm that the discussion set forth in the Prospectus under the heading "Material United States Federal Income Tax Consequences" is our opinion on the material United States federal income tax consequences of the purchase, ownership, and disposition of the New Notes and the exchange of Old Notes for New Notes. This opinion is based on relevant provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, court decisions, and administrative determinations as currently in effect, all of which are subject to change, prospectively or retroactively, at any time. We undertake no obligation to update or supplement this opinion to reflect any changes in laws that may occur after the date hereof. This opinion has been prepared for your use in connection with the filing of the Prospectus and should not be quoted in whole or in part or otherwise be referred to, nor otherwise be filed with or furnished to any governmental agency or other person or entity, without our express prior written consent. We hereby consent to the filing of this opinion as an exhibit to the Prospectus as filed with the Commission and to the use of our name therein. Very truly yours, WILMER, CUTLER & PICKERING By: William J. Wilkins A Partner EX-10.14 7 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.14 ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of October 26, 1999 by and among ANKER COAL GROUP, INC. THE GUARANTORS LISTED ON SCHEDULE A and THE PURCHASERS AND EXCHANGING NOTEHOLDERS LISTED ON SCHEDULE B ================================================================================ 2 TABLE OF CONTENTS
Page ---- SECTION 1. Definitions...................................................................2 SECTION 2. Securities Subject to this Agreement..........................................5 SECTION 3. Registered Exchange Offer.....................................................5 SECTION 4. Shelf Registration............................................................7 SECTION 5. Liquidated Damages............................................................9 SECTION 6. Registration Procedures......................................................10 SECTION 7. Registration Expenses........................................................18 SECTION 8. Indemnification..............................................................18 SECTION 9. Rule 144A....................................................................21 SECTION 10. Participation in Underwritten Registrations..................................21 SECTION 11. Selection of Underwriters....................................................21 SECTION 12. Miscellaneous................................................................21
3 This Registration Rights Agreement (this "Agreement") is made and entered into as of October 26, 1999 by and among Anker Coal Group, Inc., a Delaware corporation (the "Company"), each of the entities listed on Schedule A (each a "Guarantor" and collectively, the "Guarantors") and the persons or entities listed on Schedule B, each of which has agreed to (i) purchase for cash, the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Money Notes") and Warrants, or (ii) receive in exchange for the Company's 9 3/4% Series B Senior Notes due 2007, the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Exchange Notes") and Warrants; or (iii) receive in exchange for cancellation of shares of Company Common Stock owned by and certain contractual rights of JJF Group Limited Liability Company, the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "JJF Secured Notes"). The Company also has the option to require certain Purchasers to purchase additional 14.25% Series B Second Priority Senior Secured Notes due 2007 (the "Optional Secured Notes") in the form of Registered Notes (as defined herein) under certain circumstances on October 1, 2000. The New Money Notes, the Exchange Notes, the JJF Secured Notes and the Optional Secured Notes, together with Secondary Notes issued with respect thereto, are hereinafter together referred to as the "Privately Placed Notes". This Agreement is made pursuant to the Exchange and Purchase Agreement, dated October 26, 1999 (the "Purchase Agreement"), by and among the Company, the Guarantors, the Purchasers and the Exchanging Noteholders (each, a "Purchaser" and collectively, the "Purchasers") named therein. Capitalized terms used herein and not otherwise defined herein, have the meanings set forth in the Purchase Agreement. To induce each Purchaser to purchase or accept the Privately Placed Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The Exchange Notes are proposed to be issued in a Private Exchange made pursuant to the Purchase Agreement and the Company's Private Exchange and Private Placement Memorandum and Consent Solicitation (the "Private Offering Memorandum") dated October 26, 1999. The New Money Notes and the JJF Secured Notes are proposed to be issued in a private sale pursuant to the Purchase Agreement and the Private Offering Memorandum. The Optional Secured Notes, if any, are proposed to be issued in a private sale pursuant to the Purchase Agreement and the Private Offering Memorandum on October 1, 2000. The 14.25% Series B Second Priority Senior Secured Notes due 2007 (other than the Optional Secured Notes) are proposed to be issued in a Registered Exchange Offer made as contemplated herein and pursuant to a separate Public Exchange Offer to holders of Old Notes. The Secondary Notes are proposed to be issued in payment of accrued interest through April 1, 2000 on outstanding Privately Placed Notes and Registered Notes. The execution and delivery of this Agreement is a condition to the obligations of the Purchasers and the Exchanging Noteholders set forth in Section 6 of the Purchase Agreement. The parties hereby agree as follows: 4 SECTION 1. Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Broker-Dealer Transfer Restricted Securities: Registered Notes that are acquired by a Broker-Dealer in the Registered Exchange Offer in exchange for Privately Placed Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Privately Placed Notes acquired directly from the Company or any of its affiliates). Closing Date: The date of this Agreement. Commission: The United States Securities and Exchange Commission. Consummate: A Registered Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Registered Notes to be issued in the Registered Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Registered Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company to the Registrar under the Note Indenture of Registered Notes in the same aggregate principal amount as the aggregate principal amount of Privately Placed Notes that were tendered by Holders thereof pursuant to the Registered Exchange Offer. Damages Payment Date: With respect to the Privately Placed Notes, each Interest Payment Date. Effectiveness Target Date: As defined in Section 5. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer Registration Statement: The Registration Statement on Form S-4 (or, if applicable, another appropriate form) relating to the Registered Exchange Offer and all amendments and supplements to such Registration Statement, in each case, including the related prospectus and all exhibits thereto and all material incorporated by reference therein. Exchanging Noteholders: Those entities listed in Schedule III to the Purchase Agreement. Exempt Resales: The transactions in which any Purchaser may propose to sell Privately Placed Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act, and to certain non-U.S. persons outside the United States in reliance upon Regulation S under the Act. 5 Holders: As defined in Section 2(b) hereof. Indemnified Holder: As defined in Section 8(a) hereof. Interest Payment Date: As defined in each Note Indenture and the Secured Notes. Letter of Transmittal: Letter of Transmittal in the form sent by the Company to all Exchanging Noteholders for use by such Exchanging Noteholders in connection with the Private Exchange. Majority Holders: The Holders (including Restricted Broker-Dealers) of a majority of the aggregate principal amount of outstanding Transfer Restricted Securities; provided that whenever the consent or approval of Holders of a specified percentage of Transfer Restricted Securities is required hereunder, Transfer Restricted Securities held by the Company or the Guarantors or any of their affiliates (as such term is defined under Rule 405 of the Act) (other than Recovery Fund or subsequent holders of Transfer Restricted Securities if such subsequent holders are deemed to be such affiliates solely by reason of their holding of such Transfer Restricted Securities) shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage or amount. NASD: National Association of Securities Dealers, Inc. Note Indenture: The Note Indenture, dated as of October 1, 1999, among the Company, The Bank of New York, as trustee (the "Trustee"), and the Guarantors, pursuant to which the Secured Notes are to be issued, as such Note Indenture is amended or supplemented from time to time in accordance with the terms thereof. Old Notes: The Company's 9 3/4% Series B Senior Notes due 2007 issued pursuant to an Indenture dated as of September 25, 1997 among the Company, as issuer, the Guarantors signatory thereto and Marine Midland Bank (now known as HSBC Bank USA), as trustee, as amended by a Supplemental Indenture dated as of October 26, 1999. Person: An individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. Private Exchange: The issuance and sale upon the terms and subject to the conditions set forth in the Private Offering Memorandum and in the accompanying Letter of Transmittal to exchange for each $1,000 principal amount of Old Notes held by each Exchanging Noteholder, $800 principal amount of Series A Secured Notes and Warrants of the Company. Prospectus: The prospectus included in a Registration Statement, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Public Exchange Offer: The offer to be made by the Company pursuant to Section 3(a)(9) of the Securities Act or a Registration Statement to exchange Public Notes with a principal amount of $743 for each $1000 principal amount of any Old Notes which were not exchanged in the Private Exchange. 6 Public Notes: The Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 to be issued pursuant to the Note Indenture in the Public Exchange Offer. Purchasers: As defined in the preamble hereto. Record Holder: With respect to any Damages Payment Date relating to Privately Placed Notes, each Person who is a Holder of Privately Placed Notes on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. Registered Exchange Offer: The registration by the Company under the Act of the Registered Notes pursuant to a Registration Statement pursuant to which the Company offers the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Registered Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities tendered in the Registered Exchange Offer by such Holders. Registration Default: As defined in Section 5 hereof. Registered Notes: The Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 to be issued pursuant to the Note Indenture in the Registered Exchange Offer. Registration Statement: Any registration statement of the Company relating to (a) an offering of Registered Notes pursuant to a Registered Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Restricted Broker-Dealers: Any Broker-Dealer which holds Broker-Dealer Transfer Restricted Securities. Secured Notes: The Privately Placed Notes, the Registered Notes and the Public Notes. Secondary Notes: The Company's 14.25% Second Priority Senior Secured Notes due 2007 to be issued in payment of accrued interest through April 1, 2000 on outstanding Privately Placed Notes and Registered Notes and being of the same series as the Outstanding Notes with respect to which they are issued. Shelf Filing Deadline: As defined in Section 4 hereof. Shelf Registration Statement: As defined in Section 4 hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Note Indenture. Transfer Restricted Securities: Each Privately Placed Note, until the earliest to occur of (a) the date on which such Privately Placed Note is exchanged by a person other than a Broker-Dealer for a Registered Note in the Registered Exchange Offer, (b) following the exchange by a 7 Broker-Dealer in the Registered Exchange Offer of a Privately Placed Note for a Registered Note, the date on which such Privately Placed Note is sold to a purchaser who receives from such Broker-Dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement, (c) the date on which such Privately Placed Note has been effectively registered under the Act and disposed of in accordance with a Shelf Registration Statement and (d) the date on which such Privately Placed Note is distributed to the public pursuant to Rule 144 under the Act. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. Warrant Agent: The Bank of New York, until a successor replaces it in accordance with the applicable provisions of the Warrant Agreement and thereafter means the successor serving thereunder. Warrant Agreement: The Warrant Agreement dated as of October 26, 1999 between the Company and the Warrant Agent, as amended, waived or otherwise modified from time to time in accordance with the provisions thereof. Warrants: Warrants to purchase shares of the Company's Common Stock issued pursuant to the Private Offering Memorandum in accordance with the Warrant Agreement. SECTION 2. Securities Subject to this Agreement. (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. Registered Exchange Offer. (a) Unless the Registered Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with), the Company and the Guarantors shall (i) cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 20 days after the Closing Date, an Exchange Offer Registration Statement under the Act relating to the Registered Notes and the Registered Exchange Offer, (ii) use their reasonable best efforts to cause such Registration Statement to become effective at the earliest possible time, but in no event later than (A) 45 days after the Closing Date if the Registration Statement is not selected for review by the Commission, or (B) 90 days after the Closing Date if the Registration Statement is selected for review by the Commission, (iii) in connection with the foregoing, file (A) all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings in connection with the registration and qualification of the Registered Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the 8 Registered Exchange Offer, and (iv) upon the effectiveness of such Registration Statement, commence the Registered Exchange Offer. The Exchange Offer Registration Statement shall be on the appropriate form permitting registration of the Registered Notes to be offered in exchange for the Transfer Restricted Securities and to permit sales of Broker-Dealer Transfer Restricted Securities held by Restricted Broker-Dealers as contemplated by Section 3(c) below. (b) The Company and the Guarantors shall use their reasonable best efforts to cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Registered Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Registered Exchange Offer; provided, however, that in no event shall such period be less than 20 business days. The Company shall cause the Registered Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the Registered Notes shall be included in the Exchange Offer Registration Statement. The Company shall use its reasonable best efforts to cause the Registered Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 business days thereafter. (c) The Company shall indicate in a "Plan of Distribution" section contained in the Prospectus contained in the Exchange Offer Registration Statement that any Broker-Dealer who holds Privately Placed Notes that are Transfer Restricted Securities and that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), may exchange such Privately Placed Notes pursuant to the Registered Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with any sales of the Broker-Dealer Transfer Restricted Securities received by such Broker-Dealer in the Registered Exchange Offer, which prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Secured Notes held by any such Broker-Dealer except to the extent required by the Commission as a result of a change in policy after the date of this Agreement. The Company and the Guarantors shall use their reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities acquired by Restricted Broker-Dealers, and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period equal to the lesser of (i) 180 days from the date on which the Exchange Offer Registration Statement is declared effective or (ii) the period ending on the date when all Restricted Broker-Dealers have sold all Broker-Dealer Transfer Restricted Securities held by them. 9 The Company shall provide sufficient copies of the latest version of such Prospectus to Restricted Broker-Dealers promptly upon request at any time during such period in order to facilitate such sales. The Company shall not be obligated to complete more than one Registered Exchange Offer that conforms to the requirements of this Agreement. SECTION 4. Shelf Registration. (a) Shelf Registration. If (i) the Company is not required to file an Exchange Offer Registration Statement or to consummate the Registered Exchange Offer because the Registered Exchange Offer is not permitted by applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 20 days of the Consummation of the Registered Exchange Offer (A) that such Holder is prohibited by applicable law or Commission policy from participating in the Registered Exchange Offer, or (B) that such Holder may not resell the Registered Notes acquired by it in the Registered Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, or (C) that such Holder is a Broker-Dealer and holds Privately Placed Notes acquired directly from the Company or one of its affiliates, then the Company and the Guarantors shall: (x) cause to be filed a shelf registration statement pursuant to Rule 415 under the Act, which may be an amendment to the Exchange Offer Registration Statement (in either event, the "Shelf Registration Statement"), on or prior to the earlier to occur of (1) the 45th day after the date on which the Company determines that it is not required to file the Exchange Offer Registration Statement and (2) the 45th day after the date on which the Company receives notice from a Holder of Transfer Restricted Securities as contemplated by clause (ii) above, which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities the Holders of which shall have provided the information required pursuant to Section 4(b) hereof; and (y) use their reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before (i) if the Shelf Registration Statement is not selected for review by the Commission, the 45th day after the obligation to file the Shelf Registration Statement arises, or (ii) if the Shelf Registration Statement is selected for review by the Commission, the 90th day after the obligation to file the Shelf Registration Statement arises. The Company and the Guarantors shall use their reasonable best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for resales of Secured Notes by the Holders of Transfer Restricted Securities entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of two years following the Closing Date (as extended pursuant to Section 6(c)(i)) or such shorter period (i) as may be set forth in any amendment to Rule 144(k) of the Act, or any 10 amendment thereto, when such amendment becomes effective, or (ii) that will terminate when all the Transfer Restricted Securities covered by the Registration Statement have been sold pursuant to such Registration Statement; provided, that the Company and the Guarantors shall be deemed not to have used their reasonable best efforts to keep the Registration Statement effective during the requisite period if they voluntarily take any action that would result in holders of the Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law, and provided, further, that the foregoing shall not apply if the Company determines, in its reasonable judgment, upon advice of counsel, as authorized by a resolution of its Board of Directors, that the continued effectiveness and usability of such Registration Statement would (i) require the disclosure of material information, which the Company has a bona fide business reason for preserving as confidential, or (ii) interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its Affiliates (as defined in the rules and regulations adopted under the Exchange Act); provided, however, that the failure to keep the Registration Statement effective and usable for offers and sales of Transfer Restricted Securities for such reasons shall last no longer than 30 days in any 12-month period (whereafter liquidated damages (pursuant to Section 5 hereof) shall accrue and be payable), so long as the Company promptly thereafter complies with the requirements of Section 6(c)(xvi) hereof, if applicable. Any such period during which the Company and the Guarantors fail to keep the Registration Statement effective and usable for offers and sales of Transfer Restricted Securities is referred to as a "Suspension Period." A Suspension Period shall commence on and include the date that the Company gives notice that the Registration Statement is no longer effective or the Prospectus included therein is no longer usable for offers and sales of Transfer Restricted Securities and shall end on the earlier to occur of (i) date when each seller of Transfer Restricted Securities covered by such Registration Statement either receives the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or is advised in writing by the Company that use of the Prospectus may be resumed and (ii) the expiration of the 30 days in any 12-month period during which one or more Suspension Periods has been in effect. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 business days after receipt of a request therefor, such information specified in item 507 of Regulation S-K under the Act for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated damages pursuant to Section 5 hereof unless and until such Holder shall have used its reasonable best efforts to provide all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. (c) In the event the Company determines to sell to any Purchaser any Optional Secured Notes pursuant to Section 2(b) of the Purchase Agreement, the Company shall cause to be filed and become effective on the Optional Secured Notes Closing Date (as defined in the Purchase Agreement) a Shelf Registration Statement pursuant to Rule 415 under the Act which Shelf Registration Statement shall provide for resales of all Optional Secured Notes; provided, 11 however, that if, in the written opinion of nationally recognized independent counsel to the Company experienced in such matters, Commission policy does not allow filing of such Shelf Registration Statement before the Optional Secured Notes Closing Date in the form of a shelf registration pursuant to Rule 415(a)(1)(i), then the Company will cause such Shelf Registration Statement to be filed no later than one business day following the Closing Date and shall become effective (A) if such Shelf Registration Statement is not selected for review by the Commission, within 45 days after the Optional Secured Notes Closing Date, or (B) if such Shelf Registration Statement is selected for review by the Commission, within 90 days after the Optional Secured Notes Closing Date. In such event, the Liquidated Damages provisions of Section 5 shall apply to the Optional Secured Notes. The provisions of this Agreement relating to Shelf Registration shall apply mutatis mutandis to such Shelf Registration Statement. SECTION 5. Liquidated Damages. If (i) any of the Registration Statements required by this Agreement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) any of such Registration Statements has not been declared effective by the Commission on or prior to the date specified for such effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the Registered Exchange Offer has not been Consummated within 30 business days after the Effectiveness Target Date with respect to the Exchange Offer Registration Statement or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself immediately declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company and the Guarantors hereby jointly and severally agree to pay liquidated damages to each Holder of Transfer Restricted Securities (other than Optional Secured Notes) with respect to the first 90-day period immediately following the occurrence of such Registration Default, in an amount equal to $.03 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues. Until all Registration Defaults have been cured, the amount of the liquidated damages shall increase by an additional $.09 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to the second 90-day period immediately following the occurrence of such Registration Default, and by an additional $.03 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to the third 90-day period immediately following the occurrence of such Registration Default. Thereafter, the amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.50 per week per $1,000 principal amount of Transfer Restricted Securities. All accrued liquidated damages shall be paid to Record Holders by the Company by wire transfer of immediately available funds or by federal funds check on each Damages Payment Date, as provided in the Note Indenture. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of liquidated damages with respect to such Transfer Restricted Securities will cease. All obligations of the Company and the Guarantors set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to 12 be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Security shall have been satisfied in full. The provisions of this Section 5 shall apply mutatis mutandis to the Optional Secured Notes. SECTION 6. Registration Procedures. (a) Exchange Offer Registration Statement. In connection with the Registered Exchange Offer, the Company and the Guarantors shall comply with all of the applicable provisions of Section 6(c) below, shall use their reasonable best efforts to effect such exchange to permit the sale of Transfer Restricted Securities, and shall comply with all of the following provisions: (i) If in the reasonable opinion of counsel to the Company there is a question as to whether the Registered Exchange Offer is permitted by applicable law, the Company and the Guarantors hereby agree to seek a no-action letter or other favorable decision from the Commission allowing the Company and the Guarantors to Consummate a Registered Exchange Offer for such Privately Placed Notes. The Company and each of the Guarantors each hereby agrees to pursue the issuance of such a decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy. The Company and each of the Guarantors each hereby agrees, however, to (A) participate in telephonic conferences with the Commission, (B) deliver to the Commission staff an analysis prepared by counsel to the Company or holders of Secured Notes setting forth the legal bases, if any, upon which such counsel has concluded that such a Registered Exchange Offer should be permitted and (C) diligently pursue a resolution (which need not be favorable) by the Commission staff of such submission. (ii) As a condition to its participation in the Registered Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation thereof, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate (as defined in Rule 405 under the Act) of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Registered Notes to be issued in the Registered Exchange Offer, (C) it is acquiring the Registered Notes in its ordinary course of business, (D) if such Holder is a Broker-Dealer, that it will receive Registered Notes for its own account in exchange for Privately Placed Notes that were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such Registered Notes and (E) to the knowledge of such Holder, it is not acting on behalf of any person who could not make the representations in clauses (A) - (D). In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Company's preparations of the Registered Exchange Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Registered Exchange Offer to participate in a distribution of the securities to be acquired in the Registered Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the 13 position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Notes obtained by such Holder in exchange for Privately Placed Notes acquired by such Holder directly from the Company. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, if requested by the Commission, the Company and the Guarantors shall provide a supplemental letter to the Commission (A) stating that the Company and the Guarantors are registering the Registered Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co. Incorporated (available June 5, 1991) and, if applicable, any no-action letter obtained pursuant to clause (i) above and (B) including a representation that neither the Company nor any of the Guarantors has entered into any arrangement or understanding with any Person to distribute the Registered Notes to be received in the Registered Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Registered Exchange Offer is acquiring the Registered Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Registered Notes received in the Registered Exchange Offer. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Guarantors shall comply with all the provisions of Section 6(c) below and shall use their reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities, and pursuant thereto the Company will as expeditiously as possible prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof. (c) General Provisions. In connection with any Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit sales of Broker-Dealer Transfer Restricted Securities), the Company shall: (i) use its reasonable best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements (including, if required by the Act or any regulation thereunder, financial statements of the Guarantors) for the period specified in Section 3 or 4 of this Agreement, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the 14 period required by this Agreement, the Company shall file promptly an appropriate amendment or supplement to such Registration Statement or Prospectus, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use its reasonable best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Section 3 or 4 hereof, as applicable, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) in the case of (x) a Shelf Registration Statement, pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, advise the underwriter(s), if any, and selling Holders or Restricted Broker-Dealers, as the case may be, promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company and the Guarantors shall use their reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; 15 (iv) in the case of (x) a Shelf Registration Statement, pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, furnish to each of the selling Holders or Restricted Broker-Dealers, as the case may be, and each of the underwriter(s), if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Registration Statement), which documents will be subject to the review of such Holders and underwriter(s), if any, for a period of at least five business days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which any selling Holder or Restricted Broker-Dealer, as the case may be, or the underwriter(s), if any, shall reasonably object within five business days after the receipt thereof. A selling Holder or underwriter, if any, shall be deemed to have reasonably objected to such filing if such objection is based upon the fact that such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission; (v) in the case of (x) a Shelf Registration Statement, pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, promptly prior to the filing of any document that is to be incorporated by reference into a Registration Statement or Prospectus, provide copies of such document at their request to the selling Holders or Restricted Broker-Dealers, as the case may be, and to the underwriter(s), if any, make the Company's representatives (and representatives of the Guarantors) available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as the Majority Holders or underwriter(s), if any, reasonably may request; (vi) make available at reasonable times for inspection by representatives appointed by the Majority Holders, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney or accountant retained by such Majority Holders or any of the underwriter(s), all financial and other records, pertinent corporate documents and properties of the Company and the Guarantors and cause the Company's and the Guarantors' officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney or accountant in connection with such Registration Statement subsequent to the filing thereof and prior to its effectiveness; provided, however, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally through a third party without an accompanying obligation of confidentiality; 16 (vii) in the case of (x) a Shelf Registration Statement, pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, if requested by a representative of the selling Majority Holders or a Restricted Broker-Dealer, as the case may be, or the underwriter(s), if any, promptly incorporate in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Majority Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities, information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; (viii) use its reasonable best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be rated with the appropriate rating agencies, if so requested by the Majority Holders or the underwriter(s), if any, unless the Transfer Restricted Securities are already so rated; (ix) furnish (x) each Restricted Broker-Dealer selling pursuant to an Exchange Offer Registration Statement and each other selling Holder thereunder that so requests, and (y) each Holder selling pursuant to a Shelf Registration Statement, and each of the underwriter(s), if any, without charge, at least one conformed copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including, if requested, all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to (x) each Restricted Broker-Dealer selling pursuant to an Exchange Offer Registration Statement and each other selling Holder thereunder that is required to deliver a prospectus following the Registered Exchange Offer, and (y) each Holder selling pursuant to a Shelf Registration Statement, and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Guarantors hereby consent to the use of the Prospectus and any amendment or supplement thereto by each of the Restricted Broker-Dealers or selling Holders, as the case may be, and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) in the case of (x) a Shelf Registration Statement pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Restricted Securities by Restricted Broker-Dealers, enter into, and cause the Guarantors to enter into, such agreements (including an underwriting agreement), and make, and cause the Guarantors to make, such representations and warranties, and take all such other actions in connection therewith in order to expedite or 17 facilitate the disposition of the Transfer Restricted Securities pursuant to such Registration Statement, all to such extent as may be requested by any Purchaser or by the selling Majority Holders or any Restricted Broker-Dealer, as the case may be, or underwriter in connection with any sale or resale pursuant to any Registration Statement contemplated by this Agreement; and the Company and the Guarantors shall: (A) obtain for each Purchaser, each selling Holder or any Restricted Broker-Dealer, as the case may be, and each underwriter, if any, upon the effectiveness of the Shelf Registration Statement and to each Restricted Broker-Dealer upon Consummation of the Registered Exchange Offer: (1) a certificate, dated the date of Consummation of the Registered Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, signed by the President, any Vice President or a principal financial or accounting officer of each of the Company and the Guarantors, confirming, as of the date thereof, the matters set forth in paragraphs (a), (b), (c) and (d) of Section 6 of the Purchase Agreement and such other matters as such parties may reasonably request; (2) an opinion or opinions, dated the date of Consummation of the Registered Exchange Offer on the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company and the Guarantors, covering the matters set forth in paragraphs (f), (g) and (h) of Section 6 of the Purchase Agreement and such other matters as such parties may reasonably request; and (3) customary comfort letters, dated as of the date of Consummation of the Registered Exchange Offer or the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, and addressed to the underwriters, if any, such letters in the customary form and covering matters of the type customarily covered in comfort letters by underwriters in connection with primary underwritten offerings; (B) set forth in the underwriting agreement, if any, indemnification provisions and procedures no less favorable from those set forth in Section 8 hereof with respect to all parties to be indemnified pursuant to said Section (or other provisions and procedures acceptable to the Majority Holders or the underwriters, if any); and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company pursuant to this clause (xi), if any. 18 If at any time the representations and warranties of the Company and the Guarantors contemplated in clause (A)(1) above cease to be true and correct, the Company or the Guarantors shall so advise the Purchasers and the underwriter(s), if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing; (xii) prior to any public offering of Transfer Restricted Securities, cooperate with, and cause the Guarantors to cooperate with, the selling Holders, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders or underwriter(s) may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement; provided, however, that neither the Company nor the Guarantors shall be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) in the case of (x) a Shelf Registration Statement, pursuant to Section 4 hereof or (y) an Exchange Offer Registration Statement pursuant to Section 3 hereof to permit sales of Broker-Dealer Restricted Securities by Restricted Broker-Dealers, cooperate with, and cause the Guarantors to cooperate with, the selling Holders and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities made by such underwriter(s); (xiv) use its reasonable best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities; (xv) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of the Registration Statement and provide the Trustee under the Note Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depositary Trust Company; (xvi) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD, and use its reasonable best efforts to cause such Registration Statement to become effective and approved by such governmental agencies or authorities as may be necessary to enable the Holders selling Transfer Restricted Securities to consummate the disposition of such Transfer Restricted Securities; 19 (xvii) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) for the twelve-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (xviii) cause the Note Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate, and cause the Guarantors to cooperate, with the Trustee and the Holders of Secured Notes to effect such changes to the Note Indenture as may be required for the Note Indenture to be so qualified in accordance with the terms of the TIA; and execute, and cause the Guarantors to execute, and use its reasonable best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable the Note Indenture to be so qualified in a timely manner; and (xix) use their reasonable best efforts to cause all Transfer Restricted Securities which are Privately Placed Notes, as the case may be, covered by the Registration Statement to be listed on each securities exchange on which similar securities issued by the Company are then listed if requested by the Holders of a majority in aggregate principal amount of the Privately Placed Notes, as the case may be, or the managing underwriter(s), if any. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(c) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(c)(iii)(D) hereof to and including the date when each selling Holder covered by such Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or shall have received the Advice. 20 SECTION 7. Registration Expenses. (a) All expenses incident to the Company's or the Guarantors' performance of or compliance with this Agreement will be borne by the Company or the Guarantors, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by any Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates for the Registered Notes to be issued in the Registered Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) in the case of a Shelf Registration Statement, all fees and disbursements of counsel for the Company, the Guarantors and, subject to Section 7(b) below, the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with any listing of Secured Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; (vi) all fees and disbursements of independent certified public accountants of the Company and the Guarantors (including the expenses of any special audit and comfort letters required by or incident to such performance) and (vii) the reasonable fees of the Trustee and the exchange agent under the Registered Exchange Offer and the reasonable fees and expenses of their counsel. The Company will, in any event, bear its and the Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. (b) In connection with any Shelf Registration Statement, the Company will reimburse the Purchasers and the Holders of Transfer Restricted Securities for the reasonable fees and disbursements of not more than one counsel, who shall be Coudert Brothers or such other counsel as may be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Shelf Registration Statement is being prepared. SECTION 8. Indemnification. (a) The Company and the Guarantors, jointly and severally, agree to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Holder) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in 21 any Registration Statement or Prospectus (or any amendment or supplement thereto), or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Holders furnished in writing to the Company by any of the Holders expressly for use therein; provided, that with respect to any such untrue statement in or omission from the preliminary prospectus, the indemnity agreement contained in this Section 8 shall not inure to the benefit of any such Holder to the extent that the sale to the person asserting any such loss, claim, damage, liability or action was an initial resale by such Holder and any such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that (A) a copy of the Prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Transfer Restricted Securities to such person, (B) the untrue statement in or omission from the preliminary prospectus was corrected in the Prospectus and such statement or omission formed the basis for the claim giving rise to such loss, and (C) sufficient quantities of the Prospectus were delivered to the Holder on a timely basis. In case any action or proceeding (including any governmental or regulatory investigation or proceeding) shall be brought or asserted against any of the Indemnified Holders with respect to which indemnity may be sought against the Company or the Guarantors, such Indemnified Holder (or the Indemnified Holder controlled by such controlling person) shall promptly notify the Company and the Guarantors in writing; provided, that the failure to give such notice shall not relieve the Company or the Guarantors of their obligations pursuant to this Agreement, unless such failure materially prejudices the Company or the Guarantors. Such Indemnified Holder shall have the right to employ its own counsel in any such action and the fees and expenses of such counsel shall be paid, as incurred, by the Company and the Guarantors (regardless of whether it is ultimately determined that an Indemnified Holder is not entitled to indemnification hereunder). The Company and the Guarantors shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Holders, which firm shall be designated by the Holders. The Company shall be liable for any settlement of any such action or proceeding effected with the Company's prior written consent, which consent shall not be withheld unreasonably, and the Company agrees to indemnify and hold harmless any Indemnified Holder from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of the Company. The Company shall not, without the prior written consent of each Indemnified Holder, settle or compromise or consent to the entry of judgment in or otherwise seek to terminate any pending or threatened action, claim, litigation or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Holder is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Holder from all liability arising out of such action, claim, litigation or proceeding. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company and the Guarantors, and their respective directors, officers, and any person controlling (within the meaning of Section 15 of the Act or Section 20 22 of the Exchange Act) the Company, and the respective officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Company and the Guarantors to each of the Indemnified Holders, but only with respect to claims and actions based on information relating to such Holder furnished in writing by such Holder expressly for use in any Registration Statement. In case any action or proceeding shall be brought against the Company or its directors or officers or any such controlling person in respect of which indemnity may be sought against a Holder of Transfer Restricted Securities, such Holder shall have the rights and duties given the Company and the Company or its directors or officers or such controlling person shall have the rights and duties given to each Holder by the preceding paragraph. In no event shall the liability of any selling Holder hereunder be in excess of (i) the amount of the proceeds received by such Holder upon the sale of the Transfer Restricted Securities giving rise to such indemnification obligation and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. (c) If the indemnification provided for in this Section 8 is unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof (other than by reason of exceptions provided in those Sections) in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holders on the other hand from their sale of Transfer Restricted Securities or if such allocation is not permitted by applicable law, the relative fault of the Company on the one hand and of the Indemnified Holder on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantors on the one hand and of the Indemnified Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Guarantors or by the Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company, the Guarantors and each Holder of Transfer Restricted Securities agree that it would not be just and equitable if contribution pursuant to this Section 8(c) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8, none of the Holders (and its related Indemnified Holders) shall be required to contribute, in the aggregate, any amount in excess of (i) the amount of the proceeds received by such Holder upon the sale of the Transfer Restricted Securities giving rise to such contribution obligation and (ii) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged 23 omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Series A Secured Notes held by each of the Holders hereunder and not joint. SECTION 9. Rule 144A. The Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding, to make available to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. Participation in Underwritten Registrations. No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. SECTION 11. Selection of Underwriters. The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, that such investment bankers and managers must be reasonably satisfactory to the Company. SECTION 12. Miscellaneous. (a) Remedies. The Company and the Guarantors agree that monetary damages (including the liquidated damages contemplated hereby) would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, and will cause the Guarantors not to, on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except for the Registration Rights Agreement dated August 12, 1996 among the Company and certain Stockholders of the Company and the Common Stock Registration Rights Agreement being entered into between the Company and 24 certain Purchasers and the Exchanging Noteholders on the date hereof, neither the Company nor any of the Guarantors has previously entered into any agreement granting any registration rights with respect to any of its or their securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Adjustments Affecting the Secured Notes. The Company will not take any action with respect to the Secured Notes that would materially and adversely affect the ability of the Holders to Consummate any Registered Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 8 hereof and this Section 12(d)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company has obtained the written consent of the Majority Holders. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Registered Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Registered Exchange Offer may be given by the Majority Holders. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Note Indenture, with a copy to the Registrar under the Note Indenture and a copy to: Coudert Brothers 1114 Avenue of the Americas New York, NY 10036 Telecopier No.: (212) 626-4120 Attention: Theodore N. Farris (ii) if to the Company: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Telecopier No.: (304) 594-1685 Attention: P. Bruce Sparks With a copy to: Klett Lieber Rooney & Schorling, a Professional Corporation One Oxford Centre, 40th Floor Pittsburgh, PA 15219-6498 Telecopier No.: (412) 392-2128 25 Attention: Craig S. Heryford All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Note Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 26 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. ANKER COAL GROUP, INC. By: /s/ Bruce Sparks -------------------------------- Name: Bruce Sparks Title: President EACH OTHER ENTITY LISTED ON SCHEDULE A HERETO By: /s/ B. Judd Hartman -------------------------------- Name: B. Judd Hartman Title: Secretary ROTHSCHILD RECOVERY FUND L.P. By Rothschild Recovery Associates, L.L.C., General Partner By: /s/ Wilbur Ross, Jr. -------------------------------- Name: Wilbur Ross, Jr. Title: Managing Member JJF GROUP LIMITED LIABILITY COMPANY By: /s/ James Boyd -------------------------------- Name: James Boyd Title: Manager (General Manager) AIG SPECIAL SITUATIONS HOLDING FUND LTD. By: /s/ Andrew W. Gitlin -------------------------------- Name: Andrew W. Gitlin Title: Director Intrepid Management Company LLC as Investment Manager By: /s/ Victor Consoli ------------------------ Name: Victor Consoli Title: Portfolio Manager 27 Pilgrim High Yield Fund By: /s/ Kevin Mathews -------------------------------- Name: Kevin Mathews Title: Senior Vice President/Portfolio Manager PILGRIM INVESTMENTS INC. By: /s/ Kevin Mathews -------------------------------- Name: Kevin Mathews Title: Senior Vice President/Portfolio Manager PROSPECT STREET HIGH INCOME PORTFOLIO By: /s/ John Frabotta -------------------------------- Name: John Frabotta Title: Portfolio Manager Putnam Investment Management Inc., Putnam Fiduciary Trust Company and The Putnam Advisory Company, Inc. on behalf of their clients listed on Attachments A By: /s/ John R. Verani -------------------------------- Name: John R. Verani Title: Senior Vice President PRUDENTIAL HIGH YIELD TOTAL RETURN FUND PRUDENTIAL HIGH YIELD FUND, INC. PRUDENTIAL DISTRESSED SECURITIES FUND, INC. By: The Prudential Investment Corporation, as Investment Advisor By: /s/ Peter Allegrini -------------------------------- Name: Peter Allegrini Title: Vice President 28 THE PRUDENTIAL SERIES FUND, INC. HIGH YIELD BOND PORTFOLIO By: The Prudential Insurance Company of America, as Investment Advisor By: /s/ Peter Allegrini -------------------------------- Name: Peter Allegrini Title: Second Vice President DREYFUS HIGH YIELD STRATEGIES FUND By:The Dreyfus Corporation, as Investment Manager By: /s/ Stephanie Pierce -------------------------------- Name: Stephanie Pierce Title: Vice President 29 ATTACHMENT A PUTNAM INVESTMENT MANAGEMENT, INC. ON BEHALF OF: The George Putnam Fund of Boston Putnam Income Fund Putnam Equity Income Fund Putnam Balanced Retirement Fund Putnam High Yield Advantage Fund Putnam High Income Convertible and Bond Fund Putnam Variable Trust-Putnam VT High Yield Fund Putnam Variable Trust-Putnam VT Global Asset Allocation Fund Putnam Master Income Trust Putnam Premier Income Trust Putnam Master Intermediate Income Trust Putnam Diversified Income Trust Putnam Convertible Opportunities and Income Trust Putnam Asset Allocation Funds-Growth Portfolio Putnam Asset Allocation Funds-Balanced Portfolio Putnam Asset Allocation Funds-Conservative Portfolio Putnam Funds Trust-Putnam High Yield Trust II Travelers Series Fund Inc.- Putnam Diversified Income Portfolio Lincoln National Global Asset Allocation Fund, Inc. Putnam Variable Trust-Putnam VT Diversified Income Fund PUTNAM FIDUCIARY TRUST COMPANY ON BEHALF OF: Putnam High Yield Managed Trust Putnam High Yield Fixed Income Fund, LLC THE PUTNAM ADVISORY COMPANY, INC. ON BEHALF OF: Abbott Laboratories Annuity Retirement Plan Strategic Global Fund-High Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company 30 SCHEDULE A Company State of Incorporation Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware 31 SCHEDULE B [Names and Addresses of Each Purchaser; Number of Warrants and Privately Placed Notes Being Purchased or Received]
================================================================================================================== PRINCIPAl Amount of PRIVATELy Placed Notes NUMBER OF WARRANTS BEING PUrchased or PURCHASER RECEIVED RECEIVED ================================================================================================================== Rothschild Recovery Fund L.P. c/o Rothschild, Inc. 1251 Avenue of the Americas New York, NY 10020 1,782 $45,947,000 - ------------------------------------------------------------------------------------------------------------------ AIG Special Situations Holding Fund Ltd. c/o Intrepid Management Company LLC 1281 East Main Street Stamford, CT 06902 19 $800,000 - ------------------------------------------------------------------------------------------------------------------ Pilgrim High Yield Fund 94 $4,000,000 ML CLO XV Pilgrim America 19 $800,000 ML CBO XX Pilgrim America 37 $1,600,000 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004 - ------------------------------------------------------------------------------------------------------------------ Prospect Street High Income Portfolio, Inc. 60 State Street, Suite 3750 Boston, MA 02109 131 $5,600,000 - ------------------------------------------------------------------------------------------------------------------ The George Putnam Fund of Boston 3 $120,000 Putnam Income Fund 4 $160,000 Putnam Equity Income Fund 1 $8,000 Putnam Balanced Retirement Fund 1 $24,000 Putnam High Yield Advantage Fund 256 $10,944,000 Putnam High Income Convertible and Bond Fund 1 $64,000 Putnam Variable Trust - Putnam 57 $2,416,000 VT High Yield Fund Putnam Variable Trust - Putnam 1 $32,000 VT Global Asset Allocation Fund Putnam Master Income Trust 7 $280,000 Putnam Premier Income Trust 16 $680,000 Putnam Master Intermediate 4 $160,000 Income Trust Putnam Diversified Income Trust 66 $2,828,000 ==================================================================================================================
32
================================================================================================================== Putnam Convertible 1 $64,000 Opportunities and Income Trust Putnam Asset Allocation Funds - 11 $480,000 Growth Portfolio Putnam Asset Allocation Funds - 21 $900,000 Balanced Portfolio Putnam Asset Allocation Funds - 7 $320,000 Conservative Portfolio Putnam Funds Trust - Putnam 1 $28,000 High Yield Trust II Travelers Series Fund Inc. 3 $120,000 Putnam Diversified Income Portfolio Lincoln National Global Asset 4 $172,000 Allocation Fund, Inc. Putnam Variable Trust - Putnam 6 $276,000 VT Diversified Income Fund Putnam High Yield Managed Trust 23 $988,000 Putnam High Yield Fixed Income 10 $440,000 Fund, LLC Abbott Laboratories Annuity 2 $72,000 Retirement Plan Strategic Global Fund - High 9 $400,000 Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company 9 $400,000 1 Post Office Square, 7th Floor Boston, MA 02109 - ------------------------------------------------------------------------------------------------------------------ Prudential High Yield Total Return Fund, Inc. 19 $800,000 Prudential High Yield Fund, Inc. 201 $8,600,000 Prudential Distressed Securities Fund, Inc. 9 $400,000 The Prudential Series Fund, Inc. High Yield Bond 56 $2,400,000 Portfolio 100 Mulberry Street Gateway Center Building No. 2, 3rd Floor Mail Stop No. 04-03-01 Newark, NJ 07102 - ------------------------------------------------------------------------------------------------------------------ Dreyfus High Yield Strategies Fund 200 Park Avenue, 55th Floor New York, NY 10166 156 $6,680,000 ==================================================================================================================
EX-10.15 8 EXCHANGE AND PURCHASE AGREEMENT 1 EXHIBIT 10.15 ANKER COAL GROUP, INC. $100,003,000 aggregate principal amount of 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) and 3,047 Warrants to purchase Shares of Common Stock EXCHANGE AND PURCHASE AGREEMENT October 26, 1999 TO THE PURCHASER AND/OR PURCHASERS (each, a "Purchaser" and together, whether there shall be one or more than one Purchaser, the "Purchasers") LISTED IN SCHEDULE II HERETO AND EACH OF THE EXCHANGING NOTEHOLDERS (each, an "Exchanging Noteholder" and together, the "Exchanging Noteholders") LISTED IN SCHEDULE III HERETO Ladies & Gentlemen: Anker Coal Group, Inc., a Delaware corporation (the "Company"), and each of the entities listed on Schedule I hereto (each a "Guarantor" and collectively, the "Guarantors") agrees with you as follows: (a) Private Exchange; Old Note Indenture Modifications; New Money Notes. The Company proposes to issue and sell in a private exchange transaction (the "Private Exchange") upon the terms and subject to the conditions set forth in the Private Exchange and Private Placement Memorandum dated October 26, 1999 (the "Private Placement Memorandum") in exchange for each $1,000 principal amount of its outstanding 9 3/4% Series B Senior Notes due 2007 (the "Old Notes"), $800 principal amount of its 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Exchange Notes") and warrants (the "Exchange Warrants") to purchase an aggregate of 2,031 shares of the Company's Common Stock (the "Exchange Warrant Shares"). The Company also proposes to issue and sell severally to Rothschild Recovery Fund, L.P. ("RRF"), as Purchaser, an aggregate of $13,199,000 principal amount of additional 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Money Notes"), and warrants (the "New Money Warrants," and together with the Exchange Warrants, collectively, the "Warrants") to purchase an aggregate of 1,016 shares of the Company's Common Stock (the "New Money Warrant Shares," and together with the Exchange Warrant Shares, collectively, the "Warrant Shares") pursuant to the Private Placement Memorandum. The Secured Notes will be issued pursuant to an Indenture (the "Secured Note Indenture") to be dated as of October 1, 1999 between the Company and the Guarantors named therein and The Bank of New York, as trustee (the "Secured Note Trustee"). The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant Agreement") to be 2 dated as of October 26, 1999 between the Company and The Bank of New York, as warrant agent (the "Warrant Agent"). The Secured Notes will be secured by a lien on substantially all of the assets of the Company and the Guarantors, subject to the prior security interest of the Credit Facilities (as defined in the Secured Note Indenture) and to Permitted Liens, but excluding the Excluded Assets (as defined in the Secured Note Indenture). The Secured Notes will also have the benefit of the Security Documents (as defined in the Secured Note Indenture). The Old Notes were issued pursuant to an Indenture (the "Old Note Indenture") dated as of September 25, 1997 among the Company, the Guarantors named therein (the "Old Note Guarantors") and HSBC USA (formerly known as Marine Midland Bank), as Trustee (the "Old Note Indenture Trustee"). The Company has proposed to make and each Exchanging Noteholder has consented to or will consent to certain amendments and modifications (the "Old Note Indenture Modifications") described in the Private Placement Memorandum pursuant to a Supplemental Indenture to be dated as of October 1, 1999 among the Company, the Old Note Guarantors and the Old Note Indenture Trustee (the "Supplemental Indenture") in the form attached hereto as Exhibit C. Each Exchanging Noteholder will agree to waive all interest due on the Old Notes exchanged for Exchange Notes in the Private Exchange. Following the completion of the Private Exchange and the Old Note Indenture Modifications, the Company currently plans (but shall not be obligated) to make a further exchange offer (the "Public Exchange Offer") to holders of Old Notes which remain outstanding following completion of the Private Exchange subject to compliance by the Company with Section 4(n) hereof. In connection with the Public Exchange Offer, if not previously qualified, the Company will file an application for qualification of the Secured Note Indenture on Form T-3 under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Old Notes as amended by the Old Note Indenture Modifications are hereinafter sometimes referred to as the "Amended Old Notes"). (b) Faltis Estate Settlement. At the closing date, pursuant to a separate Exchange and Purchase Agreement (the "JJF Purchase Agreement") with JJF Group Limited Liability Company ("JJF Group") (a shareholder of the Company controlled by the estate of John J. Faltis, former Chairman and Chief Executive Officer of the Company), the Company will issue $6,000,000 aggregate principal amount of additional 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "JJF Notes") to JJF Group in exchange for cancellation of JJF Group's stock in the Company and in full settlement and satisfaction of its rights under the Put Option Agreement dated as of August 25, 1998 (the "Put Agreement") to require the Company to purchase that stock for $10,000,000 plus interest. (c) Issuance of Securities. Subject to the terms and conditions set forth herein, the Company proposes to issue and sell severally to each Purchaser the principal amount of the New Money Notes and Warrants to purchase the number of Warrant Shares set forth opposite such Purchaser's name in Schedule II. Subject to the terms and conditions set forth herein, the Company proposes to issue to each Exchanging Noteholder the principal amount of Exchange Notes and Warrants to purchase the number of Warrant Shares set forth opposite such Exchanging Noteholder's name in Schedule III in exchange for the principal amount of Old Notes set forth opposite such Exchanging Noteholder's name in such Schedule III. The Secured Notes will be guaranteed (the "Guarantees") on a senior secured basis by each of the Guarantors. The term "Secured Notes" shall include the Exchange Notes, the Secondary Notes, the Optional Secured Notes and the New Money Notes issued pursuant to this Agreement, the JJF Notes, and the Series B Exchange Notes and the Series B New Money Notes to be issued and sold pursuant 2 3 to the Registered Exchange Offer (as hereinafter defined) made as contemplated by the Registration Rights Agreement and the Secured Notes of any series issued in the Public Exchange Offer. The Exchange Notes, the JJF Notes, the Optional Secured Notes, the New Money Notes and any Secondary Notes issued with respect to other Privately Placed Notes are sometimes hereinafter referred to as the Privately Placed Notes. As used herein, unless the context clearly requires otherwise, the term "Securities" shall include the Secured Notes, the Guarantees thereof, the Warrants and the Warrant Shares. (d) Private Placement Memorandum. The Private Placement Memorandum incorporates by reference the Company's Annual Report on Form 10-K for the year ended December 31, 1998, Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 1999 and Current Reports on Form 8-K filed April 1, 1999, April 16, 1999, May 4, 1999, May 28, 1999, June 7, 1999, August 27, 1999, September 8, 1999, October 1, 1999, October 5, 1999 and October 22, 1999 (collectively, the "Exchange Act Documents"); the Exchange Act Documents are delivered with the Private Placement Memorandum. As used herein, the term "Private Placement Memorandum" includes the Exchange Act Documents. (e) Registration Status. The Series B Exchange Notes and the Series B New Money Notes (together, the "Series B Secured Notes") to be issued in the Registered Exchange Offer (the "Registered Notes") will each be registered under the Securities Act of 1933 (the "Act"). The Secured Notes to be issued in the Public Exchange Offer will each be issued pursuant to the exemption from the registration requirements of the Act provided by Section 3(a)(9) of the Act or any other exemption or otherwise offered and sold in compliance with the registration requirements of the Act. The New Money Notes and the Warrants being issued to each Purchaser and the Exchange Notes and Warrants being issued to each Exchanging Noteholder pursuant to this Agreement, as well as the JJF Notes being issued to JJF Group pursuant to the JJF Purchase Agreement, will be offered and sold pursuant to an exemption from the registration requirements of the Act provided by Section 4(2) thereof and Regulation D thereunder. (f) Optional Secured Notes. RRF further severally agrees pursuant to Section 2(b) and subject to the terms and conditions set forth herein to purchase additional Series B Secured Notes (the "Optional Secured Notes"), at the option of the Company (to be exercised by delivering written notice to RRF at least 27 trading days before October 1, 2000), in an amount not to exceed the Maximum Optional Notes Amount (as defined below) at a purchase price equal to 95% of the Market Price (as defined below) on the Optional Secured Notes Closing Date. The Optional Secured Notes shall be issued in a private placement and shall be registered as provided in Section 4(c) of the Registration Rights Agreement. The Company shall publicly announce by press release and/or Form 8-K report its giving of such notice to RRF to purchase Optional Secured Notes. "Closing Price" of any Notes means, on any date of determination, (i) the average of the closing bid prices in the over the counter market, as quoted to the Company for such date by such of the following investment banking firms as are quoting closing bid prices for Notes on such date: Goldman, Sachs & Co., Bear Stearns & Co., Donaldson Lufkin & Jenrette Securities Corporation and Jeffries & Company, or (ii) if no such quotes are available, the market value of 3 4 the Notes on such date as determined by Donaldson Lufkin & Jenrette Securities Corporation retained for this purpose by and at the sole expense of the Company. "Market Price" means an amount equal to the average of the Closing Prices of the Notes for the 20 trading days ending 5 trading days prior to October 1, 2000. "Maximum Optional Notes Amount" means the principal amount of Optional Secured Notes required to be issued pursuant to this Agreement which would be sufficient to provide cash proceeds to the Company at a purchase price of 95% of the Market Price in an amount equal to the lesser of (i) $6.3 million or (ii) the amount of interest due on all outstanding Notes on October 1, 2000; provided, however, that the foregoing $6.3 million limitation may be waived by the Purchaser in its sole discretion. "Notes" means, as of any date, all of the Company's 14.25% Second Priority Senior Secured Notes issued and outstanding under the Secured Note Indenture. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Secured Note Indenture. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Series A Secured Notes (and all securities issued in exchange therefor or in substitution thereof other than Registered Notes) shall bear the following legend: "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, 4 5 FURNISHES TO THE SECURED NOTE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE SECURED NOTE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF THE NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF TRANSFER (THE FORM OF WHICH CAN BE OBTAINED FROM THE SECURED NOTE TRUSTEE) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE SECURED NOTE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE SECURED NOTE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTIONS," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE SECURED NOTE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED IN THE INDENTURE), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED IN THE INDENTURE). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT." 5 6 Upon issuance thereof, the Warrant Shares shall bear the following legend (in addition to any other restrictive legend required by contract or applicable law): "THE WARRANT SHARES ARE SUBJECT TO THE RESTRICTIONS CONTAINED IN AN INVESTOR AGREEMENT (THE "INVESTOR AGREEMENT") DATED AS OF OCTOBER 26, 1999 AMONG THE COMPANY AND THE STOCKHOLDERS AND PURCHASERS NAMED THEREIN. IN ADDITION, THE WARRANT SHARES ARE SUBJECT TO CERTAIN PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AUGUST 12, 1996 AMONG CERTAIN STOCKHOLDERS OF THE COMPANY, WHICH PROVISIONS ARE REFERENCED IN SUCH INVESTOR AGREEMENT. COPIES OF THE INVESTOR AGREEMENT AND SUCH STOCKHOLDERS AGREEMENT ARE ON FILE AT THE OFFICE OF THE SECRETARY OF THE COMPANY." (g) Registration Rights. Holders (including subsequent transferees) of the Privately Placed Notes will have the registration rights set forth in the registration rights agreement relating thereto (the "Registration Rights Agreement"), to be dated as of October 26, 1999 (as defined in Section 3 below), in substantially the form of Exhibit A hereto, for so long as such Privately Placed Notes constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "Commission"), under the circumstances set forth therein, (i) a registration statement under the Act (the "Exchange Offer Registration Statement") relating to the Registered Notes to be offered in exchange for the Privately Placed Notes (the "Registered Exchange Offer"), and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement") relating to the resale by certain holders of the Privately Placed Notes, and to use their reasonable best efforts to cause such Registration Statement to be declared effective. In connection therewith, the Company will file a statement of eligibility and qualification of the Secured Note Trustee on Form T-1 with the Securities and Exchange Commission to qualify the Secured Note Indenture under the Trust Indenture Act. This Exchange and Purchase Agreement (the "Agreement"), the Securities, the Guarantees, the Secured Note Indenture, the Security Documents, the Supplemental Indenture, the Registration Rights Agreements (as hereinafter defined), the Warrant Agreement and the Investor Agreement referred to below are hereinafter sometimes referred to collectively as the "Operative Documents." Holders of the Warrant Shares issued upon exercise of Warrants issued to the Purchaser and Exchanging Noteholders pursuant to this Agreement will have the registration rights set forth in the registration rights agreement relating thereto (the "Common Stock Registration Rights Agreement") to be dated as of October 26, 1999 in substantially the form of Exhibit B hereto for so long as such common stock constitutes restricted securities as defined in Rule 144 under the Act. The Registration Rights Agreement and the Common Stock Registration Rights Agreement are hereinafter sometimes referred to as the "Registration Rights Agreements." Holders of Warrant Shares will also have the rights and the obligations set forth in the Investor Agreement (the "Investor Agreement") to be dated as of October 26, 1999 in substantially the form of Exhibit D hereto. 6 7 2. Agreements to Sell, Purchase and Exchange. (a) On the basis of the representations, warranties and agreements contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, New Money Notes in the principal amount set forth opposite the Purchaser's name in Schedule II. The aggregate purchase price for the New Money Notes shall be $11,218,750 in cash (or 85% of the principal amount of the New Money Notes rounded to the nearest $1,000 of principal amount). The Purchaser shall also receive without further consideration Warrants to purchase the number of Warrant Shares set forth opposite the Purchaser's name in Schedule II. The Company shall not be obligated to deliver any of the New Money Notes or Warrants except upon payment for all of the New Money Notes to be purchased by the Purchaser as provided herein. On the basis of the representations, warranties and agreements contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue to each Exchanging Noteholder the principal amount of Exchange Notes and Warrants to purchase the number of Warrant Shares set forth opposite such Exchanging Noteholder's name in Schedule III, and each Exchanging Noteholder agrees to deliver to the Company in exchange therefor, the principal amount of Old Notes set forth opposite its name (being $1000 principal amount of Old Notes surrendered by each Exchanging Noteholder for each $800 principal amount of Exchange Notes issued to such Exchanging Noteholder). (b) On the basis of the representations, warranties and agreements contained in this Agreement, and subject to its terms and conditions, the Company shall have the option to require the Purchaser to purchase and the Purchaser agrees, at the option of the Company (to be exercised by delivering written notice to the Purchaser at least 27 trading days before October 1, 2000), to purchase from the Company (the "Secured Notes Commitment") Optional Secured Notes in an amount not to exceed the Maximum Optional Notes Amount on October 1, 2000 (the "Optional Secured Notes Closing Date") at a purchase price equal to 95% of the Market Price on the Optional Secured Notes Closing Date. The Optional Secured Notes shall be identical in all respects to the Secured Notes except that the Optional Secured Notes shall be dated October 1, 2000 and shall bear interest from that date. 3. Delivery and Payment. Delivery to the Purchaser of and payment for the New Money Notes and the Warrants and delivery to the Exchanging Noteholders of Exchange Notes and Warrants in exchange for Old Notes shall be made at 9:30 A.M., New York time, on October 28, 1999 (the "Closing Date") at the offices of Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036, or such other time or place as the parties shall designate. One or more of the New Money Notes and one or more Exchange Notes in definitive global form, registered in the name of Cede & Co., as nominee of the Depository Trust Company ("DTC"), having an aggregate principal amount corresponding to the aggregate principal amount of New Money Notes purchased by the Purchaser and Exchange Notes received by Exchanging Noteholders that are "qualified institutional buyers" (each a "QIB" and collectively "QIBs") as defined in Rule 144A under the Act (collectively, the "Global Notes") and one or more New Money Notes and one or more Exchange Notes in definitive global form registered in the names of the nominees of the Euroclear System and Cede, S.A., having an aggregate principal amount corresponding to the aggregate principal amount of the New Money Notes held by the Purchaser and Exchange Notes held by Exchanging Noteholders, if any, which are Regulation S Purchasers 7 8 (collectively, the "Regulation S Notes") shall be delivered by or on behalf of the Company and deposited with the Bank of New York as custodian for DTC for credit to the accounts of your respective DTC participants, against payment by you of the purchase price therefor, in the case of the New Money Notes, by wire transfer of same day funds to the Company or as the Company may direct or, in the case of the Exchange Notes, by delivery of Old Notes. Warrant certificates in definitive global form, registered in the name of Cede & Co. as nominee of DTC shall be delivered by or on behalf of the Company and deposited with the Bank of New York as custodian for DTC for credit to the accounts of your respective DTC participants in the amounts set forth in Schedules II and III. The Global Notes and Regulation S Notes shall be made available to the Purchaser and Exchanging Noteholders, and the certificates for the Warrants shall be made available to the Purchaser and Exchanging Noteholders for inspection not later than one business day prior to the Closing Date. 4. Agreements of the Company and the Guarantors. The Company and each of the Guarantors, jointly and severally, agrees with the Purchaser and each Exchanging Noteholder as follows: (a) To advise each of you promptly and, if requested by the Purchaser or any Exchanging Noteholder, confirm such advice in writing, (i) of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Secured Notes, Warrants or Warrant Shares for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by any state securities commission or other regulatory authority, and (ii) of the happening of any event that makes any statement of a material fact made in the Private Placement Memorandum untrue or that requires the making of any additions to or changes in the Private Placement Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company and the Guarantors shall use their reasonable best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of any of the Secured Notes, Warrants or Warrant Shares under any state securities or Blue Sky laws, and if at any time any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption of any of the Secured Notes, Warrants or Warrant Shares under any state securities or Blue Sky laws, the Company and the Guarantors shall use their reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish the Purchaser and each Exchanging Noteholder, without charge, one copy of the Private Placement Memorandum, and any amendments or supplements thereto, and any additional copies as the Purchaser or such Exchanging Noteholder may reasonably request. The Company and the Guarantors consent to the use of the Private Placement Memorandum, and any amendments and supplements thereto, by the Purchaser and each Exchanging Noteholder in connection with resales by such Purchaser or Exchanging Noteholder permitted by Section 1. (c) Not to amend or supplement the Private Placement Memorandum or the terms of the Private Exchange or the Old Note Indenture Modifications or the sale of the New Money Notes prior to the Closing Date unless the Purchaser and each Exchanging Noteholder shall 8 9 previously have been advised thereof, been furnished a copy thereof and shall not have objected thereto after being given a reasonable period to review the same. (d) If, after the date hereof and prior to the date 90 days after the Closing Date, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of counsel to the Purchaser and the Exchanging Noteholders, the Private Placement Memorandum as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or it shall otherwise become necessary to amend or supplement the Private Placement Memorandum to comply with applicable law, forthwith to prepare an appropriate amendment or supplement to the Private Placement Memorandum to correct such untrue statement or omission or so that the Private Placement Memorandum, as so amended or supplemented, will comply with applicable law. (e) To cooperate with you and your counsel in connection with the qualification of the Secured Notes, Warrants and Warrant Shares under the securities or Blue Sky laws of such jurisdictions as the Purchaser or any Exchanging Noteholder may reasonably request and to continue such qualification in effect for a period of two years after the Closing Date; provided, however, that neither the Company nor any of the Guarantors shall be required in connection therewith to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to service of process in suits or taxation in any jurisdiction where it is not now so subject. (f) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (i) the preparation, printing, filing and distribution of the Private Placement Memorandum (including, without limitation, financial statements and exhibits) and all amendments and supplements thereto, (ii) the preparation (including, without limitation, word processing and duplication costs) and delivery of this Agreement and the other Operative Documents, (iii) the issuance and delivery by the Company and the Guarantors of the Securities, (iv) the qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, the reasonable fees and disbursements of one counsel relating to such registration or qualification), (v) furnishing such copies of the Private Placement Memorandum, and all amendments and supplements thereto, as may be reasonably requested for use in connection with resales permitted by Section 1, (vi) the preparation of certificates for the Securities (including, without limitation, printing and engraving thereof), (vii) the reasonable fees, disbursements and expenses of Coudert Brothers and Steptoe & Johnson, counsel to the Purchaser and the Exchanging Noteholders, and of the Company's and the Guarantors' counsel and accountants, (viii) all expenses and listing fees in connection with the application for quotation of the Privately Placed Notes in the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (ix) all fees and expenses (including fees and expenses of counsel) of the Company and the Guarantors in connection with approval of the Securities by DTC for "book-entry" transfer, (x) the reasonable fees and expenses of the Secured Note Trustee and the Secured Note Trustee's counsel in connection with the Secured Note Indenture and the Securities and the Warrant Agent, the Warrant Agent's counsel and Transfer Agent in connection with the Warrants and Warrant Shares and (xi) the performance by the Company and the Guarantors of their other obligations under this Agreement and the other Operative Documents. 9 10 (g) Not to voluntarily claim, and to resist actively any attempts to claim, the benefit of any usury laws against the holders of any Securities. (h) To do and perform all things required to be done and performed under this Agreement by them prior to or after the Closing Date and to use their reasonable best efforts to satisfy all conditions precedent on their part to the delivery of the Securities. (i) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the Privately Placed Notes or the Warrant Shares in a manner that would require the registration under the Act of the sale to the Purchaser of the New Money Notes, Warrants or Warrant Shares, or of the issuance to Exchanging Noteholders in the Private Exchange of the Exchange Notes, Warrants or Warrant Shares or the Amended Old Notes. (j) For so long as it is required to do so under the Secured Note Indenture, and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), to make available to any Holder of Privately Placed Notes in connection with any sale thereof and any prospective purchaser of such Privately Placed Notes from such Holder, upon their request, the information required by Rule 144A(d)(4) under the Act. (k) So long as permitted under applicable law, to cause the Registered Exchange Offer to be made in the appropriate form to permit registration of the Registered Notes to be offered in exchange for the Privately Placed Notes and to comply with all applicable federal and state securities laws in connection with the Registered Exchange Offer. (l) To comply with the Common Stock Registration Rights Agreement, the Registration Rights Agreement, the Warrant Agreement and all agreements set forth in the representation letter of the Company to DTC relating to the approval of the Securities by DTC for "book-entry" transfer. (m) To use their reasonable best efforts to effect the inclusion of the Privately Placed Notes in PORTAL. (n) Not to effect any Public Exchange Offer unless the notes issued pursuant to such public exchange (i) are of a different series from all then outstanding Secured Notes or (ii) are entitled to the benefits of the Security Documents to the same extent and with the same priority as all other outstanding Secured Notes of the same series subject to no intervening Liens that secure liabilities of the Company or a Guarantor or other material intervening Liens. 5. Representations and Warranties. (a) The Company and each of the Guarantors, jointly and severally, represent and warrant to you that: (i) The Private Placement Memorandum, as of its date, did not, and at the Closing Date, the Private Placement Memorandum and any amendment or supplement thereto will not, contain any untrue statement of a material fact or omit to 10 11 state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (i) shall not apply to statements in or omissions from the Private Placement Memorandum (or any supplement or amendment thereto) made in reliance upon or in conformity with information relating to you furnished to the Company and the Guarantors in writing by you or on your behalf expressly for use therein. No stop order preventing the use of the Private Placement Memorandum, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Act, has been issued. The Private Placement Memorandum, as of its date, and each amendment or supplement thereto, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act. (ii) The Company or the Guarantors, as applicable, have good and indefeasible title to the Collateral, free and clear of any Liens, except for the lien of the Senior Secured Indebtedness and Permitted Liens. (iii) The representations and warranties contained in the Security Documents are true and correct in all material respects. (iv) When the Privately Placed Notes and the Warrants are issued and delivered pursuant to this Agreement, none of the Secured Notes or the Warrants or the Warrant Shares will be of the same class (within the meaning of Rule 144A under the Act) as securities of the Company or the Guarantors that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated interdealer quotation system. (v) When executed, the Secured Note Indenture and the Secured Notes will (A) constitute direct, unconditional and secured general obligations of the Company, (B) rank in priority of payment at least pari passu with all other present and future unsecured Senior Indebtedness of the Company, and (C) rank in priority of security, with respect to the property of the Company covered by the Security Documents, prior to all other present and future Indebtedness of the Company (other than the Senior Secured Indebtedness and Indebtedness secured by Permitted Liens). (vi) The guarantee of each Guarantor under the Secured Note Indenture and the Secured Notes will (A) constitute the direct, unconditional and secured general obligations of such Guarantor, (B) rank in priority of payment at least pari passu with all other present and future unsecured Indebtedness of such Guarantor, and (C) rank in right of security, with respect to the property covered by the Security Documents, if any, executed by such Guarantor, prior to all other present and future Indebtedness of such Guarantor (other than the Senior Secured Indebtedness and Indebtedness secured by Permitted Liens). (vii) Each of the Security Documents to which the Company or any Guarantor is party when executed and delivered will constitute a perfected security interest in and Lien on the Collateral covered by such Security Document, securing payment of all 11 12 principal, interest and other amounts payable under the Secured Note Indenture and the Secured Notes, which Lien and security interest will rank senior to all other Liens and security interests on such collateral (other than the Senior Secured Indebtedness and Permitted Liens), and neither the Company nor any Guarantor is a party to any other security agreement or instrument creating or purporting to create a security interest in and Lien on such collateral, other than the Senior Secured Indebtedness and Permitted Liens. (viii) The Company and each of the Guarantors has been duly incorporated or formed, is validly existing and in good standing under the laws of its respective jurisdiction of incorporation, has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Private Placement Memorandum and to own, lease and operate its properties, and is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to so qualify or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or prospects of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). (ix) The entities listed on Schedule I hereto are all the subsidiaries, direct or indirect, of the Company which are Guarantors. The Company owns, directly or indirectly through other subsidiaries, 100% of the outstanding capital stock or other securities evidencing equity ownership of such subsidiaries, free and clear of any security interest, claim, lien, limitation on voting rights or encumbrance (except pursuant to the Security Documents and the Senior Secured Indebtedness); and all of such securities have been duly authorized, validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. There are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any such shares of capital stock or other equity interest of such subsidiaries. (x) The Company and each of the Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreements, the Warrant Agreement and the other Operative Documents to which it is a party and to consummate the transactions contemplated hereby and thereby, including, without limitation, with respect to the Company, the corporate power and authority to issue, sell and deliver the Securities as provided herein and therein. (xi) This Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors and, assuming due authorization, execution and delivery by the Purchaser and each Exchanging Noteholder is a valid and binding agreement of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in 12 13 equity or at law) and (B) any rights to indemnity or contribution hereunder may be limited by federal or state securities laws or public policy considerations. (xii) The Secured Note Indenture has been duly authorized by the Company and each of the Guarantors and, assuming the due authorization, execution and delivery of the Secured Note Indenture by the Secured Note Trustee, the Secured Note Indenture when duly executed and delivered by each such person, will be the valid and binding obligation of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws or public policy considerations. The Secured Note Indenture, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (xiii) The Secured Notes have been duly authorized for issuance by the Company, and assuming due authorization, execution and delivery of the Secured Note Indenture by the Secured Note Trustee and due authentication of the Secured Notes by the Secured Note Trustee, the Secured Notes, and when issued, authenticated and delivered in accordance with the terms of the Secured Note Indenture, this Agreement, the Registration Rights Agreements, the Registered Exchange Offer, and the Public Exchange Offer will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Secured Note Indenture, except to the extent that the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law). The Secured Notes, when issued, authenticated and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (xiv) The Warrants have been duly authorized, executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their terms, except to the extent that the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law); the Warrant Shares have been duly authorized by the Company and validly reserved for issuance upon exercise of Warrants, and, when issued upon such exercise in accordance with terms of the Warrants, will be validly issued, fully paid and non-assessable; and the issuance of the Warrants is not and the issuance of the Warrant Shares will not be subject to the preemptive rights of any Stockholder of the Company, except those which are set forth in the Stockholders Agreement and which have been duly and validly waived pursuant to the Stockholders Agreement. 13 14 (xv) The Security Documents have been duly authorized by the Company and each of the Guarantors and, assuming due authorization, execution and delivery of the Security Documents by the Secured Note Trustee, the Collateral Agent and the Security Documents, when duly executed and delivered by the Company and the Guarantors will be the legally valid and binding obligation of the Company and the Guarantors enforceable against each of them in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal or state securities laws or public policy considerations. The Security Documents, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (xvi) The Registration Rights Agreements have been duly authorized by the Company and each of the Guarantors and, assuming due authorization, execution and delivery of the Registration Rights Agreements by the Purchaser, the Exchanging Noteholders and JJF Group, as applicable, the Registration Rights Agreements, when duly executed and delivered by the Company and the Guarantors will be the legally valid and binding obligations of the Company and the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal or state securities laws or public policy considerations. The Registration Rights Agreements, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (xvii) The Warrant Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Warrant Agent is a valid and binding agreement of the Company, enforceable against it in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution hereunder may be limited by federal or state securities laws or public policy considerations. (xviii) The Investor Agreement has been duly authorized by the Company and, assuming due authorization, execution and delivery of the Investor Agreement by the Stockholders named therein and the Purchasers named therein, the Investor Agreement, when duly executed and delivered by the Company will be the legally valid and binding obligations of each party thereto other than the Purchasers, enforceable in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to 14 15 bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal or state securities laws or public policy considerations. The Investor Agreement, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (xix) Except as set forth in Schedule 5(a)(xix), neither the Company nor any of the Guarantors is (A) in violation of its respective charter or bylaws or (B) in default in the performance of (and there exists no condition that, with notice, the passage of time, or otherwise, would constitute a default under) the Old Note Indenture, the Senior Secured Indebtedness or any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, or (C) in violation of any law, statute, rule, regulation, judgment or court decree applicable to the Company, any of its subsidiaries or their assets or properties, except, in the case of (B) or (C), for such violations or defaults that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xx) The execution, delivery and performance by the Company and each of the Guarantors of this Agreement and the other Operative Documents to which it is a party, the issuance and sale of the Securities, and the completion of the Private Exchange and the Old Note Indenture Modifications, will not violate or constitute a breach of any of the terms or provisions of, or a default under (or an event that with notice or the lapse of time, or both, would constitute a default), or require consent under, or result in the imposition of a lien or encumbrance on any properties of the Company or any of its subsidiaries, or an acceleration of indebtedness pursuant to, (A) the charter or bylaws of the Company or any of its subsidiaries, (B) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their property is or may be bound, (C) any statute, rule or regulation applicable to the Company, any of its subsidiaries or any of their assets or properties, or (D) any judgment, order or decree of any court or governmental agency or authority having jurisdiction over the Company, any of its subsidiaries or their assets or properties, except, in the case of (C) or (D), for such violations that would not, individually or in the aggregate reasonably be expected to have a Material Adverse Effect. No consent, approval, authorization or order of, or filing, registration, qualification, license or permit of or with, any court or governmental agency, body or administrative agency is required for the execution, delivery and performance of this Agreement and the other Operative Documents by the Company and the Guarantors, and the completion of the Private Exchange and the Old Note Indenture Modifications and the consummation of the transactions contemplated hereby and thereby, except such as have been obtained and made (or, in the case of the Registration Rights Agreements, will be obtained and made) under the Act, the Trust Indenture Act and state securities or Blue Sky laws and regulations or such as may be required by the NASD. (xxi) The Company had at June 30, 1999, an authorized and outstanding capitalization as set forth in the Private Placement Memorandum. The authorized, issued 15 16 and outstanding capital stock of the Company is duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights, other than those set forth in the Stockholders Agreement (as defined in the Private Placement Memorandum), which have been duly and validly waived in writing by each party thereto with respect to the transactions contemplated by the Private Placement Memorandum. Except as set forth in Schedule 5(a)(xxi), there are no outstanding rights, plans, options, warrants, calls, conversion rights or any agreements, arrangements or commitments of any character (either firm or conditional) obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock, or any securities exchangeable for or convertible into shares of capital stock of the Company or any of the subsidiaries or obligating the Company or any of the subsidiaries to grant, extend or enter into any such agreement, arrangement, requirement or commitment nor are there any rights to receive any dividends or other distributions in respect of such securities, other than the right of the Company to receive dividends and distributions from any subsidiary. Schedule 5(a)(xxi) sets forth the names of the holders of all options, warrants and other securities convertible into Common Stock, the dates granted/issued, the number of shares of Common Stock subject to such option, warrant or conversion, the expiration date and the exercise or conversion price (in the case of the Class A Convertible Preferred Stock, setting forth the formula and the maximum percentage into which such Class A Convertible Preferred Stock would be convertible based on an assumed initial public offering price selected by the Company). Schedule 5(a)(xxi) sets forth all Existing Indebtedness (as defined in the Indenture) of the Company and its subsidiaries as of the most recent available date prior to the date of this Agreement. (xxii) There is (A), except as set forth in Schedule 5(a)(xxii), and except as disclosed in the Private Placement Memorandum, no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending or, to the Company's knowledge, threatened or contemplated to which the Company or any of its subsidiaries is or may be a party or to which the business or property of the Company or any of its subsidiaries is or may be subject, (B) except as disclosed in the Private Placement Memorandum (with respect to clause (I) below), no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency and (C) no injunction, restraining order or order of any nature by a federal or state court or foreign court of competent jurisdiction to which the Company or any of its subsidiaries is or may be subject, issued that, in the case of clauses (A), (B) and (C) above, (I) would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or (II) would reasonably be expected to interfere with or adversely affect the issuance of the Securities, or the completion of the Private Exchange or the Old Note Indenture Modifications, or the validity of this Agreement, the Secured Note Indenture, the Registration Rights Agreements or any other Operative Document or the Old Notes or the Old Note Indenture. (xxiii) Except as set forth in Schedule 5(a)(xxiii), there is (A) no unfair labor practice complaint pending against the Company or any of its subsidiaries nor, to the best knowledge of the Company and its subsidiaries, threatened against any of them, before the National Labor Relations Board, any state or local labor relations board or any foreign labor relations board which would, individually or in the aggregate, reasonably be expected to 16 17 have a Material Adverse Effect, (B) no strike, labor dispute, slowdown or stoppage pending against the Company or any of its subsidiaries nor, to the best knowledge of the Company and its subsidiaries, threatened against the Company or any of its subsidiaries which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (C) to the best knowledge of the Company and its subsidiaries, no union representation question existing with respect to the employees of the Company and its subsidiaries and, to the best knowledge of the Company and its subsidiaries, no union organizing activities are taking place. Neither the Company nor any of its subsidiaries has violated any federal, state or local law relating to discrimination in hiring, promotion or pay of employees, nor any applicable wage or hour laws, which violation would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xxiv) The Company and each Controlled Group Member (as defined below) has operated and administered each employee benefit plan covering their employees which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Plan") in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Controlled Group Member has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Internal Revenue Code of 1986, as amended (the "Code"), relating to Plans, and no event, transaction or condition has occurred or exists which could result in the incurrence of any such liability by the Company or any Controlled Group Member, or in the imposition of any encumbrance on any of the rights, properties or assets of the Company or any Controlled Group Member, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Sections 401(a)(29) or 412 of the Code, other than such liabilities or encumbrances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The term "Controlled Group Member" means the Company, each of its subsidiaries and each of their respective predecessors and (a) each corporation that is or was at any time a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or any of its subsidiaries, or any of their respective predecessors, (b) each trade or business, whether or not incorporated, that is or was at any time under common control (within the meaning of Section 414(c) of the Code) with the Company or any of its subsidiaries, or any of their respective predecessors, and (c) each trade or business, whether or not incorporated, that is or was at any time a member of the same affiliated service group (within the meaning of Section 414(m) of the Code). (xxv) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than a Material amount in the case of any single Plan and by more than an amount which, with respect to an individual Plan or in the aggregate for all Plans would reasonably be expected to have a Material Adverse Effect. The term "benefit liabilities" has the meaning specified 17 18 in Section 4001 of ERISA and the terms "current value" and "present value" have the meanings specified in Section 3 of ERISA. (xxvi) Neither the Company nor any Controlled Group Member has incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Sections 4201 or 4204 of ERISA in respect of any "Multiemployer" Plans (as that term is defined by Section 4001 (a)(3)of ERISA) that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. (xxvii) The expected post-retirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its subsidiaries would not reasonably be expected to have a Material Adverse Effect. (xxviii) Except as set forth in Schedule 5(a)(xxviii) or as otherwise reflected in the Company's financial statements, the expected liability of the Company and its subsidiaries for retiree health care benefits under the Retiree Health Care Benefit Act of 1992 would not reasonably be expected to have a Material Adverse Effect. (xxix) In the ordinary course of its business, each of the Company and its subsidiaries conducts periodic reviews of the effect of Environmental Laws (as defined herein) and the disposal of hazardous or toxic substances, wastes, pollutants and contaminants on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, all capital and operating expenditures required for clean-up, closure of properties and compliance with Environmental Laws, all permits, licenses and approvals, all related constraints on operating activities and all potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that, except as disclosed on Schedule 5(a)(xxix), such associated costs and liabilities, individually or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries (A) has violated any environmental, safety or similar law or regulation applicable to it or its business or property relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants, including, without limitation, the Clean Air Act, as amended, the Clean Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, the Surface Mining Control and Reclamation Act, as amended (the "Surface Mining Act"), the Occupational Safety and Health Act, as amended, and comparable state and local laws and other safety, health and environmental conservation or protection laws ("Environmental Laws"), the effect of which would be to cause, individually or in the aggregate, a Material Adverse Effect, or (B) except as disclosed on Schedule 5(a)(xxxi), lacks any notices, permits, licenses of other approvals required of them under applicable Environmental Laws or is violating any terms and conditions of any such notice, permit, 18 19 license or approval, the effect of which would be to cause, individually or in the aggregate, a Material Adverse Effect. Without limitation of the foregoing, there is as of the date hereof no litigation or action pending or, to the best knowledge of the Company, threatened against the Company or any of the Guarantors relating to any violation of any Environmental Laws with respect to the assets or business of the Company or any of the Guarantors which is required to be disclosed in the Private Placement Memorandum and is not so disclosed, or which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (xxx) Each of the Company and its subsidiaries is in compliance with all of the current permits ("Surface Mining Permits") held by it issued pursuant to the Surface Mining Act, or pursuant to an equivalent state regulatory program granted primacy under the provisions of 30 U.S.C. Section 1253 (collectively, "Surface Mining Laws"), including the mining plans as respects reclamation, coal processing and related activities as submitted to the Office of Surface Mining or any state equivalent agency having jurisdiction over a state program granted primacy under the provisions of 30 U.S.C. Section 1253 ("Surface Mining Enforcement Agency") to obtain the Surface Mining Permits, except where the failure to be in compliance with such laws would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has been subjected to or is as of the date hereof subject to any bond forfeiture, permit suspension or revocation proceedings instituted by any Surface Mining Enforcement Agency and neither the Company nor any of its subsidiaries is presently "permit-blocked" in any state or under the federal Applicant Violator System which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xxxi) Except as set forth on Schedule 5(a)(xxxi), each of the Company and its subsidiaries has (A) all licenses, certificates, permits, authorizations, approvals, franchises and other rights from, and has made all declarations and filings with, all federal, state and local authorities, all self-regulatory authorities and all courts and other tribunals (each an "Authorization") necessary to engage in the business currently conducted by it in the manner described in the Private Placement Memorandum, except where failure to have or obtain such Authorizations would not have a Material Adverse Effect and (B) no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Authorization. The Company and its subsidiaries are in compliance in all material respects with the terms and conditions of all such Authorizations and with the rules and regulations of the regulatory authorities having jurisdiction with respect thereto, except where the failure to comply would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. (xxxii) Except as set forth on Schedule 5(a)(xxxii), all leases to which the Company or any of its subsidiaries is a party are valid and binding and no default by the Company or any of its subsidiaries has occurred and is continuing thereunder, except where such default or defaults, would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Except to the extent described in the Private Placement Memorandum, the leases, options to lease, deeds, instruments or other agreements, contracts or arrangements held by the Company and the Guarantors reflect in all material respects the rights of the Company and the Guarantors to explore the unexplored and undeveloped 19 20 acreage described in the Private Placement Memorandum. The Company and the Guarantors have exercised reasonable diligence with respect to acquiring or otherwise procuring such leases, options to lease, deeds, instruments and other agreements, contracts or arrangements, although the investigation of record title made by the Company and the Guarantors generally involved no more than a preliminary review of local records, as is customary in the industry. (xxxiii) Each of the Company and its subsidiaries owns or possesses all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, the "Intellectual Property") presently employed by it in connection with the businesses now operated by it, except where the failure to own or possess or have the ability to acquire any of the Intellectual Property would not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing, which if such assertion were sustained, would reasonably be expected to have a Material Adverse Effect. (xxxiv) All tax returns required to be filed by the Company or any of its subsidiaries, in all jurisdictions, have been so filed. All taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities or that are due and payable have been paid, other than those being contested in good faith and for which adequate reserves have been provided, those currently payable without penalty or interest or those which the failure to pay would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Except as set forth on Schedule 5(a)(xxxiv) and as disclosed in the Private Placement Memorandum, neither the Company nor any of its subsidiaries knows of any material proposed additional tax assessments against the Company or any of its subsidiaries. (xxxv) Neither the Company nor any of the Guarantors (A) is, or after giving effect to the issuance and sale of the Privately Placed Notes and the Warrants and the application of the proceeds thereof in the manner described in the Private Placement Memorandum will be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), or (B) is a "holding company" or a "subsidiary company" or an "affiliate" or a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. (xxxvi) Other than pursuant to the Registration Rights Agreements, the Stockholders Agreement (as defined in the Private Placement Memorandum), and the Registration Rights Agreement, dated as of August 12, 1996, by and among the parties to the Stockholders Agreement, there are no holders of securities of the Company or any of the Guarantors who, by reason of the execution by the Company and each of the Guarantors of this Agreement or any other Operative Documents to which it is a party or the consummation of the transactions contemplated hereby and thereby, have the right to request or demand that the Company or any Guarantor register under the Act securities held by them. 20 21 (xxxvii) Each certificate signed by any officer of the Company or any of the Guarantors and delivered to the Purchaser or Exchanging Noteholders or counsel for the Purchaser or Exchanging Noteholders shall be deemed to be a representation and warranty by the Company or Guarantors to the Purchaser or Exchanging Noteholders as to the matters covered thereby. (xxxviii) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (A) transactions are executed in accordance with management's general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; and (C) access to assets is permitted only in accordance with management's general or specific authorization. (xxxix) In accordance with customary industry practices, the Company and each of its subsidiaries maintains insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks as is adequate in accordance with customary industry practice to protect the Company and its subsidiaries and their businesses. Neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance. All such insurance is outstanding and duly in force on the date hereof and will be outstanding and duly in force on the Closing Date. (xl) Neither the Company nor any of its subsidiaries has (A) taken, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company or any of its subsidiaries to facilitate the sale or resale of the Securities or (B) except as permitted by Regulation M under the Exchange Act or pursuant to this Agreement, since the date of the Private Placement Memorandum (i) sold, bid for, purchased or paid any person any compensation for soliciting purchases of, the Securities or (ii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company or any of its subsidiaries. (xli) No registration under the Act of any Secured Notes or Warrants or Warrant Shares is required for the issuance or sale of the Privately Placed Notes and Warrants or Warrant Shares to the Purchaser or Exchanging Noteholders or the resale by the Purchaser or any such Exchanging Noteholder as contemplated hereby and in the Private Placement Memorandum, assuming (A) that the Purchaser and Exchanging Noteholders are either QIBs or Institutional Accredited Investors or Regulation S Purchasers and (B) the accuracy of the Purchaser's or Exchanging Noteholders' representations contained herein and their compliance with the agreements set forth herein. No form of general solicitation or general advertising was used by the Company or the Guarantors or any of their representatives in connection with the offer and sale of any of the Privately Placed Notes, including, but not limited to, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general 21 22 advertising. Other than the Registered Notes to be issued in the Registered Exchange Offer and the Public Exchange Offer, no securities of the same class as the Secured Notes have been issued or will be sold by the Company or the Guarantors within a six-month period before or after the date hereof. (xlii) The execution and delivery of this Agreement, the other Operative Documents and the sale of the securities to be purchased by the Purchaser and Exchanging Noteholders will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. The representation made by the Company and the Guarantors in the preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Purchaser and Exchanging Noteholders as set forth in the Private Placement Memorandum under the Section entitled "Notice to Investors" and Section 5(c) herein. (xliii) Except as set forth in Schedule 5(a)(xliii), subsequent to the respective dates as of which information is given in the Private Placement Memorandum and up to the Closing Date, except as set forth in the Private Placement Memorandum, neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole; nor entered into any transaction not in the ordinary course of business that is material to the Company and its subsidiaries taken as a whole; nor has there occurred any Material Adverse Effect, or any development which may reasonably be expected to involve a Material Adverse Effect, in the properties, business, results of operations, financial condition or prospects of the Company and its subsidiaries, taken as a whole; and there have not been any dividends or distributions of any kind declared, paid or made by the Company or any of its subsidiaries (other than on a pro rata basis to the Company) on any class of its capital stock. (xliv) None of the execution, delivery and performance of this Agreement, the issuance and sale of the Privately Placed Notes and the Warrants, the application of the proceeds from the issuance and sale of the New Money Notes and the Warrants and the consummation of the transactions contemplated thereby as set forth in the Private Placement Memorandum, will violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (xlv) The accountants, PricewaterhouseCoopers, who have certified the financial statements and supporting Schedules for the three fiscal years ended December 31, 1998, included or to be included as part of the Private Placement Memorandum are independent accountants within the meaning of the Act and the rules and regulations promulgated thereunder. The consolidated historical statements fairly present in all material respects the consolidated financial condition and results of operations of the Company and its subsidiaries at the respective dates and for the respective periods indicated, subject in the case of unaudited combined financial statements to normal year-end adjustments, in accordance with generally accepted accounting principles consistently applied throughout such periods, except as stated therein. Other financial and statistical information and data (including, without limitation, with respect to production) included in the Private Placement 22 23 Memorandum, are fairly presented in all material respects and prepared on a basis consistent with such financial statements and the books and records of the Company and its subsidiaries. (xlvi) Other than as contemplated by this Agreement, there are no contracts, agreements or understandings between the Company or any of its subsidiaries and any person that would give rise to a valid claim against the Company or its subsidiaries or the Purchaser or the Exchanging Noteholders, as applicable, for a brokerage commission, finder's fee or like payment in connection with the issuance, purchase and sale of the Privately Placed Notes. (xlvii) Any Privately Placed Notes offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions and such securities have been and will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the "distribution compliance period" (as defined in Regulation S) and only upon certification of beneficial ownership of the Securities by a non-U.S. person or a U.S. person who purchased such securities in a transaction that was exempt from the registration requirements of the Act, which U.S. person will acquire an interest in a Transfer Restricted Security (as defined in the Registration Rights Agreements). (xlviii) None of the Company or any of its affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Privately Placed Notes or the Warrants or the Warrant Shares, and the Company and its affiliates and all persons acting on their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering, if any, of the Privately Placed Notes, Warrants and Warrant Shares outside the United States. The Company and the Guarantors acknowledge that the Purchaser and the Exchanging Noteholders and, for purposes of the opinions to be delivered to the Purchaser and the Exchanging Noteholders pursuant to Section 6 hereof, counsel to the Company and the Guarantors and counsel to the Purchaser and the Exchanging Noteholders will rely upon the accuracy and truth of the foregoing representations and hereby consent to such reliance. (b) The Purchaser and each Exchanging Noteholder represents and warrants to the Company and the Guarantors and agrees that: (i) Such Purchaser or Exchanging Noteholder, as the case may be, is a QIB or an Institutional Accredited Investor within the meaning of Regulation D under the Act, with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the Privately Placed Notes, Warrants and Warrant Shares. (ii) Such Purchaser or Exchanging Noteholder, as the case may be, (A) is not acquiring the Privately Placed Notes or the Warrants and Warrant Shares with a view to any distribution thereof that would violate the Act or the securities laws of any 23 24 state of the United States or any other applicable jurisdiction and (B) will reoffer and resell the Privately Placed Notes and the Warrants and Warrant Shares only pursuant to an exemption from the registration requirements of the Act. (iii) No form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Act has been or will be used by such Purchaser or Exchanging Noteholder, as the case may be, or any of its representatives in connection with any offer to resell any of the Privately Placed Notes or the Warrants or Warrant Shares, including, but not limited to, articles, notices or other communication published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (iv) Such Purchaser or Exchanging Noteholder, as the case may be, agrees that, in connection with any resales of Privately Placed Notes, (A) it will offer to sell the Privately Placed Notes only to, and will solicit offers to buy the Privately Placed Notes only from (1) QIBs who in purchasing such Privately Placed Notes will be deemed to have represented and agreed that they are purchasing the Privately Placed Notes for their own accounts or accounts with respect to which they exercise sole investment discretion and that they or such accounts are QIBs, that they are aware that the sale to them is being made in reliance on Rule 144A, and that they are acquiring such Privately Placed Notes for investment and not with a view to, or for offer or sale in connection with, any distribution (within the meaning of the Act) or fractionalization thereof or with any intention of reselling the Privately Placed Notes or any part thereof, subject to any requirement of law that the disposition of their property or the property of such investor account or accounts be at all times within their control and subject to their ability to resell such Privately Placed Notes pursuant to Rule 144, 144A, Regulation S or other exemption from registration available under the Act and (2) Regulation S Purchaser or Exchanging Noteholders, as the case may be, who in purchasing the Privately Placed Notes will be deemed to have represented and agreed that their purchase of Privately Placed Notes pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Act and (B) it will take reasonable steps to inform persons acquiring Privately Placed Notes from the Purchaser or Exchanging Noteholders, as the case may be, or their affiliates that such Privately Placed Notes will not have been registered under the Act and may be resold, pledged or otherwise transferred prior to the second anniversary of the later of the original issuance of the Privately Placed Notes or the sale thereof by any affiliate (within the meaning of Rule 144 under the Act or any successor rule thereto, an "Affiliate") of the Company (computed in accordance with paragraph (d) of Rule 144 under the Act) or if they were at the date of such transfer or during the three months preceding such date of transfer an Affiliate of the Company, they would do so only in compliance with any applicable state securities or "Blue Sky" laws and only (I)(v) to a person who the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (w) in a transaction meeting the requirements of Rule 144, (x) to a foreign person in a transaction meeting the requirements of Rules 903 and 904 under the Act, (y) to an Institutional Accredited Investor, or (z) in accordance with another exemption from the registration requirements of the Act, (II) to the Company, or (III) pursuant to an effective registration statement under the Act and, in 24 25 each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and (C) that the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in (B) above. (v) Such Purchaser or Exchanging Noteholder, agrees that, in connection with any resales of Warrants or Warrant Shares, (A) it will offer to sell the Warrants or Warrant Shares only to, and will solicit offers to buy the Warrants or Warrant Shares only from (1) QIBs who in purchasing such Warrants or Warrant Shares will be deemed to have represented and agreed that they are purchasing the Warrants or Warrant Shares for their own accounts or accounts with respect to which they exercise sole investment discretion and that they or such accounts are QIBs, that they are aware that the sale to them is being made in reliance on Rule 144A, and that they are acquiring such Warrants or Warrant Shares for investment and not with a view to, or for offer or sale in connection with, any distribution (within the meaning of the Act) or fractionalization thereof or with any intention of reselling the Warrants or Warrant Shares or any part thereof, subject to any requirement of law that the disposition of their property or the property of such investor account or accounts be at all times within their control and subject to their ability to resell such Warrants or Warrant Shares pursuant to Rule 144, 144A, Regulation S or other exemption from registration available under the Act and (2) Regulation S Purchasers, who in purchasing the Warrants or Warrant Shares will be deemed to have represented and agreed that their purchase of Warrants or Warrant Shares pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Act and (B) it will take reasonable steps to inform persons acquiring Warrants or Warrant Shares from it or its affiliates that such Warrants or Warrant Shares will not have been registered under the Act and may be resold, pledged or otherwise transferred prior to the second anniversary of the later of the original issuance of the Warrants or Warrant Shares or the sale thereof by any affiliate (within the meaning of Rule 144 under the Act or any successor rule thereto, an "Affiliate") of the Company (computed in accordance with paragraph (d) of Rule 144 under the Act) or if they were at the date of such transfer or during the three months preceding such date of transfer an Affiliate of the Company, they would do so only in compliance with any applicable state securities or "Blue Sky" laws and only (I)(v) to a person who the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (w) in a transaction meeting the requirements of Rule 144, (x) to a foreign person in a transaction meeting the requirements of Rules 903 and 904 under the Act, (y) to an Institutional Accredited Investor, or (z) in accordance with another exemption from the registration requirements of the Act, (II) to the Company, or (III) pursuant to an effective registration statement under the Act and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and (C) that the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in (B) above. (vi) Such Purchaser or Exchanging Noteholder, as the case may be, agrees that, if it has offered for sale the Privately Placed Notes or the Warrants or Warrant Shares, it has offered the Privately Placed Notes or the Warrants or Warrant Shares and will offer and sell the Privately Placed Notes or the Warrants or Warrant 25 26 Shares (i) as part of their distribution at any time and (ii) (A) in the case of the Privately Placed Notes, otherwise until 40 days after the later of the commencement of the offering of the Privately Placed Notes and the Closing Date, and (B) in the case of the Warrants or Warrant Shares until the expiration of the one year distribution compliance period set forth in Regulation S, only in accordance with Rule 144A, Regulation S or another exemption from the registration requirements of the Act. Accordingly, neither such Purchaser or Exchanging Noteholder, as the case may be, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Rule 901(b) of Regulation S with respect to the Privately Placed Notes or the Warrants or Warrant Shares, and such Purchaser or Exchanging Noteholder, as the case may be, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S. (vii) Such Purchaser or Exchanging Noteholder, as the case may be, agrees that any Privately Placed Notes or Warrants or Warrant Shares offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions and that such securities have been and will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the applicable distribution compliance period set forth in Regulation S and only upon certification of beneficial ownership of the securities by a non-U.S. person or a U.S. person who purchased such securities in a transaction that was exempt from the registration requirements of the Act, which U.S. person will acquire an interest in a Transfer Restricted Security (as defined in the Registration Rights Agreements). Such Purchaser or Exchanging Noteholder, as the case may be, further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Privately Placed Notes, the Warrants or the Warrant Shares, except with its affiliates or with the prior written consent of the Company. (viii) Such Purchaser or Exchanging Noteholder, as the case may be, has not taken and will not take, directly or indirectly, any action prohibited by Regulation M of the Exchange Act in connection with the sale of the Privately Placed Notes or the Warrants or Warrant Shares, to the extent applicable. (c) Each Purchaser or Exchanging Noteholder, as the case may be, represents that at least one of the following is accurate as to each source of funds it will use to purchase the Notes: (i) it is not acquiring the Notes with the assets of any employee benefit plan that is subject to Title I of ERISA or any "plan" that is subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (any such employee benefit plan and plan being referred to herein as a "Benefit Plan"); (ii) the source of funds being used to acquire the Notes is either (A) an insurance company pooled separate account, within the meaning of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 90-1, or (B) a bank collective investment fund, within the meaning of PTCE 91-38 and no benefit plans maintained by 26 27 the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account of collective investment fund; (iii) the Purchaser or Exchanging Noteholder is an insurance company and the source of funds being used by such entity to acquire the Securities is an "insurance company general account," as such term is defined in PTCE 95-60 (issued July 12, 1995), and the conditions for application of PTCE 95-60 have been met (the Company acknowledges that each Purchaser may be relying in part on the Company's representation in Section 5(a)(xlii) in making this representation; (iv) the source of funds being used by such Purchaser or Exchanging Noteholder to acquire the Notes constitute plan assets that are included in an "investment fund" (within the meaning of Part V of PTCE 84-14 (the "QPAM Exemption") managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), which assets when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, do not exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company, and the identity of the QPAM and the names of all Benefit Plans whose assets are included in such investment fund have been disclosed to the Company; or (v) the source of funds being used by the Purchaser or Exchanging Noteholder to acquire the Notes constitutes plan assets that are subject to an individual prohibited transaction exemption issued by the Department of Labor. (d) Each Exchanging Noteholder, by executing this Agreement, hereby (i) consents to the amendments to the Old Indenture that are set forth in the Supplemental Indenture, and (ii) waives any claim for accrued and unpaid interest on the Old Notes it is exchanging for Privately Placed Notes and Warrants, and agrees that issuance and delivery of such Privately Placed Notes and Warrants in accordance with the terms of this Agreement shall constitute payment in full of such interest. Terms used in this Section 5 that have the meanings assigned to them in Regulation S are used herein as so defined. Each Purchaser and Exchanging Noteholder also understands that the Company, the Guarantors and, for purposes of the opinions to be delivered to you pursuant to Section 6 hereof, counsel to the Company and the Guarantors and counsel to the Purchasers and Exchanging Noteholders will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. 27 28 6. Conditions of Purchasers' and Exchanging Noteholders' Obligations. The several obligations of the Purchasers and Exchanging Noteholders under this Agreement are subject to the satisfaction of each of the following conditions: (a) All of the representations and warranties of the Company and the Guarantors contained in this Agreement shall be true and correct on the date hereof and on the Closing Date with the same force and effect as if made on and as of the date hereof and the Closing Date, respectively. The Company and the Guarantors shall have performed or complied with all of the agreements herein contained and required to be performed or complied with by them at or prior to the Closing Date. (b) Copies of the Private Placement Memorandum shall have been distributed to the Purchasers and Exchanging Noteholders as promptly as practicable, on the date of this Agreement or at such later date and time as to which each Purchaser and Exchanging Noteholder may agree, and no stop order suspending the qualification or exemption from qualification of any of the Secured Notes, the Warrants or the Warrant Shares in any jurisdiction referred to in Section 4(e) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency which would, as of the Closing Date, prevent the issuance of any of the Secured Notes, the Warrants or the Warrant Shares; no action, suit or proceeding shall be pending against or affecting or, to the knowledge of either of the Company or any Guarantor, threatened against, the Company or any Guarantor or any of its subsidiaries before any court or arbitrator or any governmental body, agency or official that, if adversely determined, would prohibit, interfere with or adversely affect the issuance of the Secured Notes, the Warrants or the Warrant Shares, or would have a Material Adverse Effect, or in any manner question the validity of this Agreement, the Secured Note Indenture, the Security Documents, the Securities, the Registration Rights Agreements or the other Operative Documents; and no stop order preventing the use of the Private Placement Memorandum, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued. (d) Since the dates as of which information is given in the Private Placement Memorandum, (i) there shall not have been any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the capital stock or the long-term debt, or material increase in the short-term debt, of the Company or any of its subsidiaries from that set forth in the Private Placement Memorandum, (ii) no dividend or distribution of any kind shall have been declared, paid or made by the Company or any of its subsidiaries on any class of its capital stock (other than on a pro rata basis to the Company), and (iii) other than liabilities incurred in the ordinary course of business since the date of the latest balance sheet included in the Private Placement Memorandum which, individually and in the aggregate would not have a Material Adverse Effect, neither the Company nor any of its subsidiaries shall have incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to the Company and its subsidiaries, taken as a whole, and that are required to be disclosed on a balance sheet in accordance with generally accepted accounting principles and are not disclosed on the latest balance sheet included in the Private Placement Memorandum. Since the date hereof and since the dates as 28 29 of which information is given in the Private Placement Memorandum, there shall not have been any Material Adverse Effect. (e) You shall have received certificates, dated the Closing Date, signed by (i) the President or any Vice President and (ii) a principal financial or accounting officer of the Company and each of the Guarantors confirming, as of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 6. (f) You shall have received on the Closing Date the opinion (satisfactory in form and substance to you and your counsel), dated the Closing Date, of either Klett Lieber Rooney & Schorling, a Professional Corporation, counsel for the Company and the Guarantors, or Wilmer, Cutler & Pickering, special counsel to the Company and the Guarantors, subject to the customary exclusions, to the effect of each of the following: (i) The Company has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Delaware, and has full corporate power and authority to conduct its business as described in the Private Placement Memorandum. (ii) Each of the Guarantors listed on Schedule I hereto which is identified thereon as incorporated in the State of Delaware (the "Delaware Guarantors") has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Delaware and each such Guarantor has full corporate power and authority to conduct its business as described in the Private Placement Memorandum. (iii) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered this Agreement; and each of the Guarantors listed on Schedule I hereto which is identified thereon as incorporated in a state other than the State of Delaware (the "Non-Delaware Guarantors") has duly executed and delivered this Agreement. (iv) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered the Secured Note Indenture and each of the Non-Delaware Guarantors has duly executed and delivered the Secured Note Indenture. Assuming that the Secured Note Indenture is the valid and legal binding obligation of the Secured Note Trustee and that the Non-Delaware Guarantors have duly authorized the Secured Note Indenture, the Secured Note Indenture constitutes a valid and legally binding obligation of the Company and the Guarantors enforceable against each such person in accordance with its terms. (v) The Secured Notes have been duly authorized, executed and issued by the Company and, assuming due authentication thereof by the Secured Note Trustee and upon payment and delivery in accordance with this Agreement, will constitute the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Secured Note Indenture and the security provided by the Security Documents. 29 30 (vi) The Guarantees to be endorsed on the Secured Notes have been duly authorized by each Delaware Guarantor and, assuming the due authorization of the Guarantees by the Non-Delaware Guarantors and the due authentication of the Secured Notes by the Secured Note Trustee and upon payment and delivery in accordance with this Agreement of the Secured Notes, will constitute a valid and legally binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its terms. (vii) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered the Security Documents to which it is a party and each of the Non-Delaware Guarantors has duly executed and delivered the Security Documents to which it is a party. Assuming that the Security Documents are the valid and legal binding obligations of the Secured Note Trustee and that each of the Non-Delaware Guarantors has duly authorized the Security Documents to which it is a party, the Security Documents constitute a valid and legally binding obligation of the Company and the Guarantors enforceable against each such person in accordance with its terms. (viii) No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America, the State of Delaware or the State of New York is required on the part of the Company or Guarantors for the execution, delivery or performance by any Guarantor of any of this agreement, the Secured Note Indenture, the Secured Notes or the Security Documents, except for those that have been obtained or effected and that are in full force and effect and in respect of which all applicable waiting periods have expired. (ix) The Company has an authorized capitalization as set forth in the Private Placement Memorandum, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; the Warrants have been duly authorized, executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms; the Warrant Shares have been duly authorized by the Company and validly reserved for issuance upon exercise of Warrants, and, when issued upon such exercise in accordance with terms of the Warrants, will be validly issued, fully paid and non-assessable; and to the best of such counsel's knowledge, the issuance of the Warrants is not and the issuance of the Warrant Shares will not be subject to the preemptive rights of any Stockholder of the Company, except those which are set forth in the Stockholders Agreement and which have been duly and validly waived pursuant to the Stockholders Agreement; and the Warrants and the Warrant Shares conform to the description thereof contained in the Private Placement Memorandum. (x) All of the outstanding shares of capital stock evidencing equity ownership of the Delaware Guarantors (the "Stock") are owned of record by the entities named in such opinion. (xi) To the knowledge of such counsel, none of the Stock was issued in violation of any preemptive or similar rights. 30 31 (xii) To the knowledge of such counsel, there are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest of any Delaware Guarantor except that the holders of shares of a class of common stock of the Company have the right to convert such shares into another class of common stock of the Company, as provided in the Restated Certificate of Incorporation of the Company. (xiii) Upon registration of the pledge of the Pledged Securities (as defined in the Pledge Agreements) of the Subsidiaries and filing of financing statements in the appropriate filing offices pursuant to Articles 8 and 9 of the Uniform Commercial Code (the "UCC"), the Collateral Agent, for the benefit of the holders of the Secured Notes, will have a perfected security interest in the Pledged Securities of the Subsidiaries. (xiv) Under the UCC, the Secured Note Indenture and the Security Documents will create a valid security interest in the right, title and interest in, to and under any Collateral (as defined in the Indenture and the Security Documents) of the Company and the Guarantors as to which creation of a security interest is governed by the UCC, in favor of the Secured Note Trustee, for the benefit of holders of the Secured Notes, including any Optional Secured Notes that may be issued in the future. (xv) The Registration Rights Agreements have been duly authorized by the Company and each of the Delaware Guarantors that are parties thereto. Assuming the due authorization of the Registration Rights Agreements by the Non-Delaware Guarantors, when the Registration Rights Agreements are duly executed and delivered by each such person, they will constitute valid and legally binding obligations of the Company and the Guarantors, enforceable against each such person that is a party thereto in accordance with their terms. (xvi) No registration under the Act of any of the Secured Notes, the Amended Old Notes, the Warrants or the Warrant Shares is required for (A) the consummation of the Private Exchange, (B) the completion of the Old Note Indenture Modifications and (C) the issuance or sale of the Privately Placed Notes by the Company to the Purchasers and the Exchanging Noteholders or the sale of the Privately Placed Notes and the Warrants or Warrant Shares by the Purchasers and the Exchanging Noteholders solely in the manner contemplated by this Agreement, the Secured Note Indenture and the Private Placement Memorandum and the Secured Note Indenture and the Amended Old Note Indenture each meet the requirements of the Trust Indenture Act for a trust indenture eligible for qualification thereunder. (xvii) The issue and sale of the Secured Notes by the Company and the compliance by the Company and the Delaware Guarantors with all of the provisions of this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreements, the Guarantees and the Secured Notes, will not breach or result in a default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument identified on an annexed Schedule furnished to such counsel by the Company and which the Company has represented lists all material agreements and instruments to 31 32 which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action violate the Restated Certificate of Incorporation or By-laws of the Company or any Federal or New York statute or the Delaware General Corporation Law or any order known to such counsel issued pursuant to any Federal or New York statute or the Delaware General Corporation Law by any court or governmental agency or body that has jurisdiction over the Company or any of the Delaware Guarantors or any of their respective properties. (xviii) The statements made in the Private Placement Memorandum under the captions "Description of the Company's Indebtedness," "Comparison of Indentures," "Description of New Secured Notes," "Description of Amendments to Old Indenture", "Description of Capital Stock" and "Description of Warrants" insofar as they purport to constitute summaries of certain terms of documents referred to therein, constitute accurate summaries of the terms of such documents in all material respects, subject to such qualifications as may be set forth in such summaries. (xix) Each of the Company and the Delaware Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreements, the Warrant Agreement, the Secured Notes and the Guarantees to which it is a party, including, without limitation, with respect to the Company, the corporate power and authority to issue, sell and deliver the Secured Notes and the Warrants and Warrant Shares as provided herein and in the Private Exchange. (xx) Neither the Company nor any Guarantor is or, after giving effect to the issuance and sale of the Securities as described in the Private Placement Memorandum will be, an "investment company," or a company controlled by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Such counsel shall also state that (A) their opinions in paragraphs (iv), (v), (vi) and (vii) are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing and (B) their opinion in paragraph (vii) is further subject to the qualification that the enforceability of the Company's obligations under the Registration Rights Agreements may be limited by considerations of public policy. Such counsel shall not express any opinion as to the validity, legally binding effect or enforceability of (A) any provision of the Registration Rights Agreements or any related provisions of the Secured Note Indenture or the Amended Old Note Indenture that requires or relates to payment of any interest at a rate or in an amount which a court would determine in the circumstances under applicable law to be commercially unreasonable or a penalty or a forfeiture and (B) of the waiver of rights and defenses provision contained in Section 4.6 of the Secured Note Indenture and the Amended Old Note Indenture or the specific performance provisions contained in the Registration Rights Agreements. 32 33 In addition, such counsel shall state that such counsel has not independently verified the accuracy, completeness or fairness of the statements made or included in the Private Placement Memorandum and takes no responsibility therefor, except as and to the extent set forth in paragraph (xviii) above. In the course of the preparation by the Company of the Private Placement Memorandum, such counsel participated in conferences with certain officers and employees of the Company and with counsel to the Company. Based upon such counsel's examination of the Private Placement Memorandum, such counsel's investigations made in connection with the preparation of the Private Placement Memorandum and such counsel's participation in the conferences referred to above, such counsel has no reason to believe that the Private Placement Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel need not express any belief with respect to (i) the statements made in the Private Placement Memorandum under the caption entitled "Risk Factors- Risks Related to the Company--Government regulations increase our costs of doing business and may discourage our customers from buying our coal" and (ii) the financial statements or other financial or statistical data contained in the Private Placement Memorandum. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America, the laws of the State of New York, and the General Corporation Law of Delaware and may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials which are furnished to you. The opinions of such counsel described in this paragraph shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. (g) You shall have received on the Closing Date an opinion (satisfactory in form and substance to you and your counsel), dated the Closing Date, of Spilman Thomas & Battle, PLLC, subject to the customary exclusions and to such exceptions, assumptions, conditions, qualifications and other exclusions as are appropriate under the circumstances, to the effect that: (i) Each of the Non-Delaware Guarantors is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has the corporate power to conduct its business as described in the Private Placement Memorandum. (ii) The issued and outstanding shares of capital stock or other securities evidencing equity ownership of each Non-Delaware Guarantor consist of the type and number of shares described in a schedule attached to such opinion. All of the issued and outstanding capital stock or other securities evidencing equity ownership of the Non-Delaware Guarantors are owned of record by Anker Coal Group, Inc. or one of its wholly owned, direct or indirect, subsidiaries. To the extent of such counsel's knowledge, the ownership of such capital stock or other securities evidencing such equity ownership is free and clear of any security interest, adverse claim of ownership, lien or limitation on disposition or voting rights, except (A) as otherwise disclosed in a Schedule attached to such 33 34 opinion and (B) for such liens and encumbrances as are contemplated by the Security Documents. All of such securities have been duly authorized, validly issued, and, to the extent of such counsel's knowledge, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. To the extent of such counsel's knowledge, there are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any such shares of capital stock or other equity interests of any Non-Delaware Guarantor. (iii) All necessary corporate action has been taken to duly authorize each of the Non-Delaware Guarantors to enter into and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreements and the other Operative Documents to which it is a party. (iv) Each of the Non-Delaware Guarantors has duly executed and delivered the Mortgages and the Financing Statements to which it is a party. (v) No authorization, approval, or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the State of West Virginia is required on the part of the Company or any Guarantor for the execution, delivery or performance by the Company or any Guarantor of the Secured Note Indenture, the Security Documents, Financing Statements or the Secured Notes or the other Operative Documents to which it is a party, except for (A) those that have been obtained or effected and are in full force and effect and in respect of which all applicable waiting periods have expired, and (B) the filings as contemplated by a Schedule to such opinion. (vi) A court of the State of West Virginia or a Federal District Court sitting in the State of West Virginia would give effect to the choice of laws agreement by the parties agreeing that the law of the State of New York is to govern the Secured Note Indenture, the Security Documents, and the other Operative Documents; provided, however, said choice of law agreement will be ineffective as to (A) the perfection provisions of Article 9 of the West Virginia Uniform Commercial Code (the "WV Code"), which Article specifies the applicable law, and (B) as to matters relating to West Virginia real property, including but not limited to, recordation of and pursuit of remedies under and/or related to the Mortgages. (vii) The Mortgages grant to the trustees named therein for the benefit of the Secured Note Trustee, the Collateral Agent and holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) and constitute a valid and enforceable mortgage lien against the real estate (including mineral interests) described therein to the full extent of the interest of grantor, and, upon due recordation thereof as described in paragraph (ix) below and subject to the limitations and qualifications set forth in such opinion, will be enforceable as mortgage liens against the real estate (including mineral interests) described therein in accordance with their terms. The Mortgages grant to the Secured Note Trustee for the benefit of the holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) and constitute a valid and enforceable security interest under the WV Code in the property in the State of West Virginia described in said Mortgages in which a security interest may be granted under 34 35 Article 9 of the WV Code, including, but not limited to, fixtures, to the full extent of the interest of the grantor, and, upon such recordation and subject to the limitations and qualifications set forth in such opinion, will be enforceable as liens against such property described therein in accordance with their terms. (viii) The Financing Statements are in appropriate form to constitute financing statements under the WV Code. The Mortgages are in appropriate form to constitute fixture filings under the WV Code. (ix) The Mortgages will be recorded by such counsel in the Offices of the Clerks of the County Commissions of the various counties noted in an attached Schedule to such opinion, and the various mortgage interests granted thereby in real property, subject to the limitations and qualifications set forth therein, will by reason of such recordings be validly perfected and made enforceable against the interest in real property granted thereby by the grantor, and said mortgage interests (excluding therefrom said mortgage interests in respect of any Optional Secured Notes that may be issued in the future to which we have not been asked to opine at this time), shall not be subject to any liens of record that are prior thereto, except for (A) the liens reported on a Schedule to such opinion, (B) the matters reported to you in the record search reports attached as a Schedule to such opinion (C) those additional items identified by such counsel in its searches (just prior to recording the Mortgages and for the period beginning on May 1, 1999, to the date and time of said recordings) and to be listed in a letter by such counsel after such recordings are made, (D) ad valorem taxes and mechanics' liens as noted in a Schedule attached to such opinion, and (E) as to non-obligatory future advances, those additional items duly recorded and perfected after recordation of the Mortgages, notice of which has been given to the Collateral Agent or Trustee prior to such advances. (x) Insofar as perfection can be accomplished by the filing of financing statements and fixture filings under the WV Code, all such action has been taken as will be necessary in West Virginia to perfect the security interests granted to the Collateral Agent for the benefit of holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) in the personal properties identified in the Financing Statements and in the extracted minerals and fixtures identified in the Mortgages to the full extent of the interests of the grantor of such interests, to create priority in the Collateral Agent for the benefit of the holders of Secured Notes, as secured party as to said personalty, extracted minerals and fixtures, over all other security interests which are perfected by the filing of financing statements, other than the lien of the Senior Secured Indebtedness, Permitted Liens and with such other exceptions as may be noted therein. The filing of the Financing Statements as noted above constitutes all such action as will be necessary in West Virginia to perfect a security interest in the Inventory and Equipment described therein which is situated in West Virginia. (xi) In the event that the Secured Note Indenture and the Security Documents executed by the Company and the Guarantors were governed by West Virginia law (notwithstanding the agreement by the parties thereto as to the application of New York law), then one of said documents, specifically, the General Security Agreement, grants to the Collateral Agent for the benefit of the holders of the Secured Notes (including any 35 36 Optional Secured Notes that may be issued in the future) a valid and enforceable security interest under the WV Code in the property in the State of West Virginia described in said document in which a security interest may be granted under Article 9 of the WV Code (and as limited by Sections 9-306 and 9-307 of the WV Code) to the full extent of the interests of the grantors. (xii) (A) Under the law of the State of West Virginia, a foreign corporation is not required, solely as a lender making loans or extending credit secured by real and personal property in the State of West Virginia, to procure a certificate of authority to transact business or otherwise qualify to do business in the State of West Virginia. As such, neither the Secured Note Trustee, the Collateral Agent nor any Holder of Secured Notes shall, solely by reason of the making of the loans under the Security Documents and the execution and delivery by the Guarantors of the Mortgages listed in a Schedule attached to such opinion and the Financing Statements listed or described in Schedules attached to such opinion (and/or the filing or recording of the same), be required (1) to qualify to do business in the State of West Virginia or to comply with the requirements of any foreign registration or qualification statute of the State of West Virginia, (2) be subject to taxation by the State of West Virginia or any political subdivision of said State except as noted on a schedule attached to such opinion, or (3) be required to make any filing with any court or other judicial or administrative body of the State of West Virginia preceding enforcement in order to avail itself of any of the remedies provided by the Mortgage. (B) No recording, filing, privilege, documentary stamp or other tax must be paid in connection with the execution, delivery, recordation or enforcement of the Mortgages or the Financing Statements except for the payment of filing fees to be paid to (i) the Clerks of the County Commissions of the various counties where the Mortgages and Financing Statements are to be recorded, and (ii) the office of the West Virginia Secretary of State. (xiii) The execution, delivery and performance of the Operative Documents to which each Non-Delaware Guarantor is a party (A) does not violate its respective charter or bylaws, (B) to the extent of such counsel's knowledge, does not constitute a default in the performance of any bond, debenture, note, other evidence of indebtedness, indenture, mortgage, deed of trust or other material agreement to which it is a party or by which it is bound or to which any of its properties is subject, (C) does not violate any applicable law, statute, rule, regulation, or, to the extent of such counsel's knowledge, any judgment or court decree, applicable to any of the Non-Delaware Guarantors or (D) (except for the lien created pursuant to any of the Security Documents) result in the creation or imposition of any Lien upon any property of any Non-Delaware Guarantor; except for, in the case of (B) and (C), any violation or default that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xiv) To the extent of such counsel's knowledge, except as disclosed on an annexed Schedule, there are no actions, suits or proceedings, including arbitration proceedings pending against or affecting any of the Company or Non-Delaware Guarantors before any West Virginia court or Federal District Court sitting in West Virginia or any West Virginia governmental department or agency, or threatened against any of them, which, if adversely determined against them, would have a Material Adverse Effect. Additionally, to the extent of such counsel's knowledge and except as disclosed in a 36 37 Schedule to such opinion, there are no actions, suits or proceedings, including arbitration proceedings, pending against any of Company or the Non-Delaware Guarantors, or any of their respective property in any other jurisdiction, or threatened against any of them, which, if adversely determined against them, would have a Material Adverse Effect. (xv) The statements in the Private Placement Memorandum under the caption "Risk Factors--Risks Related to the Company--Government regulations could increase our costs of doing business and may discourage our customers from buying our coal," insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly and accurately summarize in all material respects the information set forth therein with respect to such legal matters, documents or proceedings. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America, the laws of the States of West Virginia and Virginia, and may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and any of the Non-Delaware Guarantors and public officials which are furnished to the Purchasers and Exchanging Noteholders. The opinions of such counsel described in this paragraph shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. (h) Intentionally omitted. (i) Intentionally omitted. (j) The Purchaser and Exchanging Noteholders and Coudert Brothers shall have been furnished with such documents and opinions, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Section 6 and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (k) Prior to the Closing Date, the Company and the Guarantors shall have furnished to you such further information, certificates and documents as you may reasonably request. (l) The Company, the Guarantors and the Secured Note Trustee shall have entered into the Secured Note Indenture and you shall have received counterparts, conformed as executed, thereof. (m) The Company and the Guarantors shall have entered into the Security Documents and you shall have received counterparts, conformed as executed, thereof. (n) The Company and the Guarantors shall have entered into the Registration Rights Agreements, the Warrant Agreement and the Investor Agreement, as applicable, and you shall have received executed counterparts thereof. 37 38 (o) No Default or Event of Default shall be continuing under the Old Note Indenture or the Senior Secured Indebtedness. (p) The Company shall have obtained any necessary consents to the transactions contemplated by this Agreement, including the consent of the holders of the Senior Secured Indebtedness and the parties to the Stockholder Agreement. (q) The Company and the Guarantors shall have made all filings and taken all steps necessary to perfect the Lien of the Security Documents. (r) You shall have received a certificate, dated the Closing Date, signed by the principal financial or accounting officer of the Company and each of the Guarantors as to the solvency of the Company and each such Guarantor after giving effect to the transactions contemplated herein. In the event that the Company exercises its option provided in Section 2(b) hereof to sell to RRF all or any portion of the Optional Secured Notes and provided that the representations and warranties of RRF set forth in Section 5(c) shall be true and correct as of the Optional Secured Notes Closing Date, it shall be conditions to the obligation of RRF to purchase Optional Secured Notes on the Optional Secured Notes Closing Date that the representations and warranties of the Company contained herein (other than in Section 5(a)(i), (iv), (xiv), (xx), (xxxv) and (xliv) and except that any schedules set forth in any representation may be updated with any information that would not constitute a material adverse change), and the statements in any certificates furnished by the Company hereunder shall be true and correct as of the Optional Secured Notes Closing Date, RRF shall have received updated certificates, opinions of counsel and other documentation satisfactory to RRF substantially similar to those delivered on the Closing Date pursuant to clauses (e), (f) (other than with respect to the statements made in, or omissions from, the Private Placement Memorandum, (g) (other than clause xv thereof), (j), and (k) of this Section 6, modified as appropriate to refer to the Optional Secured Notes, the conditions set forth in clauses (l), (m), (n), (o), (p), (q) and (r) shall have been met on the Optional Secured Notes Closing Date, the Company shall amend the Mortgages to secure the entire principal amount of the Optional Secured Notes and all interest thereon in addition to the Notes previously secured and make all filings, recordings and actions necessary or desirable to make such security effective, RRF shall receive an opinion of counsel to the Company and the Guarantors to the effect that the Optional Secured Notes are entitled to the benefits of the Security Documents to the same extent and with the same priority as all Outstanding Secured Notes of the same series subject to no intervening Liens that secure liabilities of the Company or any Guarantor or other material intervening Liens and the Closing shall have occurred pursuant to Section 2(a) of this Agreement. It shall be a further condition to the obligation of RRF to purchase Optional Secured Notes on the Optional Secured Notes Closing Date that RRF shall have received a certificate, dated the Optional Secured Notes Closing Date, signed by (A) the President or any Vice President and (B) a principal financial or accounting officer of the Company and each of the Guarantors confirming, as of the Optional Notes Closing Date, that (I) the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder on the Closing Date and the Optional Secured Notes Closing Date (except as provided above) were true and correct on the Closing Date and the Optional Secured Notes Closing Date (except as provided above), and (II) since the Closing 38 39 Date, there has been no material adverse change in the financial condition, results of operations, business, properties or prospects of the Company and its subsidiaries, taken as a whole, and no Default or Event of Default shall have occurred and be continuing under the Secured Note Indenture or the Foothill Loan Agreement or any successor Credit Facility. Any Optional Secured Notes sold on the Optional Secured Notes Closing Date shall be registered under the Securities Act for resale by RRF on a Shelf Registration Statement pursuant to Rule 415 under the Securities Act as provided in Section 4(c) of the Registration Rights Agreement. All opinions, certificates, letters and other documents required by this Section 6 to be delivered by the Company and the Guarantors will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you. The Company and the Guarantors will furnish the Purchasers and Exchanging Noteholders with such conformed copies of such opinions, certificates, letters and other documents as they shall reasonably request. 7. Conditions of the Company's and the Guarantors' Obligations. The several obligations of the Company and the Guarantors under this Agreement are subject to the satisfaction of each of the following conditions: (a) Exchange and delivery of at least 90% of the outstanding aggregate principal amount of the Old Notes, without withdrawal, prior to the Closing Date and the consent by the holders of such Old Notes to the Old Note Indenture Modifications. (b) The waiver of accrued interest on the Old Notes exchanged for Privately Placed Notes. (c) There is no law, statute, rule or regulation or applicable interpretation of the staff of the SEC issued or promulgated which, in the good faith determination of the Company, does not permit the Company to complete the Private Exchange. (d) There is no action or proceeding instituted or threatened in any court or by or before any governmental agency or regulatory authority or any injunction, order or decree issued with respect to the Private Exchange which, in the sole judgment of the Company, would prohibit the Company from proceeding with or consummating the Private Exchange. (e) There is no failure for any reason to consummate the Private Placement and the transactions contemplated by the JJF Purchase Agreement. (f) Execution and delivery of the Intercreditor Agreement (as defined in the Indenture) by the parties thereto simultaneously with or prior to the execution and delivery of this Agreement by the parties hereto. 39 40 8. Several Liability. The obligations of the Purchaser and Exchanging Noteholders hereunder shall be several and not joint. 9. Effective Date of Agreement and Termination. This Agreement shall become effective upon the execution hereof by all parties. This Agreement may be terminated at any time on or prior to the Closing Date by the Purchaser or by a majority in interest of the Exchanging Noteholders by written notice to the Company if any of the following has occurred: (i) subsequent to the date information is provided in the Private Placement Memorandum, any Material Adverse Effect which, in your judgment, materially impairs the investment quality of any of the Secured Notes, (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or material adverse change in the financial markets of the United States or elsewhere, or any other substantial national or international calamity or emergency the effect of which on financial markets is such as to make it, in your judgment, impractical or inadvisable to proceed with the transactions contemplated by the Private Placement Memorandum, (iii) any suspension or limitation of trading generally in securities on the New York Stock Exchange or in the over-the-counter markets or any setting of minimum prices for trading on such exchange or market, (iv) any declaration of a general banking moratorium by either federal or New York authorities, (v) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs that in the judgment of Rothschild Recovery Fund or of a majority in interest of the Purchasers and Exchanging Noteholders has a material adverse effect on the financial markets in the United States, or (vi) the enactment, publication, decree, or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in the judgment of Rothschild Recovery Fund or of a majority in interest of the Purchasers and Exchanging Noteholders would have a Material Adverse Effect. The agreements, representations and warranties of the Company and the Guarantors, their respective officers and directors and of each Purchaser and Exchanging Noteholder set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Secured Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of the Purchaser or any Exchanging Noteholder or by or on behalf of the Company and the Guarantors, the officers or directors of the Company or the Guarantors or controlling person of the Company or the Guarantors, (ii) acceptance of the Privately Placed Notes and payment for them hereunder and (iii) termination of this Agreement. If this Agreement shall be terminated by the Purchasers or Exchanging Noteholders pursuant to clause (i) of the second paragraph of this Section 9 or because of the failure or refusal on the part of the Company or any Guarantor to comply with the terms or to fulfill any of the conditions of this Agreement, the Company and the Guarantors agree to reimburse the Purchaser and each Exchanging Noteholder for all reasonable out-of-pocket expenses incurred by such Purchaser or Exchanging Noteholder. Notwithstanding any termination of this Agreement, the Company and the Guarantors shall be liable for all expenses which it has agreed to pay pursuant to Section 4(f) hereof. 40 41 Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantors, the Purchaser and each Exchanging Noteholder, any indemnified party referred to in Section 6 hereof and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the Secured Notes from any Purchaser or Exchanging Noteholder merely because of such purchase. 10. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (a) if to the Company or any Guarantor, 2708 Cranberry Square, Morgantown, West Virginia 26505, Attention: P. Bruce Sparks, with a copy to Klett, Lieber, Rooney & Schorling, One Oxford Center, 40th Floor, Pittsburgh, Pennsylvania 15219-6498, Attention: Craig S. Heryford, and (b) (i) if to the Purchaser, at its address set forth in Schedule II, (ii) if to the Exchanging Noteholders, to each Exchanging Noteholder at its address set forth in Schedule III, in each case with a copy to Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036, Attention: Ted Farris, or in any case to such other address as the person to be notified may have requested in writing. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 41 42 Please confirm that the foregoing correctly sets forth the Agreement among the Company, the Guarantors, each Purchaser and each Exchanging Noteholder. Very truly yours, ANKER COAL GROUP, INC. By: /s/ P. Bruce Sparks ------------------------------- Name: P. Bruce Sparks Title: President EACH OTHER ENTITY LISTED ON SCHEDULE I HERETO By: /s/ B. Judd Hartman ------------------------------- Name: B. Judd Hartman Title: Secretary Accepted and agreed to as of the date first above written: ROTHSCHILD RECOVERY FUND L.P. By Rothschild Recovery Associates, L.L.C., General Partner By: /s/ Wilbur Ross, Jr. ------------------------------- Name: Wilbur Ross, Jr. Title: Managing Member AIG SPECIAL SITUATIONS HOLDING FUND LTD. By: /s/ Andrew W. Gitlin ------------------------------- Name: Andrew W. Gitlin Title: Director 43 Intrepid Management Company LLC as Investment Manager By: /s/ Victor Consoli ------------------------------- Name: Victor Consoli Title: Portfolio Manager Pilgrim High Yield Fund - ------------------------------- By: /s/ Kevin Mathews ------------------------------- Name: Kevin Mathews Title: Senior Vice President/ Portfolio Manager 44 PROSPECT STREET HIGH INCOME PORTFOLIO By: /s/ John Frabotta ------------------------------- Name: John Frabotta Title: Portfolio Manager Putnam Investment Management, Inc., Putnam Fiduciary Trust Company, and The Putnam Advisory Company, Inc. on behalf of their clients listed on Attachment A By: /s/ John R. Verani ------------------------------- Name: John R. Verani Title: Senior Vice President DREYFUS HIGH YIELD STRATEGIES FUND By: The Dreyfus Corporation, as Investment Manager By: /s/ Stephanie Pierce ------------------------------- Name: Stephanie Pierce Title: Vice President 45 SCHEDULE I
Company State of Incorporation ------- ---------------------- Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
46 SCHEDULE II
PURCHASER NUMBER OF PRINCIPAL MAXIMUM PRINCIPAL WARRANTS AMOUNT OF NEW AMOUNT OF OPTIONAL RECEIVED MONEY NOTES SECURED NOTES TO BE BEING PURCHASED PURCHASED Rothschild Recovery Fund c/o Rothschild, Inc. 1251 Avenue of the Americas New York, NY 10020 1,016 $13,199,000 * Telephone: (212) 403-3500 Fax: (212) 403-3578
- ------------------- *The Maximum Optional Notes Amount. 47 SCHEDULE III
PRINCIPAL AMOUNT OF NUMBER OF PRINCIPAL AMOUNT EXCHANGING NOTEHOLDER SECURED NOTES WARRANTS OF OLD NOTES RECEIVED RECEIVED SURRENDERED IN EXCHANGE Rothschild Recovery Fund, L.P. $32,748,000 766 $40,935,000 c/o Rothschild, Inc. 1251 Avenue of the Americas New York, NY 10020 AIG Special Situations Holding $800,000 19 $1,000,000 Fund Ltd. c/o Intrepid Management Company LLC 1281 East Main Street Stamford, CT 06902 Pilgrim High Yield Fund $4,000,000 94 $5,000,000 ML CLO XV Pilgrim America $800,000 19 $1,000,000 ML CBO XX Pilgrim America $1,600,000 37 $2,000,000 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004 Prospect Street High Income $5,600,000 131 $7,000,000 Portfolio Inc. 60 State Street, Suite 3750 Boston, MA 02109 The George Putnam Fund of $120,000 3 $150,000 Boston Putnam Income Fund $160,000 4 $200,000 Putnam Equity Income Fund $8,000 1 $10,000 Putnam Balanced Retirement $24,000 1 $30,000 Fund Putnam High Yield Advantage $10,944,000 256 $13,680,000 Fund Putnam High Income Convertible $64,000 1 $80,000 and Bond Fund Putnam Variable Trust - Putnam $2,416,000 57 $3,020,000 VT High Yield Fund Putnam Variable Trust - Putnam $32,000 1 $40,000 VT Global Asset Allocation Fund Putnam Master Income Trust $280,000 7 $350,000
48
PRINCIPAL AMOUNT OF NUMBER OF PRINCIPAL AMOUNT EXCHANGING NOTEHOLDER SECURED NOTES WARRANTS OF OLD NOTES RECEIVED RECEIVED SURRENDERED IN EXCHANGE Putnam Premier Income Trust $680,000 16 $850,000 Putnam Master Intermediate $160,000 4 $200,000 Income Trust Putnam Diversified Income Trust $2,828,000 66 $3,535,000 Putnam Convertible $64,000 1 $80,000 Opportunities and Income Trust Putnam Asset Allocation Funds - $480,000 11 $600,000 Growth Portfolio Putnam Asset Allocation Funds - $900,000 21 $1,125,000 Balanced Portfolio Putnam Asset Allocation Funds - $320,000 7 $400,000 Conservative Portfolio Putnam Funds Trust - Putnam $28,000 1 $35,000 High Yield Trust II Travelers Series Fund Inc. - $120,000 3 $150,000 Putnam Diversified Income Portfolio Lincoln National Global Asset $172,000 4 $215,000 Allocation Fund, Inc. Putnam Variable Trust - Putnam $276,000 6 $345,000 VT Diversified Income Fund Putnam High Yield Managed $988,000 23 $1,235,000 Trust Putnam High Yield Fixed Income $440,000 10 $550,000 Fund, LLC Abbott Laboratories Annuity $72,000 2 $90,000 Retirement Plan Strategic Global Fund - High $400,000 9 $500,000 Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity $400,000 9 $500,000 Insurance Company 1 Post Office Square, 7th Floor Boston, MA 02109
49
PRINCIPAL AMOUNT OF NUMBER OF PRINCIPAL AMOUNT SECURED NOTES WARRANTS OF OLD NOTES EXCHANGING NOTEHOLDER RECEIVED RECEIVED SURRENDERED IN EXCHANGE Prudential High Yield Total $800,000 19 $1,000,000 Return Fund, Inc. Prudential High Yield Fund, Inc. $8,600,000 201 $10,750,000 Prudential Distressed Securities $400,000 9 $500,000 Fund, Inc. The Prudential Series Fund, Inc. $2,400,000 56 $3,000,000 High Yield Bond Portfolio 100 Mulberry Street Gateway Center Building No. 2, 3rd Floor Mailstop No. 04-03-01 Newark, NJ 07102 Dreyfus High Yield Strategies $6,680,000 156 $8,350,000 Fund 200 Park Avenue, 55th Floor New York, NY 10166
50 EXHIBIT A Form of Registration Rights Agreement 51 EXHIBIT B Form of Common Stock Registration Rights Agreement 52 EXHIBIT C Form of Supplemental Indenture 53 EXHIBIT D Form of Investor Agreement EX-10.16 9 JJF GROUP EXCHANGE AGREEMENT 1 EXHIBIT 10.16 EXECUTION VERSION ANKER COAL GROUP, INC. $6,000,000 aggregate principal amount of 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) JJF GROUP EXCHANGE AGREEMENT October 26, 1999 TO JJF GROUP LIMITED LIABILITY COMPANY, a West Virginia limited liability company ("JJF Group" or the "Purchaser"). Ladies & Gentlemen: Anker Coal Group, Inc., a Delaware corporation (the "Company"), and each of the entities listed on Schedule I hereto (each a "Guarantor" and collectively, the "Guarantors") agrees with you as follows: 1. Certain Definitions. "Agreement" means this JJF Group Exchange and Purchase Agreement. "Closing Date" means the date on which the JJF Private Exchange, the Private Exchange, and the Private Placement are consummated. "Closing Price" of any Notes means, on any date of determination, (i) the average of the closing bid prices in the over the counter market, as quoted to the Company for such date by such of the following investment banking firms as are quoting closing bid prices for Notes on such date: Goldman, Sachs & Co., Bear Steans & Co., Donaldson Lufkin & Jenrette Securities Corporation or Jeffries & Company, or (ii) if no such quotes are available, the market value of the Notes on such date as determined by Donaldson Lufkin & Jenrette Securities Corporation retained for this purpose by and at the sole expense of the Company. "Market Price" means an amount equal to the average of the Closing Prices of the Notes for the 20 trading days ending 5 trading days prior to October 1, 2000. "Maximum Optional Notes Amount" means the principal amount of Optional Secured Notes required to be purchased by RRF pursuant to the Purchase Agreement which would be sufficient to provide cash proceeds to the Company at a purchase price of 95% of the Market Price in an amount equal to the lesser of (i) $6.3 million or (ii) the amount of interest due on all outstanding Notes on October 1, 2000; provided, however, that the foregoing $6.3 million limitation may be waived by RRF in its sole discretion. 2 "Notes" means, as of any date, all of the Company's 14.25% Second Priority Senior Secured Notes issued and outstanding under the Secured Note Indenture. "Operative Documents" means the JJF Notes, the Guarantees, the Secured Note Indenture, the Security Documents, and the Registration Rights Agreement. "Private Placement Memorandum" means the Private Exchange and Private Placement Memorandum dated October 26, 1999. The Private Placement Memorandum incorporates by reference the Company's Annual Report on Form 10-K for the year ended December 31, 1998, Quarterly Reports on Form 10-Q for the quarters ended March 31 and June 30, 1999 and Current Reports on Form 8-K filed April 1, 1999, April 16, 1999, May 3, 1999, May 28, 1999, June 4, 1999, August 27, 1999, September 8, 1999, October 1, 1999, October 5, 1999 and October 22, 1999 as well as any documents filed by the Company under the Securities Exchange Act of 1934 prior to the Closing Date (collectively, the "Exchange Act Documents"); the Exchange Act Documents are delivered with or as a supplement to the Private Placement Memorandum. As used herein, the term "Private Placement Memorandum" includes the Exchange Act Documents. "Purchase Agreement" means the Exchange and Purchase Agreement by and among the Company, the Guarantors, RRF, and the Exchanging Noteholders listed in Schedule II to the Purchase Agreement. "RRF" means Rothschild Recovery Fund, L.P. "Secured Note Indenture" means an Indenture to be dated as of October 1, 1999 between the Company and the Guarantors named therein and Bank of New York, as trustee. "Secured Note Trustee" means Bank of New York, as trustee under the Secured Note Indenture, or any successor trustee. "Secured Notes" means all Notes issued pursuant to the Secured Note Indenture, and includes the Exchange Notes and the New Money Notes issued pursuant to the Purchase Agreement, the JJF Notes issued pursuant to this Agreement, the Series B Notes to be issued pursuant to the Registered Exchange Offer, the Public Notes to be issued in any Public Exchange Offer, the Optional Secured Notes, and Secondary Notes issued in lieu of payment of cash interest due on April 1, 2000. The Exchange Notes, the JJF Notes and the New Money Notes are sometimes hereinafter referred to as the Privately Placed Notes. As used herein, unless the context clearly requires otherwise, the term "Securities" shall include the Secured Notes, the Guarantees thereof, the Warrants and the Warrant Shares. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Secured Note Indenture. 2 3 2. JJF Group Exchange. The Company proposes to issue and sell to JJF Group in a private exchange transaction (the "JJF Group Exchange"), upon the terms and subject to the conditions set forth in the Private Placement Memorandum and this Agreement, $6.0 million aggregate principal amount of the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "JJF Notes") in exchange for cancellation of all of JJF Group's stock in the Company and in full satisfaction of its rights under the Put Option Agreement dated as of August 25, 1998 (the "Put Agreement") to require the Company to purchase that stock in installments over time for $10.0 million plus interest. The JJF Notes, together with the other Secured Notes, will be issued pursuant to the Secured Note Indenture and will be guaranteed (the "Guarantees") on a senior secured basis by each of the Guarantors. The Secured Notes will be secured by a lien on substantially all of the assets of the Company and the GUARANTORS, subject to the prior security interest of the Credit Facilities (as defined in the Secured Note Indenture) and to Permitted Liens but excluding the Excluded Assets (as defined in the Secured Note Indenture) and real property located in Maryland. (If and when the Company or any Guarantor grants a lien on the Maryland real property to secure the Company's credit facilities, it will grant a junior lien on the same real property to secure the Secured Notes.) The Secured Notes will also have the benefit of the Security Documents (as defined in the Secured Note Indenture). In connection with the Public Exchange Offer and the Registered Exchange Offer, the Company will file an application for qualification of the Secured Note Indenture on under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Related Transactions. The Company also proposes to consummate, contemporaneously with the JJF Group Exchange, the following additional transactions: (a) Private Exchange. The Company proposes to engage in a private exchange transaction (the "Private Exchange") upon the terms and subject to the conditions set forth in the Private Placement Memorandum and the Purchase Agreement. In the Private Exchange, the Company will issue, in exchange for each $1,000 principal amount of its outstanding 9 3/4% Series B Senior Notes due 2007 (the "Old Notes") and outstanding interest thereon, $800 principal amount of its 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Exchange Notes") and warrants (the "Exchange Warrants") to purchase a pro rata share (based upon the principal amount of Old Notes exchanged) of 20% of the Company's Common Stock (the "Exchange Warrant Shares"). (b) Private Placement. The Company also proposes to issue and sell to RRF, pursuant to the terms of the Private Placement Memorandum and the Purchase Agreement, an aggregate of $13.2 million principal amount of additional 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Money Notes"), and warrants (the "New Money Warrants," and together with the Exchange Warrants, collectively, the "Warrants") to purchase an aggregate of 10% of the Company's Common Stock (the "New Money Warrant Shares," and together with the Exchange Warrant Shares, collectively, the "Warrant Shares"). (c) Amendment of Old Notes. The Old Notes were issued pursuant to an Indenture (the "Old Note Indenture")dated as of September 25, 1997 among the Company, the Guarantors named therein (the "Old Note Guarantors") and HSBC USA (formerly known as Marine Midland Bank), as Trustee (the "Old Note Indenture 3 4 Trustee"). The Company has proposed to make and each Exchanging Noteholder has consented to or will consent to certain amendments and modifications (the "Old Note Indenture Modifications") described in the Private Placement Memorandum pursuant to a Supplemental Indenture to be dated as of October 1, 1999 among the Company, the Old Note Guarantors and the Old Note Indenture Trustee (the "Supplemental Indenture") in the form attached to the Purchase Agreement as Exhibit C. Old Notes as amended by the Old Note Indenture Modifications are hereinafter sometimes referred to as the "Amended Old Notes" and the Old Note Indenture as amended by the Old Note Indenture Modifications is sometimes referred to as the "Amended Old Note Indenture." Each Exchanging Noteholder will agree to waive all interest due on the Old Notes exchanged for Exchange Notes in the Private Exchange. (d) Public Exchange Offer. Following the completion of the Private Exchange and the Old Note Indenture Modifications, the Company currently plans (but shall not be obligated) to make a further exchange offer under Section 3(a)(9) of the Securities Act of 1933 (the "Act") or other applicable exemption or pursuant to a registration statement under the Act (the "Public Exchange Offer") to exchange New Secured Notes ("Public Notes") for Old Notes that remain outstanding following completion of the Private Exchange. (e) Optional Secured Notes. RRF also has committed, at the option of the Company and subject to satisfaction of certain conditions, to purchase additional Series B Secured Notes (the "Optional Secured Notes") on or about October 1, 2000 for cash in an amount not to exceed the Maximum Optional Notes at a purchase price equal to 95% of the Market Price. The proceeds of the Optional Secured Notes are to be used to pay interest on the New Secured Notes due October 1, 2000. The Optional Secured Notes shall be issued in a private placement and shall be registered for resale as provided in Section 4(c) of the Registration Rights Agreement. 4. Registration Status. The Privately Placed Notes (including the JJF Notes) are being issued and sold pursuant to an exemption from the registration requirements of the Act provided by Section 4(2) thereof and Regulation D thereunder. As such, they will not be registered under the Act. The Series B Secured Notes to be issued in the Registered Exchange Offer (the "Registered Notes") will each be registered under the Act. The Public Notes to be issued in the Public Exchange Offer will each be issued pursuant to the exemption from the registration requirements of the Act provided by Section 3(a)(9) of the Act or any other exemption or otherwise offered and sold in compliance with the registration requirements of the Act. The Optional Secured Notes will be issued and sold pursuant to an exemption from the registration requirements of the Act provided by Section 4(2) thereof and Regulation D thereunder, but will be registered for resale under the Act as provided in Section 4(c) of the Registration Rights Agreement. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Act, the Series A Secured Notes (and all securities issued in exchange therefor or in substitution thereof other than Registered Notes) shall bear the following legend: 4 5 "THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE SECURED NOTE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE SECURED NOTE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF THE NOTES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE CERTIFICATE OF TRANSFER (THE FORM OF WHICH CAN BE OBTAINED 5 6 FROM THE SECURED NOTE TRUSTEE) RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE SECURED NOTE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE SECURED NOTE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTIONS," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE SECURED NOTE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING. THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED IN THE INDENTURE), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED IN THE INDENTURE). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT." 5. Registration Rights. Holders (including subsequent transferees) of the Privately Placed Notes will have the registration rights set forth in the registration rights agreement relating thereto (the "Registration Rights Agreement"), to be dated the Closing Date, in substantially the form of Exhibit A hereto, for so long as such Privately Placed Notes constitute "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Guarantors will agree to file with the Securities and Exchange Commission (the "Commission"), under the circumstances set forth therein, (i) a registration statement under the Act (the "Exchange Offer Registration Statement") relating to the Registered Notes to be offered in exchange for the Privately Placed Notes (the "Registered Exchange Offer"), and (ii) under certain circumstances, a shelf registration statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement") relating to the resale by certain holders of the Privately Placed Notes, and to use their reasonable best efforts to cause such Registration Statement to be declared effective. In connection therewith, the Company will file a statement of eligibility and qualification of the Secured Note Trustee on Form T-1 with the Securities and Exchange Commission to qualify the Secured Note Indenture under the Trust Indenture Act. Agreement to Sell, Purchase and Exchange. On the basis of the representations, warranties and agreements contained in this Agreement, and subject to its terms and conditions, the Company agrees to issue and sell to JJF Group, and JJF Group agrees to purchase from the Company, JJF Notes in the principal amount of $6,000,000 in exchange for cancellation of all shares of stock in the Company owned by JJF Group and release of all rights of JJF Group (including any amounts owed to JJF Group) under the Put Agreement. 6 7 7. Closing; Delivery of Notes, Cancellation of Shares and Release of Rights. Delivery to JJF Group of the JJF Notes, cancellation of the shares of stock in the Company owned by JJF Group and release of all rights of JJF Group (including any amounts owed to JJF Group) under the Put Agreement shall occur at a closing at 9:30 A.M., New York time on the Closing Date at the offices of Coudert Brothers, 1114 Avenue of the Americas, New York, New York 10036, or such other time or place as the parties shall designate (the "Closing"). At the Closing, the parties shall execute and deliver a Termination and Cancellation Agreement in substantially the form attached hereto as Exhibit B, and JJF Group shall deliver to the Company original stock certificates, duly endorsed in blank, representing all shares of stock in the Company owned by JJF Group. 8. Agreements of the Company and the Guarantors. The Company and each of the Guarantors, jointly and severally, agrees with JJF Group as follows: (a) To advise you promptly and, if requested by you, confirm such advice in writing, (i) of the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any of the Secured Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by any state securities commission or other regulatory authority, and (ii) of the happening of any event that makes any statement of a material fact made in the Private Placement Memorandum untrue or that requires the making of any additions to or changes in the Private Placement Memorandum (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they are made, not misleading. The Company and the Guarantors shall use their reasonable best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of any of the Secured Notes under any state securities or Blue Sky laws, and if at any time any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption of any of the Secured Notes, the Company and the Guarantors shall use their reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish you without charge, one copy of the Private Placement Memorandum, and any amendments or supplements thereto, and any additional copies as you may reasonably request. The Company and the Guarantors consent to the use of the Private Placement Memorandum, and any amendments and supplements thereto, by you in connection with resales by you permitted by Section 10. (c) Not to amend or supplement the Private Placement Memorandum or the terms of the JJF Group Exchange prior to the Closing Date unless you shall previously have been advised thereof, been furnished a copy thereof and shall not have objected thereto after being given a reasonable period to review the same. (d) If, after the date hereof and prior to the date 90 days after the Closing Date, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of your counsel, the Private Placement Memorandum as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the 7 8 circumstances under which they were made, not misleading, or it shall otherwise become necessary to amend or supplement the Private Placement Memorandum to comply with applicable law, forthwith to prepare an appropriate amendment or supplement to the Private Placement Memorandum to correct such untrue statement or omission or so that the Private Placement Memorandum, as so amended or supplemented, will comply with applicable law. (e) To cooperate with you and your counsel in connection with the qualification of the Secured Notes under the securities or Blue Sky laws of such jurisdictions as you may reasonably request and to continue such qualification in effect for a period of two years after the Closing Date; provided, however, that neither the Company nor any of the Guarantors shall be required in connection therewith to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to service of process in suits or taxation in any jurisdiction where it is not now so subject. (f) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (i) the preparation, printing, filing and distribution of the Private Placement Memorandum (including, without limitation, financial statements and exhibits) and all amendments and supplements thereto, (ii) the preparation (including, without limitation, word processing and duplication costs) and delivery of this Agreement and the other Operative Documents, (iii) the issuance and delivery by the Company and the Guarantors of the Securities, (iv) the qualification of the Securities for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, the reasonable fees and disbursements of one counsel relating to such registration or qualification), (v) furnishing such copies of the Private Placement Memorandum, and all amendments and supplements thereto, as may be reasonably requested for use in connection with resales permitted by Section 10, (vi) the preparation of certificates for the Securities (including, without limitation, printing and engraving thereof), (vii) the reasonable fees, disbursements and expenses of Coudert Brothers and Steptoe & Johnson, counsel to RRF and the Exchanging Noteholders, of the Company's and the Guarantors' counsel and accountants, and of counsel for JJF Group (not to exceed $5,000 in the case of counsel for JJF Group), (viii) all expenses and listing fees in connection with the application for quotation of the Privately Placed Notes in the National Association of Securities Dealers, Inc. ("NASD") Automated Quotation System - PORTAL ("PORTAL"), (ix) all fees and expenses (including fees and expenses of counsel) of the Company and the Guarantors in connection with approval of the Securities by DTC for "book-entry" transfer, (x) the reasonable fees and expenses of the Secured Note Trustee and the Secured Note Trustee's counsel in connection with the Secured Note Indenture and the Securities and the Company's Registrar and Transfer Agent in connection with the Warrants and Warrant Shares and (xi) the performance by the Company and the Guarantors of their other obligations under this Agreement and the other Operative Documents. (g) Not to voluntarily claim, and to resist actively any attempts to claim, the benefit of any usury laws against the holders of any Securities. 8 9 (h) To do and perform all things required to be done and performed under this Agreement by them prior to or after the Closing Date and to use their reasonable best efforts to satisfy all conditions precedent on their part to the delivery of the Securities. (i) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Act) that would be integrated with the sale of the JJF Notes in a manner that would require the registration under the Act of the sale or issuance to you of the JJF Notes. (j) For so long as it is required to do so under the Secured Note Indenture, and during any period in which the Company is not subject to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), to make available to you in connection with any sale of the JJF Notes and any prospective purchaser of such Privately Placed Notes from such Holder, upon their request, the information required by Rule 144A(d)(4) under the Act. (k) So long as permitted under applicable law, to cause the Registered Exchange Offer to be made in the appropriate form to permit registration of the Registered Notes to be offered in exchange for the JJF Notes and to comply with all applicable federal and state securities laws in connection with the Registered Exchange Offer. (l) To comply with the Registration Rights Agreement, and all agreements set forth in the representation letter of the Company to DTC relating to the approval of the Secured Notes and the Guarantees by DTC for "book-entry" transfer. (m) To use their reasonable best efforts to effect the inclusion of the Privately Placed Notes in PORTAL. (n) Not to effect any Public Exchange Offer unless the notes issued pursuant to such public exchange (i) are of a different series from all then outstanding Secured Notes or (ii) are entitled to the benefits of the Security Documents to the same extent and with the same priority as all other outstanding Secured Notes of the same series subject to no intervening Liens that secure liabilities of the Company or a Guarantor or other material intervening Liens. 9. Representations and Warranties of the Company and Guarantors. The Company and each of the Guarantors, jointly and severally, represent and warrant to you that: (a) The Private Placement Memorandum, as of its date, did not, and at the Closing Date, the Private Placement Memorandum and any amendment or supplement thereto will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (a) shall not apply to statements in or omissions from the Private Placement Memorandum (or any supplement or amendment thereto) made in reliance upon or in conformity with information relating 9 10 to you furnished to the Company and the Guarantors in writing by you or on your behalf expressly for use therein. No stop order preventing the use of the Private Placement Memorandum, or any amendment or supplement thereto, or any order asserting that any of the transactions contemplated by this Agreement are subject to the registration requirements of the Act, has been issued. The Private Placement Memorandum, as of its date, and each amendment or supplement thereto, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act. (b) The Company or the Guarantors, as applicable, have good and indefeasible title to the Collateral, free and clear of any Liens, except for the lien of the Senior Secured Indebtedness and Permitted Liens. (c) The representations and warranties contained in the Security Documents are true and correct in all material respects. (d) When the JJF Notes are issued and delivered pursuant to this Agreement, none of the Secured Notes will be of the same class (within the meaning of Rule 144A under the Act) as securities of the Company or the Guarantors that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated interdealer quotation system. (e) When executed, the Secured Note Indenture and the Secured Notes will (i) constitute direct, unconditional and secured general obligations of the Company, (ii) rank in priority of payment at least pari passu with all other present and future unsecured Senior Indebtedness of the Company, and (iii) rank in priority of security, with respect to the property of the Company covered by the Security Documents, prior to all other present and future Indebtedness of the Company (other than the Senior Secured Indebtedness and Indebtedness secured by Permitted Liens). (f) The guarantee of each Guarantor under the Secured Note Indenture and the Secured Notes will (i) constitute the direct, unconditional and secured general obligations of such Guarantor, (ii) rank in priority of payment at least pari passu with all other present and future unsecured Indebtedness of such Guarantor, and (iii) rank in right of security, with respect to the property covered by the Security Documents, if any, executed by such Guarantor, prior to all other present and future Indebtedness of such Guarantor (other than the Senior Secured Indebtedness and Indebtedness secured by Permitted Liens). (g) Each of the Security Documents to which the Company or any Guarantor is party when executed and delivered will constitute a perfected security interest in and Lien on the Collateral covered by such Security Document, securing payment of all principal, interest and other amounts payable under the Secured Note Indenture and the Secured Notes, which Lien and security interest will rank senior to all other Liens and security interests on such collateral (other than the Senior Secured Indebtedness and Permitted Liens), and neither the Company nor any Guarantor is a party to any other security agreement or instrument creating or purporting to create a security 10 11 interest in and Lien on such collateral, other than the Senior Secured Indebtedness and Permitted Liens. (h) The Company and each of the Guarantors has been duly incorporated or formed, is validly existing and in good standing under the laws of its respective jurisdiction of incorporation, has all requisite corporate power and authority to carry on its business as it is currently being conducted and as described in the Private Placement Memorandum and to own, lease and operate its properties, and is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction in which the nature of its business or its ownership or leasing of property requires such qualification, except where the failure to so qualify or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the financial condition, results of operations, business, properties or prospects of the Company and its subsidiaries, taken as a whole (a "Material Adverse Effect"). (i) The entities listed on Schedule I hereto are all the subsidiaries, direct or indirect, of the Company which are Guarantors. The Company owns, directly or indirectly through other subsidiaries, 100% of the outstanding capital stock or other securities evidencing equity ownership of such subsidiaries, free and clear of any security interest, claim, lien, limitation on voting rights or encumbrance (except pursuant to the Security Documents and the Senior Secured Indebtedness); and all of such securities have been duly authorized, validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. There are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any such shares of capital stock or other equity interest of such subsidiaries. (j) The Company and each of the Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreement and the other Operative Documents to which it is a party and to consummate the transactions contemplated hereby and thereby, including, without limitation, with respect to the Company, the corporate power and authority to issue, sell and deliver the Securities as provided herein and therein. (k) This Agreement has been duly authorized, executed and delivered by the Company and each of the Guarantors and, assuming due authorization, execution and delivery by you is a valid and binding agreement of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution hereunder may be limited by federal or state securities laws or public policy considerations. 11 12 (l) The Secured Note Indenture has been duly authorized by the Company and each of the Guarantors and, assuming the due authorization, execution and delivery of the Secured Note Indenture by the Secured Note Trustee, the Secured Note Indenture when duly executed and delivered by each such person, will be the valid and binding obligation of the Company and each of the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (i) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (ii) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws or public policy considerations. The Secured Note Indenture, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (m) The Secured Notes have been duly authorized for issuance by the Company, and assuming due authorization, execution and delivery of the Secured Note Indenture by the Secured Note Trustee and due authentication of the Secured Notes by the Secured Note Trustee, the Secured Notes, and when issued, authenticated and delivered in accordance with the terms of the Secured Note Indenture, this Agreement, the Registration Rights Agreement, the Registered Exchange Offer, and the Public Exchange Offer will be the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Secured Note Indenture, except to the extent that the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law). The Secured Notes, when issued, authenticated and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (n) The Security Documents have been duly authorized by the Company and each of the Guarantors and, assuming due authorization, execution and delivery of the Security Documents by the Secured Note Trustee and the Collateral Agent, the Security Documents, when duly executed and delivered by the Company and the Guarantors, will be the legally valid and binding obligation of the Company and the Guarantors enforceable against each of them in accordance with its terms, except to the extent that (i) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (ii) any rights to indemnity or contribution thereunder may be limited by federal or state securities laws or public policy considerations. The Security Documents, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. 12 13 (o) The Registration Rights Agreement has been duly authorized by the Company and each of the Guarantors and, assuming due authorization, execution and delivery of the Registration Rights Agreement by RRF, the Exchanging Noteholders and you, as applicable, the Registration Rights Agreement, when duly executed and delivered by the Company and the Guarantors will be the legally valid and binding obligations of the Company and the Guarantors, enforceable against each of them in accordance with its terms, except to the extent that (i) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (ii) any rights to indemnity or contribution thereunder may be limited by federal or state securities laws or public policy considerations. The Registration Rights Agreement, when executed and delivered, will conform in all material respects to the description thereof in the Private Placement Memorandum. (p) Except as set forth in Schedule 9(p), neither the Company nor any of the Guarantors is (i) in violation of its respective charter or bylaws or (ii) in default in the performance of (and there exists no condition that, with notice, the passage of time, or otherwise, would constitute a default under) the Old Note Indenture, the Senior Secured Indebtedness or any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties is subject, or (iii) in violation of any law, statute, rule, regulation, judgment or court decree applicable to the Company, any of its subsidiaries or their assets or properties, except, in the case of (ii) or (iii), for such violations or defaults that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (q) The execution, delivery and performance by the Company and each of the Guarantors of this Agreement and the other Operative Documents to which it is a party, the issuance and sale of the JJF Notes, and the completion of the JJF Group Exchange will not violate or constitute a breach of any of the terms or provisions of, or a default under (or an event that with notice or the lapse of time, or both, would constitute a default), or require consent under, or result in the imposition of a lien or encumbrance on any properties of the Company or any of its subsidiaries, or an acceleration of indebtedness pursuant to, (i) the charter or bylaws of the Company or any of its subsidiaries, (ii) any bond, debenture, note, indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them or their property is or may be bound, (iii) any statute, rule or regulation applicable to the Company, any of its subsidiaries or any of their assets or properties, or (iv) any judgment, order or decree of any court or governmental agency or authority having jurisdiction over the Company, any of its subsidiaries or their assets or properties, except, in the case of (iii) or (iv), for such violations that would not, individually or in the aggregate reasonably be expected to have a Material Adverse Effect. No consent, approval, authorization or order of, or filing, registration, qualification, license or permit of or with, any court or governmental agency, body or administrative agency is required for the execution, delivery and performance of this Agreement and the other Operative Documents by the Company and the Guarantors, and 13 14 the completion of the transactions contemplated hereby and thereby, except such as have been obtained and made (or, in the case of the Registration Rights Agreement, will be obtained and made) under the Act, the Trust Indenture Act and state securities or Blue Sky laws and regulations or such as may be required by the NASD. (r) The Company had at June 30, 1999, an authorized and outstanding capitalization as set forth in the Private Placement Memorandum. The authorized, issued and outstanding capital stock of the Company is duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights, other than those set forth in the Stockholders Agreement (as defined in the Private Placement Memorandum), which have been duly and validly waived in writing by each party thereto with respect to the transactions contemplated by the Private Placement Memorandum. Except as set forth in Schedule 9(r), there are no outstanding rights, plans, options, warrants, calls, conversion rights or any agreements, arrangements or commitments of any character (either firm or conditional) obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock, or any securities exchangeable for or convertible into shares of capital stock of the Company or any of the subsidiaries or obligating the Company or any of the subsidiaries to grant, extend or enter into any such agreement, arrangement, requirement or commitment nor are there any rights to receive any dividends or other distributions in respect of such securities, other than the right of the Company to receive dividends and distributions from any subsidiary. Schedule 9(r) sets forth the names of the holders of all options, warrants and other securities convertible into Common Stock, the dates granted/issued, the number of shares of Common Stock subject to such option, warrant or conversion, the expiration date and the exercise or conversion price (in the case of the Class A Convertible Preferred Stock, setting forth the formula and the maximum percentage into which such Class A Convertible Preferred Stock would be convertible based on an assumed initial public offering price selected by the Company). Schedule 9(r) sets forth all Existing Indebtedness (as defined in the Indenture) of the Company and its subsidiaries as of the most recent available date prior to the date of this Agreement. (s) There is (i), except as set forth in Schedule 9(s), and except as disclosed in the Private Placement Memorandum, no action, suit or proceeding before or by any court, arbitrator or governmental agency, body or official, domestic or foreign, now pending or, to the Company's knowledge, threatened or contemplated to which the Company or any of its subsidiaries is or may be a party or to which the business or property of the Company or any of its subsidiaries is or may be subject, (ii) except as disclosed in the Private Placement Memorandum (with respect to clause (A) below), no statute, rule, regulation or order that has been enacted, adopted or issued by any governmental agency and (iii) no injunction, restraining order or order of any nature by a federal or state court or foreign court of competent jurisdiction to which the Company or any of its subsidiaries is or may be subject, issued that, in the case of clauses (i), (ii) and (iii) above, (A) would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect or (B) would reasonably be expected to interfere with or adversely affect the issuance of the JJF Notes, or the validity of this Agreement, the Secured Note Indenture, the Registration Rights Agreement or any other Operative Document. 14 15 (t) Except as set forth in Schedule 9(t), there is (i) no unfair labor practice complaint pending against the Company or any of its subsidiaries nor, to the best knowledge of the Company and its subsidiaries, threatened against any of them, before the National Labor Relations Board, any state or local labor relations board or any foreign labor relations board which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (ii) no strike, labor dispute, slowdown or stoppage pending against the Company or any of its subsidiaries nor, to the best knowledge of the Company and its subsidiaries, threatened against the Company or any of its subsidiaries which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect and (iii) to the best knowledge of the Company and its subsidiaries, no union representation question existing with respect to the employees of the Company and its subsidiaries and, to the best knowledge of the Company and its subsidiaries, no union organizing activities are taking place. Neither the Company nor any of its subsidiaries has violated any federal, state or local law relating to discrimination in hiring, promotion or pay of employees, nor any applicable wage or hour laws, which violation would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (u) The Company and each Controlled Group Member (as defined below) has operated and administered each employee benefit plan covering their employees which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Plan") in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Controlled Group Member has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Internal Revenue Code of 1986, as amended (the "Code"), relating to Plans, and no event, transaction or condition has occurred or exists which could result in the incurrence of any such liability by the Company or any Controlled Group Member, or in the imposition of any encumbrance on any of the rights, properties or assets of the Company or any Controlled Group Member, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to Sections 401(a)(29) or 412 of the Code, other than such liabilities or encumbrances as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The term "Controlled Group Member" means the Company, each of its subsidiaries and each of their respective predecessors and (a) each corporation that is or was at any time a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or any of its subsidiaries, or any of their respective predecessors, (b) each trade or business, whether or not incorporated, that is or was at any time under common control (within the meaning of Section 414(c) of the Code) with the Company or any of its subsidiaries, or any of their respective predecessors, and (c) each trade or business, whether or not incorporated, that is or was at any time a member of the same affiliated service group (within the meaning of Section 414(m) of the Code). (v) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding 15 16 purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than a Material amount in the case of any single Plan and by more than an amount which, with respect to an individual Plan or in the aggregate for all Plans would reasonably be expected to have a Material Adverse Effect. The term "benefit liabilities" has the meaning specified in Section 4001 of ERISA and the terms "current value" and "present value" have the meanings specified in Section 3 of ERISA. (w) Neither the Company nor any Controlled Group Member has incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under Sections 4201 or 4204 of ERISA in respect of any "Multiemployer" Plans (as that term is defined by Section 4001 (a)(3)of ERISA) that individually or in the aggregate would reasonably be expected to have a Material Adverse Effect. (x) The expected post-retirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by Section 4980B of the Code) of the Company and its subsidiaries would not reasonably be expected to have a Material Adverse Effect. (y) Except as set forth in Schedule 9(y) or as otherwise reflected in the Company's financial statements, the expected liability of the Company and its subsidiaries for retiree health care benefits under the Retiree Health Care Benefit Act of 1992 would not reasonably be expected to have a Material Adverse Effect. (z) In the ordinary course of its business, each of the Company and its subsidiaries conducts periodic reviews of the effect of Environmental Laws (as defined herein) and the disposal of hazardous or toxic substances, wastes, pollutants and contaminants on the business, operations and properties of the Company and its subsidiaries, in the course of which it identifies and evaluates associated costs and liabilities (including, without limitation, all capital and operating expenditures required for clean-up, closure of properties and compliance with Environmental Laws, all permits, licenses and approvals, all related constraints on operating activities and all potential liabilities to third parties). On the basis of such reviews, the Company has reasonably concluded that, except as disclosed on Schedule 9(z), such associated costs and liabilities, individually or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of its subsidiaries (i) has violated any environmental, safety or similar law or regulation applicable to it or its business or property relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants, including, without limitation, the Clean Air Act, as amended, the Clean Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, the Surface Mining Control and Reclamation Act, as amended (the "Surface Mining Act"), the Occupational Safety 16 17 and Health Act, as amended, and comparable state and local laws and other safety, health and environmental conservation or protection laws ("Environmental Laws"), the effect of which would be to cause, individually or in the aggregate, a Material Adverse Effect, or (ii) except as disclosed on Schedule 9(bb), lacks any notices, permits, licenses of other approvals required of them under applicable Environmental Laws or is violating any terms and conditions of any such notice, permit, license or approval, the effect of which would be to cause, individually or in the aggregate, a Material Adverse Effect. Without limitation of the foregoing, there is as of the date hereof no litigation or action pending or, to the best knowledge of the Company, threatened against the Company or any of the Guarantors relating to any violation of any Environmental Laws with respect to the assets or business of the Company or any of the Guarantors which is required to be disclosed in the Private Placement Memorandum and is not so disclosed, or which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. (aa) Each of the Company and its subsidiaries is in compliance with all of the current permits ("Surface Mining Permits") held by it issued pursuant to the Surface Mining Act, or pursuant to an equivalent state regulatory program granted primacy under the provisions of 30 U.S.C. Section 1253 (collectively, "Surface Mining Laws"), including the mining plans as respects reclamation, coal processing and related activities as submitted to the Office of Surface Mining or any state equivalent agency having jurisdiction over a state program granted primacy under the provisions of 30 U.S.C. Section 1253 ("Surface Mining Enforcement Agency") to obtain the Surface Mining Permits, except where the failure to be in compliance with such laws would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has been subjected to or is as of the date hereof subject to any bond forfeiture, permit suspension or revocation proceedings instituted by any Surface Mining Enforcement Agency and neither the Company nor any of its subsidiaries is presently "permit-blocked" in any state or under the federal Applicant Violator System which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (bb) Except as set forth on Schedule 9(bb), each of the Company and its subsidiaries has (i) all licenses, certificates, permits, authorizations, approvals, franchises and other rights from, and has made all declarations and filings with, all federal, state and local authorities, all self-regulatory authorities and all courts and other tribunals (each an "Authorization") necessary to engage in the business currently conducted by it in the manner described in the Private Placement Memorandum, except where failure to have or obtain such Authorizations would not have a Material Adverse Effect and (ii) no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any such Authorization. The Company and its subsidiaries are in compliance in all material respects with the terms and conditions of all such Authorizations and with the rules and regulations of the regulatory authorities having jurisdiction with respect thereto, except where the failure to comply would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. (cc) Except as set forth on Schedule 9(cc), all leases to which the Company or any of its subsidiaries is a party are valid and binding and no default by the 17 18 Company or any of its subsidiaries has occurred and is continuing thereunder, except where such default or defaults, would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Except to the extent described in the Private Placement Memorandum, the leases, options to lease, deeds, instruments or other agreements, contracts or arrangements held by the Company and the Guarantors reflect in all material respects the rights of the Company and the Guarantors to explore the unexplored and undeveloped acreage described in the Private Placement Memorandum. The Company and the Guarantors have exercised reasonable diligence with respect to acquiring or otherwise procuring such leases, options to lease, deeds, instruments and other agreements, contracts or arrangements, although the investigation of record title made by the Company and the Guarantors generally involved no more than a preliminary review of local records, as is customary in the industry. (dd) Each of the Company and its subsidiaries owns or possesses all patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, the "Intellectual Property") presently employed by it in connection with the businesses now operated by it, except where the failure to own or possess or have the ability to acquire any of the Intellectual Property would not reasonably be expected to have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing, which if such assertion were sustained, would reasonably be expected to have a Material Adverse Effect. (ee) All tax returns required to be filed by the Company or any of its subsidiaries, in all jurisdictions, have been so filed. All taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities or that are due and payable have been paid, other than those being contested in good faith and for which adequate reserves have been provided, those currently payable without penalty or interest or those which the failure to pay would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect. Except as set forth on Schedule 9(ee) or disclosed in the Private Placement Memorandum, neither the Company nor any of its subsidiaries knows of any material proposed additional tax assessments against the Company or any of its subsidiaries. (ff) Neither the Company nor any of the Guarantors (i) is, or after giving effect to the issuance and sale of the Privately Placed Notes and the Warrants and the application of the proceeds thereof in the manner described in the Private Placement Memorandum will be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), or (ii) is a "holding company" or a "subsidiary company" or an "affiliate" or a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. (gg) Other than pursuant to the Registration Rights Agreement, the Stockholders Agreement (as defined in the Private Placement Memorandum), and the Registration Rights Agreement, dated as of August 12, 1996, by and among the parties to 18 19 the Stockholders Agreement, there are no holders of securities of the Company or any of the Guarantors who, by reason of the execution by the Company and each of the Guarantors of this Agreement or any other Operative Documents to which it is a party or the consummation of the transactions contemplated hereby and thereby, have the right to request or demand that the Company or any Guarantor register under the Act securities held by them. (hh) Each certificate signed by any officer of the Company or any of the Guarantors and delivered to you or your counsel shall be deemed to be a representation and warranty by the Company or Guarantors to you as to the matters covered thereby. (ii) The Company and each of its subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; and (iii) access to assets is permitted only in accordance with management's general or specific authorization. (jj) In accordance with customary industry practices, the Company and each of its subsidiaries maintains insurance covering their properties, operations, personnel and businesses. Such insurance insures against such losses and risks as is adequate in accordance with customary industry practice to protect the Company and its subsidiaries and their businesses. Neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance. All such insurance is outstanding and duly in force on the date hereof and will be outstanding and duly in force on the Closing Date. (kk) Neither the Company nor any of its subsidiaries has (i) taken, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of any security of the Company or any of its subsidiaries to facilitate the sale or resale of the Securities or (ii) except as permitted by Regulation M under the Exchange Act or pursuant to this Agreement, since the date of the Private Placement Memorandum (A) sold, bid for, purchased or paid any person any compensation for soliciting purchases of, the Securities or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company or any of its subsidiaries. (ll) No registration under the Act of the JJF Notes is required for the issuance or sale of the JJF Notes to you or the resale by you as contemplated hereby and in the Private Placement Memorandum, assuming (A) that you are an Institutional Accredited Investor and (B) the accuracy of the your representations contained herein and your compliance with the agreements set forth herein. No form of general solicitation or general advertising was used by the Company or the Guarantors or any of their representatives in connection with the offer and sale of any of the Privately Placed Notes, including, but not limited to, articles, notices or other communications published in any 19 20 newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Other than the Registered Notes to be issued in the Registered Exchange Offer and the Public Exchange Offer, no securities of the same class as the Secured Notes have been issued or will be sold by the Company or the Guarantors within a six-month period before or after the date hereof. (mm) The execution and delivery of this Agreement, the other Operative Documents and the sale of the securities to be purchased by you will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986. The representation made by the Company and the Guarantors in the preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by you as set forth in the Private Placement Memorandum under the Section entitled "Notice to Investors" and Section 9(h) herein. (nn) Except as set forth in Schedule 9(nn), subsequent to the respective dates as of which information is given in the Private Placement Memorandum and up to the Closing Date, except as set forth in the Private Placement Memorandum, neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole; nor entered into any transaction not in the ordinary course of business that is material to the Company and its subsidiaries taken as a whole; nor has there occurred any Material Adverse Effect, or any development which may reasonably be expected to involve a Material Adverse Effect, in the properties, business, results of operations, financial condition or prospects of the Company and its subsidiaries, taken as a whole; and there have not been any dividends or distributions of any kind declared, paid or made by the Company or any of its subsidiaries (other than on a pro rata basis to the Company) on any class of its capital stock. (oo) None of the execution, delivery and performance of this Agreement, the issuance and sale of the JJF Notes and the consummation of the transactions contemplated thereby as set forth in the Private Placement Memorandum, will violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (pp) The accountants, PricewaterhouseCoopers, who have certified the financial statements and supporting schedules for the three fiscal years ended December 31, 1998, included or to be included as part of the Private Placement Memorandum are independent accountants within the meaning of the Act and the rules and regulations promulgated thereunder. The consolidated historical statements fairly present in all material respects the consolidated financial condition and results of operations of the Company and its subsidiaries at the respective dates and for the respective periods indicated, subject in the case of unaudited combined financial statements to normal year-end adjustments, in accordance with generally accepted accounting principles consistently applied throughout such periods, except as stated 20 21 therein. Other financial and statistical information and data (including, without limitation, with respect to production) included in the Private Placement Memorandum, are fairly presented in all material respects and prepared on a basis consistent with such financial statements and the books and records of the Company and its subsidiaries. (qq) Other than as contemplated by this Agreement, there are no contracts, agreements or understandings between the Company or any of its subsidiaries and any person that would give rise to a valid claim against the Company or its subsidiaries or JJF Group for a brokerage commission, finder's fee or like payment in connection with the issuance, purchase and sale of the Privately Placed Notes. (rr) Any Privately Placed Notes offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions and such securities have been and will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the "distribution compliance period" (as defined in Regulation S) and only upon certification of beneficial ownership of the Securities by a non-U.S. person or a U.S. person who purchased such securities in a transaction that was exempt from the registration requirements of the Act, which U.S. person will acquire an interest in a Transfer Restricted Security (as defined in the Registration Rights Agreement). (ss) None of the Company or any of its affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Regulation S with respect to the Privately Placed Notes, and the Company and its affiliates and all persons acting on their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering, if any, of the Privately Placed Notes outside the United States. The Company and the Guarantors acknowledge that JJF Group and, for purposes of the opinions to be delivered to JJF Group pursuant to Section 11 hereof, counsel to the Company and the Guarantors will rely upon the accuracy and truth of the foregoing representations and hereby consent to such reliance. 10.Representations, Warranties and Covenants of JJF Group. JJF Group represents and warrants to the Company and the Guarantors and agrees that: (a) JJF Group is an Institutional Accredited Investor within the meaning of Regulation D under the Act, with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the JJF Notes. (b) JJF Group (i) is not acquiring the JJF Notes with a view to any distribution thereof that would violate the Act or the securities laws of any state of the United States or any other applicable jurisdiction and (ii) will reoffer and resell the JJF Notes only pursuant to an exemption from the registration requirements of the Act. (c) No form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Act has been or will be used by JJF 21 22 Group or any of its representatives in connection with any offer to resell any of the JJF Notes, including, but not limited to, articles, notices or other communication published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. (d) JJF Group agrees that, in connection with any resales of JJF Notes, (i) it will offer to sell the JJF Notes only to, and will solicit offers to buy the JJF Notes only from (A) QIBs who in purchasing such JJF Notes will be deemed to have represented and agreed that they are purchasing the JJF Notes for their own accounts or accounts with respect to which they exercise sole investment discretion and that they or such accounts are QIBs, that they are aware that the sale to them is being made in reliance on Rule 144A, and that they are acquiring such JJF Notes for investment and not with a view to, or for offer or sale in connection with, any distribution (within the meaning of the Act) or fractionalization thereof or with any intention of reselling the JJF Notes or any part thereof, subject to any requirement of law that the disposition of their property or the property of such investor account or accounts be at all times within their control and subject to their ability to resell such Privately Placed Notes pursuant to Rule 144, 144A, Regulation S or other exemption from registration available under the Act and (B) Regulation S purchasers who in purchasing the JJF Notes will be deemed to have represented and agreed that their purchase of JJF Notes pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Act; and (ii) it will take reasonable steps to inform persons acquiring JJF Notes from JJF Group or its affiliates that such JJF Notes will not have been registered under the Act and may be resold, pledged or otherwise transferred prior to the second anniversary of the later of the original issuance of the JJF Notes or the sale thereof by any affiliate (within the meaning of Rule 144 under the Act or any successor rule thereto, an "Affiliate") of the Company (computed in accordance with paragraph (d) of Rule 144 under the Act) or if they were at the date of such transfer or during the three months preceding such date of transfer an Affiliate of the Company, they would do so only in compliance with any applicable state securities or "Blue Sky" laws and only (I)(v) to a person whom the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (w) in a transaction meeting the requirements of Rule 144, (x) to a foreign person in a transaction meeting the requirements of Rules 903 and 904 under the Act, (y) to an Institutional Accredited Investor, or (z) in accordance with another exemption from the registration requirements of the Act (and based upon an opinion of counsel if the Company so requests), (II) to the Company, or (III) pursuant to an effective registration statement under the Act and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and (iii) that the holder will, and each subsequent holder is required to, notify any purchaser from it of the security evidenced thereby of the resale restrictions set forth in (ii) above. (e) JJF Group agrees that, if it has offered for sale the JJF Notes, it has offered the JJF Notes and will offer and sell the JJF Notes (i) as part of their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the offering of the JJF Notes and the Closing Date and only in accordance with an exemption from the registration requirements of the Act. Neither JJF Group nor its affiliates nor any 22 23 persons acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Rule 901(b) of Regulation S with respect to the JJF Notes, and JJF Group, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S. (f) JJF Group agrees that any JJF Notes offered and sold in reliance on Regulation S have been and will be offered and sold only in offshore transactions and that such securities have been and will be represented upon issuance by a global security that may not be exchanged for definitive securities until the expiration of the applicable distribution compliance period set forth in Regulation S and only upon certification of beneficial ownership of the securities by a non-U.S. person or a U.S. person who purchased such securities in a transaction that was exempt from the registration requirements of the Act, which U.S. person will acquire an interest in a Transfer Restricted Security (as defined in the Registration Rights Agreement). JJF Group further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the JJF Notes except with its affiliates or with the prior written consent of the Company. (g) JJF Group has not taken and will not take, directly or indirectly, any action prohibited by Regulation M of the Exchange Act in connection with the sale of the JJF Notes, to the extent applicable. (h) JJF Group represents that it is not acquiring the JJF Notes with the assets of any employee benefit plan that is subject to Title I of ERISA or any "plan" that is subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (any such employee benefit plan and plan being referred to herein as a "Benefit Plan"). (i) Terms used in this Section 10 that are defined in Regulation S are used herein as so defined. (j) JJF Group, and each subsequent holder of the JJF Notes, covenants that it will not dispose of the JJF Notes to be acquired by it or any interest therein (including, without limitation, any transfer by a change in the capacity in which JJF Group or such subsequent holder holds its investment in such Notes) to any person unless such person (i) makes all warranties and representations of JJF Group contained in Section 11 and (ii) assumes all covenants of such JJF Group contained in this Agreement. (k) JJF Group also understands that the Company, the Guarantors and, for purposes of the opinions to be delivered to you pursuant to Section 11 hereof, counsel to the Company and the Guarantors will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. (l) JJF Group represents that (i) it has been duly formed, is validly existing and in good standing under the laws of its jurisdiction of formation; (ii) it has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the Registration Rights Agreement and the other Operative Documents to 23 24 which it is a party and to consummate the transactions contemplated hereby and thereby; (iii) this Agreement has been duly authorized, executed and delivered by JJF Group and, assuming due authorization, execution and delivery by the Company and each of the Guarantors, is a valid and binding obligation of JJF Group, enforceable against JJF Group in accordance with its terms, except to the extent that (A) the enforcement thereof may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally and an implied covenant of good faith and fair dealing, and general equitable principles (whether considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution hereunder may be limited by federal or state securities laws or public policy considerations; and (iv) the execution, delivery and performance by JJF Group of this Agreement and the other Operative Documents to which it is a party and the completion of the JJF Group Exchange will not violate or constitute a breach of any of the terms or provisions of, or a default under (or an event that with notice or the lapse of time, or both, would constitute a default), or require consent under, any agreement or other obligation that is binding upon JJF Group or its property, except for such consents as have been obtained prior to the date hereof. 11. Conditions of JJF Group's Obligations. The obligations of JJF Group under this Agreement are subject to the satisfaction of each of the following conditions: (a) All of the representations and warranties of the Company and the Guarantors contained in this Agreement shall be true and correct on the date hereof and on the Closing Date with the same force and effect as if made on and as of the date hereof and the Closing Date, respectively. The Company and the Guarantors shall have performed or complied with all of the agreements herein contained and required to be performed or complied with by them at or prior to the Closing Date. (b) Copies of the Private Placement Memorandum shall have been distributed to JJF Group as promptly as practicable, on the date of this Agreement or at such later date and time as to which JJF Group may agree, and no stop order suspending the qualification or exemption from qualification of any of the JJF Notes in any jurisdiction referred to in Section 9(e) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (c) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any governmental agency which would, as of the Closing Date, prevent the issuance of any of the JJF Notes; no action, suit or proceeding shall be pending against or affecting or, to the knowledge of either of the Company or any Guarantor, threatened against, the Company or any Guarantor or any of its subsidiaries before any court or arbitrator or any governmental body, agency or official that, if adversely determined, would prohibit, interfere with or adversely affect the issuance of the JJF Notes, or would have a Material Adverse Effect, or in any manner question the validity of this Agreement, the Secured Note Indenture, the Security Documents, the Securities, the Registration Rights Agreement or the other Operative Documents; and no stop order preventing the use of the Private Placement Memorandum, or any amendment or supplement thereto, or any order asserting that any of the 24 25 transactions contemplated by this Agreement are subject to the registration requirements of the Act shall have been issued. (d) Since the dates as of which information is given in the Private Placement Memorandum, (i) there shall not have been any material adverse change, or any development that is reasonably likely to result in a material adverse change, in the capital stock or the long-term debt, or material increase in the short-term debt, of the Company or any of its subsidiaries from that set forth in the Private Placement Memorandum, (ii) no dividend or distribution of any kind shall have been declared, paid or made by the Company or any of its subsidiaries on any class of its capital stock (other than on a pro rata basis to the Company), and (iii) other than liabilities incurred in the ordinary course of business since the date of the latest balance sheet included in the Private Placement Memorandum which, individually and in the aggregate would not have a Material Adverse Effect, neither the Company nor any of its subsidiaries shall have incurred any liabilities or obligations, direct or contingent, that are material, individually or in the aggregate, to the Company and its subsidiaries, taken as a whole, and that are required to be disclosed on a balance sheet in accordance with generally accepted accounting principles and are not disclosed on the latest balance sheet included in the Private Placement Memorandum. Since the date hereof and since the dates as of which information is given in the Private Placement Memorandum, there shall not have been any Material Adverse Effect. (e) You shall have received certificates, dated the Closing Date, signed by (i) the President or any Vice President and (ii) a principal financial or accounting officer of the Company and each of the Guarantors confirming, as of the Closing Date, the matters set forth in paragraphs (a), (b), (c) and (d) of this Section 11. (f) You shall have received on the Closing Date the opinion (satisfactory in form and substance to you and your counsel), dated the Closing Date, of either Klett Lieber Rooney & Schorling, a Professional Corporation, counsel for the Company and the Guarantors, or Wilmer, Cutler & Pickering, special counsel to the Company and the Guarantors, subject to the customary exclusions, to the effect of each of the following: (i) The Company has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Delaware, and has full corporate power and authority to conduct its business as described in the Private Placement Memorandum. (ii) Each of the Guarantors listed on Schedule I hereto which is identified thereon as incorporated in the State of Delaware (the "Delaware Guarantors") has been duly incorporated and is validly existing and in good standing as a corporation under the laws of the State of Delaware and each such Guarantor has full corporate power and authority to conduct its business as described in the Private Placement Memorandum. 25 26 (iii) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered this Agreement; and each of the Guarantors listed on Schedule I hereto which is identified thereon as incorporated in a state other than the State of Delaware (the "Non-Delaware Guarantors") has duly executed and delivered this Agreement. (iv) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered the Secured Note Indenture and each of the Non-Delaware Guarantors has duly executed and delivered the Secured Note Indenture. Assuming that the Secured Note Indenture is the valid and legal binding obligation of the Secured Note Trustee and that the Non-Delaware Guarantors have duly authorized the Secured Note Indenture, the Secured Note Indenture constitutes a valid and legally binding obligation of the Company and the Guarantors enforceable against each such person in accordance with its terms. (v) The Secured Notes have been duly authorized, executed and issued by the Company and, assuming due authentication thereof by the Secured Note Trustee and upon payment and delivery in accordance with this Agreement, will constitute the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms and entitled to the benefits of the Secured Note Indenture and the security provided by the Security Documents. (vi) The Guarantees to be endorsed on the Secured Notes have been duly authorized by each Delaware Guarantor and, assuming the due authorization of the Guarantees by the Non-Delaware Guarantors and the due authentication of the Secured Notes by the Secured Note Trustee and upon payment and delivery in accordance with this Agreement of the Secured Notes, will constitute a valid and legally binding obligation of each Guarantor, enforceable against such Guarantor in accordance with its terms. (vii) The Company and each of the Delaware Guarantors has duly authorized, executed and delivered the Security Documents to which it is a party and each of the Non-Delaware Guarantors has duly executed and delivered the Security Documents to which it is a party. Assuming that the Security Documents are the valid and legal binding obligations of the Secured Note Trustee and that each of the Non-Delaware Guarantors has duly authorized the Security Documents to which it is a party, the Security Documents constitute a valid and legally binding obligation of the Company and the Guarantors enforceable against each such person in accordance with its terms. (viii) No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America, the State of Delaware or the State of New York is required on the part of the Company or Guarantors for the execution, delivery or performance by any Guarantor of any of this agreement, the Secured Note Indenture, the Secured Notes or the Security Documents, except for those that 26 27 have been obtained or effected and that are in full force and effect and in respect of which all applicable waiting periods have expired. (ix) The Company has an authorized capitalization as set forth in the Private Placement Memorandum, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable. (x) All of the outstanding shares of capital stock evidencing equity ownership of the Delaware Guarantors (the "Stock") are owned of record by the entities named in such opinion. (xi) To the knowledge of such counsel, none of the Stock was issued in violation of any preemptive or similar rights. (xii) To the knowledge of such counsel, there are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest of any Delaware Guarantor except that the holders of shares of a class of common stock of the Company have the right to convert such shares into another class of common stock of the Company, as provided in the Restated Certificate of Incorporation of the Company. (xiii) Upon registration of the pledge of the Pledged Securities (as defined in the Pledge Agreements) of the Subsidiaries and filing of financing statements in the appropriate filing offices pursuant to Articles 8 and 9 of the Uniform Commercial Code (the "UCC"), the Agent, for the benefit of the holders of the Secured Notes, will have a perfected security interest in the Pledged Securities of the Subsidiaries. (xiv) Under the UCC, the Secured Note Indenture and the Security Documents will create a valid security interest in the right, title and interest in, to and under any Collateral (as defined in the Indenture and the Security Documents) of the Company and the Guarantors as to which creation of a security interest is governed by the UCC, in favor of the Secured Note Trustee, for the benefit of holders of the Secured Notes, including any Optional Secured Notes that may be issued in the future. (xv) The Registration Rights Agreement has been duly authorized by the Company and each of the Delaware Guarantors that are parties thereto. Assuming the due authorization of the Registration Rights Agreement by the Non-Delaware Guarantors, when the Registration Rights Agreement is duly executed and delivered by each such person, it will constitute a valid and legally binding obligation of the Company and the Guarantors, enforceable against each such person that is a party thereto in accordance with its terms. (xvi) No registration under the Act of any of the JJF Notes is required for the consummation of the JJF Group Exchange or the sale of the JJF 27 28 Notes by JJF Group solely in the manner contemplated by this Agreement, the Secured Note Indenture and the Private Placement Memorandum. (xvii) The issue and sale of the JJF Notes by the Company and the compliance by the Company and the Delaware Guarantors with all of the provisions of this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreement, the Guarantees and the JJF Notes, will not breach or result in a default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument identified on an annexed schedule furnished to such counsel by the Company and which the Company has represented lists all material agreements and instruments to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action violate the Restated Certificate of Incorporation or By-laws of the Company or any Federal or New York statute or the Delaware General Corporation Law or any order known to such counsel issued pursuant to any Federal or New York statute or the Delaware General Corporation Law by any court or governmental agency or body that has jurisdiction over the Company or any of the Delaware Guarantors or any of their respective properties. (xviii) The statements made in the Private Placement Memorandum under the captions "Description of the Company's Indebtedness," "Comparison of Indentures," and "Description of New Secured Notes," insofar as they purport to constitute summaries of certain terms of documents referred to therein, constitute accurate summaries of the terms of such documents in all material respects, subject to such qualifications as may be set forth in such summaries. (xix) Each of the Company and the Delaware Guarantors has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreement, the Secured Notes and the Guarantees to which it is a party, including, without limitation, with respect to the Company, the corporate power and authority to issue, sell and deliver the JJF Notes as provided herein and in the JJF Group Exchange. (xx) Neither the Company nor any Guarantor is or, after giving effect to the issuance and sale of the Securities as described in the Private Placement Memorandum will be, an "investment company," or a company controlled by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Such counsel shall also state that (A) their opinions in paragraphs (iv), (v), (vi) and (vii) are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether 28 29 considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing and (B) their opinion in paragraph (vii) is further subject to the qualification that the enforceability of the Company's obligations under the Registration Rights Agreement may be limited by considerations of public policy. Such counsel shall not express any opinion as to the validity, legally binding effect or enforceability of (A) any provision of the Registration Rights Agreement or any related provisions of the Secured Note Indenture that requires or relates to payment of any interest at a rate or in an amount which a court would determine in the circumstances under applicable law to be commercially unreasonable or a penalty or a forfeiture and (B) of the waiver of rights and defenses provision contained in Section 4.6 of the Secured Note Indenture and the or the specific performance provisions contained in the Registration Rights Agreement. In addition, such counsel shall state that such counsel has not independently verified the accuracy, completeness or fairness of the statements made or included in the Private Placement Memorandum and takes no responsibility therefor, except as and to the extent set forth in paragraph (xviii) above. In the course of the preparation by the Company of the Private Placement Memorandum, such counsel participated in conferences with certain officers and employees of the Company, and with counsel to the Company. Based upon such counsel's examination of the Private Placement Memorandum, such counsel's investigations made in connection with the preparation of the Private Placement Memorandum and such counsel's participation in the conferences referred to above, such counsel has no reason to believe that the Private Placement Memorandum contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that such counsel need not express any belief with respect to (i) the statements made in the Private Placement Memorandum under the caption entitled "Risk Factors- Risks Related to the Company--Government regulations increase our costs of doing business and may discourage our customers from buying our coal" and (ii) the financial statements or other financial or statistical data contained in the Private Placement Memorandum. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America, the laws of the State of New York, and the General Corporation Law of Delaware and may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials which are furnished to you. The opinions of such counsel described in this paragraph shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. (g) You shall have received on the Closing Date an opinion (satisfactory in form and substance to you and your counsel), dated the Closing Date, of Spilman Thomas & Battle, PLLC, subject to the customary exclusions and to such 29 30 exceptions, assumptions, conditions, qualifications and other exclusions as are appropriate under the circumstances, to the effect that: (i) Each of the Non-Delaware Guarantors is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has the corporate power to conduct its business as described in the Private Placement Memorandum. (ii) The issued and outstanding shares of capital stock or other securities evidencing equity ownership of each Non-Delaware Guarantor consist of the type and number of shares described in a schedule attached to such opinion. All of the issued and outstanding capital stock or other securities evidencing equity ownership of the Non-Delaware Guarantors are owned of record by Anker Coal Group, Inc. or one of its wholly owned, direct or indirect, subsidiaries. To the extent of such counsel's knowledge, the ownership of such capital stock or other securities evidencing such equity ownership is free and clear of any security interest, adverse claim of ownership, lien or limitation on disposition or voting rights, except (A) as otherwise disclosed in a schedule attached to such opinion and (B) for such liens and encumbrances as are contemplated by the Security Documents. All of such securities have been duly authorized, validly issued, and, to the extent of such counsel's knowledge, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. To the extent of such counsel's knowledge, there are no outstanding subscriptions, rights, warrants, calls, commitments of sale or options to acquire, or instruments convertible into or exchangeable for, any such shares of capital stock or other equity interests of any Non-Delaware Guarantor. (iii) All necessary corporate action has been taken to duly authorize each of the Non-Delaware Guarantors to enter into and perform its obligations under this Agreement, the Secured Note Indenture, the Security Documents, the Registration Rights Agreement and the other Operative Documents to which it is a party. (iv) Each of the Non-Delaware Guarantors has duly executed and delivered the Mortgages and the Financing Statements to which it is a party. (v) No authorization, approval, or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the State of West Virginia is required on the part of the Company or any Guarantor for the execution, delivery or performance by the Company or any Guarantor of the Secured Note Indenture, the Security Documents, Financing Statements or the Secured Notes or the other Operative Documents to which it is a party, except for (A) those that have been obtained or effected and are in full force and effect and in respect of which all applicable waiting periods have expired, and (B) the filings as contemplated by a schedule to such opinion. 30 31 (vi) A court of the State of West Virginia or a Federal District Court sitting in the State of West Virginia would give effect to the choice of laws agreement by the parties agreeing that the law of the State of New York is to govern the Secured Note Indenture, the Security Documents, and the other Operative Documents; provided, however, said choice of law agreement will be ineffective as to (A) the perfection provisions of Article 9 of the West Virginia Uniform Commercial Code (the "WV Code"), which Article specifies the applicable law, and (B) as to matters relating to West Virginia real property, including but not limited to, recordation of and pursuit of remedies under and/or related to the Mortgages. (vii) The Mortgages grant to the trustees named therein for the benefit of the Secured Note Trustee, the Collateral Agent and holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) and constitute a valid and enforceable mortgage lien against the real estate (including mineral interests) described therein to the full extent of the interest of grantor, and, upon due recordation thereof as described in paragraph (ix) below and subject to the limitations and qualifications set forth in such opinion, will be enforceable as mortgage liens against the real estate (including mineral interests) described therein in accordance with their terms. The Mortgages grant to the Secured Note Trustee for the benefit of the holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) and constitute a valid and enforceable security interest under the WV Code in the property in the State of West Virginia described in said Mortgages in which a security interest may be granted under Article 9 of the WV Code, including, but not limited to, fixtures, to the full extent of the interest of the grantor, and, upon such recordation and subject to the limitations and qualifications set forth in such opinion, will be enforceable as liens against such property described therein in accordance with their terms. (viii) The Financing Statements are in appropriate form to constitute financing statements under the WV Code. The Mortgages are in appropriate form to constitute fixture filings under the WV Code. (ix) The Mortgages will be recorded by such counsel in the Offices of the Clerks of the County Commissions of the various counties noted in an attached schedule to such opinion, and the various mortgage interests granted thereby in real property, subject to the limitations and qualifications set forth therein, will by reason of such recordings be validly perfected and made enforceable against the interest in real property granted thereby by the grantor, and said mortgage interests, shall not be subject to any liens of record that are prior thereto, except for (A) the liens reported on a schedule to such opinion, (B) the matters reported to you in the record search reports attached as a schedule to such opinion (C) those additional items identified by such counsel in its searches (just prior to recording the Mortgages and for the period beginning on May 1, 1999, to the date and time of said recordings) and to be listed in a letter by such 31 32 counsel after such recordings are made, and (C) ad valorem taxes and mechanics' liens as noted in a schedule attached to such opinion. (x) Insofar as perfection can be accomplished by the filing of financing statements and fixture filings under the WV Code, all such action has been taken as will be necessary in West Virginia to perfect the security interests granted to the Collateral Agent for the benefit of holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) in the personal properties identified in the Financing Statements and in the extracted minerals and fixtures identified in the Mortgages to the full extent of the interests of the grantor of such interests, to create priority in the Collateral Agent for the benefit of the holders of Secured Notes, as secured party as to said personalty, extracted minerals and fixtures, over all other security interests which are perfected by the filing of financing statements, other than the lien of the Senior Secured Indebtedness, Permitted Liens and with such other exceptions as may be noted therein. The filing of the Financing Statements as noted above constitutes all such action as will be necessary in West Virginia to perfect a security interest in the Inventory and Equipment described therein which is situated in West Virginia. (xi) In the event that the Secured Note Indenture and the Security Documents executed by the Company and the Guarantors were governed by West Virginia law (notwithstanding the agreement by the parties thereto as to the application of New York law), then one of said documents, specifically, the General Security Agreement, grants to the Collateral Agent for the benefit of the holders of the Secured Notes (including any Optional Secured Notes that may be issued in the future) a valid and enforceable security interest under the WV Code in the property in the State of West Virginia described in said document in which a security interest may be granted under Article 9 of the WV Code (and as limited by Sections 9-306 and 9-307 of the WV Code) to the full extent of the interests of the grantors. (xii) (A) Under the law of the State of West Virginia, a foreign corporation is not required, solely as a lender making loans or extending credit secured by real and personal property in the State of West Virginia, to procure a certificate of authority to transact business or otherwise qualify to do business in the State of West Virginia. As such, neither the Secured Note Trustee, the Collateral Agent nor any Holder of Secured Notes shall, solely by reason of the making of the loans under the Security Documents and the execution and delivery by the Guarantors of the Mortgages listed in a schedule attached to such opinion and the Financing Statements listed or described in schedules attached to such opinion (and/or the filing or recording of the same), be required (1) to qualify to do business in the State of West Virginia or to comply with the requirements of any foreign registration or qualification statute of the State of West Virginia, (2) be subject to taxation by the State of West Virginia or any political subdivision of said State except as noted on a schedule attached to such opinion, or (3) be required to make any filing with any court or other judicial or administrative body 32 33 of the State of West Virginia preceding enforcement in order to avail itself of any of the remedies provided by the Mortgage. (B) No recording, filing, privilege, documentary stamp or other tax must be paid in connection with the execution, delivery, recordation or enforcement of the Mortgages or the Financing Statements except for the payment of filing fees to be paid to (i) the Clerks of the County Commissions of the various counties where the Mortgages and Financing Statements are to be recorded, and (ii) the office of the West Virginia Secretary of State. (xiii) The execution, delivery and performance of the Operative Documents to which each Non-Delaware Guarantor is a party (A) does not violate its respective charter or bylaws, (B) to the extent of such counsel's knowledge, does not constitute a default in the performance of any bond, debenture, note, other evidence of indebtedness, indenture, mortgage, deed of trust or other material agreement to which it is a party or by which it is bound or to which any of its properties is subject, (C) does not violate any applicable law, statute, rule, regulation, or, to the extent of such counsel's knowledge, any judgment or court decree, applicable to any of the Non-Delaware Guarantors or (D) (except for the lien created pursuant to any of the Security Documents) result in the creation or imposition of any Lien upon any property of any Non-Delaware Guarantor; except for, in the case of (B) and (C), any violation or default that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (xiv) To the extent of such counsel's knowledge, except as disclosed on an annexed schedule, there are no actions, suits or proceedings, including arbitration proceedings pending against or affecting any of the Company or Non-Delaware Guarantors before any West Virginia court or Federal District Court sitting in West Virginia or any West Virginia governmental department or agency, or threatened against any of them, which, if adversely determined against them, would have a Material Adverse Effect. Additionally, to the extent of such counsel's knowledge and except as disclosed in a schedule to such opinion, there are no actions, suits or proceedings, including arbitration proceedings, pending against any of Company or the Non-Delaware Guarantors, or any of their respective property in any other jurisdiction, or threatened against any of them, which, if adversely determined against them, would have a Material Adverse Effect. (xv) The statements in the Private Placement Memorandum under the captions "Risk Factors--Risks Related to the Company -- Government regulations could increase our costs of doing business and may discourage our customers from buying our coal," insofar as such statements constitute a summary of the legal matters, documents or proceedings referred to therein, fairly and accurately summarize in all material respects the information set forth therein with respect to such legal matters, documents or proceedings. 33 34 In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the federal laws of the United States of America, the laws of the States of West Virginia and Virginia, and may rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and any of the Non-Delaware Guarantors and public officials which are furnished to JJF Group. The opinions of such counsel described in this paragraph shall be rendered to you at the request of the Company and the Guarantors and shall so state therein. (h) You shall have been furnished with such documents and opinions, in addition to those forth above, as you may reasonably require for the purpose of enabling you to review or pass upon the matters referred to in this Section 11. (i) Prior to the Closing Date, the Company and the Guarantors shall have furnished to you such further information, certificates and documents as you may reasonably request. (j) The Company, the Guarantors and the Secured Note Trustee shall have entered into the Secured Note Indenture and you shall have received counterparts, conformed as executed, thereof. (k) The Company and the Guarantors shall have entered into the Security Documents and you shall have received counterparts, conformed as executed, thereof. (l) The Company and the Guarantors shall have entered into the Registration Rights Agreement and you shall have received an executed counterpart thereof. (m) No default or Event of Default shall be continuing under the Old Note Indenture or the Senior Secured Indebtedness. (n) The Company shall have obtained any necessary consents to the transactions contemplated by this Agreement, including the consent of the holders of the Senior Secured Indebtedness and the parties to the Stockholder Agreement. (o) The Company and the Guarantors shall have made all filings and taken all steps necessary to perfect the Lien of the Security Documents. All opinions, certificates, letters and other documents required by this Section 11 to be delivered by the Company and the Guarantors will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you. The Company and the Guarantors will furnish you with such conformed copies of such opinions, certificates, letters and other documents as you shall reasonably request. 34 35 12. Conditions of the Company's and the Guarantors' Obligations. The several obligations of the Company and the Guarantors under this Agreement are subject to the satisfaction of each of the following conditions: (a) There shall have been no failure for any reason to consummate both the Private Placement and the Private Exchange. (b) There is no law, statute, rule or regulation or applicable interpretation of the staff of the SEC issued or promulgated which, in the good faith determination of the Company, does not permit the Company to complete the JJF Group Exchange. (c) There is no action or proceeding instituted or threatened in any court or by or before any governmental agency or regulatory authority or any injunction order or decree issued with respect to the JJF Group Exchange which, in the sole judgment of the Company, would prohibit the Company from proceeding with or consummating the JJF Group Exchange. 13. Effective Date of Agreement and Termination. This Agreement shall become effective upon the execution hereof by all parties. This Agreement may be terminated at any time on or prior to the Closing Date by JJF Group by written notice to the Company if any of the following has occurred: (i) subsequent to the date information is provided in the Private Placement Memorandum, any Material Adverse Effect which, in your judgment, materially impairs the investment quality of the JJF Notes, (ii) any outbreak or escalation of hostilities or other national or international calamity or crisis or material adverse change in the financial markets of the United States or elsewhere, or any other substantial national or international calamity or emergency the effect of which on financial markets is such as to make it, in your judgment, impractical or inadvisable to proceed with the transactions contemplated by the Private Placement Memorandum, (iii) any suspension or limitation of trading generally in securities on the New York Stock Exchange or in the over-the-counter markets or any setting of minimum prices for trading on such exchange or market, (iv) any declaration of a general banking moratorium by either federal or New York authorities, (v) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs that in your judgment has a material adverse effect on the financial markets in the United States, or (vi) the enactment, publication, decree, or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your judgment would have a Material Adverse Effect. The agreements, representations and warranties of the Company and the Guarantors, their respective officers and directors and of JJF Group set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the JJF Notes, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of JJF Group or by or on behalf of the Company and the Guarantors, the officers or directors of the Company or the Guarantors or controlling person of the Company or the Guarantors, (ii) acceptance of the JJF Notes and payment for them hereunder and (iii) termination of this Agreement. 35 36 If this Agreement shall be terminated by JJF Group pursuant to clause (i) of the second paragraph of this Section 13 or because of the failure or refusal on the part of the Company or any Guarantor to comply with the terms or to fulfill any of the conditions of this Agreement, the Company and the Guarantors agree to reimburse JJF Group for all reasonable out-of-pocket expenses incurred by it. Notwithstanding any termination of this Agreement, the Company and the Guarantors shall be liable for all expenses which it has agreed to pay pursuant to Section 9(f) hereof. Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Company, the Guarantors, JJF Group and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the JJF Notes from JJF Group merely because of such purchase. 14. Miscellaneous. Notices given pursuant to any provision of this Agreement shall be addressed as follows: (a) if to the Company or any Guarantor, 2708 Cranberry Square, Morgantown, West Virginia 26505, Attention: P. Bruce Sparks, with a copy to Klett, Lieber, Rooney & Schorling, One Oxford Center, 40th Floor, Pittsburgh, Pennsylvania 15219-6498, Attention: Craig S. Heryford, and (b) if to JJF Group, at its address set forth in Schedule II, with a copy to Rose, Schmidt, Hasley & DiSalle, P.C., 900 Oliver Bldg., Pittsburgh, Pennsylvania 15222-2310, Attention: Charles L. Potter, Jr., or in any case to such other address as the person to be notified may have requested in writing. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. 36 37 Please confirm that the foregoing correctly sets forth the Agreement among the Company, the Guarantors, and JJF Group. Very truly yours, ANKER COAL GROUP, INC. By: /s/ B. Judd Hartman ---------------------------- Name: B. Judd Hartman Title: Secretary EACH OTHER ENTITY LISTED ON SCHEDULE I HERETO By: /s/ B. Judd Hartman ---------------------------- Name: B. Judd Hartman Title: Secretary Accepted and agreed to as of the date first above written: JJF Group Limited Liability Company By: /s/ James Boyd ------------------------------------- Name: James Boyd Title: General Manager 37 38 SCHEDULE I
Company State of Incorporation Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company,Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
39 SCHEDULE II JJF Group Limited Liability Company c/o James W. Boyd John T. Boyd Company 4 Gateway Center 444 Liberty Avenue, Suite 1900 Pittsburgh, PA 15222-1212 2 40 EXHIBIT A Form of Registration Rights Agreement 3 41 EXHIBIT B Form of Termination and Cancellation Agreement 4 EX-10.17 10 TERMINATION AND CANCELLATION AGREEMENT 1 EXHIBIT 10.17 EXECUTION VERSION TERMINATION AND CANCELLATION AGREEMENT This Termination and Cancellation Agreement ("Termination Agreement") is made as of October 26, 1999 by and between Anker Coal Group, Inc., a Delaware corporation (the "Company") and JJF Group Limited Liability Company, a West Virginia limited liability company ("JJF Group" and, together with the Company, the "Parties"). WHEREAS, JJF Group is the owner of 2,026 shares of common stock of the Company (the "Shares") and a party to that certain Shareholders Agreement dated August 12, 1996 among John J. Faltis, JJF Group, P. Bruce Sparks, PPK Group Limited Liability Company, Anker Holding B.V., First Reserve Corporation, American Oil & Gas Investors, Limited Partnership, AMGO II, Limited Partnership, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited Partnership (the "Stockholders Agreement"); and WHEREAS, the Company and JJF Group are parties to that certain Put Agreement dated as of August 25, 1998 (the "Put Agreement"); and WHEREAS, under the terms of the Put Agreement, JJF Group has the right to require the Company to purchase the Shares from JJF Group on the dates and for the consideration set forth in the Put Agreement; and WHEREAS, in connection with the restructuring of the Company's 9 3/4% Series B Senior Notes due 2007 and the issuance of 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) ("Secured Notes"), the Company and JJF Group have entered into that certain JJF Group Exchange Agreement of even date herewith (the "JJF Group Exchange Agreement") (capitalized terms used without definition in this Termination Agreement have the meanings assigned to them in the JJF Group Exchange Agreement); and WHEREAS, the JJF Group Exchange Agreement provides for the issuance to JJF Group of Secured Notes in an aggregate principal amount of $6.0 million (the "JJF Notes") in exchange for cancellation of the Shares and release of all rights of JJF Group (including any amounts owed to JJF Group) under the Put Agreement; and WHEREAS, the JJF Group Exchange Agreement further provides that, at the Closing, the Parties will execute and deliver this Termination Agreement. NOW THEREFORE, in consideration of the foregoing premises, the mutual promises of the Parties, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows: 1. Incorporation of Recitals. The foregoing recitals are hereby incorporated as part of this Termination Agreement. 2 2. Transfer, Delivery and Cancellation of Shares; Termination of Rights; Resignation of Director. JJF Group hereby (a) assigns and transfers to the Company all of JJF Group's right, title and interest in and to the Shares; (b) delivers to the Company original stock certificates, duly endorsed in blank, representing all of the Shares; and (c) consents to the cancellation of the Shares on the books of the Company. From and after the date of this Termination Agreement, JJF Group shall cease to be a party to the Stockholders Agreement and shall have no further rights or obligations thereunder. Simultaneously herewith, JJF Group is delivering to the Company the resignation of JJF Group's nominee, Benjamin Daud, as a director of the Company, which resignation shall be effective upon issuance of the JJF Notes. 3. Termination of Put Agreement. The Put Agreement is hereby canceled and terminated in all respects. From and after the date hereof, the Put Agreement shall be void and of no further force or effect. JJF Group hereby waives and releases all rights of JJF Group and all obligations of the Company under the Put Agreement, including without limitation all rights and obligations with respect to payment of the Put Option Balance (as defined in the Put Agreement) or accrued and unpaid interest thereon. 4. Representations and Warranties. (a) The Company represents and warrants to JJF Group as follows: (i) The Company has the full right, power, and authority to execute, deliver and carry out the terms of this Termination Agreement and all documents, agreements and transactions contemplated hereby. This Termination Agreement has been duly authorized (including, without limitation, obtaining the requisite approval of the Company's Board of Directors), executed and delivered by the Company and constitutes the valid and binding obligation of it, enforceable against it in accordance with its terms except to the extent limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditor's rights generally, or general principles of equity. The execution, delivery and performance by the Company of this Termination Agreement and the consummation of the transactions contemplated hereby have been authorized by all necessary corporate and other action and will not, with or without notice or the lapse of time or both, result in any material and adverse conflict with, or material and adverse breach, violation or termination of, or default under, any charter, by-law, law, statute, rule, regulation, judgment order, decree, mortgage, loan, contract, agreement, deed of trust, indenture or other instrument to which the Company is a party or by which it is bound. (ii) There are no actions, suits, arbitrations, proceedings at law or in equity or other administrative or governmental proceedings pending or threatened against the Company which would have a material adverse effect on the transactions contemplated hereby. (b) JJF Group represents and warrants to the Company as follows: (i) JJF Group has the full right, power, and authority to execute, deliver and carry out the terms of this Termination Agreement and all documents, agreements 2 3 and transactions contemplated hereby. This Termination Agreement has been duly authorized (including, without limitation, obtaining any requisite approvals of the managers and members of JJF Group and the heirs of John J. Faltis and Kathleen A. Faltis), executed and delivered by JJF Group and constitutes the valid and binding obligation of it, enforceable against it in accordance with its terms except to the extent limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditor's rights generally, or general principles of equity. The execution, delivery and performance by JJF Group of this Termination Agreement and the consummation of the transactions contemplated hereby have been authorized by all necessary corporate and other action and will not, with or without notice or the lapse of time or both, result in any material and adverse conflict with, or material and adverse breach, violation or termination of, or default under, any charter, by-law, law, statute, rule, regulation, judgment order, decree, mortgage, loan, contract, agreement, deed of trust, indenture or other instrument to which JJF Group is a party or by which it is bound. (ii) There are no actions, suits, arbitrations, proceedings at law or in equity or other administrative or governmental proceedings pending or threatened against JJF Group which would have a material adverse effect on the transactions contemplated hereby. (iii) Except for the approvals of the managers and members of JJF Group and the heirs of John J. Faltis and Kathleen A. Faltis, no consents, approval or authorizations of any person or entity are required in connection with the execution, delivery and performance of this Termination Agreement by JJF Group or the consummation by JJF Group of the transactions contemplated hereby. (iv) JJF Group is the record owner of the Shares. JJF Group owns and holds the Shares free and clear of any and all liens, security interests, pledges, charges, encumbrances, claims, rights, options and restrictions of any kind or nature. 5. Miscellaneous. The headings or titles in this Termination Agreement are for the purposes of reference only. Neither this Termination Agreement nor any rights, remedies, liabilities or obligations arising under it or by reason of it shall be assignable by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld. The Parties shall, with reasonable diligence, do all things and provide all reasonable assurances as may be required to consummate the transactions contemplated by this Termination Agreement, and each Party shall provide further documents or instruments required by the other Party as may be reasonably necessary or desirable to effect the purpose of this Termination Agreement. The failure by either Party at any time to enforce any of the terms, provisions or conditions of this Termination Agreement shall not constitute or be construed as a waiver of the same and any single or partial exercise by that Party of any right under this Termination Agreement shall not preclude any further or other exercise of the same or the exercise of any other right. This Termination Agreement, together with the other JJF Group Exchange Documents, constitutes the entire agreement of the Parties with respect to its subject matter and supersedes and cancels all prior and contemporaneous agreements, claims, representations and understandings of the Parties in connection with such subject matter. This Termination Agreement may be executed in counterparts, each of which shall be an original but all of which together shall constitute a single document. This Termination Agreement shall not 3 4 be modified or amended except by written agreement signed on behalf of both Parties by their respective duly authorized representatives. This Termination Agreement shall be binding on the Parties and their successors and permitted assigns. [Signatures appear on following page] 4 5 IN WITNESS WHEREOF, the Parties have caused this Termination Agreement to be executed by their duly authorized representatives as of the date first written above. ANKER COAL GROUP, INC. By: /s/ B. Judd Hartman ----------------------------- Name: B. Judd Hartman Title: Secretary JJF GROUP LIMITED LIABILITY COMPANY By: /s/ James Boyd ------------------------------ Name: James Boyd Title: Manager 5 EX-10.18 11 SUPPLEMENTAL INDENTURE 1 Exhibit 10.18 ANKER COAL GROUP, INC., as Issuer, THE GUARANTORS SIGNATORY HERETO and HSBC BANK USA (formerly known as Marine Midland Bank), as Trustee ---------------------------------------- SUPPLEMENTAL INDENTURE Dated as of October 1, 1999 Amending and Supplementing the Indenture Dated as of September 25, 1997 ---------------------------------------- 9 3/4% SENIOR NOTES DUE 2007 2 SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated as of October 1, 1999, among ANKER COAL GROUP, INC., a corporation organized under the laws of the State of Delaware (the "Company"), and HSBC BANK USA (formerly known as Marine Midland Bank), a New York banking corporation and trust company, as trustee (the "Trustee"), amending and supplementing the Indenture, dated as of September 25, 1997 (the "Original Indenture") among the Company, the Guarantors signatory thereto and the Trustee, which provided for the issuance of up to $125,000,000 aggregate principal amount of 9 3/4% Senior Noes Due 2007. (The Original Indenture as amended or supplemented through the date hereof and as supplemented by this Supplemental Indenture and as it may hereafter be supplemented is referred to herein as the "Indenture"; capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in the Indenture). WITNESSETH: WHEREAS, pursuant to Sections 9.1 and 9.2 of the Original Indenture, the Company desires to effect certain amendments (the "Amendments" ) to the Original Indenture which are set forth in this Supplemental Indenture; and WHEREAS, Simba Group, Inc. ("Simba") is a wholly-owned Subsidiary of the Company, and as of the Issue Date, the Company had designated Simba as an Unrestricted Subsidiary which was not a Guarantor under the Original Indenture; and WHEREAS, pursuant to Sections 9.1 and 10.3 of the Original Indenture, the Company and Simba each desire that it shall take all such actions and execute and deliver all such agreements, instruments and documents as are required to join Simba as a Guarantor under the Indenture; and WHEREAS, pursuant to Section 9.2 of the Indenture, adoption of certain of the Amendments requires the consent of Holders of a majority in principal amount of the Notes then outstanding; and WHEREAS, the Company has delivered to the Trustee written consents to the Amendments of at least a majority in principal amount of the outstanding Notes; and WHEREAS, the Company has delivered to the Trustee (i) an Officers' Certificate and (ii) an Opinion of Counsel pursuant to Sections 9.6 of the Indenture with respect to this Supplemental Indenture; and WHEREAS, the respective Boards of Directors of the Company, the Guarantors and Simba have duly authorized the execution and delivery of this Supplemental Indenture and have done all things necessary to make this Supplemental Indenture a valid, binding and enforceable agreement in accordance with its terms; and WHEREAS, based on the foregoing, the Trustee is willing to execute and deliver this Supplemental Indenture. 3 NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THAT THIS SUPPLEMENTAL INDENTURE WITNESSETH: That the Company, the Guarantors, Simba and the Trustee in consideration of the premises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, DO HEREBY AGREE AS FOLLOWS: ARTICLE ONE INDENTURE SECTION 1.01 Effect of the Original Indenture. Except as specifically provided in this Supplemental Indenture, the Original Indenture, as heretofore supplemented and amended, shall remain in full force and effect. ARTICLE TWO AMENDMENTS TO THE INDENTURE SECTION 2.01 Preamble. The Indenture is hereby amended by deleting all references to "Marine Midland Bank," and substituting in lieu thereof the words "HSBC Bank USA (formerly known as Marine Midland Bank)." SECTION 2.02 Definitions. (a) Section 1. 1 of the Indenture is hereby amended by deleting the following words from the end of the definition of "Affiliate": "; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control" (b) Section 1. 1 of the Indenture is hereby amended by deleting the definition of "Asset Sale." (c) Section 1.1 of the Indenture is hereby amended by deleting the definitions of "Change of Control," "Continuing Directors," and "Permitted Holders." 2 4 (d) Section 1.1 of the Indenture is hereby amended by adding the following proviso to the end of the definition of "Consolidated Cash Flow": "; provided that any contingent restriction contained in any thereof shall not be deemed to prevent any such dividend until the applicable contingency shall have occurred." (e) Section 1.1 of the Indenture is hereby amended by adding the following proviso to the end of clause (ii) the definition of "Consolidated Net Income": "; provided that any contingent restriction contained in any thereof shall not be deemed to prevent any such declaration or payment of any such dividend or similar distribution until the applicable contingency shall have occurred." (f) Section 1.1 of the Indenture is hereby amended by deleting the definition of "Credit Facilities" and substituting in lieu thereof the following definition (changed text appearing in bold): "'Credit Facilities' means, with respect to the Company, one or more debt facilities (including, without limitation, the LOAN AGREEMENT) or commercial paper facilities with banks, FINANCIAL INSTITUTIONS or other INSTITUTIONAL lenders providing for revolving credit loans, term loans 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." (g) Section 1.1 of the Indenture is hereby amended by deleting the definition of "Equity Interests" and substituting in lieu thereof the following definition (changed text appearing in bold): "'Equity Interests' means Capital Stock, THE WARRANTS and all OTHER warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock)." (h) Section 1.1 of the Indenture is hereby amended by adding to the definition of "Equity Offering" the following clauses (iv) and (v) (changed text appearing in bold): ", (iv) ISSUANCES OF EQUITY INTERESTS TO HOLDERS OF NEW NOTES, OR (v) ISSUANCES OF EQUITY INTERESTS TO PURCHASERS UNDER THE PRIVATE PLACEMENT." (i) Section 1.1 of the Indenture is hereby amended by inserting between the definitions of "Exchange Notes" and "Exchange Offer" the following definition (changed text appearing in bold): "'EXCHANGING NOTEHOLDERS' MEANS THE ENTITIES LISTED ON SCHEDULE III TO THE PURCHASE 3 5 AGREEMENT." (j) Section 1.1 of the Indenture is hereby amended by by deleting the definition of "Existing Indebtedness" and substituting in lieu thereof the following definition (changed text appearing in bold): "'Existing Indebtedness' means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the LOAN AGREEMENT) in existence on the date of OCTOBER 26, 1999, until such amounts are repaid." (k) Section 1.1 of the Indenture is hereby amended by inserting between the definitions of "Issue Date" and "Legal Holiday" the following definition (changed text appearing in bold): "'JJF PURCHASE AGREEMENT' MEANS THE EXCHANGE AND PURCHASE AGREEMENT DATED OCTOBER 26, 1999 BY AND AMONG THE COMPANY, THE GUARANTORS AND THE JJF GROUP LIMITED LIABILITY COMPANY, AS AMENDED, WAIVED OR OTHERWISE MODIFIED FROM TIME TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF." (l) The Indenture is hereby amended by deleting all references to "Amended and Restated Revolving Credit Facility," including the definition thereof contained in Section 1.1 of the Indenture, and substituting in lieu thereof the term "Loan Agreement" in Section 1.1 between the definitions of "Liquidated Damages" and "Net Income" by inserting the following definition (changed text appearing in bold): "'LOAN AGREEMENT' MEANS THAT CERTAIN LOAN AND SECURITY AGREEMENT DATED AS OF NOVEMBER 21, 1998 BY AND AMONG CERTAIN OF THE RESTRICTED SUBSIDIARIES, AS BORROWERS, AND THE FINANCIAL INSTITUTIONS NAMED THEREIN, AS LENDERS, AND FOOTHILL CAPITAL CORPORATION, AS AGENT, INCLUDING ANY RELATED NOTES, GUARANTEES, COLLATERAL DOCUMENTS, INSTRUMENTS, AGREEMENTS EXECUTED IN CONNECTION THEREWITH AND IN EACH CASE AS AMENDED, EXTENDED, MODIFIED, RENEWED, REFUNDED, REPLACED OR REFINANCED FROM TIME TO TIME." (m) Section 1.1 of the Indenture is hereby amended by inserting between the definitions of "Net Proceeds" and "Non-Recourse Debt" the following definitions (changed text appearing in bold): "'NEW NOTE INDENTURE' MEANS THE INDENTURE DATED AS OF OCTOBER 1, 1999 AMONG THE COMPANY, AS ISSUER, THE GUARANTORS SIGNATORY THERETO AND THE BANK OF NEW YORK, AS TRUSTEE. 'NEW NOTES' MEANS ALL OF THE COMPANY'S NOTES ISSUED PURSUANT TO THE NEW NOTE INDENTURE, AND THE INCURRENCE BY THE GUARANTORS OF ALL GUARANTEES UNDER THE NEW NOTE INDENTURE." 4 6 (n) Section 1.1 of the Indenture is hereby amended by adding the following after the parenthetical of the definition of "Permitted Business" (changed text appearing in bold): "AND PARTICIPATION IN THE OWNERSHIP AND OPERATION OF COAL-FIRED ELECTRIC POWER GENERATING FACILITIES THAT PURCHASE COAL OR OTHER INVENTORY FROM THE COMPANY OR ANY RESTRICTED SUBSIDIARY." (o) Section 1.1 of the Indenture is hereby amended by adding to the definition of "Permitted Investments" a new clause (xii) as follows (changed text appearing in bold): "; AND (XII) ANY INVESTMENT OF EXCLUDED ASSETS (OTHER THAN MOBILE EQUIPMENT) (AS EACH CAPITALIZED TERM IS DEFINED IN THE NEW NOTE INDENTURE) IN ANY PERSON ENGAGED IN THE OWNERSHIP AND OPERATION OF A COAL-FIRED POWER GENERATION FACILITY THAT PURCHASES COAL OR OTHER INVENTORY FROM THE COMPANY OR ANY RESTRICTED SUBSIDIARY; PROVIDED, HOWEVER, THAT ANY OWNERSHIP INTEREST IN SUCH PERSON RECEIVED BY THE COMPANY OR GUARANTOR MAKING SUCH INVESTMENT SHALL BE SUBJECTED TO THE LIEN OF THE SECURITY DOCUMENTS (AS SUCH CAPITALIZED TERM IS DEFINED IN THE NEW NOTE INDENTURE)." (p) Section 1.1 of the Indenture is hereby amended by (I) revising the definition of "Permitted Liens" to delete clause (i) and insert in lieu thereof the following clause (i) (changed text appearing in bold): "(i) Liens on assets of the Company or any of its Subsidiaries securing Senior Indebtedness that is permitted by the terms of this Indenture to be incurred (including pursuant to the Credit Facilities AND THE NEW NOTE INDENTURE);" (II) deleting the reference to the second paragraph of Section 4.9 in clause (vi) and substituting in lieu thereof a reference to the third paragraph of Section 4.9; (III) deleting clause (xi) and substituting in lieu thereof the following clause (xi) (changed text appearing in bold): "(xi) Liens on assets of Guarantors WHICH WOULD BE PERMITTED LIENS IF THEY WERE LIENS ON ASSETS OF THE COMPANY to secure Guarantor Senior Indebtedness of such Guarantors that was permitted by this Indenture and the New Note Indenture to be incurred;" ; and (IV) adding a new clause (xii) as follows (changed text appearing in bold): "AND (xii) LIENS SECURING PERMITTED REFINANCING INDEBTEDNESS." (q) Section 1.1 of the Indenture is hereby amended by inserting between the definitions of "Private Placement Legend" and "QIB" the following definitions (changed text appearing in 5 7 bold): "'PRIVATE PLACEMENT MEMORANDUM' MEANS THAT CERTAIN PRIVATE EXCHANGE AND PRIVATE PLACEMENT MEMORANDUM DATED OCTOBER 26, 1999. 'PRIVATE PLACEMENT' MEANS THE ISSUANCE AND SALE UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE PRIVATE PLACEMENT MEMORANDUM OF $13,200,000 PRINCIPAL AMOUNT OF ADDITIONAL NEW NOTES AND WARRANTS. 'PURCHASE AGREEMENT' MEANS THE EXCHANGE AND PURCHASE AGREEMENT DATED OCTOBER 26, 1999 BY AND AMONG THE COMPANY, THE GUARANTORS, THE PURCHASERS AND THE EXCHANGING NOTEHOLDERS, AS AMENDED, WAIVED OR OTHERWISE MODIFIED FROM TIME TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF. 'PURCHASERS' MEANS THE ENTITIES LISTED ON SCHEDULE II TO THE PURCHASE AGREEMENT, AND THEIR SUCCESSORS AND ASSIGNS." 'PUT AGREEMENT' MEANS THE PUT AGREEMENT DATED AS OF AUGUST 25, 1998 BY AND BETWEEN THE COMPANY AND JJF GROUP LIMITED LIABILITY COMPANY, AS AMENDED, WAIVED OR OTHERWISE MODIFIED FROM TIME TO TIME IN ACCORDANCE WITH THE PROVISIONS THEREOF." (r) Section 1.1 of the Indenture is hereby amended by deleting the second sentence from the definition of "Restricted Subsidiary." (s) The Indenture is hereby amended by inserting between the definitions of "Voting Stock" and "Weighted Average Life to Maturity" the following definitions (changed text appearing in bold): "'WARRANTS' MEANS WARRANTS TO PURCHASE SHARES OF THE COMPANY'S COMMON STOCK EQUITY INTERESTS ISSUED PURSUANT TO THE PRIVATE PLACEMENT MEMORANDUM. 'WARRANT SHARES' MEANS SHARES OF THE COMPANY'S COMMON STOCK EQUITY INTERESTS ISSUABLE UPON EXERCISE OF THE WARRANTS." (t) Section 1.2 is hereby amended to by deleting all references to "Asset Sale Offer," "Change of Control Offer," "Change of Control Payment," "Change of Control Payment Date," "Excess Proceeds," "Offer Amount," "Offer Period" and "Purchase Date." SECTION 2.03 Mandatory Redemption. Section 3.8 of the Indenture is hereby amended by deleting the references Sections 4.10 and 4.15 and restating Section 3.8 as follows: 6 8 "The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes." SECTION 2.04 Offer to Purchase by Application of Excess Proceeds. The Indenture is hereby amended by deleting Section 3.9 thereof in its entirety. SECTION 2.05 Reports. The Indenture is hereby amended by deleting Section 4.3 thereof in its entirety and substituting the following in lieu thereof: "Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall promptly furnish to the Trustee and Holders of Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC 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" that describes the financial condition and results of operations of the Company and its consolidated Subsidiaries and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports, in each case within the time periods set forth in the SEC's rules and regulations." SECTION 2.06 Limitation on Restricted Payments. Section 4.7 of the Indenture is hereby amended so that (I) clause (v) of the first full paragraph following subsection (c) thereof reads as follows (changed text appearing in bold): "(v) the repurchase, retirement or other acquisition or retirement for value of common Equity Interests of the Company held by any future, present or former employee or director of the Company or any of the Company's Restricted Subsidiaries or the estate, heirs or legatees of, or any equity controlled by, any such employee or director, pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement in connection with the termination of such person's employment for any reason (including by reason of death or disability) INCLUDING, WITHOUT LIMITATION, THE EXCHANGE BY THE COMPANY OF THE EQUITY INTERESTS OWNED BY JJF GROUP LIMITED LIABILITY COMPANY IN ACCORDANCE WITH THE TERMS OF THE PRIVATE PLACEMENT; provided, however, that the aggregate Restricted Payments made under this clause (v) does not exceed in any calendar year $2.5 million (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 $7.5 million in any calendar year); provided, further that such amount in any calendar year may be increased by an amount 7 9 not to exceed (A) the cash proceeds received by the Company from the sale of Equity Interests of the Company to members of management or directors of the Company and its Restricted Subsidiaries that occurs after the Issue Date (to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of the preceding paragraph (c)), plus (B) the cash proceeds of key man life insurance policies received by the Company and its Restricted Subsidiaries AT ANY TIME after the Issue Date, less (C) the amount of any Restricted Payments previously made pursuant to clauses (A) and (B) of this subparagraph (v);" (II) clause (vii) thereof is amended to read as follows (changed text appearing in bold): "(vii) in the event of a CHANGE IN CONTROL UNDER THE CERTIFICATE OF DESIGNATION FOR THE COMPANY'S CLASS A PREFERRED STOCK AND THE COMPANY'S CLASS B PREFERRED STOCK, the making of mandatory redemptions on the Company's Class A Preferred Stock and the Company's Class B Preferred Stock, par value $1,000 per share, in each case in accordance with the terms of the change of control provisions thereof as in effect on the Issue Date;" ; and (III) a new clause (xii) is added as follows (changed text appearing in bold): "; AND (XII) 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." SECTION 2.07 Dividend and Other Payment Restrictions Affecting Subsidiaries. Clause (iii)(b) of Section 4.8 of the Indenture is hereby amended to read as follows (changed text appearing in bold): "(b) the LOAN AGREEMENT as in effect as of OCTOBER 26, 1999, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive with respect to such dividend and other payment restrictions than those contained in the LOAN AGREEMENT as in effect on OCTOBER 26, 1999." 8 10 SECTION 2.08 Incurrence of Indebtedness and Issuance of Disqualified Stock. (I) The language contained immediately prior to the first proviso in clause (i) of the third paragraph of Section 4.9 of the Indenture is hereby amended to read as follows (changed text appearing in bold): "(i) the incurrence by the Company OR ANY OF THE GUARANTORS (and the guarantee thereof by Guarantors OR THE COMPANY) of Indebtedness and letters of credit (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and the Guarantors thereunder) under all Credit Facilities;" (II) Clause (ii) of the third paragraph of Section 4.9 of the Indenture is hereby amended to read as follows (changed text appearing in bold): "(ii) the incurrence by the Company and the Guarantors of Existing Indebtedness and the NEW NOTES." (III) Clause (iii) of the third paragraph of Section 4.9 of the Indenture is hereby amended by adding the following to the end thereof (changed text appearing in bold): "AND ALL NEW NOTES ISSUED PURSUANT TO THE NEW NOTE INDENTURE;" ; and (IV) Clause (iv) of the third paragraph of Section 4.9 of the Indenture is hereby amended by deleting reference to "$5.0 million" and substituting "$10.0 million" in lieu thereof. SECTION 2.09 Asset Sales. The Indenture is hereby amended by deleting Section 4.10 thereof in its entirety. SECTION 2.10 Transactions with Affiliates. The second paragraph of Section 4.11 of the Indenture is hereby amended by adding a new clause (xii) to the end thereof as follows (changed text appearing in bold): "; AND (xii) ANY PAYMENTS MADE TO HOLDERS OF NOTES, WARRANTS AND WARRANT SHARES PURSUANT TO SUCH INSTRUMENTS OR ANY RELATED AGREEMENTS OR INVOLVING ANY EXERCISE OF RIGHTS BY SUCH HOLDERS PURSUANT TO SUCH AGREEMENTS." SECTION 2.11 Offer to Repurchase Upon Change of Control. The Indenture is hereby amended by deleting Section 4.15 thereof in its entirety. 9 11 SECTION 2.12 Events of Default. Subsection (c) of Section 6.1 of the Indenture is hereby amended by deleting the references Sections 3.9, 4.10 and 4.15 and restating subsection (c) as follows: "the Company or any of its Restricted Subsidiaries fail to comply with any of the provisions of 5.1 hereof," SECTION 2.13 Releases Following Sale of Assets. Section 10.5 of the Indenture is hereby amended by deleting the references Section 4.10 and restating Section 10.5 as follows: "Concurrently with any sale or disposition of assets (including, if applicable, all of the Capital Stock of any Guarantor) by way of merger, consolidation or otherwise, any Liens in favor of the Trustee in the assets sold thereby shall be released. If the assets sold in such sale or other disposition include all or substantially all of the assets of any Guarantor or all of the Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition by way of merger, consolidation or otherwise of all or substantially all of the assets of a Guarantor) shall be released and relieved of its obligations under its Subsidiary Guarantee and this Indenture or Section 10.4 hereof, as the case may be. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, the Trustee shall execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Subsidiary Guarantees and this Indenture. Any Guarantor not released from its obligations under its Subsidiary Guarantee and this Indenture shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article X." ARTICLE THREE JOINDER OF SIMBA AS A GUARANTOR SECTION 3.01 Agreement to Guarantee; Agreement to be Subject to Provisions as Guarantor. Simba hereby agrees, jointly and severally with the other Subsidiary Guarantors, to guarantee the Company's obligations under the Notes and under the Indenture on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture. 10 12 Subject to the terms and conditions of the Indenture, Simba hereby unconditionally agrees to be subject to the provisions (including the representations and warranties) of the Indenture as a Guarantor. SECTION 3.02 Execution and Delivery of Subsidiary Guarantee. Simba hereby agrees that a notation of the Subsidiary Guarantee substantially in the form of Exhibit A shall be endorsed by an officer of Simba on each Note authenticated and delivered by the Trustee after the effective date of this Supplemental Indenture. ARTICLE FOUR MISCELLANEOUS SECTION 4.01 Documentary Requirements. The Trustee shall be authorized to accept Indenture certificates and document delivery requirements appropriately modified to reflect the changes made by this Supplemental Indenture. SECTION 4.02 Conditions to Effectiveness. This Supplemental Indenture shall become effective upon and simultaneously with the satisfaction of the last to occur of the following conditions: (a) the Trustee shall have received written notice or an Officers' Certificate to the effect that the Company's offer made pursuant to its Private Exchange and Private Placement Memorandum dated October 26, 1999, as amended and supplemented, shall have been consummated; (b) the Trustee shall have received an Officers' Certificate and Opinion of Counsel pursuant to Section 9.6 of the Indenture. SECTION 4.03 Trust Indenture Act. If any provision of this Supplemental Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. SECTION 4.04 Same Instrument. The Indenture, as supplemented and amended by this Supplemental Indenture and all other indentures supplemental thereto, is in all respects ratified and confirmed, and the 11 13 Indenture, this Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument. SECTION 4.05 Successors. All agreements of the Company, the Guarantors and Simba in this Supplemental Indenture shall bind their successors. All agreements of the Trustee in this Supplemental Indenture shall bind its successors. SECTION 4.06 Severability. In case any provisions of this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 4.07 Effect of Headings. The Headings of the Articles and Sections of this Supplemental Indenture have been inserted for convenience of reference only, are not to be considered a part of this Supplemental Indenture and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 4.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE. SECTION 4.09 Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 4.10 Acceptance by Trustee. The Trustee hereby accepts the trusts in this Supplemental Indenture declared and provided upon the terms and conditions set forth in the Indenture. The Trustee shall not be responsible in any manner whatsoever for the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. SECTION 4.11 Notice to Holders. After the Amendments become effective, the Company shall mail to the Holders a 12 14 notice briefly describing such Amendments pursuant to Section 9.2 of the Indenture. SECTION 4.12 Benefits of Supplemental Indenture. Nothing in this Supplemental Indenture, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture. SECTION 4.13 Notation on Notes. (a) Notes authenticated and delivered after the effectiveness of this Supplemental Indenture shall be imprinted by the Trustee substantially with the following notation pursuant to Section 9.5 of the Indenture: "Anker Coal Group, Inc. (the "Company"), certain subsidiaries of the Company and the Trustee have entered into a supplemental Indenture dated as of October 1, 1999, pursuant to which the Indenture was amended, among other things, to (i) amend, eliminate or replace certain of the definitions contained in the Indenture, (ii) eliminate Sections 3.9 and 4.10 of the Indenture, which previously restricted certain Asset Sales and provided for certain Asset Sale Offers, and Section 4.15 of the Indenture, which previously restricted certain Changes of Control and provided for certain mandatory redemptions upon certain Changes of Control, (iii) amend certain of the other restrictive covenants contained in Article IV of the Indenture, and (iv) add a Guarantor. Reference is hereby made to such Supplemental Indenture for the full text of such amendments, copies of which are on file with the Trustee." (b) If the Company or the Trustee shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification effected by this Supplemental Indenture shall be prepared and executed by the Company, authenticated by the Trustee and delivered in exchange for the Notes then outstanding. *** [SIGNATURES APPEAR ON THE FOLLOWING PAGE] 13 15 IN WITNESS HEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, effective as of the day and year first above written. ANKER COAL GROUP, INC., as Issuer By: /s/ Bruce Sparks -------------------------------------- Name: Bruce Sparks Title: President HSBC BANK USA (formerly known as Marine Midland Bank), as Trustee By: /s/Frank Godino --------------------------------------- Name: Frank Godino Title: Vice President SIMBA GROUP, INC., as Guarantor By: /s/ Bruce Sparks ----------------------------------------- Name: Bruce Sparks Title: President EACH OTHER ENTITY LISTED ON SCHEDULE I HERETO, as Guarantors By: /s/ B. Judd Hartman ----------------------------------------- Name: B. Judd Hartman Title: Secretary 14 16 SCHEDULE I SUBSIDIARIES
COMPANY STATE OF INCORPORATION Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia
15 17 EXHIBIT A SUBSIDIARY GUARANTEE Each of the corporations listed on Schedule I hereto (hereinafter referred to as the "Guarantors", which term includes any successor or additional Guarantor under the Indenture (the "Indenture") referred to in the Note upon which this notation is endorsed), has unconditionally guaranteed (a) the due and punctual payment of the principal of, premium, Liquidated Damages, if any, and interest on the Notes, whether at maturity or on an Interest Payment Date, by acceleration, call for redemption or otherwise, (b) the due and punctual payment of interest on the overdue principal of, premium and Liquidated Damages, if any, and interest on the Notes, to the extent lawful, (c) the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in the Indenture, and (d) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director or incorporator, as such, past, present or future, of the Guarantors shall have any personal liability under this Subsidiary Guarantee by reason of his or its status as such stockholder, officer, director or incorporator. This Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Subsidiary Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. ANKER GROUP, INC. By: ------------------------------- Name: Title: EACH OTHER ENTITY LISTED ON SCHEDULE I HERETO By: -------------------------------- Name: Title: 18 SCHEDULE I SUBSIDIARIES
COMPANY STATE OF INCORPORATION Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
EX-10.19 12 FORM OF STOCK PURCHASE WARRANT 1 Exhibit 10.19 [FORM OF WARRANT CERTIFICATE] VOID AFTER 5:00 P.M. EASTERN TIME ON OCTOBER 28, 2009 [UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN DEFINITIVE FORM, THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. THE DEPOSITORY TRUST COMPANY ("DTC") (55 WATER STREET, NEW YORK, NEW YORK) SHALL ACT AS THE DEPOSITORY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE COMPANY AND THE WARRANT AGENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)] NEITHER THE WARRANT REPRESENTED HEREBY OR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS WARRANT OR THE WARRANT SHARES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS WARRANT OR THE - -------- (1) This paragraph is to be included only if the Warrant is in global form. 2 WARRANT SHARES WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS WARRANT OR THE WARRANT SHARES EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY OR THE SELLER A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS WARRANT OR THE WARRANT SHARES, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS WARRANT, THE WARRANT SHARES OR ANY INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE WARRANT SHARES ARE SUBJECT TO THE RESTRICTIONS CONTAINED IN AN INVESTOR AGREEMENT (THE "INVESTOR AGREEMENT") DATED AS OF OCTOBER 26, 1999 AMONG THE COMPANY AND THE STOCKHOLDERS AND PURCHASERS NAMED THEREIN. EACH HOLDER OF THIS WARRANT MUST BECOME A PARTY TO THE INVESTOR AGREEMENT AT OR PRIOR TO EXERCISE OF THIS WARRANT. IN ADDITION, THE WARRANT SHARES ARE SUBJECT TO CERTAIN PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AUGUST 12, 1996 AMONG CERTAIN STOCKHOLDERS OF THE COMPANY, WHICH PROVISIONS ARE REFERENCED IN SUCH INVESTOR AGREEMENT. HOLDERS OF WARRANTS HAVE THE BENEFIT OF CERTAIN PREEMPTIVE OR PURCHASE RIGHTS SET FORTH IN THE STOCKHOLDERS AGREEMENT AND REFERENCED HEREIN. A COPY OF SUCH STOCKHOLDERS AGREEMENT IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE COMPANY. THE FORM OF INVESTOR AGREEMENT IS ATTACHED HERETO AS EXHIBIT 2. - 2 - 3 Right to Purchase 3,047 Shares of Common Stock Date: October 28, 1999 ANKER COAL GROUP, INC. STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, _______________ or its registered assigns, is entitled to purchase from Anker Coal Group, Inc., a Delaware corporation (the "Company"), at any time or from time to time during the period specified in Section 2 hereof, 3,047 fully paid and nonassessable shares of the Company's common stock (the "Common Stock"), at an initial exercise price of $0.01 per share (the "Exercise Price"), subject to adjustment as contained in Section 4 hereof. This Warrant Certificate is issued pursuant to the Warrant Agreement, dated as of October 26, 1999 (the "Warrant Agreement") by and between the Company and The Bank of New York, as Warrant Agent (the "Warrant Agent"). All capitalized terms not otherwise defined herein shall have the meanings given to those terms in the Warrant Agreement. This Warrant is being sold pursuant to that certain Exchange and Purchase Agreement dated October 26, 1999 between the Company and the purchasers named therein (the "Purchase Agreement"). The number of shares of Common Stock purchasable hereunder and the Exercise Price are subject to adjustment as provided in Section 4 hereof. The term "Warrants" means this Warrants and the other warrants of the Company issued pursuant to the terms of the Purchase Agreement. The term "Warrant Shares" means the shares of Common Stock purchasable under the Warrants. This Warrant is subject to the following terms, provisions, and conditions: 1. Mechanics of Exercise. Subject to the provisions hereof, this Warrant may be exercised as follows: (a) Manner of Exercise. This Warrant may be exercised by the holder hereof (the "Holder"), in whole or in part, by the surrender of this Warrant (or evidence of loss, theft, destruction or mutilation thereof in accordance with Section 7(c) hereof), together with (i) a completed Exercise Agreement ("Exercise Agreement") in the form attached hereto as Exhibit 1, and (ii) completed Accession Agreements ("Accession Agreements") in the forms attached as Exhibits A and B to the Investor Agreement (the "Investor Agreement") attached hereto as Exhibit 2 to the Company at the Company's principal executive offices (or such other office or agency of the Company as it may designate by notice to the Holder), and upon payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company, of the Exercise Price for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the Holder or Holder's designees, as the record owner of such shares, as of the date on which this Warrant shall have been surrendered, the completed Exercise Agreement and Accession Agreements shall have been delivered, and payment shall have been made for such shares as set forth above. (b) Issuance of Certificates. Subject to Section 1(c) hereof, certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Holder within a reasonable time, not exceeding ten (10) - 3 - 4 business days until the Company has completed an initial public offering and thereafter not exceeding three (3) business days, after this Warrant shall have been so exercised (the "Delivery Period"). The certificates so delivered shall be in such denominations as may be reasonably requested by the Holder and shall be registered in the name of Holder or such other name as shall be designated by such Holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall, at its expense, at the time of delivery of such certificates, deliver to the Holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. (c) Exercise Disputes. In the case of any dispute with respect to an exercise, the Company shall promptly issue such number of shares of Common Stock as are not disputed in accordance with this Section. If such dispute involves the calculation of the Exercise Price, the Company shall submit the disputed calculations to a nationally recognized independent accounting firm (selected by the Company) via facsimile within three (3) business days of receipt of the Exercise Agreement. The accounting firm shall audit the calculations and notify the Company and the exercising Holder of the results no later than two (2) business days from the date it receives the disputed calculations. The accounting firm's calculation shall be deemed conclusive, absent manifest error. The Company shall then issue the appropriate number of shares of Common Stock in accordance with this Section. (d) Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Exercise Price of a share of Common Stock (as determined for exercise of this Warrant into whole shares of Common Stock); provided that in the event that sufficient funds are not legally available for the payment of such cash adjustment any fractional shares of Common Stock shall be rounded up to the next whole number. (e) Buy-In. If (i) the Company fails for any reason (other than Holder's failure to pay to the Company the Exercise Price, or deliver the Exercise Agreement and Accession Agreements (unless previously delivered)), to deliver during the Delivery Period shares of Common Stock to Holder upon an exercise of this Warrant and (ii) after the applicable Delivery Period with respect to such an exercise, Holder purchases (in an open market transaction or otherwise) shares of Common Stock to make delivery upon a sale by Holder of the shares of Common Stock (the "Sold Shares") which Holder was entitled to receive upon such exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other remedies available to Holder) the amount by which (x) Holder's total purchase price (including brokerage commission, if any) for the shares of Common Stock so purchased exceeds the Exercise Price. Holder shall provide the Company written notification indicating any amounts payable to Holder pursuant to this subsection. 2. Period of Exercise. This Warrant is exercisable at any time or from time to time on or after the date hereof and before 5:00 P.M., Eastern Time on the tenth (10th) anniversary of the date hereof (the "Exercise Period"). 3. Certain Agreements of the Company. The Company hereby covenants and agrees as follows: - 4 - 5 (a) Shares to be Fully Paid. All Warrant Shares issued hereunder will, upon issuance in accordance with the terms of this Warrant, be validly issued, fully paid, and non-assessable and free from all liens, claims and encumbrances. Holders of Warrant Shares shall be subject to the restrictions set forth in the Investor Agreement. Holders of Warrant Shares shall also become parties to and may exercise all the rights reflected in the Common Stock Registration Rights Agreement dated as of October 26, 1999 among the Company and the purchasers named therein (the "Common Stock Registration Rights Agreement"). Holders shall become parties to the Investor Agreement and the Common Stock Registration Rights Agreement by executing and delivering the Accession Agreements. Holders of Warrants shall also have the special rights set forth in Section 4(g) hereof. (b) Reservation of Shares. During the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of Common Stock to provide for the exercise of this Warrant. (c) Certain Actions Prohibited. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such actions as may reasonably be requested by the Holder of this Warrant in order to protect the exercise privilege of the Holder of this Warrant, consistent with the tenor and purpose of this Warrant. Without limiting the generality of the foregoing, the Company will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. (d) Restrictions on Merger and Sale of Assets and Stock. Until the earlier of an initial public offering of the Company's Common Stock or October 30, 2002, the Company shall not (i) consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or a majority of its properties or assets in one or more related transactions, to another corporation, person or entity except (x) in accordance with the terms of the Indenture and (y) upon the affirmative written vote or consent of the holders of at least 85% of the outstanding Common Stock as of the Record Date; or (ii) in one transaction or in a series of related transactions, sell, transfer or otherwise dispose of more than 50% of the Company's outstanding Common Stock except upon the affirmative written vote or consent of at least 85% of the holders of the outstanding Common Stock as of the Record Date. The Company shall give at least 30 days' prior written notice to all Holders prior to the Record Date. For purposes of this Warrant, "Record Date" shall mean the date fixed for a stockholder vote pursuant to the terms of the Company's certificate of incorporation and by-laws. 4. Antidilution Provisions. During the Exercise Period, the Exercise Price and the number of Warrant Shares purchasable hereunder shall be subject to adjustment from time to time as provided in this Section 4. - 5 - 6 (a) Adjustment of Exercise Price and Number of Shares upon Issuance of Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if and whenever after the initial issuance of this Warrant, the Company issues or sells, or in accordance with Section 4(b) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share less than the Market Price (as herein defined) on the date of issuance (a "Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in accordance with the following formula: E' = (E) (O + P/M) / (CSDO) where: E' = the adjusted Exercise Price E = the then current Exercise Price; M = the then current Market Price; O = the number of shares of Common Stock outstanding immediately prior to the Dilutive Issuance; P = the aggregate consideration, calculated as set forth in Section 4(b) hereof, received by the Company upon such Dilutive Issuance; and CSDO = the total number of shares of Common Stock Deemed Outstanding (as herein defined) immediately after the Dilutive Issuance. (b) Effect on Exercise Price of Certain Events. For purposes of determining the adjusted Exercise Price under Section 4(a) hereof, the following will be applicable: (i) Issuance of Rights or Options. If the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities"), but not to include the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee or Director benefit plan of the Company now existing or to be implemented in the future ("Employee Options"), so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Market Price on the date of issuance ("Below Market Options"), then the maximum total number of shares of Common Stock issuable upon the exercise of all such Below - 6 - 7 Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable) will, as of the date of the issuance or grant of such Below Market Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the price per share for which Common Stock is issuable upon the exercise of such Below Market Options is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of such Below Market Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such Below Market Options, plus, in the case of Convertible Securities issuable upon the exercise of such Below Market Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price will be made upon the actual issuance of such Common Stock upon the exercise of such Below Market Options or upon the exercise, conversion or exchange of Convertible Securities issuable upon exercise of such Below Market Options. (ii) Issuance of Convertible Securities. (A) If the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options or Employee Options) and the price per share for which Common Stock is issuable upon such exercise, conversion or exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the Market Price on the date of issuance, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of the preceding sentence, the price per share for which Common Stock is issuable upon such exercise, conversion or exchange is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. No further adjustment to the Exercise Price will be made upon the actual issuances of such Common Stock upon exercise, conversion or exchange of such Convertible Securities. (B) If the Company in any manner issues or sells any Convertible Securities with a fluctuating conversion or exercise price or exchange ratio (a "Variable Rate Convertible Security"), then the price per share for which Common Stock is issuable upon such exercise, conversion or exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A) shall be deemed to be the lowest price per share which would be applicable assuming that (1) all holding period and other conditions to any discounts contained in such Convertible Security have been satisfied, and (2) the Market Price on the date of issuance of such Convertible Security was 100% of the Market Price on such date (the "Assumed Variable Market Price"). (iii) Change in Option Price or Conversion Rate. Except for the grant or exercise of any Employee Options, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, if there is a change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange or any Convertible Securities; or (iii) the rate at which - 7 - 8 any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at the time of such change will be readjusted to the Exercise Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon exercise of any Options or upon exercise, conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such option or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would have been in effect at the time of such expiration or termination had such Options or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been issued. (v) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such consideration except where such consideration consists of freely-tradeable securities, in which case the amount of consideration received by the Company will be the Market Price thereof as of the date of receipt. In case any Common Stock, Options or Convertible Securities are issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving corporation as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair market value of any consideration other than cash or securities will be determined in the good faith reasonable business judgment of the Board of Directors. (c) Subdivision and Combination. In case the Company shall (i) pay a dividend in Common Stock or make a distribution in Common Stock, (ii) subdivide its outstanding Common Stock into a greater number of shares, or (iii) combine its outstanding Common Stock into a smaller number of shares (including a recapitalization in connection with a consolidation or merger in which the Company is the continuing corporation), then (x) the Exercise Price on the record date of such division or the effective date of such action shall be adjusted by multiplying such Exercise Price by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event and the denominator of which is the number of share of Common Stock outstanding immediately after such event and (y) the number of shares of Common Stock for which this Warrant may be exercised immediately before such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the Exercise Price immediately before such event and the denominator of which is the Exercise Price immediately after such event. - 8 - 9 (d) Adjustment in Number of Shares. Except as provided in Section 4(c), upon each adjustment of the Exercise Price pursuant to the provisions of this Section 4, the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (e) Major Transactions. In case the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets, liquidation or recapitalization of the Common Stock) in which the previously outstanding Common Stock shall be changed into or, pursuant to the operation of law or the terms of the transaction to which the Company is a party, exchanged for different securities of the Company or common stock or other securities of another Company or interests in a non-corporate entity or other property (including cash) or any combination of any of the foregoing, then, as a condition of the consummation of such transaction, lawful and adequate provision shall be made so that each Holder shall be entitled, upon exercise of this Warrant, to receive the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, that such Holder would have received in such transaction if it had exercised this Warrant immediately prior to consummation of such transaction (and assuming such holder had exercised any cash election rights previously granted in connection with such transaction). The above provisions of this paragraph shall similarly apply to successive transactions of the kind specified herein. (f) Distribution of Assets. In case the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "Distribution"), at any time after the initial issuance of this Warrant, then the Holder shall be entitled upon exercise of this Warrant for the purchase of any or all of the shares of Common Stock subject hereto, to receive the amount of such assets (or rights) which would have been payable to the Holder had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. (g) Other Adjustments. (i) Class A Preferred Stock. In the event that the Company's Class A Preferred Stock, $2,500 par value per share, shall be converted into Common Stock ("Class A Conversion"), this Warrant shall thereafter become exercisable for additional fully paid and nonassessable shares of Common Stock in an amount equal to the Applicable Percentage (as defined below) of the aggregate number of shares into which such Class A Preferred Stock shall be converted at an exercise price (the "Class A Special Exercise Price") equal to the implied conversion price per share of Common Stock at which the Class A Preferred Stock shall be so converted. The "Applicable Percentage" means the product of 30% multiplied by the ratio of the number of Warrant Shares purchasable hereunder immediately prior to such adjustment over the total number of Warrant Shares (including outstanding Warrant Shares) immediately prior to such adjustment. The Class A Special Exercise Price shall be payable in cash or by delivery by the Holder of the Company's 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) ("Secured Notes"). Secured Notes delivered upon exercise of Warrants as - 9 - 10 provided in this paragraph shall be applied to the Class A Special Exercise Price at the principal amount thereof, plus any accrued and unpaid interest and Liquidated Damages thereon. This paragraph shall apply equally and to the same extent to any similar or replacement securities of the Company issued to any holder of the Company's Class A Preferred Stock in a manner which gives effect to the intent and purposes of this paragraph. (ii) Class B Preferred Stock. In the event that the Company's Class B Preferred Stock, $1,000 par value per share, shall be redeemed at a redemption price payable by the Company in shares of Common Stock, this Warrant shall thereafter become exercisable for additional fully paid and nonassessable shares of Common Stock in an amount equal to the Applicable Percentage of the aggregate number of shares for which such Class B Preferred Stock shall be redeemed at an exercise price (the "Class B Special Exercise Price") equal to the redemption price per share of Common Stock at which the Class B Preferred Stock shall be so redeemed. The Class B Special Exercise Price shall be payable in cash or by delivery by the Holder of the Company's Secured Notes. Secured Notes delivered upon exercise of Warrants as provided in this paragraph shall be applied to the Class B Special Exercise Price at the principal amount thereof, plus any accrued and unpaid interest and Liquidated Damages thereon. This paragraph shall apply equally and to the same extent to any similar or replacement securities of the Company issued to any holder of the Company's Class B Preferred Stock in a manner which gives effect to the intent and purposes of this paragraph. (iii) Funds Warrant. In the event that the Warrant dated August 12, 1996 (the "Funds Warrant"), issued by the Company to each of American Oil & Gas Investors, Limited Partnership, AmGO II, Limited Partnership, First Reserve Fund V, Limited Partnership, First Reserve Fund V-2, Limited Partnership, First Reserve Fund VI, Limited Partnership and First Reserve Fund VII, Limited Partnership (collectively, the "Funds") becomes exercisable upon a Class A Conversion, this Warrant shall thereafter become exercisable for additional fully paid and nonassessable shares of Common Stock in an amount equal to the Applicable Percentage of the aggregate number of shares for which such Funds Warrant shall be exercised at an exercise price (the "Funds Special Exercise Price") of $.01 per share of Common Stock. The Funds Special Exercise Price shall be payable in cash or by delivery by the Holder of the Company's Secured Notes. Secured Notes delivered upon exercise of Warrants as provided in this paragraph shall be applied to the Funds Special Exercise Price at the principal amount thereof, plus any accrued and unpaid interest and Liquidated Damages thereon. This paragraph shall apply equally and to the same extent to any similar or replacement securities of the Company issued to any holder of the Funds Warrant in a manner which gives effect to the intent and purposes of this paragraph. (iv) Special Purchase Rights. Each Holder shall have the same rights to purchase New Equity Securities (as defined in the Stockholders Agreement) on the same terms as any Stockholder or holder of Warrant Shares except that each Holder's and each Stockholder's Anti-Dilution Ratio shall be determined as if all Warrant Shares issuable upon exercise of Warrants were outstanding immediately prior to the delivery of each New Equity Notice and as if each Holder held the number of Warrant Shares issuable upon exercise of said Holder's Warrants and any other shares of Common Stock otherwise held by such Holder. In the event the Holder elects to purchase any portion of such Holder's Anti-Dilution Portion of the New Equity Securities, such Holder shall not be entitled to any other adjustment of the Exercise Price or of the number of Warrants held by such - 10 - 11 Holder in connection with such issuance of New Equity Securities. (h) Notices of Adjustment. Upon the occurrence of any event which requires any adjustment of the Exercise Price, then, and in each such case, the Company shall give notice thereof to the Holder, which notice shall state the Exercise Price resulting from such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such price upon exercise, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Such calculation shall be certified by the chief financial officer of the Company. (i) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise Price will be made (i) upon the grant or exercise of any Employee Options, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (ii) upon the exercise of the options to purchase shares of Common Stock under the Employment Agreement dated as of May 1, 1999 between William D. Kilgore, Anker Energy Corporation and the Company as in effect on the date hereof; (iii) upon the issuance of the Common Shares (as defined in the Purchase Agreement) or Warrants in accordance with terms of the Purchase Agreement; or (iv) upon the exercise of the Warrants. (j) No Fractional Shares. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any fractional share which would otherwise be issuable in an amount equal to the same fraction of the Market Price of a share of Common Stock; provided that in the event that sufficient funds are not legally available for the payment of such cash adjustment any fractional shares of Common Stock shall be rounded up to the next whole number. (k) Other Notices. In case at any time: (i) the Company shall declare any dividend upon the Common Stock payable in shares of stock of any class or make any other distribution to the holders of the Common Stock; (ii) the Company shall offer for subscription pro rata to the holders of the Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any capital reorganization of the Company, or reclassification of the Common Stock, or consolidation or merger of the Company with or into, or sale of all or substantially all of its assets to, another corporation or entity; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in each such case, the Company shall give to the Holder (a) notice of the date on which the books of the Company shall close or a record shall be taken for determining the holders of Common Stock entitled to receive any such dividend, distribution, or subscription rights or for determining the holders of Common Stock entitled to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in the case of any such - 11 - 12 reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice shall also specify the date on which the holders of Common Stock shall be entitled to receive such dividend, distribution, or subscription rights or to exchange their Common Stock for stock or other securities or property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, as the case may be. Such notice shall be given at least 30 days prior to the record date or the date on which the Company's books are closed in respect thereto, but in no event earlier than public announcement of such proposed transaction or event. Failure to give any such notice or any defect therein shall not affect the validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv) above. (l) Certain Definitions. (i) "Common Stock Deemed Outstanding" shall mean the number of shares of Common Stock actually outstanding (not including shares of Common Stock held in the treasury of the Company), plus (x) in case of any adjustment required by Section 4(a) resulting from the issuance of any Options, the maximum total number of shares of Common Stock issuable upon the exercise of the Options for which the adjustment is required (including any Common Stock issuable upon the conversion of Convertible Securities issuable upon the exercise of such Options), and (y) in the case of any adjustment required by Section 4(a) resulting from the issuance of any Convertible Securities, the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of the Convertible Securities for which the adjustment is required, as of the date of issuance of such Convertible Securities, if any. (ii) "Market Price," as of any date, (i) means the average of the Closing Bid Prices for the shares of Common Stock as reported to The Nasdaq National Market for the ten (10) trading days immediately preceding such date, or (ii) if The Nasdaq National Market is not the principal trading market for the Common Stock, the average of the last reported bid prices on the principal trading market for the Common Stock during the same period, or, if there is no bid price for such period, the average of the last reported sales price on each trading day for such period, or (iii) if market value cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be the average fair market value as reasonably determined by an investment banking firm selected by the Company and reasonably acceptable to the Holders of a majority in interest of the Warrants, with the costs of the appraisal to be borne by the Company. The manner of determining the Market Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to market value must be made hereunder. (iii) "Common Stock," for purposes of this Section 4, includes the Common Stock and any additional class of stock of the Company having no preference as to dividends or distributions on liquidation, provided that the shares purchasable pursuant to this Warrant shall include only Common Stock in respect of which this Warrant is exercisable, or shares resulting from any subdivision or combination of such Common Stock, or in the case of any reorganization, reclassification, consolidation, merger, or sale of the character referred to in Section 4(e) hereof, the stock or other securities or property provided for in such Section. - 12 - 13 5. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder for any issuance tax or other costs in respect thereof, provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than the Holder. 6. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the Holder to any voting rights or other rights as a shareholder of the Company. No provision of this Warrant, in the absence of affirmative action by the Holder to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. 7. Transfer, Exchange, Redemption and Replacement of Warrant. (a) Restriction on Transfer. This Warrant may be transferred and exchanged as provided in Section 6 of the Warrant Agreement. If this Warrant is in global form, unless and until it is exchanged for Definitive Warrants, it may not be transferred except as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of a successor Depository. DTC shall act as the Depository until a successor shall be appointed by the Company and the Warrant Agent. If this Warrant is a Definitive Warrant, this Warrant and the rights granted to the Holder are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed assignment in the Form of Assignment attached hereto as Exhibit 3, at the office or agency of the Warrant Agent referred to in Section 7(e) below, provided, however, that any transfer or assignment shall be subject to Section 7(f) below, and the applicable provisions of the Warrant Agreement, the Purchase Agreement and the Investor Agreement. Until due presentment for registration of transfer on the books of the Company, the Company may treat the registered holder hereof as the owner and holder hereof for all purposes, and the Company shall not be affected by any notice to the contrary. Notwithstanding anything to the contrary contained herein, the registration rights set forth in the Common Stock Registration Rights Agreement are assignable only in accordance with the provisions of the Common Stock Registration Rights Agreement. (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Holder at the office or agency of the Company referred to in Section 7(e) below, for new Warrants, in the form hereof, of different denominations representing in the aggregate the right to purchase the number of shares of Common Stock which may be purchased hereunder, each of such new Warrants to represent the right to purchase such number of shares as shall be designated by the Holder at the time of such surrender. (c) Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant or, in the case of any such loss, theft, or destruction, upon delivery, of an indemnity agreement reasonably satisfactory in form and amount to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant, in the form hereof, in such denominations as Holder may request. - 13 - 14 (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in connection with any transfer, exchange, or replacement as provided in this Section 7, this Warrant shall be promptly canceled by the Company. The Company shall pay all issuance taxes (other than securities transfer taxes) and charges payable in connection with the preparation, execution, and delivery of Warrants pursuant to this Section 7. (e) Warrant Register. The Warrant Agent (as defined below), on behalf of the Company, shall maintain in accordance with the terms of the Warrant Agreement (as defined below), at its corporate trust office in New York City, New York, a register for this Warrant, in which the Warrant Agent shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee and each prior owner of this Warrant. (f) Purchaser Restrictions. The Holder agrees that, in connection with the resale of the Warrant or the Warrant Shares, (A) it will offer to sell the Warrant or the Warrant Shares only to, and will solicit offers to buy the Warrant or the Warrant Shares only from (1) QIBs who in purchasing such Warrant or the Warrant Shares will be deemed to have represented and agreed that they are purchasing the Warrant or the Warrant Shares for their own accounts or accounts with respect to which they exercise sole investment discretion and that they or such accounts are QIBs, (2) Institutional Accredited Investors (as hereinafter defined), or (3) purchasers pursuant to Regulation S and (B) it will take reasonable steps to inform persons acquiring the Warrant or the Warrant Shares from it or its affiliates that neither the Warrant nor the Warrant Shares will have been registered under the Securities Act and therefore may be resold, pledged or otherwise transferred within the time period referred to in Rule 144(k) under the Securities Act as in effect on the date of the transfer of this Warrant or the Warrant Shares, only (I)(v) inside the United States to a person who the holder reasonably believes is a QIB purchasing for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A, (w) inside the United States to an Institutional "Accredited Investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act (an "Institutional Accredited Investor") that, prior to such transfer, furnished to the Company a signed letter containing certain representations and agreements relating to the restrictions on transfer of this Warrant or the Warrant Shares (x) in a transaction meeting the requirements of Rule 144 under the Securities Act, (y) outside the United States in an offshore transaction meeting the requirements of Rule 903 or 904 under the Securities Act or (z) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (II) to the Company or any of its Subsidiaries, (III) pursuant to an effective registration statement under the Securities Act and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and (C) that the Holder will, and each subsequent holder is required to, notify any purchaser from it of the Warrant or the Warrant Shares of the resale restrictions set forth in (B) above. If the proposed transferee is an Institutional Accredited Investor purchasing pursuant to clause B(I)(w) above, the Holder must, prior to such transfer, furnish to the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. - 14 - 15 (g) No Transfers to Persons Engaged in Competition. The Holder agrees that it shall not transfer this Warrant to any person or entity which, to the knowledge of the Holder, is engaged in Competition with the Company. For this purpose, "Competition" shall mean engaging in any business in the states of West Virginia, Maryland, Pennsylvania, Virginia or Kentucky involving the purchase for resale, sale, operation or maintenance for resale of coal, coal reserves, coal inventories, coal mines, coal mining operations, coal processing operations, processing or disposing of ash produced from the consumption of coal; the conduct or performance of coal mining, coal loading, coal processing or contract coal mining or coal processing; the employment of independent contractors in connection with any of the foregoing; or the conduct of coal trading; or the holding of any equity investment constituting a controlling equity interest in any entity or business which at the time such transfer is proposed to be made is engaged in Competition. (h) Restrictions on Sale of Stock. Each Holder agrees that, until the earlier of an initial public offering of the Company's Common Stock or October 30, 2002, it will not either singly or together with any other Holder, in one transaction or in a series of related transactions, sell, transfer or otherwise dispose of more than 50% of the Company's outstanding Common Stock except upon the affirmative written vote or consent of the holders of at least 85% of the outstanding Common Stock as of the Record Date. Such Holder or Holders shall give at least 30 days' prior written notice to all Holders prior to the Record Date. 8. Registration Rights. The initial holder of this Warrant (and certain assignees thereof) is entitled to the benefit of such registration rights in respect of the Warrant Shares as are set forth in the Common Stock Registration Rights Agreement. 9. Notices. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or by confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Telecopy: (304) 594-1685 Attention: P. Bruce Sparks, President With a copy to: Klett Lieber Rooney & Schorling, a Professional Corporation One Oxford Centre 40th Floor Pittsburgh, Pennsylvania 15219-6498 Telecopy: (412) 392-2128 Attention: Craig S. Heryford - 15 - 16 and if to the Holder, at such address as Holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 9. 10. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. The Company irrevocably consents to the jurisdiction of the United States Federal courts located in the State of New York and the state courts located in the City of New York in the State of New York in any suit or proceeding based on or arising under this Warrant and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company agrees that a final nonappealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. 11. Warrant Agent. The Company has, pursuant to the Warrant Agreement, appointed the Warrant Agent to act as agent for the purpose of issuing Warrant Shares on the exercise of the Warrants, exchanging Warrants, and replacing Warrants, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 12. Miscellaneous. (a) Amendments. This Warrant and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder. (b) Descriptive Headings. The descriptive headings of the several Sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. (c) Assignability. This Warrant shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Holder and its successors and assigns. The Holder shall notify the Company upon the assignment of this Warrant. * * * - 16 - 17 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized officer. ANKER COAL GROUP, INC. By: ________________________________ Name: P. Bruce Sparks Title: President Countersigned: THE BANK OF NEW YORK, as Warrant Agent By: _______________________ Authorized Signature - 17 - 18 Exhibit 1 FORM OF EXERCISE AGREEMENT (To be Executed by the Holder in order to Exercise the Warrant) The undersigned hereby irrevocably exercises the right to purchase ____________ of the shares of common stock of Anker Coal Group, Inc., a Delaware corporation (the "Company"), evidenced by the attached Warrant, and herewith makes payment of the Exercise Price and/or the Special Exercise Price, as applicable, with respect to such shares in full in accordance with the conditions and provisions of said Warrant. (i) The undersigned agrees not to offer, sell, transfer or otherwise dispose of any Common Stock obtained on exercise of the Warrant, except under circumstances that will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. (ii) The undersigned requests that stock certificates for such shares be issued, and a Warrant representing any unexercised portion hereof be issued, pursuant to the Warrant in the name of the Holder (or such other person or persons indicated below) and delivered to the undersigned (or designee(s)) at the address (or address(es)) set forth below. (iii) The undersigned hereby (A) delivers an executed copy of the attached Accession Agreement, or (B) certifies under penalties of perjury that it is already a party to the Investor Agreement or has previously executed and delivered to the Company an Accession Agreement. Date: Signature of Holder Name of Holder (Print) Address: 19 Exhibit 2 FORM OF INVESTOR AGREEMENT (Holder must be a party in order to Exercise the Warrant) 20 Exhibit 3 FORM OF ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers all rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock covered thereby set forth hereinbelow, to: Name of Assignee Address No. of Shares - ---------------- ------- ------------- , and hereby irrevocably constitutes and appoints ______________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the within-named corporation, with full power of substitution in the premises. Date:____________, _____, In the presence of ________________________ Name:______________________________________ Signature:_________________________________ Title of Signing Officer or Agent (if any): ___________________________________________ Address:___________________________________ ___________________________________ Note: The above signature should correspond exactly with the name on the face of the within Warrant. Signature Guarantee:_______________________ EX-10.20 13 WARRANT AGREEMENT 1 EXHIBIT 10.20 WARRANT AGREEMENT BETWEEN ANKER COAL GROUP, INC. AND THE BANK OF NEW YORK, AS WARRANT AGENT ------------------------ WARRANT AGREEMENT DATED AS OF OCTOBER 26, 1999 -------------------- 2 WARRANT AGREEMENT WARRANT AGREEMENT, dated as of October 26, 1999 between ANKER COAL GROUP, INC., a Delaware corporation (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation, as Warrant Agent (the "Warrant Agent"). R E C I T A L S : WHEREAS, the Company proposes to issue warrants, as hereinafter described (the "Warrants"), to purchase up to an aggregate of 3,047 shares of common stock, par value $.01 per share, of the Company (the "Common Stock"); the shares of Common Stock issuable upon exercise of the Warrants are referred to herein as the "Warrant Shares". Subject to Section 4 of the form of Warrant Certificate attached hereto as Exhibit A (each such Warrant in global form, a "Global Warrant" and each such Warrant in definitive form, a "Definitive Warrant"; a certificate representing a Global Warrant and a Definitive Warrant being referred to herein as a "Warrant Certificate"), each Warrant entitles the holder thereof to purchase one share of Common Stock; and WHEREAS, the Company wishes the Warrant Agent to act on behalf of the Company and the Warrant Agent is willing to act in connection with the issuance, division, transfer, exchange and exercise of Warrants as provided herein; NOW, THEREFORE, in consideration of the premises and mutual agreements herein, the Company and the Warrant Agent hereby agree as follows: SECTION 1. Incorporation by Reference. The terms and provisions of the Warrant Certificate and the respective rights and obligations thereunder of the Company and the registered owners of the Warrants evidenced thereby (the "Holders") are hereby incorporated into this Agreement as if set forth in full herein. SECTION 2. Appointment of Warrant Agent and Depository. The Company hereby appoints the Warrant Agent to act as agent for the Company in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment. The Company initially appoints The Depository Trust Company ("DTC") to act as depository ("Depository") with respect to the Global Warrant. The Warrant Agent is authorized to enter into a letter of representations with DTC in the form provided to the Warrant Agent by the Company and to act in accordance with such letter. SECTION 3. Issuance; Registration; Form of Warrant Certificate. 3.1 Initial Issuance of Warrants. The Company shall deliver to the Warrant Agent the name or names of those persons to whom Warrants are to be initially issued. Warrants initially issued will be interests in the Global Warrant and credited on or about October 28, 1999 to the account of the Warrant Agent at DTC. -2- 3 3.2 Registration. The Warrant Agent, on behalf of the Company, shall maintain, at its corporate trust office in New York City, New York, a register for the Warrants, in which the Warrant Agent shall record the name and address of the person in whose name each Warrant has been issued, as well as the name and address of each transferee and each prior owner of such Warrant. The Company and the Warrant Agent shall be entitled to treat the Holder of any Warrant Certificate as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant Certificate on the part of any other person, and shall not be liable for any registration of transfer of Warrant Certificates which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary. 3.3 Form of Warrant Certificate. The text of the Warrant Certificate, the form of exercise agreement to purchase Warrant Shares, the form of investor agreement and the form of assignment of the Warrant Certificate shall be substantially in the form of Exhibit A attached hereto. The price per Warrant Share and the number of Warrant Shares issuable upon exercise of each Warrant are subject to adjustment upon the occurrence of certain events, all as provided in Section 4 of the Warrant Certificate. Definitive Warrants shall be dated as of the date of countersignature thereof by the Warrant Agent (as provided below) either upon initial issuance or upon division, exchange, substitution or transfer. SECTION 4. Execution of Warrants. Warrant Certificates (whether in global or definitive form) shall be executed on behalf of the Company by its Chairman of the Board, its President, or any Vice President under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. Each such signature upon the Warrant Certificate may be in the form of a facsimile signature of the present or any future Chairman of the Board, President, Vice President, Secretary, or Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant Certificates, and for that purpose the Company may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, President, Vice President, Secretary, or Assistant Secretary, notwithstanding the fact that at the time the Warrant Certificates shall be countersigned and delivered or disposed of that person shall have ceased to hold such office. In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificates so signed shall have been countersigned by the Warrant Agent or disposed of by the Company, such Warrant Certificates nevertheless may be countersigned and delivered or disposed of as though such person had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Warrant Certificate, shall be a proper officer of the Company to sign such Warrant Certificate, although at the date of the execution of this Warrant Agreement any such person was not such officer. SECTION 5. Countersignature of Warrants. Warrant Certificates (whether in global or definitive form) shall be countersigned by the Warrant Agent (or any successor to the Warrant Agent then acting as warrant agent under this Agreement) and shall not be valid for any purpose unless so countersigned. Warrant Certificates may be countersigned, however, by the Warrant Agent (or by its successor as warrant agent hereunder) and may be delivered by the Warrant -3- 4 Agent, notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature, issuance or delivery. The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, one of the Vice Presidents, the Treasurer, or the Secretary or an Assistant Secretary of the Company, initially countersign, issue and deliver Warrant Certificates entitling the Holders thereof to purchase not more than 3,047 Warrant Shares and shall countersign and deliver Warrant Certificates as otherwise provided in this Agreement. SECTION 6. Registration of Transfers and Exchanges. 6.1 Transfer and Exchange of Global Warrants. The transfer and exchange of Global Warrants or beneficial interests therein shall be effected through the Depository, in accordance with this Warrant Agreement and the procedures of the Depository therefor. 6.2 Exchange of a Beneficial Interest in a Global Warrant for a Definitive Warrant. (a) Any person having a beneficial interest in a Global Warrant may upon request exchange such beneficial interest for a Definitive Warrant. Upon receipt by the Warrant Agent of written instructions or such other form of instructions as is customary for the Depository from the Depository or its nominee on behalf of any person having a beneficial interest in a Global Warrant and, in the case of Registrable Securities (as defined in the Common Stock Registration Rights Agreement dated as of October 26, 1999 by and among the Company and the purchaser(s) named therein), the following additional information and documents (all of which may be submitted by facsimile), as applicable: (i) if such beneficial interest is being delivered to the Person designated by the Depository as being the beneficial owner, a certification from such beneficial owner to that effect (in substantially the form of Exhibit B hereto); (ii) if such beneficial interest is being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A or (2) pursuant to an exemption from registration in accordance with Rule 144 or (3) pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit B hereto); (iii) if such beneficial interest is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act, a certification to that effect (in substantially the form of Exhibit B hereto); or (iv) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company or the Warrant Agent so requests), a certification to that effect (in substantially the form of Exhibit B hereto); then, in accordance with the standing instructions and procedures existing between the Depository and the Warrant Agent, the Warrant Agent shall cause the number of Warrants represented by the Global Warrant to be reduced by the number of Warrants to be represented by the Definitive -4- 5 Warrants to be issued in exchange for the interest in the Global Warrant and, following such reduction, the Company shall execute and the Warrant Agent shall countersign and deliver to the transferee, as the case may be, a Definitive Warrant. (b) Definitive Warrants issued in exchange for a beneficial interest in a Global Warrant pursuant to this Section 6.2 shall be registered in such names as the Depository, pursuant to the instructions from its direct or indirect participants or otherwise, shall instruct the Warrant Agent. The Warrant Agent shall deliver such Definitive Warrants to the persons in whose names such Warrants are so registered. 6.3 Transfer and Exchange of Definitive Warrants. When Definitive Warrants are presented to the Warrant Agent with a request: (a) to register the transfer of the Definitive Warrants; or (b) to exchange such Definitive Warrants for an equal number of Definitive Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if the following requirements are met: (x) the Definitive Warrants presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Warrant Agent, duly executed by the Holder thereof or by his attorney, duly authorized in writing; and (y) in the case of Registrable Securities, such request shall be accompanied by the following additional information and documents (all of which may be submitted by facsimile), as applicable: (i) if such Registrable Security is being delivered to the Warrant Agent by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in substantially the form of Exhibit B hereto); (ii) if such Registrable Security is being transferred (1) to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A or (2) pursuant to an exemption from registration in accordance with Rule 144 or (3) pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit B hereto); (iii) if such Registrable Security is being transferred pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act, a certification to that effect (in substantially the form of Exhibit B hereto); or (iv) if such Registrable Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act (and -5- 6 based on an opinion of counsel if the Company or the Warrant Agent so requests), a certification to that effect (in substantially the form of Exhibit B hereto). 6.4 Restrictions on Exchange or Transfer of a Definitive Warrant for a Beneficial Interest in a Global Warrant. A Definitive Warrant may not be exchanged for a beneficial interest in a Global Warrant except upon satisfaction of the requirements set forth below. Upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with: (a) if such Definitive Warrant is a Registrable Security, certification from the Holder thereof (in substantially the form of Exhibit B hereto) to the effect that such Definitive Warrant is being transferred by such Holder either (A) to a "qualified institutional buyer" (as defined in Rule 144A) in accordance with Rule 144A (and based on an opinion of counsel if the Company or the Warrant Agent so requests) or (B) outside the United States, to a foreign Person in a transaction meeting the requirements of Rule 904 under the Securities Act (and based on an opinion of counsel if the Company or the Warrant Agent so requests) who wishes to take delivery thereof in the form of a beneficial interest in a Global Warrant; and (b) whether or not such Definitive Warrant is a Registrable Security, written instructions directing the Warrant Agent to make, or to direct the Depository to make, an endorsement on the Global Warrant to reflect an increase in the number of Warrants represented by the Global Warrant, then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Warrant Agent, the number of Warrants represented by the Global Warrant to be increased accordingly. If no Global Warrants are then outstanding, the Company shall issue and the Warrant Agent shall countersign a new Global Warrant representing the appropriate number of Warrants. 6.5 Restrictions on Transfer and Exchange of Global Warrants. Notwithstanding any other provisions of this Warrant Agreement (other than the provisions set forth in Section 6.6), a Global Warrant may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. 6.6 Countersigning of Definitive Warrants in Absence of Depository. If at any time the Depository for the Global Warrants notifies the Company that the Depository is unwilling or unable to continue as Depository for the Global Warrants and a successor Depository for the Global Warrants is not appointed by the Company within 90 days after delivery of such notice, then the Company shall execute, and the Warrant Agent, upon receipt of written instructions signed by two officers of the Company, shall countersign and deliver Definitive Warrants, in an aggregate number equal to the number of Warrants represented by Global Warrants, in exchange for such Global Warrants. -6- 7 6.7 Legends. (a) Each Warrant Certificate evidencing the Global Warrants and the Definitive Warrants (and all Warrants issued in exchange therefor or substitution thereof) and each certificate representing the Warrant Shares shall bear a legend in substantially the following form: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR WARRANTS IN DEFINITIVE FORM, THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. THE DEPOSITORY TRUST COMPANY ("DTC") (55 WATER STREET, NEW YORK, NEW YORK) SHALL ACT AS THE DEPOSITORY UNTIL A SUCCEESSOR SHALL BE APPOINTED BY THE COMPANY AND THE WARRANT AGENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1) NEITHER THE WARRANT REPRESENTED HEREBY OR THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH - -------- (1) This paragraph is to be included only if the Warrant is in global form. -7- 8 BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS WARRANT OR THE WARRANT SHARES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO IN RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS WARRANT OR THE WARRANT SHARES WITH RESPECT TO SUCH TRANSFER, RESELL OR OTHERWISE TRANSFER THIS WARRANT OR THE WARRANT SHARES EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE COMPANY OR THE SELLER A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS WARRANT OR THE WARRANT SHARES, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (E) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS WARRANT, THE WARRANT SHARES OR ANY INTEREST -8- 9 HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR PURCHASING PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE WARRANT SHARES ARE SUBJECT TO THE RESTRICTIONS CONTAINED IN AN INVESTOR AGREEMENT (THE "INVESTOR AGREEMENT") DATED OCTOBER 26, 1999 AMONG THE COMPANY AND THE STOCKHOLDERS AND PURCHASERS NAMED THEREIN. EACH HOLDER OF THIS WARRANT MUST BECOME A PARTY TO THE INVESTOR AGREEMENT AT OR PRIOR TO EXERCISE OF THIS WARRANT. IN ADDITION, THE WARRANT SHARES ARE SUBJECT TO CERTAIN PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AUGUST 12, 1996 AMONG CERTAIN STOCKHOLDERS OF THE COMPANY, WHICH PROVISIONS ARE REFERENCED IN SUCH INVESTOR AGREEMENT. HOLDERS OF WARRANTS HAVE THE BENEFIT OF CERTAIN PREEMPTIVE OR PURCHASE RIGHTS SET FORTH IN THE STOCKHOLDERS AGREEMENT AND REFERENCED HEREIN. A COPY OF SUCH STOCKHOLDERS AGREEMENT IS ON FILE AT THE OFFICE OF THE SECRETARY OF THE COMPANY. THE FORM OF INVESTOR AGREEMENT IS ATTACHED HERETO AS EXHIBIT 2. 6.8 Cancellation of Global Warrant. At such time as all beneficial interests in Global Warrants have either been exchanged for Definitive Warrants, redeemed, repurchased or cancelled, all Global Warrants shall be returned to or retained and cancelled by the Warrant Agent. -9- 10 6.9 Obligations with Respect to Transfers and Exchanges of Warrants. (a) To permit registrations of transfers and exchanges, the Company shall execute and the Warrant Agent is hereby authorized to countersign, in accordance with the provisions of Section 5 and this Section 6, Definitive Warrants and Global Warrants as required pursuant to the provisions of this Section 6. Notwithstanding anything to the contrary contained herein, the Company shall refuse to register any transfer of the Warrants not made in accordance with Rule 144A, Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act; provided, however, that if a foreign law prevents the Company from refusing to register securities transfers, the Company shall implement other reasonable measures designed to prevent transfers of the Warrants not made in accordance with Rule 144A, Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from the registration requirements of the Securities Act. (b) All Definitive Warrants and Global Warrants issued upon any registration of transfer or exchange of Definitive Warrants or Global Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Warrant Agreement, as the Definitive Warrants or Global Warrants surrendered upon such registration of transfer or exchange. (c) Prior to due presentment for registration of transfer of any Warrant, the Warrant Agent and the Company may deem and treat the person in whose name any Warrant is registered as the absolute owner of such Warrant and neither the Warrant Agent, nor the Company shall be affected by notice to the contrary. (d) No service charge shall be made to a Holder for any registration of transfer or exchange. SECTION 7. No Rights as Stockholders. Nothing contained in this Agreement or in any Warrant Certificate shall be construed as conferring upon any of the Holders or their transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders of the Company for the election of the directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. SECTION 8. Disposition of Proceeds on Exercise of Warrants; Inspection of Warrant Agreement. The Warrant Agent shall promptly inform the Company with respect to Warrants exercised and concurrently pay to the Company all monies received by the Warrant Agent for the purchase of the Warrant Shares through the exercise of such Warrants. The Warrant Agent shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at the Office. The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Agreement as the Warrant Agent may request. SECTION 9. Merger or Consolidation or Change of Name of Warrant Agent. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, -10- 11 or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor warrant agent under the provisions of Section 11 hereof. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrants shall have been countersigned but not delivered, any such successors to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrants so countersigned; and in case at that time any of the Warrants shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrants either in the name of the predecessor Warrant Agent or in the name of the successor warrant agent; and in all such cases, such Warrants shall have the full force provided in the Warrants and in this Agreement. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrants shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignatures under its prior name and deliver such Warrants as so countersigned; and in case at that time any of the Warrants shall not have been countersigned, the Warrant Agent may countersign such Warrants either in its prior name or in its changed name; and in all such cases, such Warrants shall have the full force provided in the Warrants and in this Agreement. SECTION 10. Concerning the Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the Holders, by their acceptance of Warrants, shall be bound: 10.1 Correctness of Statements. The statements contained herein and in the Warrant shall be taken as statements of the Company, and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or any action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. 10.2 Breach of Covenants. The Warrant Agent shall not be responsible for any failure of the Company to comply with the covenants contained in this Agreement or in the Warrants to be complied with by the Company. 10.3 Performance of Duties. The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself (through its employees) or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct of any agent appointed with due care. 10.4 Reliance on Counsel. The Warrant Agent may consult at any time with legal counsel satisfactory to it (who may be counsel for the Company), and the Warrant Agent shall incur no liability or responsibility to the Company or to any Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. -11- 12 10.5 Proof of Actions Taken. Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed conclusively to be proved and established by a certificate signed by the Chairman of the Board, the President, one of Vice Presidents, the Treasurer or the Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. 10.6 Compensation. The Company agrees to pay the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the performance of its duties under this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature incurred by the Warrant Agent in the performance of its duties under this Agreement, including reasonable counsel fees, and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the performance of its duties under this Agreement, except as a result of the Warrant Agent's gross negligence or bad faith. 10.7 Legal Proceedings. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding relative thereto, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery or judgment shall be for the ratable benefit of the Holders, as their respective rights or interests may appear. 10.8 Other Transactions in Securities of Company. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transactions in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement or such director, officer or employee. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity including, without limitation, acting as Transfer Agent or as a lender to the Company or an affiliate thereof. 10.9 Liability of Warrant Agent. The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own gross negligence or bad faith. -12- 13 10.10 Reliance on Documents. The Warrant Agent will not incur any liability or responsibility to the Company or to any Holder for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, document or instrument reasonably believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. 10.11 Validity of Agreement. The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant (except its countersignature thereof); nor shall the Warrant Agent by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Warrant Shares (or other stock) to be issued pursuant to this Agreement or any Warrant, or as to whether any Warrant Shares (or other stock) will, when issued, be validly issued, fully paid and nonassessable, or as to the Exercise Price or the number or amount of Warrant Shares or other securities or other property issuable upon exercise of any Warrant. 10.12 Instructions from the Company. The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, any Vice President or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith and without negligence in accordance with instructions of any such officer or officers. SECTION 11. Change of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Agreement by giving to the Company 30 days' notice in writing. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of 30 days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any Holder (who shall with such notice submit his Warrant for inspection by the Company), then any Holder may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor warrant agent, either by the Company or by such court, the duties of the Warrant Agent shall be carried out by the Company. Any successor warrant agent, whether appointed by the Company or such a court, shall be a bank or trust company in good standing, incorporated under the laws of the United States of America or any State thereof or the District of Columbia and having at the time of its appointment as warrant agent a combined capital and surplus of at least $100,000,000. After appointment, the successor warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed; but (a) the former Warrant Agent shall be entitled to the benefit of the provisions of Section 10 with respect to actions or omissions while it was the Warrant Agent and (b) the former Warrant Agent shall deliver and transfer to the successor warrant agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for such purpose. Failure to file any notice provided for in this Section 11, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor warrant agent, as the case may -13- 14 be. In the event of such resignation or removal, the Company or the successor warrant agent shall mail by first class mail, postage prepaid, to each Holder, written notice of such removal or resignation and the name and address of such successor warrant agent. SECTION 12. Identity of Transfer Agent. Forthwith upon the appointment of any Transfer Agent for the Common Stock, or any other shares of the Company's capital stock issuable upon the exercise of the Warrants, the Company shall file with the Warrant Agent a statement setting forth the name and address of such Transfer Agent. SECTION 13. Notices. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or by confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, West Virginia 26508 Telecopy: (304) 594-1685 Attention: P. Bruce Sparks, President With a copy to: Klett Lieber Rooney & Schorling, a Professional Corporation One Oxford Centre 40th Floor Pittsburgh, Pennsylvania 15219-6498 Telecopy: (412) 392-2128 Attention: Craig S. Heryford and if to the Holder, at such address as Holder shall have provided in writing to the Company, or at such other address as each such party furnishes by notice given in accordance with this Section 13. SECTION 14. Supplements and Amendments. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Holder in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not be inconsistent with the provisions of the Warrants and which shall not adversely affect the interests of the Holders in any material respect. SECTION 15. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. -14- 15 SECTION 16. Merger or Consolidation of the Company. The Company will not merge or consolidate with or into, or sell, transfer or lease all or substantially all of its property to any other corporation unless the successor, transferee or lessee corporation, as the case may be (if not the Company), shall expressly assume the due and punctual performance and observance of each and every covenant and condition of this Agreement and each Warrant Certificate issued hereunder to be performed and observed by the Company, and the Company (or successor) shall provide an opinion of counsel to such effect. SECTION 17. Applicable Law. This Agreement and each Warrant Certificate issued hereunder shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflict of laws. The Warrant Agent and the Company agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Agreement. SECTION 18. Benefits of this Warrant Agreement. Nothing in this Agreement shall be construed to give to any person or entity other than the Company, the Warrant Agent and the Holders any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders. SECTION 19. Captions. The captions of the Sections and paragraphs of this Agreement have been inserted for convenience only and shall have no substantive effect. SECTION 20. Counterparts. This Agreement may be executed in any number of counterparts each of which so executed shall be deemed to be an original, but such counterparts together shall constitute but one and the same instrument. SECTION 21. Termination. This Agreement shall terminate on the fifteenth day following the later to occur of (i) the expiration of the Exercise Period, and (ii) the date on which Warrant Shares have been issued upon the exercise of all Warrants pursuant hereto. -15- 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of this ____ day of October, 1999. ANKER COAL GROUP, INC. By: /s/ Bruce Sparks ---------------------------------- Name: Bruce Sparks Title: President THE BANK OF NEW YORK, as Warrant Agent By: /s/ JoAnn Manieri ---------------------------------- Name: JoAnn Manieri Title: Assistant Vice President -16- 17 EXHIBIT A FORM OF WARRANT CERTIFICATE -17- 18 EXHIBIT B FORM OF CERTIFICATION -18- 19 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: _______ Warrants to Purchase Common Stock (the "Warrants") of Anker Coal Group, Inc. This Certificate relates to __________ Warrants held in* _____ book-entry or _____ definitive form by ____________ (the "Transferor"). The Transferor: [ ] has requested the Warrant Agent by written order to deliver in exchange for its beneficial interest in the Global Warrant(s) held by the depositary a Warrant or Warrants in definitive, registered form equal to its beneficial interest in such Global Warrant(s) (or the portion thereof indicated above); or [ ] has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrant(s). In connection with such request and in respect of each such Warrant, the Transferor does hereby certify that the Transferor is familiar with the Warrant Agreement relating to the above captioned Warrants and that the transfer of each such Warrant does not require registration under the Securities Act of 1933, as amended (the "Securities Act"), because: [ ] Each such Warrant is being acquired for the Transferor's own account without transfer. [ ] Each such Warrant is being transferred (i) to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), in reliance on Rule 144A or (ii) pursuant to an exemption from registration in accordance with Rule 904 under the Securities Act (and, in the case of clause (ii), based on an opinion of counsel and written certification if the Company or the Warrant Agent so requests). [ ] Each such Warrant is being transferred (i) in accordance with Rule 144 under the Securities Act (and based on an opinion of counsel if the Company or the Warrant Agent so requests) or (ii) pursuant to an effective registration statement under the Securities Act. - ----------------------------------- * Check applicable box. -19- 20 [ ] Each such Warrant is being transferred in reliance on and in compliance with another exemption from the registration requirements of the Securities Act (and based on an opinion of counsel if the Company or the Warrant Agent so requests). [INSERT NAME OF TRANSFEROR] By: --------------------------- Name: --------------------------- Title: --------------------------- Date: -20- EX-10.21 14 COMMON STOCK REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.21 COMMON STOCK REGISTRATION RIGHTS AGREEMENT Common Stock Registration Rights Agreement (the "Agreement"), dated as of October 26, 1999, by and among Anker Coal Group, Inc., a Delaware corporation (the "Company); and the Purchaser or Purchasers and Exchanging Noteholders (collectively, the "Purchasers") named in the Exchange and Purchase Agreement (the "Purchase Agreement") dated as of October 26, 1999 among the Company, the Guarantors named therein and the Purchasers listed in Schedule I. This Agreement is being entered into pursuant to the Purchase Agreement. Pursuant to the Purchase Agreement, the Purchasers received Warrants issued in accordance with a Warrant Agreement dated as of October 26, 1999 between the Company and The Bank of New York, as warrant agent (the "Warrant Agreement") to purchase an aggregate of 3,047 shares of the Company's Common Stock. In consideration of the following premises and conditions, the parties hereby agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: The term "Common Stock" shall mean the Common Stock, par value $.01 per share of the Company. The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall be deemed to include a reference to the comparable section, if any, of any such similar federal statute. The term "Existing Stockholders" means the stockholders of the Company as of September 30, 1999 that are parties to or entitled to the benefits of the Registration Rights Agreement dated August 12, 1996 among the Company and the Existing Stockholders or their predecessors in interest. The term "Existing Stockholder Registrable Securities" means the shares of Common Stock held by the Existing Stockholders. The term "Holders" shall mean each Purchaser or other person or entity which acquires Common Stock upon exercise of Warrants or to whom Common Stock is otherwise hereafter transferred by any Purchaser other than any transfer in violation of the Investor Agreement (the "Investor Agreement") entered into among the parties hereto on or about the date hereof (such transferees hereinafter "Permitted Transferees"), and any combination of them, and the term "Holder" shall mean any such person. 2 The term "person" shall mean an individual, partnership, corporation, limited liability company, trust, unincorporated organization or government or political department or agency thereof or other entity. The term "Registrable Securities" shall mean shares of Common Stock issuable upon exercise of Warrants outstanding as of the date hereof or acquired by any of the Holders pursuant to the Purchase Agreement or otherwise acquired by a Holder after the date hereof (but excluding the Warrants and any other warrants or securities convertible into Common Stock). As to any Registrable Securities, such securities shall cease to be Registrable Securities when (i) such securities shall have been registered under the Securities Act, the registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of pursuant to such effective registration statement, (ii) such securities shall have been distributed pursuant to Rule 144, or any successor provision then in force, under the Securities Act, (iii) such securities shall have been otherwise transferred, new certificates or other evidences of ownership for them not bearing a legend restricting further transfer and not subject to any stop transfer order or other restrictions on transfer shall have been delivered by the Company and subsequent disposition of such securities shall not require registration or qualification of such securities under the Securities Act or any state securities laws then in force or (iv) such securities shall cease to be Outstanding. The term "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation, all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which such securities are listed, fees and disbursements of counsel for the Company and all independent certified public accountants (including the expenses of any annual audit or "cold comfort" letters required by or incident to such performance and compliance) , the fees and disbursements of underwriters customarily paid by issuers or sellers of securities, the reasonable fees of one counsel retained in connection with each such registration by the Holders of a majority of the Registrable Securities being registered in an amount for each such registration of up to a maximum of $25,000, the reasonable fees of counsel retained by a Holder of Registrable Securities representing at least 25% of the then Outstanding Registrable Securities being registered not voting in favor of the retention of the counsel referred to in the preceding clause up to a maximum amount of $10,000 per such Holder and only to the extent that such fees relate to the performance of legal services required by the Company or an underwriter to be performed by counsel to such Holder, the reasonable fees and expenses of any special experts retained by the Company in connection with such registration and fees and expenses of other persons retained by the Company (but not including (i) any underwriting discounts or commissions attributable to the sale of Registrable 2 3 Securities by the Holders of such Registrable Securities and (ii) any transfer taxes payable by the Holders of Registrable Securities in connection with the sale of Registrable Securities). The term "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute then in effect, and a reference to a particular section thereof shall be deemed to include a reference to the comparable section, if any, of any such similar federal statute. The term "SEC" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act or the Exchange Act. 2. REGISTRATION ON REQUEST. (a) Request for Registration. At any time after the earlier of the occurrence of an initial public offering by the Company or October 30, 2002, upon the written request of any Holder or Holders holding at least 25% of the Registrable Securities (the "Requesting Holder" or the "Requesting Holders") requesting that the Company effect the registration under the Securities Act of all or part of such Holder's or Holders' Registrable Securities and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all other Holders of Registrable Securities, and thereupon will, as expeditiously as possible, use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by the Requesting Holder(s); and (ii) all other Registrable Securities which the Company has been requested to register by any other Holder thereof by written request given to the Company within 20 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities) all to the extent necessary to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered; provided, that the Company shall only be obligated to register such Registrable Securities pursuant to a request by the Holders on an aggregate of two registration statements, and provided further that (A) the Company shall not be obligated to file a registration statement relating to a registration request under this Section 2 at any time prior to the earlier of (i) October 30, 2002 and (ii) the completion of an initial public offering by the Company of Common Stock, (B) the Company shall not be obligated to file a registration statement relating to a registration request under this Section 2 (other than on Form S-3 or any similar short-form registration statement) within a period of six months after the effective date of any other registration statement of the Company which was not effected on Form S-3 (or any similar short-form registration statement) and (C) if the Requesting Holder(s) shall have requested the Company to effect a registration under this Section 2 and prior to the effective date of the registration statement relating to such registration such Holders shall have revoked such request pursuant to the last sentence of this Section 2 (a), then the Company shall not be obligated to file a registration statement relating to a registration request under this Section 2 within a period of six 3 4 months after the date of receipt by the Company of the registration request that was subsequently revoked; provided, however, that a request which is revoked pursuant to the last sentence of this Section 2(a) shall not be considered a request for these purposes. Promptly after the expiration of the 20-day period referred to in subsection (ii) above, the Company will notify all the Holders to be included in the registration of the other Holders and the number of shares of Registrable Securities requested to be included therein. All of the Requesting Holders acting jointly may, at any time prior to the effective date of the registration statement relating to such registration, revoke such request by providing a written notice to the Company revoking such request. The Company shall have the right to select the investment banker (or investment bankers) that shall manage the offering (collectively, the "managing underwriter"), provided, that such managing underwriter must be reasonably satisfactory to the Requesting Holder(s). (b) Registration Statement Form. If a registration requested pursuant to this Section 2 which is proposed by the Company to be effected by the filing of a registration statement on Form S-3 (or any successor or similar short-form registration statement) shall be in connection with any underwritten public offering and if the managing underwriter shall advise the Company in writing that, in its opinion, the use of another form of registration statement is of material importance to the success of such proposed offering, then such registration shall be effected on such other form. (c) Expenses. The Company will pay the Registration Expenses in connection with a registration requested pursuant to this Section 2, whether or not such registration becomes effective under the Securities Act. (d) Effective Registration Statement. A registration requested pursuant to this Section 2 will not be deemed to have been effected unless the registration statement relating thereto has become effective under the Securities Act and all or any portion of the Registrable Securities initially requesting such registration have actually been sold thereunder; provided, however, that if, after such registration statement has become effective, registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, such registration will be deemed not to have been effected. (e) Pro Rata Participation in Requested Registration. If a requested registration pursuant to this Section 2 involves an underwritten offering and the managing underwriter shall advise the Company in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which would have an adverse effect on such offering, including the price at which such shares or securities can be sold, the Company will include in such registration (i) first, all Registrable Securities requested to be included in such registration by the Requesting Holders pursuant to this Section 2 (provided that if the number of such Registrable Securities exceeds the number which the Company has been advised can be sold in such offering, without having the adverse effect referred to above, the number of such Registrable Securities included in such registration shall be allocated pro rata among the Requesting Holders on the basis of the relative number of shares of Registrable Securities each such Holder has 4 5 requested to be included in such registration) , and (ii) second, to the extent that the Registrable Securities requested to be included in such registration pursuant to this Section 2 are less than the number of securities which the Company has been advised can be sold in such offering, without having the adverse effect referred to above, the securities proposed to be sold by other Holders, allocated pro rata among such other Holders on the basis of the number of shares of Registrable Securities each such Holder has requested to be included in such registration. If at least fifty percent of the Registrable Securities requested to be registered pursuant to Section 2(a) by the Requesting Holders are not included in such registration, the registration request of such Requesting Holders shall not be counted toward the limit on registration requests set forth in Section 2(a). 3. INCIDENTAL REGISTRATION. (a) Right to Include Registrable Securities. If the Company at any time proposes to register any of its securities under the Securities Act (other than a registration on Form S-4 or S-8 or any successor or similar forms and other than pursuant to a registration under Section 2 hereof) , whether or not for sale for its own account, it will each such time give prompt written notice to all Holders of Registrable Securities of its intention to do so and of such Holders' rights under this Section 3. Upon the written request of any such Holder made within 20 days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof) , the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with such intended methods thereof) of the Registrable Securities so to be registered; provided, that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each Holder that made a request as hereinabove provided and thereupon the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration, and (ii) if such registration involves an underwritten offering, all Holders of Registrable Securities requesting to be included in the Company's registration must sell their Registrable Securities to the underwriters selected by the Company on the same terms and conditions as apply to the Company. If a registration requested pursuant to this Section 3(a) involves an underwritten public offering, any Holder of Registrable Securities requesting to be included in such registration may elect, in writing prior to the effectiveness of the registration statement filed in connection with such registration, not to register such securities in connection with such registration. No registration effected under this Section 3 shall relieve the Company of its obligations to effect registration upon request under Section 2. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3. (b) Priority in Incidental Registrations. If a registration pursuant to this Section 3 involves an underwritten offering and the managing underwriter advises the Company in writing 5 6 that, in its opinion, the number of securities which the Company, the Holders and any other persons intend to include in such registration exceeds the number which would have an adverse effect on such offering, including the price at which such securities can be sold, the Company will include in such registration (i) first, all the securities the Company proposes to sell for its own account, and (ii) second, the number of Registrable Securities requested to be included in such registration by the Holders and the number of Existing Stockholder Registrable Securities requested to be included in such registration by the Existing Stockholders, which number, in the opinion of such underwriters, can be sold without having the adverse effect referred to above, such amount to be allocated pro rata among all such requesting Holders and requesting Existing Stockholders on the basis of the relative number of shares of Registrable Securities and other securities each Holder and the number of shares of Existing Stockholder Registrable Securities each Existing Stockholder has requested to be included in such registration, and (iii) third, the number of shares requested to be included in such registration by persons other than Holders and Existing Stockholders, which number, in the opinion of such underwriters, can be sold without having the adverse effect referred to above, such amount to be allocated pro rata among all such requesting other persons on the basis of the relative number of shares each such other person has requested to be included in such registration. 4. HOLDBACK AGREEMENTS. If any registration shall be in connection with an underwritten public offering, each Holder of Registrable Securities agrees not to effect any public sale or distribution, including any sale pursuant to Rule 144 or Rule 144A under the securities Act, of any Registrable Securities, and to use such Holder's best efforts not to effect any such public sale or distribution of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security, of the Company (in each case, other than as part of such underwritten public offering) within 7 days before or 90 days after the effective date of such registration, and the Company hereby also so agrees and agrees to cause other holders of any equity security, or of any security convertible into or exchangeable or exercisable for any equity security, of the Company purchased from the Company (at any time other than in a public offering) to so agree. 5. REGISTRATION PROCEDURES. If and whenever the Company is required to use its best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company will, as expeditiously as possible: (a) prepare and file with the SEC within 90 days, and use its best efforts to prepare and so file within 45 days, after receipt of a request for registration with respect to such Registrable Securities, a registration statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate, subject to 2(b) hereof, as the case may be, and which form shall be available for the sale of the registrable Securities in accordance with the intended methods of distribution thereof, and use its best efforts to cause such registration statement to become effective; provided that before filing with the SEC a 6 7 registration statement or prospectus or any amendments or supplements thereto, the Company will (i) furnish to one counsel selected by the Holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel, and the Company will give reasonable consideration to any comments of such counsel, and (ii) notify each Holder of Registrable Securities covered by such registration statement of any stop order issued or threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 120 days or such shorter period which will terminate when all Registrable Securities covered by such registration statement have been sold (but not before the expiration of the 90-day period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable), and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each Holder of such Registrable Securities covered by such registration statement such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), the prospectus included in such registration statement (including each preliminary prospectus) , in conformity with the requirements of the Securities Act and such other documents as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder; (d) use its best efforts to register or qualify such Registrable securities under such other securities or blue sky laws of such jurisdictions within the United States as any Holder of Registrable Securities covered by such registration statement reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Holder; provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction; (e) use its best efforts to cause the Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holder or Holders thereof to consummate the disposition of such Registrable Securities; (f) immediately notify each Holder of such Registrable Securities at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such registration statement contains an untrue statement of a material fact or omits to state any material fact required to be stated 7 8 therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and will promptly prepare and furnish to such Holder a reasonable number of copies of such supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (g) use its best efforts to cause all such Registrable Securities to be listed on a national securities exchange and on each securities exchange on which similar securities issued by the Company are then listed, if the applicable listing requirements are satisfied, and to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement no later than the effective date of such registration statement; (h) enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of a majority of the registrable Securities being sold or the underwriters retained by such Holders, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including customary indemnification; (i) make available for inspection by any Holder of Registrable securities covered by such registration statement, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement; (j) use its best efforts to obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Holders of a majority of the Registrable Securities being sold reasonably request; (k) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least twelve months, beginning with the first month after the effective date of the registration statement (as the term "effective date,, is defined in Rule 158 (c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and (l) obtain for delivery to the underwriter an opinion or opinions from counsel for the Company in customary form and in form and scope reasonably satisfactory to such underwriter and its counsel. 8 9 The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 5(f) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 5(f) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in Section 5(b) hereof shall be extended by the greater of (i) three months or (ii) the number of days during the period from and including the date of the giving of such notice pursuant to Section 5 (f) hereof to and including the date when each Holder of Registrable Securities covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by section 5 (f) hereof. If a registration pursuant to Section 2 involves an underwritten offering, the Company agrees, if so required by the managing underwriter, not to effect any public sale or distribution of any of its securities (other than pursuant to Form S-4 or S-8) during a period commencing seven calendar days before and ending 90 calendar days after the effective date of such registration, except for such underwritten offering. 6. INDEMNIFICATION. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 2 or 3 hereof, the Company will, and it hereby does, indemnify and hold harmless, to the full extent permitted by law, each of the Holders of any Registrable Securities covered by such registration statement, its directors and officers, employees, agents, general partners, limited partners, managers and managing directors thereof), each other person who participates as an underwriter in the offering or sale of such securities and each other person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages or liabilities, joint or several, and expenses (including any amounts paid in any settlement effected with the Company's consent) to which such Holder, any such director, officer, employee, agent, general, limited partner, manager or managing director or any such underwriter or controlling person may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) or expenses arise out of or are based upon (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus, or any amendment or supplement 9 10 thereto, including all documents incorporated therein by reference or (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Holder and each such director, officer, employee, agent, general partner, limited partner, manager, managing director or underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending such loss, claim, liability, action or proceedings commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any alleged untrue statement or omission; provided, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expenses arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or amendment or supplement thereto or in any such preliminary, final or summary prospectus in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder or underwriter specifically stating that it is for use in the preparation thereof; and provided, further, that the Company will not be liable to any person who participates as an underwriter in the offering or sale of Registrable Securities or any other person, if any, who controls such underwriter within the meaning of the Securities Act, under the indemnity agreement in this Section 6 (a) with respect to any preliminary prospectus as amended or supplemented as the case may be, to the extent that any such loss, claim, damage or liability of such underwriter or controlling person results from the fact that such underwriter sold Registrable Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final prospectus (including any documents incorporated by reference therein), whichever is most recent, if the Company has previously furnished copies thereof to such underwriter and such final prospectus, as then amended or supplemented, has corrected any such misstatement or omission. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any such director, officer, employee, agent, general partner, limited partner, manager, managing director, underwriter or controlling person and shall survive the transfer of such securities by ouch Holder. (b) Indemnification by the Holders. The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Sections 2 and 3 hereof, that the Company shall have received an undertaking reasonably satisfactory to it from the Holders of such Registrable Securities or any underwriter, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 6) the Company and its controlling persons and all other prospective sellers and their respective controlling persons with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such Holder or underwriter specifically stating that it is for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. 10 11 Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders or any of their respective directors, officers and controlling persons and shall survive the transfer of such securities by such Holder; provided, however, that no such Holder shall be liable under this Section 6 for any amounts exceeding the product of the purchase price per Registrable Security and the number of Registrable Securities being sold pursuant to such registration statement or prospectus by such Holder. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 6, except to the extent that the indemnifying party is actually materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgement a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnified party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof. No indemnifying party will consent to entry of any judgment or enter into any settlement without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld) unless such settlement requires no more than a monetary payment for which the indemnifying party agrees to indemnify the indemnified party and includes a full, unconditional and complete release of the indemnified party from all liability in respect to such claim or litigation. The indemnified party shall be entitled to take control of the defense of any claim as to which, in the reasonable judgment of the indemnifying party's counsel, representation of both the indemnifying party and the indemnified party would be inappropriate under the applicable standards of .professional conduct due to actual or potential differing interests between them. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel or counsels. 11 12 7. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances under which the indemnity contemplated by Section 6 is for any reason not available or insufficient for any reason to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities referred to therein, the parties required to indemnify by the terms thereof shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company, any Holder of Registrable Securities and one or more of the underwriters. In determining the amounts which the respective parties shall contribute, there shall be considered the relative benefits received by each party from the offering of the Registrable Securities by taking into account the portion of the proceeds of the offering realized by each, and the relative fault of each party by taking into account the parties' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission and any other equitable consideration appropriate under the circumstances. The Company and each Holder selling securities agree with each other that no seller of Registrable Securities shall be required to contribute any amount in excess of the amount such Holder would have been required to pay to an indemnified party if the indemnity under Section 6 were available. The Company and each such Holder agree with each other and the underwriters of the Registrable Securities, if requested by such underwriters, that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the underwriters were treated as one entity for such purpose) or for the underwriter's portion of such contribution to exceed the percentage that the underwriters discount bears to the initial public offering price of the Registrable Securities. For purposes of this Section 7 each Person, if any, who controls an underwriter within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such underwriter, and each director and each officer of the Company who signed the registration statement, and each person, if any, who controls the Company or a seller of Registrable Securities within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company or a seller of Registrable Securities as the case may be. 8. MISCELLANEOUS. (a) The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders of Registrable securities in this Agreement. Except as provided herein and in the Existing Stockholders Registration Rights Agreement, the Company has not entered into any agreement granting any registration rights with respect to any of its equity securities to any person. (b) The Company acknowledges and agrees that in the event of any breach of this Agreement by it, the Holders would be irreparably harmed and could not be made whole by monetary damages. The Company accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and that the Holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specified performance of this Agreement in any action instituted in the United States District 12 13 Court for the Southern District of New York, or, in the event said Court would not have jurisdiction for such action, in any court of the United States or any state thereof having subject matter jurisdiction for such action. The Company consents to personal jurisdiction in any such action brought in the United States District Court for the District of Delaware or any such other court and to service of process upon it or him in the manner set forth in section 8(d) hereof. (c) This Agreement, together with the Purchase Agreement, the Warrant Agreement, the Warrants, and the Investor Agreement constitute the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein or therein. This Agreement, the Purchase Agreement, the Warrant Agreement, the Investor Agreement and the Warrants referred to herein supersede all prior agreements and understandings between the parties hereto with respect to the subject matter hereof. (d) Any notice, request, instruction or other document to be given hereunder by any party hereto to another party hereto shall be in writing, shall be delivered personally or sent by registered mail, postage prepaid, return receipt requested, to the address of the party set forth in Appendix I hereto or, in the case of a Permitted Transferee, to the address set forth in the written agreement executed pursuant to Section 8(g) hereof, or to such other address as the party to whom notice is to be given may provide in a written notice to the Company, a copy of which written notice shall be on file with the Secretary. No notice shall be effective except upon actual delivery. (e) The laws of the State of New York shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under applicable principles of conflicts of laws. (f) The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of this Agreement, including that provision, in any other jurisdiction. (g) Notwithstanding anything to the contrary contained in this Agreement, no shares of Registrable Securities or any securities of the Company convertible into, or exercisable or exchangeable for, Registrable Securities, may be sold, transferred or otherwise disposed of to any Permitted Transferee, unless such Permitted Transferee, prior to such sale, transfer or other disposition, agrees in writing to be bound by the terms of this Agreement to the same extent and in the same manner as the transferor of such shares or securities, a copy of which agreement (which shall be in substantially the form attached as Exhibit B to the Investor Agreement) shall be on file with the Secretary of the Company. (h) Nothing contained in this Agreement shall be deemed to be a waiver of, or release from, any obligations any party hereto may have under, or any restrictions on the transfer of Registrable Securities or other securities of the Company imposed by, any other agreement 13 14 including, but not limited to, the Purchase Agreement, the Warrant Agreement, the Warrants and the Investor Agreement. (i) Each of the Holders agrees that substantially the following legend shall be placed on the certificates representing any shares of Registrable Securities acquired by it: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS CONTAINED IN AN INVESTOR AGREEMENT DATED AS OF OCTOBER 26, 1999 AMONG THE COMPANY AND THE STOCKHOLDERS AND PURCHASERS NAMED THEREIN. IN ADDITION, THESE SHARES ARE SUBJECT TO CERTAIN PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AUGUST 12, 1996 AMONG CERTAIN STOCKHOLDERS OF THE COMPANY WHICH PROVISIONS ARE REFERENCED IN SUCH INVESTOR AGREEEMENT. COPIES OF THE INVESTOR AGREEMENT AND SUCH STOCKHOLDERS AGREEMENT ARE ON FILE AT THE OFFICE OF THE SECRETARY OF THE COMPANY." (j) The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, successors and assigns. Nothing expressed or mentioned in this Agreement is intended to, or shall be construed to, give any person or entity, other than (i) the parties hereto (ii) their respective successors and permitted assigns or (iii) the persons and entities indemnified pursuant to Sections 6(a) and 6(b) (and then only to the extent of such indemnification), any legal or equitable right, remedy or claim under or in respect to this Agreement or any provision contained herein. Notwithstanding the foregoing, neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Company or any Holder without the prior written consent of the Company and such Holder; provided, however, that a Holder may assign his rights, remedies, obligations and liabilities hereunder concurrently with a transfer of his shares of Registrable Securities to a Permitted Transferee in accordance with Section 8(g) hereof without obtaining the prior written consent of the Company or the Holders specified in this Section 8(j) (k) A default by any party to the Agreement in such party's compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party. (l) This Agreement may not be amended, modified or supplemented and no waivers of or consents to departures from the provisions hereof may be given unless consented to in writing by the Company and each of the Holders affected thereby. (m) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement. (n) In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys, fees in addition to any other available remedy. 14 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. ANKER COAL GROUP, INC. By: /s/ P. Bruce Sparks ------------------------------------- Name: P. Bruce Sparks Title: President ROTHSCHILD RECOVERY FUND L.P. By Rothschild Recovery Associates, L.L.C., General Partner By: /s/ Wilbur Ross, Jr. ------------------------------------- Name: Wilbur Ross, Jr. Title: Managing Member AIG SPECIAL SITUATIONS HOLDING FUND LTD. By: /s/ Andrew W. Gitlin ------------------------------------- Name: Andrew W. Gitlin Title: Director Intrepid Management Company LLC as Investment Manager By: /s/ Victor Consol ---------------------------- Name: Victor Consoli Title: Portfolio Manager Pilgrim High Yield Fund By: /s/ Kevin Mathews ------------------------------------- Name: Kevin Mathews Title: Sr Vice President/Portfolio Manager 15 16 PILGRIM INVESTMENTS INC. By: /s/ Kevin Mathews ------------------------------------- Name: Kevin Mathews Title: Sr Vice President/Portfolio Manager PROSPECT STREET HIGH INCOME PORTFOLIO By: /s/ John Frabotta ------------------------------------- Name: John Frabotta Title: Portfolio Manager Putnam Investment Management Inc., Putnam Fiduciary Trust Company, and The Putnam Advisory Company, Inc. on behalf of their clients listed on Attachment A By: /s/ John R. Verani ------------------------------------- Name: John R. Verani Title: Senior Vice President PRUDENTIAL HIGH YIELD TOTAL RETURN FUND PRUDENTIAL HIGH YIELD FUND, INC. PRUDENTIAL DISTRESSED SECURITIES FUND, INC. By: The Prudential Investment Corporation, as Investment Advisor By: /s/ Peter Allegrini ------------------------------------- Name: Peter Allegrini Title: Second Vice President 16 17 THE PRUDENTIAL SERIES FUND, INC., HIGH YIELD BOND PORTFOLIO By: The Prudential Insurance Company of America, as Investment Advisor By: /s/ Peter Allegrini ------------------------------------- Name: Peter Allegrini Title: Second Vice President DREYFUS HIGH YIELD STRATEGIES FUND By: The Dreyfus Corporation, as Investment Manager By: /s/ Stephanie Pierce ------------------------------------- Name: Stephanie Pierce Title: Vice President 17 18 SCHEDULE I LIST OF PURCHASERS Name of Purchaser Rothschild Recovery Fund, L.P. AIG Special Situations Holding Fund Ltd. Pilgrim High Yield Fund ML CLO XV Pilgrim America ML CBO XX Pilgrim America Prospect Street High Income Portfolio Inc. The George Putnam Fund of Boston Putnam Income Fund Putnam Equity Income Fund Putnam Balanced Retirement Fund Putnam High Yield Advantage Fund Putnam High Income Convertible and Bond Fund Putnam Variable Trust - Putnam VT High Yield Fund Putnam Variable Trust - Putnam VT Global Asset Allocation Fund Putnam Master Income Trust Putnam Premier Income Trust Putnam Master Intermediate Income Trust Putnam Diversified Income Trust Putnam Convertible Opportunities and Income Trust Putnam Asset Allocation Funds - Growth Portfolio Putnam Asset Allocation Funds - Balanced Portfolio Putnam Asset Allocation Funds - Conservative Portfolio Putnam Funds Trust - Putnam High Yield Trust II Travelers Series Fund Inc. - Putnam Diversified Income Portfolio Lincoln National Global Asset Allocation Fund, Inc. Putnam Variable Trust - Putnam VT Diversified Income Fund Putnam High Yield Managed Trust Putnam High Yield Fixed Income Fund, LLC Abbott Laboratories Annuity Retirement Plan Strategic Global Fund - High Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company 19 Prudential High Yield Total Return Fund, Inc. Prudential High Yield Fund, Inc. Prudential Distressed Securities Fund, Inc. The Prudential Series Fund, Inc. High Yield Bond Portfolio Dreyfus High Yield Strategies Fund EX-10.22 15 INVESTOR AGREEMENT 1 EXHIBIT 10.22 ANKER COAL GROUP, INC. THE STOCKHOLDERS NAMED HEREIN AND THE HOLDERS OF WARRANT SHARES NAMED HEREIN =============================================================================== INVESTOR AGREEMENT =============================================================================== as of October 26, 1999 2 ANKER COAL GROUP, INC. INVESTOR AGREEMENT This Investor Agreement is made as of October 26, 1999 (the "Agreement") by and among Anker Coal Group, Inc., a Delaware corporation (the "Company"), each of the Stockholders of the Company listed on the signature pages of this Agreement and the Holders named in Schedule I hereto (the "Holders"). RECITALS A. The Company and the existing Stockholders of the Company (with the exception of JJF Group Limited Liability Company, The Estate of John J. Faltis and The Estate of Kathleen A. Faltis, the "Existing Stockholders") have previously entered into a Stockholders Agreement dated as of August 12, 1996, providing certain rights and obligations of the Company and the Existing Stockholders (the "Stockholders Agreement"). B. The Company desires to issue to the Holders warrants (the "Warrants") to purchase an aggregate of 3,047 shares of Common Stock (the "Warrant Shares") of the Company pursuant to the Exchange and Purchase Agreement (the "Purchase Agreement") dated as of October 26, 1999 among the Company, the Guarantors named therein and the Holders. C. To induce the Holders to purchase or receive pursuant to the Purchase Agreement the Company's 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) in accordance with the Indenture dated as of October 1, 1999 among the Company, the Guarantors signatory thereto and The Bank of New York, as Trustee (the "Indenture") and the Warrants in accordance with the Warrant Agreement dated as of October 26, 1999 between the Company and The Bank of New York, as Warrant Agent (the "Warrant Agreement"), the Company and the Existing Stockholders desire that the Company grant to the Holders the rights set forth herein, subject to the obligations of Holders set forth herein, and further desire to amend the Stockholders Agreement to the extent required to implement the intent and purposes of this Agreement. D. The Company, the Existing Stockholders and the Holders intend that this Agreement will govern the rights and obligations of the Holders and their permitted assigns, as Holders of the Warrant Shares. In consideration of the foregoing and the agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE I OPERATIVE PROVISIONS 1.1 THE STOCKHOLDERS AGREEMENT; PROVISIONS APPLICABLE TO HOLDERS OF WARRANT SHARES. The Holders shall not be bound by any of the provisions of the Stockholders Agreement except as expressly set forth in this Agreement. The Holders shall have the benefit of and shall be bound by the following provisions of the Stockholders Agreement with respect to any 3 Warrant Shares which they may hold or hereafter acquire upon exercise of Warrants. The Warrants shall be freely transferable subject to the restrictions set forth in the Warrant Agreement, the Warrant and in the Purchase Agreement and shall not be subject to any of the restrictions set forth in this Agreement or the Stockholders Agreement. (a) CHANGES IN CAPITAL. Each Holder of Warrant Shares shall have the benefit of the provisions set forth in Article II of the Stockholders Agreement (Changes In Capital) with respect to the Warrant Shares, including the right to purchase New Equity Securities (as defined therein) on the terms set forth therein. For purposes of all calculations pursuant to said Article II, all Warrants shall be deemed to have been exercised for Warrant Shares and each Holder which holds Warrants shall be deemed to hold the number of Warrant Shares issuable upon exercise of such Holder's Warrants and any other shares of Common Stock held by such Holder. (b) CERTAIN RIGHTS AND RESTRICTIONS. (i) Holders of Warrant Shares to have Tag Along Rights. Each Holder of Warrant Shares shall have the benefits and be subject to the terms of Section 3.7 of the Stockholders Agreement which shall apply to the Warrant Shares as though each Holder of Warrant Shares were a party to the Stockholders Agreement. (ii) Restrictions on Disposition. Any Holder of Warrant Shares which transfers any or all of such Warrant Shares to any person or entity not already a party to this Agreement shall, as a written condition of such transfer, require the transferee to become a party to this Agreement and the Registration Rights Agreement. No such transfer shall be valid unless such transferee has in writing agreed to be bound by all of the provisions of (A) this Agreement in an Accession Agreement substantially in the form set forth as Exhibit A hereto and (B) the Registration Rights Agreement in the form of an Accession Agreement substantially in the form set forth as Exhibit B hereto. The Company shall execute such Accession Agreement on its own behalf and on behalf of the other parties hereto in the event of any such transfer, and each party hereto hereby irrevocably consents to such execution on its behalf. (iii) Restrictions on Merger and Sale of Assets and Stock. Until the earlier of an initial public offering of the Company's Common Stock or October 30, 2002, (i) the Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or a majority of its properties or assets in one or more related transactions, to another corporation, person or entity except (x) in accordance with the terms of the Indenture and (y) upon the affirmative written vote or consent of the holders of at least 85% of the outstanding Common Stock as of the Record Date; and (ii) neither the Company nor any of the Holders, in one transaction or in a series of related transactions, will sell, transfer or otherwise dispose of more than 50% of the Company's outstanding Common Stock except upon the affirmative written vote or consent of at least 85% of the holders of the outstanding Common Stock as of the Record Date. The Company and any such Holder or Holders shall give at least 30 days' prior written notice to all Holders prior to the Record Date. For purposes of the foregoing, "Record Date" shall mean the date fixed for a stockholder vote pursuant to the terms of the Company's certificate of incorporation and by-laws. -2- 4 (c) NO TRANSFERS TO PERSONS ENGAGED IN COMPETITION. Each Holder agrees that it shall not transfer any Warrant Shares to any person or entity which, to the knowledge of such Holder, is engaged in Competition with the Company. For this purpose, "Competition" shall mean engaging in any business in the states of West Virginia, Maryland, Pennsylvania, Virginia or Kentucky involving the purchase for resale, sale, operation or maintenance for resale of coal, coal reserves, coal inventories, coal mines, coal mining operations, coal processing operations, processing or disposing of ash produced from the consumption of coal; the conduct or performance of coal mining, coal loading, coal processing or contract coal mining or coal processing; the employment of independent contractors in connection with any of the foregoing; or the conduct of coal trading; or the holding of any equity investment constituting a controlling equity interest in any entity or business which at the time such transfer or Warrant Shares is proposed to be made is engaged in Competition. If a person or entity engaged in Competition acquires control of any Holder of Warrant Shares that holds in excess of 10% of the Common Stock at the time outstanding, the Company shall have the right to repurchase such Holder's Warrant Shares at Fair Market Value (as defined in the Stockholders Agreement) on the terms and subject to the conditions of Section 4.2 of the Stockholders Agreement as in effect on the date hereof. (d) REGISTRATION RIGHTS. (i) Each Holder shall have the registration rights with respect to the Warrant Shares set forth in the Common Stock Registration Rights Agreement attached as Exhibit B to the Purchase Agreement. (ii) Each Existing Stockholder agrees that Section 3(b) of the Registration Rights Agreement shall be amended and restated as follows: "(b) Priority in Incidental Registrations. If a registration pursuant to this Section 3 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of securities which the Company, the Holders and any other persons intend to include in such registration exceeds the number which would have an adverse effect on such offering, including the price at which such securities can be sold, the Company will include in such registration (i) first, all the securities the Company proposes to sell for its own account, and (ii) second, the number of Registrable Securities requested to be included in such registration by the Holders, which number, in the opinion of such underwriters, can be sold without having the adverse effect referred to above, such amount to be allocated pro rata among all such requesting Holders and by the holders of Registrable Securities ("Purchaser Registrable Securities") as defined in the Registration Rights Agreement dated October 26, 1999 among the Company and the Purchasers (the "Purchasers") named therein on the basis of the relative number of shares of Registrable Securities and other securities each Holder and Purchaser Registrable Securities each Purchaser has requested to be included in such registration, and (iii) third, the number of Registrable Securities requested to be included in such registration by persons other than Holders and Purchasers, which number, in the opinion of such underwriters, can be sold without having the adverse effect referred to above, such amount to be allocated pro rata among all such requesting other persons on the basis of the relative number of shares of Registrable Securities and other securities each such other person has requested to be included in such registration." -3- 5 (e) WAIVER OF PREEMPTIVE AND PURCHASE RIGHTS. Each Existing Shareholder hereby irrevocably waives any and all preemptive or purchase rights it may have with respect to the Warrants and the Warrant Shares pursuant to Article II of the Stockholders Agreement. ARTICLE II MISCELLANEOUS 2.1 NO WAIVER OF RIGHTS. No failure or delay on the part of any party in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. 2.2 TERM OF AGREEMENT. This Agreement shall continue in full force and effect until the earlier of (i) termination by mutual consent, or (ii) dissolution of the Company, or (iii) termination of the Stockholders Agreement pursuant to Section 6.2 thereof. 2.3 ASSIGNMENT. This Agreement shall be binding on the parties and the successors and assigns of each of them. 2.4 INTEGRATION. This Agreement with its exhibits, which are hereby incorporated herein and made a part hereof, the Warrant Agreement, the Warrants and the Registration Rights Agreements set forth the entire understanding between the parties relating to the subject matter contained herein and merges all prior discussions between them. No amendment to this Agreement shall be effective unless in writing and executed by each of the parties hereto. 2.5 SEVERABILITY. If any one or more of the provisions contained in this Agreement or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired, and in such case the parties oblige themselves to reach the purpose of the invalid provision by a new legally valid stipulation. 2.6 NOTICES. Any notice herein required or permitted to be given shall be in writing and may be personally served or sent by first-class certified or registered mail with return receipt requested, or by first-class express mail, private overnight or next business day courier (or second business day courier in the case of international communications), or by telecopy with confirmation in writing mailed first class, in all cases with charges prepaid, and any such properly given notice will be deemed given (i) two days after having been mailed by certified or registered mail with return receipt requested, (ii) two days after having been delivered to a courier service providing the services described above and (iii) upon confirmation of a telecopy transmission. For the purposes hereof, the address of each party hereto (unless notice of a change thereof is given by such party to each other party as provided in this Section 2.6) shall be as follows: If to the Holders: At their addresses set forth in Schedule I or any address supplied to the Company in writing by any Holder on or after the date of this Agreement. -4- 6 If to the Company: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, WV 26508 Attn: President Tel: (304) 594-1616 Fax: (304) 594-1685 If to Sparks or PPK Group: Bruce Sparks 2019 Ices Ferry Drive Morgantown, WV 26508 Tel: (304) 594-1100 Fax: (304) 594-1685 If to Anker Holding: Vasteland 4 3011 BK Rotterdam The Netherlands Tel: 31-10-411-2770 Fax: 31-10-411-4300 If to the Funds or any Fund: Bruce M. Rothstein First Reserve Corporation 475 Steamboat Road Greenwich, CT 06830 Tel: (203) 661-6601 Fax: (203) 661-6729 -5- 7 2.7 NECESSARY MEASURES. The parties shall in a timely manner and as required from time to time take all measures as may be necessary or appropriate to cause their affiliates and the Company to implement the provisions of this Agreement and the transactions contemplated hereby, and to ensure that such corporations and entities take all such actions as may be necessary to give full effect to the provisions of this Agreement and to abstain from taking any actions which would contravene the intent of the provisions of this Agreement. 2.8 RELATIONSHIP OF THE EXISTING STOCKHOLDERS, THE HOLDERS AND THE COMPANY. This Agreement does not constitute a partnership or joint venture and nothing contained herein is intended to constitute, nor shall it be construed to constitute, the Existing Stockholders or the Holders, as joint venturers or as partners of each other or of the Company. Nothing contained herein shall constitute, nor shall it be construed to constitute, any Existing Stockholder, Holder or the Company as an agent of any Stockholder, Holder or the Company. 2.9 GOVERNING LAW. This Agreement and the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of Delaware. 2.10 REMEDIES. The remedies for breach of contract provided in this Agreement are non-exclusive, and each of the parties reserves its regular remedies at law or in equity, including without limitation specific performance, in the event of any breach of this Agreement by any other party. 2.11 COUNTERPART ORIGINALS. This Agreement may be executed simultaneously in any number of counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Dated as of the date first written above. COMPANY ANKER COAL GROUP, INC. By: /s/ Bruce Sparks ----------------------------- Name: Bruce Sparks Title: Director -6- 8 HOLDERS ROTHSCHILD RECOVERY FUND L.P. By Rothschild Recovery Associates, L.L.C., General Partner By: /s/ WILBUR ROSS, JR. ------------------------------------ Name: Wilbur Ross, Jr. Title: Managing Member AIG SPECIAL SITUATIONS HOLDING FUND LTD. By: /s/ ANDREW W. GITLIN ------------------------------------ Name: Andrew W. Gitlin Title: Director Intrepid Management Company LLC as Investment Manager By: /s/ VICTOR CONSOLI ---------------------------- Name: Victor Consoli Title: Portfolio Manager Pilgrim High Yield Fund By: /s/ KEVIN MATHEWS ------------------------------------ Name: Kevin Mathews Title: Senior Vice President/Portfolio Manager PILGRIM INVESTMENTS INC. By: /s/ KEVIN MATHEWS ------------------------------------ Name: Kevin Mathews Title: Senior Vice President/Portfolio Manager -7- 9 PROSPECT STREET HIGH INCOME PORTFOLIO By: /s/ JOHN FRABOTTA ------------------------------------ Name: John Frabotta Title: Portfolio Manager PRUDENTIAL HIGH YIELD TOTAL RETURN FUND PRUDENTIAL HIGH YIELD FUND, INC. PRUDENTIAL DISTRESSED SECURITIES FUND, INC. By: The Prudential Investment Corporation, as Investment Advisor By: /s/ PETER ALLEGRINI ------------------------------------ Name: Peter Allegrini Title: Vice President THE PRUDENTIAL SERIES FUND, INC. HIGH YIELD BOND PORTFOLIO By: The Prudential Insurance Company of America, as Investment Advisor By: /s/ PETER ALLEGRINI ------------------------------------ Name: Peter Allegrini Title: Second Vice President Putnam Investment Management Inc., Putnam Fiduciary Trust Company, and the Putnam Advisory Company, Inc. on behalf of their clients listed on Attachment A By: /s/ JOHN R. VERANI ------------------------------------ Name: John R. Verani Title: Senior Vice President -8- 10 DREYFUS HIGH YIELD STRATEGIES FUND By: The Dreyfus Corporation, as Investment Manager By: /s/ STEPHANIE PIERCE ------------------------------------ Name: Stephanie Pierce Title: Vice President EXISTING STOCKHOLDERS PPK GROUP LIMITED LIABILITY COMPANY By: /s/ BRUCE SPARKS ------------------------------------ Name: Bruce Sparks Title: Manager ANKER HOLDING B.V. By: /s/ WILLEM G. ROTTIER ------------------------------------ Name: Willem G. Rottier Title: Managing Director FIRST RESERVE CORPORATION By: ----------------------------------- Name: Bruce Rothstein Title: Vice-President AMERICAN GAS & OIL INVESTORS, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director -9- 11 AMGO II, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director FIRST RESERVE FUND V, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director FIRST RESERVE FUND V-2, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director FIRST RESERVE FUND VI, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director -10- 12 FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: /s/ THOMAS R. DENISON ------------------------------------ Name: Thomas R. Denison Title: Managing Director -11- 13 ATTACHMENT A PUTNAM INVESTMENT MANAGEMENT, INC. ON BEHALF OF: The George Putnam Fund of Boston Putnam Income Fund Putnam Equity Income Fund Putnam Balanced Retirement Fund Putnam High Yield Advantage Fund Putnam High Income Convertible and Bond Fund Putnam Variable Trust-Putnam VT High Yield Fund Putnam Variable Trust-Putnam VT Global Asset Allocation Fund Putnam Master Income Trust Putnam Premier Income Trust Putnam Master Intermediate Income Trust Putnam Diversified Income Trust Putnam Convertible Opportunities and Income Trust Putnam Asset Allocation Funds-Growth Portfolio Putnam Asset Allocation Funds-Balanced Portfolio Putnam Asset Allocation Funds-Conservative Portfolio Putnam Funds Trust-Putnam High Yield Trust II Travelers Series Fund Inc. Putnam Diversified Income Portfolio Lincoln National Global Asset Allocation Fund, Inc. Putnam Variable Trust-Putnam VT Diversified Income Fund PUTNAM FIDUCIARY TRUST COMPANY ON BEHALF OF: Putnam High Yield Managed Trust Putnam High Yield Fixed Income Fund, LLC THE PUTNAM ADVISORY COMPANY, INC. ON BEHALF OF: Abbott Laboratories Annuity Retirement Plan Strategic Global Fund-High Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company -12- 14 Exhibit A ACCESSION AGREEMENT THIS ACCESSION AGREEMENT is made as of this ____ day of ____, 199_/200_ by and among _____________ (the "New Stockholder"), and the parties (the "Current Parties") to that certain Investor Agreement dated as of October __, 1999 (the "Investor Agreement") by and among Anker Coal Group, Inc., a Delaware corporation (the "Company"), and the Holders and Existing Stockholders named therein. Capitalized terms not otherwise defined shall have the meaning attributed to them in the Investor Agreement. W I T N E S S E T H: WHEREAS, the Current Parties entered into the Investor Agreement for the purpose of governing the relations among the Company, the Existing Stockholders and the Holders, as holders of Warrant Shares; WHEREAS, it is a condition to any acquisition of Warrant Shares that the Holder be or become a party to the Investor Agreement; and WHEREAS, the New Stockholder is desirous of becoming a Holder of Warrant Shares and desires to enter into the Investor Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants of the parties, the parties hereby represent and agree as follows: 1. The New Stockholder acknowledges having read and understood the Investor Agreement. 2. The New Stockholder shall become a party to, shall be bound by all of the obligations of a Holder of Warrant Shares pursuant to and, except as expressly provided in the Investor Agreement, shall have the benefit of all of the terms and conditions set forth in the Investor Agreement to the same extent as if the New Stockholder were an original party thereto in the capacity of a Holder of Warrant Shares. 3. This Accession Agreement shall be attached to and become a part of the Investor Agreement. 4. This Accession Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware without giving effect to the choice of law principles thereof. 15 IN WITNESS WHEREOF, the New Stockholder has executed or caused its duly authorized representative to execute this Accession Agreement as of the day and year first above written. By: ------------------------------------ Name: Title: Agreed to by the Company on its own behalf and on behalf of the other Current Parties pursuant to Section 1.1 of the Investor Agreement. ANKER COAL GROUP, INC. By: ------------------------------------ Name: Title: A-2 16 Exhibit B ACCESSION AGREEMENT THIS ACCESSION AGREEMENT is made as of this ____ day of ____, 199_/200_ by and among _____________ (the "New Stockholder"), and the parties (the "Current Parties") to that certain Common Stock Registration Rights Agreement dated as of October __, 1999 (the "Common Stock Registration Rights Agreement") by and among Anker Coal Group, Inc., a Delaware corporation (the "Company"), and the Holders named therein. Capitalized terms not otherwise defined shall have the meaning attributed to them in the Common Stock Registration Rights Agreement. W I T N E S S E T H: WHEREAS, the Current Parties entered into the Common Stock Registration Rights Agreement for the purpose of governing the rights of the Holders as Holders of Warrant Shares to registration of the Warrant Shares under the Securities Act of 1933; WHEREAS, it is a condition to any acquisition of Warrant Shares that the Holder be or become a party to the Common Stock Registration Rights Agreement; and WHEREAS, the New Stockholder is desirous of becoming a Holder of Warrant Shares and desires to enter into the Common Stock Registration Rights Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants of the parties, the parties hereby represent and agree as follows: 1. The New Stockholder acknowledges having read and understood the Common Stock Registration Rights Agreement. 2. The New Stockholder shall become a party to, shall be bound by all of the obligations of a Holder of Warrant Shares pursuant to and, except as expressly provided in the Common Stock Registration Rights Agreement, shall have the benefit of all of the terms and conditions set forth in the Common Stock Registration Rights Agreement to the same extent as if the New Stockholder were an original party thereto in the capacity of a Holder of Warrant Shares. 3. This Accession Agreement shall be attached to and become a part of the Common Stock Registration Rights Agreement. 4. This Accession Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to the choice of law principles thereof. 17 Dated as of the date first written above. COMPANY ANKER COAL GROUP, INC. By: ------------------------------------ Name: Title: Director B-2 18 HOLDERS ROTHSCHILD RECOVERY FUND L.P. By: Rothschild Recovery Associates, L.L.C., General Partner By: --------------------------------------- Name: Wilbur Ross, Jr. Title: Managing Member AIG SPECIAL SITUATIONS HOLDING FUND LTD. By: --------------------------------------- Name: Title: Director Intrepid Management Company LLC as Investment Manager By: ------------------------------- Name: Victor Consoli Title: Portfolio Manager Pilgrim High Yield Fund By: --------------------------------------- Name: Title: PILGRIM INVESTMENTS INC. By: --------------------------------------- Name: Title: B-3 19 PROSPECT STREET HIGH INCOME PORTFOLIO By: ------------------------------------- Name: John Frabotta Title: Portfolio Manager PRUDENTIAL HIGH YIELD TOTAL RETURN FUND PRUDENTIAL HIGH YIELD FUND, INC. PRUDENTIAL DISTRESSED SECURITIES FUND, INC. By: The Prudential Investment Corporation, as Investment Advisor By: -------------------------------------- Name: Title: THE PRUDENTIAL SERIES FUND, INC. HIGH YIELD BOND PORTFOLIO By: The Prudential Insurance Company of America, as Investment Advisor By: -------------------------------------- Name: Title: Putnam Investment Management Inc., Putnam Fiduciary Trust Company, and the Putnam Advisory Company, Inc. on behalf of their clients listed on Attachment A By: -------------------------------------- Name: Title: B-4 20 DREYFUS HIGH YIELD STRATEGIES FUND By: The Dreyfus Corporation, as Investment Manager By: -------------------------------------- Name: Title: EXISTING STOCKHOLDERS PPK GROUP LIMITED LIABILITY COMPANY By: ------------------------------------- Name: Bruce Sparks Title: Manager ANKER HOLDING B.V. By: ------------------------------------- Name: Willem G. Rottier Title: Managing Director FIRST RESERVE CORPORATION By: ------------------------------------- Name: Bruce Rothstein Title: Vice-President AMERICAN GAS & OIL INVESTORS, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President B-5 21 AMGO II, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President FIRST RESERVE FUND V, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President FIRST RESERVE FUND V-2, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President FIRST RESERVE FUND VI, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President B-6 22 FIRST RESERVE FUND VII, LIMITED PARTNERSHIP By First Reserve Corporation, its general partner By: -------------------------------------- Name: Bruce Rothstein Title: Vice-President B-7 23 ATTACHMENT A PUTNAM INVESTMENT MANAGEMENT, INC. ON BEHALF OF: The George Putnam Fund of Boston Putnam Income Fund Putnam Equity Income Fund Putnam Balanced Retirement Fund Putnam High Yield Advantage Fund Putnam High Income Convertible and Bond Fund Putnam Variable Trust-Putnam VT High Yield Fund Putnam Variable Trust-Putnam VT Global Asset Allocation Fund Putnam Master Income Trust Putnam Premier Income Trust Putnam Master Intermediate Income Trust Putnam Diversified Income Trust Putnam Convertible Opportunities and Income Trust Putnam Asset Allocation Funds-Growth Portfolio Putnam Asset Allocation Funds-Balanced Portfolio Putnam Asset Allocation Funds-Conservative Portfolio Putnam Funds Trust-Putnam High Yield Trust II Travelers Series Fund Inc. Putnam Diversified Income Portfolio Lincoln National Global Asset Allocation Fund, Inc. Putnam Variable Trust-Putnam VT Diversified Income Fund PUTNAM FIDUCIARY TRUST COMPANY ON BEHALF OF: Putnam High Yield Managed Trust Putnam High Yield Fixed Income Fund, LLC THE PUTNAM ADVISORY COMPANY, INC. ON BEHALF OF: Abbott Laboratories Annuity Retirement Plan Strategic Global Fund-High Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company B-8 24 SCHEDULE I HOLDERS Rothschild Recovery Fund, L.P. c/o Rothschild, Inc. 1251 Avenue of Americas New York, NY 10020 AIG Special Situations Holding Fund Ltd. c/o Intrepid Management Company LLC 1281 East Main Street Stamford, CT 06902 Pilgrim High Yield Fund ML CLO XV Pilgrim America ML CBO XX Pilgrim America 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004 Prospect Street High Income Portfolio Inc. 60 State Street, Suite 3750 Boston, MA 02109 The George Putnam Fund of Boston Putnam Income Fund Putnam Equity Income Fund Putnam Balanced Retirement Fund Putnam High Yield Advantage Fund Putnam High Income Convertible and Bond Fund Putnam Variable Trust - Putnam VT High Yield Fund Putnam Variable Trust - Putnam VT Global Asset Allocation Fund Putnam Master Income Trust Putnam Premier Income Trust Putnam Master Intermediate Income Trust Putnam Diversified Income Trust B-9 25 Putnam Convertible Opportunities and Income Trust Putnam Asset Allocation Funds - Growth Portfolio Putnam Asset Allocation Funds - Balanced Portfolio Putnam Asset Allocation Funds - Conservative Portfolio Putnam Funds Trust - Putnam High Yield Trust II Travelers Series Fund Inc. - Putnam Diversified Income Portfolio Lincoln National Global Asset Allocation Fund, Inc. Putnam Variable Trust - Putnam VT Diversified Income Fund Putnam High Yield Managed Trust Putnam High Yield Fixed Income Fund, LLC Abbott Laboratories Annuity Retirement Plan Strategic Global Fund - High Yield Fixed Income (Putnam) Fund Southern Farm Bureau Annuity Insurance Company 1 Post Office Square, 7th Floor Boston, MA 02109 Prudential High Yield Total Return Fund, Inc. Prudential High Yield Fund, Inc. Prudential Distressed Securities Fund, Inc. The Prudential Series Fund, Inc. High Yield Bond Portfolio 100 Mulberry Street Gateway Center Building No. 2, 3rd Floor Mailstop No. 04-03-01 Newark, NJ 07102 B-10 26 Dreyfus High Yield Strategies Fund 200 Park Avenue, 55th Floor New York, NY 10166 B-11 EX-10.23 16 INTERCREDITOR AGREEMENT 1 EXHIBIT 10.23 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT ("Intercreditor Agreement") dated as of October 1, 1999 is by and between FOOTHILL CAPITAL CORPORATION, a California corporation, in its capacity as agent pursuant to the Loan Agreement (as hereinafter defined) for and on behalf of the financial institutions from time to time party thereto and in such capacity referred to herein as "Senior Agent" (as hereinafter further defined) and THE BANK OF NEW YORK, a New York banking corporation, in its capacity as collateral agent pursuant to the Note Indenture (as hereinafter defined) for and on behalf of the Note Trustee (as hereinafter defined) and the Noteholders (as hereinafter defined), and in such capacity referred to herein as "Note Collateral Agent" (as hereinafter further defined). W I T N E S S E T H: WHEREAS, Anker Coal Group, Inc., a Delaware corporation ("ACG" as hereinafter further defined), has issued or is about to issue the Notes (as hereinafter defined) pursuant to the Note Indenture; and WHEREAS, the indebtedness, liabilities and obligations of ACG evidenced by or arising under the Notes and the Note Indenture have been guaranteed by certain subsidiaries of ACG listed on Schedule 1 hereto (collectively, the "ACG Subsidiaries" as hereinafter further defined, and together with ACG, "Debtors"), and WHEREAS, the indebtedness evidenced by the Notes is or will be secured by certain assets and properties of Debtors; and WHEREAS, Note Collateral Agent has been authorized and directed by ACG and Note Trustee to enter into this Intercreditor Agreement pursuant to the Note Indenture; and WHEREAS, Senior Agent and the financial institutions party to the Loan Agreement (collectively, "Lenders" as hereinafter further defined) have entered into financing arrangements with certain ACG Subsidiaries pursuant to which Lenders (and Senior Agent on behalf of Lenders) have made and will continue, on certain terms and conditions, to make loans and provide other financial accommodations to such ACG Subsidiaries; and WHEREAS, the indebtedness, liabilities and obligations of such ACG Subsidiaries under the Loan Agreement have been guaranteed by Debtors that are not borrowers under the Loan Agreement; and 2 WHEREAS, the indebtedness of Debtors under the Loan Agreement and the instruments, documents and agreements executed and delivered in connection therewith is secured by substantially all of the assets and properties of Debtors; and WHEREAS, Senior Agent and Note Collateral Agent desire to enter into this Intercreditor Agreement to (i) confirm the relative priority of the security interests of Senior Agent and Lenders and Note Collateral Agent and Note Trustee on behalf of the Noteholders in the assets and properties of Debtors and (ii) provide for the orderly sharing among them, in accordance with such priorities, of proceeds of such assets and properties upon any foreclosure thereon or other disposition thereof, NOW THEREFORE, in consideration of the mutual benefits accruing to Senior Agent and Lenders and Note Collateral Agent, Note Trustee and the Noteholders hereunder and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. DEFINITIONS As used above and in this Intercreditor Agreement, the following terms shall have the meanings ascribed to them below: 1.1 "Accounts" shall mean all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Debtors arising out of the sale or lease of goods or the rendition of services by Debtors, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security thereof. 1.2 "ACG" shall mean Anker Coal Group, Inc., a Delaware corporation, and its successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. 1.3 "ACG Subsidiaries" shall mean, collectively, the subsidiaries of ACG listed on Schedule 1 hereto, and their respective successors and assigns, including, without limitation, a receiver, trustee or debtor-in-possession on behalf of such person or on behalf of any such successor or assign. 1.4 "Affiliate" shall mean, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or officer of such Person. For purposes of this definition "control" means the possession, directly or indirectly, of the right to vote ten (10%) percent or more of the securities having ordinary voting power for the election of directors or other direct or indirect power to direct the management and policies of a Person; provided that no Noteholders shall be deemed to be an Affiliate of ACG or any of its -2- 3 subsidiaries solely by reason of its ownership of Warrants held or which may be held by any Noteholder. 1.5 "Agents" shall mean, collectively, the Senior Agent and the Note Collateral Agent, as agents, and their respective successors and assigns in such capacity, being sometimes referred to herein individually as an "Agent". 1.6 "Agreements" shall mean, collectively, the Senior Creditor Agreements and the Operative Note Agreements. 1.7 "Books" shall mean all of Debtors' books and records including: ledgers, records indicating, summarizing, or evidencing Debtors' properties or assets (including the Collateral) or liabilities; all information relating to Debtors' business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information. 1.8 "Cash Collateral" mean United States legal tender or Cash Equivalents which have been deposited with an Agent. 1.9 "Cash Equivalents" shall mean United States dollars, securities issued or directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any Lender or with any domestic commercial bank having capital and surplus in excess of $500,000,000 and a Keefe Bank Watch Rating of "B" or better, repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, commercial paper having the highest rating obtainable from Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") and in each case maturing within six months after the date of acquisition, investment funds investing substantially all of their assets in securities of the types described in clauses (i)-(v) above and readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P. 1.10 "Collateral" shall mean, collectively, the Lender Collateral and the Shared Collateral. 1.11 "Debtors" shall mean, collectively, ACG and ACG Subsidiaries, sometimes being referred to herein individually as a "Debtor". 1.12 "Equipment" shall mean all of Debtors' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, loading facilities, tipples, processing plants and like structures, fixtures, tools, parts, goods (other than consumer goods, farm -3- 4 products, or inventory), wherever located, including, any interest of Debtors in any of the foregoing; all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing; provided, that, Equipment shall not include Mobile Equipment. 1.13 "Excluded Assets" shall mean Mobile Equipment, cash and Cash Equivalents (other than Cash Collateral or proceeds of Shared Collateral) and the coal reserves, fixtures, equipment and specified interests in Real Property listed on Schedule 2 hereto, including, without limitation, the improvements, fixtures, structures, buildings, water treatment facilities and other appurtenances situated thereon or thereunto belonging. 1.14 "General Intangibles" shall mean all of Debtors' present and future general intangibles and other personal property (including rights under coal supply contracts, coal brokerage agreements and other contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Permits, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringements claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral. 1.15 "Governmental Authority" shall mean any nation or government, any state, province, or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. 1.16 "Inventory" shall mean all present and future inventory, wherever located, including, without limitation, all raw materials, work-in-process, and finished and semi-finished inventory of any kind, nature or description, wherever located, including, without limitation, all minerals in whatever form, and including, without limitation, coal, fly ash, bottom ash or other ash, methane, sulfur, sulfur dioxide, and other by-products resulting from the processing of the coal mined by Debtors and other minerals and chemicals resulting from the mining or processing of coal, cast iron fittings, paint, belts and hoses, bolts and nuts, wire and wire products, welding supplies, tools, steel, rope, timber, railroad, spikes, railroad car parts and railroad crane parts, baghouse parts, pump parts, compressor parts, electrical parts, bearings, drills, bits and accessories and other parts and supplies, all wrapping, packaging, advertising and shipping materials, and any other personal property held for sale, exchange or lease or furnished or to be furnished or used or consumed in the business or in connection with the manufacturing, packaging, shipping, advertising, selling or finishing of such goods, inventory, merchandise and other personal property, and all names or marks affixed to or to be affixed thereto for purposes of selling same by Debtors and all right, title and interests therein and thereto; and further including, without limitation, all coal in which Debtors have any interest which has been extracted from the Real -4- 5 Property, is in a coal stockpile and is held for sale by Debtors in the ordinary course of business, together with all other present and future goods held for sale by Debtors in the ordinary course of business, wherever located. 1.17 "Investment Property" shall mean "investment property" as that term is defined in Section 9-115 of the Uniform Commercial Code of the State of New York. 1.18 "Legal Requirements" shall mean all applicable international, foreign, federal, state, and local laws, judgments, decrees, orders, statutes, ordinances, rules, regulations, or Permits. 1.19 "Lender Collateral" shall mean all assets and properties of Debtors now existing or hereafter acquired that are subject to the Lien of the Senior Creditor Agreements, other than Shared Collateral. 1.20 "Lenders" shall mean, collectively, the financial institutions from time to time party to the Loan Agreement and their respective successors and assigns. 1.21 "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), lien (statutory or other), security agreement or transfer intended as security, including without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a capital lease or any financing lease having substantially the same economic effect as any of the foregoing. 1.22 "Loan Agreement" shall mean the Loan and Security Agreement dated as of November 21, 1998 by and among certain ACG Subsidiaries, Lenders and Senior Agent, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.23 "Loan Agreement Default" or "Loan Agreement Event of Default" shall have the respective meanings ascribed to the terms "Default" and "Event of Default" in the Loan Agreement. 1.24 "Mobile Equipment" shall mean all equipment which is mobile, and which is used or useful in connection with the coal mining, extraction, development, construction or environmental remediation activities of Debtors and shall in any event include any of the following, whether such equipment is on wheels, is track mounted or is skid mounted: bulldozers, drills, pans, augers, high wall miners, continuous miners, shuttle cars, root bolters, mobile roof supporters, rock dusters, man trips, scoops, backhoes, shovels, front end loaders, continuous haulage units, underground locomotives, loaders, trailers, trucks, other motor vehicles and other mining, construction, earthmoving or excavating equipment of a similar nature. -5- 6 1.25 "Negotiable Collateral" shall mean all of a Person's present and future letters of credit, notes, drafts, instruments, Investment Property, documents, personal property leases (wherein such Person is the lessor), chattel paper, and the Books relating to any of the foregoing. 1.26 "Note Collateral Agent" shall mean The Bank of New York, a New York banking corporation in its capacity as Collateral Agent pursuant to the Note Indenture for and on behalf of Note Trustee and the Noteholders and its successors and assigns in such capacity. 1.27 "Note Default" or "Note Event of Default " shall have the respective meanings ascribed to the terms "Default" and "Event of Default" in the Note Indenture. 1.28 "Noteholders" shall mean, collectively, the Persons from time to time who are Holders (as defined in the Note Indenture) of any Notes and their respective successors and assigns, being sometimes referred to herein individually as a "Noteholder". 1.29 "Noteholder Security Documents" shall mean, collectively, the Security Documents (as defined in the Note Indenture as in effect on the date hereof) and all agreements, documents and instruments at any time executed and/or delivered by any Debtor or any other person to, with or in favor of Note Collateral Agent in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.30 "Note Indenture" shall mean the Indenture dated as of October 1, 1999 relating to the Notes executed by ACG as Issuer, the other Debtors as guarantors and The Bank of New York as trustee, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.31 "Note Obligations" shall mean all obligations, liabilities and indebtedness of every kind, nature and description owing by any Debtor to Note Collateral Agent, Note Trustee or any Noteholder including principal, interest, charges, fees, premiums, liquidated damages, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under the Operative Note Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Operative Note Agreements or after the commencement of any case with respect to any Debtor under the U.S. Bankruptcy Code or any similar statute (and including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowed or allowable in whole or in part, in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly or howsoever acquired by Note Collateral Agent, Note Trustee or such Noteholder. 1.32 "Notes" shall mean, collectively, the 14.25% Second Priority Senior Secured Notes due 2007 (PIK until April 1, 2000) of any series issued under the Note Indenture, including, -6- 7 without limitation, the 14.25% Second Priority Senior Secured Notes issued pursuant to the Public Exchange Offer (as defined in the Note Indenture as in effect on the date hereof), the Secondary Notes (as defined in the Note Indenture as in effect on the date hereof) and the Optional Secured Notes (as defined in the Note Indenture as in effect on the date hereof), and shall include all Rule 144A Global Notes, Definitive Notes, Global Notes, RSTD Global Notes, Regulation S Permanent Global Notes, Regulation S Temporary Global Notes, Restricted Definitive Notes, Restructured Global Notes, Unrestricted Definitive Notes and Unrestricted Global Notes (as each such term is defined in the Note Indenture as in effect on the date hereof), in each case issued by ACG pursuant to the Note Indenture, as the same now exist or may hereafter be modified, supplemented, extended, renewed or replaced. 1.33 "Note Trustee" shall mean The Bank of New York, a New York banking corporation in its capacity as trustee for and on behalf of the Noteholders under the Note Indenture and its successors and assigns in such capacity. 1.34 "Operative Note Agreements" shall mean, collectively, the Notes, the Note Indenture, the Noteholder Security Documents and all agreements, documents and instruments at any time executed and/or delivered by any Debtor or any other person to, with or in favor of Note Collateral Agent, Note Trustee or any Noteholder in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.35 "Permits" of a Person shall mean all rights, franchises, permits, authorities, licenses, certificates of approval, consents, orders or authorization, including licenses and other authorizations issuable by a Governmental Authority, which purchase to applicable Legal Requirements are necessary to permit such Person lawfully to conduct and operate its business as currently conducted and to own and use its assets. 1.36 "Person" or "person" shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock company, trust, joint venture, or other entity or any government or any agency or instrumentality or political subdivision thereof. 1.37 "Priority Amount" shall mean, in respect of Senior Debt, the aggregate principal amount outstanding up to $55,000,000, plus interest thereon and costs, expenses, fees and other charges related thereto (including, but not limited to, attorneys' fees and legal expenses). 1.38 "Real Property" shall mean any estates or interests in real property or mineral rights now owned or hereafter acquired by Debtors. -7- 8 1.39 "Real Property Collateral" shall have the meaning set forth in the Note Indenture as in effect on the date hereof. 1.40 "Senior Agent" shall mean Foothill Capital Corporation, a California corporation, in its capacity as Agent pursuant to the Loan Agreement for and on behalf of Lenders and its successors and assigns in such capacity. 1.41 "Senior Creditor Agreements" shall mean, collectively, the Loan Agreement and all agreements, documents and instruments at any time executed and/or delivered by any Debtor or any other person to, with or in favor of Senior Agent or any Lender in connection therewith or related thereto, as all of the foregoing now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.42 "Senior Debt" shall mean any and all obligations, liabilities and indebtedness of every kind, nature and description owing by any Debtor to Senior Agent and Lenders and/or their respective affiliates or participants, including principal, interest, charges, fees, premiums, indemnities and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under Senior Creditor Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Senior Creditor Agreements or after the commencement of any case with respect to any Debtor under the U.S. Bankruptcy Code or any similar statute (including, without limitation, any principal, interest, fees, costs, expenses and other amounts, whether or not such amounts are allowed or allowable in whole or in part in any such case or similar proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and whether arising directly or howsoever acquired by Senior Agent or any Lender. 1.43 "Shared Collateral" shall mean all of Debtors' right, title and interest in and to each of the following: Accounts; Books; Equipment (other than Mobile Equipment); General Intangibles; Inventory; Negotiable Collateral; Investment Property (including, without limitation, all Stock in ACG Subsidiaries); Cash Collateral; Real Property Collateral; any money or other assets of any Debtor that now or hereafter comes into the possession, custody or control of Note Collateral Agent, Note Trustee or any Noteholder; and the proceeds and products, whether tangible or intangible, or any of the foregoing, including proceeds of insurance covering any or all of the Shared Collateral, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. 1.44 "Stock" shall mean all shares, options, warrants, interests, participations, interests in limited liability companies or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or nonvoting, including common stock, preferred -8- 9 stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). 1.45 "Warrants" shall mean warrants to purchase an aggregate of 3,047 shares of common stock of ACG and issued pursuant to the Exchange and Purchase Agreement, dated October 1, 1999 by and among ACG, ACG Subsidiaries and the purchasers and exchanging noteholders party thereto, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 1.46 Other Definitions; Construction. All terms defined in the Uniform Commercial Code as in effect in the State of New York, unless otherwise defined herein shall have the meanings set forth therein. All references to any term in the plural shall include the singular and all references to any term in the singular shall include the plural. 2. SECURITY INTERESTS; PRIORITIES; REMEDIES 2.1 Acknowledgment of Lien. Senior Agent hereby acknowledges that Note Collateral Agent has been granted Liens upon all of the Shared Collateral pursuant to the Noteholder Security Documents to secure the Note Obligations. Note Collateral Agent, Note Trustee and each Noteholder by accepting a Note hereby acknowledge that Senior Agent has been granted Liens upon all of the Shared Collateral and the Lender Collateral pursuant to the Senior Creditor Agreements to secure the Senior Debt and agree to all of the terms and provisions of this Intercreditor Agreement as the same may be amended from time to time pursuant to its terms. Note Collateral Agent, Note Trustee and the Noteholders have not been granted any Lien upon the assets and properties of any Debtor constituting the Lender Collateral. 2.2 Priority of Lien. Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a security interest in favor of each Agent in any Shared Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Agreements, the Liens upon the Shared Collateral of Senior Agent have and shall have priority over the Liens upon the Shared Collateral of Note Collateral Agent and such Liens of Note Collateral Agent are and shall be, in all respects, subject and subordinate to the Liens of Senior Agent therein to secure the Senior Debt up to the Priority Amount at any one time outstanding. Notwithstanding the Lien subordination provided in this Intercreditor Agreement, although the Note Obligations rank second in priority of security to the Senior Debt, the Note Obligations are not subordinated in right of payment to any indebtedness of Debtors, including the Senior Debt, and rank pari passu with all unsubordinated indebtedness of Debtors. 2.3 Priority not Affected by Amendments, etc. The respective priorities of the Liens provided in Section 2.2 shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of either the Senior Debt -9- 10 or the Note Obligations, nor by any action or inaction which any Agent may take or fail to take in respect of the Shared Collateral. 2.4 Perfection. Subject to Section 3.7 hereof, each Agent shall be solely responsible for perfecting and maintaining the perfection of its Lien in and to each item constituting the Collateral in which such Agent has been granted a Lien. The foregoing provisions of this Agreement are intended solely to govern the respective lien priorities as between the Agents and shall not impose on either Agent any obligations in respect of the disposition of proceeds of foreclosure on any Shared Collateral which would conflict with prior perfected claims therein in favor of any other person or any order or decree of any court or other Governmental Authority or any applicable law. None of Note Collateral Agent, Note Trustee or any holder of Note Obligations shall contest the validity, perfection, priority or enforceability of the Liens upon the Shared Collateral of Senior Agent and as between Senior Agent and Note Collateral Agent, Note Trustee and the holders of Note Obligations, the terms of Section 2.11 hereof shall govern the application of Proceeds (as hereinafter defined) even if part or all of the Senior Debt or the Liens securing payment and performance thereof are avoided, disallowed, set aside or otherwise invalidated in any judicial proceeding or otherwise; provided, however, in the event of the entry of a final non-appealable order, judgment or decree of a court of competent jurisdiction that equitably subordinates all or any portion of the Senior Debt to any unsecured indebtedness as result of any intentional act by Senior Agent or the Lenders except for the making by Lenders of loans, advances or other extensions of credit pursuant to the terms of the Senior Creditor Agreements (a "Subordination Event"), Note Collateral Agent, Note Trustee and Noteholders shall not be required to turn over to Senior Agent and Lenders proceeds of Shared Collateral received by Note Collateral Agent, Note Trustee or any Noteholder which, but for the terms of this proviso, would have been payable to Senior Agent pursuant to the terms of this Intercreditor Agreement; provided, further, that the amount of proceeds of Shared Collateral retained by Note Collateral Agent, Note Trustee or any Noteholder shall not exceed the amount of Senior Debt so subordinated. Senior Agent and Lenders shall not contest the validity, perfection, priority or enforceability of the Note Obligations or Liens upon the Shared Collateral of the Note Collateral Agent. 2.5 Books and Records of Debtors. In the event that either Agent shall, in the exercise of its respective rights under its Agreements, receive possession or control of any books and records of Debtors which contain information identifying or pertaining to any of the property of Debtors in which the other Agent has been granted a Lien, it shall, within a reasonable time, notify the other Agent that it has received such books and records and shall, upon such other Agent's request, make available to the other Agent such books and records for inspection and duplication. 2.6 Right to Control Collateral. Senior Agent shall have the exclusive right to manage, perform and enforce the terms of the Senior Creditor Agreements with respect to the Shared Collateral and the Lender Collateral, to exercise and enforce all privileges and rights thereunder according to its discretion and the exercise of its business judgment, including, without limitation, -10- 11 the exclusive right to take or retake control or possession of such Collateral and to hold, prepare for sale, process, sell, lease, dispose of, or liquidate such Collateral. 2.7 Sales of Shared Collateral. Note Collateral Agent, Note Trustee and each Noteholder by accepting a Note agree that, subject only to the compliance by Debtors with the requirements of the Trust Indenture Act of 1939, as amended (and, prior to the occurrence of a Loan Agreement Event of Default, in compliance with the requirements of the Note Indenture), decisions regarding the sale, transfer or other disposition of Shared Collateral and the exercise of all rights and the taking or refraining from taking of any actions with respect to the Shared Collateral or the Security Documents shall be made by Senior Agent pursuant to the Senior Creditor Agreements and applicable law and Note Collateral Agent shall be deemed to have consented to each such sale, transfer of other disposition by Senior Agent, Lender, any of their respective agents or any Debtor with the consent of Senior Agent or Lenders and the exercise or taking or refraining from taking of any such action and released or otherwise terminated its Lien on such Shared Collateral so sold, transferred or disposed of upon such sale, transfer or other disposition. Promptly upon written request therefor from Senior Agent, Note Collateral Agent shall execute and deliver to Senior Agent such instruments, agreements and documents (including, without limitation, Uniform Commercial Code Form UCC-3 releases (or similar documents) and releases or discharges of mortgages and deeds of trust) as may be necessary, appropriate or desirable to evidence or effectuate such release, termination and consent. Note Collateral Agent, Note Trustee and Noteholders by accepting the Notes hereby agree that all such sales, transfers or other dispositions and all such decisions shall be conclusive and binding on Note Collateral Agent and Noteholders; provided, that Senior Agent's exercise of rights or such sale, transfer of other disposition by Senior Agent of Shared Collateral is made in a commercially reasonable manner. Any Proceeds received by Senior Agent or Lenders in connection with any such sale, transfer or other disposition of Shared Collateral shall be applied in accordance with the terms of Section 2.11 hereof. Nothing in this Section 2.7 shall constitute a waiver of any Note Default or Note Event of Default or shall restrict the right of Note Collateral Agent, Note Trustee or Noteholders to give notice of any Note Event of Default or acceleration under the Note Indenture as provided therein on account of any breach of any of the Operative Note Agreements. 2.8 Exercise of Remedies by Note Collateral Agent. Note Collateral Agent, Note Trustee and each Noteholder by accepting a Note agree that, unless all of the Senior Debt is subject to a Subordination Event, until the Senior Debt has been paid in full in cash and the Senior Creditor Agreements terminated, except with the prior written consent of Senior Agent, notwithstanding any rights or remedies available to Note Collateral Agent, Note Trustee or the Noteholders under any of the Operative Note Agreements, applicable law or otherwise, none of Note Collateral Agent, Note Trustee or Noteholders will, directly or indirectly, seek to foreclose or realize upon (judicially or non-judicially) its Lien on any Shared Collateral or assert any claim or interest therein (including, without limitation, by setoff or notification of account debtors), prior to the occurrence of a Note Event of Default based on the failure by Debtors to make payment when due of any Note Obligations, commence any action or proceeding against any Debtor or any of its property under the U.S. Bankruptcy Code or any state insolvency law or similar present or future -11- 12 statute, law or regulation or proceeding for voluntary liquidation, dissolution or other winding up of any Debtor's business, or appointment of any trustee, receiver or liquidator for any Debtor or any part of any Debtor's property or assets for the benefit of creditors or any marshaling of assets of any Debtor or exercise any rights to setoff, recoupment, counterclaim or deduction against any of the Lender Collateral or the Shared Collateral or any proceeds thereof; provided, however, nothing herein shall prevent Note Collateral Agent, Note Trustee or the Noteholders from taking any action that is necessary to preserve their claims or priority of Liens or secured status, including the filing of a proof of claim and appearing in any proceeding. 2.9 Collateral to be Held in Trust. In the event that for any reason Note Collateral Agent, Note Trustee or any agent or representative of either of them at any time receives any proceeds of Lender Collateral or Shared Collateral or Senior Agent or any agent or representative of Senior Agent at any time receives any proceeds of Shared Collateral, such proceeds shall be subject to the priorities established in Section 2.2 hereof. In the event that Note Collateral Agent, Note Trustee or any agent or representative of either of them at any time receive any proceeds from the sale or other disposition of or realization upon any of the Lender Collateral or Shared Collateral, such person shall hold the same in trust, as trustee for the benefit of Senior Agent and Lenders, segregated from other funds and property of such person and shall promptly deliver or remit the same to Senior Agent (together with any endorsement or assignment of such person where necessary). In the event that Senior Agent or any agent or representative of Senior Agent at any time receives any proceeds from the sale or other disposition of or realization upon any Shared Collateral after the repayment and satisfaction in full of the Senior Debt and the termination of the Senior Creditor Agreements, such person shall hold the same in trust, as trustee for the benefit of Note Collateral Agent and Note Trustee, segregated from other funds and property of such person and shall promptly deliver or remit the same to Note Collateral Agent (together with any endorsement or assignment of such person where necessary). Any Proceeds shall be held by Senior Agent or any agent or representative of Senior Agent in trust and shall be applied as set forth in Section 2.11 hereof. 2.10 Right to Cure. Senior Agent shall have the right, within any cure period applicable thereto pursuant to the terms of the Operative Note Agreements, but not any obligation, to cure any Event of Default under the Operative Note Agreements for the account of Debtors. In no event shall Senior Agent or Lenders, by virtue of the payment of amounts or performance of any obligation required to be paid or performed by Debtors, be deemed to have assumed any obligation of Debtors to Note Collateral Agent, Note Trustee or the Noteholders or any other person. 2.11 Application of Proceeds. (a) Except as otherwise expressly provided in Section 2.4, any and all amounts actually received by Senior Agent or Note Collateral Agent in connection with the enforcement of any of their respective rights in and to the Shared Collateral, including the proceeds of any -12- 13 collection, sale or disposition of, or other realization upon, the Shared Collateral or any portion thereof (collectively, the "Proceeds"), shall be applied as follows: First, to the payment and satisfaction in full of all outstanding Senior Debt up to the Priority Amount in accordance with the terms of the Senior Creditor Agreements, and Second, ratably to the payment and satisfaction of the Senior Debt and the Note Obligations in accordance with the respective terms of the Senior Creditor Agreements and the Operative Note Agreements, and Third, upon payment and satisfaction in full of the Senior Debt and termination of the Senior Creditor Agreements, to Note Collateral Agent, in respect of the obligations under the Note Indenture, the Notes and the other Operative Note Agreements. (b) At such time as any Proceeds are given over to Note Collateral Agent by Senior Agent, Senior Agent shall deliver to Note Collateral Agent a written accounting of the amount of Proceeds actually received by Senior Agent as of the date of such statement and the application thereof. 2.12 No Liability for Loans. If Senior Agent or Lenders should honor a request by Debtors for a loan, advance or other financial accommodation under the Senior Creditor Agreements, whether or not Senior Agent or Lenders have knowledge that honoring such request would result in a Note Default or Note Event of Default under the Operative Note Agreements, in no event shall Senior Agent or Lenders have any liability whatsoever to Note Collateral Agent, Note Trustee or the Noteholders as a result of such breach, and without limiting the generality of the foregoing, Note Collateral Agent agrees that Senior Agent and Lenders shall not have any liability for tortious interference with contractual relations or for inducement by Senior Agent or Lenders of Debtors to breach of contract or otherwise. Nothing contained in this Section 2.12 shall limit or waive any right that Note Collateral Agent or Note Trustee has to enforce any of the provisions of the Operative Note Agreements against Debtors. 2.13. Effect of Repayment of Senior Debt. Upon the termination of Lenders' commitments under the Senior Creditor Agreements and the payment in full in cash of the then outstanding Senior Debt, (a) Note Collateral Agent and the Noteholders shall be permitted to exercise and enforce all of their rights and remedies as a creditor under the Operative Note Agreements, applicable law or otherwise without regard to Sections 2.6, 2.7 or 2.8 hereof; provided, that, (i) Senior Agent shall maintain its Lien upon the Shared Collateral and the priority thereof as set forth in Section 2.2 hereof, (ii) all Proceeds received by Note Collateral Agent shall be subject to the priorities established in Section 2.2 hereof and shall be paid over to Senior Agent and held and applied in accordance with Sections 2.9 and 2.11 hereof and (iii) Senior Agent may retain the Proceeds received by it as cash collateral in such amount as it may determine in its good faith judgment to be necessary to secure any unpaid Senior Debt, including, without limitation, any contingent liabilities of Debtors to Senior Agent or Lenders arising out of or relating to the -13- 14 Senior Creditor Agreements or the Senior Debt known to Senior Agent or any Lender at the time of receipt of such Proceeds, and (b) Section 3.6 hereof shall have no further force or effect. 3. MISCELLANEOUS 3.1 Representations and Warranties. (a) Note Collateral Agent and Note Trustee represent and warrant to Senior Agent that: (i) the execution, delivery and performance of this Intercreditor Agreement by Note Collateral Agent and Note Trustee are within the powers of each of them, as to Note Collateral Agent in its capacity as collateral agent for Note Trustee and the Noteholders and as to Note Trustee in its capacity as trustee for the Noteholders, have been duly authorized by Note Collateral Agent and Note Trustee and do not contravene any law, any provision of the Note Indenture or any other Operative Note Agreements or any agreement to which any of Note Collateral Agent or Note Trustee is a party or to which it is bound; (ii) Note Collateral Agent as collateral agent for and on behalf of the Note Trustee and Noteholders has not been granted and does not hold any Liens upon the assets and properties of Debtors, except to the extent of Liens on the Shared Collateral granted by Debtors to Note Collateral Agent pursuant to the Operative Note Agreements; and (iii) this Intercreditor Agreement constitutes the legal, valid and binding obligations of Note Collateral Agent and Note Trustee, enforceable in accordance with its terms and binding upon each of them. (b) Senior Agent hereby represents and warrants to each of Note Collateral Agent and Note Trustee that: (i) the execution, delivery and performance of this Intercreditor Agreement by Senior Agent are within the powers of Senior Agent as agent for Lenders, have been duly authorized by Senior Agent and do not contravene any law, any provision of the Senior Creditor Agreements or any agreement to which Senior Agent is a party or by which it is bound; (ii) Senior Agent for and on behalf of Lenders has not been granted and does not hold any Liens upon the assets and properties of Debtors, except to the extent of Liens on the Collateral granted by Debtors to Agent and Lenders pursuant to the Senior Creditor Agreements; and (iii) this Intercreditor Agreement constitutes the legal, valid and binding obligations of Senior Agent, enforceable in accordance with its terms and shall be binding on it. -14- 15 3.2 No Marshaling. Note Collateral Agent hereby waives any and all rights to have any Collateral or any part thereof granted to Senior Agent marshaled upon any foreclosure or other disposition of such Collateral by Senior Agent or Debtors with the consent of Senior Agent. 3.3 Amendments. Any waiver, permit, consent or approval by any Agent of or under any provision, condition or covenant to this Intercreditor Agreement must be in writing and shall be effective only to the extent it is set forth in writing and as to the specific facts or circumstances covered thereby. Any amendment of this Intercreditor Agreement must be in writing and signed by each of the parties to be bound thereby. 3.4 Successors and Assigns. (a) This Intercreditor Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of each Agent and their respective successors, and assigns. (b) Senior Agent, on behalf of Lenders, reserves the right to grant participations in, or otherwise sell, assign, transfer or negotiate all or any part of, or any interest in, the Senior Debt, and the Collateral securing the Senior Debt; provided, that, Note Collateral Agent shall not be obligated to give any notices to or otherwise in any manner deal directly with any participant in the Senior Debt and no participant shall be entitled to any rights or benefits under this Intercreditor Agreement except through the Senior Agent. In connection with any participation or other transfer or assignment, Senior Agent (i) may disclose to such assignee, participant or other transferee or assignee all documents and information which Senior Agent now or hereafter may have relating to Debtors or the Collateral and (ii) shall disclose to such participant or other transferee or assignee the existence and terms and conditions of this Intercreditor Agreement. (c) In connection with any assignment, transfer, refinancing, replacement or substitution of any or all of the Senior Debt or Note Obligations, as the case may be, or any or all rights of any Agent in the property of Debtors (other than pursuant to a participation), each Agent agrees to execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any such assignee or transferee and, in addition, will execute and deliver an agreement containing terms substantially identical to those contained herein in favor of any third person who succeeds to or replaces any or all of Lenders' or the Noteholders' financing of Debtors, whether such successor financing or replacement occurs by transfer, assignment, "takeout" or any other means or vehicle. 3.5 Insolvency. This Intercreditor Agreement shall be applicable both before and after the filing of any petition by or against any Debtor under the U.S. Bankruptcy Code and all converted or succeeding cases in respect thereof, and all references herein to any Debtor shall be deemed to apply to a trustee or trustees for such Debtor as debtor-in-possession. The relative rights of Senior Agent and Note Collateral Agent to repayment of the Senior Debt and the Note Obligations, respectively, and in or to any distributions from or in respect of Debtors or any -15- 16 Collateral or proceeds of Collateral, shall continue after the filing thereof on the same basis as prior to the date of the petition, subject to any court order approving the financing of, or use of cash collateral by, such Debtor as debtor-in-possession. 3.6 Bankruptcy Financing. Subject to Section 2.13 hereof, if any Debtor shall become subject to a proceeding under the U.S. Bankruptcy Code and if Senior Agent or any Lender desires to permit the use of cash collateral or to provide financing ("DIP Financing") to such Debtor under either Section 363 or Section 364 of the U.S. Bankruptcy Code, Note Collateral Agent agrees no objection will be raised by Note Collateral Agent or any of the Noteholders to any such financing or use of cash collateral on the ground of a failure to provide "adequate protection" for Note Collateral Agent's junior Liens on the Shared Collateral, provided, that, Note Collateral Agent retains a Lien on the post-petition Shared Collateral with the same priority as existed prior to the commencement of the proceeding under the U.S. Bankruptcy Code and the aggregate principal amount of such DIP Financing plus the aggregate principal amount of all pre-petition Senior Debt shall not exceed $55,000,000. Nothing in this Section 3.6 shall prohibit Note Collateral Agent from asserting its rights with respect to a sale of Shared Collateral by Debtors pursuant to Section 363 of the Bankruptcy Code outside of the ordinary course of business. Senior Agent shall provide Note Collateral Agent notice in respect of any such proceeding under the U.S. Bankruptcy Code in accordance with the requirements of the U.S. Bankruptcy Code and the Federal Rules of Bankruptcy Procedure or with such other notice as is authorized by court order. 3.7 Notices of Default, Acceleration and Enforcement. Each Agent shall give the other Agent concurrently with the giving thereof to Debtors, (a) a copy of any written notice by such Agent (or the Note Trustee with respect to Note Collateral Agent) of either a default or an event of default under its Agreements, or written notice of acceleration or demand for payment from Debtors, and (b) any written notice sent by an Agent (or Note Trustee with respect to Collateral Note Trustee) to Debtors at any time an event of default under such Agent's Agreements exists stating such Agent's intention to exercise any of its enforcement rights or remedies, including written notice pertaining to any foreclosure on any of the Shared Collateral or other judicial or non-judicial remedy in respect thereof, and any legal process served or filed in connection therewith; provided, that, the failure of any party to give notice as required hereby shall not affect the relative priorities of Agents' respective Liens as provided herein or the validity or effectiveness of any such notice as against Debtors. 3.8 Bailee for Perfection. Each Agent hereby appoints the other as agent and bailee for the purpose of protecting their respective Liens in and on any of the Shared Collateral which may at any time be in its possession during the term of this Intercreditor Agreement; provided, that, neither Senior Agent nor Note Collateral Agent shall have any duty to protect or preserve any rights pertaining to any of the Shared Collateral in its possession and each Agent and Note Trustee hereby waives and releases the other Agent and Note Trustee from all claims and liabilities at any time arising pursuant to the role of the other Agent as agent and bailee with respect to the Shared Collateral in its actual possession, except for the gross negligence or wilful -16- 17 misconduct of such other Agent as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Each Agent shall hold any Shared Collateral in its possession segregated from other funds and property of such person and shall promptly deliver or remit such Shared Collateral to the other Agent (together with any endorsement or assignment of such person where necessary) promptly upon request thereof from Debtors. 3.9 Notices. All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed duly given, made or received: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if mailed by certified mail, return receipt requested, five (5) days after mailing to the parties at their addresses set forth below (or to such other addresses as the parties may designate in accordance with the provisions of this Section 3.9): To Senior Agent: Foothill Capital Corporation 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attention: Business Finance Division Manager Fax No. (310) 470-9788 and to: Foothill Capital Corporation 60 State Street Suite 1150 Boston, Massachusetts 02109 Attention: Loan Portfolio Manager Fax No.: (617) 523-1697 To Note The Bank of New York Collateral Agent: One State Street, 10th Floor New York, New York 10004 Attention: Steve Giurlando Fax No.: (212) 815-5915 Either Agent may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other Agent in conformity with this Section 3.9, but such change shall not be effective until notice of such change has been received by the other Agent. 3.10 Legend on Notes. The Notes shall bear a conspicuous legend to the following effect: -17- 18 THE LIENS AND SECURITY INTERESTS IN THE COLLATERAL SECURING THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBORDINATE TO THE LIENS AND SECURITY INTERESTS SECURING THE SENIOR SECURED INDEBTEDNESS (AS DEFINED BELOW), AS MORE FULLY SET FORTH IN THE INTERCREDITOR AGREEMENT (AS DEFINED BELOW). ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS AND CONDITIONS OF THE INTERCREDITOR AGREEMENT. 3.11 Counterparts. This Intercreditor Agreement may be executed in any number of counterparts, each of which shall be an original with the same force and effect as if the signatures thereto and hereto were upon the same instrument. 3.12 Governing Law. The validity, construction and effect of this Intercreditor Agreement shall be governed by the laws of the State of New York. 3.13 CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS INTERCREDITOR AGREEMENT. 3.14 Complete Agreement. This written Intercreditor Agreement is intended by the parties as a final expression of their agreement and is intended as a complete statement of the terms and conditions of their agreement. 3.15 No Third Parties Benefitted. Except as expressly provided in Section 3.4, this Intercreditor Agreement is solely for the benefit of the Agents, Lenders, Note Trustee and Noteholders and their respective successors, participants and assigns, and no other person shall have any right, benefit, priority or interest under, or because of the existence of, this Intercreditor Agreement. 3.16 Disclosures; Non-Reliance. Each of Agents, Lenders, Note Trustee and Noteholders have the means to be, and shall in the future remain, fully informed as to the financial condition and other affairs of Debtors and no Agent shall have any obligation or duty to disclose any such information to any other Agent. Except as expressly set forth in this Intercreditor Agreement, the parties hereto have not otherwise made to each other nor do they hereby make to each other any warranties, express or implied, nor do they assume any liability to each other with respect to: (a) the enforceability, validity, value or collectability of any of the Note Obligations or -18- 19 Senior Debt or any guarantee or security which may have been granted to any of them in connection therewith, (b) Debtors title to or right to transfer any of the Collateral, or (c) any other matter except as expressly set forth in this Intercreditor Agreement. 3.17 Term. This Intercreditor Agreement is a continuing agreement and shall remain in full force and effect until the indefeasible satisfaction in full of all Senior Debt and the termination of the Senior Creditor Agreements. IN WITNESS WHEREOF, the parties have caused this Intercreditor Agreement to be duly executed as of the day and year first above written. FOOTHILL CAPITAL CORPORATION, as Agent By: /s/ Anthony Aloi --------------------------- Title: Vice President ------------------------ THE BANK OF NEW YORK, as Collateral Agent By: /s/ JoAnn Manieri --------------------------- Title: Assistant Vice President ------------------------ AGREED TO AND ACKNOWLEDGED: THE BANK OF NEW YORK, as Trustee By: /s/ JoAnn Manieri ---------------------------- Title: Assistant Vice President ------------------------- Each of the undersigned hereby acknowledges and agrees to the foregoing terms and provisions. By its respective signature below, each of the undersigned agrees that it will, together with its respective successors and assigns, be bound by the provisions hereof. Each of the undersigned agrees that any Agent holding Shared Collateral does so as bailee (under the New York UCC) for the other and Note Collateral Agent is hereby authorized to and -19- 20 may turn over to Senior Agent upon request therefor any such Shared Collateral. Each of the undersigned further agrees that after all obligations and indebtedness of the undersigned in respect of the Senior Debt to the Senior Agent and Lenders have been fully paid and performed Senior Agent is hereby authorized to and shall turn over to Note Collateral Agent upon written request therefor any Shared Collateral held by it (except for any Shared Collateral that may be subject to any Replacement Credit Facilities that may then be in existence). Each of the undersigned acknowledges and agrees that: (i) although it may sign this Intercreditor Agreement it is not a party hereto and does not and will not receive any right, benefit, priority or interest under or because of the existence of the foregoing Intercreditor Agreement and nothing therein shall be deemed a waiver or modification of any terms or conditions of the Operative Note Agreements, (ii) in the event of a breach by any of the undersigned or Note Collateral Agent of any of the terms and provisions contained in the foregoing Intercreditor Agreement, such a breach shall constitute an "Event of Default" as defined in and under the Senior Creditor Agreements and (iii) it will execute and deliver such additional documents and take such additional action as may be necessary or desirable in the opinion of any Agent to effectuate the provisions and purposes of the foregoing Intercreditor Agreement. No provision of the Intercreditor Agreement shall release the undersigned from any of their obligations under any of the Operative Note Agreements. ANKER COAL GROUP, INC. By: /s/ BRUCE SPARKS --------------------------- Title: President ------------------------ ANKER GROUP, INC. By: /s/ BRUCE SPARKS --------------------------- Title: President ------------------------ ANKER ENERGY CORPORATION By: /s/ BRUCE SPARKS --------------------------- Title: President ------------------------ -20- 21 BRONCO MINING COMPANY, INC. By: /s/ BRUCE SPARKS --------------------------- Title: President ------------------------ ANKER POWER SERVICES, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ ANKER WEST VIRGINIA MINING COMPANY By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ JULIANA MINING COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ KING KNOB COAL CO., INC By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ VANTRANS, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ -21- 22 MELROSE COAL COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ MARINE COAL SALES COMPANY By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ HAWTHORNE COAL COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ UPSHUR PROPERTY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ HEATHER GLEN RESOURCES, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ NEW ALLEGHENY LAND HOLDING COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ -22- 23 PATRIOT MINING COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ VINDEX ENERGY CORPORATION By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ ANKER VIRGINIA MINING COMPANY, INC. By: /s/ B. JUDD HARTMAN --------------------------- Title: Secretary ------------------------ SIMBA GROUP INC. By: /s/ BRUCE SPARKS --------------------------- Title: President ------------------------ -23- 24 SCHEDULE 1 TO INTERCREDITOR AGREEMENT BETWEEN FOOTHILL CAPITAL CORPORATION, AS AGENT AND THE BANK OF NEW YORK, AS COLLATERAL AGENT Subsidiaries of Anker Coal Group, Inc. Anker Group, Inc. Anker Energy Corporation Bronco Mining Company, Inc. Anker Power Services, Inc. Anker West Virginia Mining Company Juliana Mining Company, Inc. King Knob Coal Co., Inc. Vantrans, Inc. Melrose Coal Company, Inc. Marine Coal Sales Company Hawthorne Coal Company, Inc. Upshur Property, Inc. Health Glen Resources, Inc. New Allegheny Land Holding Company, Inc. Patriot Mining Company, Inc. Vindex Energy Corporation Anker West Virginia Mining Company, Inc. Simba Group Inc. EX-10.24 17 CONSENT AND AMENDMENT NO. 3 TO LOAN DOCUMENTS 1 EXHIBIT 10.24 CONSENT AND AMENDMENT NO. 3 TO LOAN DOCUMENTS As of October 1, 1999 Foothill Capital Corporation 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025 Gentlemen: Foothill Capital Corporation, as agent ("Agent"), the financial institutions party to the Loan Agreement referred to herein (each, individually a "Lender" and collectively, "Lenders") and certain Subsidiaries of Anker Coal Group, Inc. (each, individually, a "Borrower" and collectively "Borrowers") have entered into certain financing arrangements as set forth in the Loan and Security Agreement, dated as of November 21, 1998, by and among Borrowers, Lenders and Agent, as amended by Amendment No. 1 to Loan Documents, dated August 4, 1999, by and among Borrowers, Guarantors, Lenders and Agent and Amendment No. 2 to Loan Documents, dated August 27, 1999, by and among Borrowers, Guarantors, Lenders and Agent (as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and all other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Amendment (as all of the foregoing now exist, are modified hereby or are hereafter amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Loan Documents"). Anker Coal Group, Inc. ("Parent") has issued or is about to issue its 14.25% Second Priority Senior Secured Notes (the "1999 Notes") pursuant to the Indenture, dated as of October 1, 1999 (the "1999 Note Indenture"), by and among Parent, certain Subsidiaries of Parent and The Bank of New York, as trustee (in such capacity, the "1999 Note Trustee"), which notes are or will be secured by a lien on substantially all of the assets and properties of Borrowers and Guarantors. Agent and The Bank of New York, as collateral agent under the 1999 Note Indenture (in such capacity, the "1999 Note Collateral Agent"), have entered or are about to enter into an Intercreditor Agreement, dated as of October 1, 1999 (the "Intercreditor Agreement"), by and between Agent and the 1999 Note Collateral Agent, pursuant to which Agent and the 1999 Note Collateral Agent confirmed or will confirm the relative priority of the security interests of Agent and the 1999 Note Collateral Agent in the assets and properties of Borrowers and Guarantors and provide for the orderly sharing among them, in accordance with such priorities, of proceeds of such assets and properties upon any foreclosure thereon or other disposition thereof. 2 Borrowers have requested that Agent and Lenders (i) consent to the issuance by Parent of the 1999 Notes pursuant to the 1999 Note Indenture, the guaranty thereof by Borrowers and Guarantors and the grant to the 1999 Note Collateral Agent of a security interest in such assets and properties and (ii) amend the Loan Documents in certain respects, and Agent and Lenders are willing to consent to the issuance by Parent of the 1999 Notes pursuant to the 1999 Note Indenture, the guaranty thereof by the Borrowers and Guarantors and the grant to 1999 Note Collateral Agent of a security interest in such assets and properties and to amend the Loan Documents in certain respects, subject to the terms and conditions contained herein. In consideration of the foregoing and the respective agreements and covenants herein, the parties hereto agree as follows: 1. Consent. Subject to the terms and conditions contained herein, Agent and Lenders hereby consent to: (i) the issuance by Parent of the 1999 Notes pursuant to the terms of the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date, (ii) the grant by Borrowers and Guarantors of the Liens on their assets and properties pursuant to the terms of the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date, provided, that, such Liens are subordinated in right and priority to the Liens granted to Agent for the benefit of the Lender Group as provided for and subject to the terms and conditions of the Intercreditor Agreement, and (iii) the consummation of the transactions contemplated by the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date and the instruments, documents and agreements executed and delivered in connection with the issuance of the 1999 Notes. 2. Definitions. 2.1 Amendments to Definitions. (a) The definition of "Affiliate" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: "'Affiliate' means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or officer of such Person. For purposes of this definition "control" means the possession, directly or indirectly, of the right to vote ten (10%) percent or more of the securities having ordinary voting power for the election of directors or other direct or indirect power to direct the management and policies of a Person; provided that no 1999 Noteholders shall be deemed to be an Affiliate of Borrowers or Guarantors solely by reason of its ownership of Warrants or shares issuable upon exercise thereof or the 1999 Notes held or which may be held by any 1999 Noteholder." (b) The definition of "Loan Documents" set forth in Section 1.1 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: -2- 3 "'Loan Documents' means this Agreement, as amended by Amendment No.1, Amendment No. 2 and Amendment No. 3, the Continuing Guaranty of the Obligations by each of the Guarantors and the Borrowers in favor of Agent, for the benefit of the Lender Group, the Security Agreements, the Pledge Agreement, the Disbursement Letter, the Letters of Credit, the Lockbox Agreements, the Mortgages, the Intercreditor Agreement, any note or notes executed by Borrowers and payable to the Lender Group, and any other agreement entered into, now or in the future, in connection with this Agreement." (c) The definition of "Material Adverse Change" set forth in Section 1.1 of the Loan Agreement is hereby amended by deleting clause (a) thereof in its entirety and substituting the following therefor: "(a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrowers and/or Guarantors, other than as a result of the consummation of Permitted Dispositions and Permitted Supplemental Dispositions; provided, that, the write-down by Borrowers and Guarantors of certain of the assets of Borrowers and Guarantors as of December 31, 1998 shall not be deemed a Material Adverse Change for purposes of this definition;". (d) The definition of "Permitted Disposition" set forth in Section 1.1 of the Loan Agreement is hereby amended by deleting the reference to "$1,000,000" in clause (e)(iii) thereof and substituting "$1,200,000" therefor. (e) The definition of "Permitted Liens" set forth in Section 1.1 of the Loan Agreement is hereby amended by deleting clause (m) thereof in its entirety and substituting the following therefor: "(m) Liens held by the 1999 Note Collateral Agent for the benefit of the 1999 Note Trustee and the 1999 Noteholders pursuant to the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date; provided, that, such Liens are subordinated in right and priority to the Liens granted to Agent for the benefit of the Lender Group as provided for and subject to the terms and conditions of the Intercreditor Agreement." (f) Section 1.1 of the Loan Agreement is hereby amended by deleting the definitions of "Refinanced Senior Note Indebtedness", "Refinanced Senior Note Intercreditor Agreement", "Replacement Term Loan" and "Replacement Term Loan Lender" in their entirety. 2.2 Additional Definitions. Section 1.1 of the Loan Agreement is hereby amended by adding the following new definitions in the appropriate alphabetical order: -3- 4 "'1999 Note Collateral Agent' means The Bank of New York, a New York banking corporation in its capacity as Collateral Agent pursuant to the 1999 Note Indenture for and on behalf of the 1999 Note Trustee and the 1999 Noteholders, and its successors and assigns in such capacity." "'1999 Noteholders' means, collectively, the Persons from time to time who are Holders (as defined in the 1999 Note Indenture) of any 1999 Notes and their respective successors and assigns, being sometimes referred to herein individually as a '1999 Noteholder'." "'1999 Note Indenture' means the Indenture dated as of October 1, 1999 relating to the 1999 Notes executed by Parent as Issuer, the other Guarantors and Borrowers as guarantors and The Bank of New York as trustee, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced." "'1999 Notes' means , collectively, the 14.25% Second Priority Senior Secured Notes due 2007 (PIK until April 1, 2000) of any series issued under the 1999 Note Indenture (as in effect on the Amendment No. 3 Closing Date), including, without limitation, (i) the 14.25% Second Priority Senior Secured Notes issued pursuant to the Public Exchange Offer (as defined in the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date), (ii) the Secondary Notes (as defined in the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date) and (iii) the Optional Secured Notes (as defined in the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date), and shall include all Rule 144A Global Notes, Definitive Notes, Global Notes, RSTD Global Notes, Regulation S Permanent Global Notes, Regulation S Temporary Global Notes, Restricted Definitive Notes, Restructured Global Notes, Unrestricted Definitive Notes and Unrestricted Global Notes (as each such term is defined in the 1999 Note Indenture as in effect on the Amendment No. 3 Closing Date), in each case issued by Parent pursuant to the 1999 Note Indenture, as the same now exist or may hereafter be modified, supplemented, extended, renewed or replaced." "'1999 Note Trustee' means The Bank of New York, a New York banking corporation in its capacity as trustee for and on behalf of the 1999 Noteholders under the 1999 Note Indenture, and its successors and assigns in such capacity." "'Amendment No. 3' means Amendment No. 3 to Loan Documents, dated as of October 1, 1999, by and among Borrowers, Guarantors, Agent and Lenders." "'Amendment No. 3 Closing Date' means the date that each of the conditions set forth in Section 11 of Amendment No. 3 have been satisfied in a manner satisfactory to Agent." -4- 5 "'Intercreditor Agreement' means the Intercreditor Agreement, dated as of October 1, 1999, by and between Agent and the 1999 Note Collateral Agent, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced." "'Warrants' means warrants to purchase an aggregate of 3,047 shares of common stock of Parent and issued pursuant to the Exchange and Purchase Agreement, dated October 1, 1999, by and among Parent, Borrowers and Guarantors and the purchasers and exchanging noteholders party thereto, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced." 2.3 Construction. All capitalized terms used herein shall have the meanings assigned thereto in the Loan Agreement, unless otherwise defined herein. 3. Term Loan Facility. 3.1 Section 2.3(a)(iii) of the Loan Agreement is hereby amended by deleting clause (C) thereof in its entirety and substituting the following therefor: "(C) to make Intercompany Loans to Parent (if and to the extent permitted by Section 7.13) for the purpose of enabling Parent to pay Indebtedness owing under the Senior Notes and the 1999 Notes". 3.2 Section 2.3(a)(iv) of the Loan Agreement is hereby deleted in its entirety and substituting the following therefor: "(iv) the proceeds of Permitted Supplemental Dispositions shall, at the election of the Required Lenders, in an amount (if any) for each Permitted Supplemental Disposition as shall be designated by the Required Lenders, be remitted to and applied by Agent as a mandatory prepayment, without penalty, to the above-described regularly scheduled principal installments due and payable with respect to the Term Loan, in the inverse order of their maturity." 4. Due Authorization; No Conflict. Section 5.9(b) of the Loan Agreement is hereby amended by deleting clause (ii) thereof in its entirety and substituting the following therefor: "(ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under (A) the Senior Notes and the Senior Note Indenture, (B) the 1999 Notes and the 1999 Note Indenture or (C) any other material contractual obligation or material lease of Borrowers, which could reasonably be expected to result in a Material Adverse Change,". -5- 6 5. No Material Adverse Change. Section 5.11 of the Loan Agreement is hereby amended by deleting the second sentence thereof in its entirety and substituting the following therefor: "There has not been a Material Adverse Change with respect to Borrowers or Guarantors since the date December 31, 1998. " 6. Indebtedness. 6.1 Section 7.1(b) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: "(b) Indebtedness set forth on Schedule 7.1, including, without limitation, the Indebtedness owing under the Senior Notes and the 1999 Notes;". 6.2 Section 7.1(d) of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: "(d) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not materially impair the prospects of the repayment of the Obligations by Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or extensions do not result in an increase in the aggregate principal amount of the Indebtedness so refinanced, renewed, or extended, (iii) except with respect to the refinancing of the Indebtedness evidenced by the Senior Notes, such refinancings, renewals, refundings, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, (iv) to the extent that Indebtedness that is refinanced was subordinated in right of payment to the Obligations, then the subordination terms and conditions of the refinancing Indebtedness must be at least as favorable to the Lender Group as those applicable to the refinanced Indebtedness, (v) solely with respect to the Indebtedness evidenced by the Senior Notes, in addition to and not in limitation of the foregoing, such refinancings, renewals, refundings, or extensions shall be on at least as favorable terms and conditions to Borrowers and Guarantors taken as a whole as the terms and conditions set forth in and be issued pursuant to the 1999 Note Indenture and (vi) solely with respect to the Indebtedness evidenced by the 1999 Notes, in addition to and not in limitation of the foregoing, the subordination terms and conditions of the Liens securing such refinancing Indebtedness must be at least as favorable to the Lender Group as those applicable to the Liens securing the 1999 Notes and the holders of such refinancing Indebtedness shall have entered into and executed with Agent an intercreditor agreement with terms and conditions no less favorable to the Agent than those set forth in the Intercreditor Agreement;". -6- 7 7. Investments; Loans. Section 7.13(c)(ix) of the Loan Agreement is hereby amended by deleting the two sentences immediately following the chart in such Section in their entirety and substituting the following therefor: "Intercompany Loans shall be made (subject to the terms and conditions of this clause (ix)) solely for the purpose of funding the working capital requirements and for the general corporate purposes in the ordinary business of the borrower thereof and, without limiting the generality of the foregoing in the case of Parent, for the purpose of funding the payment of interest accrued and accruing on the Senior Notes and the 1999 Notes, to prepay and purchase a portion of the Senior Notes or the 1999 Notes and operating expenses and taxes paid by Parent for its own account or for the account of Borrowers and the other Guarantors as consolidated group expenses and distributions permitted to be made by Parent pursuant to Section 7.11. For the avoidance of doubt, notwithstanding anything to the contrary set forth in this Agreement, if Borrowers request any Advance the proceeds of which shall be used to make an Intercompany Loan to or for the account of Parent for the purpose of prepayment and purchase of all or any portion of the Senior Notes or the 1999 Notes, unless such requested Advance constitutes a reborrowing of proceeds of Permitted Dispositions and/or Permitted Supplemental Dispositions that have been remitted to Agent pursuant to Section 2.3(a)(iii) within ninety (90) days after the consummation of the Permitted Disposition and/or Permitted Supplemental Disposition, Borrowers must have Excess Availability in an amount equal to $10,000,000 both for the thirty (30) days immediately preceding the date of such Borrowing and after giving effect thereto." 8. Events of Default. Section 8.10 of the Loan Agreement is hereby deleted in its entirety and the following substituted therefor: "8.10 If there is a default under the Senior Notes, the Senior Note Indenture, the 1999 Notes, the 1999 Note Indenture or any other material agreement involving a sum in excess of $500,000 to which Borrowers or Guarantors are a party with one or more third Persons and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the holders of the Senior Notes or the Trustee under the Indenture, the 1999 Noteholders or the 1999 Note Trustee or by such other third Persons, irrespective of whether exercised, to accelerate the maturity of Borrowers' or Guarantors obligations thereunder;". 9. Schedules. Schedule 7.1 to the Loan Agreement is hereby amended and restated in its entirety to read as set forth on Schedule 7.1 hereto. 10. Representations, Warranties and Covenants. In addition to the continuing representations, warranties and covenants heretofore or hereafter made by Borrowers to Lender -7- 8 Group pursuant to the Loan Documents, each Borrower and each Guarantor hereby jointly and severally represents, warrants and covenants with and to Lender Group as follows (which representation, warranties and covenants are continuing and shall survive the execution and delivery hereof and shall be incorporated into and made a part of the Loan Documents): 10.1 No Default or Event of Default exists as of the date of this Amendment after giving effect to the consent, waiver and amendments set forth herein. 10.2 This Amendment has been duly executed and delivered by each Borrower and each Guarantor, and is in full force and effect as of the date hereof, and the agreements and obligations of each Borrower and each Guarantor contained herein and therein constitute legal, valid and binding obligations of Borrowers and Guarantors enforceable against each Borrower and each Guarantor in accordance with their respective terms. 10.3 All of the representations and warranties set forth in the Loan Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof as if made on the date hereof, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date. 11. Conditions Precedent. The consent, waiver and amendments herein shall be effective upon the satisfaction of each of the following conditions precedent in a manner satisfactory to Agent (the date of satisfaction of such conditions, the "Amendment No. 3 Closing Date"): 11.1 Agent shall have received an original of this Amendment, duly authorized, executed and delivered by each Borrower, each Guarantor and each Lender; 11.2 Agent shall have received an original of the Intercreditor Agreement executed by the 1999 Note Collateral Agent and acknowledged by Borrowers and Guarantors; 11.3 Agent shall have received evidence satisfactory to Agent that the 1999 Notes to be issued pursuant to the 1999 Note Indenture on or before the Amendment No. 3 Closing Date have been issued and Agent shall have received a certificate of the chief financial officer of Parent to such effect and certifying that attached thereto are true, correct and complete copies of the executed 1999 Note Indenture and the other Operative Note Agreements (as defined in the Intercreditor Agreement) executed and delivered, or to be executed and delivered, on or before the Amendment No. 3 Closing Date, each of which shall be in form and substance satisfactory to Agent in its sole discretion; 11.4 Agent shall have received evidence satisfactory to Agent that the Parent shall have received not less than $10,500,000 in immediately available funds as net proceeds from the -8- 9 issuance by Parent of the 1999 Notes to be issued pursuant to the 1999 Note Indenture on or before the Amendment No. 3 Closing Date; 11.5 Agent shall have received (a) a qualified Solvency Certificate in respect of Borrowers and Parent and a qualified Compliance Certificate, in each case for and as of the last day of September 1999, (b) a pro forma Solvency Certificate in respect of Borrowers and Parent and a pro forma Compliance Certificate giving effect to the issuance of the 1999 Notes to be issued pursuant to the 1999 Note Indenture on or before the Amendment No. 3 Closing Date and the transactions contemplated by the 1999 Note Indenture and this Amendment, in each case for and as of the last day of September 1999 and (c) a certificate of the chief financial officer of Parent setting forth a calculation in reasonable detail showing compliance with the covenants set forth in Section 7.20 of the Loan Agreement; 11.6 Agent shall have received a certificate from the Secretary of Borrowers and Guarantors attesting to the respective resolutions of Borrowers' and Guarantors' Board of Directors authorizing its execution, delivery and performance of this Amendment and the other Loan Documents to which Borrowers and Guarantors are a party as amended hereby and authorizing specific officers of Borrowers and Guarantors to execute same; 11.7 no Event of Default (other than the Subject Defaults) shall have occurred and be continuing and no event shall have occurred or condition be existing and continuing which, with notice or passage of time or both, would constitute an Event of Default; and 11.8 all other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered, executed or recorded and shall be in form and substance satisfactory to Agent and its counsel. 12. Waiver. Borrowers hereby acknowledge, confirm and agree that (a) Parent and Borrowers have failed to deliver unqualified Solvency Certificates for July, August and September, 1999 required to be delivered pursuant to Section 6.2(b)(i) of the Loan Agreement, and unqualified Compliance Certificates as of the last day of July, August and September of 1999 required to be delivered pursuant to Section 6.3 of the Loan Agreement, (b) as a result of Parent's certification to Agent that Parent is not presently Solvent, as set forth in Parent's Solvency Certificates for Parent's fiscal months ended on the last day of July, August and September, 1999, Borrowers' representation and warranty with respect thereto set forth in Section 5.11 of the Loan Agreement is not true and correct, (c) Borrowers have made Intercompany Loans to Parent and Guarantors in violation of the requirements set forth in Section 7.13(c)(ix) of the Loan Agreement, (d) Borrowers will not have had Excess Availability in excess of the amount required by Section 7.13(c)(ix)(B) for the thirty (30) days immediately preceding the date of the Intercompany Loan to Parent made in connection with the payment by Parent of interest due on October 1, 1999 under the Senior Notes and (e) as a result of the foregoing, Events of Default have occurred and are continuing under Section 8.2 of the Loan Agreement (collectively, the "Subject Defaults"). At the request of Borrowers and Guarantors, Agent, at the written request -9- 10 of the Required Lenders, hereby waives the Subject Defaults, provided, however, that (x) Parent and Borrowers deliver to Agent on the date hereof (i) a qualified Solvency Certificate for September 1999 and a qualified Compliance Certificate as of September 30, 1999 and (ii) a pro forma Solvency Certificate in respect of Borrowers and Parent and a pro forma Compliance Certificate giving effect to the issuance of the 1999 Notes to be issued pursuant to the 1999 Note Indenture on or before the Amendment No. 3 Closing Date and the transactions contemplated by the 1999 Note Indenture and this Amendment, in each case for and as of the last day of September 1999, (y) after giving effect to (i) the issuance of the 1999 Notes to be issued pursuant to the 1999 Note Indenture on or before the Amendment No. 3 Closing Date, (ii) the transactions contemplated by the 1999 Note Indenture and this Amendment and (iii) the payment by Parent of interest due on October 1, 1999 under the Senior Notes, Borrowers shall have Excess Availability in an amount in excess of $5,000,000 and (z) nothing contained herein shall constitute a waiver of any other existing Event of Default or any future noncompliance with Section 6.2(b)(i), Section 6.3 or Section 7.13(c)(ix) of the Loan Agreement or any other term, condition or agreement contained in the Loan Agreement or any Loan Document. Nothing contained herein shall limit, impair, waive or otherwise affect any other term, provision or condition of the Loan Agreement or any other Loan Document, all of which remain in full force and effect in accordance with all of their respective existing terms and conditions. 13. Fee. As partial consideration for Lender Group's entering into this Amendment, Borrowers shall pay to Agent for the ratable benefit of Lender Group a fee in the amount of $100,000, which shall be fully earned and payable as of the date hereof. 14. Miscellaneous. 14.1 Headings. The headings listed herein are for convenience only and do not constitute matters to be considered in interpreting this Amendment. 14.2 Effect of this Amendment. Except as modified pursuant hereto, the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof. To the extent of a conflict between the terms of this Amendment and the other Loan Documents, the terms of this Amendment shall control. 14.3 Governing Law. The validity, interpretation and enforcement of this Amendment shall be governed by the laws of the State of New York. 14.4 Further Assurances. Borrowers and Guarantors shall execute and deliver such additional documents and take such additional action as may be necessary or desirable, as determined by Agent, to effectuate the provisions and purposes of this Amendment. 14.5 Counterparts. This Amendment may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. [remainder of page intentionally left blank] -10- 11 Please sign the enclosed counterpart of this Amendment in the space provided below, whereby this Amendment, as accepted by Agent and Lenders, shall become a binding agreement among Borrowers, Guarantors and Lender Group. Very truly yours, ANKER ENERGY CORPORATION By: /s/ Bruce Sparks ------------------------ Title: President --------------------- MARINE COAL SALES COMPANY By: /s/ B. Judd Hartman ------------------------ Title: Secretary --------------------- ANKER WEST VIRGINIA MINING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------ Title: Secretary --------------------- PATRIOT MINING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------ Title: Secretary --------------------- VINDEX ENERGY CORPORATION By: /s/ B. Judd Hartman ------------------------ Title: Secretary --------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -11- 12 [SIGNATURES CONTINUED FROM PRIOR PAGE] ANKER VIRGINIA MINING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------------- Title: Secretary ---------------------------- JULIANA MINING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------------- Title: Secretary ---------------------------- ANKER COAL GROUP, INC., as Guarantor and Borrower Agent By: /s/ Bruce Sparks ------------------------------- Title: President ---------------------------- ANKER GROUP, INC. By: /s/ Bruce Sparks ------------------------------- Title: President ---------------------------- SIMBA GROUP, INC. By: /s/ Bruce Sparks ------------------------------- Title: President ---------------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -12- 13 [SIGNATURES CONTINUED FROM PRIOR PAGE] ANKER POWER SERVICES, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- BRONCO MINING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- VANTRANS, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- KING KNOB COAL CO., INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- HEATHER GLEN RESOURCES, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -13- 14 [SIGNATURES CONTINUED FROM PRIOR PAGE] HAWTHORNE COAL COMPANY, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- UPSHUR PROPERTY, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- MELROSE COAL COMPANY, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- NEW ALLEGHENY LAND HOLDING COMPANY, INC. By: /s/ B. Judd Hartman ------------------------- Title: Secretary ---------------------- [SIGNATURES CONTINUE ON NEXT PAGE] -14- 15 [SIGNATURES CONTINUED FROM PRIOR PAGE] AGREED AND ACKNOWLEDGED: FOOTHILL CAPITAL CORPORATION as Agent and as a Lender By: /s/ Anthony Aloi -------------------------- Title: Vice President ----------------------- CONGRESS FINANCIAL CORPORATION By: /s/ Cindy Denbaum -------------------------- Title: Vice President ----------------------- SUNROCK CAPITAL CORP. By: /s/ illegible -------------------------- Title: Senior Vice President ----------------------- -15- 16 SCHEDULE 7.1 Permitted Other Indebtedness 1. Indebtedness of Parent, Borrowers and Guarantors evidenced by the Senior Notes and issued pursuant to the terms of the Senior Note Indenture 2. Indebtedness of Parent, Borrowers and Guarantors evidenced by the 1999 Notes and issued pursuant to the terms of the 1999 Note Indenture 3. Indebtedness of Zither Mining Company, Inc. (assumed by Anker West Virginia Mining Company, Inc.) evidenced by that certain promissory note of Zither Mining Company, Inc. in favor of Elkay Mining Company, dated as of March 31, 1995, as amended, in the original principal amount of $2,796,139.00. As of October 2, 1999, the outstanding principal balance was $328,800.00. EX-10.25 18 OPTION AGREEMENT 1 EXHIBIT 10.25 OPTION AGREEMENT October 26, 1999 Rothschild Recovery Fund L.P. c/o Rothschild, Inc. 1251 Avenue of the Americas New York, New York 10020 Gentlemen: Foothill Capital Corporation, as agent ("Senior Agent"), the financial institutions party to the Loan Agreement hereinafter referred to (each, individually a "Lender" and collectively, "Lenders") and certain subsidiaries of Anker Coal Group, Inc. ("Borrowers") have entered into certain financing arrangements as set forth in the Loan and Security Agreement, dated as of November 21, 1998, by and among Borrowers, Lenders and Senior Agent, as amended by Amendment No. 1 to Loan Documents, dated August 4, 1999, by and among Borrowers, Anker Coal Group, Inc. ("Parent") and certain of its subsidiaries as guarantors ("Guarantors"), Lenders and Senior Agent, Amendment No. 2 to Loan Documents, dated August 27, 1999, by and among Borrowers, Guarantors, Lenders and Senior Agent and Amendment No. 3 to Loan Documents, dated as of October 1, 1999, by and among Borrowers, Guarantors, Lenders and Senior Agent (as the same may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the "Loan Agreement"), and all other agreements, documents and instruments referred to therein or at any time executed and/or delivered in connection therewith or related thereto, including, but not limited to, this Agreement (as all of the foregoing now exist, are modified hereby or are hereafter amended, modified, supplemented, extended, renewed, restated or replaced, collectively, the "Loan Documents"). Parent has issued or is about to issue its 14.25% Second Priority Senior Secured Notes (the "Notes") pursuant to the Indenture, dated as of October 1, 1999 (the "Note Indenture"), by and among Parent, certain subsidiaries of Parent and The Bank of New York, as trustee (in such capacity, the "Note Trustee"), which notes are or will be secured by certain assets and properties of Borrowers and Guarantors (the "Shared Collateral"). Senior Agent and The Bank of New York, as collateral agent under the Note Indenture (in such capacity, the "Note Collateral Agent"), have entered or are about to enter into an Intercreditor Agreement, dated as of October 1, 1999 (the "Intercreditor Agreement"), by and between Senior Agent and the Note Collateral Agent, pursuant to which Agent and the Note Collateral Agent confirmed or will confirm the relative priority of the security interests of Agent and the Note Collateral Agent in the Shared Collateral and provide for the orderly sharing among them, in accordance with such priorities, of proceeds of such assets and properties upon any foreclosure thereon or other disposition thereof. 2 On the date hereof, Rothschild Recovery Fund L.P. ("RRF") is the holder of $40,935,000 of Notes and RRF has requested that Agent and Lenders grant for due and adequate consideration, the receipt and sufficiency of which is hereby acknowledged, to RRF or its designee on its own behalf or as agent ("Purchaser") an option to purchase the Senior Debt and Agent and Lenders are willing to grant to Purchaser such an option on the terms and conditions set forth herein. Terms not otherwise defined herein shall have the respective meanings ascribed thereto in the Intercreditor Agreement. In consideration of the foregoing and the respective agreements and covenants herein, the parties hereto agree as follows: 1. Purchase Option. 1.1 Election. Prior to the exercise by Senior Agent of any of its remedies under the Loan Documents or applicable law in respect of the Shared Collateral, Senior Agent shall deliver to Note Collateral Agent a written notice (the "Option Trigger Notice") of its intention to exercise such remedies. Upon receipt of the Option Trigger Notice, Purchaser shall have the option, but not the obligation, within ten (10) days after receipt by Purchaser of the Option Trigger Notice, to elect to purchase all, but not less than all, of the Senior Debt from Lenders by delivery to Senior Agent within such ten (10) day period a written notice of such election (the "Election Notice"). 1.2 Purchase Date. Unless the Election Notice shall have been previously revoked, on the date that is not later than thirty days after the date of receipt by Senior Agent of the Election Notice (the "Closing Date"), Lenders and Agent shall, subject to any required approval of any court or other regulatory or governmental authority or any participants, sell to Purchaser and Purchaser shall purchase from Lenders, all but not less than all of the Senior Debt, together with Senior Agent's interests in the Lender Collateral. 1.3 Closing. On the Closing Date, Purchaser shall (i) pay to Senior Agent as the purchase price thereof the full amount of all Senior Debt then outstanding and unpaid (including principal, interest, early termination and other fees and expenses, including reasonable attorneys' fees and legal expenses), (ii) furnish (A) substitute letters of credit (which shall be issued by banks, and be in form and substance, reasonably acceptable to Senior Agent) or (B) cash collateral to Lenders in such amounts as Senior Agent determines is reasonably necessary to secure Lenders in connection with any issued and outstanding letters of credit provided by Lenders (or letters of credit that Lenders have arranged to be provided by third parties pursuant to the Loan Documents) to Debtors and (iii) agree to reimburse Senior Agent and Lenders for any loss, cost, damage or expense (including reasonable attorneys' fees and legal expenses) in connection with (x) any commissions, fees, costs or expenses related to any issued and outstanding letters of credit described above as to which Lenders have not yet received final and indefeasible payment, (y) any checks or other payments provisionally credited the Senior Debt -2- 3 and/or as to which Lenders have not yet received final and indefeasible payment and (z) all other contingent obligations of Debtors under the Senior Creditor Agreements. Such purchase price and any cash collateral shall be remitted on the Closing Date by wire transfer in Federal funds to the bank account of Senior Agent described on Schedule A attached hereto, or such other bank account as Senior Agent may designate in writing for such purpose to Purchaser not less than two business days prior to the Closing Date. Interest shall be calculated to but excluding the business day on which such purchase and sale shall occur if the amounts so paid by Purchaser to the bank account designated by Senior Agent are received in such bank account prior to 1:00 p.m., New York City time and interest shall be calculated to and including such business day if the amounts so paid by Purchaser to the bank account designated by Lenders are received in such bank account later than 1:00 p.m., New York City time. Senior Agent shall deliver to Purchaser on the Closing Date duly executed assignments of the Loan Documents and all Mortgages and security interests, including assignment of UCC Financing Statements on Form UCC-3 or such other forms as may be necessary or appropriate and all promissory notes evidencing the Senior Debt duly endorsed. 1.4 No Representation or Warranty. Such purchase shall be expressly made without representation or warranty of any kind by Senior Agent or Lenders as to the Senior Debt, the Lender Collateral or otherwise and without recourse to Senior Agent or Lenders, except that Lenders shall represent and warrant: (i) that Lenders own the Senior Debt free and clear of any liens or encumbrances created by Senior Agent or Lenders and (ii) Lenders have the right to assign the Senior Debt (subject to the consents referred to above) and the assignment is duly authorized. Upon the purchase by Purchaser of the Senior Debt, Purchaser shall indemnify and hold Senior Agent and Lenders harmless from and against all loss, cost, damage or expenses (including reasonable attorneys' fees and legal expenses) suffered or incurred by Senior Agent or Lenders arising from or in any way relating to the act or omissions of Purchaser after the purchase. Purchaser shall acknowledge that (i) Agent and Lenders have made no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of Borrowers or Guarantors, or the validity or enforceability of the Senior Debt and (ii) Purchaser has, independently of and without reliance on Agent or any Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to purchase the Senior Debt. 2. Exercise of Remedies. Upon receipt by Senior Agent of an Election Notice in accordance with the provisions of Section 1.1 hereof, Senior Agent and Lenders shall forbear from exercising their rights and remedies under the Loan Documents or applicable law in respect of the Shared Collateral other than Accounts and Inventory for the period (the "Forbearance Period") commencing on the date of receipt by Senior Agent of the Election Notice and ending on the earlier to occur of (x) the date of the purchase and sale and (y) the date that is thirty (30) days after receipt by Senior Agent of the Election Notice; provided, that, nothing herein shall prohibit Senior Agent or Lenders from acting to protect the value of any Shared Collateral or Senior Agent's or Lenders' interest therein. Nothing herein shall prohibit Senior Agent or Lenders from exercising any of their respective rights or remedies set forth in the Loan Documents or under -3- 4 applicable law with respect to the Accounts and Inventory of Borrowers and Guarantors provided that any sale or other disposition of Accounts and Inventory conducted by Senior Agent or Lenders shall be conducted in a commercially reasonable manner in accordance with applicable law. Upon the termination of the Forbearance Period, the agreement of Senior Agent and Lenders to forbear shall automatically and without further action terminate and be of no force and effect, it being expressly agreed that the effect of such termination will be to permit Senior Agent and Lenders to exercise all such rights and remedies without any further notice, passage of time or forbearance of any kind. 3. Miscellaneous. 3.1 Notices. All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed duly given, made or received: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if mailed by certified mail, return receipt requested, five (5) days after mailing to the parties at their addresses set forth below (or to such other addresses as the parties may designate in accordance with the provisions of this Section 3.1): To Senior Agent and Lenders: Foothill Capital Corporation 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attention: Business Finance Division Manager Fax No. (310) 470-9788 and to: Foothill Capital Corporation 60 State Street Suite 1150 Boston, Massachusetts 02109 Attention: Loan Portfolio Manager Fax No.: (617) 523-1697 To Purchaser: Rothschild Recovery Fund L.P. c/o Rothschild, Inc. 1251 Avenue of the Americas New York, New York 10020 Attention: Wilbur Ross Fax No.: (212) 403-3578 -4- 5 with a copy to: Coudert Brothers 1114 Avenue of the Americas New York, New York 10031 Attention: Ted Farris, Esq. Fax No.: (212) 626-4120 Any party hereto may change the address(es) to which all notices, requests and other communications are to be sent by giving written notice of such address change to the other parties hereto in conformity with this Section 3.1, but such change shall not be effective until notice of such change has been received by the other parties. 3.2 Headings. The headings listed herein are for convenience only and do not constitute matters to be considered in interpreting this Agreement. 3.3 Governing Law; Choice of Forum. (a) The validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of New York. (b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THIS INTERCREDITOR AGREEMENT. 3.4 Further Assurances. Agent, Lenders, RRF and Purchaser shall execute and deliver such additional documents and take such additional action as may be necessary or desirable, as determined by Agent, RRF and Purchaser, to effectuate the provisions and purposes of this Agreement. 3.5 Assignment. RRF may assign its rights under this Agreement to any Affiliate of RRF and to any Person that may be a co-lender or participant in the Senior Debt from and after the Closing Date. 3.6 Counterparts. This Agreement may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. [remainder of page intentionally left blank] -5- 6 Please sign the enclosed counterpart of this Agreement in the space provided below, whereby this Agreement, as accepted by RRF, shall become a binding agreement among Agent, Lenders and RRF. Very truly yours, FOOTHILL CAPITAL CORPORATION as Agent and as a Lender By: /s/ Anthony Aloi --------------------------- Title: Vice President ------------------------ CONGRESS FINANCIAL CORPORATION By: /s/ Cindy Denbaum -------------------------- Title: Vice President ----------------------- SUNROCK CAPITAL CORP. By: /s/ illegible -------------------------- Title: Senior Vice President ----------------------- AGREED TO: ROTHSCHILD RECOVERY FUND L.P. Rothschild Recovery Associates LLC, its General Partner By: /s/ David H. Storper -------------------------- Title: Principal Member ----------------------- -6- 7 SCHEDULE A TO OPTION AGREEMENT Wire Transfer Instructions The Chase Manhattan Bank New York, New York ABA 021000021 Credit: Foothill Capital Corporation Account: 323-266193 Re: Anker Coal Group, Inc. -7- EX-10.26 19 GENERAL SECURITY AGREEMENT 1 EXHIBIT 10.26 GENERAL SECURITY AGREEMENT This General Security Agreement (the "Agreement"), dated October 1, 1999 is by ANKER COAL GROUP, INC., a Delaware corporation (the "Company") and each of the entities listed on Schedule A hereto (each a "Guarantor" and collectively, the "Guarantors"), in favor of The Bank of New York, as collateral agent (in such capacity, "Collateral Agent"), under the indenture, dated as of October 1, 1999, as such indenture may be amended or supplemented from time to time (the "Indenture"), among the Company, the Guarantors and The Bank of New York, as trustee (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has agreed to issue 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Notes," as further defined in the Indenture) of each series which may be issued from time to time pursuant to the Indenture and secured by the Security Interest in the Collateral granted by the Company and the Guarantors to or in favor of the Collateral Agent; and WHEREAS, pursuant to the terms of Article 5 of the Indenture, the Security Interest in the Collateral is junior in priority to the Senior Security Interest. NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS All terms used herein which are defined in Article 1, Article 8 or Article 9 of the Uniform Commercial Code shall have the meanings given therein unless otherwise defined in this Agreement. All other capitalized terms not otherwise defined herein shall have the meanings set forth in the Indenture. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. All references to the Company, the Guarantors and the Collateral Agent pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. The word "including" when used in this Agreement shall mean "including, without limitation". An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 7.3. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. For purposes of this Agreement, the following terms shall have the respective meanings given to them below: 2 1.1 "Accounts" means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to the Company and the Guarantors arising out of the sale or lease of goods or the rendition of services by the Company and the Guarantors, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor. 1.2 "AVS" means the Applicant Violator System operated by the United States Department of Interior and any related systems or procedures. 1.3 "Books" means all of the Company's and the Guarantors' books and records including: ledgers; records indicating, summarizing, or evidencing the Company's and the Guarantors' properties or assets (including the Collateral) or liabilities; all information relating to the Company's and the Guarantors' business operations or financial condition; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information. 1.4 "Cash Collateral" means United States legal tender or Cash Equivalents which have been deposited in or held under the Collateral Account. 1.5 "Cash Equivalents" means (i) United States dollars, (ii) securities issued directly and fully guaranteed or insured by the full faith and credit of the United States government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the Credit Facilities or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") and in each case maturing within six months after the date of acquisition, (vi) investment funds investing substantially all of their assets in securities of the types described in clauses (i)-(v) above and (vii) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody's or S&P. 1.6 "Collateral" means all of the Company's and the Guarantors' right, title, and interest in and to each of the following: (i) the Accounts, (ii) the Books, (iii) the Equipment, (iv) the General Intangibles, (v) the Inventory, (vi) the Negotiable Collateral, (vii) Cash Collateral, (viii) the Investment Property (including, without limitation, all Stock in Subsidiaries), (ix) the Real Property Collateral, (x) any money, or other assets of the Company and the Guarantors that now or hereafter come into the possession, custody, or control of the Collateral Agent, and (xi) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, the Books, Equipment, General Intangibles, Inventory, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof; provided, however, that with respect to any coal supply agreement, coal brokerage -2- 3 agreement, any other non-assignable agreement and leasehold interest entered into, or non-assignable Permit held, by the Company or any of the Guarantors with, or issued by, any Person who is not an Affiliate of the Company or any of the Guarantors, if, and only if, (x) the valid grant of a Lien in or Mortgage upon such agreement, interest or Permit is prohibited (or the consent of the other party to such agreement or of the issuer of such Permit to any of the foregoing is required) and such prohibition has not been or is not waived, or such consent of the other party to such agreement or of the issuer of such Permit has not been or is not obtained (each, a "Non-assignable Property"), and (y) by the terms of such Non-assignable Property, the Company's or any of the Guarantor's grant of a Lien therein would result in the right of the other Person party to such agreement or of the issuer of such Permit to terminate such Non-assignable Property, then the Liens granted pursuant to this Agreement to the Collateral Agent, for the benefit of the Holders, shall attach solely to the proceeds of such Non-assignable Property and the Company's and the Guarantors' rights thereto including, without limitation, any and all Accounts arising under or pursuant to such Non-assignable Property, except that, if the relevant provisions contained in any Non-assignable Property that prohibit the valid grant of a Lien therein or a Mortgage thereon or that require the consent of the other party thereto to (as applicable) any of the foregoing are determined to be unenforceable, invalid, or otherwise not binding upon the Company or any of the Guarantors, pursuant to a final judgment or decree of any court or competent jurisdiction, then such Non-assignable Property shall in all events constitute part of the Collateral; provided that there shall be excluded from the Collateral the Excluded Assets. 1.7 "Collateral Access Agreement" means a landlord waiver or consent, lessor subordination agreement, mortgagee waiver or consent, bailee letter, or a similar acknowledgment agreement of any warehouseman, processor, lessor, licensor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Collateral Agent. 1.8 "Collateral Account" means an account maintained with the Collateral Agent at its corporate trust office into which all proceeds of Collateral required to be delivered herein shall be deposited. 1.9 "Control Agreement" means a control agreement, in form and substance reasonably satisfactory to Collateral Agent, between the Company or the relevant Guarantor and the applicable securities intermediary with respect to the applicable Securities Account and related Investment Property. 1.10 "Equipment" means all of the Company's and the Guarantors' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, loading facilities, tipples, processing plants and like structures, fixtures, tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including (a) any interest of the Company and the Guarantors in any of the foregoing and, (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing; provided, however, that Equipment shall not include Mobile Equipment. 1.11 "Event of Default" shall have the meaning set forth in Section 6.1 hereof. -3- 4 1.12 "Excluded Assets" means Mobile Equipment, cash and Cash Equivalents (other than Cash Collateral or proceeds of Collateral) and the coal reserves, fixtures, equipment and specified interests in Real Property listed on Schedule B to the Indenture, including, without limitation, the improvements, fixtures, structures, buildings, water treatment facilities and other appurtenances situated thereon or thereunto belonging. 1.13 "General Intangibles" means all of the Company's and the Guarantors' present and future general intangibles and other personal property (including rights under coal supply contracts, coal brokerage agreements and other contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Permits, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral. 1.14 "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. 1.15 "Holders" means a Person in whose name a Note (or portion of a Note) is registered and "Holders" means Persons in whose names Notes are registered. 1.16 "Indenture Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable to the Collateral Agent, the Trustee or the Holders under the Indenture, the Notes and any Security Documents. 1.17 "Inventory" means all the Company's and the Guarantors' present and future inventory, wherever located, including, without limitation, all raw materials, work-in-process, and finished and semi-finished inventory of any kind, nature or description, wherever located, including, without limitation, (i) all minerals in whatever form, and including, without limitation, coal, fly ash, bottom ash or other ash, methane, sulfur, sulfur dioxide, and other by-products resulting from the processing of the coal mined by the Company and the Guarantors and other minerals and chemicals resulting from the mining or processing of coal, (ii) cast iron fittings, paint, belts and hoses, bolts and nuts, wire and wire products, welding supplies, tools, steel, rope, timber, railroad, spikes, railroad car parts and railroad crane parts, baghouse parts, pump parts, compressor parts, electrical parts, bearings, drills, bits and accessories and other parts and supplies, (iii) all wrapping, packaging, advertising and shipping materials, and (iv) any other personal property held for sale, exchange or lease or furnished or to be furnished or used or consumed in the business or in connection with the manufacturing, packaging, shipping, advertising, selling or finishing of such -4- 5 goods, inventory, merchandise and other personal property, and all names or marks affixed to or to be affixed thereto for purposes of selling same by the Company and the Guarantors and all right, title and interest therein and thereto; and further including, without limitation, all coal in which the Company and the Guarantors have any interest which has been extracted from the Real Property, is in a coal stockpile and is held for sale by the Company and the Guarantors in the ordinary course of business, together with all other present and future goods held for sale by the Company and the Guarantors in the ordinary course of business, wherever located. 1.18 "Investment Property" means "investment property" as that term is defined in Section 9-115 of the New York Uniform Commercial Code, as may be in effect from time to time. 1.19 "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Company and the Guarantors, other than as a result of the consummation of Asset Sales or other dispositions permitted by the Indenture, (b) the material impairment of the Company's and Guarantors' ability to perform their obligations under the Indenture or the Security Documents to which they are a party or the Collateral Agent's ability to realize upon the Collateral (including, without limitation, any action, proceeding or investigation by any Governmental Authority with respect to (x) the Company and/or the Guarantors, (y) any Real Property at which the Company or the Guarantors operate a coal mine or (z) any Permits that have resulted in or will result in, in Collateral Agent's judgment, a material impairment of Collateral Agent's ability to have access to or gain possession of any of the Equipment of the Company or any of the Guarantors, (c) a material adverse effect on the value of the Collateral or the amount that the Collateral Agent would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of the Collateral, other than as a result of the consummation of Asset Sales or other dispositions permitted by the Indenture, or (d) a material impairment of the priority of the Collateral Agent's Liens with respect to the Collateral. 1.20 "Mobile Equipment" means all equipment which is (a) mobile, and (b) which is used or useful in connection with the coal mining, extraction, development, construction or environmental remediation activities of the Company or any Restricted Subsidiary and shall in any event include any of the following, whether such equipment is on wheels, is track mounted or is skid mounted: bulldozers, drills, pans, augers, high wall miners, continuous miners, shuttle cars, roof bolters, mobile roof supporters, rock dusters, man trips, scoops, backhoes, shovels, front end loaders, continuous haulage units, underground locomotives, loaders, trailers, trucks, other motor vehicles and other mining, construction, earthmoving or excavating equipment of a similar nature. 1.21 "Mortgages" means one or more mortgages, deeds of trust, or deeds to secure debt, executed by the Company and the Guarantors in favor of the Collateral Agent, the form and substance of which shall be satisfactory to the Collateral Agent, that encumber the Real Property Collateral and the related improvements thereto, and shall specifically include, but is not limited to, Amendments to Deeds of Trust. 1.22 "Negotiable Collateral" means all of the Company's and the Guarantors' present and future letters of credit, notes, drafts, instruments, Investment Property, documents, personal property leases (wherein such Person is the lessor), chattel paper, and the Books relating to any of the foregoing. -5- 6 1.23 "Obligor" shall mean any other guarantor, endorser, acceptor, surety or other person liable on or with respect to the Indenture Obligations or who is the owner of any property which is security for the Indenture Obligations, other than the Company or the Guarantors. 1.24 "Permits" of a Person shall mean all rights, franchises, permits, authorities, licenses, certificates of approval, consents, orders or authorizations, including licenses and other authorizations issuable by a Governmental Authority, which pursuant to applicable Legal Requirements are necessary to permit such Person lawfully to conduct and operate its business as currently conducted and to own and use its assets. 1.25 "Permitted Protest" means the right of the Company or any Guarantor to protest any Lien other than any such Lien that secures the Indenture Obligations, tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the books of the Company or any Guarantor in an amount that is reasonably satisfactory to Collateral Agent, (b) any such protest is instituted and diligently prosecuted by the Company or any Guarantor in good faith, and (c) Collateral Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Collateral Agent's Liens in and to the Collateral. 1.26 "Real Property" means any estates or interests in real property or mineral rights now owned or acquired in the future by the Company or any of the Guarantors. 1.27 "Real Property Collateral" means the parcel or parcels of Real Property and related improvements thereto identified on Schedule R-2 hereto, and any Real Property hereafter acquired by the Company and the Guarantors, including leasehold interests, together with all buildings, structures, fixtures and other improvements relating thereto, and all metals and minerals which are in, under, upon, or to be produced from such Real Property to the extent of the rights of the Company and the Guarantors to the same, including all coal (but only to the extent such metals and minerals have not been extracted from the Real Property), wherever located, including, without limitation, the Real Property and related assets of the Company and the Guarantors more particularly described in the Mortgages; provided that Real Property Collateral shall not include the Real Property interests listed in Schedule R-1 hereto or Non-assignable Property; provided, further, that, subject to Section 4.12 of the Indenture, the Real Property Collateral shall not include any Real Property located in the State of Maryland that is not subject to the liens securing the Senior Secured Indebtedness. 1.28 "Securities Account" means a "securities account" as that term is defined in Section 8-501 of the Uniform Commercial Code. 1.29 "Stock" means all shares, options, warrants, interests, participations, interests in limited liability companies or other equivalents (regardless of how designated) of or in a corporation or equivalent entity, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). -6- 7 SECTION 2. GRANT OF SECURITY INTEREST 2.1 Grant of Security Interest. To secure the prompt performance, observance and indefeasible payment in full of all Indenture Obligations, the Company and each of the Guarantors hereby grant to Collateral Agent, for the benefit of the Holders, a continuing security interest in, a lien upon, and a right of set off against all currently existing and hereafter acquired or arising Collateral, which security interest is junior in priority to the Senior Security Interest. The Indenture Obligations include both present advances and future advances. SECTION 3. COLLATERAL COVENANTS 3.1 Accounts Covenants. Subject to the provisions of Section 6.3 below, (a) Collateral Agent shall have the right at any time or times, in Collateral Agent's name or in the name of a nominee of Collateral Agent, to verify the validity, amount or any other matter relating to any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. (b) The Company and each Guarantor shall deliver or cause to be delivered to Collateral Agent, with appropriate endorsement and assignment, with full recourse to the Company and the Guarantors, all Negotiable Collateral, including Negotiable Collateral evidencing intercompany Indebtedness, which the Company or the Guarantors now own or may at any time acquire immediately upon the Company's or such Guarantors' receipt thereof. (c) Collateral Agent may (but shall not be obligated to), (i) at any time that an Event of Default has occurred and is continuing, notify any or all account debtors that the Accounts have been assigned to Collateral Agent, for the benefit of the Holders, and that Collateral Agent, for the benefit of the Holders, has a security interest therein and Collateral Agent may direct any or all accounts debtors to make payment of Accounts directly to Collateral Agent, for the benefit of the Holders, and (ii) at any time that an Event of Default has occurred and is continuing, (A) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts or other obligations included in the Collateral and thereby discharge or release the account debtor or any other party or parties in any way liable for payment thereof without affecting any of the Indenture Obligations, (B) demand, collect or enforce payment of any Accounts or such other obligations, but without any duty to do so, and Collateral Agent, the Trustee and the Holders shall not be liable for their failure to collect or enforce the payment thereof and (iii) at any time, take whatever other action Collateral Agent may deem necessary or desirable for the protection of the Security Interest granted herein upon the Accounts. At Collateral Agent's request, at any time that an Event of Default has occurred and is continuing, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Collateral Agent, for the benefit of the Holders, and are payable directly and only to Collateral Agent, for the benefit of the Holders, and the Company and each Guarantor shall deliver to Collateral Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Collateral Agent may require. The Company and each Guarantor agrees that it will hold in trust -7- 8 for the Collateral Agent, the Trustee and the Holders, as trustee, any collections that it receives and immediately deliver said collections to Collateral Agent in their original form as received. 3.2 Inventory Covenants. With respect to the Inventory: (a) the Company and each Guarantor shall at all times maintain Inventory records reasonably satisfactory to Collateral Agent, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, the Company and each Guarantor's cost therefor and daily withdrawals therefrom and additions thereto; (b) the Company and each Guarantor shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Collateral Agent, except (i) for sales of Inventory in the ordinary course of the Company's or any Guarantor's business, (ii) to move Inventory directly from one location set forth or permitted herein to another such location or (iii) in connection with and in order to facilitate the consummation of Asset Sales or other dispositions permitted by the Indenture; (c) the Company and each Guarantor shall produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in material conformity with applicable laws (including the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto); (d) the Company and each Guarantor assumes all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory; (e) the Company and each Guarantor shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate the Company or any Guarantor to repurchase such Inventory; (f) the Company and each Guarantor shall keep the Inventory in good and marketable condition; and (g) the Company and each Guarantor shall not, without prior written notice to Collateral Agent, acquire or accept any Inventory on consignment or approval. 3.3 Equipment Covenants. With respect to the Equipment: (a) the Company and each Guarantor shall keep the Equipment in good operating condition and repair (ordinary wear and tear excepted); (b) the Company and each Guarantor shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in material conformity with all applicable laws; (c) the Equipment is and shall be used in the Company's and each Guarantor's business and not for personal, family, household or farming use; (d) other than in connection with and in order to facilitate Asset Sales or other dispositions permitted by the Indenture, the Company and each Guarantor shall not remove any Equipment from the locations set forth or permitted herein, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of the Company and each Guarantor or to move Equipment directly from one location set forth or permitted herein to another such location and except for the movement of motor vehicles used by or for the benefit of the Company or any Guarantor in the ordinary course of business; (e) the Equipment is now and shall remain personal property and the Company and each Guarantor shall not permit any of the Equipment to be or become a part of or affixed to Real Property and such Equipment shall at all times remain personal property, unless the item of Equipment is critical to the functioning, or is an integral part of, the Real Property at which is located; and (f) the Company and each Guarantor assumes all responsibility and liability arising from the use of the Equipment. 3.4 Power of Attorney. The Company and each Guarantor hereby irrevocably designates and appoints Collateral Agent (and all persons designated by Collateral Agent) as the Company's and each Guarantor's true and lawful attorney-in-fact, and authorizes Collateral -8- 9 Agent, in the Company's or any of the Guarantor's or Collateral Agent's name, to: (a) at any time an Event of Default exists or has occurred and is continuing in connection with which the Indenture Obligations have been declared to be immediately due and payable pursuant to the Indenture, (i) demand payment on Accounts or other proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by legal proceedings or otherwise, (iii) exercise all of the Company's and each Guarantor's rights and remedies to collect any Account or other Collateral, (iv) sell or assign any Account upon such terms, for such amount and at such time or times as the Collateral Agent deems advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi) discharge and release any Account, (vii) prepare, file and sign the Company's or any of the Guarantor's name on any proof of claim in bankruptcy or other similar document against an account debtor, (viii) notify the post office authorities to change the address for delivery of the Company's or any Guarantor's mail to an address designated by Collateral Agent, and open all mail addressed to the Company or any Guarantor and retain copies of all mail relating to the Collateral and forward all other mail to the Company or any Guarantor, (ix) execute and record all documents necessary to acknowledge, memorialize or effect cancellation of the Security Interest created hereby, effective as of the termination of this Agreement, and (x) do all acts and things which are necessary, in Collateral Agent's determination, to fulfill the Company's and the Guarantors' obligations under this Agreement, the Indenture and the other Security Documents and (b) at any time to (i) take control in any manner of any item of payment or proceeds thereof that may come into the Collateral Agent's or a Senior Secured Lender's possession, (ii) have access to any lockbox or postal box into which the Company's or any of the Guarantor's mail is deposited, (iii) endorse the Company's or any Guarantor's name upon any items of payment or proceeds thereof and deposit the same in the Collateral Agent's account for application to the Indenture Obligations, (iv) endorse the Company's or any of the Guarantor's name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Account or any goods pertaining thereto or any other Collateral that may come into the Collateral Agent's or a Senior Secured Lender's possession, (v) send requests for verification of Accounts and notices thereof to account debtors and (vi) within ten (10) days after Collateral Agent's written request therefor, execute in the Company's or any Guarantor's name and file any UCC financing statements or amendments thereto, provided, that, Collateral Agent may exercise such power at any time, without any prior notice or request to the Company or the Guarantors, if Collateral Agent determines, in its discretion, that it must exercise such power in order to maintain, protect and/or preserve any of the Collateral and/or the Liens of the Indenture therein. The Company and each of the Guarantors hereby release Collateral Agent and its officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of Collateral Agent's own gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. The appointment of Collateral Agent as the Company's and the Guarantors' attorney, and each and every one of Collateral Agent's rights and powers, being coupled with an interest, is irrevocable until all of the Indenture Obligations have been fully and finally repaid and performed. 3.5 Right to Cure. Collateral Agent may, at its option, to the extent that Collateral Agent determines the Company's or the Guarantor's failure to pay or perform any of the following could result in a Material Adverse Change and subject to the right of the Company and each Guarantor to conduct Permitted Protests, (a) cure any default by the Company or any Guarantor under any agreement with a third party or pay or bond on appeal any judgment entered -9- 10 against the Company or any Guarantor, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Collateral Agent's judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of the Trustee and the Holders with respect thereto. Collateral Agent may add any amounts so expended to the Indenture Obligations and charge the Company's and each Guarantor's account therefor, such amounts to be repayable by the Company or such Guarantor on demand. Collateral Agent shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of the Company or any Guarantor. Any payment made or other action taken by Collateral Agent under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 3.6 Access to Premises. From time to time as requested by Collateral Agent, at the cost and expense of the Company and the Guarantors, (a) Collateral Agent or its designee shall have complete access to all of the Company's and each Guarantor's premises during normal business hours and after notice to the Company or such Guarantor, or at any time and without notice to the Company or such Guarantor if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of the Books, and (b) Guarantor shall promptly furnish to Collateral Agent such copies of such Books or extracts therefrom as Collateral Agent may reasonably request, and (c) if an Event of Default exists or has occurred and is continuing, use during normal business hours such of the Company's or the Guarantors' personnel, equipment, supplies and premises as may be necessary for the foregoing and for the collection of Accounts and realization of other Collateral. 3.7 Securities Accounts. Neither the Company nor any Guarantor shall establish or maintain any Securities Account unless Collateral Agent shall have received a Control Agreement, duly executed and in full force and effect, in respect of such Securities Account. Each of the Company and the Guarantors agrees that it will not transfer assets out of any Securities Accounts; provided, however, that so long as no Event of Default has occurred and is continuing or would result therefrom, the Company and each Guarantor may use such assets to the extent permitted by the Indenture. 3.8 Control Agreements. The Company and each Guarantor agree that they will not transfer assets out of any Securities Accounts other than as permitted under Section 3.7 and, if to another securities intermediary, unless each of the Company or relevant Guarantor, as applicable, Collateral Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other investment property shall be modified by the Company or any Guarantor without the prior written consent of Collateral Agent. Upon the occurrence and during the continuance of an Event of Default, Collateral Agent may notify any securities intermediary to liquidate or transfer the applicable Securities Account or any related investment property maintained or held thereby and remit the proceeds thereof to the Collateral Agent for the benefit of the Holders. -10- 11 SECTION 4. REPRESENTATIONS AND WARRANTIES Each of the Company and the Guarantors hereby represents and warrants to the Collateral Agent for the benefit of the Holders the following (which shall survive the execution and delivery of this Agreement): 4.1 Corporate Existence, Power and Authority; Subsidiaries. Each of the Company and the Guarantors is a corporation duly organized and in good standing under the laws of its state of incorporation and is duly qualified as a foreign corporation and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify could not reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance of this Agreement, the Indenture and the other Security Documents and the transactions contemplated hereunder and thereunder are all within the Company's and the Guarantors' corporate powers, have been duly authorized and are not in contravention of law or the terms of the Company's or any of the Guarantors' certificates of incorporation, by-laws, or other organizational documentation, or (a) the Notes and the Indenture or (b) any other material indenture, agreement or undertaking to which the Company or any Guarantor is a party or by which the Company or any Guarantor or its property are bound the breach of which could reasonably be expected to result in a Material Adverse Change. This Agreement, the Indenture and the other Security Documents constitute legal, valid and binding obligations of the Company and the Guarantors enforceable in accordance with their respective terms. Each of the Company and the Guarantors does not have any Subsidiaries, except as set forth in Schedule 4.1 hereto. 4.2 Chief Executive Office; Collateral Locations. The chief executive office of the Company and each Guarantor and the Books concerning Accounts are located only at the addresses set forth below and the only other places of business of the Company and each of the Guarantors and the only other locations of Collateral, if any, are the addresses set forth in Schedule 4.2 hereto, subject to the right of the Company and each Guarantor to establish new locations in accordance with Section 5.2 below. 4.3 Priority of Liens; Title to Properties. The Security Interests granted to Collateral Agent under this Agreement constitute valid and perfected liens and security interests in and upon the Collateral subject in priority only to Permitted Liens granted or incurred prior to the date hereof. Each of the Company and the Guarantors has good and marketable title to all of its properties and assets subject to no Liens of any kind, except those granted to Collateral Agent, for the benefit of the Holders and Permitted Liens. 4.4 Survival of Warranties; Cumulative. All representations and warranties contained in this Agreement, the Indenture or any of the other Security Documents shall survive the execution and delivery of this Agreement and shall be conclusively presumed to have been relied on by the Holders regardless of any investigation made or information possessed by the Holders. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which the Company or any of the Guarantors shall now or hereafter give, or cause to be given, to the Holders. -11- 12 SECTION 5. AFFIRMATIVE AND NEGATIVE COVENANTS 5.1 Notice of Name Change; Change of Jurisdiction. Each of the Company and the Guarantors shall give Collateral Agent thirty (30) days prior written notice of any proposed change in its corporate name or jurisdiction of incorporation, which notice shall set forth the new name or jurisdiction and each of the Company and the Guarantors shall deliver to Collateral Agent (a) a copy of the amendment to the charter of the Company or such Guarantor providing for the name change or change of jurisdiction certified by the Secretary of State of the jurisdiction of incorporation of the Company or such Guarantor as soon as it is available, and (b) such executed agreements, documents and instruments as Collateral Agent may deem reasonably necessary or desirable to protect the Collateral Agent's interests in the Collateral, including the UCC financing statements. 5.2 New Collateral Locations. Each of the Company and the Guarantors may open any new location within the continental United States provided each of the Company and the Guarantors (a) gives Collateral Agent thirty (30) days prior written notice of the intended opening of any such new location and (b) executes and delivers, or causes to be executed and delivered, to Collateral Agent such agreements, documents, and instruments as Collateral Agent may deem reasonably necessary or desirable to protect the Collateral Agent's interests in the Collateral at such location, including UCC financing statements and also provides to Collateral Agent, upon request of Collateral Agent, a Collateral Access Agreement with respect to any such Inventory or Equipment that has been moved to a new location. 5.3 Compliance with Laws; Notice of Non-Compliance. (a) Each of the Company and the Guarantors shall mine and produce, and cause their respective Subsidiaries to mine and produce, all Inventory in accordance with and otherwise comply, and cause their respective Subsidiaries to comply, with the requirements of all Permits then in effect and all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. Section 1201 et seq. or the West Virginia counterpart thereto, the Federal Mine Safety and Health Act of 1977, the Resource Conservation and Recovery Act of 1976, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act, the Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act, as amended, the Clean Water Act, as amended, the Clean Air Act, as amended, the Hazardous Materials Transportation Act, as amended, U.S. Department of Transportation and Environmental Protection Agency regulations, and applicable state counterparts to any of such laws and any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials, the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not have and could not reasonably be expected to result in a Material Adverse Change. (b) Each of the Company and the Guarantors shall provide Collateral Agent on a monthly basis with a report of all notices delivered by any Governmental Authority to the -12- 13 Company or any of the Guarantors or any of their respective Subsidiaries alleging violation of or non-compliance with any Permits or any applicable laws, rules, regulations or orders referred to in Section 5.3(a) that could reasonably be expected to result in a Material Adverse Change and promptly after the Company or any Guarantor or any of their respective Subsidiaries have received notice from a Governmental Authority that a Permit has been or shall be revoked, rescinded, suspended or amended in a manner that will result in a Material Adverse Change, furnish Collateral Agent with a written report thereof describing the foregoing and advising Collateral Agent of the actions the Company, the Guarantors and/or their respective Subsidiaries are taking and propose to take to remedy same. (c) Without limiting the generality of the foregoing, whenever there is material non-compliance with any Legal Requirements, or any condition which requires any action by or on behalf of the Company, the Guarantors or any of their respective Subsidiaries in order to avoid any material non-compliance with any Legal Requirements relating to the use, disposal, treatment or generation of Hazardous Materials, the Company and each of the Guarantors shall, or shall cause the relevant Subsidiary, at the request of Collateral Agent and at the Company's, such Guarantor's or such Subsidiary's (as applicable) expense: (i) cause an independent environmental engineer reasonably acceptable to Collateral Agent to conduct such tests of the site where such non-compliance or alleged non-compliance with Legal Requirements has occurred as to such non-compliance and prepare and deliver to Collateral Agent a report as to such non-compliance setting forth the results of such tests, a proposed plan for responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Collateral Agent a supplemental report of such engineer whenever the scope of such non-compliance, or the Company's, such Guarantor's or such Subsidiary's (as applicable) response thereto, or the estimated costs thereof, shall change in any material respect. 5.4 Payment of Taxes and Claims. Each of the Company and the Guarantors shall be liable for any tax or penalties imposed on the Collateral Agent, the Trustee and the Holders as a result of the grant of the Security Interest provided for herein and each of the Company and the Guarantors agrees to indemnify and hold the Collateral Agent, the Trustee and the Holders harmless with respect to the foregoing, and to repay to Collateral Agent on demand the amount thereof, and until paid by the Company and the Guarantors such amount shall be added and deemed part of the Indenture Obligations, provided, that, nothing contained herein shall be construed to require the Company or any of the Guarantors to pay any income or franchise taxes attributable to the income of the Collateral Agent, the Trustee or the Holders from any amounts charged or paid hereunder to Collateral Agent on behalf of the Collateral Agent, the Trustee or the Holders. The foregoing indemnity shall survive the payment of the Indenture Obligations and the termination of this Agreement. 5.5 Permit Block. If information in the AVS triggers a permit or license block against the Company, any of the Guarantors or any of their respective Subsidiaries which has an adverse effect on (a) the Company's or any of the Guarantors' mining operations; (b) the Company's or any of the Guarantors' ability to make payments hereunder under the Indenture or under any of the Security Documents; or (c) the value of any of the Collateral, the Company and the Guarantors shall immediately notify Collateral Agent and promptly take and diligently pursue any and all actions which are necessary or required to remove the permit or license block, including, but not limited to, correcting any violations arising out of the operations of the -13- 14 Company, any Guarantor or any of their respective Subsidiaries and challenging the AVS ownership and control link, in accordance with the procedures set forth in 30 CFR Section 773.25. 5.6 Costs and Expenses. The Company and the Guarantors shall pay to Collateral Agent on demand all costs, reasonable expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution, delivery, recording, administration, collection, liquidation, enforcement and defense of the Indenture Obligations, the rights of the Collateral Agent in the Collateral, this Agreement, the Indenture and the other Security Documents and all other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and thereof, including: (a) all costs and expenses of filing or recording (including Uniform Commercial Code financing statement filing taxes and fees, documentary taxes, intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all insurance premiums, appraisal fees and search fees; (c) costs and expenses of preserving and protecting the Collateral; (d) costs and expenses paid or incurred in connection with obtaining payment of the Indenture Obligations, enforcing the Security Interests created by the Security Documents, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions of this Agreement, the Indenture and the other Security Documents or defending any claims made or threatened against the Collateral Agent, the Trustee or any Holder arising out of the transactions contemplated hereby and thereby (including preparations for and consultations concerning any such matters); and (e) the fees and disbursements of counsel (including legal assistants) to Collateral Agent and the Trustee in connection with any of the foregoing. 5.7 Further Assurances. At the request of Collateral Agent at any time and from time to time, the Company and the Guarantors shall, at their expense, at any time or times duly execute and deliver, or cause to be duly executed and delivered, such further agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the Security Interests and the priority thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement, the Indenture or any of the other Security Documents. Where permitted by law, if the Company or any of the Guarantors has failed to undertake such action within ten (10) days of request, the Company and the Guarantors hereby authorize Collateral Agent to execute and file one or more Uniform Commercial Code financing statements with respect to the Collateral signed on behalf and in the name of the Company and the Guarantors only by Collateral Agent. SECTION 6. EVENTS OF DEFAULT AND REMEDIES 6.1 Events of Default. The occurrence or existence of any Event of Default under the Indenture is referred to herein individually as an "Event of Default", and collectively as "Events of Default". 6.2 Remedies. Subject to Section 6.3 hereof, (a) At any time an Event of Default exists or has occurred and is continuing, Collateral Agent, on behalf of the Trustee and the Holders, shall have all rights and remedies -14- 15 provided in this Agreement, the Indenture, the other Security Documents, the Uniform Commercial Code and other applicable law, all of which rights and remedies may be exercised without notice to or consent by the Company, the Guarantors or any Obligor, except as such notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Collateral Agent hereunder, under the Indenture, under any of the other Security Documents, the Uniform Commercial Code or other applicable law, are cumulative, not exclusive and enforceable, in Collateral Agent's discretion, alternatively, successively, or concurrently on any one or more occasions, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by the Company or any of the Guarantors of this Agreement, the Indenture or any of the other Security Documents. The Trustee and the Holders may, at any time or times, proceed directly against the Company or any of the Guarantors or any Obligor to collect the Indenture Obligations without prior recourse to the Collateral. (b) Without limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, the Collateral Agent may, except to the extent otherwise expressly provided or required in the Indenture, do any one or more of the following on behalf of the Holders, all of which are authorized by the Company and the Guarantors: (i) with or without judicial process or the aid or assistance of others, enter upon any premises on or in which any of the Collateral may be located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (ii) require the Company and the Guarantors, at the Company's and the Guarantors' expense, to assemble and make available to Collateral Agent, any part or all of the Collateral at any place and time designated by Collateral Agent, (iii) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral, (iv) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other purpose, (v) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including entering into contracts with respect thereto, public or private sales at any exchange, broker's board, at any office of Collateral Agent or elsewhere) at such prices or terms as Collateral Agent may deem reasonable, for cash, upon credit or for future delivery, with Collateral Agent having the right to purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of the Company and the Guarantors, which right or equity of redemption is hereby expressly waived and released by the Company and the Guarantors. If any of the Collateral is sold or leased by Collateral Agent upon credit terms or for future delivery, the Indenture Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Collateral Agent. If notice of disposition of Collateral is required by law, five (5) days prior notice by Collateral Agent to the Company and the Guarantors designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be reasonable notice thereof and the Company and the Guarantors waive any other notice. In the event Collateral Agent institutes an action to recover any Collateral or seek recovery of any Collateral by way of prejudgment remedy, the Company and the Guarantors waive the posting of any bond which might otherwise be required. (c) Collateral Agent may apply the cash proceeds of Collateral actually received by Collateral Agent from any sale, lease, foreclosure or other disposition of the Collateral to payment of the Indenture Obligations, in whole or in part and in such order and -15- 16 manner as set forth in Article X of the Indenture, whether or not then due. The Company and the Guarantors shall remain liable to the Collateral Agent, the Trustee and the Holders for the payment of any deficiency and all costs and expenses of collection or enforcement, including attorneys' fees and legal expenses. 6.3 Application of Proceeds; Effect of Senior Security Interest. The Collateral Agent, the Trustee and each Holder by accepting a Note, (a) agrees that notwithstanding anything to the contrary contained in any agreement of the Company or any Guarantor or otherwise, as more fully set forth in the Intercreditor Agreement, the Senior Collateral Agent's rights in and to the Collateral will be first and prior to the rights of the Collateral Agent on behalf of the Holders in and to the Collateral, which rights of the Collateral Agent are subject in all respects to the terms and conditions of the Intercreditor Agreement including the rights of the Collateral Agent to take actions pursuant to Section 3 or Section 6 hereof; (b) confirms that, in accordance with the Intercreditor Agreement, any Collateral or other property of any kind which is required to be delivered to the Collateral Agent hereunder shall be deemed to have been delivered if it shall have been delivered to the Senior Collateral Agent. (c) agree that in the event the Foothill Loan Agreement is substituted, replaced or refinanced with any credit facility as permitted by the Indenture (a "Replacement Credit Facility"), the Trustee shall enter into an intercreditor agreement with the issuer of any such Replacement Credit Facility on terms which taken as a whole are not materially less favorable to the Holders than the terms of the Foothill Intercreditor Agreement. SECTION 7. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW 7.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver. (a) The validity, interpretation and enforcement of this Agreement and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the laws of the State of New York. (b) Each of the Company and the Guarantors irrevocably consents and submits to the non-exclusive jurisdiction of the Supreme Court of the State of New York in and for the County of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Agreement, the Indenture or any of the other Security Documents or in any way connected or related or incidental to the dealings of the Company, the Guarantors and the Collateral Agent in respect of this Agreement, the Indenture or the other Security Documents or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agrees that any dispute with respect to any such matters shall be heard only in the courts described above (except that Collateral Agent shall have the right to bring any action or proceeding against -16- 17 the Company and the Guarantors or their respective property in the courts of any other jurisdiction which Collateral Agent deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce the Collateral Agent's rights against the Company and the Guarantors or their property). (c) Each of the Company and the Guarantors hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth on the signature pages hereof and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Collateral Agent's option, by service upon the Company and the Guarantors in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, the Company and the Guarantors shall appear in answer to such process, failing which the Company and the Guarantors shall be deemed in default and judgment may be entered by Collateral Agent against the Company and the Guarantors for the amount of the claim and other relief requested. (d) THE COMPANY, THE GUARANTORS AND COLLATERAL AGENT HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT, OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY, THE GUARANTORS AND COLLATERAL AGENT IN RESPECT OF THIS AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE COMPANY, THE GUARANTORS AND COLLATERAL AGENT EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE COMPANY, THE GUARANTORS OR COLLATERAL AGENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY, THE GUARANTORS AND COLLATERAL AGENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 7.2 Waiver of Notices. Each of the Company and the Guarantors hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Indenture Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Indenture Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on the Company or any of the Guarantors which Collateral Agent may elect to give shall entitle the Company or any of the Guarantors to any other or further notice or demand in the same, similar or other circumstances. 7.3 Amendments and Waivers. Neither this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Collateral Agent and in accordance with the amendment provisions of the Indenture, and as to amendments, as also signed by an authorized officer of the Company and the Guarantors. Collateral Agent shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its or the -17- 18 Holders' rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Collateral Agent. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Collateral Agent of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Collateral Agent, on behalf of the Holders, would otherwise have on any future occasion, whether similar in kind or otherwise. 7.4 Waiver of Counterclaims. Each of the Company and the Guarantors waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other than compulsory counterclaims) in any action or proceeding commenced by the Collateral Agent or the Holders with respect to this Agreement, the Indenture Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 7.5 Indemnification. Each of the Company and the Guarantors shall indemnify and hold the Collateral Agent and the Trustee, and each of their respective directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, the Indenture, any other Security Documents, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the reasonable fees and expenses of counsel, unless arising from the gross negligence or willful misconduct of the Collateral Agent or the Trustee, as determined pursuant to final non-appealable judgment of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, the Company and the Guarantors shall pay the maximum portion which it is permitted to pay under applicable law to Collateral Agent on behalf of the Collateral Agent and the Trustee in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Indenture Obligations, the termination of this Agreement and the satisfaction and discharge of the Indenture. SECTION 8. MISCELLANEOUS 8.1 Termination. This Agreement and the Security Interest hereunder shall automatically terminate upon full and final payment and performance of all Indenture Obligations or release of all Collateral in accordance with the provisions of the Indenture. At such time, this Agreement shall no longer constitute a lien upon or grant any Security Interest in any of the Collateral, and the Collateral Agent shall, at the expense of the Company and the Guarantors, deliver to the Company and the Guarantors written acknowledgment thereof and cancellation of this Agreement in a form reasonably requested by the Company and the Guarantors. Without limiting the generality of the foregoing, the Security Interest hereunder shall not be terminated by the transfer of any of the Collateral hereunder from the Collateral Agent to the Company and the Guarantors, or any person designated by the Company and the Guarantors, for the purpose of ultimate sale, exchange, presentation, collection, renewal or registration of transfer or for any other purpose. -18- 19 8.2 Notices. All notices, requests and demands hereunder shall be in writing and (a) made to Collateral Agent at its address at One State Street, 10th Floor, New York, New York 10004, Attention: Corporate Finance, and to the Company and each Guarantor at their respective chief executive office set forth below, or to such other address as each party may designate by written notice to the others in accordance with this provision, and (b) deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. 8.3 Partial Invalidity. If any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. 8.4 Successors. This Agreement, the Indenture and the other Security Documents and any other document referred to herein or therein shall be binding upon the Company and the Guarantors and their respective successors and assigns and inure to the benefit of and be enforceable by Collateral Agent on behalf of the Holders and their respective successors and assigns, except that neither the Company nor any of the Guarantors may assign their rights under this Agreement, the Indenture or the other Security Documents and any other document referred to herein or therein without the prior written consent of Collateral Agent. 8.5 Entire Agreement. This Agreement, the Indenture and the other Security Documents, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern. -19- 20 IN WITNESS WHEREOF, the Company and each of the Guarantors have caused these presents to be duly executed as of the day and year first above written. THE COMPANY: ANKER COAL GROUP, INC. By: /s/ Bruce Sparks -------------------------- Title: President ----------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ THE GUARANTORS: ANKER GROUP, INC. By: /s/ Bruce Sparks -------------------------- Title: President ----------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ ANKER ENERGY CORPORATION By: /s/ Bruce Sparks -------------------------- Title: President ----------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ BRONCO MINING COMPANY, INC. By: /s/ Bruce Sparks -------------------------- Title: President ----------------------- 21 CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ ANKER POWER SERVICES, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ ANKER WEST VIRGINIA MINING COMPANY By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ JULIANA MINING COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ KING KNOB COAL CO., INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ VANTRANS, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- 22 CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ MELROSE COAL COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ MARINE COAL SALES COMPANY By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ HAWTHORNE COAL COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ UPSHUR PROPERTY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ HEATHER GLEN RESOURCES, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- 23 CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ NEW ALLEGHENY LAND HOLDING COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ PATRIOT MINING COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ VINDEX ENERGY CORPORATION By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ ANKER VIRGINIA MINING COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ---------------------- CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ SIMBA GROUP, INC. By: /s/ Bruce Sparks -------------------------- Title: President ----------------------- 24 CHIEF EXECUTIVE OFFICE: 2708 Cranberry Square ------------------------------ Morgantown, WV 26508 ------------------------------ 25 SCHEDULE A GUARANTORS
COMPANY STATE OF INCORPORATION Anker Group, Inc. Delaware Anker Energy Corporation Delaware Bronco Mining Company, Inc. West Virginia Anker Power Services, Inc. West Virginia Anker West Virginia Mining Company, Inc. West Virginia Juliana Mining Company, Inc. West Virginia King Knob Coal Co., Inc. West Virginia Vantrans, Inc. Delaware Melrose Coal Company, Inc. West Virginia Marine Coal Sales Company Delaware Hawthorne Coal Company, Inc. West Virginia Upshur Property, Inc. Delaware Heather Glen Resources, Inc. West Virginia New Allegheny Land Holding Company, Inc. West Virginia Patriot Mining Company, Inc. West Virginia Vindex Energy Corporation West Virginia Anker Virginia Mining Company, Inc. Virginia Simba Group, Inc. Delaware
26 SCHEDULE R-1 Excluded Real Property Interests 27 SCHEDULE R-2 Real Property Reference is made to the legal descriptions attached to the Mortgages. 28 SCHEDULE 4.1 Subsidiaries 29 SCHEDULE 4.2 Chief Executive Office; Collateral Locations EX-10.27 20 PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT 10.27 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT ("Pledge Agreement"), dated as of October 1, 1999, is by those entities set forth on Exhibit A hereto (each a "Pledgor" and, collectively, the "Pledgors"), each with its chief executive office at the address specified on Schedule A hereto, to and in favor of The Bank of New York, as collateral agent (in such capacity, "Collateral Agent"), for the holders of the Notes in their capacity as such ("Holders") under the Indenture referred to below, having an office at One State Street, 10th Floor, New York, New York 10004 ("Pledgee"). Unless otherwise defined herein, terms defined in the Indenture and used herein shall have the meanings given to them in the Indenture. W I T N E S S E T H: WHEREAS, pursuant to an indenture dated as of October 1, 1999, as the same may be amended, supplemented or otherwise modified from time to time (the "Indenture"), among Anker Coal Group, Inc. (the "Company"), the Guarantors signatory thereto and The Bank of New York, as trustee (the "Trustee"), the Company has provided for, among other things, the authentication and delivery of the Company's 14.25% Second Priority Senior Secured Notes due 2007 (PIK though April 1, 2000) (the "Notes", as further defined in the Indenture) up to $119,200,000 aggregate principal amount of which may be outstanding at any time except for the issuance of Secondary Notes and Optional Notes; and WHEREAS, each of the Pledgors is now the direct, legal and beneficial owner of all of the issued and outstanding shares of capital stock of those entities (each an "Issuer" and, collectively, the "Issuers") set forth opposite such Pledgor's name on Exhibit A hereto and made a part hereof (with respect to each Pledgor, the "Individual Pledged Securities", and with respect to all Pledgors, collectively, the "Pledged Securities"); and WHEREAS, in connection with a Loan and Security Agreement dated November 21, 1998 (as heretofore amended and as it may hereafter be amended, modified, supplemented, restated, replaced, renewed or refinanced, the "Loan Agreement"), the Company and certain of its subsidiaries (collectively, the "Borrowers") entered into several pledge and security agreements (as heretofore amended and as they may hereafter be amended, modified, supplemented, restated, replaced, renewed or refinanced, collectively, the "Senior Pledge Agreements") pursuant to which the Pledged Securities and the Pledged Collateral (as hereinafter defined) were pledged to Foothill Capital Corporation, as agent for the Senior Secured Lenders and as pledgee under the Senior Pledge Agreements (the "Senior Pledgee"); and WHEREAS, simultaneously herewith Anker West Virginia Mining Company, Inc., an indirect wholly owned subsidiary of the Company (the "LLC Pledgor") has entered into a Pledge and Security Agreement (the "LLC Pledge Agreement"), pursuant to which the LLC Pledgor has pledged certain membership interests and the proceeds thereof (collectively, the "Pledged 2 Collateral") as collateral security for the prompt performance, observance and indefeasible payment in full of all of the Obligations (as hereinafter defined); and WHEREAS, the Pledged Securities and the Pledged Collateral secure the payment and performance of the Borrowers' obligations under the Loan Agreement and the other agreements, documents and instruments referred to therein and executed and/or delivered in connection therewith; and WHEREAS, the Pledged Securities and the Pledged Collateral also constitute a portion of the Collateral under the Indenture, and it is a condition precedent to the issuance of the Notes under the Indenture, that the Pledgors and the LLC Pledgor shall have executed this Agreement and the LLC Pledge Agreement, respectively, and made the pledge and assignment contemplated hereby and thereby; and WHEREAS, among other things, the relative rights of the Pledgee and the Senior Pledgee with respect to the Pledged Securities and the Pledged Collateral are set forth in that certain Intercreditor Agreement dated the date hereof between the Pledgors, the LLC Pledgor, the Pledgee and the Senior Pledgee (the "Intercreditor Agreement"); and WHEREAS, the parties hereto acknowledge that the Pledgee's rights in and to the Pledged Collateral and Pledged Securities hereunder shall rank in priority after the Lien of the Senior Pledgee to the extent provided in the Intercreditor Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgors hereby agree as follows: 1. GRANT OF SECURITY INTEREST As collateral security for the prompt performance, observance and indefeasible payment in full of all of the Obligations (as hereinafter defined), each Pledgor hereby assigns, pledges, hypothecates, transfers and sets over to Pledgee, for the benefit of Pledgee and the Holders, and grants to Pledgee, for the benefit of Pledgee and the Holders to the extent of Pledgor's right, title and interest therein, a security interest in and lien upon (a) the Individual Pledged Securities, together with all cash dividends, stock dividends, interests, profits, redemptions, warrants, subscription rights, stock, securities options, substitutions, exchanges and other distributions now or hereafter distributed by the relevant Issuer or which may hereafter be delivered to the possession of such Pledgor or Pledgee with respect thereto, (b) such Pledgor's records with respect to the foregoing, and (c) the proceeds of all of the foregoing (all of the foregoing with respect to each Pledgor, the "Individual Pledged Property", and with respect to all Pledgors, collectively, the "Pledged Property"). -2- 3 2. OBLIGATIONS SECURED The security interest, lien and other interests granted to Pledgee, for the benefit of Pledgee and the Holders, pursuant to this Pledge Agreement shall secure the prompt performance and payment in full of any and all obligations, liabilities and indebtedness of every kind, nature and description owing by Pledgors to Pledgee in connection with its duties as Collateral Agent, the Trustee in connection with the Indenture, the Notes and the Security Documents and the Holders, including principal, premium, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Indenture, this Pledge Agreement, the LLC Pledge Agreement or the other Security Documents, whether now existing or hereafter arising, or after the commencement of any case with respect to Pledgors under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, (all of the foregoing being collectively referred to herein as the "Obligations"). 3. REPRESENTATIONS, WARRANTIES AND COVENANTS Each of the Pledgors hereby represents, warrants and covenants with and to Pledgee, for the benefit of Pledgee and the Holders, the following (all of such representations, warranties and covenants being continuing so long as any of the Obligations are outstanding): (a) The Individual Pledged Securities are duly authorized, validly issued, fully paid and non-assessable capital stock of the respective Issuer and constitute such Pledgor's entire interest in each such Issuer and are not registered, nor has Pledgor authorized the registration thereof, in the name of any Person or entity other than Pledgor, Pledgee or the Senior Pledgee under the Senior Pledge Agreements. (b) The Individual Pledged Property is directly, legally and beneficially owned by such Pledgor, free and clear of all claims, liens, pledges and encumbrances of any kind, nature or description, except for the pledge and security interest created hereunder and Permitted Liens. (c) The Individual Pledged Property is not subject to any restrictions relative to the transfer thereof other than pursuant to the Senior Pledge Agreements and such Pledgor has the right to transfer and hypothecate the Individual Pledged Property free and clear of any liens, encumbrances or restrictions other than the lien of the Senior Pledge Agreements. (d) The Individual Pledged Property is duly and validly pledged to Pledgee, for the benefit of Pledgee and the Holders and no consent or approval of any governmental or regulatory authority or of any securities exchange or the like, nor any consent or approval of any other third party other than the Senior Pledgee, was or is necessary to the validity and enforceability of this Pledge Agreement. -3- 4 (e) Such Pledgor authorizes Pledgee to: (i) subject to Section 5(e) below, store, deposit and safeguard the Individual Pledged Property, (ii) perform any and all other acts which Pledgee in good faith deems reasonable and/or necessary for the protection and preservation of the Individual Pledged Property or its value or the security interest therein, including, without limitation, transferring, registering or arranging for the transfer or registration of the Individual Pledged Property to or in Pledgee's own name and, after an Event of Default (as hereinafter defined) has occurred and is continuing, receiving the income therefrom as additional security for the Obligations and (iii) pay any charges or expenses which Pledgee deems necessary for the foregoing purpose, but without any obligation to do so. Any obligation of Pledgee for reasonable care for the Individual Pledged Property in Pledgee's possession shall be limited to the same degree of care which Pledgee uses for similar property pledged to Pledgee by other Persons. (f) If such Pledgor shall become entitled to receive or acquire, or shall receive any stock certificate, or option or right with respect to the stock of any Issuer (including without limitation, any certificate representing a dividend or a distribution or exchange of or in connection with reclassification of the Individual Pledged Securities) whether as an addition to, in substitution of, or in exchange for any of the Individual Pledged Property or otherwise, such Pledgor agrees, subject to Section 5(e) below, to accept same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the endorsement(s) of such Pledgor where necessary and/or appropriate powers and/or assignments duly executed to be held by Pledgee or Pledgee's agent or bailee subject to the terms hereof, as further security for the Obligations. (g) Such Pledgor shall not, subject to Section 5(e) below, without the prior consent of Pledgee directly or indirectly, sell, assign, transfer, or otherwise dispose of, or grant any option with respect to the Individual Pledged Property, nor shall such Pledgor create, incur or permit any further pledge, hypothecation, encumbrance, lien, mortgage or security interest with respect to the Individual Pledged Property other than the Senior Security Interest. (h) So long as no Event of Default has occurred and is continuing, such Pledgor shall have the right to vote and exercise all corporate rights with respect to the Individual Pledged Securities, except as expressly prohibited herein, and to receive any cash dividends payable in respect of the Individual Pledged Securities. (i) Such Pledgor shall not, subject to Section 5(e) below, without Pledgee's consent, which shall not be unreasonably withheld or delayed so long as no Event of Default has occurred and is continuing, permit an Issuer, directly or indirectly, to issue, sell, grant, assign, transfer or otherwise dispose of, any additional shares of capital stock of such Issuer or any option or warrant with respect to, or other right or security convertible into, any additional shares of capital stock of such Issuer, now or hereafter authorized, unless all such additional shares, options, warrants, rights or other such securities are made and shall remain part of the Individual Pledged Property subject to the pledge and security interest granted herein. -4- 5 (j) Such Pledgor shall pay all charges and assessments of any nature against the Individual Pledged Property or with respect thereto prior to said charges and/or assessments being delinquent, subject to any right of such Pledgor to protest any Lien (other than any such Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (i) a reserve with respect to such obligation is established on the books of such Pledgor in an amount reasonably satisfactory to Pledgee, (ii) any such protest is instituted and diligently prosecuted by such Pledgor in good faith, and (iii) Pledgee is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Pledgee's Liens in and to the Individual Pledged Property. (k) Such Pledgor shall promptly reimburse Pledgee on demand, for any reasonable charges, assessments or expenses paid or incurred by Pledgee in its reasonable discretion for the protection, preservation and maintenance of the Individual Pledged Property and the enforcement of the Holders' rights hereunder, including, without limitation, reasonable attorneys' fees and legal expenses incurred by Pledgee in seeking to protect, collect or enforce Pledgee's rights in the Individual Pledged Property or otherwise hereunder. (l) Such Pledgor shall furnish, or cause to be furnished, to Pledgee such information concerning the Issuers and the Individual Pledged Property as Pledgee may from time to time reasonably request in good faith, including, without limitation, current financial statements. (m) Pledgee may notify Issuers or the appropriate transfer agent of the Individual Pledged Securities to register the security interest and pledge granted herein and honor the rights of Pledgee with respect thereto. (n) Such Pledgor waives: (i) all rights to require Pledgee to proceed against any other Person, entity or collateral or to exercise any remedy, (ii) the defense of the statute of limitations in any action upon any of the Obligations, (iii) any right of subrogation or interest in the Obligations or Individual Pledged Property until all Obligations have been paid in full, (iv) any rights to notice of any kind or nature whatsoever, unless specifically required in this Pledge Agreement or non-waivable under any applicable law, and (v) to the extent permissible, its rights under Section 9-112 and 9-207 of the Uniform Commercial Code. Pledgor agrees that the Individual Pledged Property, other collateral, or any other guarantor or endorser may be released, substituted or added with respect to the Obligations, in whole or in part, without releasing or otherwise affecting the liability of Pledgor, the pledge and security interests granted hereunder, or this Pledge Agreement. Pledgee is entitled to all of the benefits of a secured party set forth in Section 9-207 of the New York Uniform Commercial Code. 4. EVENTS OF DEFAULT The occurrence or existence of any Event of Default under the Indenture shall be individually an "Event of Default," and collectively "Events of Default" hereunder. -5- 6 5. RIGHTS AND REMEDIES Subject to Section 5(e) below, at any time an Event of Default exists or has occurred and is continuing, in addition to all other rights and remedies of Pledgee, whether provided under this Pledge Agreement, the LLC Pledge Agreement, the Indenture, the other Security Documents, applicable law or otherwise, Pledgee shall have the following rights and remedies which may be exercised without notice to, or consent by, Pledgors except as such notice or consent is expressly provided for hereunder or required by applicable law: (a) Pledgee, at its option, shall be empowered to exercise its continuing right to instruct the Issuers (or the appropriate transfer agent of the Pledged Securities) to register any or all of the Pledged Securities in the name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in any manner Pledgee may deem expedient, any and all stock powers, assignments or other documents heretofore or hereafter executed in blank by Pledgors and delivered to Pledgee. After said instruction, and without further notice, Pledgee shall have the exclusive right to exercise all voting and corporate rights with respect to the Pledged Securities and other Pledged Property, and exercise any and all rights of conversion, redemption, exchange, subscription or any other rights, privileges, or options pertaining to any shares of the Pledged Securities or other Pledged Property as if Pledgee were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Securities and other Pledged Property upon any merger, consolidation, reorganization, recapitalization or other readjustment with respect thereto. Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee shall have the right to deposit and deliver any and all of the Pledged Securities and other Pledged Property to any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as Pledgee may determine, all without liability but subject to Pledgee's obligations under the Uniform Commercial Code, except to account for property actually received by Pledgee. However, Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options (all of which are exercisable in the sole discretion of Pledgee) and shall not be responsible for any failure to do so or delay in doing so. (b) In addition to all the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law, Pledgee shall have the right, at any time and without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Pledgors or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the extent permitted by applicable law), to proceed forthwith to collect, redeem, recover, receive, appropriate, realize, sell, or otherwise dispose of and deliver said Pledged Property or any part thereof in one or more lots at public or private sale or sales at any exchange, broker's board or at any of Pledgee's offices or elsewhere at such prices and on such terms as Pledgee may deem best in the exercise of its business judgment. The foregoing disposition(s) may be for cash or on credit or for future delivery without assumption of any credit risk, with Pledgee having the right to purchase all or any part of said Pledged Property so sold at any such sale or sales, public or private, free of any right or equity of redemption in Pledgors, which right or equity is hereby expressly waived or released by Pledgors, subject to the terms of the -6- 7 immediately succeeding sentence. The proceeds of any such collection, redemption, recovery, receipt, appropriation, realization, sale or other disposition, after deducting all costs and expenses of every kind incurred relative thereto or incidental to the care, safekeeping or otherwise of any and all Pledged Property or in any way relating to the rights of Pledgee hereunder, including reasonable attorneys' fees and legal expenses, shall be applied in accordance with the terms of the Indenture with Pledgors to be and remain liable for any deficiency, and Pledgors to receive any sums remaining after indefeasible payment in full of the Obligations. Pledgors shall be liable to Pledgee for the payment on demand of all such costs and expenses, and any reasonable attorneys' fees and legal expenses. Pledgors agree that ten (10) days prior written notice by Pledgee designating the place and time of any public sale or of the time after which any private sale or other intended disposition of any or all of the Pledged Property is to be made, is reasonable notification of such matters. (c) Each Pledgor recognizes that Pledgee may be unable to effect a public sale of all or part of the Pledged Property by reason of certain prohibitions contained in the Securities Act of 1933, as amended, as now or hereafter in effect or in applicable Blue Sky or other state securities law, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Pledged Property for their own account for investment and not with a view to the distribution or resale thereof. If at the time of any sale of the Pledged Property or any part thereof, the same shall not, for any reason whatsoever, be effectively registered (if required) under the Securities Act of 1933 (or other applicable state securities law), as then in effect, Pledgee in its sole and absolute discretion is authorized to sell such Pledged Property or such part thereof by private sale in such manner and under such circumstances as Pledgee or its counsel may deem necessary or advisable in order that such sale may legally be effected without registration. Each Pledgor agrees that private sales so made may be at prices and other terms less favorable to the seller than if such Pledged Property were sold at public sale, and that Pledgee has no obligation to delay the sale of any such Pledged Property for the period of time necessary to permit the Issuers, even if the Issuers would agree, to register such Pledged Property for public sale under such applicable securities laws. Each Pledgor agrees that any private sales made in good faith under the foregoing circumstances shall be deemed to have been in a commercially reasonable manner. (d) All of the Pledgee's rights and remedies, including, but not limited to, the foregoing and those otherwise arising under this Pledge Agreement, the LLC Pledge Agreement, the Indenture and the other Security Documents, the instruments comprising the Pledged Property, applicable law or otherwise, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as Pledgee may deem expedient, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by any of the Pledgors of this Pledge Agreement, the LLC Pledge Agreement, the Indenture or any of the other Security Documents. No failure or delay on the part of Pledgee in exercising any of its respective options, powers or rights or partial or single exercise thereof, shall constitute a waiver of such option, power or right. -7- 8 (e) The parties hereto agree that the Pledged Property has been pledged to the Senior Pledgee to secure the Senior Secured Indebtedness. Notwithstanding anything to the contrary contained in any agreement of the Pledgors or otherwise, the parties hereto acknowledge and agree that, as more fully set forth in the Intercreditor Agreement, the Senior Pledgee's rights in and to the Pledged Property will be first and prior to the rights of the Pledgee on behalf of the Holders in and to the Pledged Property, which rights of the Pledgee are subject in all respects to the terms and conditions of the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the Senior Pledgee will hold the Pledged Property for itself and, as agent, for the Pledgee. To the extent that deliveries of Pledged Property are required to be made to the Pledgee under this Pledge Agreement, the prior delivery of such Pledged Property to the Senior Pledgee to secure the Senior Secured Indebtedness shall be deemed to constitute delivery of such Pledged Property to the Pledgee hereunder. (f) The parties hereto agree that in the event the Foothill Loan Agreement is substituted, replaced, or refinanced with any credit facility as permitted by the Indenture (a "Replacement Credit Facility"), the Trustee shall enter into an intercreditor agreement with the issuer of any such Replacement Credit Facility on terms which taken as a whole are not materially less favorable to the Holders than the terms of the Foothill Intercreditor Agreement. 6. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW (a) The validity, interpretation and enforcement of this Pledge Agreement, and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the laws of the State of New York. (b) Each Pledgor irrevocably consents and submits to the non-exclusive jurisdiction of Supreme Court of the State of New York in and for the County of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Pledge Agreement or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Pledge Agreement or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agrees that any dispute with respect to any such matters shall be heard only in the courts described above (except that Pledgee shall have the right to bring any action or proceeding against Pledgors or their respective property in the courts of any other jurisdiction which Pledgee deems necessary or appropriate in order to realize on the Pledged Property or to otherwise enforce its rights against Pledgors or their respective property). (c) Each Pledgor hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Pledgee's option, by service upon such Pledgor in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, such Pledgor shall appear in answer to such process, -8- 9 failing which such Pledgor shall be deemed in default and judgment may be entered by Pledgee against such Pledgor for the amount of the claim and other relief requested. (d) EACH PLEDGOR AND PLEDGEE HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF SUCH PLEDGOR, PLEDGEE, THE TRUSTEE AND THE HOLDERS IN RESPECT OF THIS PLEDGE AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH PLEDGOR AND PLEDGEE HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT SUCH PLEDGOR OR PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) None of Pledgee, the Trustee or any of the Holders shall have any liability to Pledgors (whether in tort, contract, equity or otherwise) for losses suffered by Pledgors in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Pledge Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Pledgee, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct of Pledgee. In any such litigation, Pledgee shall be entitled to the benefit of the rebuttable presumption that Pledgee acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Pledge Agreement. 7. MISCELLANEOUS (a) Each Pledgor agrees that at any time and from time to time upon the written request of Pledgee, such Pledgor shall execute and deliver such further documents, including, but not limited to, irrevocable proxies or stock powers, in form satisfactory to counsel for Pledgee, and will take or cause to be taken such further acts as Pledgee may reasonably request in order to effect the purposes of this Pledge Agreement and perfect or continue the perfection of the security interest in the Individual Pledged Property granted hereunder to Pledgee, for the benefit of the Holders. (b) Beyond the exercise of reasonable care to assure the safe custody and preservation of the Pledged Property (whether such custody is exercised by Pledgee, or Pledgee's nominee, agent or bailee) Pledgee or Pledgee's nominee, agents or bailees shall have no duty or liability to protect or preserve any rights pertaining thereto and shall be relieved of all responsibility for the Pledged Property upon surrendering it to Pledgors or foreclosure with respect thereto. -9- 10 (c) All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by registered or certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given to the parties at the following addresses (or to such other address as any party may designate by notice in accordance with this Section): If to Pledgors: Anker Coal Group, Inc. 2708 Cranberry Square Morgantown, WV 26505 Attention: Anker Group, Inc. 2708 Cranberry Square Morgantown, WV 26505 Attention: Heather Glen Resources, Inc. 2708 Cranberry Square Morgantown, WV 26505 Attention: Vantrans, Inc. 2708 Cranberry Square Morgantown, WV 26505 Attention: Vindex Energy Corporation 2708 Cranberry Square Morgantown, WV 26505 Attention: If to Pledgee: The Bank of New York 101 Barclay Street Corporate Finance Unit - 21st Floor New York, NY 10286 Attention: Steve Giurlando -10- 11 (d) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Pledgors, LLC Pledgor, Pledgee, Trustee, Holders and Issuers pursuant to the definitions set forth in the recitals hereto, or to any other Person herein, shall include their respective successors and assigns. The words "hereof," "herein," "hereunder," "this Pledge Agreement" and words of similar import when used in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not any particular provision of this Pledge Agreement and as this Pledge Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 7(g) hereof. (e) This Pledge Agreement and any other document referred to herein shall be binding upon Pledgors and their respective successors and assigns and inure to the benefit of and be enforceable by Pledgee and its successors and assigns. (f) If any provision of this Pledge Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Pledge Agreement as a whole, but this Pledge Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. (g) Neither this Pledge Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Pledgee and in accordance with the amendment provisions of the Indenture. Pledgee shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Pledgee. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Pledgee of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Pledgee would otherwise have on any future occasion, whether similar in kind or otherwise. (h) This Pledge Agreement and the security interest and pledge hereunder shall automatically terminate upon full and final payment and performance of all Obligations or release of all Collateral in accordance with the provisions of the Indenture. At such time, the Pledgee shall reassign and redeliver to Pledgors all of the Pledged Property hereunder which has not been sold, disposed of, retained or applied by the Pledgee in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to the Pledgee, and shall be at the expense of Pledgors. At such time, this Pledge Agreement shall no longer constitute a lien upon or grant any security interest in any of the Pledged Property, and the Pledgee shall, at Pledgors' expense, deliver to Pledgors written acknowledgment thereof and cancellation of this Pledge Agreement in a form reasonably requested by Pledgors. Without limiting the generality of the foregoing, the security interest and pledge hereunder shall not be terminated by the transfer of any of the Pledged Property hereunder from the Pledgee to Pledgors, or any person designated by Pledgors, for the purpose of ultimate sale, exchange, -11- 12 presentation, collection, renewal or registration of transfer or for any other purpose. The Pledgee hereby appoints Pledgors as its attorneys-in-fact to execute and record all documents necessary to acknowledge, memorialize or effect cancellation of the security interests created hereby, effective as of the termination of this Pledge Agreement. (i) On demand of the Pledgee, each Pledgor agrees to pay or satisfactorily provide for all expenses incurred by the Pledgee under this Pledge Agreement. For the repayment of such advances the Pledgee shall have the right to use and apply any Trust Moneys held by it in its capacity as Collateral Agent under Article X of the Indenture as part of the Collateral. -12- 13 IN WITNESS WHEREOF, each of the Pledgors has executed this Pledge Agreement as of the day and year first above written. ANKER COAL GROUP, INC. By: /s/ Bruce Sparks ------------------------------------- Title: President ---------------------------------- ANKER GROUP, INC. By: /s/ Bruce Sparks ------------------------------------- Title: President ---------------------------------- VANTRANS, INC. By: /s/ B. Judd Hartman ------------------------------------- Title: Secretary ---------------------------------- HEATHER GLEN RESOURCES, INC. By: /s/ B. Judd Hartman ------------------------------------- Title: Secretary ---------------------------------- VINDEX ENERGY CORPORATION By: /s/ B. Judd Hartman ------------------------------------- Title: Secretary ---------------------------------- -13- 14 ================================================================================ EXHIBIT A TO PLEDGE AND SECURITY AGREEMENT - --------------------------------------------------------------------------------
CERTIFICATE PLEDGOR ISSUER NO. SHARES - ------------------------------------------------------------------------------------------------------------------------- Anker Coal Group, Inc. Anker Group, Inc. 16 254 23/100 2708 Cranberry Square Morgantown, WV 26505 - ------------------------------------------------------------------------------------------------------------------------- Vebe International, Inc. B3 250 (a/k/a Anker Group, Inc.) - ------------------------------------------------------------------------------------------------------------------------- Simba Group, Inc. 1 1 - ------------------------------------------------------------------------------------------------------------------------- Anker Group, Inc. Vitol-Anker Holding, Inc. 5 10 1209 Orange Street (a/k/a Anker Energy Wilmington, DE 19801 Corporation) - ------------------------------------------------------------------------------------------------------------------------- Juliana Mining Company, Inc. 6 500 - ------------------------------------------------------------------------------------------------------------------------- Patriot Mining Company, Inc. 6 100 - ------------------------------------------------------------------------------------------------------------------------- Vindex Energy Corporation 1 100 - ------------------------------------------------------------------------------------------------------------------------- Anker Virginia Mining 1 100 Company, Inc. - ------------------------------------------------------------------------------------------------------------------------- Anker West Virginia Mining 1 100 Company, Inc. - ------------------------------------------------------------------------------------------------------------------------- Anker Power Services, Inc. 1 100 - ------------------------------------------------------------------------------------------------------------------------- Bronco Mining Company, Inc. 7 100 - ------------------------------------------------------------------------------------------------------------------------- Heather Glen Resources, Inc. 1 100 - ------------------------------------------------------------------------------------------------------------------------- Melrose Coal Company, Inc. 1 100 - ------------------------------------------------------------------------------------------------------------------------- Vantrans, Inc. 5 1,000 - ------------------------------------------------------------------------------------------------------------------------- Hawthorne Coal Company, Inc. 1 100 - ------------------------------------------------------------------------------------------------------------------------- Marine Coal Sales Company 3 65 - ------------------------------------------------------------------------------------------------------------------------- Heather Glen Upshur Property, Inc. 2 1,000 Resources, Inc. HC 36, Box 31 Tallmansville, WV 26237 - ------------------------------------------------------------------------------------------------------------------------- Vantrans, Inc. King Knob Coal Co., Inc. 14 2000 2708 Cranberry Square Morgantown, WV 26505 - ------------------------------------------------------------------------------------------------------------------------- Vindex Energy New Allegheny Land Holding 2 10 Corporation Company, Inc. 2708 Cranberry Square Morgantown, WV 26505
================================================================================ -14- EX-10.28 21 PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT10.28 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT ("Pledge Agreement"), dated as of October 1, 1999, is by ANKER WEST VIRGINIA MINING COMPANY, INC., a West Virginia corporation with its chief executive office at 2708 Cranberry Square, Morgantown, West Virginia 26505 ("Pledgor"), to and in favor of The Bank of New York, as collateral agent (in such capacity, "Collateral Agent"), for the holders of the Notes in their capacity as such ("Holders") under the Indenture referred to below, having an office at One State Street, 10th Floor, New York, New York 10004 ("Pledgee"). Unless otherwise defined herein, terms defined in the Indenture and used herein shall have the meanings given to them in the Indenture. W I T N E S S E T H: WHEREAS, pursuant to an indenture dated as of October 1, 1999, as the same may be amended, supplemented or otherwise modified from time to time (the "Indenture"), among Anker Coal Group, Inc. (the "Company"), the Guarantors signatory thereto The Bank of New York, as trustee (the "Trustee"), the Company has provided for, among other things, the authentication and delivery of the Company's 14.25% Second Priority Senior Secured Notes due 2007 (PIK though April 1, 2000) (the "Notes", as further defined in the Indenture) up to $119,200,000 aggregate principal amount of which may be outstanding at any time except for the issuance of Secondary Notes and Optional Notes; and WHEREAS, Pledgor is now the direct and beneficial owner of (i) fifty (50%) percent of the issued and outstanding membership interests of The Sycamore Group, LLC, a West Virginia limited liability company ("Sycamore"), and (ii) forty-nine (49%) percent of the issued and outstanding membership interests of Summit Energy Group, LLC, a West Virginia limited liability company ("Summit," and together with Sycamore, individually and collectively, "Issuer"); and WHEREAS, in connection with a Loan and Security Agreement dated November 21, 1998 (as heretofore amended and as it may hereafter be amended, modified, supplemented, restated, replaced, renewed or refinanced, the "Loan Agreement"), the Company and certain of its subsidiaries (collectively, the "Borrowers") entered into several pledge and security agreements (as heretofore amended and as they may hereafter be amended, modified, supplemented, restated, replaced, renewed or refinanced, collectively, the "Senior Pledge Agreements") pursuant to which the Pledged Securities (as hereinafter defined) and the Pledged Collateral (as hereinafter defined) were pledged to Foothill Capital Corporation, as agent for the Senior Secured Lenders and as pledgee under the Senior Pledge Agreements (the "Senior Pledgee"); and WHEREAS, simultaneously herewith the Company and certain of its other Subsidiaries (collectively, the "Stock Pledgors") have entered into a Pledge and Security Agreement (the "Stock Pledge Agreement"), pursuant to which the Stock Pledgors have pledged certain 2 securities (the "Pledged Securities") as collateral security for the prompt performance, observance and indefeasible payment in full of all of the Obligations (as hereinafter defined); and WHEREAS, the Pledged Securities and the Pledged Collateral secure the payment and performance of the Borrowers' obligations under the Loan Agreement and the other agreements, documents and instruments referred to therein and executed and/or delivered in connection therewith; and WHEREAS, the Pledged Securities and the Pledged Collateral also constitute a portion of the Collateral under the Indenture, and it is a condition precedent to the issuance of the Notes under the Indenture, that the Pledgor and the Stock Pledgors shall have executed this Pledge Agreement and the Stock Pledge Agreement, respectively, and made the pledge and assignment contemplated hereby and thereby; and WHEREAS, among other things, the relative rights of the Pledgee and the Senior Pledgee with respect to the Pledged Securities and the Pledged Collateral are set forth in that certain Intercreditor Agreement dated the date hereof between the Stock Pledgors, the Pledgor, the Pledgee and the Senior Pledgee (the "Intercreditor Agreement"); and WHEREAS, the parties hereto acknowledge that the Pledgee's rights in and to the Pledged Securities and the Pledged Collateral hereunder shall rank in priority after the Lien of the Senior Pledgee to the extent provided in the Intercreditor Agreement. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees as follows: 1. GRANT OF SECURITY INTEREST As collateral security for the prompt performance, observance and indefeasible payment in full of all of the Obligations, Pledgor hereby assigns, pledges, hypothecates, transfers and sets over to Pledgee, for the benefit of Pledgee and the Holders, and grants to Pledgee, for the benefit of Pledgee and the Holders, to the extent of Pledgor's right, title and interest therein, a security interest in and lien upon the following (collectively, the "Pledged Collateral"): (a) the ownership interests of Pledgor in Issuer and (i) all right, title and interest in, to and under (A) the Second Amended and Restated Operating Agreement, dated October 3, 1997 and effective as of July 1, 1997, by and between Pledgor and Emily Gibson Coal Co., Inc., with respect to Sycamore (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, or replaced, the "Sycamore LLC Agreement"), and (B) the Operating Agreement of Summit Energy Group, LLC, a West Virginia Limited Liability Company, dated May 6, 1997, by and among Patriot Mining Company, Inc. ("Patriot"), Ever Systems, Inc. and Black Diamond Industries, Inc., Patriot having thereafter assigned to Pledgor all of Patriot's right, title and interest therein and thereunder (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, the "Summit LLC Agreement" and together with the Sycamore LLC Agreement, collectively, the "LLC Agreement"); including, without limitation, all of the right, title and interest (if any) of 2 3 Pledgor as a member to participate in the operation or management of Issuer and all of its ownership interests under the LLC Agreement, and (ii) all present and future rights of Pledgor to receive payment of money or other distribution of payments arising out of or in connection with its ownership interests and its rights under the LLC Agreement, now or hereafter owned by Pledgor (collectively, the "Pledged LLC Interests"); and (b) all proceeds of and rights to any of the property of Pledgor described above, including, without limitation, all causes of action, claims and warranties now or hereafter held by Pledgor in respect of any of the items listed above, and to the extent related to any property described above or such proceeds, all books, correspondence, credit files, records, invoices and other papers. 2. OBLIGATIONS SECURED The security interest, lien and other interests granted to Pledgee, for the benefit of Pledgee and the Holders, pursuant to this Pledge Agreement shall secure the prompt performance and payment in full of any and all obligations, liabilities and indebtedness of every kind, nature and description owing by Pledgor to Pledgee in connection with its duties as Collateral Agent, the Trustee in connection with the Indenture, the Notes and the Security Documents and the Holders, including principal, premium, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Indenture, this Pledge Agreement, the Stock Pledge Agreement or the other Security Documents, whether now existing or hereafter arising, or after the commencement of any case with respect to Pledgor under the United States Bankruptcy Code or any similar statute (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the commencement of such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, (all of the foregoing being collectively referred to herein as the "Obligations"). 3. REPRESENTATIONS, WARRANTIES AND COVENANTS Pledgor hereby represents, warrants and covenants with and to Pledgee, for the benefit of Pledgee and the Holders, the following (all of such representations, warranties and covenants being continuing so long as any of the Obligations are outstanding): (a) The ownership interests of Pledgor in Issuer now or hereafter owned by Pledgor, are duly authorized, validly issued, fully paid and non-assessable and constitute such Pledgor's entire interest in Issuer and Pledgor is the registered owner of all such ownership interests and Pledgor is one of the "Members" of Issuer (as such term is defined in the LLC Agreement). (b) The Pledged Collateral is directly, legally and beneficially owned by Pledgor, free and clear of all claims, liens, pledges and encumbrances of any kind, nature or description, except for the pledge and security interest created hereunder and Permitted Liens. (c) The Pledged Collateral is not subject to any restrictions relative to the transfer thereof other than any such restrictions under applicable Federal or state laws, as set forth in the 3 4 LLC Agreement or pursuant to the Senior Pledge Agreements and Pledgor has the right to transfer and hypothecate the Pledged Collateral free and clear of any liens, encumbrances or restrictions, except for the lien created by the Senior Pledge Agreements and restrictions and limitations as to transfer set forth in the LLC Agreement. (d) The Pledged Collateral is duly and validly pledged to Pledgee, for the benefit of Pledgee and the Holders, and no consent or approval of any governmental or regulatory authority or of any securities exchange or the like, nor any consent or approval of any other third party other than the Senior Pledgee, was or is necessary to the validity and enforceability of this Pledge Agreement other than as required under the LLC Agreement. (e) Pledgor authorizes Pledgee to: (i) subject to Section 6(f) below, store, deposit and safeguard the Pledged Collateral, (ii) perform any and all other acts which Pledgee in good faith deems reasonable and/or necessary for the protection and preservation of the Pledged Collateral or its value or the security interest therein, including, without limitation, transferring, registering or arranging for the transfer or registration of the Pledged Collateral to or in Pledgee's own name and, after an Event of Default (as hereinafter defined) has occurred and is continuing, receiving the income therefrom as additional security for the Obligations and (iii) pay any charges or expenses which Pledgee deems necessary for the foregoing purpose, but without any obligation to do so. Any obligation of Pledgee for reasonable care for the Pledged Collateral in Pledgee's possession shall be limited to the same degree of care which Pledgee uses for similar property pledged to Pledgee by other Persons. (f) If Pledgor shall become entitled to receive or acquire, or shall receive any certificate, or option or right with respect to any membership interest of Issuer (including without limitation, any certificate representing a dividend or a distribution or exchange of or in connection with reclassification of the Pledged LLC Interests) whether as an addition to, in substitution of, or in exchange for any of the Pledged Collateral or otherwise, Pledgor agrees, subject to Section 6(f) below, to accept same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the endorsement(s) of Pledgor where necessary and/or appropriate powers and/or assignments duly executed to be held by Pledgee or Pledgee's agent or bailee subject to the terms hereof, as further security for the Obligations. (g) Pledgor shall keep full and accurate books and records relating to the Pledged Collateral and stamp or otherwise mark such books and records in such manner as Pledgee may require in order to reflect the security interests granted by this Pledge Agreement. (h) With respect to the ownership interests in Issuer held by Pledgor, Pledgor shall execute and deliver written instructions to the Issuer in the form of EXHIBIT A-1 OR EXHIBIT A-2 hereto, as applicable to register the pledge, security interest and lien arising hereunder in such ownership interests in the registration books maintained by Issuer for such purpose and Pledgor shall promptly execute and deliver to Pledgee a written confirmation in the form of EXHIBIT B-1 OR EXHIBIT B-2 hereto, as applicable to the effect that the pledge, security interest and lien granted to Pledgee hereunder in such ownership interests has been duly registered in such registration books. 4 5 (i) Pledgor shall not, subject to Section 6(f) below, without the prior consent of Pledgee, directly or indirectly, sell, assign, transfer, or otherwise dispose of, or grant any option with respect to the Pledged Collateral, nor shall Pledgor create, incur or permit any further pledge, hypothecation, encumbrance, lien, mortgage or security interest with respect to the Pledged Collateral other than Permitted Liens. (j) So long as no Event of Default has occurred and is continuing, Pledgor shall have the right including, without limitation, with respect to any Pledged LLC Interests registered in the name of Pledgee, to vote and exercise all limited liability company rights with respect to the Pledged LLC Interests, except as expressly prohibited herein, and to receive any cash distributions payable in respect of the Pledged LLC Interests. (k) Prior to or concurrently with the execution and delivery of this Pledge Agreement, Pledgor shall (i) register the pledge hereunder of its ownership interests in Issuer for purposes of Article 8 of the Uniform Commercial Code and (ii) subject to Section 6(f) below, deliver to Pledgee any certificates representing the Pledged LLC Interests, accompanied by undated powers duly executed in blank. (l) Pledgor has delivered to Pledgee true, correct and complete copies of the LLC Agreements and the articles of organization for Issuer. There are no other agreements governing the formation, organization or terms of the membership interests with respect to Issuer. (m) Pledgor shall not permit Issuer, directly or indirectly, to (i) issue, sell, grant, assign, transfer or otherwise dispose of, any additional membership interests of such Issuer or any option or warrant with respect to, or other right or security convertible into, any additional membership interests, now or hereafter authorized, unless all such additional membership interests, options, warrants, rights or other such securities are made and shall remain part of the Pledged Collateral subject to the pledge and security interest granted herein, (ii) amend the articles of organization or LLC Agreement of Issuer to limit or restrict the permissible activities in which Issuer may engage, without the prior written consent of Pledgee, (iii) take any action to withdraw the authority of or to limit or restrict the authority of Issuer's managers or officers to deal and contract with Pledgee (if applicable) and to bind and obligate such Issuer, or (iv) pay any interim distribution in cash or other assets to any member, except as permitted in the LLC Agreement, this Pledge Agreement and the Indenture. Any distribution by Issuer other than as permitted in the LLC Agreement, this Pledge Agreement and the Indenture shall constitute a "wrongful distribution" for purposes of applicable law. (n) Pledgor shall promptly notify Pledgee in writing of the occurrence of any event specified in Issuer's articles of organization or LLC Agreement that could reasonably be expected to result in such Issuer's dissolution or liquidation. (o) Pledgor has caused or will cause the LLC Agreement of Issuers to be amended to the extent necessary: (i) to permit Pledgor to pledge and assign any and all of its membership interests in (or other ownership interest of) Issuer (including, without limitation, the Pledged Collateral) to Pledgee hereunder and (ii) to permit Pledgee or its successor or assign to be admitted to Issuer as a member thereof upon transfer of the applicable membership interests to Pledgee as provided in Section 6 hereof. Pledgor agrees to take such other action and execute 5 6 such further documents as Pledgee may reasonably request from time to time in order to give effect to the foregoing provisions of this Section 3(o). Pledgor shall not amend, modify or supplement any of the provisions of the LLC Agreement without the prior written consent of the Pledgee if any such amendment, modification or supplement would or could affect any rights of Pledgee hereunder or under any of the other Security Documents. (p) Pledgor shall pay all charges and assessments of any nature against the Pledged Collateral or with respect thereto prior to said charges and/or assessments being delinquent, subject to any right of Pledgor to protest any Lien (other than any such Lien that secures the Obligations), tax (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (i) a reserve with respect to such obligation is established on the books of Pledgor in an amount reasonably satisfactory to Pledgee, (ii) any such protest is instituted and diligently prosecuted by Pledgor in good faith, and (iii) Pledgee is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Pledgee's Liens in and to the Pledged Collateral. (q) Pledgor shall promptly reimburse Pledgee on demand for any reasonable charges, assessments or expenses paid or incurred by Pledgee in its reasonable discretion for the protection, preservation and maintenance of the Pledged Collateral and the enforcement of the Holders' rights hereunder, including, without limitation, reasonable attorneys' fees and legal expenses incurred by Pledgee in seeking to protect, collect or enforce Pledgee's rights in the Pledged Collateral or otherwise hereunder. (r) Pledgor shall furnish, or cause to be furnished, to Pledgee such information concerning the Issuer and the Pledged Collateral as Pledgee may from time to time reasonably request in good faith, including, without limitation, current financial statements. (s) Pledgee may notify Issuer or the appropriate transfer agent of the Pledged Collateral to register the security interest and pledge granted herein and honor the rights of Pledgee with respect thereto. (t) Pledgor waives: (i) all rights to require Pledgee to proceed against any other Person, entity or collateral or to exercise any remedy, (ii) the defense of the statute of limitations in any action upon any of the Obligations, (iii) any right of subrogation or interest in the Obligations or Pledged Collateral until all Obligations have been paid in full, (iv) any rights to notice of any kind or nature whatsoever, unless specifically required in this Pledge Agreement or non-waivable under any applicable law, and (v) to the extent permissible, its rights under Section 9-112 and 9-207 of the Uniform Commercial Code. Pledgor agrees that the Pledged Collateral, any other collateral, or any other guarantor or endorser may be released, substituted or added with respect to the Obligations, in whole or in part, without releasing or otherwise affecting the liability of Pledgor, the pledge and security interests granted hereunder, or this Pledge Agreement. Pledgee is entitled to all of the benefits of a secured party set forth in Section 9-207 of the New York Uniform Commercial Code. 6 7 4. NO ASSUMPTION OF LIABILITIES (a) Nothing herein shall be construed to make Pledgee liable as a member of Issuer and Pledgee by virtue of this Pledge Agreement or otherwise shall not have any of the duties, obligations or liabilities of a member of the Issuer. The parties hereto expressly agree that this Pledge Agreement shall not be construed as creating a partnership or joint venture among the Pledgee and Pledgor and/or Issuer. (b) By accepting this Pledge Agreement, Pledgee does not intend to become a member of Issuer or otherwise be deemed to be a co-venturer with respect to Pledgor or Issuer either before or after an Event of Default shall have occurred. Pledgee shall have only those powers set forth herein and shall assume none of the duties, obligations or liabilities of Pledgor or of a member of Issuer. Pledgee shall not be obligated to perform or discharge any obligation of Pledgor as a result of the pledge hereby effected. (c) The acceptance by Pledgee of this Pledge Agreement, with all of the rights, powers, privileges and authority so created, shall not at any time or in any event obligate Pledgee to appear in or defend any action or proceeding relating to the Pledged Collateral to which it is not a party, or to take any action hereunder or thereunder, or to expend any money or incur any expense or perform or discharge any obligation, duty or liability hereunder or otherwise with respect to the Pledged Collateral. 5. EVENTS OF DEFAULT The occurrence or existence of any Event of Default under the Indenture shall be individually an "Event of Default," and collectively "Events of Default" hereunder. 6. RIGHTS AND REMEDIES Subject to Section 6(f) below, at any time an Event of Default exists or has occurred and is continuing, in addition to all other rights and remedies of Pledgee, whether provided under this Pledge Agreement, the Stock Pledge Agreement, the Indenture, the other Security Documents, applicable law or otherwise, Pledgee shall have the following rights and remedies which may be exercised without notice to, or consent by, Pledgor except as such notice or consent is expressly provided for hereunder or required by applicable law: (a) Pledgee, at its option, shall be empowered to exercise its continuing right to instruct Issuer (or the appropriate transfer agent of the Pledged LLC Interests) to register any or all of the Pledged LLC Interests in the name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in any manner Pledgee may deem expedient, any and all stock powers, assignments or other documents heretofore or hereafter executed in blank by Pledgor and delivered to Pledgee. After said instruction, and without further notice, Pledgee shall have the exclusive right to exercise all voting and limited liability company rights with respect to the Pledged Collateral, and exercise any and all rights of conversion, redemption, exchange, subscription or any other rights, privileges, or options pertaining to any shares of the Pledged Collateral as if Pledgee were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Collateral upon any merger, 7 8 consolidation, reorganization, recapitalization or other readjustment with respect thereto. Upon the exercise of any such rights, privileges or options by Pledgee, Pledgee shall have the right to deposit and deliver any and all of the Pledged Collateral to any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as Pledgee may determine, all without liability but subject to Pledgee's obligations under the Uniform Commercial Code, except to account for property actually received by Pledgee. However, Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options (all of which are exercisable in the sole discretion of Pledgee) and shall not be responsible for any failure to do so or delay in doing so. (b) Upon prior written notice thereof to Issuer and Pledgor, (i) Pledgee may transfer the membership interests of Pledgor into the name of Pledgee or its successor or assign and (ii) Pledgee shall be admitted as a member of Issuer in the place of Pledgor. (c) In addition to all the rights and remedies of a secured party under the Uniform Commercial Code or other applicable law, Pledgee shall have the right, at any time and without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Pledgor or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the extent permitted by applicable law), to proceed forthwith to collect, redeem, recover, receive, appropriate, realize, sell, or otherwise dispose of and deliver said Pledged Collateral or any part thereof in one or more lots at public or private sale or sales at any exchange, broker's board or at any of Pledgee's offices or elsewhere at such prices and on such terms as Pledgee may deem best in the exercise of its business judgment. The foregoing disposition(s) may be for cash or on credit or for future delivery without assumption of any credit risk, with Pledgee having the right to purchase all or any part of said Pledged Collateral so sold at any such sale or sales, public or private, free of any right or equity of redemption in Pledgor, which right or equity is hereby expressly waived or released by Pledgor, subject to the terms of the immediately succeeding sentence. The proceeds of any such collection, redemption, recovery, receipt, appropriation, realization, sale or other disposition, after deducting all costs and expenses of every kind incurred relative thereto or incidental to the care, safekeeping or otherwise of any and all Pledged Collateral or in any way relating to the rights of Pledgee hereunder, including reasonable attorneys' fees and legal expenses, shall be applied in accordance with the terms of the Indenture with Pledgor to be and remain liable for any deficiency, and Pledgor to receive any sums remaining after indefeasible payment in full of the Obligations. Pledgor shall be liable to Pledgee for the payment on demand of all such costs and expenses, and any reasonable attorneys' fees and legal expenses. Pledgors agree that ten (10) days prior written notice by Pledgee designating the place and time of any public sale or of the time after which any private sale or other intended disposition of any or all of the Pledged Collateral is to be made, is reasonable notification of such matters. (d) Pledgor recognizes that Pledgee may be unable to effect a public sale of all or part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended, as now or hereafter in effect or in applicable Blue Sky or other state securities law, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire 8 9 such Pledged Collateral for their own account for investment and not with a view to the distribution or resale thereof. If at the time of any sale of the Pledged Collateral or any part thereof, the same shall not, for any reason whatsoever, be effectively registered (if required) under the Securities Act of 1933 (or other applicable state securities law), as then in effect, Pledgee in its sole and absolute discretion is authorized to sell such Pledged Collateral or such part thereof by private sale in such manner and under such circumstances as Pledgee or its counsel may deem necessary or advisable in order that such sale may legally be effected without registration. Each Pledgor agrees that private sales so made may be at prices and other terms less favorable to the seller than if such Pledged Collateral were sold at public sale, and that Pledgee has no obligation to delay the sale of any such Pledged Collateral for the period of time necessary to permit Issuer, even if Issuer would agree, to register such Pledged Collateral for public sale under such applicable securities laws. Pledgor agrees that any private sales made in good faith under the foregoing circumstances shall be deemed to have been in a commercially reasonable manner. (e) All of the Pledgee's rights and remedies, including, but not limited to, the foregoing and those otherwise arising under this Pledge Agreement, the Stock Pledge Agreement, the Indenture and the other Security Documents, the instruments comprising the Pledged Collateral, applicable law or otherwise, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as Pledgee may deem expedient, and shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by Pledgor of this Pledge Agreement, the Stock Pledge Agreement, the Indenture or any of the other Security Documents. No failure or delay on the part of Pledgee in exercising any of its respective options, powers or rights or partial or single exercise thereof, shall constitute a waiver of such option, power or right. (f) The parties hereto agree that the Pledged Collateral has been pledged to the Senior Pledgee to secure the Senior Secured Indebtedness. Notwithstanding anything to the contrary contained in any agreement of the Pledgor or otherwise, the parties hereto acknowledge and agree that, as more fully set forth in the Intercreditor Agreement, the Senior Pledgee's rights in and to the Pledged Collateral will be first and prior to the rights of the Pledgee on behalf of the Holders in and to the Pledged Collateral, which rights of the Pledgee are subject in all respects to the terms and conditions of the Intercreditor Agreement. Pursuant to the Intercreditor Agreement, the Senior Pledgee will hold the Pledged Collateral for itself and, as agent, for the Pledgee. To the extent that deliveries of Pledged Collateral are required to be made to the Pledgee under this Pledge Agreement, the prior delivery of such Pledged Collateral to the Senior Pledgee to secure the Senior Secured Indebtedness shall be deemed to constitute delivery of such Pledged Collateral to the Pledgee hereunder. (g) The parties hereto agree that in the event the Foothill Loan Agreement is substituted, replaced, or refinanced with any credit facility as permitted by the Indenture (a "Replacement Credit Facility"), the Trustee shall enter into an intercreditor agreement with the issuer of any such Replacement Credit Facility on terms which taken as a whole are not materially less favorable to the Holders than the terms of the Foothill Intercreditor Agreement. 9 10 7. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW (a) The validity, interpretation and enforcement of this Pledge Agreement, and any dispute arising out of the relationship between the parties hereto, whether in contract, tort, equity or otherwise, shall be governed by the laws of the State of New York. (b) Pledgor irrevocably consents and submits to the non-exclusive jurisdiction of Supreme Court of the State of New York in and for the County of New York and the United States District Court for the Southern District of New York and waives any objection based on venue or forum non conveniens with respect to any action instituted therein arising under this Pledge Agreement or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Pledge Agreement or the transactions related hereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agrees that any dispute with respect to any such matters shall be heard only in the courts described above (except that Pledgee shall have the right to bring any action or proceeding against Pledgor or its property in the courts of any other jurisdiction which Pledgee deems necessary or appropriate in order to realize on the Pledged Collateral or to otherwise enforce its rights against Pledgor or its property). (c) Pledgor hereby waives personal service of any and all process upon it and consents that all such service of process may be made by certified mail (return receipt requested) directed to its address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the U.S. mails, or, at Pledgee's option, by service upon Pledgor in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, Pledgor shall appear in answer to such process, failing which Pledgor shall be deemed in default and judgment may be entered by Pledgee against Pledgor for the amount of the claim and other relief requested. (d) PLEDGOR AND PLEDGEE HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF PLEDGOR, PLEDGEE, THE TRUSTEE AND THE HOLDERS IN RESPECT OF THIS PLEDGE AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR AND PLEDGEE HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PLEDGOR OR PLEDGEE MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) None of Pledgee, the Trustee or any of the Holders shall have any liability to Pledgor (whether in tort, contract, equity or otherwise) for losses suffered by Pledgor in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Pledge Agreement, or any act, omission or event occurring in connection 10 11 herewith, unless it is determined by a final and non-appealable judgment or court order binding on Pledgee, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct of Pledgee. In any such litigation, Pledgee shall be entitled to the benefit of the rebuttable presumption that Pledgee acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Pledge Agreement. 8. MISCELLANEOUS (a) Pledgor agrees that at any time and from time to time upon the written request of Pledgee, Pledgor shall execute and deliver such further documents, including, but not limited to, irrevocable proxies or stock powers, in form satisfactory to counsel for Pledgee, and will take or cause to be taken such further acts as Pledgee may reasonably request in order to effect the purposes of this Pledge Agreement and perfect or continue the perfection of the security interest in the Pledged Collateral granted hereunder to Pledgee, for the benefit of the Holders. (b) Beyond the exercise of reasonable care to assure the safe custody and preservation of the Pledged Collateral (whether such custody is exercised by Pledgee, or Pledgee's nominee, agent or bailee) Pledgee or Pledgee's nominee, agents or bailees shall have no duty or liability to protect or preserve any rights pertaining thereto and shall be relieved of all responsibility for the Pledged Collateral upon surrendering it to Pledgor or foreclosure with respect thereto. (c) All notices, requests and demands to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made: if delivered in person, immediately upon delivery; if by telex, telegram or facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next business day, one (1) business day after sending; and if by registered or certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given to the parties at the following addresses (or to such other address as any party may designate by notice in accordance with this Section): If to Pledgor: Anker West Virginia Mining Company, Inc. 2708 Cranberry Square Morgantown, WV 26505 Attention: President If to Pledgee: The Bank of New York 101 Barclay Street Corporate Finance Unit - 21st Floor New York, NY 10286 Attention: Steve Giurlando (d) All references to the plural herein shall also mean the singular and to the singular shall also mean the plural. All references to Pledgor, Stock Pledgors, Pledgee, Trustee, Holders 11 12 and Issuers pursuant to the definitions set forth in the recitals hereto, or to any other Person herein, shall include their respective successors and assigns. The words "hereof," "herein," "hereunder," "this Pledge Agreement" and words of similar import when used in this Pledge Agreement shall refer to this Pledge Agreement as a whole and not any particular provision of this Pledge Agreement and as this Pledge Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 8(g) hereof. (e) This Pledge Agreement and any other document referred to herein shall be binding upon Pledgor and its successors and assigns and inure to the benefit of and be enforceable by Pledgee and its successors and assigns. (f) If any provision of this Pledge Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Pledge Agreement as a whole, but this Pledge Agreement shall be construed as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be permitted by applicable law. (g) Neither this Pledge Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Pledgee and in accordance with the amendment provisions of the Indenture. Pledgee shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Pledgee. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Pledgee of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy which Pledgee would otherwise have on any future occasion, whether similar in kind or otherwise. (h) This Pledge Agreement and the security interest and pledge hereunder shall automatically terminate upon full and final payment and performance of all Obligations or release of all Collateral in accordance with the provisions of the Indenture. At such time, the Pledgee shall reassign and redeliver to Pledgor all of the Pledged Collateral hereunder which has not been sold, disposed of, retained or applied by the Pledgee in accordance with the terms hereof. Such reassignment and redelivery shall be without warranty by or recourse to the Pledgee, and shall be at the expense of Pledgor. At such time, this Pledge Agreement shall no longer constitute a lien upon or grant any security interest in any of the Pledged Collateral, and the Pledgee shall, at Pledgor's expense, deliver to Pledgor written acknowledgment thereof and cancellation of this Pledge Agreement in a form reasonably requested by Pledgor. Without limiting the generality of the foregoing, the security interest and pledge hereunder shall not be terminated by the transfer of any of the Pledged Collateral hereunder from the Pledgee to Pledgor, or any person designated by Pledgor, for the purpose of ultimate sale, exchange, presentation, collection, renewal or registration of transfer or for any other purpose. The Pledgee hereby appoints Pledgor as its attorney-in-fact to execute and record all documents necessary to acknowledge, memorialize or effect cancellation of the security interests created hereby, effective as of the termination of this Pledge Agreement. 12 13 (i) On demand of the Pledgee, Pledgor agrees to pay or satisfactorily provide for all expenses incurred by the Pledgee under this Pledge Agreement. For the repayment of such advances the Pledgee shall have the right to use and apply any Trust Moneys held by it in its capacity as Collateral Agent under Article X of the Indenture as part of the Collateral. IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of the day and year first above written. ANKER WEST VIRGINIA MINING COMPANY, INC. By: /s/ B. Judd Hartman -------------------------- Title: Secretary ----------------------- 13 14 EXHIBIT A-1 TO PLEDGE AND SECURITY AGREEMENT Instruction to Register Pledge The undersigned ("Pledgor") hereby irrevocably instructs The Sycamore Group, LLC (the "Company") to register the pledge and collateral assignment by Pledgor to and in favor of The Bank of New York, as Collateral Agent for the benefit of the holders of 14.25% Second Priority Senior Secured Notes due 2007 issued by Anker Coal Group, Inc. ("Anker Coal") pursuant to an Indenture dated as of October 1, 1999 among Anker Coal, as Issuer, certain subsidiaries of Anker Coal signatory thereto and The Bank of New York, as Trustee, as such Indenture may be amended or supplemented from time to time ("Pledgee") pursuant to the Pledge and Security Agreement, dated of even date herewith, by and between Pledgor and Pledgee (the "Pledge Agreement") of all of its right, title and interests in and to the Company as described in the Pledge Agreement. In giving this instruction, Pledgor advises the Company that no revocation or modification of the instructions contained herein shall be effective until Pledgee shall have given its prior written consent thereto. Dated: , 1999 ----------------- ANKER WEST VIRGINIA MINING COMPANY, INC. By: ------------------------------------- Title: ---------------------------------- A-1 15 EXHIBIT A-2 TO PLEDGE AND SECURITY AGREEMENT Instruction to Register Pledge The undersigned ("Pledgor") hereby irrevocably instructs Summit Energy, LLC (the "Company") to register the pledge and collateral assignment by Pledgor to and in favor The Bank of New York, as Collateral Agent for the benefit of the holders of 14.25% Second Priority Senior Secured Notes due 2007 issued by Anker Coal Group, Inc. ("Anker Coal") pursuant to an Indenture dated as of October 1, 1999 among Anker Coal, as Issuer, certain subsidiaries of Anker Coal signatory thereto and The Bank of New York, as Trustee, as such Indenture may be amended or supplemented from time to time ("Pledgee") pursuant to the Pledge and Security Agreement, dated of even date herewith, by and between Pledgor and Pledgee (the "Pledge Agreement") of all of its right, title and interests in and to the Company as described in the Pledge Agreement. In giving this instruction, Pledgor advises the Company that no revocation or modification of the instructions contained herein shall be effective until Pledgee shall have given its prior written consent thereto. Dated: , 1999 ----------------- ANKER WEST VIRGINIA MINING COMPANY, INC. By: ------------------------------------- Title: ---------------------------------- A-2 16 EXHIBIT B-1 TO PLEDGE AND SECURITY AGREEMENT Confirmation of Registration of Pledge The Sycamore Group, LLC, a West Virginia limited liability company (the "Company"), hereby confirms to The Bank of New York (the "Pledgee") as follows: (i) The pledge and collateral assignment by Anker West Virginia Mining Company, Inc. (the "Pledgor"), of all of its interests in the Company pursuant to the Pledge and Security Agreement, dated as of October 1, 1999, by and between Pledgor and Pledgee, was registered by the Company on ____________, 1999. (ii) The registered owners of all of the outstanding membership interests in the Company (the "Interests") are as follows: Owner Interest [Name] [Address] [Taxpayer ID No.] (iii) The registered pledgee of all of the Interests is: (iv) There are no liens or restrictions of the Company nor any adverse claim to which the Interests are or may be subject other than the Pledge and Security Agreement dated as of November 21, 1998 by the Pledgor, to and in favor of Foothill Capital Corporation, as Agent. Dated: THE SYCAMORE GROUP, LLC --------------------- By: ---------------------------------- Name: Title: B-1 17 EXHIBIT B-2 TO PLEDGE AND SECURITY AGREEMENT Confirmation of Registration of Pledge Summit Energy Group, LLC, a West Virginia limited liability company (the "Company"), hereby confirms to The Bank of New York (the "Pledgee") as follows: (i) The pledge and collateral assignment by Anker West Virginia Mining Company, Inc. (the "Pledgor"), of all of its interests in the Company pursuant to the Pledge and Security Agreement, dated as of October 1, 1999, by and between Pledgor and Pledgee, was registered by the Company on ____________, 1999. (ii) The registered owners of all of the outstanding membership interests in the Company (the "Interests") are as follows: Owner Interest [Name] [Address] [Taxpayer ID No.] (iii) The registered pledgee of all of the Interests is: (iv) There are no liens or restrictions of the Company nor any adverse claim to which the Interests are or may be subject other than the Pledge and Security Agreement dated as of November 21, 1998 by the Pledgor, to and in favor of Foothill Capital Corporation, as Agent. Dated: SUMMIT ENERGY GROUP, LLC ------------------ By: ------------------------------- Name: Title: B-2 EX-10.36 22 COAL SALES AGREEMENT 1 EXHIBIT 10.36 COAL SALES AGREEMENT THIS AGREEMENT ("Agreement"), entered into on October 22, 1999, by and between Anker Energy Corporation, a Delaware corporation ("Seller") and AK Steel Corporation, a Delaware corporation ("Buyer"). WITNESSETH: WHEREAS, Buyer desires to purchase from Seller 100% of Buyer's requirements for low volatile coal for its coke requirements at its Middletown, Ohio Coke Plant (the "Middletown Plant") and its Ashland, Kentucky Coke Plant (the "Ashland Plant") (the Middletown Plant and the Ashland Plant are collectively referred to as the "Plants"), and Seller desires to sell such Coal to Buyer. NOW THEREFORE, in consideration of the foregoing premise and the mutual covenants and agreements contained herein and intending to be legally bound, the parties hereto agree as follows: ARTICLE I SOURCES 1.1 COAL SOURCES The coal to be bought and sold pursuant to this Agreement ("Coal") is low volatile metallurgical grade coal (i) solely sourced from the Baylor underground coal mine near Beckley, West Virginia (the "Mine") and (ii) meeting the specifications set forth in Exhibit 1 hereto. ARTICLE II TERM 2.1 EFFECTIVE DATE This Agreement shall be effective as of October 1, 1999 and shall expire on December 31, 2001, unless earlier terminated in accordance with the express provisions of this Agreement; provided, however, deliveries of Coal for the Middletown Plant shall not begin before December 1, 1999 and, provided further, that Buyer shall only be required to purchase one trainload of Coal for the Middletown Plant in December, 1999. 2 2.2 CERTAIN TERMINATION RIGHTS OF SELLER So long as Seller or any of its affiliates does not (i) sell or otherwise transfer in the aggregate more than 12,000 tons of Coal per month from the Mine in Calendar Year 2000 to persons or entities other than Buyer; and (ii) enter into any arrangement for the sale of Coal with a person or entity other than Buyer in Calendar Year 2001 without the prior written consent of Buyer, Seller shall have the right to terminate this Agreement at any time in the event that (y) Seller determines in its sole reasonable opinion that all of the economically minable Coal has been mined and removed from the Mine; and (z) Anker West Virginia Mining Co. terminates mining operations at the Mine. ARTICLE III QUANTITY 3.1 ANNUAL QUANTITY (a) In accordance with this Agreement, Seller shall sell and deliver, and Buyer shall accept and purchase, Buyer's requirements for Coal used in the coke ovens at the Plants during the term of this Agreement. 3.2 SUBSTITUTE COAL PURCHASES (a) Except in the event of force majeure as set forth in Article IX of the Agreement, in the event the Coal supplied by Seller from the Mine, is less than that required by Buyer and Buyer must purchase substitute Coal, Seller shall reimburse Buyer the excess, if any, of the price for the substitute Coal plus applicable transportation cost paid by Buyer for such substitute Coal over the Base Price for Coal hereunder plus the cost which Buyer would have paid for transportation of Coal hereunder. Such payment shall be made by Seller upon receipt of Buyer's invoice together with satisfactory documentation of the total delivered cost of such substitute Coal. 3.3 Buyer shall provide Seller by the 15th day of the month preceding the month in which Coal is to be delivered a good faith forecast of its requirements for the month for each of the Plants. ARTICLE IV DELIVERY 4.1 POINT OF DELIVERY The point of delivery for all Coal hereunder shall be railcars at the Mine. Buyer shall be responsible for arranging for and paying for transportation of the Coal to the Plants and obtaining insurance during transit. Shipment shall be by unit trains with minimum of both seventy (70) railcars and 7,000 2 3 net tons ("Trainloads") unless otherwise specified by Buyer in writing. Seller must tender Trainload shipments to CSXT from the Mine within twenty-four (24) hours after the last empty car is placed at the Mine for loading. 4.2 TITLE AND RISK OF LOSS Title to, and risk of loss of, all Coal shall pass to Buyer upon loading into railcars. 4.3 RATE OF DELIVERIES Coal shall be delivered hereunder in shipments distributed as evenly as practical throughout each month and throughout the calendar year. Seller shall communicate to Buyer any impact to its production schedule caused by, but not limited to, break down, scheduled maintenance, labor disputes, miner's vacation and geological changes in the seam. Seller shall use reasonable efforts to adjust shipping schedules to reduce any negative impact to Buyer. 4.4 NOTICE OF SHIPMENT Seller shall FAX, on the day of shipment, the shipping date, Trainload number, car numbers and estimated total weight of shipment. This FAX will be sent to:
Middletown Shipments: Ashland Shipments: --------------------- ------------------ AK Steel Corporation AK Steel Corporation Middletown Coke Plant Ashland Coke Plant Attn: Bill Weber at Fax: 513-425-5423 Attn: Bill Weber at Fax: 513-425-5423 & Dave Chmielewski at Fax: 513-425-6262 & Dan Howell at Fax: 606-329-7947
ARTICLE V SPECIFICATIONS, QUALITY AND WEIGHTS 5.1 SPECIFICATIONS Coal delivered hereunder shall conform to the specifications in Exhibit I, on a Trainload basis except as otherwise noted. 5.2 QUALITY REMEDIES In the event shipments of less than 7,000 net tons are tendered, such shipments may be combined with the next shipment(s) from that Mine to that Plant up to a maximum of 10,000 tons. In which case such combined tonnages of Coal shall be considered a Trainload. The weighted average analysis of the combined tonnages of those shipments shall be considered the analysis for that Trainload. 3 4 (a) Buyer may reject any Trainload of Coal which fails to conform to the rejection limits as set forth in Exhibit I. Only if Seller is in compliance with Section 5.3(d), Buyer shall have twenty-four (24) hours from receipt of analysis indicating the Coal is subject to rejection to notify Seller of its intent to reject. If Seller is not in compliance with Section 5.3(d), Buyer shall have a reasonable time to notify Seller of its intent to reject. Failure by Buyer to notify Seller constitutes acceptance. Upon Buyer's rejection, title and all risk of loss of such Coal shall immediately revert back to Seller and Seller shall be responsible for all reasonable costs associated with such reject Coal. (b) In the event, on a plant by plant basis, any single specifications parameter of the Coal from three consecutive Trainloads does not meet the tolerance levels set forth in Exhibit I, but is not subject to rejection, Buyer by notice to Seller may suspend the deliveries of Coal. (c) In the event any single specification parameter of the Coal, on a plant by plant basis, in the Monthly Analysis ("Monthly Analysis" shall mean the specification obtained by taking the weighted average of all Coal in a given month) fails to conform to the tolerance levels set forth in Exhibit "I" hereto, but is not subject to rejection, and such condition persists for three consecutive months, Buyer by notice to Seller may suspend deliveries of Coal. (d) Upon receipt of notice of suspension, Seller shall use reasonable efforts to correct the condition(s) causing the Coal to deviate from such specification(s). The suspensions outlined above in 5.2(b) and 5.2(c) and 5.2(e) below shall continue until Seller provides Buyer reasonable assurances of correction of such condition(s). During the period of any suspension of deliveries pursuant to Section 5.2(b), 5.2(c) or 5.2(e), Buyer and Seller will work together in good faith to select Substitute Coal sources in accordance with Section 3.2. (e) If two consecutive shipments to the same Plant display more than 8% SHO Expansion, Buyer may suspend deliveries. 5.3 SAMPLING AND ANALYSIS (a) Seller shall cause each Trainload of Coal to be sampled by an independent laboratory mutually agreeable to Buyer and Seller in 10 car lots and in accordance with the standards of the American Society for Testing and Materials ("ASTM"), or with other methods mutually agreeable to Seller and Buyer. A composite sample of each 10 car lot shall be divided into two (2) equal parts. One part shall be retained as a referee sample, and one shall be used by Seller for quality determination. 4 5 (b) Methods and procedures for conducting tests and analyses shall be in accordance with ASTM standards, or with other methods and procedures mutually agreeable to Seller and Buyer. All such tests and analysis shall be performed by an independent laboratory mutually agreeable to Buyer and Seller. (c) Buyer, at its own risk and expense, may observe the sampling and analysis performed by or on behalf of Seller and conduct periodic inspections of equipment and facilities used in the sampling and analysis. (d) Seller shall cause each 10 car composite sample to be analyzed, with respect to moisture, ash, sulfur and volatile matter. Geiseler plastometer, alkalies, reflectance, total inerts, SHO Expansion, Arnu dilatometer and size analysis shall be performed on each Trainload of Coal delivered to Buyer, unless this frequency is modified by mutual agreement. The analysis for each Trainload with respect to moisture, ash, volatile matter and sulfur shall be obtained by calculating the weighted average of the results from the 10 car composite analyses. Seller's conclusions as to the quality of the coal with respect to moisture, ash, sulfur and volatile matter analysis shall be provided to Buyer no later than one day following the date of shipment and with respect to Geiseler plastometer, Arnu dilatometer and size analysis, shall be provided no later than four (4) days following the date of shipment and, unless a referee analysis as hereinafter provided for is performed, shall be conclusive and binding. Referee samples of sufficient quantity to run all analysis of each Trainload shall be retained for a period of 30 days following the receipt of its quality conclusions relative to such shipment to Buyer. By notice to Seller within 20 days following the receipt of Seller's conclusions, Buyer may request that such referee samples be analyzed by an independent company agreeable to Seller. In such event, the results of such referee analysis, if different from Seller's analysis by more than the applicable ASTM tolerances, shall supersede Seller's quality conclusions and shall be conclusive and binding. If the referee analysis differs from Seller's analysis by more than the applicable ASTM tolerances, Seller shall pay for the referee analysis; otherwise, the referee analysis shall be at Buyer's expense. Seller shall be responsible for all costs, including demurrage, incurred by Buyer which results from Seller's failure to provide the analysis within the time periods set forth above. (e) Seller shall fax the analysis to:
Middletown Shipments: Ashland Shipments: -------------------- ------------------ AK Steel Corporation AK Steel Corporation Middletown Coke Plant Ashland Coke Plant 1801 Crawford Street Route 23 Middletown, Ohio 45043 Ashland, Kentucky 41105 Attn: Dave Chmielewski Attn: Dan Howell FAX: 513-425-6262 FAX: 606-329-7947
5 6 5.4 WEIGHTS The weights of Coal delivered and accepted hereunder shall be determined by certified railroad weights. 5.5 QUARTERLY MEETING Buyer and Seller shall meet once per quarter or at a mutually agreed frequency to review past performance and future projections. ARTICLE VI PRICE 6.1 PRICE The Base Price for the coal shall be [*](1) per net ton delivered to the railcars at the Mine. Except as expressly set forth in this Agreement, the Base Price shall be fixed and not subject to increase or decrease during the term of the Agreement. 6.2 FREEZE PROTECTION At Buyer's request, freeze conditioning agents of a quality, type, source and quantity acceptable to the Buyer shall be applied to minimize the freezing of Coal during periods of cold weather. Buyer shall reimburse Seller for all of Seller's actual and necessary costs in applying such freeze conditioning agents upon proper documentation to Buyer. Such costs shall be competitive in the industry. Buyer will specify the date to begin and end freeze conditioning each year. ARTICLE VII ADJUSTMENTS FOR QUALITY 7.1 GENERAL The Base Price shall be adjusted to reflect the quality of Coal delivered hereunder as specified in Article VII. - ------------------------------- (1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 6 7 7.2 MOISTURE PENALTY The Base Price for any Trainload of Coal containing in excess of [*](2) moisture shall be reduced by [*](2) per ton for each [*](2) moisture in excess of [*],(2) fractions pro rata. 7.3 ASH PENALTY The Base Price for any Trainload of Coal containing in excess of [*](2) ash (dry) shall be reduced by [*](2) per ton, for each [*](2) ash in excess of [*](2) (dry), fractions pro rate. 7.4 SULFUR PENALTY The Base Price for any Trainload of Coal containing in excess of [*] (2) sulfur (dry) shall be reduced by [*](2) per ton for each [*](2) sulfur in excess of [*](2) (dry), fractions pro rata. ARTICLE VIII PAYMENT 8.1 TERMS On or before the last day of each month, Seller shall invoice Buyer for all Coal delivered during the month. Payment for Coal shall be due the 2nd day of the second month after the date of invoice; provided, however, at the request of Seller, Buyer may in its discretion pay Seller, within 10 days of its receipt of an invoice, in which case Buyer shall receive a one percent (1%) discount. All payments by Buyer shall be made by wire transfer in immediately available Federal funds to Seller's account at a designated bank in accordance with instructions given by Seller to Buyer from time to time. AK Steel purchase order number is to be referenced on all invoices. Only one invoice per month shall be submitted. 8.2 OVERPAYMENT AND UNDERPAYMENTS Any dispute in the amount of any invoice shall not permit any delay in the payment of any invoice; provided, however, if it is later determined that the amount of any such payment is an overpayment, then Seller shall promptly credit Buyer the amount of any such overpayment. - ----------------------------------- (2) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 7 8 ARTICLE IX FORCE MAJEURE 9.1 DEFINITION OF FORCE MAJEURE The term "force majeure" as used herein shall mean any event or condition which is beyond the reasonable control of and occurs without the fault or negligence of the party affected thereby, such as, but not limited to, acts of God, acts of the public enemy, insurrections, riots, strikes, labor disputes, slowdowns, labor or material shortages, fires, explosions, floods, unforeseen conditions of, accidental damage to or failure of mines, plants, equipment or facilities, unforeseen geologic conditions, depletion of the reserve of Coal from the Mine unavailability of, interruptions to or delays in transportation, embargoes, changes in or compliance with applicable laws, rules, regulations, including, without limitation to, environmental regulations, orders or decisions of legislatures, governmental agencies or courts or in the interpretation or enforcement thereof, or any other event or condition, whether of a similar or dissimilar nature to those specifically enumerated herein and whether or not foreseeable. 9.2 EFFECT OF FORCE MAJEURE If, as a result of force majeure, it becomes impossible or impracticable for either Seller or Buyer to carry out any of its obligations hereunder (other than any obligation to pay money for Coal delivered) in whole or in part, and if such party promptly gives notice to the other party of such force majeure and, as soon as practicable thereafter, of the nature and probable duration of such force majeure and of the extent of its effects on such party's performance hereunder, then such obligations shall be excused to the extent made necessary by such force majeure during its continuance. Each party shall, in the event it experiences a force majeure, undertake diligently and in good faith efforts to mitigate or eliminate the force majeure and/or its effects on performance hereunder insofar as is economically practical. Neither party shall be obligated to expend monies in order to mitigate or eliminate force majeure and/or its effects, if in such party's sole judgment, such expenditures would be economically unjustifiable. Neither party shall be obligated to settle strikes, labor disputes, differences with employees or unions or governmental claims on terms which such party considers inadvisable in order to mitigate or eliminate force majeure and/or its effects. Deliveries of Coal lost as a result of force majeure shall not be made up except by mutual consent of the parties. 9.3 ALLOCATION During any period in which mining, preparing, loading, delivering and/or selling Coal by Seller hereunder is curtailed as a result of force majeure, Seller shall cause its supplier to allocate Coal to Buyer, in a fair and reasonable manner but in no event less than Buyer's pro rata share of the production of the Mine. During any period in which transporting, accepting, unloading, reclaiming 8 9 and/or utilizing Coal delivered hereunder by Buyer at its Plants is curtailed as a result of force majeure, Buyer shall allocate purchases of Coal for the Plants among its suppliers, including Seller, in a fair and reasonable manner. Any such allocation by either party shall be subject to reasonable audit by the other party. ARTICLE X MISCELLANEOUS 10.1 WAIVERS AND REMEDIES The failure of either Seller or Buyer to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or to take advantage of any of its rights hereunder at any one time shall not be construed as a waiver of any such provisions or the relinquishment of any such rights at any future time or times, but the same shall continue in full force and effect. In no event shall either party be responsible to the other party for incidental, special or consequential damages arising out of any default in the performance of any of its covenants or obligations hereunder. 10.2 NOTICES All notices under this Agreement shall be in writing and if to Buyer, shall be sufficient in all respects if delivered in person or by facsimile and sent by registered or certified mail or by a nationally recognized overnight delivery service to its Vice President - Purchasing and Transportation at 703 Curtis Street, Middletown, Ohio 45043; Fax number for Buyer (513) 425-5562 and if to Seller, shall be sufficient in all respect if delivered in person or by facsimile and sent by registered or certified mail or by a nationally recognized overnight delivery service, addressed to its Senior Vice President of Sales, 2708 Cranberry Square, Morgantown, West Virginia 26508. Fax number for Seller - (304) 594-3695. 10.3 DEFAULT (a) Except as provided in Section 10.3(b), no default by either party to this Agreement in the performance of any of its covenants or obligations hereunder which, except for this provision would be legal basis for cancellation or termination of this Agreement by the other party, shall give or result in such a right unless and until the party committing such default shall fail to correct such default within 30 days after notice of claim of such default is given to such defaulting party by the other party. (b) In the event of Buyer's default in payment, Seller may suspend further Coal deliveries hereunder until such default has been corrected. If such default is not corrected in a timely manner, then Seller may cancel this Agreement by notice to Buyer. 9 10 10.4 ASSIGNMENT No assignment of this Agreement shall be made by Buyer or Seller without the prior written consent of the other party, which consent shall not be unreasonably withheld; provided, however that Buyer may assign to any purchaser or successor-in-interest to any of the Plants any portion of this Agreement and upon such assignment Buyer shall have no obligation to Seller for the portion of the Agreement so assigned to such purchaser or successor-in-interest. No assignment by either party shall be effective until an executed copy thereof is furnished to the other party. 10.5 CORPORATE AUTHORITY Each party represents to the other party that it has full corporate authority and the necessary approvals to enter into and perform this Agreement in accordance with its terms. 10.6 HEADINGS The headings of the Articles and Sections in this Agreement have been inserted for the convenience of reference only and shall in no way affect the interpretation of any of the terms or provisions hereof. 10.7 INTERPRETATION No inference shall be drawn in favor of or against either party based on participation in the drafting of this Agreement. 10.8 ENTIRE AGREEMENT All prior writings, communications, negotiations, representations and agreements by and between the parties hereto are superseded by or merged into this Agreement, which is the full and complete expression of all understandings between Seller and Buyer regarding the object hereof, and this Agreement may be modified only in writing signed by both parties. 10.9 CONTROLLING LAW The validity, construction and performance of this Agreement shall be determined in accordance with the internal laws of the State of Ohio applicable to agreements made and to be performed in that State. 10.10 CONFIDENTIALITY Buyer and Seller agree that the terms of this Agreement will be kept in strict confident and that neither party will disclose the same to any third party, except: 10 11 (a) to the extent necessary for the disclosing party to comply with any applicable laws, rules, regulations, statutes or ordinances necessary to the conduct of its business affairs; (b) by commission of a valid subpoena and/or order of a court of competent jurisdiction; or (c) to a subsidiary, parent or affiliated corporation of Buyer or Seller. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their duly authorized officers as of the date hereinabove set out. ATTEST: ANKER ENERGY CORPORATION By: : /s/ Richard B. Bolen ------------------------- Title: ------------------------ ATTEST: AK STEEL CORPORATION By: / s/ Illegible ----------------------- Title: ------------------------ 11 EX-10.37 23 COAL SUPPLY AGREEMENT 1 EXHIBIT 10.37 AGREEMENT FOR THE SALE AND PURCHASE OF COAL This Coal Supply Agreement (hereinafter referred to as the "Agreement") is entered into as of the ____ day of _______, ____, by Anker Energy Corporation, a corporation incorporated in Delaware, (hereinafter referred to as the "Supplier") and its affiliated mining companies, Anker West Virginia Mining Company, Inc. and Juliana Mining Company, Inc. (collectively hereinafter referred to as the "Producer") and Potomac Electric Power Company, a District of Columbia corporation (hereinafter referred to as the "Purchaser"), having its principal business address in Washington, DC. For and in consideration of the mutual covenants contained in this Agreement, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE OF COAL 1.1 - Definitions. Wherever the following terms are used in this Agreement they shall have the meaning stated below: (a) Allowance Tracking System (ATS) shall mean the system by which the Administrator of EPA issues, records and tracks allowances. (b) Analysis shall mean a test of coal quality characteristics performed in accordance with ASTM standards. (c) As-Received Basis shall have the meaning ascribed to that phrase in ASTM Specifications D3180 (1984). 1 2 (d) ASTM shall mean the American Society for Testing and Materials. (e) ASTM Standards shall mean those ASTM written specifications, standards or instructions governing procedures or tests covered by this Agreement in the most current version at the time such procedures or tests are implemented. (f) BTU shall mean a standard British Thermal Unit reflecting the calorific heating value of coal. (g) Carrier shall mean CSX Transportation. (h) Contract Year shall mean a period beginning on January 1 and ending on December 31, and each twelve (12) month period thereafter. (i) Emission Allowance shall mean an authorization under Title IV of the Clean Air Act to emit up to one ton of SO(2) during or after a specified calendar year. (j) Encumbrance shall mean any right, title, interest, lien, security interest or claim attached to or binding upon Emission Allowances (other than a claim or right asserted by EPA pursuant to its authority under Title IV of the Clean Air Act). (k) EPA shall mean the United States Environmental Protection Agency. (l) Force Majeure Event shall have the meaning ascribed to it in Article 7. 2 3 (m) Governing Analysis shall mean the analysis of samples taken in accordance with Section 2.2. (n) Heating Value shall mean the gross calorific value of coal expressed in BTU/pound. (o) Producing Facilities shall mean the coal production facilities specified in Section 1.10 of this Agreement. (p) Seller shall include both the Supplier and the Producer. The Supplier and the Producer jointly and severally agree to perform those obligations herein defined as obligations of the Seller. References herein to the parties shall be to the Purchaser as one party and the Seller as the other party. (q) Supplier's Agent shall mean African American Coal Company, Inc., incorporated in Washington, DC, and Courtney F. Foos Coal Company, Inc., a corporation incorporated in Pennsylvania. (r) Shipment shall mean a single trainload of coal, loaded at the Producing Facility having a nominal net weight of not less than 7,800 Tons. (s) Ton shall mean a short ton of 2,000 pounds (avoirdupois). (t) Transfer shall mean, in the context of an Allowance transaction, the execution by the transferor of the proper documentation to authorize the transfer of Allowances within the ATS from 3 4 the transferor's account or accounts to the Purchaser's/transferee's account or accounts and the delivery of such documentation to the Purchaser/transferee. (u) UMLER file shall mean "The Official Railway Equipment Register - Freight Connections & Freight Cars Operated By The Railroads And Private Car Companies Of North America" filed quarterly with the Canadian Transport Commission, state commissions, and the Surface Transportation Board. 1.2 - Commitment and Term. Subject to the terms and conditions of this Agreement, the Seller shall sell and the Purchaser shall purchase and accept in rail cars at the Purchaser's Chalk Point, Dickerson and/or Morgantown Generating Stations coal meeting the quality specifications set forth in Article 2. (a) The term of this Agreement shall be one (1) year, commencing on January 1, 1999 and ending at midnight December 31, 1999, unless terminated sooner, as set forth in this Agreement, or otherwise extended at the sole unilateral option of the Purchaser as set forth in Subsection (b). (b) Purchaser's Option for Additional One Year Terms. The Purchaser shall have the unilateral option, to be exercised in its sole discretion, to enter into successive one (1) year terms extending this Agreement with the Seller. If the Purchaser elects to exercise its option, it shall provide the Seller with written notice of its election on or before October 1, 1999, for Contract Year 2000 and, if applicable, on or before October 1, 2000 for Contract Year 2001. The terms and conditions of this Agreement, including but not limited to the Price provisions of Article 4, shall apply in any option year of the Agreement. If the Purchaser fails to exercise the option year(s) in writing within the time period set forth herein, the Agreement shall terminate at midnight on December 31 of 4 5 the current Contract Year. The Seller agrees to hold harmless the Purchaser and waives any and all claims for damages arising out of the Purchaser's decision to elect or not to elect to exercise the option year(s) provided hereunder. 1.3 Quantities. The Seller shall supply to the Purchaser approximately [*](1) Tons of coal during the first Contract Year (Base Quantity) and, in the event the Purchaser exercises its unilateral option as set forth in Section 1.2 (b), [*](1) Tons of coal during either of the optional 2000 or 2001 Contract Years (Base Quantity). Except as provided in (c) and (d) below, and subject to adjustment as otherwise provided in this Agreement, coal shall be sold and shipped hereunder, in accordance with the monthly tonnage requirement for the Contract Year set forth by the Purchaser in writing. The monthly tonnage requirement shall be provided to the Seller sixty (60) days prior to the commencement of the Contract Year; however, upon thirty (30) days advance notice by the Purchaser, the number of Tons of coal to be delivered in a particular month may be increased or decreased by the Purchaser by up to [*](1) Tons. The total quantity of coal to be sold and purchased hereunder shall not be less than [*](1) Tons nor more than [*](1) Tons in Contract Year 1999. The total quantity of coal to be sold and purchased hereunder shall not be less than [*](1) Tons nor more than [*](1) Tons in either of the 2000 or 2001 Contract Years, to the extent said option years are exercised by the Purchaser as defined in Section 1.2 (b), unless otherwise agreed in writing by the parties. (a) The Seller has the right to ship coal from the Sentinel, Sawmill and/or Juliana operations in fulfillment of its obligations under Article 1.3 of the Agreement, provided, however, that the Purchaser shall be advised of the origin of each Shipment at the time monthly loading schedules are - ------------------------- (1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 5 6 established in accordance with Section 1.5 and price for said coal shall be in accordance with Section 4.1. (b) Spot Market Coal Option. Purchaser shall advise the Seller of the amount of spot market coal which Seller has the option to provide during a specified period. Seller shall have the option to furnish all or a part of the spot market coal specified by the Purchaser. Seller hereby agrees to furnish all or part of said specified spot market coal, as offered as available by the Purchaser, at a [*] (2) price. Spot market coal prices and quantity will be determined from competitive proposals received in response to formal written request for proposals. The quality of coal upon which the proposals shall be solicited will be suitable for normal plant operation. Purchaser will apply its normal competitive bid and evaluation process to all bids received from suppliers from which the Purchaser would be willing to enter into an agreement, on a delivered cost ($/mmBTU) basis, for the purchase of spot market coal. The delivered cost ($/mmBTU) for the spot market coal proposals, reflecting evaluated costs associated with the coal quality parameters guaranteed, will be adjusted to a BTU equivalent dollar per ton ($/ton) value based on the Seller's BTU guarantee in Section 2.1, also reflective of evaluated costs associated with the coal quality parameters guaranteed in Section 2.1. The Seller's spot market coal price will be computed by calculating the lowest BTU equivalent delivered price ($/ton) and then subtracting the cost of transportation per ton of coal from the Seller's producing facility to the Chalk Point, Dickerson and/or Morgantown Generating Station and [*](2). Purchaser shall notify Seller of spot market coal price option ten (10) days prior to the placement of each month's spot market coal requirements and Seller shall notify Purchaser of it's intent to - ------------------------- (2) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 6 7 exercise or not exercise the spot market coal price option for all or any of the specified quantity within five (5) days of said notification. Spot tonnage purchased under this Section 1.3(b) will not be considered as Tonnage shipped under Section 1.3. All other provisions of this Agreement shall apply to any spot tonnage purchased under this Section 1.3(b). (c) In the event that the generation of electricity through use of coal at the Morgantown Generating Station is reduced or suspended for a period of three (3) days or longer for any reason, the amounts of coal to be purchased and sold hereunder shall be adjusted at the Purchaser's discretion, in the same ratio as that which the reduction or suspension bears to the Purchaser's coal use forecast for the month prior to the conditions giving rise to the reduction or suspension for the Morgantown Generating Station for the period of time that the reduction or suspension is in effect. (d) Adjustments pursuant to (c) above shall remain in effect for so long as the coal-fired generation reduction or suspension is in effect. Coal shipments excused pursuant to (c) above shall only be made up by mutual consent, at such times and in such quantities as specified by the Purchaser. 1.4 - Continuity of Supply. The Seller recognizes that the Purchaser requires a continual supply of coal in order to operate the coal-fired units at its Morgantown Generating Station, and that failure to deliver coal of the quantity and quality as provided in this Agreement will severely hamper the Purchaser in fulfilling its obligations to its customers, and that no damages paid to the Purchaser in lieu of satisfactory coal deliveries can be adequate. Therefore, if the Seller fails to ship coal of the quality and in the quantity specified by this Agreement within a scheduled month, subject to Section 7 8 2.3 - Suspension and Termination for Unsatisfactory Coal, Section 2.4 - Rejected Shipments of Coal, and Section 7.1 - Force Majeure, the Purchaser shall have the right, in addition to any other right or remedy available to the Purchaser under this Agreement, to make commercially reasonable purchases of coal of similar quality from other sources in sufficient quantity to satisfy the requirements of the Agreement. If the delivered price (per million BTU) paid by the Purchaser for such coal, (which price shall include transportation costs and other associated costs) exceeds the delivered price (per million BTU) that would have been paid under this Agreement, the Seller shall reimburse the Purchaser the excess amount paid. Except as otherwise provided in the Agreement, Seller shall furnish coal from the mines and loading points identified in Section 1.10. Seller may ship from time to time all or any part of the coals to be sold and shipped hereunder from such other mines as it or its affiliates now have or may develop, or any sources whatsoever, whether or not such coal is mined from reserves owned or controlled by Seller provided that (i) Seller shall give notice to, and receive from, Purchaser prior to scheduling and loading such Shipments on an individual basis; (ii) Seller shall furnish to Purchaser authorization from the supplier of the coal for Seller to ship such coal, (iii) such coal shall meet all quality specifications of Article 2; and, (iv) Purchaser shall have the sole option and discretion to permit or approve such Shipments on an individual basis. Nothing herein shall be construed as obligating Purchaser to accept such coal tendered by the Seller pursuant to this provision, however, such approval shall not be unreasonably withheld. Seller shall be solely responsible for the acquisition of such substitute coal and shall hold Purchaser harmless from any claim arising in connection therewith. In the event the delivered cost per ton for coal shipped from such sources, shall be greater than that which would have applied, had 8 9 the coal been shipped from the sources identified in Section 1.10, all such excess costs are to be borne by Seller. 1.5 - Monthly Schedules. The Purchaser shall provide Seller with monthly loading schedules established no later than the twentieth (20th) day of the month preceding each month in which the Purchaser intends to have the Seller load Shipments of coal. The Purchaser will use reasonable efforts to schedule Shipments evenly throughout the week and month. The Purchaser will schedule, as appropriate, the Seller to load trains of empty cars assuming seven (7) days per week operations. 1.6 - Monthly Schedules - Flexibility. It is understood by the parties that the monthly schedules are subject to change on a continuing basis and the parties agree to cooperate with each other in accommodating such changes in the monthly schedules as may be reasonably practicable and necessary due to the needs of the parties. The Purchaser may cancel or change a scheduled loading, and notice of such cancellation or change will be given as far in advance as is commercially reasonable and practical. 1.7 - Failure to Make Shipments of Coal. If the Seller fails in any month to ship the amount of coal required by Section 1.3, or Purchaser rejects coal pursuant to Section 2.4, the Purchaser may require the Seller to make up such deficiency in the following manner: the Seller shall increase the Shipments within the time period set by the Purchaser following such deficiency until such deficiency is eliminated, unless otherwise mutually agreed by the Seller and the Purchaser. If the Seller fails to correct such deficiency in the manner described above, then the Seller shall be considered in default of this Agreement. The price for such made up coal shall be the contract price in effect when the coal should have been shipped or the current contract price, which ever is less. 9 10 1.8 - Transportation. The Purchaser shall arrange and pay for the transportation of coal sold hereunder. Shipments of coal shall be made using open-top railroad cars provided by the Purchaser or the provider of transportation. (a) The Purchaser will schedule Shipments in advance of desired delivery, and will provide the Seller with appropriate tariff or contract information concerning loading procedures. Shipping notices shall be forwarded to the Purchaser by facsimile transmission within twenty four (24) hours of the Shipment. The telephone number for this facsimile transmission is (202) 872-3089. Unless otherwise notified by the Purchaser, the Seller shall tender each Shipment hereunder on a bill of lading or mine card that shows the Purchaser's rail transportation contract number. The Seller will inform the Purchaser as far in advance as possible when such Shipments cannot be loaded as scheduled, which notice shall include the reason(s) therefor. (b) The Seller shall maintain ample railcar siding space and railcar loading equipment. Shipments shall be standardized with approximately eighty (80) cars of seven thousand eight hundred (7,800) Tons minimum weight. The minimum weight for each loaded car in a Shipment will be 95% of the nominal car capacity as determined by the UMLER file. The Seller shall comply with the Carrier's reasonable instructions regarding the height and distribution of the load, weight of coal, and other matters which the Carrier may deem necessary for safe transportation. Coal shipped under the terms of this Agreement shall be loaded in unit train Shipments as identified above in twenty-four (24) consecutive hours (or less) at the Producing Facility's tipple specified in Section 1.10 and comply with all criteria specified by the Carrier for trainload rates. (c) The Seller shall reimburse the Purchaser for any increased transportation costs, including detention, resulting from the Seller's failure to comply with railroad criteria for loading individual 10 11 railcars and unit trains and shall also indemnify and hold the Purchaser harmless from any damages and costs resulting from its improper loading of railcars. 1.9 - Reserves. The Seller represents and covenants that the Producer owns or has leased under valid coal leases, sufficient reserves of coal identified in Section 1.10 necessary to meet the Seller's obligations under this Agreement and warrants that it has good title to all coal delivered hereunder. The Seller's current reserves are identified in Section 1.10. Upon reasonable request, the Seller will provide the Purchaser with detailed information concerning the operation and quality of the reserves referred to in this Article. The Seller warrants that throughout the term hereof it will not sell coal to others from the reserves described in Section 1.10 if to do so would impair or jeopardize its ability to fulfill its obligations to the Purchaser. The Seller undertakes not to claim or assert, and does hereby waive, any excuse for nonperformance of its obligations under this Agreement founded on impracticability of performance or changed market conditions. 1.10 - Producing and Loading Facilities. Except as otherwise provided herein, the Seller shall furnish coal from the reserves and loading facilities identified below: Mine Name: Sentinel Parent Company: Anker Group, Inc. Producer: Philippi Development Division Mining/Operating Company: Anker West Virginia Mining Company, Inc. (MSHA ID # 46-04168) Mine(s) Location: Philippi, West Virginia Location of Reserves (County and State): Barbour, West Virginia 11 12 Estimated Recoverable Reserves: 48 million Tons Seams: Lower Kittaning Originating Railroad: CSX Transportation Loading Point (Railroad Designation, County and State): # 78124, Barbour County, West Virginia Tipple Name: Sentinel Freight Rate District: Grafton Loading Capacity: 3,000 Tons per Hour; 7,000 to 10,000 Tons in less than four (4) hours; 150 cars per day Siding Capacity: 150 car trains Sampling Method: 2-stage automatic. Meets ASTM standards. Weighing Capability: Not at this time. Mine Name: Spruce Fork/Sawmill Parent Company: Anker Group, Inc. Producer: Spruce Fork Division Mining/Operating Company: Anker West Virginia Mining Company, Inc. (MSHA ID # 46-08622) Mine(s) Location: Buckhannon, West Virginia Location of Reserves (County and State): Upshur, West Virginia Estimated Recoverable Reserves: 30 million Tons Seams: Upper Freeport and Middle Kittanning Originating Railroad: CSX Transportation Loading Point (Railroad Designation, County and State): # 78262, Upshur County, West Virginia Tipple Name: Sawmill Run Freight Rate District: Belington Loading Capacity: 7,000 to 9,000 Ton trains in four (4) hours 12 13 Siding Capacity: 90 car trains Sampling Method: 2-stage automatic. Meets ASTM standards. Weighing Capability: Not at this time. Mine Name: Juliana Parent Company: Anker Group, Inc. Producer: Juliana Mining Company, Inc. Mining/Operating Company: Juliana (MSHA ID # 46-08288) Mine(s) Location: Cowen, West Virginia Location of Reserves (County and State): Webster, West Virginia Estimated Recoverable Reserves: 77 million Tons Seams: Middle Kittanning Originating Railroad: CSX Transportation Loading Point (Railroad Designation, County and State): # 78424, Webster, West Virginia Tipple Name: Juliana #1 Freight Rate District: Northern Gauley Loading Capacity: 7,000 Tons in six (6) hours; 90 Cars in eight (8) hours Siding Capacity: 90 car trains Sampling Method: 2-stage automatic. Meets ASTM standards. Weighing Capability: Not at this time. ARTICLE 2 QUALITY, ANALYSIS AND PRICE ADJUSTMENTS 2.1 - Specifications. The monthly weighted average of coal sold hereunder shall meet the following quality parameter guarantees on an ASTM As-Received Basis: 13 14
- ----------------------------------------------------------------------------------------------------------------------------------- THE SEL QUALITY PARAMETER ASTM STANDARD LER'S GUARANTEE - ----------------------------------------------------------------------------------------------------------------------------------- SENTINEL SAWMILL JULIANA - ----------------------------------------------------------------------------------------------------------------------------------- D3173 Moisture, Wt % D3302 [*](3) [*](3) [*](3) D5142 - ----------------------------------------------------------------------------------------------------------------------------------- Ash, Wt % D5142 [*](3) [*](3) [*](3) D3174 - ----------------------------------------------------------------------------------------------------------------------------------- Volatile, Wt % D5142 [*](3) [*](3) [*](3) D3175 [*](3) [*](3) [*](3) - ----------------------------------------------------------------------------------------------------------------------------------- Gross Heating Value D3286 [*](3) [*](3) [*](3) BTUs/LB D2015 - ----------------------------------------------------------------------------------------------------------------------------------- Sulfur, Wt % D4239 D3177 - ----------------------------------------------------------------------------------------------------------------------------------- Sulfur Dioxide [*](3) [*](3) [*](3) (SO2) #/mmBTU - ----------------------------------------------------------------------------------------------------------------------------------- Ash Softening Temperature, H=W, Degrees F, D1857 [*](3) [*](3) [*](3) Reducing - ----------------------------------------------------------------------------------------------------------------------------------- Grindability, HGI D409 [*](3) [*](3) [*](3) - ----------------------------------------------------------------------------------------------------------------------------------- Size, Inches D4749 [*](3) [*](3) [*](3) - -----------------------------------------------------------------------------------------------------------------------------------
All coal delivered hereunder shall be free from foreign matter including wood, tramp metal, magnetic material and mine debris. No oil or rock or other adulterant may be added to increase or decrease the natural heat value of the coal. The Seller shall not load coal for the Purchaser's account into any railcars containing foreign material including, but not limited to, coke, iron ore pellets, ballast, etc. - ------------------------- (3) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission 14 15 Coal shall be loaded to provide a consistent quality throughout the Shipment with no layer loading. Each Shipment of coal shall have an "as-loaded" analysis, which shall be provided to the Purchaser by facsimile transmission within twenty four (24) hours of the loading of the Shipment. The telephone number for this facsimile transmission is (202) 872-3089. Such analysis shall include, but not be limited to, a proximate analysis or tests for all of the following coal quality characteristics: moisture, ash, sulfur, volatile matter, and heating value. In addition, at the direction of the Purchaser, analysis of fusion temperature of ash and Hardgrove grindability index may be required. The Seller's sampling and laboratory analysis must be performed in accordance with ASTM standards. 2.2 - Quality Analysis. The Seller shall mechanically sample each Shipment during the loading process in accordance with the most current ASTM standards. If mechanical sampling cannot be performed due to equipment unavailability, the Seller shall collect manual samples in accordance with current ASTM standards. All sampling costs shall be borne by the Seller. The Purchaser will have the right to reject any Shipment which the Seller has failed to sample in its entirety or has sampled in a manner not consistent with the above procedures. The Purchaser will have the right to have a representative present to observe the sampling process. Any Shipment that has not been sampled, or for which any analytical data are otherwise unavailable, shall be presumed to be of a quality represented by the weighted averages of the analytical data for the current month under this Agreement which were sampled in accordance with this Section 2.2, but only for such characteristics for which actual analytical data are not available for such Shipment. 15 16 Each sample taken shall be divided into three (3) splits and placed in suitable airtight containers. Two of the splits shall be made available to the Purchaser or forwarded to the Purchaser's agent in accordance with the Purchaser's instructions within twenty four (24) hours on completion of loading. Any analysis of a split must be conducted in accordance with ASTM standards. One split will be analyzed by the Purchaser or Purchaser's Agent at its expense and shall be considered the Governing Analysis. The Purchaser will endeavor to provide the Seller with a copy of the Governing Analysis within two (2) business days of receiving a split for analysis. The second split shall be retained by the Seller and the third split shall be retained by the Purchaser for a period of thirty (30) days after the sample is taken. If the Seller analyzes the second split in accordance with ASTM standards and its analysis differs from the Purchaser's analysis in an amount which is above the then current ASTM repeatability tolerance, the Seller reserves the right to request an analysis of the third split, in which case the Purchaser will forward the third split to an independent commercial testing laboratory not used for analysis of either the Seller's or the Purchaser's splits. Unless the Seller so requests an analysis of the third split, the results of the Purchaser's analysis shall be final and shall govern. If the Seller does request such an analysis, the results obtained from the analysis of the third party independent laboratory shall be final and govern, and an appropriate adjustment based on such results shall be made in the price paid and/or the number of Emission Allowances to be transferred, as appropriate, for the coal sampled. The cost of such analysis shall be borne by the Purchaser if the results differ from the Purchaser's original analysis in an amount which is above the repeatability tolerance designated by the current ASTM standards; otherwise, such cost shall be borne by the Seller. The Seller shall have a critical inspection of the mechanical sampling systems performed on an annual basis by an independent testing laboratory and have a copy of the critical inspection 16 17 results forwarded to the Purchaser. Purchaser shall reserve the right to witness said critical inspection. 2.3 - Suspension and Termination for Unsatisfactory Coal The Purchaser may, upon written notice to the Seller, immediately suspend further Shipments should the Governing Analysis of any Shipment of coal indicate a failure to meet one or more of the quality parameters set forth in Section 2.1 for volatile, ash softening temperature, grindability and size or the following: (1) Moisture Content: [*](4) (2) Ash Content [*](4) (3) BTU Content: [*](4) (4) Sulfur Dioxide Content: [*](4) In the event of such suspension, the Purchaser, at its sole discretion, shall decide whether to reduce the Base Quantity for the current Contract Year by the amount of coal so suspended or to require the Seller to make up the suspended tonnage at a later date. The Seller shall, within ten (10) days of the date Shipments are suspended, provide written assurance to the Purchaser that conditions causing deviation from such quality characteristics have been corrected and that coal shipped thereafter shall conform to the quality parameters provided in Section 2.1. If no such written assurance by Seller is received within ten (10) days, or if coal shipped after such assurance fails to meet one or more of the guaranteed quality parameters provided for in Section 2.1, then the Purchaser may deem the Seller in default of this Agreement. - ------------------------- (4) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 17 18 2.4 - Rejected Shipments of Coal. Any Shipment of coal which indicates one or more of the following shall be deemed rejectable under this Agreement: (1) Moisture Content: [*](5) (2) Ash Content: [*](5) (3) Volatile Matter Content: [*](5) (4) BTU Content: [*](5) (5) Sulfur Dioxide Content: [*](5) (6) Ash Fusion Temperature Softening, H=W, Reducing ATM.: [*](5) (a) When the Governing Analysis indicates that the coal qualifies for rejection under this Article, the Purchaser may elect to reject such Shipment. If the Purchaser so elects, the Purchaser will promptly notify the Seller and the Seller shall promptly dispose of the rejected coal in such Shipment at the Seller's expense. Such Shipment of coal shall be deemed not to have been delivered for any purpose under this Agreement, and the Seller shall reimburse the Purchaser for any freight charges incurred by the Purchaser with respect to such Shipment. In the event of such rejection, the Purchaser, at its sole discretion, shall decide whether to reduce the Base Quantity for the current Contract Year by the amount of coal so rejected or to require the Seller to make up the rejected tonnage at a later date in accordance with Section 2.3. - ------------------------- (5) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 18 19 (b) When the Governing Analysis indicates that coal has been received which qualifies for rejection under this Article, the parties recognize that the Seller's violation of this Article is likely to result in losses to the Purchaser that may be difficult to quantify or to remedy adequately. Accordingly, as liquidated damages, the parties agree that the delivered price (including transportation) to be paid for such coal will be reduced, after adjustments as set forth in Section 2.5, by [*] (6) % in the event such coal is rejected due to sulfur dioxide and [*] (6) % in the event such coal is rejected due to BTU, ash, moisture, volatile matter and/or ash fusion. Premiums will not be calculated for any quality parameter on any Shipment deemed to be rejectable. 2.5 - Price Adjustments. The price as determined in accordance with Article 4 shall be adjusted, based on the Governing Analysis, as follows: (a) Heating Value (BTU). When the monthly weighted average heating value of the coal Shipments made during a Calendar Month, as measured in accordance with Section 2.2 after adjustments provided for in Section 2.5(c) is greater or less than the BTU/Lb guaranteed in Section 2.1, the price shall be adjusted by the ratio of the monthly weighted average heating value to the guaranteed heating value in BTU/Lb. When the monthly weighted average heating value exceeds the guaranteed heating value, the ratio shall be applied to the Base Price as adjusted per Article 4. When the monthly weighted average heating value is lower than the guaranteed heating value, the ratio shall be applied to the sum of the Base Price as adjusted per Section 4.2 plus the transportation. See Annex A for examples of BTU adjustments. - ------------------------- (6) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 19 20 (b) Ash. When the monthly weighted average ash content of the coal Shipments made during a Calendar Month, as measured in accordance with Section 2.2 is more than [*](7) % higher than the ash content guaranteed in Section 2.1, an adjustment shall be made. This adjustment shall be assessed at $ [*](7) per ton for each $ [*](7), or pro rata portion thereof, by which the monthly weighted average ash content of that coal is above the percent ash content guaranteed in Section 2.1. See Annex A for examples of ash content adjustments. (c) Moisture. When the monthly weighted average moisture content of the coal Shipments made during a Calendar Month, as measured in accordance with Section 2.2, is [*](7) % or more greater than the moisture content guaranteed in Section 2.1, the monthly weighted average heating value of the coal shall be adjusted. This adjustment will consist of a subtraction of [*](7) equivalent BTU/Lb. for each [*](7) %, or any fractional portion thereof, by which the monthly weighted average moisture content of that coal is determined to be above the moisture content guaranteed in Section 2.1. See Annex A for a moisture adjustment example. (d) Sulfur Dioxide (SO(2)). When the monthly weighted average of the sulfur dioxide (SO(2)) content of the coal Shipments made during a Calendar Month, as measured in accordance with Section 2.2, exceeds the sulfur dioxide content guaranteed in Section 2.1, an adjustment shall be made. This adjustment shall be assessed for each ton (SO(2)), by which the monthly weighted average sulfur dioxide (SO(2)) content of the coal is determined to be above the sulfur dioxide (SO(2)) content guaranteed in Section 2.1. The Seller shall pay the sulfur dioxide (SO(2)) adjustment as assessed to the Purchaser in equivalent corresponding Emission Allowances. See Annex A for examples of sulfur dioxide (SO(2)) adjustment. - ------------------------- (7) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 20 21 When the monthly weighted average of the sulfur dioxide (SO(2)) content of the coal Shipments made during a Calendar Month, as measured in accordance with Section 2.2, is below the sulfur dioxide (SO(2)) content guaranteed in Section 2.1, an adjustment will be made. This adjustment will be assessed for each ton by which the monthly weighted average sulfur dioxide (SO(2)) content of the coal is below the sulfur dioxide (SO(2)) content guaranteed in Section 2.1. This adjustment shall be assessed in accordance with Annex A. The price of one (1) Emission Allowance will be determined by the monthly price of one (1) Emission Allowance as posted by the Cantor Fitzgerald Market Price Index for the month in which the coal Shipments were made. See Annex A for examples of sulfur dioxide (SO(2)) adjustment. 2.6 - Emission Allowance Transactions. (a) [*](8). (b) [*](8). (c) Seller warrants that all Emission Allowances provided to Purchaser under this Agreement shall be free and clear of any and all Encumbrances. Seller shall indemnify and hold Purchaser harmless from any loss or liability, including reasonable attorneys' fees, resulting from any Encumbrance upon any Emission Allowances provided pursuant to this Agreement except to the extent that such Encumbrance arises from the actions of or obligations assumed by Purchaser. - ------------------------- (8) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 21 22 (d) The Emission Allowances must be current calendar year vintage or earlier and are due to the Purchaser within thirty (30) calendar days of the penalty notification, with the exception of those Emission Allowances associated with December Shipments. Emission Allowances for December Shipments are due Purchaser within fifteen (15) calendar days of the penalty notification, and, in no event, no later than January 31 of the following calendar year. The Seller must include on the EPA Allowance Transfer form 7610-6 the following: STEP 1: Complete Transferor data STEP 2: Complete Transferee data ATS Account # 999900000161 Authorized Account Representative (AAR) ID # 000053 AAR Phone Number (202)872-2273 AAR Fax Number (202)872-2142 STEP 3: Sign Transferor block STEP 4: Mark block if applicable STEP 5: Enter Emission Allowance Serial Numbers and Total Number of Allowances The Seller must include a cover memo stating: (1) the Seller's name; (2) the Purchaser's Purchase Order Number; and, (3) the Purchaser's Penalty Reference Number. The Seller shall send the completed cover memo and EPA form to: Potomac Electric Power Company Attention: Environmental Consultant 1900 Pennsylvania Avenue, N.W., Room 705 Washington, D.C. 200968-0001. (e) If Seller fails to provide the Purchaser with any Emission Allowances required under this Agreement within thirty (30) days after receipt from the Purchaser of the results of the Shipment's Governing Analysis pursuant to Section 2.2 and all data necessary to make the Emission Allowance calculations, or if EPA notifies Purchaser that some or all of the Emission Allowances purported to be transferred are unavailable for transfer and that the transfer therefore cannot be recorded by EPA within the ATS either in whole or in part, Purchaser shall have the right, in addition to any other remedies available at law or in equity, to acquire Emission Allowances in the quantity and having 22 23 the compliance use dates of the Emission Allowances that Seller failed to have transferred or with respect to which the transfer could not be recorded. Purchaser may, at its option, (1) deduct all costs of acquiring such replacement Allowances (including reasonable brokerage and attorneys' fees) from any amounts Purchaser would otherwise be obligated to pay to Seller for coal received under this Agreement or (2) demand and receive immediate reimbursement in cash from Seller of all costs of acquiring such replacement Allowances (including reasonable brokerage and attorneys' fees). (f) [*](9). 2.7 - Freeze Conditioning Treatment of Coal. Seller shall provide, at no additional cost, freeze conditioning treatment of all coal Shipments under this Agreement when the temperature at the loading tipple at the time of loading is fourteen degrees F (14(Degree) F) or less between the following periods: January 1, 1999 through March 15, 1999; December 15, 1999 through March 15, 2000; December 15, 2000 through March 15, 2001; December 15 through 31, 2001. Seller shall provide freeze conditioning treatments of coal Shipments under this Agreement as requested by Purchaser when the temperature at the loading tipple at the time of loading is fifteen degrees F (15(Degree) F) or greater during the above specified periods and Purchaser shall be invoiced at the Seller's cost, to be identified prior to commencement of freeze conditioning treatments. The conditioning product shall meet approval requirements of the Carrier and be acceptable to Purchaser. - ------------------------- (9) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 23 24 The product shall be applied as a spray at the manufacturer's recommended concentration as the coal is loaded, with uniform distribution throughout the Shipment. A minimum of two (2) pints of solution per ton of coal shall be applied. ARTICLE 3 QUANTITY AND WEIGHING 3.1 - Quantity. The coal shipped hereunder shall be weighed by the Carrier. (a) All scales and measuring devices are subject to inspection by either party (at its expense) or its designated agent and shall meet the standards set by the National Bureau of Standards Handbook 44 (or its successor publication) and the AAR Scale Handbook. Should either party, at any time, question the accuracy of the weights thus determined, such party shall so advise the other party and may request a demonstration of the accuracy of the scales. (b) In the event that the weighing and measuring devices specified above are found to be in error by 1.00% or more, an equitable adjustment in price and settlement shall be made promptly. In this event, the governing weights will be determined by the average of the actual weights per car of the five (5) most recent accurately weighed trainload Shipments from the origin of the Shipment in question, which were equal to or greater than the minimum trainload weight, as identified in Section 1.8 (b), multiplied by the number of cars comprising the trainload Shipment in question, or as may be otherwise mutually agreed by the parties. Seller agrees to maintain a complete and accurate record of weights on all coal loaded at the tipple under consideration under this Agreement and, upon reasonable notice, to make available to Purchaser or its Agents during normal business hours all books, documents, and records sufficient to determine such weights. Unless the Seller and the 24 25 Purchaser agree as to a proper correction factor and in the absence of definite information as to when the error began, the adjustment shall be made on the assumption that the error existed for one-half the time between the test pursuant to which error was found and the next preceding test. (c) If the Purchaser and the Seller should disagree as to the proper method of inspection, test, calibration or adjustment of their weighing or measuring device, the manufacturer of that device shall be consulted and its recommendation with respect thereto shall be accepted as final. ARTICLE 4 PRICE 4.1 - Base Price. The Base Price pursuant to this Agreement, per net Ton of coal in rail cars at the Purchaser's generating facility, without adjustment for quality and exclusive of transportation, shall be as follows:
- ------------------------------------------------------------------------------------------------------------------------- PERIOD MINE PRICE PER TON* (UNADJUSTED FOR QUALITY) - ------------------------------------------------------------------------------------------------------------------------- [*](10) Sentinel [*](10) [*](10) Sawmill [*](10) [*](10) Juliana [*](10) - ------------------------------------------------------------------------------------------------------------------------- [*](10) Sentinel [*](10) [*](10) Sawmill [*](10) [*](10) Juliana [*](10) - ------------------------------------------------------------------------------------------------------------------------- [*](10) Sentinel [*](10) [*](10) Sawmill [*](10) [*](10) Juliana [*](10) - -------------------------------------------------------------------------------------------------------------------------
- - The cost of compliance with Laws (taxes, etc.) shall be adjusted up or down for all necessary costs incurred but the Seller to comply with all federal and state statutes or any other governmental imposition enacted after March 1, 1998 which apply to the coal industry in general as it relates to this Agreement, and are approximately equal in cost to all such producers and which cause the Seller's or Producer's costs for producing and delivering coal to the Purchaser under this Agreement to increase or decrease. If there are changes, the Seller shall compute the cost per Ton of complying with such changes and the amount so determined shall be reflected in the Purchase Price. - ------------------------- (10) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. 25 26 ARTICLE 5 PAYMENTS AND RECORDS 5.1 - Payments. The Purchaser shall prepare invoices for delivered coal. Payment will be made by the Purchaser for coal shipped and unloaded on a per Shipment basis under this Agreement within thirty (30) days from date of receipt at the generating station. If disputes arise, the Purchaser will pay the undisputed portion of any invoice when due and, upon resolution of the dispute, promptly pay any of the disputed portion mutually agreed by the Seller and the Purchaser to be due. (a) Except as provided for in Section 1.7, invoices will be prepared by the Purchaser on the basis of the price in effect on the date when the coal was shipped using coal weights as determined in accordance with Article 3. (b) The Purchaser may deduct from the amount due Seller hereunder, any amount owed to Purchaser for excess transportation or other coal procurement costs incurred by Purchaser pursuant to Section 1.4 or any amount of increased transportation costs to be reimbursed to Purchaser under Section 1.8(c). 5.2 - Records. For recording purposes, determination of quantity, quality, and price, unless otherwise agreed, shall be based on the coal shipped within each calendar month to Purchaser's Generating Stations. A calendar month shall begin at 12:00 midnight Eastern Time on the last day of the preceding month and end at 12:00 midnight Eastern Time on the last day of the current month. The Seller shall maintain, during the term of this Agreement, for the length of time required by such regulatory agencies as may have jurisdiction, books, accounting records, documents, and 26 27 other evidence pertaining to (i) its obligations under this Agreement, including without limitation, information relating to the Producing Facilities, and (ii) all amounts charged under this Agreement. Upon the written request of the Purchaser, the Seller shall make available such records at its office and/or other facilities at any reasonable time or times for inspection by the Purchaser or for inspection or audit by the Purchaser's authorized representatives. ARTICLE 6 CONFIDENTIALITY The parties shall not disclose the terms of this Agreement, including, but not limited to, the Base Price, or any confidential information of the other party obtained as a result of this Agreement (collectively, "Confidential Information") to a third party except: (i) as required by any federal or state governmental agency; (ii) as required by court order provided that the party subject to the court order has notified the other party of such order prior to disclosing the Confidential Information; (iii) to a parent, subsidiary or other affiliated company; (iv) to an investment or financial advisor or an auditing firm for proper public financial reporting and/or accounting of a party provided that such investment or financial advisor or auditing firm agrees to be bound by these confidentiality provisions; or (v) to a prospective transferee of all or part of the party's business, properties or assets provided that the prospective transferee agrees to be bound by these confidentiality provisions. The obligations of the party receiving the other party's Confidential Information shall also include, but not be limited to, using the Confidential Information exclusively in connection with performing its obligations under this Agreement and not any other purposes, taking all necessary actions and precautions to prevent the disclosure, use, or copying of Confidential Information in any manner contrary to the terms of this Agreement, and revealing the Confidential Information only to those employees, representatives and Agents who need to know the Confidential Information in order to assist in the performance of the obligations of this Agreement and who have agreed to comply with the confidentiality obligations of this Agreement. The receiving party is responsible for any breach of this Agreement by its representatives. 27 28 6.1 - Right to Equitable Relief. Each party acknowledges the value of the Confidential Information to the other party and the inadequacy of money or damages in the event of breach or threatened breach and agrees that, in addition to any other remedies, rights and relief, the other shall be entitled to obtain an injunction against a breach of these confidentiality obligations from any court of competent jurisdiction immediately upon request, without being required to post a bond or prove that damages are inadequate. ARTICLE 7 LIMITATIONS 7.1 - Audit and Review. The Purchaser may elect at any time during the term of this Agreement, as defined in Section 1.2, to perform a financial/management review to ascertain the Seller's continued ability to fulfill its obligations under this Agreement. If the Purchaser elects hereunder to perform said financial/management review, the financial/management review of the Seller shall be made by a competent and disinterested third-party, unaffiliated with either the Seller or the Purchaser. Such party shall be selected by the Purchaser, subject to Seller's approval, and shall agree in writing to keep confidential all data supplied by the Seller and to refrain from using said data for any purpose other than the review hereunder. The cost of the reviewing party or shall be borne by the Purchaser. 7.2 - Force Majeure. "Force Majeure" as used herein shall mean a cause beyond the control of the Seller or the Purchaser, as the case may be, which wholly or partially prevents the mining, loading or delivery of the coal from the Seller's mine, or the receiving, transporting or delivering of the coal by the railroads, or the acceptance, unloading, storing or burning of the coal by the 28 29 Purchaser at its destination. Examples of Force Majeure, but only as beyond the control of the Seller or the Purchaser, as the case may be, are included but are not limited to the following: Acts of God; acts of the public enemy; insurrections; riots; strikes; labor disputes; shortage of supplies; fires; explosions; floods; breakdowns of or damage to plants, mines, equipment or facilities; unusual loss of electric load; unanticipated departure from the Purchaser's forecast of its generation of electricity on a plant or system wide basis; interruptions to or contingencies of transportation; embargoes; orders or acts of civil authorities (including, without limitation, a city or county ordinance or regulation, regulation or order of local, state or Federal agencies, an act of state legislature, or an act of the United States Congress) or military authority. If because of Force Majeure either the Purchaser or the Seller is unable to carry out its obligation under this Agreement, and if such party promptly gives the other party hereto written notice of such Force Majeure, then the obligations of the party giving such notice and the corresponding obligations of the other party shall be suspended to the extent made necessary by and during the continuance of such Force Majeure. If during the term of this Agreement, any legal restrictions are imposed which restrict the Purchaser from bringing into the jurisdiction where the Purchaser's generating plant is located, or burning the coal supplied by the Seller under this Agreement, any such restriction shall at the sole option of the Purchaser be deemed to be an event of Force Majeure under this Agreement. The Purchaser may elect but shall not be required to mix the coal supplied by the Seller under this Agreement with other coal or with any other types of fuel in order to avoid legal restrictions on burning the coal. Also, the Purchaser may elect at its sole option but shall not be required by this Agreement to modify or otherwise change the configuration of its generating plant to avoid such 29 30 restrictions. The Seller shall cooperate with the Purchaser in any such efforts, and the provisions of Section 1.2 shall be modified as necessary to accommodate the results thereof. The Purchaser may elect to respond to the aforedescribed restrictions by physical modification of its Morgantown Generating Station and/or modification of its specifications for coal to be burned. In the event of modification of the specifications for coal to be burned, the Purchaser shall give written notice of the revised specifications, and the total consumption of coal of the Morgantown Generating Station which is to be of such revised specifications, to the Seller not less than six (6) months prior to the implementation of such revised specifications. The Seller shall inform the Purchaser within sixty (60) days after such notice is given as to whether or not the Seller is capable of supplying coal having such specifications. In the event that the Seller informs the Purchaser that the Seller is not capable of supplying such coal, the annual quantity to be purchased under Section 1.2 shall be reduced in the same proportion as the average percentage of said total annual consumption which is to be of such revised specifications bears to the average total annual consumption prior to the implementation of such revised specifications. Such reduction in annual quantity shall be deemed to be a condition of Force Majeure, and shall be effective not later than the end of the six (6) months period following the Purchaser's written notice of the change in specifications. If the Seller shall inform the Purchaser that the Seller is capable of supplying coal meeting the revised specifications, the parties hereto agree to promptly enter into good-faith negotiations to mutually agree upon modifications to the Agreement to provide for a percentage of the annual quantity of coal to be supplied hereunder to be of the revised specifications. That percentage shall be the same as the percentage of the total annual consumption of the Morgantown Generating Station which is to be of such revised specifications. This Agreement shall remain in full force and 30 31 effect as to the remaining annual quantity to be provided hereunder. The parties further agree that in the event the parties are unable to mutually agree to such modifications, the annual quantity to be supplied under the Agreement shall be reduced at the end of the six (6) months period following the Purchaser's written notice of the change in specifications by this same percentage. Such reduction shall be deemed to be a condition of Force Majeure. A party affected by Force Majeure promptly shall notify the other party of the cause and expected duration thereof, and shall use due diligence, within the limitations set forth above, to remove the cause or lessen its effect with reasonable dispatch; provided, however, that nothing herein shall be construed to require the Purchaser to enter into a new fuel supply or transportation agreement, or to waive any rights it otherwise may have under other contracts or agreements, or to require either party to enter into what it deems to be an unfavorable labor agreement or settle a labor strike or lockout on terms not acceptable to it. The Purchaser, if it so elects, shall have the right during any the Seller's event of Force Majeure to purchase coal from other sources and the Seller, if it so elects, shall have the right during the Purchaser's event of Force Majeure to sell coal to others. Upon removal of the cause of Force Majeure, the parties shall resume fulfillment of their obligations as applicable and in accordance with then-current schedules. At its option, the Purchaser may (but shall not be required to) purchase, and the Seller agrees to sell, the number of Tons of coal that the Purchaser did not buy during the Force Majeure period. If the event of Force Majeure causes only a partial reduction in the total quantity of coal the Seller is able to deliver, the Seller shall deliver to the Purchaser its pro rata share of coal produced from the reserves affected during the period of such partial reduction. 31 32 7.3 - Termination. This Agreement may be terminated in advance of expiration of the term as provided in Section 7.2 - Force Majeure or Section 8.2 - - Default. Notwithstanding any such termination, Seller shall remain obligated to transfer allowances to Purchaser in accordance with Section 2.6 of this Agreement for any Contract Year or part thereof in which Purchaser purchases and accepts coal from Seller under this Agreement. 7.4 - Assignment. Neither party may assign its rights, obligations and interests under this Agreement without the non-assigning party's written consent (which consent shall not be unreasonably withheld), unless the assignment involves the transfer of all or part of the business, properties or assets of the assignor by merger, consolidation, divestiture or sale of assets as long as the assignee remains liable for the performance of the assignor's responsibilities or obligations hereunder. The covenants, terms, provisions and conditions of this Agreement shall apply to, bind and inure to the benefit of the respective successors and permitted assigns of Seller and Purchaser. 7.5 - Interpretation. The paragraph headings included in this Agreement have been used solely for convenience and shall not be used in conjunction with the interpretation of this Agreement. 7.6 - Severability. Should any provision of this Agreement be determined by the courts to be illegal or in conflict with any law, the validity of the remaining provisions shall not be impaired. 32 33 ARTICLE 8 REMEDIES 8.1 - Failure to Perform. In the event of failure to perform by the Seller, the Purchaser shall have the right to proceed at law or in equity to seek specific performance and/or injunctive relief where default by the Seller would deprive the Purchaser of a necessary supply of coal and, because of market conditions or otherwise, the collection of damages does not afford the Purchaser an adequate remedy. 8.2 - Default. A failure by either party to meet any obligation under this Agreement shall be considered default. In the event of any default, the defaulting party shall, within ten (10) days of written notification of said default, provide written assurances satisfactory to the nondefaulting party that the conditions causing the default have been corrected. If no such written assurance is received within ten (10) days or such assurances provided by the defaulting party are deemed in the sole judgement of the nondefaulting party to be unsatisfactory, then the nondefaulting party may, upon written notification to the defaulting party, terminate this Agreement immediately. In the event the Seller is the defaulting party, upon notification by Purchaser of its intent to terminate this Agreement, Seller shall immediately transfer any Emission Allowances due to the Purchaser in accordance with Section 2.6. 8.3 - Other Disputes. Except as provided in Section 8.1 and Section 8.2, any controversy or claim arising out of or relating to this Agreement which cannot be resolved by negotiation shall be resolved by binding arbitration. Arbitration shall be held in the District of Columbia in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect at the time of the arbitration (the "AAA Rules"); provided, however, that to the extent that the AAA Rules are 33 34 inconsistent with the terms of this Agreement or the terms of this Agreement are more specific than the AAA Rules, the terms of this Agreement will govern, and provided further, that discovery and motion practice shall be permitted, and that the Federal Rules of Civil Procedure shall govern all such motion practice and discovery, the exchange of exhibits, witness lists and workpapers, and the presentation of evidence by expert witnesses. The question or controversy shall be submitted for arbitration to a single competent, disinterested arbitrator, if the parties are able to agree upon such single arbitrator within thirty (30) days after the party requesting arbitration notifies the other party of such request. If a single arbitrator cannot be agreed upon within such thirty (30) day period, a board of three (3) arbitrators shall be used. The arbitrators shall be selected as follows: the party requesting arbitration shall state in writing the question or questions to be submitted for decision and nominate a person to act as one arbitrator. The party receiving such request shall appoint a second arbitrator, within fifteen (15) days from the date of receipt of the requesting party's notice. The first and second arbitrators shall select a third arbitrator, but if the arbitrators shall be unable to agree upon such a third arbitrator within a period of thirty (30) days from the date of appointment of the second arbitrator, the third arbitrator shall be appointed upon motion or application of any party to the Chief Judge (or Acting Chief Judge) of the United States District Court for the District of Columbia. Upon selection of the arbitration board of either one or three members, the board shall proceed with reasonable diligence to inquire into and determine the questions or controversies at issue, as disclosed in the demanding party's notice and any responses thereto. The board shall give both the Purchaser and the Seller reasonable notice of the time and place (of which the board shall be the judge) at which the board will take such evidence as it may deem reasonable, requiring witnesses to be sworn, and at which the board may hear arguments of counsel or others. If any 34 35 arbitrator shall decline or fail to act, the party (or parties in the case of a single arbitrator) by whom he was appointed or the judge (in the case of an arbitrator selected through application to the District Court) shall appoint another to act in his or her place. After hearing the evidence and arguments submitted by the parties, the board shall state its decision and award, in writing, within thirty (30) days of the final submission by the parties, which decision and award, when delivered to both parties, shall be final. Judgment may be entered upon such decision and award in any court of competent jurisdiction. Each party shall bear its own costs incurred in connection with arbitration under this Article, including costs and expenses associated with its appointed arbitrator (in the case of arbitration before a three-member panel). The parties shall share equally the costs and expenses associated with the services of the single, disinterested arbitrator (in the case of a one-member panel) and/or the third member of a three-member panel, as the case may be. 8.4 - Waiver of Rights. The failure of either party to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or to take advantage of any of its rights hereunder shall not be construed as a waiver of any such provision and such provision shall continue and remain in full force and effect as to any such future instance. ARTICLE 9 LAW AND REGULATIONS 9.1 - Construction. This Agreement shall be governed by and construed under the laws of the District of Columbia. 35 36 9.2 - Governmental Authority. This Agreement and the performance of all provisions thereof is expressly subject to all pertinent legislation, orders, directives and regulations issued now or in the future by any governmental authority having jurisdiction or purported authority to do so; including the review and approval of the Agreement. 9.3 - Equal Opportunity. Reference is made to paragraphs (1) through (7) (The "Equal Opportunity Clause") set forth in Sec. 202 of Executive Order No. 11246 issued by the President of the United States on September 24, 1965 and published on September 28, 1965 in Volume 30 of the Federal Register at Page 12319, as may be amended. By such reference such Equal Opportunity Clause is hereby incorporated in this Agreement as a commitment on the part of the Seller, effective during the performance of this Agreement and its acceptance. For the purposes of such incorporation by reference, such necessary changes in language shall be deemed to have been made in the Equal Opportunity Clause as are appropriate to identify properly the parties and their undertakings. As a result of such Equal Opportunity Clause commitment, the Seller may be obligated to file certain periodic reports required under the above-mentioned Executive Order, including Equal Employment Opportunity Employer Information Report EEO-1, copies of the form of which are obtainable from the Office of Federal Contract Compliance, United States Department of Labor. 9.4 - Utilization Clause. Reference is made to the small business subcontracting plan requirement set forth in Public Law 95-507, as amended 15 USC 637 (d), and to the Utilization Clause as set forth in 48 CFR 52.219-8 and attached hereto as Annex B. The provisions herein and attached hereto and other applicable requirements, if any, are incorporated in this agreement by reference with the same force and effect as though set forth in full. 36 37 ARTICLE 10 NOTICE 10.1 - Addresses. Notices to a party or its agent required under this Agreement shall be sent in writing to that party or agent at the following address: (a) Supplier: Anker Energy Corporation 2708 Cranberry Square Morgantown, WV 26505 ATTN: Vice President of Sales (b) Producers: Anker West Virginia Mining Company, Inc. 2708 Cranberry Square Morgantown, WV 26505 ATTN: President Juliana Mining Company, Inc. 96 Erbacon Road Cowen, WV 26206 ATTN: President (c) Supplier's Agents: Courtney F. Foos Coal Company, Inc. 3828 Virginia Beach Blvd. Virginia Beach, VA 23452 ATTN: Courtney F. Foos, Jr. By fax: (610) 647-3780 By Internet: cfoosjr@aol.com African American Coal Company 516 Archibaldwalk, SE Washington, DC 20003 ATTN: Lawrence C. Smith (d) Purchaser: Potomac Electric Power Company 1900 Pennsylvania Avenue, NW Room 708 Washington, DC 20068 ATTN: Manager, Generation Fuels 37 38 10.2 - Change of Address. The address for either party given in Section 10.1 shall be sufficient until formally amended. 10.3 - Time and Method of Notice. Notice under this Agreement shall be construed as given when sent to the proper address by registered mail; but written notice actually received by other means shall be fully effective. When speed of notice is essential, written notice shall be preceded by other appropriate communication. ARTICLE 11 MISCELLANEOUS 11.1 This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior writings, communications, discussions, representations or understandings, whether written or oral. 11.2 This Agreement may only be altered, amended or modified by a written instrument duly executed by both parties. ARTICLE 12 ATTACHMENTS The following attachments are incorporated into this Agreement by reference: Annex A - Examples of Price Adjustment Calculations Based on Quality Annex B - "Utilization Clause" Annex C - "Guarantee" 38 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers: ATTEST SUPPLIER (Anker Energy Corporation) -------------------------- By: /s/ Royden L. Loucks ------------------------- Title: Vice President, Transportation ------------------------------ ATTEST PRODUCER (Anker West Virginia Mining Company, Inc.) ------------------------------------------ By: /s/ Ben Daud ----------------------------- Title: President ---------------------------- ATTEST PRODUCER (Juliana Mining Company, Inc.) -------------------------------- By: /s/ Ben Daud --------------------------- Title: President -------------------------- ATTEST SUPPLIER'S AGENT (African American Coal Company, Inc.) ------------------------------------- By: /s/ Illegible --------------------------------- Title: --------------------------- ATTEST SUPPLIER'S AGENT (Courtney F. Foos Coal Company, Inc.) ------------------------------------- By: /s/ Illegible ---------------------------- Title: ----------------------- ATTEST PURCHASER (Potomac Electric Power Company) -------------------------------- By: /s/ Illegible --------------------------- Title: ----------------------- 39 EX-10.38 24 COAL SALES AGREEMENT 1 EXHIBIT 10.38 COAL SALES AGREEMENT This COAL SALES AGREEMENT (the "Agreement"), is made and entered into as of the 15th day of September, 1989, by and between Anker Energy Corporation, a Delaware corporation, having its principal place of business at Route 12, Box 245, Morgantown, West Virginia 26505 ("Seller"), and Morgantown Energy Associates, a West Virginia general partnership consisting of MidAtlantic Energy Co., Dominion Cogen WV, Inc. and Hickory Power Corporation, having its principal place of business at 256 Russell Avenue, New Martinsville, West Virginia 26155 ("Buyer"). WITNESSETH: WHEREAS, Seller and its affiliates produce and have available for sale coal of the quality and quantities hereinafter set forth; and WHEREAS, Buyer desires to purchase such coal from Seller, from sources located in West Virginia, for use at its Morgantown cogeneration facility, an approximately fifty (50) MW net capacity coal and coal-waste fired generating plant that Buyer is causing to be developed (the "Facility"), and Seller desires to sell such coal to Buyer; and WHEREAS, the Facility will supply steam to West Virginia University ("WVU") and West Virginia University Hospitals, Inc. (the "Hospital") and electricity to Monongahela Power Company, an Ohio corporation having its principal place of business at 1310 Fairmont Avenue, Fairmont, West Virginia 26554 ("Mon Power"); and WHEREAS, Buyer and Seller acknowledge the need to maintain a reliable and adequate supply of steam to the interfaces between the Facility and WVU's and the Hospital's existing steam distribution systems; and WHEREAS, Buyer and Seller acknowledge the need to maintain reliable deliveries of electricity to Mon Power; NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1 2 ARTICLE I DEFINITIONS As used herein, the following terms shall have the meanings set forth below: "Actual Commencement Date" means the actual date on which the Facility comes into commercial service notice of which shall be given by Buyer to Seller within thirty (30) days following such date. The Actual Commencement Date may fall on a day prior or subsequent to the Preliminary Commencement Date. "Adjusted Base Price" has the meaning specified in Article IX. "Adjustment Date" has the meaning specified in Article IX. "APS System Coal Price Base Index" means [*].(1) "APS System Coal Price Index" means [*].(1) "Average Quality Characteristics" means the quality characteristics of coal to be supplied under this Agreement, set forth in Section 6.1(a), as calculated on a monthly average basis. "Base Price" has the meaning specified in Article VIII. "Business Day" means any day other than a Saturday, Sunday, or other day on which banks in either Morgantown, West Virginia or New York, New York are authorized to be closed. "Coal Reserves" has the meaning specified in Article II. "Contract Year" means the twelve (12) month period beginning on the Actual Commencement Date and on each anniversary of the Actual Commencement Date. "Delivery Point" means the location or locations at the Facility selected by the Buyer for the unloading of truck-loads of coal delivered by Seller to Buyer under this Agreement. "Financial Closing" means the closing of the initial construction financing for the Facility and related facilitities. - ------------------------------- (1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 2 3 "Mine" means the mine(s) owned or leased by the Seller or its affiliates in West Virginia. "Operations" means the coal mining operations of Seller or its affiliates owned or under contract to Seller or its affiliates in West Virginia, including the Mine, related equipment and facilities. "Preliminary Commencement Date" means the date, specified by Buyer to the Seller, by which Buyer believes that the Facility will have received all necessary licenses and permits (other than any that are routine in nature and that cannot be obtained, or are not normally applied for, prior to the time they are required and that Buyer reasonably expects to obtain in due course), will be mechanically complete and will have passed Buyer's testing requirements for commercial service. Buyer, within twelve (12) months of the execution of this Agreement, shall specify a Preliminary Commencement Date. Buyer shall revise the Preliminary Commencement Date as necessary during the Testing and Start-up period such that the Seller shall have at least ninety (90) days notice of the date anticipated for the Actual Commencement Date of the Facility. As of the date of execution of this Agreement, Buyer estimates that the Preliminary Commencement Date will be March 1, 1992, but reserves the right to revise this estimate and specify the Preliminary Commencement Date at a later date in accordance with this paragraph. "Preliminary Supply Date" means the date, twelve (12) months prior to the Preliminary Commencement Date, at which the Seller shall have any and all permits necessary to permit Buyer to have coal supplied from the Operations and shall have made all necessary arrangements, including the purchase and/or lease of equipment and hiring of personnel, and is prepared to commence the supply of coal to the Facility, pursuant to the terms and conditions therein. "Project Lender" means Swiss Bank Corporation, New York Branch, and the several other parties participating in the financing of the Facility. "Records" has the meaning specified in Article XI. "Referee Laboratory" has the meaning specified in Section (d) of Exhibit A. "Reserve Inventory" means a seventeen (17) day supply of solid fuel for the Facility, on an equivalent Btu basis, which has been sampled and analyzed pursuant to Section 6.3 hereof and which meets the Average Quality Characteristics of Section 6.1 (b) hereof. Such Reserve Inventory must be located within five (5) miles of the Facility, on Seller's or Buyer's property, at such one or more locations as Seller shall from time to time specify in writing to Buyer, and Seller shall protect the Reserve Inventory from weather in a manner which is acceptable to Buyer and is approved by Buyer in writing. "Selling Price" has the meaning specified in Article VII. 3 4 "SWDA" means the Solid Waste Disposal Agreement executed by and between Buyer and Anker Energy Corporation, of even date herewith. "Term" has the meaning specified in Article III. "Testing and Start-up" means a period of twelve (12) months prior to the Preliminary Commencement Date during which the Facility is undergoing testing. The Testing and Start-up period may be extended for an additional three (3) months at Buyer's request. "Truck" has the meaning specified in Section 5.1. "Unforeseen Circumstance" means any cause or causes which the party asserting the same is not, despite all reasonable efforts, able to prevent or overcome, including, but not limited to, any permitting authority's denial or failure to renew any license or permit, or compliance with any order, injunction or judgment, by any governmental authority, change in law or regulation, acts of God, strikes, lockouts or other labor disputes, riots, civil strife, war, acts of a public enemy, lightning, fires, explosions, severe storms or floods. The financial inability of either party for whatever reason to perform its obligations hereunder shall not constitute an Unforeseen Circumstance. "Waste Coal" shall have the same meaning as in the WSA. "WSA" means the Waste Services Agreement executed by and between Anker Energy Corporation and Buyer, of even date herewith. ARTICLE II SOURCES OF COAL Coal delivered under this Agreement shall be a [*](2) product, with no intermediate sizes removed, from the Operations and conforming to the specifications, quality and weights in Article VI. Seller agrees to produce coal from the Mine and its Operations for the delivery of coal to Buyer hereunder. Seller represents and warrants that it or its affiliates own, lease or otherwise have a legal right to mine and sell a sufficient number of tons of recoverable coal from the Mine and its Operations (the "Coal Reserves") to enable Seller to supply coal in accordance with the provisions of this Agreement for the Term of this Agreement. Seller and such affiliates shall not sell, lease, contract to sell or otherwise transfer or agree to transfer to others, any of its interests in the coal from the Coal Reserves in any quantity which may jeopardize Seller's ability to supply the total quantity and quality of coal required under this Agreement or which may interrupt any - ------------------------------- (2) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 4 5 scheduled deliveries hereunder. Seller also shall maintain the Reserve Inventory for use as a supply of coal throughout the Term of this Agreement. Seller shall be responsible for transportation arrangements and all transportation and other costs associated with the loading and/or handling of coal from its Operations to the Delivery Point at the Facility, including, without limitation, obtaining, at is own expense, by Financial Closing, and maintaining in full force and effect, any and all permits necessary to permit Buyer to have such coal supplied from the Operations in accordance with the terms hereof. Seller may supply coal from sources in West Virginia other than Seller's Mine and Operations if coal from such sources has Average Quality Characteristics equal to or better than the coal being derived from Seller's Mine and Operations and if Buyer is not economically disadvantaged under this Agreement. ARTICLE III TERM Unless sooner terminated in accordance with the terms hereof, this Agreement shall commence on the date hereof and continue in effect until fifteen (15) years from the Actual Commencement Date, as defined herein (the "Term"); provided, however, that the Term of this Agreement as defined herein shall be automatically extended and renewed for additional terms of [*](3) unless one party notifies the other in writing, no less than six months prior to the last day of the initial Term or any succeeding [*],(3)of its intent not to extend and renew this Agreement for an additional [*].(3) In the event the Agreement is not extended for [*],(3) the parties agree to negotiate in good faith an agreement covering shipments during the outstanding [*],(3) if no option periods have been exercised, or [*],(3) if one of the option periods has been exercised. [*].(3) ARTICLE IV QUANTITY 4.1 Quantity After Actual Commencement Date. Seller shall sell and deliver hereunder to Buyer and Buyer shall purchase hereunder following the Actual Commencement Date and for the Term of this Agreement, the coal requirements of the Facility; as long as approximately [*](3) percent of the solid fuel on a tonnage basis used in the Facility is Waste Coal. While Buyer anticipates the coal requirements to be [*](3) tons per year, these volumes do not represent guaranteed minimum or maximum amounts. - ------------------------------- (3) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 5 6 The Buyer shall provide written notice to Seller no later than ninety (90) days prior to the beginning of each Contract Year indicating expected volumes for that Contract Year. Deliveries shall be made in approximately equal monthly quantities during each Contract Year, taking into account Buyer's planned maintenance of the Facility. Deliveries (which may include Sunday deliveries if necessary) shall be made as mutually agreed to by the parties hereto and the City of Morgantown. By the 15th of each month, Buyer shall provide an update of the coal requirements for the following month. The term "ton" as used in this Agreement shall mean a net ton of 2,000 pounds avoirdupois weight. In the event that the fuel requirements of the Facility change so that Waste Coal does not account for at least approximately [*](4) percent of the solid fuel for the Facility on a tonnage basis, Seller has the right to supply coal representing [*](4) percent of the total solid fuel used by the Facility, determined on a tonnage basis. 4.2 Quantity During Testing and Start-up. During Testing and Start-up and until the Actual Commencement Date occurs, the amount and timing of the coal supply will be established by Buyer, on the basis of a notice to the Seller fifteen (15) months prior to the Preliminary Commencement Date or such other date as is mutually agreed upon prior to the supply requirement. Buyer in its sole discretion may revise the amount and timing of the supply of coal during Testing and Start-up and until the Actual Commencement Date to meet its requirements; provided, however, that the Seller will have at least forty (40) days notice of Buyer's requirement for delivery of coal during Testing and Start-up of the Facility and until the Actual Commencement Date with reasonable updates provided by Buyer as required in connection with the Testing and Start-up of the Facility. By the 15th of each month, Buyer shall provide an update of the coal requirements for the following month. The Seller shall deliver said amounts of coal to the Delivery Point up to the monthly amount specified in the notice given to Seller hereunder, provided that such a supply requirement occurs on or after the Preliminary Supply Date. ARTICLE V DELIVERY 5.1 Point of Delivery. The Delivery Point for all coal hereunder shall be location(s) at the Facility designated by Buyer. Seller shall load all coal in self-unloading trucks (the "Trucks") compatible with the design of the Facility, notice of which design shall be provided to Seller within six (6) months from the date of execution of this Agreement, with reasonable updates to be provided as required by Buyer. No coal is to be transported in the Trucks without (i) being covered in accordance with standard industry practice and requirements of law; (ii) complying with state and local weight restrictions; and (iii) utilizing routes through the City of Morgantown, West Virginia, designated by local officials in accordance with law. Buyer shall have the right to reject - ------------------------------- (4) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 6 7 any coal transported in the Trucks that is not so covered, is not in compliance with such weight restrictions or does not use such designated routes. Buyer shall consult with Seller concerning the designation of routes by the City of Morgantown and notify Seller of and permit Seller to participate in any meetings with city officials of Morgantown concerning such designation. If the designation of routes by the City of Morgantown does not permit Seller to transport coal either across the Star City Bridge and along Monongahela Boulevard and Beechurst Avenue or along U.S. Route 48 and along University and Beechurst Avenue, and such designation affects Seller's costs, then such designation shall be a Regulatory Change as defined in Section 1.5 of Exhibit C of the WSA and the Base Price and Adjusted Base Price shall be adjusted and any dispute resolved in accordance with the procedures therein. Notwithstanding anything to the contrary contained in this Agreement, all coal delivered hereunder shall be used exclusively as fuel in the Facility. An initial schedule of delivery hours shall be established by the parties to this Agreement no later than eighteen (18) months after the effective date of this Agreement. Such schedule may be changed from time to time as required to permit Buyer to operate the Facility in compliance with all laws and regulations, including but not limited to all local and county ordinances and regulations and to insure reliable operation of the Facility. Seller and its contractors, if any, utilized for the purpose of carrying-out Seller's obligations hereunder when on Buyer's property shall observe all reasonable and appropriate work and safety rules and regulations established by Buyer for the delivery of coal; provided, however, that Buyer's rules, regulations or operations shall not unduly delay or interfere with the unloading of coal at the Facility. 5.2 Title and Risk. The title to and risk of loss of all coal covered by this Agreement shall remain with Seller as long as it remains in the Trucks. The title to and risk of loss for each truckload of coal covered by this Agreement shall pass to Buyer as soon as any of the coal to be delivered in that delivery is unloaded from the Trucks at the Delivery Point. ARTICLE VI SPECIFICATIONS, QUALITY AND WEIGHTS 6.1 Specifications. (a) Coal delivered hereunder shall conform, on a monthly average basis, to the "as received" specifications indicated in the column entitled "Average" below: 7 8
Rejection Average Limits ------- -------- Moisture (%) [*](5) [*](5) Ash (%) [*](5) [*](5) S02 1b/MMBtu [*](5) [*](5) Sulfur (%) [*](5) [*](5) Btu/lb. [*](5) [*](5) Volatile (%) [*](5) [*](5)
(b) Compliance with average monthly specifications of Section 6.1 (a) shall be waived, provided that the weighted average quality of the coal received hereunder and the Waste Coal received pursuant to the WSA meets the "as-received" specifications on a weekly basis indicated in the column below:
Average ------- Moisture (%) [*](5) Ash (%) [*](5) S02 1b/MMBtu [*](5) Sulfur (%) [*](5) Btu/lb. [*](5) Size (% max less than or equal to 100 mesh) [*](5)
The S02 per MMBtu specification must be met on a daily basis. In the event that during the 24 months following the Actual Commencement Date, Buyer determines that an increase in the daily average S02 per MMBtu limit of [*](5) and in the weekly average sulfur limit from [*](5) would not result in a violation of the air quality permit for the Facility based on the actual operating experience of the Facility, Buyer agrees to relax the daily average S02 per MMBtu limit to [*](5) and the weekly average sulfur limit to [*].(5) (c) In the event that the weighted average weekly quality of the coal and the Waste Coal delivered to the Facility by Seller has a moisture, ash, or sulfur content above or a Btu/lb content below the specifications in Section 6.1 (b) for any four weeks in any three month period, or in the event that the weighted average daily quality of the coal and the Waste Coal delivered to the Facility by Seller has an S02 content above the specifications in Section 6.1 (b) for any seven days in any three month period, Buyer, by notice to Seller, may suspend further deliveries of coal hereunder. Upon receipt of such notice, Seller shall undertake diligently and in good faith all such actions as shall be necessary to correct the conditions causing the coal to deviate from such specification(s) - ------------------------------- (5) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 8 9 or in the event such correction cannot be accomplished, to obtain an alternate source of coal supply at no additional cost (including, without limitation, transportation costs) to Buyer on a delivered cents per million Btu basis. During the period of any such suspension, Seller shall advise Buyer every forty-eight (48) hours in writing of Seller's determinations as to the nature of such conditions, all efforts made and/or to be made by Seller to correct such conditions and the results of such efforts. Seller shall implement any reasonable and economically practical corrective actions proposed in good faith by Buyer. Such suspension shall continue until Seller provides adequate assurances in writing to Buyer that such conditions have been corrected and Buyer has in writing accepted Seller's assurances, which acceptance shall not be unreasonably withheld or delayed. (d) In the event that, despite Seller's diligent and good faith efforts as aforesaid, Seller is unable within two months after the date of suspension either (1) to provide coal meeting all specifications under Section 6.1 (a), or (2) to obtain an alternate source of coal supply at no additional cost (including, without limitation, transportation costs) to Buyer on a delivered cents per MMBtu basis, then Buyer may cancel this Agreement by notice to Seller effective not later than six months from the date of such notice, and recover damages as set forth in Section 16.4. (e) Notwithstanding any other provision of this Agreement, during the period of any suspension of deliveries pursuant to Section 6.1 (c), Buyer may acquire, by good faith purchases, a quantity of substitute coal (in equivalent Btu's) reasonably similar in quality to the coal described by the specifications in Section 6.1 (a), up to the quantity not delivered by Seller as a result of such suspension. Unless Seller's nonperformance is excused by an Unforeseen Circumstance, Seller shall reimburse Buyer the excess, if any, of the total delivered cost to Buyer of such substitute coal on a cents per MMBtu basis over the Selling Price. Seller shall make such payment within thirty (30) days of receipt from Buyer of an invoice specifying such excess costs. (f) Notwithstanding any other provision of the Agreement, in the event coal delivered hereunder is equal to or exceeds [*](6) sulfur dioxide per million Btu and/or is equal to or less than [*](6) Btu/lb in any truckload, Buyer may reject such truckload. Buyer may "reject," for purposes of this Agreement, any truckload of coal that does not meet the requirements set forth in this Section 6.1 (f) at any time before or after such truckload is delivered to the Facility. If Buyer determines, pursuant to Exhibit A, that any truckload of coal failed to meet the Rejection Limits of Section 6.1 (a) after such coal is no longer removable from the Facility (in Buyer's sole discretion) or has been used in the Facility, then Seller shall be assessed liquidated damages which reflect additional power, limestone, and waste disposal costs. - ------------------------------- (6) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 9 10 Liquidated damages for S02 per ton = [*](7) Example [*](7) Liquidated damages per ton = [*](7) Liquidated damages for Btu/lb per ton = [*](7) Example [*]:(7) Liquidated damages per ton = [*](7) These liquidated damages are cumulative and in addition to any other liquidated damages assessed pursuant to Section 10.1 hereof. 6.2 Sole and Exclusive Remedies. Except as provided in Section 6.1 (d) Buyer's right to suspend deliveries and purchase substitute coal and the possible resulting cancellation of this Agreement, and Buyer's right to reject deliveries, all pursuant to Section 6.1, together with the compensation for variations in quality provided for under Article X and Section 6.1 (f) and Buyer's right to damages under Section 16.4, shall be Buyer's sole and exclusive remedies for Seller's failure to deliver coal which conforms to any of the quality specifications herein. 6.3 Sampling and Analysis. Procedures for, and the frequency of, coal sampling and analysis shall be established in accordance with Exhibit A. For the purpose of carrying out sampling in addition to that specified as an obligation of the Seller pursuant to Exhibit A, Buyer may collect samples at the Operations for analysis or establishing Seller's compliance with the terms of this Agreement. To accomplish these tasks, Seller shall provide Buyer and/or its contractor(s), upon reasonable advance notice, with access to the Operations at such times as may be reasonably required by Buyer. Buyer and its contractors, if any, utilized for the purpose of carrying-out Buyer's obligations or exercising its rights hereunder when at the Operations (i) shall observe all reasonable and appropriate work and safety rules and regulations established by the Seller for its own employees and contractors and (ii) shall not interfere with the Seller's activities at the Operations; provided, however, that the Seller's rules, regulations or operations shall not unduly interfere with the performance of Buyer's obligations or exercise of its rights hereunder. - ------------------------------- (7) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 10 11 ARTICLE VII SELLING PRICE The Selling Price to be paid by Buyer to Seller for each ton of coal delivered hereunder shall be the Base Price, as stated in Article VIII (or the Adjusted Base Price, as computed pursuant to Article IX) plus all applicable sales and use taxes levied upon the coal delivered hereunder and not taken into consideration in Article IX. ARTICLE VIII BASE PRICE The Base Price per ton delivered at the Delivery Point shall be [*](8) per ton, effective as of May 1, 1989. ARTICLE IX ADJUSTMENTS TO BASE PRICE The Base Price shall be adjusted quarterly according to changes in the APS System Coal Price Index. The resulting price shall be referred to as the "Adjusted Base Price." The APS System Coal Price Base Index is [*].(8) Beginning October 1, 1989 and each January 1, April 1, July 1, and October 1 thereafter (the "Adjustment Date"), the Base Price shall be adjusted by determining the percentage change [*].(8) The Adjusted Base Price is equal to the Base Price multiplied by one plus the percentage change. (See example calculation attached hereto as Exhibit B.) If the APS System Coal Price Index should be discontinued, and no equivalent replacement index is specified by APS, a new index or indices most accurately reflecting changes in the applicable cost(s) of Seller will be substituted by mutual agreement of the parties hereto. - ------------------------------- (8) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 11 12 ARTICLE X COMPENSATION TO BUYER FOR VARIATIONS IN QUALITY 10.1 Compensation to Buyer. Using the analytical data obtained in accordance with Section 6.3 hereunder and the analytical data obtained in accordance with Section 6 of the WSA, on a monthly basis Buyer shall calculate the weighted average "as received" Btu per pound, percent ash, and pounds of S02 per MMBtu of coal and Waste Coal delivered to the Facility by Seller during the month. Compensation due to Buyer for variations in the calculated weighted monthly average "as received" Btu per pound, percent ash and pounds of S02 per MMBtu shall be in the form of a credit to be applied against the next payment due Seller. Buyer's credits shall be determined as follows: (a) If the weighted average Btu "as received" on a monthly average basis is less than [*](9) Btu per pound, then the credit due to Buyer shall be computed in accordance with the following formula: CB = [*](9) (b) If the weighted average percent ash "as received" on a monthly basis is greater than [*](9) percent, then the credit due Buyer shall be computed in accordance with the following formula: CB = [*](9) (c) If the weighted average pounds of S02 per MMBtu "as received" on a monthly basis is [*],(9) then the credit due Buyer shall be computed in accordance with the following formula: CB = [*](9) (d) If the weighted average pounds of S02 per MMBtu "as received" on a monthly basis is [*],(9) then the credit due Buyer shall be computed in accordance with the following formula: CB = [*](9) provided, however, that inclusion of this formula shall not give rise to any implication that the Rejection Limits are other than as set forth in Section 6.1. - ------------------------------- (9) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 12 13 In the above formulas: CB is the credit due Buyer B is the weighted average "as received" Btu per pound for coal and Waste Coal Delivered by Seller during the month P is 0.35 times the Adjusted Base Price for coal shipped by Seller during the month plus 0.65 times the Initial Amount or Adjusted Amount for Waste Coal shipped by Seller during the month T is the tons of coal and Waste Coal delivered by Seller in the month A is the weighted average "as received" percent ash for coal and Waste Coal delivered by Seller during the month D is the Adjusted Disposal Fee for Conforming Waste disposed of during the month S is the weighted average "as received" pounds of SO2 for coal and Waste Coal delivered by Seller during the month An example calculation is attached hereto as Exhibit F. 10.2 Notice of Credit. As soon as practical after the end of each month, but no later than the 25th of the following month, Buyer shall advise Seller in writing of the average Btu per pound, the average percent ash, the average S02 per MMBtu and the total credit, if any, due Buyer. ARTICLE XI AUDIT Seller and Buyer agree to maintain books, records, documents and other evidence to such an extent and in such detail as will properly reflect all items for which payment or adjustment in the Base Price (or Adjusted Price) is claimed under this Agreement ("Records"). Upon the request of either party, the other party shall make available at its offices said Records for inspection, audit or reproduction by any authorized representative. Seller and Buyer shall preserve all such Records relevant to each shipment of coal hereunder for a period of two (2) years after payment of such shipment, during which period either party shall complete any audit that may be desired. Should discrepancies or questions arise, the relevant Records shall be preserved until resolution is reached. 13 14 ARTICLE XII PAYMENT 12.1 Payment Schedule. All amounts properly due and payable by Buyer to Seller pursuant to this Agreement for coal delivered by Seller to the Facility as measured by Buyer in accordance with the procedures set forth in Exhibit C shall be payable (1) on the thirtieth day of the month (except that it shall be payable on the twenty-eighth day of each February) in respect of material supplied from the first to the fifteenth (15th) day of the month, and (2) on the fifteenth (15th) day of the following month in respect of material supplied from the sixteenth (16th) to the last day of the month; provided, however, that if Project Lender becomes successor to the Buyer under this Agreement, payment for such coal (i) delivered before or on the tenth (10th) of any month shall be payable on the twenty-fifth (25) of the same month and (ii) delivered after the tenth (10th) of any month shall be payable on the twenty-fifth (25) of the next following month. No such amount shall be due and payable until Buyer is provided quality reports for all coal shipped and a manifest indicating the source of shipment for each truckload received during the period. Buyer (or Project Lender in the event of such succession) shall provide with each payment a written statement showing the calculation of such payment. If the date on which payment is due hereunder shall not be a Business Day, the payment otherwise due thereon shall be due and payable on the next succeeding Business Day, with the same force and effect as if paid on the date due hereunder. 12.2 Payment Schedule Prior to Final Completion. During Testing and Start-up and until final completion of the Facility satisfactory to Project Lender, all amounts properly due and payable by Buyer to Seller for coal delivered by Seller to the Facility, as measured by Buyer in accordance with the procedures set forth in Exhibit C, before or on the tenth (10th) of any month shall be payable on the twenty-fifth (25th) of the same month, and amounts due and payable for coal delivered after the tenth (10th) of any month shall be payable on the twenty-fifth (25th) of the next following month. 12.3 Disputed Payments. In the event of a dispute in the amount of any payment, Seller or Buyer shall promptly notify the other party as to the basis for the dispute. Buyer and Seller shall seek to resolve the dispute as quickly as possible. In the event that resolution has not been reached within thirty (30) days of such notification, Buyer shall deposit the amount in dispute into an interest-bearing escrow account. Upon resolution, each party shall receive the amount due it in light of such resolution, plus interest earned on that amount in the escrow account, if applicable. 12.4 Delinquent Payment. If Buyer fails to pay for all coal received during any period for which documentation has been received by its due date, unless there is a dispute pursuant to Section 12.2 hereof, then the portion of the payment which is delinquent shall bear interest, at the prime rate per annum plus one and one-half percent 14 15 (1 1/2%) as announced from time to time by Mellon Bank, N.A. of Pittsburgh, PA as its prime rate, from such due date until the date such delinquent payment is made, without prejudice to any other rights or remedies available to Seller as a result of Buyer's failure to pay such amount; provided, however, that Seller waives the right to file, effect, enforce or otherwise assert any liens on, or to assert any claim against, the Facility or the steam system being constructed under the Contract for Engineering, Procurement and Construction of the Steam Transmission Line for the Morgantown/WVU Energy Facility by and between Buyer and Mellon Stuart Company, dated as of August 31, 1989 (the "Steam System") and acknowledges and agrees that no claim for payment under this Agreement shall result in any lien on, or security interest in, the Facility or the Steam System. ARTICLE XIII INSURANCE AND INDEMNIFICATION 13.1 Insurance. Seller shall maintain or cause to be maintained for the Term of this Agreement liability and personal injury insurance in amounts reasonably acceptable to Buyer naming Project Lender, Mon Power and Buyer, respectively, as additional insureds as their interests may appear. Such insurance shall include the following: (a) comprehensive general liability insurance for bodily injury and property damage of at least $1,000,000 per occurrence; (b) comprehensive automobile liability insurance for bodily injury or property damage covering the operation of all vehicles used in connection with the performance of any obligations under this Agreement of at least $1,000,000 per person and $1,000,000 per occurrence for bodily injury and $1,000,000 per occurrence for property damage; (c) workers' compensation and employer's liability insurance (including coverage for claims under Section 23-4-2 of the West Virginia Code and/or Mandolidis v. Elkins Industries, Inc., 246 S.E.2d 907 (1978)) of at least $1,000,000 or, if a limit for such insurance is established by law, in such amount; (d) Excess Liability Insurance on an occurrence basis, which shall afford coverage not less than $5,000,000 per occurrence and $5,000,000 per occurrence and $5,000,000 in the aggregate over and above coverage provided by the policies described in paragraphs (a), (b), and (c) above. Excess policies shall not contain endorsements which restrict coverages as set forth in paragraphs (a), (b), and (c). 15 16 Buyer may also request and shall then be furnished by Seller with evidence of such insurance maintained by Seller during the Term of this Agreement. 13.2 Indemnification. Except as expressly provided elsewhere herein, Buyer and Seller each agree to indemnify and hold harmless the other, each other's officers, affiliates, assigns, and employees, from and against all liabilities and expenses (including reasonable attorneys' fees) which the other may incur to persons or entities not parties to this Agreement for injury to or death of persons or damage to or destruction of property in connection with the Agreement or the coal provided hereunder, whether such liabilities arise in contract, tort (including negligence or strict liability) or otherwise, to the extent such liabilities arise out of the indemnifying party's negligence, intentional acts or omissions, or the negligence, intentional acts or omissions of the indemnifying party's agents, contractors, officers, directors, partners or employees. ARTICLE XIV UNFORESEEN CIRCUMSTANCE 14.1 Effect of Unforeseen Circumstance. Neither Seller nor Buyer shall be liable to the other for any failure or delay in performance of any obligation under this Agreement due to the occurrence of an Unforeseen Circumstance. The party whose performance under this Agreement has been affected by an Unforeseen Circumstance shall provide prompt written notice of the occurrence and of the cessation of such Unforeseen Circumstance to the other party. In each instance, the party affected by such Unforeseen Circumstance shall exercise reasonable diligence to resume operations hereunder; provided, however, that each party shall have the right to settle any strikes, lockouts or industrial disputes in its sole discretion and the aforesaid requirement of exercising reasonable diligence to resume operations shall not require either party to accede to any demand or position of any other party involved in such strike, lockout or industrial dispute. Deliveries not made or not accepted due to an Unforeseen Circumstance shall not be made up except by mutual agreement by the parties hereto. 14.2 Allocation. During any period in which mining, preparing, loading, delivering and/or selling coal by Seller hereunder is curtailed as a result of an Unforeseen Circumstance and Seller cannot deliver all of the requirements of coal under this Agreement, Seller may, as a minimum, prorate its available coal from its Operations among all of Seller's customers of its Operations, including Buyer, in proportion to its prior commitments to such customers. In agreements or contracts entered into between Seller and any customer other than Buyer, Seller has not committed and shall not commit to any such customer that it would have first call on any coal similar in quality to the coal required to be delivered under this Agreement during an Unforeseen Circumstance. Any such allocation by either party shall be subject to reasonable audit by the other party. Notwithstanding the foregoing, in the event of an Unforeseen Circumstance that limits 16 17 Seller's ability to deliver coal to Buyer, Seller shall allow Buyer access to the Reserve Inventory (or another source identified by Seller) so that Buyer can transport coal from the Reserve Inventory (or coal in the same quantity on a Btu basis from such other source) to the Facility with its own trucks. In such event, the Base Price or Adjusted Base Price shall be reduced by the amount of Seller's reasonable transportation costs for transporting the coal from the Reserve Inventory at such time, subject to verification (or for the reasonable costs for transporting coal from such other source). 14.3 Limitation on Continuance. If any Unforeseen Circumstance affects the performance of Seller and/or Buyer to the extent that it reduces the quantity of coal delivered hereunder by more than [*](10)% of the scheduled quantity during any Contract Year, and if such Unforeseen Circumstance appears to be of a continuing nature, then either Seller or Buyer may, by notice to the other, propose revised terms and conditions, including, without limitation, modifications of price or pricing provisions, quality specifications and quantities to be sold and purchased, to govern during the remainder of the Term of this Agreement. 14.4 Sales and Purchases During Unforeseen Circumstance. During any period in which transporting, accepting, unloading, reclaiming and/or utilizing of coal delivered hereunder at Buyer's Facility is curtailed or suspended as a result of an Unforeseen Circumstance, Seller may sell coal from Seller's Operations to third parties which, but for such Unforeseen Circumstance, would have been delivered and sold to Buyer hereunder; provided, however, that Seller shall not sell, lease, contract to sell or otherwise transfer or agree to transfer to others, any of its interests in the coal from the Coal Reserves in any quantity which may jeopardize Seller's ability to supply the total quantity and quality of coal required under this Agreement or which may interrupt any scheduled deliveries hereunder after such Unforeseen Circumstance has ceased to curtail or suspend the transporting, accepting, unloading, reclaiming and/or utilizing of coal delivered hereunder by Seller is curtailed or suspended as a result of an Unforeseen Circumstance, Buyer may purchase coal for use at Buyer's Facility from third parties in quantities and for a term reasonably anticipated to meet such curtailment or suspension which, but for such Unforeseen Circumstance, would have been accepted and purchased from Seller hereunder. ARTICLE XV NONDISCLOSURE Neither party shall disclose the Selling Price, the Base Price, the Adjusted Base Price or any component of the Base Price or Adjusted Base Price to any third party - ------------------------------- (10) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 17 18 without the written consent of the other party, which consent shall not be unreasonably withheld, unless counsel advises that such disclosure is required by law either for regulatory purposes or for evidentiary purposes in any legal or arbitration proceeding; provided, however, that Buyer or Seller may disclose any of the terms of this Agreement, including its aforementioned price terms, to any financial institution, any party having a security interest in the Facility or any part thereof, any assignee, or any other entity as Buyer or Seller, in its sole discretion, deems necessary. ARTICLE XVI TERMINATION AND CANCELLATION 16.1 Termination Upon Default. (a) Except as provided in Section 6.1 (d) and Section 16.1 (b), no default by either party to this Agreement in the performance of any of its covenants or obligations hereunder which, except for this provision, would be a legal basis for cancellation or termination of this Agreement by the other party, shall give or result in such a right unless and until the party committing such default shall fail to correct such default within (30) days after receipt by such defaulting party of a written notice of claim of such default stating that such notice is a "Notice of Default" hereunder, unless such default could not have been corrected within such thirty (30) day notice period and the party in default can demonstrate that steps have been taken to cure the default within a reasonable period of time. (b) In the event of Buyer's default in payment, Seller may suspend further coal deliveries hereunder until such default has been corrected. If such default is not corrected within thirty (30) days after receipt by Buyer of a written notice of such default, stating that such notice is a "Notice of Default" hereunder, then Seller may cancel this Agreement upon written notice to Buyer. (c) Within six (6) months after the termination for any reason of either the WSA or the SWDA, either party (unless such termination was due to a default by such party) under either of those agreements may cancel this Agreement upon twelve (12) months written notice to the other party. 16.2 Nonwaiver. The specifications of remedies herein shall not be deemed to exclude the parties from any other legal or equitable remedies they may have with respect to this Agreement, except as provided in Section 6.2 and 16.3 hereof. 18 19 16.3 Disclaimer of Consequential Damages. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NONE OF THE PARTIES TO THIS AGREEMENT SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE PERFORMANCE OF OR DEFAULT UNDER THIS AGREEMENT. 16.4 Buyer's Remedy in Event of Seller's Breach by Failure to Deliver Contract Tonnage. In the event Buyer exercises its right to cancel this Agreement pursuant to the terms of Section 6.1 (d), then Seller shall become liable to Buyer for damages equal to the difference between the cost of coal purchased in substitution for that due from Seller for the remainder of the Term of this Agreement and the Selling Price. At any time during the period in which Seller is liable for damages as described above, Seller shall have the right to avoid paying further damages under this Section 16.4 by supplying coal which Buyer determines meets the Average Quality Characteristics. Seller shall notify Buyer in writing sixty (60) days in advance if it intends to resume coal shipments hereunder and provide Buyer with documentation as to the quality of coal and as to how it intends to supply the coal through the remaining Term of the Agreement. Buyer will review the documentation and inform Seller as to the substitute coal's acceptability within ten (10) days, and Buyer shall not unreasonably withhold acceptance. If Seller resumes shipment under this provision, Seller shall be under the same obligations as if this Agreement were still in effect, and Seller shall continue to be liable for all damages incurred by Buyer from the date of cancellation of shipment to the Facility. Such resumption shall not affect Buyer's rights to cancel this Agreement again under Section 6.1 (d) and seek damages under this Section 16.4. 16.5 Termination in Certain Circumstances. Notwithstanding any other provision in this Agreement: (a) in the event that the Actual Commencement Date does not occur on or before April 30, 1993, Seller may terminate this Agreement by notice to Buyer, and in the event the Actual Commencement Date does not occur on or before April 30, 1994, Buyer may terminate this Agreement by notice to Seller; (b) in the event that there is a revocation, abrogation or termination, due to any cause beyond the reasonable control of Buyer, of the contracts pursuant to which the Facility supplies steam to WVU and the Hospital or power to Monongahela Power Company, and if such revocation, abrogation or termination by any party for any reason is not the result of a material default of contract claim with merit against WVU, the Hospital or Monongahela Power Company that would make the Buyer whole, Buyer may terminate this Agreement; or (c) in the event that Financial Closing does not occur on or before September 30, 1989, either Buyer or Seller may terminate this Agreement by giving notice of such termination on or before October 15, 1989. 19 20 ARTICLE XVII MISCELLANEOUS 17.1 Waivers and Remedies. The failure of either Seller or Buyer to insist in any one or more instances upon strict performance of any of the provisions of this Agreement or to take advantage of any of its rights hereunder at any one time shall not be construed as a waiver of any such provisions or the relinquishment of any such rights at any future time or times, but the same shall continue and remain in full force and effect. 17.2 Notices. Any notice, request, demand or other communication related to this Agreement shall be in writing and shall be delivered by hand or transmitted by telex, telecopier, courier, overnight delivery or certified mail, return receipt requested, to the other party at the following numbers and addresses and will be deemed given when actually received: If to the Seller: Anker Energy Corporation Route 12, Box 245 Morgantown, West Virginia 26505 Attention: T.J. Jackson Telecopy No: 304-291-3692 Telephone: 304-296-1616 If to the Buyer: Morgantown Energy Associates 256 Russell Avenue P.O. Drawer 40 New Martinsville, WV 26155 Attention: Michael H. Schwartz Telecopy No: 412-788-1914 Telephone: 412-788-0404 or at such address or number as the party may designate by notice to the other party in accordance with this Section. 17.3 Assignment and Successors. (a) Buyer shall have the right to assign its interest herein or assign or sublet its interest in the Facility to (i) any successor, affiliate, subsidiary, partner or 20 21 related entity, (ii) any person, corporation, bank, trust company, association or other business entity as security in connection with obtaining or arranging financing relating to the Facility or to any such business entity upon enforcement of such security interest or (iii) any unrelated entity or individual with the written approval of Seller (not to be unreasonably withheld). No assignment of this Agreement shall relieve the Buyer of its obligations hereunder. (b) The Seller may assign its interest herein to any entity under common control with the Seller or subsidiary upon written notice to Buyer. Seller may assign its interest to others only with the express written consent of Buyer, such consent not to be unreasonably withheld. No assignment of this Agreement shall relieve the Seller of its obligations hereunder. (c) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 17.4 Independent Contractor. The Seller's relationship with Buyer under this Agreement shall be that of an Independent Contractor. The Seller is to exercise its own discretion on the method and manner of performing its obligations under this Agreement, including without limitation, the selling of coal to Buyer. Buyer will not exercise control over the Seller or its employees. The employees, methods, equipment and facilities used by the Seller shall at all times be under its exclusive direction and control. Nothing in this Agreement shall be construed to designate the Seller, or any of its employees, as employees, agents, joint venturers or partners of Buyer. 17.5 Representation and Warranties. (a) Each party to this Agreement represents and warrants that this Agreement has been duly authorized, executed and delivered by each such party, respectively, and constitutes the legal, valid and binding obligation of each such party, respectively, enforceable in accordance with its terms, except as such enforceability and the availability of certain rights and remedies provided for in this Agreement may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity. (b) Each party to this Agreement, respectively, represents and warrants that neither the execution and delivery of this Agreement, the consummation of any of the transactions contemplated hereby nor performance of or compliance with the terms and conditions hereof will (i) result in the violation of any present legal requirement to which each such party is subject, the violation of which would have a material adverse effect on the ability of each such party to perform its obligations under this Agreement or (ii) conflict with or result in the breach of, or constitute a default under any agreement or instrument to which each such party is a party or by which it or its properties are bound (except any such agreement or instrument a breach of which would not have a material adverse effect on the ability of each such party to perform its obligations under this Agreement) or result in the creation of any lien, charge, security interest or encumbrance 21 22 (except such that may arise in favor of the other party in connection with this Agreement) upon any of each such party's properties. (c) Seller represents and warrants that all permits, approvals, certificates, licenses and inspections required to be obtained by Seller to permit performance of Seller's obligations hereunder shall have been obtained by Financial Closing, and that Seller has no reason to believe that any permits, approvals, certificates, licenses and inspections that have not been obtained prior to such date will not be obtained by the dates by which they are required. 17.6 Headings. The headings of the Articles and Sections in this Agreement have been inserted for the convenience of reference only and shall in no way affect the interpretation of any of the terms or provisions hereof. 17.7 Interpretation. No inference shall be drawn in favor of or against either party based on participation in the drafting of this Agreement. 17.8 Entire Agreement. All prior writings, communications, negotiations, representations and agreements by and between the parties hereto are superseded by or merged into this Agreement, which is the full and complete expression of all understandings between Seller and Buyer regarding the object hereof, and this Agreement may be modified only in a writing signed by both parties. 17.9 Controlling Law. The validity, construction and performance of this Agreement shall be determined in accordance with the laws of the State of West Virginia applicable to agreements made and to be performed in that State. 17.10 Further Assurances. If either party reasonably determines that any further instruments and assurances or any other things are necessary or desirable to carry out the terms of this Agreement, the other party will execute and deliver all such instruments and assurances and do all such things as the first party reasonably deems necessary or desirable to carry out the terms of this Agreement. 17.11 Conditions Precedent. (a) Seller shall deliver to Buyer a certificate, signed by the appropriate authorized official of Seller, dated as of the date of execution of this Agreement, as to the incumbency of the persons executing and delivering this Agreement. (b) Seller shall deliver to Buyer a copy, dated as of a recent date, certified by the relevant Secretary of State, of the Certificate of Incorporation of Seller. (c) Seller shall deliver to Buyer a certificate, dated as of a recent date, issued by the relevant Secretary of State, as to the good standing of Seller. 22 23 (d) Seller shall deliver to Buyer a resolution of Seller, certified by an authorized official of Seller as being in full force and effect on the date of execution of this Agreement, or other evidence satisfactory to Buyer, that the execution, delivery and performance of the Agreement and any instrument or agreement relating to such execution, delivery and performance has been duly authorized by Seller. (e) Seller shall deliver to Buyer a copy, certified by the Secretary or an assistant secretary of Seller, of Seller's bylaws. (f) Seller shall deliver to Buyer an opinion, dated the date of execution of this Agreement, of counsel to Seller in form and substance satisfactory to Buyer. 17.12 Covenants. (a) Not later than Financial Closing, Seller shall execute and deliver a consent and agreement to the assignment of Buyer's right in this Agreement to the Project Lender and Monongahela Power Company, for the purpose of securing their security interests in the Facility, in substantially the same form as Exhibit D hereto. (b) On the date of Financial Closing, Seller shall deliver to Buyer a certificate, dated as of such date, signed by an authorized official of Seller, stating that each representation and warranty made in Section 17.5 of this Agreement is true and correct as though made on and as of such date, and that on such date, there shall exist no default hereunder or breach of any term herein. (c) On the date of Financial Closing, Seller shall deliver to Buyer an opinion, dated the date of Financial Closing and addressed to Project Lender, of counsel to Seller in substantially the same form as Exhibit E hereto. (d) In connection with its deliveries of coal to the Delivery Point, Seller shall not release, emit or discharge into the environment any hazardous substances in excess of permitted concentrations, standards or limitations under any hazardous substance laws or governmental approvals, whether Federal, state or local. 23 24 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate originals by their duly authorized officers as of the date hereinabove set out. [SEAL] ATTEST: ANKER ENERGY CORPORATION By: /s/ Terrence J. Jackson --------------------------------- Its: Vice President --------------------------------- ATTEST: MORGANTOWN ENERGY ASSOCIATES, a West Virginia general partnership - ----------------------- By: MidAtlantic Energy Co., a West Virginia corporation, general partner By: /s/ Illegible --------------------------------- Its: -------------------------------- EX-10.39 25 COAL SUPLY AGREEMENT 1 EXHIBIT 10.39 COAL SUPPLY AGREEMENT BETWEEN ANKER ENERGY CORPORATION AS SELLER AND KEYSTONE ENERGY SERVICE COMPANY, L.P. AS PURCHASER. DATED APRIL 1, 1992 COGENERATION FACILITY LOGAN TOWNSHIP, NEW JERSEY 2 COAL SUPPLY AGREEMENT This COAL SUPPLY AGREEMENT (the "Agreement"), entered into this 1st day of April, 1992, is by and between ANKER ENERGY CORPORATION, a Delaware corporation referred to herein as "Seller" and KEYSTONE ENERGY SERVICE COMPANY, L.P., a Delaware limited partnership referred to herein as "Keystone." RECITALS WHEREAS, Keystone intends to cause a cogeneration facility to be financed, designed, constructed, owned, operated, maintained and to be located on a site owned by Keystone in Logan Township, New Jersey (the "Facility"); WHEREAS, it is contemplated that the Facility will produce steam and electricity and will burn coal with the specifications set forth in this Agreement as a source of fuel; WHEREAS, Seller and its affiliates are engaged in the mining and selling of coal for use as fuel in boilers to produce steam; WHEREAS, Keystone desires to purchase 100% of the coal requirements of the Facility from Seller, and Seller desires to supply, sell, and deliver 100% of the Facility's coal requirements for testing, start-up and operation on the terms and conditions set forth herein; WHEREAS, Keystone will sell electricity generated at the Facility to Atlantic City Electric Company ("Atlantic Electric") under an Agreement for Purchase of Electric Power dated as of August 25, 1988, as amended, and Keystone will sell steam and 3 electricity produced at the Facility to Monsanto Chemical Company ("Monsanto") under a Steam Supply Agreement dated as of November 22, 1988 and an Electric Power Sales Agreement dated as of November 22, 1988, and the coal requirements will depend upon the quantity of steam and electricity purchased pursuant to those agreements; and WHEREAS, Seller will contract for necessary rail and waterborne transportation of the coal from the Mines (as defined in Section 3.1) to the Point of Delivery at the Facility. NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, Seller and Keystone hereby agree as follows: ARTICLE I DEFINED TERMS Some of the terms used in this Agreement are defined in this Article I. Other terms are defined in the opening paragraph and in the recitals. Additional terms are defined at the points where such terms are first used. Except for the defined terms set forth in Sections 1.1 and 1.4 below, the first letter of a defined term is capitalized. 1.1 Calendar Periods. The terms "day", "week", "month", and "quarter" shall mean, respectively, a period of 24 hours commencing at 12:01 a.m. local time, a period of seven days beginning at 12:01 a.m. on Sunday, a calendar month, a calendar quarter. The term "year" shall mean a period of 365 days, except that if February has 29 days during any such period, the term "year" shall mean a period of 366 days. -2- 4 1.2 Singular and Plural. The singular of a defined term shall include the plural and the plural shall include the singular as the context requires. 1.3 Sections of the Agreement. The term "Section" when used in combination with a section number refers to that Section of this Agreement. Numbered Sections of this Agreement do not include the word "Section" immediately prior to such number. 1.4 Terms of Art. Certain terms used in this Agreement are terms of art in the coal and electronic generation industries and have commonly understood meanings. Examples include, but are not limited to, terms such as "Btu," "as received," "steam," "ash" and other terms of this nature. The parties hereto agree that such terms shall have such commonly understood meanings and that it is not necessary to define such terms. 1.5 Certain Defined Terms: "Applicable Law" means any valid law, rule, regulation, ordinance, order, statute, code, judgment, directive, decree, injunction, Permit or similar norm of decision of any Federal, state or local government, authority, agency, court or other body having jurisdiction over the matter in question including interpretation or enforcement thereof. "Affiliate", as applied to any entity, means any other entity directly or indirectly controlling, controlled by, or under common control with, that entity. "ASTM" means the American Society for Testing Materials. "Commercial Operation Date" means the date which is the initial date of commercial operation of the Facility. -3- 5 "Facility" means the cogeneration facility described in Exhibit A attached hereto, including all additions, replacements and substitutions thereto, which Keystone shall cause to be built and operated on the Site. "Financial Closing Date" means the date on which Keystone first has access, but for conditions to continued funding contained in the Financing Documents, to funds provided by the Financing Parties sufficient for the purpose of constructing and completing the Facility. "Financing Documents" means any and all loan agreements, notes, indentures, security agreements, subordination agreements, mortgages, partnership agreements, subscription agreements, participation agreements and other documents relating to the construction, interim and long-term financing (both debt and equity) of the Facility and any refinancing of the Facility (including a leveraged lease), including any and all modifications, extensions, renewals and replacements of any such financing or refinancing. "Financing Parties" means any and all equity participants (other than Keystone and its affiliates), lenders and lessors providing funds for the construction, interim or long-term financing (including any refinancing thereof, including a leveraged lease) of the Facility, and any trustee or agent acting on their behalf. "GDP Deflator" means the preliminary (i.e., second published) Gross Domestic Product Implicit Price Deflator for a calendar quarter as currently published in the United States Department of Commerce, Bureau of Economic Analysis publication entitled Survey of Current Business. Adjustments to rates, fees, prices, premiums and penalties which are to be made annually based on the GDP Deflator shall be calculated as follows: -4- 6 The existing rate, fee, price premium or penalty shall be increased or decreased as of January 1 of each year of the Term hereof commencing on January 1, 1994 by the percentage change in the index number of the GDP Deflator for the calendar quarter immediately preceding such January 1 from the index number of the GDP Deflator for the fourth quarter of the preceding calendar year. If the GDP Deflator ceases to exist or becomes unavailable, the parties shall agree to a substitute index that reasonably measures inflation for all goods and services within the United States. "Independent Laboratory" shall mean Commercial Testing and Engineering Company. "Operating Year" shall mean the period beginning with the Commercial Operation Date and ending one year thereafter, and thereafter shall mean each one-year period beginning with each anniversary of the Commercial Operation Date. "Permit" means any valid waiver, exemption, variance, franchise, permit, authorization, license or similar order of or from any Federal, state or local government, authority, agency, court or other body having jurisdiction over the matter in question, as in effect from time to time. "Preliminary Operation Date" means the date that the Facility commences preliminary operations for testing. "Shipment" shall mean a quantity of not less than 7,000 Tons nor more than 7,500 Tons of coal delivered to Keystone, as described in Section 5.2. "Site" means the tract of land owned by Keystone on which the Facility will be constructed. -5- 7 "Term means the Initial Term and any Extended Terms. "Ton" means a short Ton of 2,000 pounds avoirdupois weight. ARTICLE II TERM AND COMMENCEMENT OF DELIVERIES 2.1 Initial Term. This Agreement shall be effective from the date hereof (the "Effective Date") and, unless earlier terminated in accordance with the provisions hereof, shall continue for an initial term which shall end 20 Operating Years after the Commercial Operation Date (the "Initial Term"). 2.2 Extension of Term. Upon the expiration of the Initial Term and, if applicable, any Extended Term, this Agreement shall automatically extend for a term of [*](1) (an "Extended Term") unless, at least eighteen months prior to such expiration, either party shall have given notice to the other party that it desires to renegotiate or terminate the Agreement. Negotiations for an Extended Term will be limited to the following subjects: (i) price to be paid for the coal; (ii) changes in the Base Escalator or "bituminous coal" (as defined in Section 7.5) to reflect changes in market prices for coal of the quality specified in Sections 6.1 and 6.2; and (iii) such other subjects as either party shall have given notice to the other party prior to the commencement of such negotiations that it desires to include in such negotiations. Except as otherwise mutually agreed, all other terms and provisions of this Agreement shall remain in effect during any such Extended Term. Unless otherwise mutually agreed, if no agreement is reached by - --------------------- (1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -6- 8 the beginning of the ninth month prior to the expiration of the Term, or if a party has given notice that it desires to terminate, this Agreement shall terminate at the expiration of the Term. 2.3 Commencement of Deliveries. (a) Seller shall commence deliveries of coal hereunder pursuant to the first monthly Order of Keystone sent to Seller pursuant to Section 4.3 in order to meet the anticipated testing coal and stockpile needs and in order to meet the anticipated Preliminary Operation Date during the first calendar quarter of 1994. Seller shall subsequently commence deliveries of coal hereunder pursuant to the monthly Orders of Keystone sent to Seller pursuant to Section 4.3 in order to meet the anticipated Commercial Operation Date during the last calendar quarter of 1994. Keystone agrees to provide notices to Seller at least quarterly beginning as of the first day of the first calendar quarter beginning after the Financial Closing Date, as to the statuts of the construction of the Facility and promptly to provide notices to Seller of the estimated specific dates of, and any changes in, either the anticipated Preliminary Operation Date or the anticipated Commercial Operation Date. Keystone shall notify Seller of the Preliminary Operation Date and the Commercial Operation Date immediately upon the determinations of such dates. (b) In the event that delivery of the first Shipment of coal shall not have occurred by July 1, 1994, then upon the written request of Seller to Keystone, Sections 7.1, 7.4 and 8.4 shall be renegotiated by Seller and Keystone in good faith to reflect any cost increases to Seller as a result of such delay. If, after 30 days of negotiations the parties are unable to agree, Seller shall be entitled to submit the dispute to arbitration pursuant to Article XVIII. In the event that the Commercial Operation Date shall not -7- 9 have occurred by January 1, 1996, Seller or Keystone may terminate this Agreement upon notice to the other party, and neither party shall have any further obligation to the other party pursuant to this Agreement, except obligations to make payments of money already due to the other party. 2.4 Conditions Precedent. The obligations of Keystone under this Agreement are subject to the following conditions precedent: (a) Keystone's obtaining of all Permits deemed necessary or desirable by Keystone on terms satisfactory to Keystone; (b) Keystone's obtaining binding commitments from the Financing Parties for financing for the construction and operation of the Facility on terms satisfactory to Keystone. In this connection, Seller will provide such financial information as the Financing Parties may reasonable request concerning Seller's financial condition and its ability to perform its obligations under this Agreement; (c) The final execution of all agreements, leases, licenses and other undertakings of any kind between Keystone and third parties deemed necessary or desirable by Keystone on terms satisfactory to Keystone. 2.5 Satisfaction of Conditions Precedent. Keystone shall provide Seller notice of satisfaction of the conditions precedent specified in Section 2.4 (a), (b) and (c) within 5 days of the Financial Closing Date. Failure to satisfy any condition precedent shall be grounds for termination of this Agreement by Keystone. -8- 10 ARTICLE III SOURCE OF COAL 3.1 Source. Subject to Seller's right of substitution pursuant to Section 3.4, the coal to be supplied hereunder shall be processed and delivered from Seller's affiliates' Sentinel and Patriot mine complexes (the "Mines") located in Barbour County, West Virginia and Preston County, West Virginia, respectively, which coal shall meet the quality specifications of this Agreement. Attached as Exhibit B is a description of the Mines listed above by name. 3.2 Dedication of Coal. Seller represents and warrants that it will own, lease or otherwise control a sufficient number of Tons of recoverable coal from the Mines or other mines reasonably acceptable to Keystone, (the "Coal Reserves") to supply coal in accordance with the provisions of this Agreement. Seller covenants that it will not lease, convey, assign, sell, transfer or otherwise dispose of or agree to dispose of any of its interests in the Coal Reserves in any quantity which would jeopardize Seller's ability to perform under this Agreement; provided that Seller and its affiliates may grant a security interest in the Coal Reserves to any parties which provide financing to Seller or any parent, subsidiary or affiliate of Seller, upon notice to but without further consent of Keystone. Prior to the Financial Closing Date, and during the Term of this Agreement, Seller agrees to provide such information as Keystone may reasonably request, and, upon reasonable prior notice, to permit Keystone, its consultants, or representatives of any Financing Parties to inspect the Mines, to verify the representations and warranties contained in this Section 3.2. Any such inspection of the Mines shall be at the risk of -9- 11 the parties performing such inspection and shall be conducted under the supervision and authority of representatives of the Seller. 3.3 Substitution. Seller shall have the right to deliver coal to Keystone under this Agreement from another source or sources if the following two conditions are met: (i) the coal shall meet the quality specifications set forth in this Agreement, and (ii) either (A) Keystone shall have given its written consent to such substitution which consent shall not be unreasonably withheld, or (B) Keystone shall have previously given its written consent and, thereafter confirmed its approval of substitution from such source. Deliveries of coal hereunder from any source other than the Mines shall comply with and be subject to all terms and conditions of this Agreement. ARTICLE IV QUANTITY, ESTIMATES AND ORDERS 4.1 Coal Requirements. Seller agrees to sell and deliver coal to Keystone, pursuant to Orders sent by Keystone to Seller in accordance with Section 4.3, and Keystone agrees to purchase from Seller, 100% of the coal requirements of the Facility for the production of steam and generation of electricity including sufficient quantities for testing, start-up and stockpile purposes on the terms and conditions set forth in this Agreement. 4.2 Estimates of Requirements. For Seller's planning purposes, Keystone estimates the Facility will require approximately 450,000 to 650,000 Tons of coal of the quality specified herein per Operating Year. Keystone has no obligation hereunder to purchase any minimum quantity. Such requirements will vary by seasons and may -10- 12 change over time. At least 60 days prior to the beginning of each Operating Year, Keystone will provide Seller with a non-binding estimate of the quantity of coal to be delivered by Seller hereunder during each month of the ensuing Operating Year. Keystone will promptly provide Seller with a revised non-binding forecast for the balance of any Operating Year if Keystone becomes aware of material changes in its pre-Operating Year forecast previously given to Seller. At least 20 days prior to each calendar quarter beginning with the calendar quarter in which the first delivery of coal is required hereunder, Keystone will provide Seller with a non-binding estimate of the delivery dates for all Shipments of coal which Keystone expects to Order during such calendar quarter. Keystone will provide Seller with a non-binding estimate of the quantity of coal required during each month of the period between the first delivery of coal hereunder and the Commercial Operation Date at least three months prior to the date when the first delivery of coal is required hereunder. 4.3 Monthly Orders. On or before the 15th day of each month beginning with the month preceding the month when the first delivery of coal is required hereunder, Keystone shall give to Seller an order ("Order") setting forth (i) the number of Shipments of coal to be delivered by Seller during each week which begins during the following month, not to exceed two Shipments in any week and (ii) the specific dates for delivery of such Shipments which shall be spaced at least 60 hours apart. Keystone may increase by one Shipment, and decrease without limitation, the number of Shipments of coal to be delivered during any week by notifying Seller at least seven days in advance of the beginning of such week, but the total number of Shipments during any week shall not exceed two unless mutually agreed to by the parties. Subject to seasonal variations in -11- 13 fuel requirements of the Facility, Keystone will submit Orders for Shipments of coal in substantially equal numbers of Shipments each month. 4.4 First Delivery of Coal. Keystone may submit an Order for the first delivery of coal hereunder and subsequent monthly Orders prior to the first Operating Year for the purpose of the stockpiles described in Section 4.5 hereof, and for testing and startup purposes. 4.5 Stockpiles. Keystone expects to establish a dead storage stockpile of approximately 50,000 Tons of coal (in addition to a live storage stockpile of approximately 10,000 Tons of coal) at the Facility. Keystone shall have the right to purchase, and upon request Seller agrees to deliver, approximately 50,000 Tons of coal for the dead storage stockpile pursuant to monthly Orders of Keystone pursuant to Section 4.3. 4.6 Coordination of Maintenance Periods. Keystone and Seller acknowledge that the barge arranged for by Seller will not be available for coal deliveries hereunder for up to four weeks during each Operating Year for routine, annual maintenance and repair. Seller agrees to coordinate such maintenance of the barge with the planned outages of the Facility. To facilitate such coordination, Keystone agrees that each calendar year it will provide the following periods of planned outages of the Facility for such maintenance: (i) one period of not less than two consecutive weeks (a "Two-Week Outage") and (ii) two additional periods of not less than one week (each a "One-Week Outage") which need not be consecutive weeks. Keystone agrees to provide Seller with at least six months' prior written notice of the specific dates of each Two-Week Outage and at least 60 days' prior written notice of the specific dates of each One-Week Outage. Keystone -12- 14 and Seller agree that Seller shall have no obligation to supply coal hereunder during any Two-Week Outage or any One-Week Outage. Seller agrees, however, to use its best efforts to supply coal to the Facility during such periods if requested by Keystone, and Keystone agrees to pay any incremental costs of supplying such coal (including, but not limited to, the incremental costs associated with hiring a substitute barge to deliver such coal). 4.7 Testing Quantities and Burn Tests. Keystone shall have the right to purchase between the Effective Date of this Agreement and the date upon which the delivery of coal for Commercial Operation of the Facility actually commences, and upon request Seller shall supply, up to 150,000 Tons of coal as testing coal pursuant to monthly Orders of Keystone pursuant to Section 4.3. Seller shall provide Keystone, without charge, up to fifty Tons of coal of the quality to be supplied by Seller hereunder, delivered by truck within 300 miles of the Mines, for Keystone to conduct burn tests. ARTICLE V POINT OF DELIVERY; METHOD OF DELIVERY 5.1 Point of Delivery. The Point of Delivery shall be in barge or vessel safely moored at Keystone's pier located in the Delaware River, available for unloading. Title to the coal shall pass to Keystone immediately at the Point of Delivery, and risk of loss shall follow passage of title. 5.2 Method of Delivery. The coal shall be delivered to the Point of Delivery by barge or vessel not to exceed 10,000 dead weight Tons in capacity and a deepest draft of 20 feet, and compatible with Keystone's berthing and unloading facilities as such -13- 15 facilities are represented and warranted by Keystone pursuant to Section 13.2(d). Seller and its subcontractors shall be responsible for arranging for all transportation from the mine mouth to the Point of Delivery, shall pay all freight charges incurred and shall assume all liability in connection with such transportation and delivery. Keystone will be responsible for providing a safe berth and mooring equipment in accordance with normal standards of the marine industry. Receiving and unloading facilities at the Site shall be in accordance with the representations and warranties of Keystone pursuant to Section 13.2(d). Keystone will be responsible for unloading the coal pursuant to a discharge plan to be provided by the barge owner and subject to the reasonable approval of Keystone. 5.3 Lay Time. Seller shall allow Keystone Lay Time of one hour for each 500 Tons of coal delivered. Lay Time shall commence upon the earlier of (i) when Seller's barge or vessel is safely moored at Keystone's berth and the barge operator gives notice of readiness to Keystone for unloading or (ii) when Seller's barge or vessel has arrived in the vicinity of Keystone's berth, and the barge operator has given notice of readiness to Keystone, but is unable to safely moor due to an obstruction at Keystone's berth not caused by Seller or its subcontractors. Lay Time shall and when Keystone has (i) unloaded Seller's barge or vessel so that no more coal, practicably recoverable by "bobcat" type unloading machinery typically used for this purpose, remains in such barge or vessel; and (ii) cleaned any spillage of coal on the exterior of such barge or vessel which occurred during the unloading operations; and (iii) notified the representative of the barge or vessel owner that the unloading operation is complete. 5.4 Demurrage. Demurrage at the rate of $360.71 per hour (as of January 1, 1993) shall accrue for all time that exceeds the allowable Lay Time as provided herein. -14- 16 The demurrage rate shall be reduced by 50 percent for that period of time when a tug is not accompanying Seller's barge or vessel during unloading operations; provided that if (a) Keystone has given notice to the barge owner of the time when the barge will be unloaded, (b) the tug is ordered to sail the barge from the Facility and (c) Keystone has not unloaded the barge by the later of (i) the time stated in Keystone's notice to the barge owner and (ii) the time that the tug arrives at the Facility, then full demurrage shall apply unless Keystone shall have given Seller notice to cancel the tug at least 24 hours prior to the tug's original sailing orders. The demurrage rate shall be escalated each calendar year commencing January 1, 1994, by the GDP Deflator provided however, that such escalation shall not be more than 5% per year and any excess shall not be reflected in the price adjustment in any succeeding year. 5.5 Tie-Up Time. Keystone shall provide Seller's barge or vessel additional tie-up time at the pier on a "mutually convenient" basis. Such additional tie-up time shall not impede or make unsafe other dockside activities. Seller shall be responsible for any additional costs and liabilities as a result of the actions of Seller's employees, agents or subcontractors associated with such additional tie-up time. 5.6 Time of Delivery. Keystone will make its delivery facilities available for off loading of coal 24 hours per day, 7 days per week. 5.7 Docking and Undocking. Keystone's personnel shall not be required to board the barge or vessel at any time during docking or undocking of the barge or vessel, however, Keystone's personnel or its agent will handle mooring lines on dockside, under the direction of the tug's personnel, for Seller's barge or vessel. Seller shall be liable for any damages to Keystone's property as a result of the actions of Seller's employees, -15- 17 agents or subcontractors and Keystone shall be liable for any damages to the barge or vessel as a result of the actions of its employees, agents or subcontractors. 5.8 Notices of Shipments. (a) On or before the 25th day of each month beginning with the month preceding the month when the first delivery of coal is required hereunder, Seller shall give to Keystone a schedule (a "Seller Loading Notice") setting forth the dates for loading into rail cars each Shipment of coal to be shipped to Keystone during such month (the "Load Dates"). At least 24 hours prior to each Load Date, Keystone may send to Seller a notice instructing Seller either to proceed or not to proceed with the scheduled loading of such Shipment (a "Keystone Loading Notice"). In the event that (i) Keystone shall fail to deliver in a timely manner a Keystone Loading Notice which instructs Seller not to proceed with a Shipment and (ii) an event of Force Majeure shall delay the unloading of such Shipment by Keystone, then Keystone shall be liable to Seller for all demurrage attributable to such delay, as determined pursuant to Section 5.4. In the event that (i) Keystone shall fail to deliver in a timely manner a Keystone Loading Notice which instructs Seller not to proceed with a Shipment and (ii) an event of Force Majeure shall prevent the unloading of such Shipment by Keystone, then Keystone may cancel such Shipment and shall reimburse Seller for all costs incurred by Seller in the transportation and discharge of such Shipment, including but not limited to any rail or barge demurrage charges. If within 72 hours of the arrival of a Shipment at the Facility, the unloading of such Shipment by Keystone has not commenced or has commenced but has ceased before completion due to Force Majeure at the Facility and Keystone has not cancelled such Shipment, then Keystone shall advise Seller of its intended disposition of such Shipment. If Keystone fails to notify Seller of such disposition within 72 hours of -16- 18 the arrival of such shipment at the Facility, the Shipment shall be deemed to have been cancelled by Keystone. If Keystone shall cancel any Shipment pursuant to this Section 5.8(a), Seller shall cooperate with Keystone and use all due diligence to mitigate costs of disposition of such Shipment. (b) For each Shipment, Seller shall send Keystone a shipping notice within 36 hours following loading thereof into rail cars at the Mines. The shipping notice shall include the identification number, mine from which supplied, estimated tonnage shipped, shipping date, scheduled date of delivery, Rail Sample analysis pursuant to Section 10.3(a), and other information reasonably required by Keystone. Bills of Lading shall include name of Seller, contract number, identification number, date loaded and Seller's shipped weights. (c) All notices pursuant to this Section 5.8 shall be sent by telecopy or by other mutually agreed upon means. 5.9 Notice of Insurance. Prior to commencing the first delivery of coal, Seller shall provide Keystone with appropriate certificates of insurance evidencing that Seller has obtained the insurance required pursuant to Section 17.1 hereunder, and that such insurance remains in effect. Prior to submitting the first Order for delivery of coal, Keystone shall provide Seller with appropriate certificates of insurance evidencing that Keystone has obtained the insurance required pursuant to Section 17.4 hereunder, and that such insurance remains in effect. -17- 19 ARTICLE VI QUALITY 6.1 General Quality Provisions. Seller shall cause the mining and loading of the coal to be conducted so that all coal loaded into rail cars at the Mines shall be substantially free from impurities and extraneous materials related to the mining and processing of coal. Seller represents and warrants that the quality of each Shipment of coal hereunder shall satisfy each Mine Mouth Rejection Specification set forth in Section 6.2 and that the weighted average quality of all coal delivered during any month hereunder shall satisfy each Semi-Monthly Average Contract Specification set forth in Section 6.2. 6.2 Rejection, Suspension and Contract Specifications. The "as received" Mine Mouth Rejection Specifications, Semi-Monthly Average Suspension Specifications, and Semi-Monthly Average Contract Specifications for coal delivered hereunder shall be as follows:
Semi- Semi- Mine Monthly Monthly Mouth Average Average Rejection Suspension Contract Characteristic Specs Specs Specs - -------------- --------- ---------- -------- Calorific Value Btu/lb (HHV) Less than N/A [*](2) [*](2) Sulfur (% wt.) No greater No greater No greater Than [*](2) than [*](2) than [*](2)
- --------------------- (2) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -18- 20 Ash (% wt.) No greater No greater [*](3) than[*](3) than [*](3) Moisture (% wt.) No greater No greater [*](3) Than [*](3) than [*](3) Volatile Matter (% wt.) N/A Not less [*](3) than [*](3)
Suspension Specifications for additional characteristics are set forth in Section 6.6(a). A non-binding example of the typical specification of the coal to be delivered under this Agreement is set forth in Exhibit C. The typical coal specification set forth in Exhibit C has been established for the purpose of determining the performance of the Facility. 6.3 Rejection of Coal. Any Shipment of coal which does not conform to each Mine Mouth Rejection Specification as set forth in Section 6.2 shall be deemed to be Rejection Point Coal. Seller shall take all practical precautions to prevent delivering Rejection Point Coal to Keystone and shall not knowingly deliver Rejection Point Coal to Keystone unless Keystone consents thereto on terms mutually agreeable. Keystone may reject any Shipment of coal which is Rejection Point Coal by notice to Seller by telephone, confirmed in writing. Any such notice of rejection shall be given within 24 hours after receipt of the Independent Laboratory's Rail Sample - ---------------------- (3) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -19- 21 analysis of the Shipment of coal in question pursuant to Section 10.3(a). In the event of a delay in the delivery of the Independent Laboratory's Rail Sample analysis of a Shipment, Seller may elect to proceed with the delivery of such Shipment on the basis of Seller's Rail Sample analysis pursuant to Section 10.3(a); provided that the Independent Laboratory's Rail Sample analysis of such Shipment shall be determinative of Keystone's right to reject such Shipment. Keystone is not obligated to unload a Shipment of coal until either (I) Keystone has received the Independent Laboratory's Rail Sample analysis and such analysis satisfies the Rejection Specifications set forth in Section 6.2, or (ii) Keystone has accepted such Shipment. Keystone may not reject any Shipment of coal after it has accepted or unloaded such Shipment. If a Shipment of Rejection Point Coal has reached the Point of Delivery and has not been accepted or unloaded by Keystone, then Seller shall cause such Shipment of Rejection Point Coal to be removed from the Point of Delivery within three days after notice of such rejection, and Seller shall be responsible for all costs of removal. If a Shipment of Rejection Point Coal is rejected by Keystone, then Seller shall use its reasonable best efforts to deliver a replacement Shipment of coal within seven days and be responsible for all costs of delivery. 6.4 Suspension of Shipments. If the weighted semi-monthly average quality analysis of all coal delivered during any month hereunder, as reported by Seller to Keystone pursuant to Section 10.3(b), fails to conform to each Semi-Monthly Average Suspension Specification as set forth in Section 6.2, Keystone may suspend further Shipments by notice to Seller given within ten days following receipt of Seller's report on quality pursuant to Section 10.3(b). Such suspension shall apply to all Shipments not in transit on the date of the notice of suspension and shall continue until Seller provides adequate assurances that future Shipments will conform to the quality specifications set forth in Section 6.2. If Seller has not provided such adequate assurances within 90 days after receiving notice from Keystone of the suspension of Shipments, then Seller shall have committed an Event of Default as specified in Section 12.1(d) hereof. - -------------------------------------------------------------------------------- -20- 22 6.5 Replacement Coal. Keystone may purchase replacement coal in reasonable purchase quantities to cover suspended or rejected Shipments under the following circumstances, and in each case, Seller shall reimburse Keystone for the excess of the costs reasonably incurred by Keystone in connection with the purchase of replacement coal over the costs that otherwise would have been incurred in connection with the purchase of coal under the terms of this Agreement: (a) Seller fails to replace a Shipment of coal which has been rejected by Keystone pursuant to Section 6.3 because it is Rejection Point Coal, (b) Keystone has suspended further shipments by Seller pursuant to Section 6.4 or 6.6(a), or (c) Seller fails to deliver any Shipment of coal for reasons other than Force Majeure within three days of the delivery date specified for such Shipment pursuant to Section 4.3, provided that if Seller notifies Keystone of its intent to provide a replacement shipment of coal pursuant to Section 6.3, such failure period shall be 7 days. 6.6 Coal Handling or Operating Problems. (a) If Keystone experiences any coal handling or operating problem at the Facility which Keystone reasonably concludes is the result of Seller's delivering coal hereunder which has any of the following characteristics: (i) [*](4)% or more of coal delivered has a top size greater than [*](4) inches, (ii) contains, on a semi-monthly average basis, in excess of [*](4)% coal of less than [*](4), (iii) a minimum grindability (HGI) of [*](4), or (iv) a minimum ash fusion temperature of [*](4) (degrees) F (I.D. - Reducing), then Keystone may notify Seller of the nature of such problem and the particular specification(s) which Keystone reasonably concludes to be causing - ---------------------- (4) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -21- 23 such problem. Unless Seller has provided adequate assurances to Keystone within 30 days following receipt of such notice that future deliveries hereunder will conform to the specifications set forth in this Section 6.6(a), Keystone may, immediately upon a second notice to Seller, suspend further Shipments including those in transit until Seller can provide such adequate assurances. If Shipments are suspended, Seller shall advise Keystone weekly of progress made toward correcting the deficiency. If Seller has not provided such adequate assurances to Keystone within 60 days following receipt of such notice of suspension of Shipments, then Seller shall have committed an Event of Default as specified in Section 12.1(d). (b) If Seller provides coal in compliance with this Agreement, and such coal causes operating, mechanical or handling problems in the Facility, Keystone and Seller agree to work together in good faith to resolve such problems. Keystone shall notify Seller of the specific nature of such problems. Seller agrees to provide advice and consultation on solutions for such problems to the extent it can do so. Keystone agrees to make modifications to the material handling or feed system of the Facility to minimize or eliminate such problems to the extent it can do so at reasonable cost. In the event that Keystone is unable to make reasonable cost modifications to the Facility to resolve such problems, Seller agrees to modify the coal supplied hereunder to minimize or eliminate such problems to the extent it can do so. If such problems cannot be resolved to the reasonable satisfaction of Keystone within 150 days of Keystone's notice to Seller concerning such problems, either party shall have the right to terminate this Agreement upon 30 days' prior written notice of termination to the other party. -22- 24 (c) If Seller provides coal in compliance with this Agreement, and such coal causes Keystone to be unable to dispose of ash due to constituents in the coal which results in the ash having constituents which exceed the permitted levels set forth in Keystone's disposal permits, Keystone and Seller agree to work together in good faith to resolve such problem. Keystone shall notify Seller of the specific nature of such problem, including the relevant permitted levels set forth in Keystone's disposal permits. Seller agrees to provide advice and consultation on solutions for such problem to the extent it can do so. Keystone agrees to make modifications to the Facility to resolve such problem to the extent it can do so at reasonable cost. If such problem cannot be resolved to the reasonable satisfaction of Keystone within 120 days of Keystone's notice to Seller concerning such problem, either party shall have the right to terminate this Agreement upon 30 days' prior written notice of termination to the other party. 6.7 Adjustment of Price for New Specifications. If Seller is to provide coal conforming to new specifications agreed to by Seller and Keystone as a result of adjustments made pursuant to Sections 6.6(b), 6.6(c) or otherwise, the Base Price of coal shall be negotiated by Seller and Keystone in good faith to reflect such adjustment to the new specifications. If the parties are unable to reach agreement on a price adjustment, either party may terminate this Agreement. 6.8 Corrective Actions. Promptly following any suspension of deliveries hereunder pursuant to Section 6.4 or Section 6.6(a), Seller shall undertake corrective actions diligently and in good faith in order to provide Keystone adequate assurances as required under such Sections. During the continuance of any such suspension, Seller shall no less frequently than once every week advise Keystone of Seller's determinations -23- 25 as to the nature of the conditions causing such noncompliance with such specifications, all efforts underway by Seller to correct such conditions, and the results of such efforts. 6.9 Change in Law. If Keystone is unable to burn the coal supplied hereunder without significant alteration of the Facility due to a change in Applicable Laws resulting in a Force Majeure event, the parties shall negotiate in good faith to agree upon a solution, but if no solution can be agreed upon within 120 days, either party shall have the right to terminate this Agreement upon 30 days' prior written notice to the other party. 6.10 Testing of Coal with Volatility Less than 20 Percent. During the initial twelve months of Commercial Operation, or such longer period as may be necessary to maintain boiler warranties in effect, Seller shall supply coal to Keystone having a volatility of not less than [*](5)%. Thereafter, the parties agree to conduct a testing program using coal having a volatility of less than [*](5)%, but in no event less than [*](5)%, with a view to determining whether the boiler can be satisfactorily operated using such coal. Keystone shall consult with Seller during such tests, and shall promptly report the results of the tests to Seller. Keystone shall determine the lowest volatility coal (not less than [*](5)% nor more than [*](5)%) at which the boiler can be satisfactorily operated, and shall promptly notify Seller of its determination, in which event the coal specification in this Agreement shall be deemed modified to reflect the results of the tests. 6.11 EXCLUSIONS OF WARRANTIES. THE AGREEMENT AND EXPRESS WARRANTIES CONTAINED IN SECTIONS 3.2, 6.1 AND 6.2 SHALL BE IN LIEU OF ANY OTHER WARRANTIES BY SELLER, EXPRESS OR IMPLIED, - --------------------- (5) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -24- 26 INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE VII PRICE 7.1 Base Price. The Base Price for coal with the quality defined as Semi-Monthly Average Contract Specifications in Section 6.2 and delivered by Seller to the Point of Delivery subsequent to the Commercial Operation Date is $[*](6) per Ton, effective January 1, 1993, for annual quantities of 311,000 Tons or less, and $[*](6) per Ton, effective January 1, 1993, for annual quantities greater than or equal to 600,000 Tons. For annual quantities between 311,000 and 400,000 Tons, the Base Price for coal shall be an amount per Ton determined by linear interpolation between $[*](6) and $[*](6), effective January 1, 1993. For annual quantities between 400,000 and 600,000 Tons, the Base Price for coal shall be an amount per Ton determined by linear interpolation between $[*](6) and $[*](6), effective January 1, 1993. The Base Price for all coal delivered prior to the Commercial Operation Date shall be $[*](6) per Ton, effective January 1, 1993. Commencing with the first full Operating Year and continuing with each Operating Year thereafter, for annual quantities less than 311,000 Tons, Keystone shall pay Seller a dedication fee (the "Dedication Fee") for each Ton of the shortfall amount, unless such shortfall is a result of suspension or rejection of deliveries pursuant to Sections 6.3, 6.4 or 6.6 (a), an event of Force Majeure, or termination of this Agreement in accordance with its terms. Effective as of January 1, 1993, the Dedication Fee shall be $[*](6) per Ton of - --------------------- (6) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -25- 27 the shortfall amount and shall be escalated each calendar year thereafter by the GDP Deflator, provided however, that such escalation shall not be more than [*](7)% per year and any excess shall not be reflected in the price adjustment in any succeeding year. 7.2 Escalation of Base Price. From January 1, 1993 through the expiration of the Initial Term or any Extended Term of this Agreement, the Base Price for Coal delivered by Seller to the Point of Delivery shall be adjusted on an annual basis by the Base Escalator pursuant to Section 7.3 or, if applicable, the New Base Escalator or other escalator determined pursuant to Section 7.6. 7.3 Base Escalator. The Base Escalator is defined in Article 5.1B(ii) of the Agreement for Purchase of Electric Power between Atlantic Electric and Keystone attached hereto as Exhibit D; provided that the term "bituminous coal" referred to therein shall have the meaning set forth in Section 7.5 hereof. Pursuant to the provisions of the Agreement for Purchase of Electric Power, the Base Escalator will be established by Atlantic Electric and reported to Keystone in the first quarter of each calendar year. The first Base Escalator adjustment shall occur in 1994. The value of the Base Escalator established for a calendar year will be applied to all coal delivered during that calendar year. 7.4 Adjustment of Price for Sulfur Content. The Base Price of coal shall be adjusted for changes in the annual average of the sulfur content of bituminous coal (as defined in Section 7.5) used by New Jersey utilities as follows: - ------------------- (7) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -26- 28
Annual Average Price Price Sulfur Content Reduction/Ton Increase/Ton - -------------- ------------- ------------ 0-0.5% $[*](8) -- 0.5-0.6% $[*](8) -- 0.6-0.7% $[*](8) -- 0.7-0.8% $[*](8) -- 0.8-0.9% $[*](8) -- 0.9-1.5% -- -- 1.5-1.6% -- $[*](8) 1.6-1.7% -- $[*](8) 1.7-1.8% -- $[*](8) 1.8-1.9% -- $[*](8) 1.9% and greater -- $[*](8)
The Price Reduction and Price Increase rates for changes in the average annual sulfur content in the coal shall be effective as of January 1, 1993 and shall be adjusted each calendar year by the GDP Deflator, provided however, that such adjustment shall not be more than 5% per year and any excess shall not be reflected in the price adjustment in any succeeding year. 7.5 Bituminous Coal. The annual average cost of bituminous coal (for purposes of the Base Escalator) and sulfur content (for purposes of Section 7.4) shall be based on the Form 423 reports filed with FERC by New Jersey utilities reporting the annual average cost of bituminous coal used by such New Jersey utilities. For purposes of this Agreement "bituminous coal" as reported by New Jersey utilities on FERC Form 423 shall mean bituminous coal with the following quality specifications:
Bituminous Coal Parameter As Received Ranges - ------------------------- ------------------ Heating Value, Btu/Lb [*](8) Ash Content, % [*](8) Sulfur Content, % [*](8)
(8) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -27- 29 7.6 New Base Escalator. (a) If during the Initial Term or any Extended Term of this Agreement the Base Escalator as defined in Article 5.1B(ii) of the Agreement for Purchase of Electric Power between Atlantic Electric and Keystone is no longer effective and a new Base Escalator is established by Atlantic Electric and agreed to by Keystone as the new Base Escalator (the "New Base Escalator") applicable to the Agreement for Purchase of Electric Power, then, subject to the provisions of Section 7.6(b) below, such New Base Escalator shall apply to this Agreement for the calculation of the Base Price of coal. Subject to Section 7.6(b) below, the New Base Escalator shall apply from the date the existing Base Escalator is no longer effective. (b) Keystone agrees to notify Seller promptly of the non-effectiveness or significant risk of non-effectiveness of the existing Base Escalator. Keystone further agrees to keep Seller informed as to the status and content of its negotiations with Atlantic Electric to establish the New Base Escalator. Keystone shall give good faith consideration to any suggestions or objections raised by Seller concerning the proposed terms of the New Base Escalator. In the event that Keystone and Atlantic Electric agree to a New Base Escalator and Seller believes that it will suffer a gross inequity because of the adverse effect such New Base Escalator will have on determining the escalations of the Base Price, then, within 10 days of receipt of a written notice from Seller, Keystone shall negotiate in good faith with Seller to establish a basis other than the New Base Escalator for providing reasonable escalation to the Base Price for the remaining term of this Agreement from the date that the Base Escalator is no longer effective. The new basis for providing a reasonable escalation to the Base Price as agreed to by the parties shall be a 100% bituminous coal (as defined in Section 7.5) based escalator. If after 30 -28- 30 days of negotiations the parties are unable to agree on a new basis for providing a reasonable escalation, Seller may submit such matter to arbitration pursuant to Article XVIII and the arbitrator shall be directed to develop a 100% bituminous coal (as defined in Section 7.5) based escalator comparable to such escalators used by utilities in the New Jersey region for coal fired power plants. 7.7 Government Imposition. If any change in any current non-federal Applicable Law or the existence of a new non-federal Applicable Law (any such change or new non-federal Applicable Law is referred to herein as a "Government Imposition") shall result in an increase in the cost to Seller of the mining, processing or transporting of coal hereunder, then Keystone shall reimburse Seller for 50% of Seller's increased costs resulting from such Government Imposition. Such extra costs will be billed separately and shall be accompanied by reasonable documentary evidence supporting the extra costs. ARTICLE VIII PREMIUMS AND PENALTIES FOR VARIATIONS IN QUALITY 8.1 Calculation and Billing of Premiums and Penalties. Premiums and penalties shall apply to all coal delivered under this Agreement based upon the semi-monthly average analysis of coal as determined pursuant to Section 10.3(b). Premiums and penalties shall be calculated at the end of each Billing Period based upon a comparison with the Semi-Monthly Average Contract Specifications set forth in Section 6.2. -29- 31 8.2 Premiums and Penalties for Calorific Value. The Base Price is based on coal with a calorific value of [*](9) Btu per pound. If the actual semi-monthly average calorific value of all coal delivered in any Billing Period is greater or less than [*](9) Btu per pound, then a premium or penalty shall be determined in accordance with the following formulae: Penalty = (Y-A) PxT, if Y is greater than A ----- Y Premium = (A-Y) PxT, if A is greater than Y ----- Y Where: P is the Base Price in effect for the Billing Period, $/Ton A is the weighted average calorific value per pound of all coal delivered during the Billing Period (Btu/lb. (HHV)). Y is [*](9) Btus per pound. T is the number of Tons of coal delivered hereunder during the Billing Period. 8.3 Premiums and Penalties for Ash. The Base Price is based on coal with an ash content of [*](9) %. If the actual semi-monthly average ash content of all coal delivered in any Billing Period is greater or less than [*](9) %, then a premium or penalty shall be determined in accordance with the following formula: Penalty = (A-E) ADPxT, if A is greater than E ----- E - ------------------- (9) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -30- 32 Premium = (E-A) ADPxT, if E is greater than A ----- E Where: A is the average ash content of all coal delivered during the Billing Period (stated as a percentage by weight). E is contract specification of ash content of [*](10) wt. T is the number of Tons of waste generated during the Billing Period. ADP is the Ash Disposal Price for the Billing Period (stated as dollars per Ton) which shall not be less than $[*](10) per Ton. 8.4 Premiums and Penalties for Sulfur. Seller expects to deliver coal with a sulfur content of approximately [*](10) percent or less by weight. If the average semi-monthly sulfur content of the delivered coal during any billing period is less than [*](10) percent, Keystone shall pay Seller a premium of $[*](10) per Ton for each one tenth of a percentage point that the average semi-monthly sulfur content is below [*](10) percent during such billing period. If the sulfur content of any delivered coal is [*](10) percent or greater, Keystone may reject the coal in accordance with Section 6.3 of this Agreement. The $[*](10) per Ton premium shall be effective as of January 1, 1993 and shall be escalated each calendar year by the GDP Deflator provided however, that such escalation shall not exceed [*](10) % per year and any excess shall not be reflected in the price adjustment in any succeeding year. The $[*](10) per Ton premium is based upon an estimated Ash Disposal Price of not less than $[*](10) /Ton effective January 1, 1991. An example of the calculation used to determine the adjustment of the premium is attached hereto as Exhibit E. - ------------------- (10) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]", have been filed separately with the Commission. -31- 33 ARTICLE IX BILLING AND PAYMENT 9.1 Billing. For purposes of this Agreement, Seller shall submit invoices for coal delivered to Keystone on the basis of a semi-monthly Billing Period. A Billing Period shall consist of that period of days from the 1st to the 15th of each month, or the 16th to the last day of each month. Seller shall submit to Keystone an invoice by the 1st and 16th of each month for all coal delivered to the Point of Delivery at the Facility and accepted by Keystone during the preceding Billing Period. Seller may submit invoices to Keystone by fax. Each semi-monthly invoice shall be itemized by Shipment and show (i) the quantity of coal delivered during the Billing period, (ii) the Base Price (including any adjustments pursuant to Sections 7.4, or 7.6), (iii) the semi-monthly average analysis of coal delivered during the Billing Period as determined pursuant to Section 10.3(b), (iv) premiums and penalties for variations in quality as provided for in Article VIII, and (v) the supporting calculations. If any revision of the Base Price is in process, invoicing shall be made on the basis of the existing Base price, and appropriate retroactive adjustments shall be made when the new Base Price has been calculated. For invoicing purposes, the parties agree that the Base Price during the initial Operating Year shall be calculated on the basis of 460,000 tons; for each subsequent Operating Year, the Base Price shall be calculated on the basis of the greater of an annual quantity of 400,000 tons or the previous year's quantity until the earlier of (i) the date on which Seller shall have delivered 600,000 tons of coal in such Operating Year or (ii) the end of such Operating Year (the earlier of such dates being the "Annual Quantity Determination Date"). As soon as practicable following the Annual Quantity Determination Date, (i) Seller shall - -------------------------------------------------------------------------------- -32- 34 credit Keystone for the aggregate amount, if any, by which the Base Price actually invoiced by Seller during such Operating Year exceeded the correct Base Price, or (ii) Keystone shall pay to Seller the aggregate amount, if any, by which the correct Base Price exceeded the amount actually paid by Keystone pursuant to invoices from Seller. An example of the calculations used for the computation of the Base Price and any premiums or penalties is attached hereto as Exhibit E. 9.2 Payment. Keystone shall pay Seller amounts due as shown on invoices rendered pursuant to Section 9.1 hereof no later than 20 days after receipt of an invoice. If the payment due date falls on a Saturday, Sunday or holiday, the payment will be due on the preceding business day. Payments shall be made by wire transfer in immediately available funds to Seller's account at a bank designated by Seller. In the event part or all of a payment is not made when due, interest shall accrue and be payable on the overdue amount at a rate equal to the daily Prime Rate plus two percentage points, as published by the Mellon Bank (East) in Philadelphia, for the number of days that payment is late. 9.3 Disputed Invoices. Keystone shall pay the full amount of each invoice except for disputed amounts. Subject to Section 18.2, Keystone shall not be obligated to pay any portion of an invoice which it, in good faith, believes is in dispute. In such case, on or before that payment is due, Keystone shall notify Seller in writing of its reasons for disputing an invoice amount, or its reason for believing such portion of an invoice to be in dispute. If Keystone is determined to be in error regarding a disputed amount, Keystone shall pay such withheld amount immediately upon such determination, together with interest at the rate specified in Section 9.2. -33- 35 9.4 Records of Seller. Seller shall maintain complete and accurate records to support all invoices submitted pursuant to Section 9.1 hereof. Keystone shall have the right, upon reasonable prior notice, to inspect and review at Seller's offices any such records at any reasonable time for the purpose of verifying the correctness of any invoice submitted by Seller to Keystone, any adjustment to the Coal Price and any calculation of premiums and penalties for variations in quality. ARTICLE X WEIGHING, SAMPLING AND ANALYSIS 10.1 Weighing. The weights of coal delivered hereunder shall be determined by the use of certified scales maintained by the railroad transporting the coal to Seller's barge or vessel loading facility. Seller shall arrange with the transporting railroad to weigh the coal pursuant to a procedure developed by Seller and the railroad and approved by Keystone. Seller and Keystone may be present during such weighings, and the railroad weights shall be final and binding on both Seller and Keystone. In the event Seller installs certified scales which meet the railroad's requirements and the railroad no longer weighs Seller's shipments to Keystone, the weights of coal delivered hereunder shall be determined by the use of Seller's certified scales so long as Seller weighs the coal pursuant to a procedure approved by Keystone which approval shall not be unreasonably withheld. The weights that are determined in the manner set forth above will be binding on both Keystone and Seller. 10.2 Sampling. Seller shall take a representative sample of coal contained in each shipment at the time the coal is loaded into rail cars (the "Rail Sample") and the Independent Laboratory shall take a representative sample at the time the coal is -34- 36 transferred from the rail cars into the barge or vessel (the "Barge Sample"). Each Rail Sample and Barge Sample shall be taken using a mechanical sampling system taking full stream increments. Each Rail Sample and Barge Sample for a Shipment from the mechanical sampler shall be divided into three parts, and each part shall be placed into an airtight container and suitably labeled. With respect to each Rail Sample, one part shall be delivered to the Independent Laboratory for analysis by the Independent Laboratory in accordance with ASTM Methods D-2234 and D-2013 or such other methods as may reasonably be agreed upon by the parties; one part shall be retained by Seller for its own analysis; and the third part shall be delivered to and retained by the Independent Laboratory for a period of 45 days from the date of sampling for referee analysis pursuant to Section 10.4. With respect to each Barge Sample, one part shall be retained by the Independent Laboratory for analysis by the Independent Laboratory in accordance with ASTM Methods D-2234 and D-2013 or such other methods as may reasonably be agreed upon by the parties; one part shall be retained by the Independent Laboratory for analysis upon the request of either party at the expense of the requesting party; and the third part shall be retained by the Independent Laboratory for a period of 45 days from the date of sampling for referee analysis pursuant to Section 10.4. Either party shall have the right to have a representative present at any and all times to observe the sampling and sample preparation hereunder and to obtain sample splits for check purposes. 10.3. Analysis. (a) The Independent Laboratory shall analyze its part of each Rail Sample at the expense of Seller. The analysis of each Rail Sample for moisture, ash, sulfur, volatile matter and calorific value shall be reported by the Independent Laboratory to Keystone and Seller by telecopier within 36 hours following the loading of such -35- 37 Shipment. If Seller or Keystone disputes any Rail Sample analysis made by the Independent Laboratory, then the Independent Laboratory shall perform a referee analysis of such Rail Sample pursuant to Section 10.4. The Independent Laboratory's Rail Sample analysis shall be used to determine Keystone's right to reject coal pursuant to Section 6.3. (b) The Independent Laboratory shall analyze its part of each Barge Sample at the equal and shared expense of Seller and Keystone. The analysis of such Barge Sample for moisture, ash, sulfur, volatile matter and calorific value shall be reported by the Independent Laboratory by telecopier to Keystone and Seller within 24 hours following the loading of such Shipment. If Seller or Keystone disputes any Barge Sample analysis made by the Independent Laboratory, then the Independent Laboratory shall perform a referee analysis of such Barge Sample pursuant to Section 10.4. The Independent Laboratory's Barge Sample analysis shall be determinative of coal quality under this Agreement and shall govern for billing and payment purposes unless superseded pursuant to the provisions of Section 10.4. As soon as practicable following the end of each Billing Period, Seller shall provide to Keystone a report of the semi-monthly average analysis of each of the characteristics listed in Section 6.2 for all coal delivered hereunder during each Billing Period, which analysis shall be based upon the Independent Laboratory's Barge Sample analysis of such coal. 10.4 Referee Analysis. The Independent Laboratory shall perform the referee analysis of any disputed Rail Sample analysis or Barge Sample analysis made by the Independent Laboratory or by Seller. The parties will agree to designate an alternate -36- 38 Independent Laboratory if for any reason the first named Independent Laboratory is unavailable or becomes unacceptable to either party. With respect to the characteristics of the coal in dispute, the analysis in dispute shall be deemed to have been confirmed if the difference between the referee analysis of the Independent Laboratory and the disputed analysis is within the tolerance as specified within the applicable ASTM standards. If the disputed analysis is so confirmed, then all costs of such referee analysis shall be borne by the party initiating the referee analysis. If a disputed analysis is not so confirmed, then such analysis shall be superseded by the referee analysis of the Independent Laboratory, and all costs of such referee analysis shall be shared equally by the parties. ARTICLE XI FORCE MAJEURE 11.1 Definition of Force Majeure. The term "Force Majeure" shall mean any cause or event beyond the reasonable control of either party causing a failure or delay of that party in performing any obligation hereunder, which events shall include, but are not limited to: drought, flood, earthquake, storm, fire or lightning; epidemic; acts or failure to act of local, state, federal or civil government; war or its cessation; riot, disturbance or sabotage; acts of terrorism; nuclear emergency or other cataclysmic occurrences; labor shortage, strikes or similar labor difficulty and interruptions; area-wide rail, barge or vessel shortage, or other interruptions to transportation (including obstruction of the Chesapeake and Delaware Canal); authorized diversion or confiscation of coal; accidents; breakdowns of or damage to plant, equipment or facilities; forced outages at the Facility; failure of Atlantic City Electric Company to perform its obligations under the Agreement -37- 39 for Purchase of Electric Power; failure of Monsanto Chemical Company to perform its obligations under the Electric Power Sales Agreement or Steam Supply Agreement; failure of a third party to perform under any material contract related to the Facility and to which Keystone is a party; perils of the sea; or other such causes, whether of like or dissimilar nature, whether or not foreseen or foreseeable by either or both of the parties, which wholly or partially hinders, prevents, interrupts or delays (i) the production, loading, unloading, transportation, sampling, analysis or delivery of the coal by Seller or its subcontractors, (ii) the receiving, unloading, storing or burning of the coal by Keystone or its subcontractors, or (iii) otherwise prevents, interrupts, hinders or delays the performance of a party's obligations hereunder. The term Force Majeure shall specifically include the inability of Keystone to burn the coal supplied hereunder in the Facility without significant alteration of the Facility or installation of additional significant equipment in order to comply with changes in Applicable Laws. The term Force Majeure shall not include any market driven forces such as: scarcity of commodities; increased transportation cost; costs of inventory; outages at Keystone's Facility resulting from economic dispatch; or other economic factors faced by Seller or Keystone. 11.2 Consequence of Force Majeure. A party's performance of its obligations hereunder, except obligations to make payments of money already due to the other party hereunder prior to the occurrence of the Force Majeure event, shall be excused to the extent prevented, interrupted, hindered or delayed by a Force Majeure event. In case of reduction of Seller's output and consequent inability to deliver, or reduction of Keystone's ability to accept delivery of, or to consume coal, resulting from an event of Force -38- 40 Majeure, Seller and Keystone shall endeavor, upon request of the other, to continue the delivery and acceptance, respectively, of substantially the same proportion of their respective production and consumption as so reduced. Deficiencies in the quantity of coal delivered hereunder due to a Force Majeure event shall not be made up except by mutual agreement of Keystone and Seller. The party claiming excuse because of a Force Majeure event shall give notice by telephone to the other party immediately upon becoming aware of such event, with such notice confirmed in writing as soon as practicable thereafter under the circumstances. Such notice to the other party shall describe the circumstances of the event or cause giving rise to the claim of Force Majeure and the anticipated duration thereof. During the existence of any Force Majeure event preventing delivery of coal by Seller, Keystone shall have the right to purchase and utilize replacement coal from other suppliers in a quantity which bears a commercially reasonable relation to the quantity which would have been delivered to Keystone but for such Force Majeure event. Keystone, at its sole discretion, shall give Seller the opportunity to bid on the supply of such replacement coal and, within fifteen days, to match the terms offered by such other suppliers. During the existence of any Force Majeure event preventing utilization of coal by Keystone, Seller shall have the right to sell coal dedicated to Keystone to third parties in a quantity which bears a commercially reasonable relation to the quantity which would have been delivered to Keystone but for such Force Majeure event. 11.3. Events Beyond Control of a Party. As used in Section 11.1, an event shall be deemed to be beyond the control of the party claiming excuse if such party is unable to avoid or overcome such event despite the exercise of due diligence. A strike or other -39- 41 labor dispute shall be deemed to be beyond the control of the party whose performance is interrupted or prevented by such strike or labor dispute, and the settlement of such strike or labor dispute shall be at the sole discretion of such party. Economic hardship, by itself, experienced by a party in carrying out its obligations hereunder shall not be deemed to be an event beyond the control of such party. Subject to the foregoing, a party claiming excuse by reason of a Force Majeure event shall exercise commercially reasonable good faith efforts to remedy or overcome such event as soon as practicable under all the circumstances. In the event that the parties are unable in good faith to agree that a Force Majeure event has occurred, the parties shall submit the dispute for arbitration pursuant to Article XVIII, and the burden of proof as to whether an event of Force Majeure has occurred shall be upon the party claiming an event of Force Majeure. 11.4 Termination for Force Majeure. If either party believes an event of Force Majeure which excuses performance of either party hereunder is likely to be permanent (i.e., it is likely to continue for a period exceeding one year), such party may notify the other party of such belief. Such notice shall state the reasons for the belief that the event of Force Majeure will be permanent and why there are no steps which can be taken at a commercially reasonable cost to eliminate such Force Majeure event. The party receiving such notice shall respond within ten days stating either (i) that it concurs that the Force Majeure event is likely to be permanent, or (ii) that it disagrees that such Force Majeure event is likely to be permanent and its reasons thereof. Unless otherwise mutually agreed, this Agreement shall be terminated if both parties concur that the Force Majeure event is likely to be permanent. -40- 42 ARTICLE XII DEFAULT AND REMEDIES 12.1 Events of Default. An event of default ("Default") under this Agreement shall be deemed to exist upon the occurrence of any one or more of the following events: (a) Failure by either party to make payment of any amount due the other party under this Agreement, which failure continues for a period of five days after receipt of written notice of such nonpayment (unless payment of such amount is contested or otherwise disputed in accordance with the provisions of this Agreement); (b) Subject to the following sentence, failure by Seller to deliver to Keystone during any month two or more Shipments of coal within five days of the dates specified in the Order(s) for such Coal, unless excused by Force Majeure. A Default shall be deemed to have occurred if, after a Notice of Default, Seller has failed to deliver such coal within ten days and has failed to provide adequate assurances to Keystone within such cure period that such failure will not be repeated. (c) Failure by Seller to meet Orders from Keystone aggregating 20,000 Tons or more in any one month, unless excused by Force Majeure. (d) Failure by Seller to provide adequate assurances as required in connection with any provision of this Agreement within ten days after notice of such failure. (e) Failure of either party to perform any other covenant, agreement or undertaking provided for in this Agreement or breach of any representation or warranty of either party which has a material adverse effect on the other party, and (i) such failure -41- 43 or breach continues for 30 days after notice of such failure or breach or (ii) if the nonperforming party shall commence within such 30 days and shall thereafter proceed with all due diligence to cure such failure or breach, such failure or breach is not cured within such longer period (not to exceed 30 days) as shall be necessary for such party to cure the same with all due diligence. (f) An assignment of this Agreement which is not permitted or consented to pursuant to Section 16.1. (g) The bankruptcy or insolvency of either party. 12.2 Remedies for Default. Upon the occurrence and during the continuance of Default hereunder, the party not in Default shall be entitled, without limitation, to any of the following remedies: (a) To terminate this Agreement by written notice upon the expiration of any applicable cure period or period prescribed for provision of adequate assurances. (b) Upon a showing that its remedy at law is inadequate, to obtain an order compelling specific performance of this Agreement and injunctive relief restraining any actual or threatened breach of any material obligation of the other party under this Agreement without the necessity for filing any bond. (c) To purchase replacement coal as provided in Section 6.5. 12.3 Waiver of Default. Either party may waive a Default by the other party, provided that no such waiver shall be binding unless reduced to writing, and any such waiver shall be deemed to extend only to the particular occurrence of Default waived and shall not limit or otherwise affect any rights that either party may have with respect to any prior or subsequent Default. -42- 44 12.4 Cumulative Remedies. None of the remedies provided in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to herein or otherwise available to either party at law or in equity. 12.5 No Consequential Damages. Notwithstanding anything in this Agreement to the contrary, neither party shall be liable for consequential damages by virtue of its breach of any of its obligations, representations or warranties hereunder. ARTICLE XIII REPRESENTATIONS, WARRANTIES AND COVENANTS 13.1 Seller's Representations and Warranties. In addition to the representations and warranties set forth elsewhere in this Agreement, Seller hereby represents and warrants to Keystone as follows: (a) Seller is a corporation duly organized and in good standing under the laws of the State of Delaware and has been duly authorized by all requisite corporation action to execute and deliver this Agreement. Seller further represents that it is not involved in any litigation with any party which would jeopardize or impair Seller's ability to perform this Agreement. (b) The person executing and delivering this Agreement on Seller's behalf is acting pursuant to proper authorization, and this Agreement is the valid and binding obligation of Seller and is enforceable in accordance with its terms except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). -43- 45 (c) Neither the execution and delivery by Seller of this Agreement nor the consummation by Seller of the transactions contemplated hereby is an event which, of itself or with the giving of notice or the passage of time or both, constitutes a violation of or will conflict with or result in any material breach of or any default under the terms, conditions or provisions of any judgment, law, rule or regulation to which Seller is subject, or of Seller's organizational documents, or of any agreement or instrument to which Seller is a party or by which it is bound. 13.2 Representations and Warranties of Keystone. In addition to the representations and warranties set forth elsewhere in this Agreement, Keystone hereby represents and warrants to Seller as follows: (a) Keystone is a limited partnership organized, validly existing and in good standing under the laws of Delaware with full power and authority to enter into this Agreement. Keystone further represents that it is not involved in any litigation with any party which would jeopardize or impair its ability to perform this Agreement. (b) The persons executing and delivering this Agreement on Keystone's behalf are acting pursuant to proper authorization and this Agreement is the valid and binding obligation of Keystone and is enforceable in accordance with its terms. (c) Neither the execution and delivery by Keystone of this Agreement nor the consummation by Keystone of the transactions contemplated hereby is an event which, of itself or with the giving of notice or the passage of time or both, constitutes a violation of or will conflict with or result in any material breach of or any default under the terms, conditions or provisions of any judgment, law, rule or regulation to which -44- 46 Keystone is subject, or of Keystone's organizational documents, or of any agreement or instrument to which Keystone is a party or by which it is bound. (d) The berthing and unloading facilities at the Facility will not require specially designed barges and will be located where a tug and a barge up to 450 feet in length laden to a draft of 20 feet can approach, lie alongside and depart always safely afloat under extreme low tide conditions or in adverse weather. The berthing and unloading facilities will be designed and constructed to withstand the normal forces occurring during the docking, mooring, shifting and unloading of barges carrying no more than 10,000 short tons of coal. The berthing and unloading facilities shall have a barge haul system of sufficient size to move and stop barges safely beneath the unloader and controlled by Keystone. 13.3 Special Covenants of Seller. In addition to all other covenants of Seller made herein, Seller hereby covenants and agrees as follows: (a) Seller covenants and agrees with Keystone that all coal sold by Seller pursuant to this Agreement will be delivered by Seller free from all liens (except carriers' liens) and adverse claims. (b) Seller will own, lease or control sufficient quantities of specified coal to meet the delivery requirements of this Agreement over the specified Term. (c) Seller's affiliates will obtain and maintain all Permits necessary to mine and deliver the quantity of coal required to meet its obligations for the Term of this Agreement. 13.4 Special Covenants of Keystone. In addition to all other covenants of Keystone made herein, Keystone hereby covenants and agrees as follows: -45- 47 (a) Keystone will pay Seller for coal delivered and accepted and no longer subject to dispute, before payment by Keystone on senior debt. (b) Keystone shall obtain and have in effect all Permits necessary for the delivery, off-loading and utilization of coal. (c) Keystone shall give representatives of the barge owner reasonable access to all engineering plans and drawings for the berthing and unloading facilities at the Facility and all such plans shall be subject to the reasonable approval of such representatives for compatibility with the barges and the requirements of safe navigation. (d) Keystone will maintain the berthing and unloading facilities at the Facility as warranted in this Agreement, and will not alter such facilities without prior notice to Seller and the barge owner. (e) In the event that (i) Keystone shall have failed to notify Seller prior to January 1, 1993 that Seller should direct its barge carrier not to proceed with modifications to the barge which will transport coal to be delivered hereunder and (ii) either the Commercial Operation Date shall not have occurred by January 1, 1996 or Keystone shall have notified Seller to direct its barge carrier to stop the modifications to the barge (the earlier of such dates is referred to herein as the "Stop Date"), then Keystone shall reimburse Seller for all costs to Seller of such barge modifications, together with the cost of returning the barge to serviceable condition using the least expensive alternative. If the Stop Date shall occur prior to the completion of the barge modifications, as evidenced by the barge carrier's cancellation schedule (a copy of which shall be delivered to Keystone prior to commencement of the barge modifications), then Keystone's reimbursement obligation to Seller hereunder shall be limited to the barge -46- 48 modification costs to Seller through the next cancellation date following the Stop Date as indicated on such cancellation schedule, together with the cost of returning the barge to serviceable condition using the least expensive alternative. Seller shall provide Keystone with reasonable documentary evidence of all barge modification costs for which it claims reimbursement. ARTICLE XIV INDEMNIFICATION 14.1 Seller Indemnity. Seller agrees to defend, indemnify and hold harmless Keystone, its partners and affiliates and all officers, directors, employees and agents thereof, from and against any and all liabilities (including third party liabilities), lawsuits, claims, damages, losses, fines, penalties and assessments by any public agency, costs and expenses (including costs and expenses of defense, settlement and reasonable attorneys' fees), which are incurred or brought as a result of any negligent or willful act or omission of Seller, its agents, employees, representatives, contractors or subcontractors associated with, or arising from, the performance by Seller of its obligations under this Agreement, including such matters arising in connection with the docking, unloading or undocking of the vessel. 14.2 Keystone Indemnity. Keystone agrees to defend, indemnify and hold harmless Seller and its affiliates and all officers, directors, employees and agents thereof, from and against any and all liabilities (including third party liabilities), lawsuits, claims, damages, losses, property damage, fines, penalties and assessments by any public agency, costs and expenses (including costs and expenses of defense, settlement and reasonable attorneys' fees), which are incurred or brought as a result of any negligent or willful act or -47- 49 omission of Keystone, its agents, employees, representatives, contractors or subcontractors associated with, or arising from, the performance by Keystone of its obligations under this Agreement, including such matters arising in connection with the docking, unloading or undocking of the vessel. 14.3 Indemnity for Warranties and Other Matters. With respect to or arising out of any breach by a party of its warranties, representations or covenants hereunder, such party shall indemnify and hold the other party and its successors, assigns, partners, employees, contractors, subcontractors and agents harmless from and against all damages, losses or expenses suffered or paid as a result of any and all claims, demands, suits, penalties, causes of action, proceedings, judgments, administrative and judicial orders and liabilities (including costs of defense, settlement and reasonable attorneys' fees) assessed, incurred or sustained by or against such other party and its successors, assigns, partners, employees, contractors, subcontractors and agents. 14.4 Effect of Indemnification. The indemnification provided for in this Article XIV shall not provide an alternative remedy for any deficiencies in the quality of coal delivered hereunder or for any liabilities, damage or losses which are expressly addressed in any other Article or Section of this Agreement; the remedies expressly provided for in such other Article or Section of this Agreement shall, to the extent applicable, govern the rights and obligations of the parties instead of the remedies provided for in this Article XIV. 14.5 Notice and Legal Defense. Promptly upon receipt by a party entitled to indemnification under this Article XIV (the "Indemnified Party") of any claim as to which such indemnification may be applicable ("Claim"), the Indemnified Party shall -48- 50 notify the other party (the "Indemnifying Party") of such fact in writing with the details of such Claim. The Indemnifying Party shall assume the defense thereof with counsel of its choice, subject to the reasonable approval of the Indemnified Party. If the parties against whom the Claim is asserted include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have reasonably concluded that there may be legal defenses available to it which are different from, additional to or inconsistent with, those available to the Indemnifying Party, the Indemnified Party shall have the right to select separate counsel to participate in the defense of such Claim on behalf of such Indemnified Party, at the Indemnifying Party's expense. The Indemnified Party shall retain authority, in the reasonable exercise of its discretion, to approve any and all communications with, and to prevent the submission of any documents to, any court or governmental authority having jurisdiction over the Claim. 14.6 Failure to Defend Claim. Should the Indemnified Party be entitled to indemnification under this Article XIV as a result of a Claim by a third party, and should the Indemnifying Party fail to assume the defense of such Claim, having received notice as required by Section 14.5, the Indemnified Party may at the expense of the Indemnifying Party contest (or, with the prior written consent of such Indemnifying Party, not to be unreasonably withheld, settle) such Claim; provided, that no such contest need be made, and settlement or full payment of any such Claim may be made upon seven days' prior written notice to but without consent of the Indemnifying Party (with such Indemnifying Party remaining obligated to indemnify the Indemnified Party under this Article XIV) if, in the written opinion of the Indemnified Party's counsel, such Claim is meritorious. -49- 51 14.7 Joint Cause. If any Claims for indemnity arising out of Section 14.1 or Section 14.2 are caused by joint and concurring acts or omissions of Seller and Keystone, the liability of Seller and Keystone therefor shall be apportioned according to their respective degrees of fault. 14.8 Survival. The provisions of this Article XIV shall survive the termination, cancellation or expiration of this Agreement, subject to applicable statutes of limitation. ARTICLE XV NOTICES 15.1 Notices. Any notice required or permitted under this Agreement shall be in writing, shall be deemed to have been duly given on the date of receipt, and shall be either served personally on the party to whom notice is to be given, delivered by any recognized courier service, sent by telecopy or fax, or mailed to the party to whom notice is to be given, by first class registered or certified mail, return receipt requested, postage prepaid. Notices shall be addressed to the addressee at the address stated below, or at the most recent address specified by written notice given to the other party in the manner provided in this Section 15.1: If to Keystone: Keystone Energy Service Company, L.P. 7475 Wisconsin Avenue Bethesda, MD 20814 Attention: President Tel. 301/718-6800 Fax 301/718-6910 If to Seller: Anker Energy Corporation Route 12, Box 245 Morgantown, West Virginia 26505 -50- 52 Attention: Vice President of Sales Tel. (304) 296-1616 Fax (304) 291-3692 ARTICLE XVI ASSIGNMENT 16.1 Assignment. This Agreement may be assigned by either party to a successor to substantially all of the assets of a party hereto by way of merger, consolidation or sale of assets, or to a parent, subsidiary or affiliate provided that (i) unless released by the other party, the assignor shall remain fully liable for all warranties, representations and covenants hereunder, and (ii) the assignee shall assume in writing all warranties, representations and covenants hereunder. Except as provided above and in Section 16.2, any transfer, assignment, delegation, or attempted transfer, assignment or delegation under this Agreement or of any of the rights or duties herein granted or imposed, whether voluntary, by operation of law or otherwise, without consent of the other party in writing, (which consent shall not be unreasonably withheld) shall be an event of Default under this Agreement. 16.2 Assignment to Financing Parties. (a) The parties acknowledge that Keystone intends to finance the construction of the Facility by non-recourse "project financing," and that the Financing Parties will require such financing to be secured by a first lien upon the Facility and other assets of Keystone, including a collateral assignment of this Agreement and all rights and obligations of Keystone hereunder. Accordingly, this Agreement may be assigned as collateral by Keystone to any Financing Parties and their successors and assigns without further consent of Seller. In order to facilitate the obtaining of such financing, Seller hereby confirms its agreement that in the event of any -51- 53 Default on the part of Keystone of any provision of this Agreement or the occurrence of any other event which Seller may claim as grounds for cancelling this Agreement, Seller (having received prior written notice of the name and address of the Financing Parties) will give written notice thereof to such Financing Parties. The Financing Parties shall have 60 days following the receipt of such notice within which to effect, or commence and diligently pursue the completion of, a cure of such Default and to exercise their rights and remedies under the Financing Documents, except that the applicable cure period for the payment of amounts due to Seller for coal delivered hereunder shall be 30 days. Seller shall also execute such consent and agreement or similar documents with respect to a collateral assignment hereof, as the Financing Parties may reasonably request in connection with the Financing Documents. Seller agrees to cooperate with Keystone in the negotiation and execution of any reasonable amendment or addition to this Agreement required by the Financing Parties which does not result in an adverse change in Seller's rights or obligations hereunder in the good faith judgment of Seller. (b) Seller may assign the right to payments under this Agreement as collateral to any parties which provide financing to Seller or any parent, subsidiary or affiliate of Seller ("Seller Financing Parties") and their successors and assigns upon notice to, but without further consent of Keystone. In order to facilitate the obtaining of any such financing, Keystone hereby confirms its agreement that in the event of any Default on the part of Seller of any provision of this Agreement or the occurrence of any other event which Keystone may claim as grounds for cancelling this Agreement, Keystone (having received prior written notice of the name and address of the Seller Financing Parties) will give written notice thereof to such Seller Financing Parties. -52- 54 Keystone shall execute such consent and agreement or similar documents with respect to such collateral assignment, as the Seller Financing Parties may reasonably request. Keystone agrees to cooperate with Seller in the negotiation and execution of any reasonable amendment or addition to this Agreement required by the Seller Financing Parties which does not result in an adverse change in Keystone's rights or obligations hereunder in the good faith judgment of Keystone. 16.3 Successors and Assigns. Subject to the provisions of Sections 16.1 and 16.2 hereof, this Agreement and the respective rights and obligations of the parties shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto. ARTICLE XVII INSURANCE 17.1 Seller Coverages. Seller shall obtain and maintain, or cause to be maintained, at its expense, and which shall name Keystone as an "Additional Insured", the following insurance during the term of this Agreement: (a) Comprehensive general liability insurance with bodily injury and property damage combined single limits of at least $1,000,000 per occurrence. Such insurance shall include, but shall not necessarily be limited to, automobile liability, worker's compensation as necessary, specific coverage for contractual liability encompassing the indemnification provisions in Sections 14.1 and 14.3 hereof, broad -53- 55 form property damage liability, personal injury liability and, where applicable, watercraft protection and indemnity liability. (b) Umbrella, excess or other insurance policy which provides $20,000,000 of additional coverage for any liability in excess of liability limits provided above. 17.2 Restrictions on Seller Coverages. (a) Seller may not materially change, cancel or allow insurance policies required under this Agreement to lapse without giving thirty days' written notice to Keystone. (b) The failure to comply with the insurance provisions of this Agreement shall not limit or relieve Seller from indemnifying and holding harmless Keystone as provided by any provision of this Agreement. 17.3 Seller Subcontractor Coverages. Seller shall cause any subcontractor(s) with which Seller contracts to provide barge or vessel transportation of coal to fulfill its obligations under this Agreement to obtain and maintain the following insurance, and which shall name Seller and Keystone as "Additional Insured" during the term of the Agreement: (a) Marine protection and indemnity insurance with limits of $30,000,000 per occurrence; and (b) Water pollution coverage insurance with limits of at least $30,000,000 per occurrence. -54- 56 17.4 Keystone Coverages. Keystone shall obtain and maintain, or cause to be obtained and maintained, at its expense, and which shall name Seller as an "Additional Insured", the following insurance during the term of this Agreement: (a) Comprehensive general liability insurance with bodily injury and property damage combined single limits of at least $2,000,000 per occurrence. Such insurance shall include, but shall not necessarily be limited to, automobile liability, specific coverage for contractual liability encompassing the indemnification provisions in Sections 14.1 and 14.3 hereof, broad form property damage liability, worker's compensation as necessary, personal injury liability. (b) Umbrella, excess or other insurance policy which provides $18,000,000 of additional coverage for any liability in excess of liability limits provided above. 17.5 Restrictions on Keystone Coverages. (a) Insurance policies may not be cancelled, allowed to lapse, or materially changed without giving thirty days' written notice to Seller. (b) The failure to comply with the insurance provisions of this Agreement shall not limit or relieve Keystone from indemnifying and holding harmless Seller as provided by any provision of this Agreement. 17.6 Endorsements. If either party purchases insurance to satisfy part or all of its obligations under this Article XVII, such party shall cause its insurers to amend its comprehensive general liability and, if applicable, umbrella or excess liability policies and comprehensive automobile liability insurance with an endorsement to the effect that, notwithstanding any provision of the policy, this policy may not be cancelled, allowed to -55- 57 lapse or materially changed by the insurer without giving thirty (30) days prior written notice to the other party. 17.7 Certificates. Each party shall provide the other party with certificates of insurance pertaining to any insurance policies purchased to satisfy such party's obligations under this Article XVII. ARTICLE XVIII ARBITRATION 18.1 Arbitration. The parties shall negotiate in good faith and attempt to resolve any dispute which may develop under this Agreement; however, if the parties are unable to resolve a dispute hereunder, either party may serve upon the other a demand that such matter be arbitrated, in which case the same shall be resolved by arbitration conducted in accordance with the rules of the American Arbitration Association. In the event of such a dispute, the parties shall endeavor to appoint an arbitrator agreeable to both of them, who shall be the sole arbitrator. In the event that the parties are unable to agree upon an arbitrator within twenty (20) days of the filing of a demand for arbitration by the initiating party, then either party may request the American Arbitration Association to appoint an individual in good standing of such Association's Commercial Arbitration Panel as the sole arbitrator. Unless the parties otherwise agree, the arbitration will be held in Washington, D.C. The parties will proceed with the arbitration expeditiously and will conclude all proceedings thereunder, including any hearing, in order that a decision may be rendered within one hundred twenty (120) days from the filing of the demand for arbitration by the initiating party. The award of the arbitrator will be final and binding on both parties and may be enforced in any court having -56- 58 jurisdiction of the party against which enforcement is sought. Each party shall bear its own expenses, including but not limited to counsel fees, except that all expenses of the arbitration shall be apportioned in the award of the arbitrator based upon the respective merit of the positions of the parties. 18.2 Price and Payment During Arbitration. Whenever a decision has not been rendered within the 120-day period provided by Section 18.1 hereof in an arbitration which relates to a Base Price increase proposed by Seller or to a disputed payment withheld by Keystone, Keystone shall, upon the expiration of such 120-day period, commence paying to Seller such proposed Base Price or pay to Seller such withheld payment, as the case may be. Upon the rendering of the arbitral decision, all overpayments shall be refunded and all underpayments shall be paid, with interest thereon in each case at the rate specified in Section 9.2. 18.3 Survival of Provisions. The provisions of this Article XVIII shall survive the termination, cancellation or expiration of this Agreement, subject to applicable statutes of limitations. ARTICLE XIX MISCELLANEOUS PROVISIONS 19.1 Rounding. For purposes of all calculations pursuant to this Agreement, (i) amounts per Ton shall be rounded to the nearest one-tenth of one cent, (ii) all other amounts shall be rounded to the nearest fourth place after the decimal. 19.2 Consequences of Termination. In the event of a termination of this Agreement pursuant to Section 2.2, Section 2.5, Section 6.6, Section 6.9, Section 11.4 or Section 12.2, neither party shall have any further obligation to perform hereunder, but no -57- 59 such termination shall excuse the payment of any amount due and owing by one party to the other hereunder prior to such termination, nor shall such termination affect the survival provisions of Section 13.4(e), Section 14.8 and Section 18.3. 19.3 Amendments; Waiver. This Agreement may not be amended, supplemented, or modified except by an instrument in writing signed by both of the parties hereto. Any failure by either party to enforce any provisions hereof shall not constitute a waiver by that party of its right subsequently to enforce the same or any other provision hereof. 19.4 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 19.5 Governing Law. This Agreement shall in all respects be governed and construed in accordance with the laws of the State of New Jersey including all matters of construction, validity and performance. 19.6 Independent Contractor; No Partnership. Seller shall be an independent contractor with respect to the sale of the coal and to the performance of its obligations hereunder. Nothing in this Agreement or the arrangement for which it is written shall constitute or create a joint venture, partnership, agency or any other similar arrangement between the parties, and neither party is authorized to act as agent for the other party. 19.7 Captions, Exhibits and the Table of Contents. Titles or captions of Sections contained in this Agreement are inserted only as a matter of convenience and for -58- 60 reference, and in no way define, limit, extend, describe or otherwise affect the scope or meaning of this Agreement or the intent of any provision hereof. All Exhibits attached hereto shall be considered a part hereof as though fully set forth herein. 19.8 Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof. All previous and collateral agreements, representations, warranties, promises and conditions of sale are superseded by this Agreement. Any representation, promise or condition not incorporated in this Agreement shall not be binding on either party. 19.9 Counterparts. The parties may execute this Agreement in two or more counterparts, which shall, in the aggregate, be signed by both the parties; and each counterpart shall be deemed an original instrument as against any party who has signed it. 19.10 Confidentiality. Each party shall retain in confidence the contents of this Agreement and any information obtained as a result of negotiation and performance of this Agreement which either party identifies to the other as being proprietary or confidential in nature, except that (i) Keystone may, upon receipt of equivalent assurances of confidentiality, disclose such information to any proposed Financing Parties, equity investors, or operators of the Facility (if other than Keystone) and to consultants employed by Keystone or Monsanto and (ii) Seller may, upon receipt of equivalent assurances of confidentiality, disclose such information to any parties proposing to provide financing to or acquire an equity interest in Seller or any of its affiliates. Further, such information may be disclosed when requested by a court or government agency, or to the extent required by state regulatory agencies, the Federal -59- 61 Energy Regulatory Commission, the U.S. Environmental Protection Agency or other Federal regulatory agencies. 19.11 Attorney Fees. The parties agree that if one party brings an action against the other with respect to this Agreement, including the resolution of disputes pursuant to arbitration under Article XVIII hereof, the parties' reasonable legal fees and other related expenses will be apportioned between the parties by the arbitrator or judge based upon the respective merits of the parties' positions. 19.12 Right to Visit. Each party grants to the other (including its agents) the right to visit its facilities, from time to time, upon reasonable notice and subject to the applicable rules and regulations of the facilities, in order to witness and review operations related to this Agreement. If Keystone determines under Section 6.6 hereof that the coal deliveries have caused operating problems, Keystone and Seller shall cooperate in arranging for Seller to review the specific problem area. 19.13 Further Assurances. The parties shall execute and deliver such additional documents and shall cause such additional action to be taken as may be reasonably necessary to carry out the purposes and intent of this Agreement. -60- 62 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have caused this Agreement to be executed on the date hereof by their respective representatives heretofore duly authorized. ANKER ENERGY CORPORATION, as Seller By: /s/ John J. Faltis ------------------------ President KEYSTONE ENERGY SERVICE COMPANY, L.P. By: /s/ Joseph P. Kearney ------------------------ -61- EX-10.40 26 COAL SUPPLY AND SERVICES AGREEMENT 1 EXHIBIT 10.40 Execution Copy COAL SUPPLY AND SERVICES AGREEMENT COAL SUPPLY AND SERVICES AGREEMENT, dated as of December 1, 1990 between ANKER ENERGY CORPORATION, a Delaware corporation ("Anker"), and ER&L THAMES, INC., a Delaware Corporation ("ER&L") acting for itself and as agent for CSX Transportation, Inc., ("CSXT"). W I T N E S S E T H ------------------- WHEREAS, AES Thames, Inc. ("AES") desires to construct and operate a cogeneration facility in the Town of Montville, Connecticut for the production and sale of steam and electricity; WHEREAS, ER&L desires to provide coal to AES for the use in production of steam and electricity at the cogeneration facility, and to remove and dispose of the fly-ash and bottom-ash waste produced by said cogeneration facility outside of the State of Connecticut, said delivery, removal and disposal services to be performed, in part, by CSXT rail and other services and, in part, by Anker; and WHEREAS, Anker desires to sell and deliver coal to ER&L, which ER&L will, in turn, sell and deliver to AES, and Anker desires to participate in the disposal of the fly-ash and bottom-ash; and WHEREAS, ER&L desires to purchase and accept such coal from Anker at the cogeneration facility, and to have Anker participate in the disposal of such fly-ash and bottom-ash waste outside of the State of Connecticut; and WHEREAS, Anker desires to employ the services of ER&L, its suppliers and subcontractors, in connection with the transportation and handling of such coal and waste, and ER&L desires to provide such services; and WHEREAS, Anker and CSXT are parties to a Railroad Transportation Contract and Services Agreement dated September 19, 1986 relating to such sales and purchases of coal, disposal of ash, and transportation services (the "CSXT-Anker Agreement"), which agreement, except for the provisions of the Amendatory Agreement thereto dated as of June 21, 1989, shall be amended and replaced in its entirety and thereafter terminated upon the occurrence of certain conditions, all as more fully set forth herein; 2 NOW, THEREFORE, in consideration of the agreements and covenants hereinafter set forth, and intending to be legally bound hereby, the parties hereto covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this Agreement, and unless otherwise required by the context, the following terms shall have the following meanings: "Adjustment Formula" means the formula for calculating inflation adjustments pursuant to Section 6.3 hereof. "AES Agreement", "AES-CSXT Agreement" and "AES-ER&L Agreement" shall have the meaning set forth in Section 2.3 hereof. "Agent and Substitution Agreement" shall have the meaning set forth in Section 17.6 hereof. "Agreement" means this coal supply and services agreement, including all appendices and all amendments thereto made from time to time. "Applicable Law" means any valid law, rule, regulation, ordinance, order, code, judgment, decree, injunction, Permit or similar norm of decision of any Federal, state or local government, authority, agency, court or other body having jurisdiction over the matter in questions. "As-Delivered" means the condition of the Coal immediately after it has been unloaded from the barge or other permitted means of delivery at the Coal Delivery Point, as determined pursuant to Section 4.4 hereof. "Base Cost" shall have the meaning set forth in Section 5.3 (d) hereof. "Base Date" means April 1, 1986. "Base GNP Value" shall have the meaning set forth in Section 6.3 hereof. "BTU" means a British thermal unit. "CL&P" means the Connecticut Light and Power Company a specially chartered Connecticut operation and public service company. "Coal" means coal supplied or to be supplied by Anker and transported to the Facility pursuant to this Agreement. 3 "Coal Delivery Point" means the physical point at which Coal is delivered to AES at the Facility in accordance with Section 4.1 hereof. "Coal Reserves" shall have the meaning set forth in Section 3.5 (b) hereof. "Compelled Change" shall have the meaning set forth in Section 6.4 (c) (ii) hereof. "Construction Contract" means the construction contract to be entered into between AES and the entity or entities chosen by AES and providing for the design, engineering, construction and testing of the Facility. "CSXT-Anker Agreement" means the Railroad Transportation Contract and Services Agreement between Anker and CSXT dated September 19, 1986. "Difference Percentage" shall have the meaning set forth in Section 6.1 (e) hereof. "Dry Waste" means free-flowing Waste which is not Pelletized Waste. "Election Period" shall have the meaning set forth in Section 3.3 (c) (2) hereof. "Event of Default" shall have the meaning set forth in Section 10.1 hereof. "Facility" means the cogeneration facility, including all additions, replacements and substitutions thereto, owned or leased by AES on a site leased by AES from Stone for the purpose of generating and delivering steam and electricity. "Financial Closing Date" means the date on which AES first has unfettered access, but for conditions to continued funding customary and usual for the financing contemplated herein, to funds provided by the Financing Parties sufficient for the purpose of constructing and completing the Facility. "Financing Documents" means the loan agreements, notes, indentures, security agreements, subordination agreements and other documents relating to the construction and permanent financing of the Facility. "Financing Parties" means (i) any and all lenders providing the construction and permanent financing for the Facility, and the indenture trustee, if any, and (ii) any and all equity investors (other than AES) providing financing for the Facility, and the owner trustee, if any. "Fines" means Coal of a size which passes through a Tyler 28 mesh opening. 4 "Force Majeure" shall have the meaning set forth in Section 8.1 hereof. "GNP Deflator" means the preliminary (i.e., second published) Gross National Product Implicit Price Deflator for a calendar quarter as currently published in the United States Department of Commerce, Bureau of Economic Analysis publication entitled Survey of Current Business. If the GNP Deflator ceases to exist or becomes unavailable, the Parties shall reasonably agree to a substitute index that reasonably measures inflation for all goods and services within the United States. "High Heating Value" means the gross or high heating value of coal expressed in BTU's per pound. "Individual Specifications" shall have the meaning set forth in Section 3.3 (b) hereof, as such may be adjusted by ER&L pursuant to Sections 3.3 (a), 3.3 (c) and 3.4 hereof. "In-Service Date" means March 5, 1990, the date which AES designated as the initial date of commercial operation at the Facility. "Lab" shall have the meaning set forth in Section 4.4 (a) hereof. "Mines" means the coal mines described in Annex A hereto. "Mines Sources" means the Mines and other sources of Coal approved by ER&L pursuant to Section 3.5 (a) hereof, or by CSXT during the term of the CSXT-Anker Agreement, including any sources from seams so approved by CSXT or ER&L. "Monthly Specifications" shall have the meaning set forth in Section 3.3 (a) hereof, as such may be adjusted by ER&L pursuant to Sections 3.3 (a) and 3.4 hereof. "Original Applicable Tariff" means the applicable railroad tariff in effect on September19, 1986, except that with respect to demurrage the Original Applicable Tariff is Tariff CSXT 8100, Section VIII (as issued November 1, 1987 and effective January 1, 1988). "Partial Percentage" shall have the meaning set forth in Section 6.1 (e) hereof. "Party" or "Parties" means a signatory or the signatories to this Agreement, as the case may be. "Payment Due Date" shall have the meaning set forth in Section 7.2 hereof. "Pelletized Waste" shall have the meaning set forth in Section 5.1 (a) (1) hereof. 5 "Pelletizing Facility" shall have the meaning set forth in Section 5.1 (a) (1) hereof. "Permit" means any valid waiver, exemption, variance, franchise, permit, authorization, license or similar order of or from any Federal, state or local government, authority, agency, court or other body having jurisdiction over the matter in question. "Pricing District" shall mean the district in which Coal is loaded in rail cars, as determined pursuant to Section 6.1(b) hereof, for purposes of determining the base amount of the Purchase Price per Ton of such Coal in accordance with Section 6.1 (a) hereof. "Purchase Price" means, with respect to Coal, the price to be paid by ER&L to Anker for Coal F.O.B. barge at the Coal Delivery Point as determined pursuant to Section 6.1 (a) hereof and adjusted hereunder from time to time, and means, with respect to Waste disposal services, the price to be paid by ER&L to Anker for Waste disposal services hereunder as determined pursuant to Section 6.2 (a) hereof and adjusted hereunder from time to time. "Prime Rate" means the interest rate for large commercial loans to creditworthy entities published by the Connecticut Bank and Trust Company, N.A. of Hartford, Connecticut, or its successor bank, as such rate may be in effect from time to time. "Reimbursable Costs" shall have the meaning set forth in Section 6.1 (e) hereof. "Stone" means Stone Connecticut Paperboard Corporation, a Delaware corporation. "Surcharge Adjustment" shall have the meaning set forth in Section 6.2 (b) hereof. "Ton" means a short ton of two thousand (2, 000) pounds (avoirdupois). "Total Percentage" shall have the meaning set forth in Section 6.1(e) hereof. "Waste" means fly-ash and bottom-ash waste generated or produced by operation of the Facility. "Waste Destination Point" means, with respect to Waste disposed of at the Waste Disposal Site, Anker's rail siding serving the Waste Disposal Site, and means, with respect to Waste disposed of otherwise, the point at which the Waste is delivered to a third party purchaser or disposer of the Waste. "Waste Disposal Facility" means the facility to be established at and near the Waste Disposal Site for the unloading, transportation and disposal of the Waste, 6 including without limitation a rail siding, rail car unloading system (including any pits, shakers, conveyors, screens, bins, hoppers and dust control equipment) , and associated buildings, structures, land, and handling, electrical and other equipment. "Waste Disposal Site" means one or more physical locations outside the State of Connecticut described in Annex A hereto at which Anker disposes of the Waste from the Facility in accordance with Section 5.3 hereof. "Waste Removal Point" means the physical point at which ER&L gathers and removes the Waste from the Facility for delivery to and disposal by Anker in accordance with Article V hereof. ARTICLE II TERM Section 2.1. Term. This Agreement shall be effective from the date hereof and, unless earlier terminated in accordance with the terms hereof, shall continue until the fifteenth (15th) anniversary of the In-Service Date. If AES and ER&L have arranged for ER&L to supply coal or dispose of Waste beyond said, anniversary, ER&L agrees to engage in good faith negotiations with Anker to extend this Agreement on terms mutually agreeable to Anker and ER&L. Section 2.2. No Reopeners. During the term of this Agreement, there shall be no reopeners. Section 2.3. Preservation of AES Agreement. It is understood this Agreement's benefits depend on the Coal, Limestone, Waste Disposal and Railroad Transportation Agreement between CSXT and AES dated as of September 18, 1986 (the "AES-CSXT Agreement") and any future agreement between ER&L and AES pursuant to which ER&L shall provide coal and waste disposal services to AES (the "AES-ER&L Agreement" and, collectively with the AES-CSXT Agreement, the "AES Agreement") . ER&L shall use its best efforts to preserve and perform the AES Agreement, to make that Agreement operate successfully, and to avoid impairing Anker's opportunity to supply the coal requirements of the Facility. ER&L acknowledges that Anker has asked to be kept informed of any developments which may result in a default under, or a breach, modification or termination of, the AES Agreement, or which may result in a substitution of any party thereto. ARTICLE III SALE OF COAL Section 3.1. Sale and Purchase. Anker agrees to sell and deliver to ER&L, and ER&L agrees to purchase and accept, Coal in the quantities, of the qualities, and upon the other terms and conditions set forth in this Agreement. 7 The Parties contemplate that the Coal sold hereunder will be tendered to ER&L for carriage and loaded in rail cars at or near the Mines Sources, transported by rail to Baltimore in unit trainloads, blended and loaded in barges carrying more than one trainload, and transported by barge to the Coal Delivery Point. Section 3.2. Quantity. ER&L represents that the AES Agreement provides that AES will purchase from ER&L (including purchases made from ER&L as agent for CSXT) all of AES's total coal requirements which are estimated to be 600,000 tons a year. ER&L shall not agree, without Anker's written consent, to any change to the AES Agreement which modifies the provision establishing coal as the Facility's primary fuel, or the provision granting ER&L the exclusive right to supply such coal. During the term of this Agreement, Anker shall sell and deliver to ER&L, and ER&L shall purchase and accept from Anker, all of ER&L's total coal requirements for AES' use at the Facility, which presently are estimated to equal approximately 200,000 Tons of Coal from the Financial Closing Date until the In-Service Date and to equal approximately 600,000 Tons of Coal per year from the In-Service Date through the remaining term of this Agreement; it being understood by the Parties that such estimates are for informational purposes only, and that the actual quantities of Coal to be supplied hereunder shall be determined by, among other things, the actual availability and operating performance of the Facility as well as the quality and other characteristics of the coal used at the Facility. Section 3.3. Quality. The Coal delivered by Anker to ER&L hereunder shall have the following qualities and characteristics: (a) Monthly Specifications. The As-Delivered Coal delivered during each calendar month must satisfy the following minimum and maximum specifications on an as-received basis (the "Monthly Specifications"), with such compliance to be determined on the basis of the weighted average of the analyses of said deliveries performed pursuant to Section 4.4 hereof:
ASTM Method ----------- Moisture content -- [*](1) D-3173 Ash content -- [*](1) D-3174 Sulphur content -- [*](1) D-3177 High Heating Value (BTU/lb.) -- [*](1) D-2015 Delivered size -- [*](1) Fines -- [*](1)
- ----------- (1) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 8 provided, that if the sulphur removing equipment in the Facility removes more sulphur than presently contemplated, so that the sulphur emissions of the Facility are less than the standards set forth in the Facility's permit, and AES increases the Monthly Specification for Sulphur content under its agreement with ER&L, ER&L shall correspondingly increase this Agreement's Monthly Specification for Sulphur content as an accommodation to Anker and may if appropriate increase the Individual Specification for Sulphur content to a reasonably higher percentage which shall in no event cause ER&L to purchase Coal hereunder in a manner which would cause a violation of the Facility's permit. (b) Individual Specifications. Each individual barge load of As-Delivered Coal hereunder must satisfy the following minimum and maximum specifications on an as-received basis (the "Individual Specifications"), with such compliance to be determined on the basis of the analyses of the Coal contained in said barge load pursuant to Section 4.4 hereunder:
ASTM Method ----------- Moisture content -- [*](2) D-3173 Ash content -- [*](2) D-3174 Sulphur content -- [*](2) D-3177 High Heating Value (BTU/lb.) -- [*](2) D-2015 Delivered size -- [*](2) Fines -- [*](2)
provided, that if, after taking into account (A) the quantities, qualities and characteristics of all Coal previously supplied hereunder during the then-current month, (B) the quantities of Coal to be supplied hereunder from each particular source or sources during the remainder of such month, and the qualities and characteristics of such source or sources, and (C) any other relevant factors, ER&L reasonably determines that the Monthly Specifications will not be met by the Coal supplied and to be supplied during such month, then ER&L may request reasonable changes of any or all of the Individual Specifications to be met by subsequent individual deliveries for such month so as to ensure that the total quantity of Coal supplied during such month will satisfy the Monthly Specifications. It is understood that an individual barge load may not be a full barge load of Coal because from time to time, one-third (1/3) of the full barge load will consist of limestone. - ----------- (2) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 9 All Coal delivered hereunder shall be substantially free from impurities, including but not limited to, bone, slate, earth, rock, pyrite or wood. No oil or other material will be added to change the natural heating value of the Coal, however, a freeze protection agent may be added at ER&L's request and expense as provided in section 4.1(c) (2) hereof. In addition, Anker shall, at ER&L's request and provided Anker's cost of supplying Coal is not significantly increased, use its reasonable efforts during any wet periods at the Facility to keep the Fines of Coal delivered hereunder to a minimum. Each trainload of Coal shall be loaded in a manner that will reasonably ensure a uniform consistency of size and quality. At Anker's request, ER&L shall blend trainloads of Coal in accordance with Anker's instructions at no additional charge during the dumping of the rail cars and during the loading of the barge; provided, however, that ER&L shall not be required to blend Coal from more than two trainloads at any one time, or to alternate rail cars more frequently than every two rail cars. After the rail cars are loaded, Anker shall give ER&L adequate prior notice and instructions for blending the Coal. (c) Change of Individual Specifications. ER&L has advised Anker that under the AES Agreement, AES has the right to make certain limited changes in the Individual Specifications within two (2) years after the first delivery of Coal. In such event, AES will be obligated to pay certain rate increases to ER&L. Anker and ER&L agree that if AES makes such changes, identical changes in the Individual Specifications will be made under this Agreement. The procedure for making such changes and for making corresponding Purchase Price adjustments shall be as follows: (1) If required by AES, ER&L may elect to modify the Individual- Specifications in accordance with Sections 3. 3 (c) (2) and 3. 3 (c) (3) hereof. Any such election shall designate new specifications from the following table, and the corresponding amount shown below shall be added as an adjustment to the Purchase Price for each Ton of Coal hereunder:
Sulphur Content: ---------------- [*](3) maximum Reduced to: Amount/Ton ------------ ---------- [*](3) [*](3) [*](3) [*](3) [*](3) [*](3) Ash Content: --------------- [*](3) Maximum
- ----------- (3) Portions of this exhibit have been omitted pursuant to a request confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 10
Reduced to: Amount/Ton ------------ ---------- [*](4) [*](4) [*](4) [*](4) [*](4) [*](4) [*](4) [*](4)
The foregoing amounts shall be adjusted for inflation from the Base Date in accordance with Section 6.3 hereof. (2) ER&L may make a first election upon six (6) months' prior written notice to Anker, effective no later than two (2) years after the first delivery of Coal to the Facility by barge. Any such election shall be effective for a period (the "Election Period") of at least six (6) months. The Election Period shall continue and the Purchase Price adjustments provided in section 3. 3 (c) (1) hereof shall apply until ER&L makes a second election pursuant to Section 3.3 (c) (2) hereof or ER&L cancels the first election pursuant to Section 3.3(c)(3) hereof. (3) ER&L may make a second election upon six (6) months' prior written notice to Anker, effective no later than two (2) years after the first delivery of Coal to the Facility by barge. If ER&L gives notice making a second election, the first election shall remain in effect until the expiration of six (6) months following Anker's receipt of the notice, at which time the second election shall become effective. The second election and the corresponding Purchase Price adjustments will be permanent and shall apply for the remainder of the term of this Agreement. (4) At any time during the term of this Agreement, ER&L may, if required by AES, cancel its first election by giving Anker six (6) months' prior written notice. Such cancellation shall become effective upon the expiration of six (6) months following Anker's receipt of the notice, at which time the Individual Specifications set forth in Section 3.3 (b) hereof shall again become applicable and shall apply for the remainder of the term of this Agreement. Section 3.4. Adjustments to Specifications. (a) Initial Tests. Within twenty (20) days of a request from ER&L, Anker shall deliver to ER&L Coal consistent with the Monthly Specifications and in sufficient quantities such that AES can complete, prior to the actual performance testing of the Facility under the Construction Contract, a test burn demonstrating the qualities of the Coal and a similar test demonstrating the qualities of the limestone to be burned with the Coal. If ER&L determines after either such test that the Coal is not satisfactory for the efficient and economic operation of the Facility, ER&L shall notify Anker of adjustments in the appropriate Monthly and Individual Specifications that are necessary for the - ----------- (4) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 11 Facility to operate in such a manner. ER&L shall not make a determination that this Coal is not satisfactory unless AES has made a similar determination. (b) Operating Constraints on Size. If Coal delivered pursuant to this Agreement causes mechanical or operational problems due to clogging in the material handling and feed systems of the Facility, ER&L shall notify Anker of adjustments in the Monthly and Individual Specifications for size as to the Coal or Fines that are necessary (without making any changes in the physical plant of the Facility) for the Facility to operate without said problems. ER&L shall not so notify Anker unless AES has given ER&L similar notification. (c) Regulatory Changes. If AES is required as a result of any Applicable Law or Permit (given the then existing physical plant of the Facility) to burn Coal having specifications different from those set forth herein, ER&L shall notify Anker of the adjustments to the Monthly and Individual Specifications that are required thereby. ER&L shall not so notify Anker unless AES has given ER&L similar notification. Anker shall commence to supply Coal conforming to the revised specifications within fifteen (15) days of such notice or such time as is required pursuant to such Applicable Law or Permit, whichever is later. (d) Price Adjustment. If Anker is to supply Coal conforming to new specifications as a result of adjustments made pursuant to Sections 3. 4 (a) , (b) or (c) hereof, the price therefor shall be negotiated by ER&L and Anker in good faith to reflect such adjustment; but only such adjustment, to the specifications, and such pricing shall take into account among other things any cost increases and the benefit of any bargain accruing to ER&L and/or Anker under this Agreement as a result of such specification adjustment and shall reflect the relative significance or insignificance of any revisions to the specifications as compared to all the other factors taken into account in arriving at the Purchase Price. If the Parties fail to reach agreement within thirty (30) days of ER&L's notice to Anker of revisions, the matter of price revisions shall be referred to arbitration pursuant to Article XIII hereof, and pending resolution of such dispute deliveries of Coal shall be continued in accordance with the provisions of this Agreement. (e) Termination for Non-Supply. If Anker does not on a timely basis commence to supply Coal conforming to the revised specifications as contemplated in Section 3.4(a), (b) or (c) hereof, ER&L may terminate this Agreement immediately upon providing 30 days' prior written notice of termination to Anker. (f) Consultation by the Parties. ER&L shall consult with Anker if AES complains about the quality or quantity of Coal being delivered to the Facility and such complaints will have an adverse effect on Anker under this Agreement, or if AES indicates to ER&L that it will or may wish to modify Individual or Monthly Specifications pursuant to Sections 3.4(a), (b) or (c) hereof. 12 Section 3.5. Sources; Reserves (a) Sources. The Coal sold and purchased hereunder shall be produced from Mines Sources. Anker shall not deliver Coal produced from any source other than Mines Sources unless (i) and only to the extent a Force Majeure event prevents such delivery or (ii) ER&L has given its prior written consent, which consent shall not unreasonably be withheld. Anker may propose new Mines Sources by requesting, from time to time, ER&L's consent to the approval of specific coal mines, coal suppliers or coal seams. At ER&L's option, such consent may be conditioned upon (i) ER&L's satisfaction with test analyses of the coal from such other source, (ii) provision by Anker of amounts of coal from such source sufficient for performing satisfactory test burns or similar tests thereof, (iii) provision of other means of proof, satisfactory to ER&L, of the compliance of such coal with the specifications set forth herein, and (iv) ER&L's ability to obtain AES' consent if ER&L deems it necessary to do so. Deliveries of Coal hereunder from any source other than Mines shall comply with and be subject to all terms and conditions of this Agreement; ER&L's consent to any new Mine Sources shall not be construed as an acknowledgement by ER&L that any delivery from such new Mine Sources so complies. (b) Reserves. Anker represents and warrants that it has the legal right to sell, and that Anker and its affiliates named in Annexes B and C hereto now own, lease or otherwise have the legal right to mine and sell, and have dedicated or will dedicate to the performance of this Agreement on or before the Financial Closing Date, a sufficient number of Tons of recoverable Coal from the Mines (the "Coal Reserves") to enable Anker to supply Coal in accordance with the provisions of this Agreement. General descriptions of the Coal Reserves are set forth in Annex A hereto, which Annex is incorporated herein by this reference. Anker warrants that the Coal will meet the terms and conditions of this Agreement. (c) Transfer of Reserves. If Anker or any of its affiliates sells, leases, contracts to sell or otherwise transfers or agrees to transfer to others any of its interests in the Coal from the Coal Reserves, Anker agrees such transactions will neither jeopardize Anker's ability to supply the total quantity of Coal required under this Agreement nor interrupt any scheduled deliveries hereunder. (d) Anker Affiliates. The Anker affiliates which will be supplying Coal and/or Waste disposal services as described in this Agreement are those named in the agreements attached hereto as Annexes B and C. 13 ARTICLE IV DELIVERY OF COAL Section 4.1. Delivery Points; Arrangements; Procedures. (a) Delivery Points. This Agreement is a "destination" contract in which Anker agrees to deliver Coal F.O.B. barge the Facility at the Coal Delivery Point. The Coal Delivery Point shall be located at the Facility's dock facilities on the Thames River at a point designated by AES. Notwithstanding any other provision of this Agreement which may be construed to the contrary, all risks of loss and damage in, and any liability arising out of or in connection with, transit (commencing from the tender of the Coal for carriage on the rail cars and continuing until delivery of the Coal to ER&L at the Coal Delivery Point) shall be borne by ER&L. Without limiting the generality of the preceding sentence, ER&L shall have full responsibility for the Coal while it is in the possession of ER&L or ER&L's subcontractors (including without limitation CSXT), including the obligation to pay Anker its full, actual loss for any loss or damage to the Coal, and ER&L shall indemnify Anker from and against any and all loss or liability asserted against Anker by any third party arising out of or in connection with the transportation of the Coal by ER&L or any carrier arranged by ER&L. (b) Assurances as to Delivery Arrangements. ER&L shall provide all rail and barge transportation arrangements and services, and all related handling and ancillary arrangements and services, necessary to accomplish the transportation of the Coal hereunder from its tender by Anker for carriage until its delivery at the Coal Delivery Point. From time to time, Anker shall provide ER&L within ten (10) days of any request by ER&L with evidence that demonstrates to ER&L's satisfaction that Anker is and shall continue for the term of this Agreement to be able to provide timely tenders of Coal as required hereunder. If Anker fails to provide such reasonable assurances within fifteen (15) days of ER&L's request, Anker shall be in default of this Agreement and ER&L may pursue its rights and remedies in accordance with Section 10.2 hereof, including its rights thereunder to terminate this Agreement. (c) Procedures. (1) Tender for Carriage. All Coal shall be shipped by Anker to ER&L hereunder via CSXT in unit trains of 7,000 Tons, or smaller if the Coal is to be transported in a barge which will also transport limestone, and shall be in accordance with CSXT's instructions and rules regarding unit train permits, loading, safety and other procedures. All tenders of shipments of Coal to ER&L shall be covered by a mine card on which Anker will show the following: "Subject to Contract ICC-CSXT-C-04070" or such other number as may from time to time be provided by ER&L as the correct reference to ER&L's rail transportation contract with CSXT. 14 (2) Freeze Protection. When requested by ER&L, Anker shall apply a freeze protection agent as the Coal is loaded in the cars in amounts as may be agreed to from time to time by the Parties. The price for the freeze conditioning (material and application) shall be [*](5) for each pint per Ton of Coal, which ER&L agrees to pay to Anker promptly upon receipt of Anker's invoice therefor. The freeze protection price shall be subject to escalation as provided in Section 6.3. Section 4.2. Delivery Schedule. (a) Scheduling Determinations. By the fifteenth (15th) day preceding the start of each calendar quarter during the term of this Agreement, ER&L shall provide Anker with an estimate of the amount of Coal to be delivered during such quarter pursuant to this Agreement. In addition, on or before the twenty-eighth (28th) day of each calendar month during the term of this Agreement, ER&L shall deliver to Anker written notice of the estimated amount of Coal to be delivered to ER&L during the next succeeding calendar month. Upon receipt of such notice, Anker shall confer with ER&L and the Parties shall arrange a delivery schedule for the month consistent with AES's needs; provided, however, that upon ER&L's request Anker shall use its best efforts to modify said schedule to the extent necessary to accommodate ER&L's changing Coal requirements. In the event either Party learns of a probable interruption in a scheduled delivery of Coal hereunder, such Party shall promptly notify the other Party. (b) Loading Arrangements. At the time Anker and ER&L confer, they shall set the days for loading the unit trains, provided, however, that if the schedule calls for Anker to load Coal on Sundays or public holidays, the schedule shall be adjusted at Anker's request to permit loading on the day prior or subsequent to such Sunday or public holiday, but such adjustment shall not delay the schedule of the barge. If the empty cars of the unit train are tendered on the day set, Anker agrees to load the cars within the time period set by CSXT's Original Applicable Tariff and, if the cars are not so loaded, to pay the demurrage charges provided in such tariff. If the empty cars are tendered on a day other than the day set, Anker agrees to load the cars within the time period set by CSXT's Original Applicable Tariff starting on the day set (if the empty cars arrived early) or starting on the first full working day beginning at 8:00 A.M. the cars are available (if the empty cars arrived late) . If the cars are not so loaded, Anker agrees to pay the demurrage charges provided in the tariff, subject to the provisions of Section 6.4(c) hereof. It is agreed that for purposes of the demurrage payments by Anker contemplated by this Agreement, the time periods set for loading in the Original Applicable Tariff will be the time periods as set by such tariff on the date of this Agreement and that such time periods will not thereafter change even if such tariff is amended or changed. Anker shall have no responsibility, whether for the payment of demurrage charges or otherwise, for any delays subsequent to the loading of the cars, including any delays in unloading the cars and loading or unloading the barges, unless caused by Anker's acts of - ------------ (5) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 15 commission or omission. ER&L shall indemnify Anker from and against any and all loss or liability arising out of or in connection with such delays for which Anker is not responsible. (c) Notices to CSXT. At least forty-eight (48) hours prior to each tender of Coal to CSXT for carriage hereunder, Anker shall give notice thereof by telephone to CSXT's Director of Unit Trains, or such other person designated in writing by ER&L to Anker. Section 4.3. Invoices. Anker shall deliver to ER&L an invoice for each barge load of Coal after delivery of such Coal to AES at the Coal Delivery Point, provided that in the event of a delay of more than thirty (30) days in the delivery of Coal after it is loaded on rail cars, Anker may deliver its invoice at the end of such thirty (30) day period. Said invoices shall specify the tonnage delivered with appropriate weight documentation, specifications of the Coal delivered, the rail origin point and dates, and the sources of the Coal, and shall reflect the results of all analyses conducted pursuant to Section 4.4. hereof. ER&L agrees to promptly provide necessary documentation input required by Anker to prepare the invoices required herein, and if such documentation is not so provided, Anker may prepare invoices based on its reasonable estimates. Section 4.4. Analysis. Each shipment of Coal hereunder shall be sampled and analyzed at Baltimore, Maryland. (a) Sample. At least one representative sample of each barge shipment at Baltimore shall be taken and given to an independent laboratory agreed to by Anker and ER&L (the "Lab") for analysis. The sampling shall be random, and the analysis shall be performed in accordance with methods approved by the American Society for Testing Materials (ASTM) consistent with Section 3.3 hereof or such other methods as may reasonably be agreed upon by Anker and ER&L. Either Party shall have the right to have a representative present at any and all times to observe such sampling and analysis. The Lab shall furnish the parties with a copy of the report of each analysis within 36 hours of completion of loading of the barge. The Parties shall share equally the cost of the sampling and Lab analysis. (b) Replacement of Lab. If either party becomes dissatisfied with the Lab, the Parties will mutually agree to another Lab. ER&L shall at all times keep Anker informed of the identity of the laboratory performing the analyses under the AES Agreement and consult with Anker regarding any changes thereof. (c) Analysis. The Lab shall divide all samples into not less than two (2) parts and put them in suitable airtight containers, the second container in each case to be held available for a period of sixty (60) days after the date on which the shipment from which such sample was taken was delivered. If the Lab is the same laboratory AES and ER&L use, the results of the Lab's analysis shall be binding on Anker and ER&L. If 16 AES and ER&L use a different independent laboratory to analyze representative samples of the same shipment taken at Baltimore, and if that laboratory's analysis results are materially different from the Lab's analysis, the second container shall be analyzed by an independent laboratory selected by agreement of ER&L and Anker, or by the Lab if ER&L and Anker are unable to agree on an independent laboratory before the fifty-fifth day of the aforesaid 60-day period, and the results of such analysis shall be binding. (d) Procedure If Coal Is Rejected. ER&L has advised Anker that under the AES Agreement, AES may reject a barge load of Coal in whole or in part at or before the time of unloading the barge at the Facility. In the event Coal is so rejected, Anker and ER&L agree they will attempt to persuade AES to accept such Coal, including arranging with AES for additional sampling and testing of the Coal at the Coal Delivery Point and/or Facility. In the event AES finally rejects Coal delivered by ER&L, or in the event ER&L reasonably believes AES will reject it, ER&L may reject such Coal if the Coal remains in the barge and is rejected on the basis of either visible impurities or of the analysis results of samples taken in Baltimore, or if the Coal has been unloaded from the barge and it is unusable; provided, however, that Anker shall not be subject to rejection of Coal solely as a result of damage (including contamination) which occurred in transit. Section 4.5. Weighing. For each delivery hereunder of Coal to the Coal Delivery Point, weights shall be determined either by CSXT using its normal railroad scales or by barge draft survey, and the choice of the method for determining weights for such delivery under the AES Agreement shall apply for purposes of this Agreement. The railroad weight certificates or draft survey certificates shall be conclusive evidence of the quantity of Coal in any shipment. Section 4.6. Non-Complying Deliveries. (a) If any Coal tendered for delivery by Anker hereunder fails to meet the applicable Individual Specifications set forth herein or to conform with the timing and quantities, determined pursuant to Section 4.2 hereof and AES rejects a barge shipment of Coal in whole or in part and advises ER&L, ER&L shall have the right to reject such Coal as set forth in Section 4.4 (d) hereof, and ER&L shall use its reasonable efforts to so advise Anker before the shipment is due to be unloaded at the Facility, and notify Anker of the rejection and the reasons therefor. Anker shall promptly remove any deficient Coal shipment so rejected at its own expense and cure any deficiency in supply caused thereby (to the extent that ER&L has not purchased replacement quantities pursuant to Section 4.6 (c) hereof). (b) If in any thirty (30) day period Anker makes two (2) or more barge shipments of Coal that would be subject to rejection under Section 4.6 (a) hereof and which are not cured by Anker within ten (10) days of the non-conforming delivery (whether or not such shipments are accepted by ER&L under Section 4.6 (a) hereof) ER&L may (i) request that Anker provide at its own expense assurances to ER&L's 17 reasonable satisfaction that future shipments of Coal will comply with the terms and conditions of this Agreement, or (ii) upon fifteen (15) days' advance written notice, direct Anker to suspend further shipments of Coal, which suspension shall be considered to be commercially reasonable. Such suspension shall continue until the earlier of (i) ER&L's notice to Anker to resume deliveries hereunder, and (ii) the provision of the assurances re- quested by ER&L. If Anker fails to provide such assurances within fifteen (15) days of ER&L's request, Anker shall be in default of this Agreement and ER&L may pursue its rights and remedies under Section 10.2 hereof, including its right thereunder to terminate this Agreement. (c) If Anker fails to cure any rejected shipment pursuant to Section 4.6 (a) hereof after notice from ER&L, then ER&L shall have the right within thirty (30) days to purchase replacement coal from alternative sources, and Anker shall use its best efforts to assist ER&L in finding and acquiring such replacement supplies. In the event that ER&L purchases replacement quantities of coal pursuant to this Section 4.6 (c), Anker shall reimburse ER&L for the difference, if any, between (1) the costs incurred by ER&L in purchasing said replacement supplies minus (2) the amounts that would otherwise be payable by ER&L to Anker hereunder for the supplies so replaced (including any amounts which would in turn be payable by Anker to or on behalf of ER&L, or would be credited to ER&L, for transportation, handling and ancillary services relating to such supplies). Anker shall make such payment within thirty (30) days of receipt from ER&L of an invoice documenting such excess costs together with appropriate supporting documentation. Section 4.7. Title. Anker warrants that title to all Coal delivered to ER&L hereunder will be good and merchantable and its transfer lawful, and that such Coal will be free of any lien (except carriers' liens) , claim, demand, security interest or other encumbrance. Title to the Coal purchased and sold hereunder shall pass from Anker to ER&L upon acceptance of delivery to ER&L at the Coal Delivery Point, subject to ER&L's right to reject Coal under Section 4.6 hereof or in accordance with Applicable Laws. ARTICLE V DISPOSITION OF WASTE Section 5.1. Removal and Disposal Obligations. (a) General. ER&L shall remove the Waste from the Waste Removal Point and transport all the Waste to the rail siding serving the Waste Destination Point. Unless the Parties otherwise agree, Anker shall dispose of all Waste which it is required to dispose of pursuant to this Article V, whether such Waste is in the form of Pelletized Waste or Dry Waste. The general procedure for removal and delivery of Waste shall be as follows: 18 (1) Construction of Pelletizing Facility. ER&L shall construct at or near the Waste Removal Point a pelletizing facility (the "Pelletizing Facility") which will convert the form of the Waste into free-flowing spherical pellets capable of being transported and handled without generating a significant amount of dust ("Pelletized Waste"). It is anticipated that AES will purchase the completed Pelletizing Facility. In consideration for ER&L's guarantee that the Pelletized Waste will have the aforesaid properties, Anker will reimburse ER&L for a portion of the cost of constructing the Pelletizing Facility. The amount of such reimbursement shall be [*].(6) Such reimbursement shall be payable on completion of construction and acceptance of the Pelletizing Facility by AES, against ER&L's invoice accompanied by appropriate supporting documentation. In the event that this Agreement, or Anker's obligation to dispose of Waste hereunder, is terminated prior to the expiration of the term of this Agreement for reasons other than Anker's willful breach, ER&L shall refund Anker's [*](5) payment; provided, however, that if such termination occurs after the fifth (5th) anniversary of the date Anker made its payment, the amount of such refund shall be reduced by [*](5) for each full year elapsed after such fifth (5th) anniversary date. (2) Removal and Delivery of Pelletized Waste. It is contemplated that when the Pelletizing Facility is completed, the Waste shall be converted into Pelletized Waste at the Pelletizing Facility. The Parties anticipate that the Pelletized Waste will be transported by barge from the dock at the Waste Removal Point to a dock in Baltimore, Maryland, and will be transported by rail from Baltimore, Maryland to the rail siding serving the Waste Destination Point. (3) Removal and Delivery of Dry Waste. It is contemplated that prior to the completion of construction of the Pelletizing Facility, and from time to time thereafter, ER&L will remove Dry Waste from the Waste Removal Point. ER&L shall transport the Dry Waste to the rail siding serving the Waste Destination Point. The Parties anticipate that the Dry Waste will be transported by rail from the Waste Removal Point to the rail siding serving the Waste Destination Point. (4) Alternate Disposition; Sale. At any time prior to the actual or constructive placement at the Waste Disposal Site of rail cars containing Waste, the Parties may arrange, in accordance with the provisions of this Agreement, for the disposition of the Waste by a means other than its disposal by Anker at the Waste Disposal Site, including, without limitation, the sale of the Waste to a third party. Any such arrangement shall be expressed in writing; in the event of an emergency, the Parties shall attempt to expedite such agreement. If either Party proposes the sale of Waste to a third party, the terms of any such sale shall require the approval of both Parties. (b) Certain Obligations of ER&L. ER&L shall not agree, without Anker's consent, to any change in the AES Agreement which modifies ER&L's rights to dispose of the Waste. Notwithstanding any other provision of this Agreement which may be - ----------- (6) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 19 construed to the contrary, all risks of loss or damage in, and any liability arising out of or in connection with, the transportation of the Waste from the Waste Removal Point to the Waste Destination Point shall be borne by ER&L. Without limiting the generality of the preceding sentence, ER&L shall have full responsibility for the Waste while it is in ER&L's possession as though ER&L were a common carrier as to the Waste, and ER&L shall indemnify Anker from and against any and all loss or liability asserted against Anker by any third party arising out of or in connection with the transportation of the Waste by ER&L or any carrier arranged by ER&L, except to the extent, if any, that such loss or liability result from Anker's negligence. (c) Disposal obligations of Anker. Anker shall dispose of all Pelletized Waste and Dry Waste delivered by ER&L to the Waste Disposal Site (or at another site if required under Section 5.3 (b) hereof) in a safe and lawful manner, in accordance with Applicable Laws and Permits governing transport from the rail siding to the Waste Disposal Site and disposal, and in accordance with the terms and conditions of this Agreement. Notwithstanding any other provision of this Agreement, however, Anker shall not be obligated hereunder to dispose of waste other than fly ash and bottom ash or to dispose of any material if such material may not be handled and disposed of in compliance with Applicable Laws and Permits. (d) Non-Complying Deliveries. In the event that ER&L delivers to Anker any waste or other material that Anker is not required to dispose of pursuant to the provisions of Section 5.1(c) hereof, Anker shall have the right to reject such shipment. In the event that ER&L delivers to Anker any Waste which Anker determines, upon visual inspection, cannot be unloaded and handled at the Waste Disposal Facility without the use of equipment, operations, or periods of time which are materially different from the norm for the Waste Disposal Facility, Anker shall have the right (but not the obligation) to instruct ER&L to set aside such rail cars until such time as ER&L and Anker shall have agreed upon special arrangements, including additional compensation, for the disposal of such Waste, and during such period all costs incurred as a result of or in connection with such Waste and the setting aside of such rail cars shall be borne by ER&L. Section 5.2. Quantity. During the term of this Agreement, unless prohibited by a change in Applicable Laws or Permit rules or otherwise excused hereunder, and unless the Parties arrange in accordance with the provisions hereof for another disposition of the Waste, Anker shall dispose of all Waste, which presently is estimated to equal approximately [*](7) Tons per year during the term of this Agreement, it being understood by the Parties that such estimate is for informational purposes only, and that the actual quantities of Waste to be removed and disposed of hereunder will be determined by, among other things, the actual availability and operating performance of the Facility as well as the quality and other characteristics of the coal and limestone used at the Facility. - ----------- (7) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 20 Section 5.3. Method of Waste Disposal at Waste Disposal Site. (a) Waste Disposal Site. With respect to the Waste Disposal Site, Anker represents that (i) directly or indirectly through affiliates or other subcontractors, it has the right to dispose of Waste as contemplated herein at the Waste Disposal Site; (ii) directly or indirectly through affiliates or other subcontractors, Anker has all necessary rights of access to the Waste Disposal Site to allow it to dispose of the Waste to the extent and in the manner and quantities contemplated herein, (iii) directly or indirectly through affiliates or other subcontractors, Anker is in full compliance with any and all Applicable Laws and has all necessary Permits pertaining to the provision of Waste disposal services as contemplated herein, (iv) no materials or substances have been released or deposited at or on the Waste Disposal Site which may in any manner constitute or result in a violation of, or create any liability under, any Applicable Law concerning any waste or materials and (v) Anker will take all necessary steps to ensure that no such waste or material which may be in violation of any Applicable Law or may result in any such liability shall in the future be released or deposited at the Waste Disposal Site. (b) Assurances as to Arrangements and Site. Anker shall enter into such arrangements as are necessary to ensure the timely, safe and lawful transportation from Anker's siding to the Waste Disposal Site in accordance with the schedules determined pursuant to Section 5.3(f) hereof. Such arrangements must ensure full compliance with Applicable Laws governing transportation and disposal of Waste. Within forty-five (45) days after the date hereof, Anker shall provide ER&L with evidence of such arrangements, which evidence shall demonstrate to ER&L's satisfaction that Anker will be able to dispose of the Waste as required hereunder. In addition, if Applicable Laws and Permit rules are changed so as to prohibit Anker from disposing of the Waste as provided herein, or if the disposal of Waste otherwise cannot be made at the Waste Disposal Site in the manner and quantities contemplated herein, the provisions of Section 5.6 hereof shall apply. (c) Siding Construction. At or near a Waste Disposal Site, Anker will design and submit to ER&L for its approval, which shall not be unreasonably withheld, a Waste unloading facility. After the design and location are approved by ER&L, Anker will provide necessary grading and construct the necessary unloading facility, including, but not limited to, the unloading pit, machinery, lighting, and safety features. ER&L will provide and install necessary siding tracks and switch work. Carloads of Waste will be unloaded and the cars reloaded with Coal pursuant to this Agreement at or near the Waste unloading site. (d) Construction Costs, Allocation and Limits. It is agreed, if Anker's costs for the Waste Disposal Facility (the "Base Cost") exceed [*],(8) the provisions of - ----------- (8) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 21 Section 6.2(b) shall apply, and if the Base Cost is projected to exceed [*],(9) at Anker's option the Parties will use their best efforts to negotiate a mutually satisfactory alternative agreement. Should the parties fail to reach such an agreement, Anker may elect either to spend the additional amount required or to terminate its Waste disposal services under this Agreement. The Base Cost for the Waste Disposal Facility shall include, without limitation, capital cost and the cost of engineering, design and testing, whether performed internally or by employing the services of third parties, and whether incurred before, on or after the date of this Agreement. (e) Cost Recovery. If ER&L fails to deliver substantially all the Waste from the Waste Removal Point to Anker's rail siding serving the Waste Disposal Site, Anker may terminate its Waste disposal services under this Agreement and ER&L shall reimburse Anker for its costs in designing, acquiring, constructing and testing the Waste Disposal Facility less the accumulated depreciation on the Waste Disposal Facility as shown on the books of Anker and its affiliates. The provisions of this Section 5.3(e) shall be in addition to an other remedy provided to Anker hereunder or by Applicable Law; provided, however, that Anker shall not be entitled to reimbursement pursuant to the preceding sentence to the extent of its use of the Waste Disposal Facility. (f) Schedule; Additional Costs. By the twentieth (20th) day preceding the start of each calendar quarter during the term of this Agreement, ER&L shall provide Anker with an estimate of the amount of Waste to be removed and disposed of during such quarter pursuant to this Agreement. In addition, on or before the twenty- eighth (28th) day of each calendar month during the term of this Agreement, ER&L shall advise Anker of the estimated amount of Waste to be removed from the Facility during the next succeeding calendar month. Upon receipt of such notice, Anker shall arrange for the disposal of said estimated quantities, provided, however, that upon ER&L's request Anker shall use its best efforts to accommodate changing Waste disposal requirements of ER&L. Anker shall have no responsibility, whether for the payment of demurrage charges or otherwise, for any delays prior to the actual or constructive placement of the cars at Anker's rail siding serving the Waste Disposal Site, including any delays in loading or unloading the barges or in loading the cars. ER&L shall indemnify Anker from and against any and all loss or liability arising out of or in connection with such delays. ER&L represents to Anker that the Waste to be handled can readily be dumped from the rail cars using conventional means. If the carloads of Waste are not free flowing so they can be unloaded through bottom dump hoppers with the aid of a car shaker, ER&L will reimburse Anker for any reasonable, extra expense incurred to unload, haul, handle and dispose of the Waste. (g) Weighing. The weight of each quantity of Waste to be disposed of by Anker hereunder shall be determined as follows: If such Waste is transported in part by barge, the weight shall be determined after the Waste is loaded in rail cars by using, at - ----------- (9) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 22 ER&L's option, either the official railroad weights or weights taken from certified scales at the rail loading facility in Baltimore. If such Waste is not transported in part by barge, the weight shall be taken from certified rail scales on which ER&L shall cause the Waste to be weighed in the rail cars. ER&L shall promptly furnish all such weights to Anker. If requested by Anker, ER&L shall arrange reasonable notice and adequate access so that Anker has a reasonable opportunity to observe the weighing procedure. (h) Invoices. Seven (7) days after the unloading of each bargeload of Pelletized Waste, Anker shall send an invoice to ER&L for the Waste disposal services relating to such Waste. With respect to Waste disposal services for Dry Waste and any other Waste not shipped by barge, Anker shall send an invoice to ER&L seven (7) days after the unloading at the Waste Destination Point of each rail car load of such Waste. (i) Non-Complying Disposals. If Anker shall fail to dispose of any Waste received by it, and unless otherwise excused hereunder, Anker shall have thirty (30) days from the date of such failure to cure such breach by disposing of said Waste shipment. If Anker f ails to cure such breach after notice from ER&L, then ER&L shall have the right to purchase temporary replacement Waste disposal services from alternative sources, and Anker shall use its best efforts to assist ER&L in finding and acquiring such replacement services. Anker shall reimburse ER&L, within thirty (30) days of receipt from ER&L of an invoice documenting the relevant costs, for the difference, if any, between (1) the sum of any fines or penalties that ER&L incurs under any Applicable Laws or Permits or otherwise as a result of such breach by Anker plus the costs incurred by ER&L in purchasing said replacement services minus (2) the amounts that would otherwise be payable by ER&L to Anker hereunder for the services so replaced (including any amounts which would in turn be payable by Anker to ER&L, or would be credited to ER&L, for transportation, handling, and ancillary services relating to the Waste disposed of). Section 5.4. Title. Title to the Waste to be disposed of by Anker hereunder shall pass from ER&L to Anker upon actual placement at the Waste Destination Point of the rail cars carrying such Waste. Section 5.5. Waste Disposal Service Not Required If Coal Is Not Used. Anker will not be obligated, but may at its option elect, to provide Waste disposal service if ER&L is not purchasing Coal from Anker under this Agreement. Section 5.6. Alternate Waste Disposal. (a) If Anker's failure to dispose of Waste is the result of a change of Applicable Law or Permit rule or other reason beyond Anker's reasonable control or otherwise excused hereunder, such failure will not be a breach of this Agreement. In the event that Applicable Laws or Permit rules are changed so as to prohibit or render uneconomical the disposition of the Waste by Anker as contemplated by Section 5.3 hereof, or if for reasons beyond Anker's control the disposal of Waste otherwise cannot be made at the Waste Disposal Site in the manner and quantities contemplated herein, Anker may so notify ER&L and propose to provide an 23 alternate Waste disposal service at an adjusted Purchase Price therefor. If the parties are unable to agree on such alternate Waste disposal service and adjusted Purchase Price, Anker may elect to terminate its Waste disposal services under this Agreement. (b) At any time during the term of this Agreement, Anker may propose to provide Waste Disposal services at a location other than a Waste Disposal Site. ER&L shall not unreasonably withhold its consent to any such proposal, but ER&L's consent may be conditioned on the consent of AES. ARTICLE VI PURCHASE PRICE FOR COAL AND WASTE DISPOSAL SERVICES Section 6.1. Coal. (a) Purchase Price. The Purchase Price per Ton for the Coal under this Agreement shall be equal to the base amount set forth below next to the Pricing District (as determined pursuant to Section 6.1(b) hereof) in which the Coal is loaded on rail cars:
Base Amount of Purchase Price Pricing District(s) --------------- ------------------- [*](10) Cumberland-Piedmont East [*](10) Cumberland-Piedmont West, Mountain [*](10) Fairmont, Grafton, WV Northern [*](10) Clarksburg, Belington [*](10) Elk River North, Gauley North, Beech Mountain [*](10) Elk River South, Gauley Middle [*](10) Gauley South
together with the adjustments thereto made for inflation in accordance with Section 6.3 hereof and such other adjustments as are provided herein. (b) Pricing Districts. For purposes of Section 6.1(a) hereof, the base amount of the Purchase Price for each Ton of Coal shall be determined according to the Pricing District in which such Coal is loaded on rail cars for shipment to the Facility. Annex D hereto sets forth coal loading locations in each Pricing District. Coal loaded from such locations shall be deemed loaded in the Pricing District indicated in Annex D, without regard to changes in railroad freight districts which may occur from time to time. The Pricing District for Coal which is not loaded from a location listed in Annex D shall - ----------- (10) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 24 be determined as follows: If the Coal is loaded from a location which is situated between two locations listed under the same Pricing District in Annex D, it shall be deemed loaded in said Pricing District. If the Coal is loaded from a location which is situated between locations listed under different Pricing Districts in Annex D, the Parties shall agree as to which of said Pricing Districts includes such location. (c) Adjustment for Content. The Purchase Price of Coal shall be adjusted for the heat content, ash content, and sulphur content, determined on the basis of the Lab's analysis referred to in Section 4.4 hereof, as follows: (i) BTU's - [*](11) a Ton increase for each BTU/lb. by which the BTU's exceed [*].(11) (ii) ash - [*](11) a Ton decrease or increase for each [*](11) of a percentage point by which the ash content exceeds or falls below [*].(11) (iii) sulphur (a) An increase of [*](11) a ton for each [*](11) of a percentage point by which the sulphur content falls below [*].(11) (b) A decrease of [*](11) a ton for each [*](11) of a percentage point by which the sulphur content exceeds [*].(11) The foregoing adjustment amounts shall be adjusted for inflation in accordance with Section 6.3 hereof. (d) Adjustments for Non-Conformity with Specifications. The Purchase Prices for Coal in each calendar month shall be reduced to reflect the extent, if any, to which the actual specifications of the Coal deliveries purchased hereunder during such month do not conform with the applicable Individual or Monthly Specifications. The Parties shall in good faith negotiate such reduction promptly after the end of any such month. Either Party may submit such dispute to arbitration under Section 13.1 hereof. Such negotiations and arbitration, if any, shall take into account (i) the benefit of any bargain accruing to each of ER&L and Anker under this Agreement in light of market prices available on the Base Date with respect to agreements with similar durations and (ii) the relative significance or insignificance of any nonconformance compared to all other factors taken into account in arriving at the Purchase Price. For purposes of clarification the parties acknowledge that, for example, if Coal is delivered with a sulphur content in excess of the applicable specifications so that ER&L is required to purchase more Limestone and handle more Waste than originally contemplated, the Purchase Price for such Coal shall be reduced so that such additional service attributable to such nonconformance shall be for Anker's account. - ----------- (11) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 25 (e) Adjustment for Government Imposition Increases. Anker has determined that a portion of the Purchase Price for Coal is allocable to the charges that will be made by Anker (with respect to the supply of Coal under this Agreement) for reimbursement of costs specified in this Section 6.1(e) (the "Reimbursable Costs"). The Reimbursable Costs are the costs due to the government impositions described below. Anker has determined that as of the Base Date, the Reimbursable Costs in the aggregate are fairly attributed to [*](12) of the Purchase Price for Coal (the "Total Percentage"), and that each category of government imposition set forth below is fairly attributed to the "Partial Percentage" of said Purchase Price set forth below. Reimbursable Costs Attributable Partial Percentage to Government Imposition 1. Federal Black Lung excise tax for surface mined coal: the greater of 4% of the applicable sales price or $.55 per Ton, and/or Federal Black Lung excise tax for deep mined coal: the greater of 4% of the applicable sales price or $1.10 per Ton [*](12) 2. Federal Reclamation Deep Mine Fee: $.15 per Ton and/or Federal Reclamation Strip Mine Fee: $.35 per Ton and/or State reclamation tax: $.0l per Ton [*](12) 3. State coal severance or B&O tax or sales tax: 3.85% of the applicable sales price [*](12) 4. State Black Lung tax: 1% of gross payroll [*](12) Total Percentage [*](12) If after the Base Date any change in government imposition within any category above causes a change in Reimbursable Costs of Anker, the Purchase Price for Coal shall be adjusted as provided herein. As soon as is practicable, the Reimbursable Cost shall be recomputed in the same manner (except as noted in this sentence) used in calculating the [*](12) Total Percentage, to reflect any such change of government imposition within the appropriate category; the recomputation of Reimbursable Costs shall take into account changes in the ratio between surface and deep mining assumed on the Base Date and - ----------- (12) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 26 actually and reasonably anticipated at the time of the recomputation. The Partial Percentage for such category shall be adjusted to equal: Recomputed Reimbursable Original Costs x Partial - ----------------------- Original Reimbursable Percentage Costs The Partial Percentages (as adjusted) shall be added to determine adjusted Total Percentage. The difference between the adjusted Total Percentage and [*](13) (or any more recent adjusted Total Percentage) shall be the "Difference Percentage." The Purchase Price for Coal shall be adjusted to reflect [*](13) of such Difference Percentage. Such adjustment shall be effective as of the effective date of the change in government imposition, and shall be payable retroactively to such date. Payment shall be made promptly upon receipt of the invoice therefor. Anker represents that the determinations included in this Section 6.1(e) as of the Base Date and the information in the chart above are accurate and true or based upon reasonable projections and assumptions. Any adjustments in the Purchase Price for Coal pursuant to this Section 6.1(e) shall be made on the basis of true, accurate and reasonably detailed and confirmed information. If any new government imposition, not included in the categories in the foregoing chart, is introduced and is payable by Anker in order to perform this Agreement, the Parties shall in good faith negotiate (a) the Purchase Price adjustment, and the corresponding modifications in the Total Percentage and Partial Percentages, necessary to reimburse Anker for such new government imposition and (b) the portion of such adjustment, if any, which ER&L will provide whether or not it obtains equivalent adjustments and modifications from AES. Thereafter, ER&L shall promptly and diligently attempt to negotiate equivalent adjustments and modifications with AES. The adjustments negotiated by the Parties shall apply hereunder to the extent that AES agrees with ER&L to make equivalent adjustments in the purchase price, total percentage and partial percentages provided for in the AES Agreement. To the extent that AES does not agree to equivalent adjustments and modifications, the Purchase Price hereunder shall be adjusted by an amount equal to the sum of (a) the amount of the portion of the Purchase Price adjustment negotiated by the Parties to reimburse Anker for such new government imposition which ER&L agreed to provide, if any, plus (b) an amount, not exceeding the balance of such negotiated Purchase Price adjustment, equal to any reduction in the government impositions included in the categories in the foregoing chart which occurred in conjunction with the introduction of such new government imposition. - ----------- (13) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 27 Section 6.2. Waste. (a) Purchase Price. The Purchase Price per Ton of Waste for the Waste disposal services under this Agreement shall be equal to [*](14) per Ton for Pelletized Waste [*](14) per Ton for Dry Waste together with the adjustments thereto made for inflation in accordance with Section 6.3 hereof and such other adjustments as are provided herein. The provisions of section 5.1(d) hereof shall apply to the determination of the Purchase Price under the circumstances specified in that section. (b) Adjustment for Surcharge. If Anker's Base Cost for the Waste Disposal Facility, as determined pursuant to Section 5.3(d), exceeds [*],(14) the Purchase Price per Ton of Waste shall be increased by a surcharge (the "Surcharge Adjustment") . The amount of the Surcharge Adjustment shall be [*](14) for each [*](14) or part thereof by which the Base Cost exceeds [*].(14) Anker shall notify ER&L of the amount of the Base Cost, and shall by notice correct such amount from time to time as necessary. Promptly following any such notice of correction, the Surcharge Adjustment shall be recalculated; the future Purchase Price shall be adjusted accordingly; and the difference between the total amount theretofore paid on account of the Surcharge Adjustment, and the total amount that would have been payable on the basis of the Base Cost as so corrected, shall be paid or refunded, as the case may be, by the appropriate Party. The Surcharge Adjustment shall apply to, and only to, the Purchase Price for the first [*](14) Tons of Waste to be disposed of by Anker hereunder in each year for a period of [*](14) commencing [*].(14) If fewer than [*](14) Tons of Waste are to be disposed of by Anker in any such year, ER&L shall pay Anker, promptly following the end of such year, an amount equal to the Surcharge Adjustment multiplied by the difference between [*](14) and the number of Tons of Waste to be disposed of by Anker in such year. In the event that this Agreement, or Anker's Waste disposal services hereunder, shall be terminated prior to the expiration of the [*](14) period during which the Surcharge Adjustment applies, ER&L shall promptly pay to Anker the total amount that would thereafter have been payable on account of the Surcharge Adjustment. (c) Adjustment for Government Imposition Increases. If Applicable Laws and Permit rules are changed so as to make it more expensive for Anker to use its Waste Disposal Site, the rates, Purchase Price per Ton of Waste and other applicable payments, if any, provided herein shall be adjusted to reflect the benefits and detriments resulting to Anker as a result of continuance and use of the Waste Disposal Site and the additional expenses incurred, including additional capital expenditures. - ----------- (14) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 28 (d) Adjustment for Start-Up Waste Disposal. In view of the Parties' determination that the characteristics of the Waste delivered to Anker in calendar year 1990 have not conformed to the Parties' expectations, the Purchase Price per Ton for the first [*](15) Tons of Waste to be disposed of by Anker shall be adjusted to compensate Anker for its additional start-up costs in handling and disposing of such Waste. The amount of such adjustment shall be [*](51) per Ton. The aggregate amount of such adjustment shall be payable in a one-time lump sum payment on the date of this Agreement. Section 6.3. Inflation Adjustment. The Purchase Prices for Coal and waste disposal services referred to in Section 6.1 (a) and Section 6.2(a), respectively, the adjustment amounts set forth in Section 6.1(c) hereof, the adjustment amounts set forth in Section 3.3(c) hereof, and the price payable for freeze protection set forth in Section 4.1(c)(2) hereof, during any calendar year shall be adjusted by Anker as soon as is practicable after the beginning of such calendar year to equal the product of (a) such amount times (b) the sum of one (1) plus [*](15) of the percentage change in the GNP Deflator from the GNP Deflator for the first quarter of 1986 (the "Base GNP Value") to the GNP Deflator for the fourth quarter of the immediately preceding calendar year (the "Adjustment Formula"). Such adjustments shall be applied to the Purchase Prices for all Coal and Waste disposal services delivered in the then-current calendar year, and shall be retroactively applied to any such deliveries made in such current year prior to the calculation of such adjustment amounts. If the difference of the payments already made by ER&L during such current calendar year minus the adjusted payment determined from such retroactive application of the Adjustment Formula is a negative number, that difference shall be paid by ER&L to Anker; if the difference is a positive number, that difference shall be paid by Anker to ER&L. Such payments shall be made promptly upon receipt of an invoice therefor. Section 6.4. Freight Charges; Adjustments. (a) Transportation Arrangements. ER&L shall be responsible for making all arrangements for the transportation of Coal and Waste, and shall instruct the carriers to direct their invoices to ER&L as the shipper. (b) Freight. All freight costs shall be for the account of ER&L, and the Purchase Prices include the full consideration payable by Anker to ER&L for transportation services arranged for and rendered hereunder, other than charges (including without limitation demurrage) incurred at Anker's request or as a result of Anker's acts or omissions. - ----------- (15) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 29 (c) Reimbursement or Adjustment for Change in Tariffs. (i) Demurrage Changes. ER&L shall reimburse Anker for demurrage costs incurred by Anker in connection with the performance of this Agreement as a result of any change in railroad demurrage rates or rules, as follows: A. Demurrage Rates. The amount that ER&L shall, reimburse Anker for costs caused by a demurrage rate change shall be Anker's actual cost under such rate change minus the lesser of: (x) the carrier's published demurrage charges or (y) the tariff charge for demurrage provided in the Original Applicable Tariff as adjusted for inflation pursuant to the Adjustment Formula set forth in Section 6.3. B. Demurrage Rules. The amount that ER&L shall reimburse Anker for costs caused by a demurrage rule change shall be an amount equal to the difference between Anker's demurrage costs under such rule change and Anker's demurrage costs immediately prior to the rule change. (ii) Non-Demurrage Changes. Subject to the limitations provided in this Section 6. 4 (c) (ii) , ER&L shall reimburse Anker for non-demurrage costs incurred by Anker in connection with the performance of this Agreement as a result of a Compelled Change. A "Compelled Change" means a change in Anker's facility, plant or operations compelled by a published railroad rate or rule change (other than a change in demurrage rates or rules which is subject to the provisions of Section 6.4(c)(i) hereof) applicable to Anker and other shippers who are reasonably similar to Anker or its affiliates named in Annexes B and C hereto as to location, size, and line of business. When a rate or rule change that will result in a Compelled Change is announced, Anker and ER&L shall confer within fourteen (14) days after Anker notifies ER&L of the rate or rule change to determine a mutually cost efficient manner to effect the Compelled Change. ER&L shall reimburse Anker starting from the date Anker puts the Compelled Change into service until the termination-of this Agreement or any extension thereof as to the commodity (Coal or Waste) handled or served by the facility or plant affected by the rate or rule change that resulted in the Compelled Change; provided, however, that in no event shall ER&L be liable to reimburse Anker more than [*](16) for any Compelled Change. Unless the parties otherwise agree, reimbursement for any Compelled Change is to be amortized in equal monthly payments over five consecutive years; however, if this Agreement terminates prior to full amortization, then ER&L shall not be responsible to further reimburse Anker after such termination date. In the event that the costs incurred by Anker related partly to the performance of this Agreement and partly to unrelated business of Anker, then ER&L's reimbursement obligation under this Section 6.4 (c) (ii) shall be limited to the prorated share of Anker's costs that related to the performance of this Agreement at the time Anker incurred such costs. - ----------- (16) Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission (the "Commission"). The omitted portions, marked by "[*]," have been filed separately with the Commission. 30 (iii) Disputes. Any dispute regarding any reimbursement or adjustment covering demurrage or non-demurrage changes in tariffs may be referred to arbitration pursuant to Article XIII hereof. ARTICLE VII PAYMENT AND RECORDS Section 7.1. Billing. Anker shall deliver to ER&L invoices showing the Purchase Price for the Coal and the Waste disposal services delivered by Anker and for any cost incurred by Anker for the account of ER&L and any reimbursement or adjustment payable to Anker as provided in Sections 4.3, 5.3(h) and 6.4 hereof. If ER&L disputes any portion of any statement submitted by Anker for payment pursuant to this Section 7.1, ER&L shall pay the undisputed portion of such statement in accordance with Section 7.2 hereof and the Parties shall cooperate and use their best efforts to resolve the dispute as quickly as possible. Any such dispute may be submitted for arbitration in accordance with Article XIII hereof. Section 7.2. Payment. ER&L shall pay to Anker the payment due on the basis of each statement provided to ER&L by Anker pursuant to Section 7.1 hereof. Payment shall be made by wire transfer into Anker's account designated from time to time by Anker by notice and shall be received by Anker no later than the "Payment Due Date". "Payment Due Date" means the later of (1) the last day of the month in which the Coal being invoiced was shipped or the Waste being invoiced was unloaded from rail cars at the Waste Destination Point, as the case may be, or (2) the f6urth business day following the date of Anker's invoice. Any payment not so made (including disputed amounts withheld and later determined to be payable pursuant to arbitration, settlement or otherwise) shall be overdue and shall bear interest, at an annual rate equal to the Prime Rate plus one percent (1%), from the Payment Due Date until the earlier of (A) the date such payment is actually received by Anker and (B) the 15th day of the month next succeeding the month in which the Coal being invoiced was shipped or the Waste being invoiced was unloaded, and thereafter shall bear interest at such aggregate rate plus an additional three percent (3%) until the date such payment is actually received by Anker. Section 7.3. Records. Each Party shall keep and maintain complete and accurate records and all other data required by each of them for the purposes of proper administration of this Agreement. In addition, Anker shall keep and maintain complete and accurate records with respect to Waste disposal services, including the amounts- of Waste disposed and the location of such disposal. Anker shall make such records available to ER&L or its designees or representatives upon request, and shall provide ER&L with access to such personnel, all as may be required by ER&L to determine whether all Waste disposal services were provided in compliance with all Applicable Laws and Permits. All such records shall be maintained by Anker for five (5) years after the expiration of this Agreement. At the end of such period ER&L may, at its option, obtain from Anker and keep and maintain such records, or copies thereof, for such duration as ER&L deems appropriate. Either Party will have the right from time to time, 31 upon written notice to the other, to examine the records and data of the other relating to this Agreement at any time during the period the records are required to be maintained under this Section 7.3. ARTICLE VIII FORCE MAJEURE Section 8.1. Definition. "Force Majeure" shall mean any cause or causes which wholly or partly prevent or delay the performance of obligations arising under this Agreement and which are not reasonably within the control of the non-performing Party, and shall include, without limitation, a change of Applicable Laws or Permit rules adversely affecting Waste disposal service, an act of God, nuclear emergency, explosion, fire, epidemic, landslide, lightning, earthquake, flood or similar cataclysmic occurrence, an act of the public enemy, war, blockade, insurrection, riot, civil disturbance, general industry-wide strikes of the United Mine Workers Union affecting the States of Kentucky, Ohio, Pennsylvania and West Virginia, restrictions or restraints imposed by law or by rule, regulation or order of governmental authorities, whether Federal, State or local, and any other cause beyond the reasonable control of the Party relying on such cause to excuse its performance hereunder; provided, however, that none of the following shall constitute Force Majeure: (i) lack of money, (ii) changes in market conditions, (iii) unless the result of any of the events listed above, failure of the Mines to produce Coal in such quantities or of such quality as required under this Agreement, or (iv) unless the result of any of the events listed above, unavailability of the Waste Disposal Site for disposal of Waste. Section 8.2. Burden of Proof. In the event that the Parties are unable in good faith to agree that a Force Majeure event has occurred, the Parties shall submit the dispute for arbitration pursuant to Article XIII hereof, and the burden of proof as to whether an event of Force Majeure has occurred shall be upon the Party claiming an event of Force Majeure. Section 8.3. Effect of Force Majeure. If either Party is rendered wholly or partially unable to perform its obligations under this Agreement because of a Force Majeure event, that Party shall be excused from whatever performance, other than an obligation to pay money, is affected by the Force Majeure event to the extent so affected, provided, that: A. The non-performing Party within five (5) business days after the occurrence of the inability to perform due to a Force Majeure event shall provide written notice to the other Party of the particulars of the occurrence including an estimation of its expected duration and probable impact on the performance of its obligations hereunder and shall continue to furnish timely regular reports with respect thereto during the period of Force Majeure, but provided that if a Party has actual notice of the occurrence and status of the condition of Force Majeure, the other Party shall not be required to give such notice; 32 B. the non-performing Party shall use its best efforts to continue to perform its obligations hereunder and to remedy its inability to so perform (but such requirement shall not be construed to obligate a Party to accede to the demands of labor); Anker shall, at a minimum, allocate all of its available Coal supply and reserves and its Waste disposal capabilities on a pro rata basis among only ER&L and those other customers with whom Anker had firm contracts as of the date the Force Majeure condition commenced (or renewals on substantially the same terms as said original contracts); and ER&L shall, at a minimum, cause CSXT to allocate all of its available transportation and handling facilities on a pro rata basis among only Anker and those other customers with whom CSXT has firm contracts as of the date the Force Majeure condition commenced; and the non-performing Party shall notify the other Party promptly (but in no event later than three (3) days after the event of Force Majeure) of the proposed allocation method; C. the non-performing Party shall provide the other Party with prompt notice of the cessation of the event of Force Majeure giving rise to the excuse from performance; D. no obligation of either Party that arose prior to the occurrence of the event of Force Majeure shall be excused as a result of such occurrence; E. if either Party is prevented for more than one hundred twenty (120) days during any twelve (12) month period during the term hereof from substantially fulfilling its obligations under this Agreement by an event of Force Majeure, the other Party may terminate this Agreement; provided, however, that ER&L may not terminate this Agreement pursuant to this paragraph if Anker is prevented from so fulfilling its obligations by an event of Force Majeure affecting CSXT or ER&L's arrangements for transportation of the Coal and Waste. Section 8.4. Extension of Term. The term of this Agreement shall, at a Party's option, be extended for a period equal to the sum of all periods during which the other Party is unable as a result of a-Force Majeure event to perform as required hereunder. ARTICLE IX RIGHT TO VISIT Section 9.1. Right to Visit. Each Party grants to the other (including its agents) the right to visit its facilities, from time to time, upon reasonable notice and subject to the applicable rules and regulations of the facilities, in order to witness and review operations related to this Agreement. If ER&L determines under Section 3.4 hereof that the Coal deliveries have caused operating problems, ER&L and Anker shall cooperate in arranging for Anker to review the specific problem area. 33 ARTICLE X EVENTS OF DEFAULT; REMEDY Section 10. 1. Event of Default. (a) An event of default ("Event of Default") under this Agreement shall be deemed to exist upon the occurrence of any one or more of the following events: (1) Failure by either Party to make payment of any amounts due the other Party under this Agreement, which failure continues for a period of fifteen (15) days after written notice of such nonpayment. (2) Anker's failures to deliver shipments of Coal to ER&L or to dispose of shipments of Waste as required hereunder (without curing such failure within fifteen (15) days after notice of such failure pursuant to Sections 4.6(c) or 5.3(i) hereof) number in the aggregate six (6) or more in any twelve (12) month period during the term of this Agreement. It is understood a failure to dispose of Waste shipments because of a change of Applicable Law or Permit rules or because such change substantially increases Anker's cost, will not be an Event of Default. (3) Anker fails to provide the assurances requested by ER&L pursuant to Sections 4. 1 (b) , 4. 6 (b) or 5. 3 (b) hereof within fifteen (15) days after notice of such failure. (4) Failure by either Party to perform fully any other material provision of this Agreement, and (i) such failure continues for a period of thirty (30) days after written notice of such nonperformance or (ii) if the nonperforming Party shall commence within such thirty (30) days and shall thereafter proceed with all due diligence to cure such failure, such failure is not cured within such longer period (not to exceed ninety (90) days) as shall be necessary for such Party to cure the same with all due diligence. Section 10.2. Remedy for Breach. Upon the occurrence and during the continuance of an Event of Default hereunder, the Party not in default shall have the right to terminate this Agreement, upon ten (10) days' written notice and to pursue any other remedy given under this Agreement or now or hereafter existing at law or in equity or otherwise. ER&L may not terminate this Agreement in part without Anker's consent. Section 10.3. Specific Performance and Injunctive Relief. Each Party shall be entitled to a decree compelling specific performance with respect to, and shall be entitled, without the necessity of filing any bond, to the restraint by injunctive relief of any actual or threatened breach of, any material obligation of the other Party under this Agreement. Section 10. 4. Waiver. Waiver by either Party of any breach, or failure to require strict performance of the terms and conditions of this Agreement at any time, shall in no way affect, limit or waive such Party's right thereafter to enforce and compel strict 34 compliance with this Agreement and shall in no way be construed as a consent to any continuing or subsequent breach or failure to perform in strict compliance with this Agreement. Section 10. 5. No Consequential Damages. Notwithstanding anything herein to the contrary, neither Party shall be liable for consequential damages by virtue of its breach of any of its obligations hereunder. ARTICLE XI INSURANCE Section 11.1. Insurance. Commencing on the first date upon which any service is to be provided by Anker hereunder, Anker shall, at its own expense, acquire and maintain the following minimum coverages: (a) Comprehensive General Liability Insurance, including automobile liability and contractual liability, insuring the indemnity obligations set forth in this Agreement, with completed operations coverage, with limits of $1,000,000 per occurrence applicable to loss of or damage to property. (b) Worker's Compensation Insurance including occupational Disease Insurance in accordance with the laws of the states where the work is to be performed, and Employer's Liability Insurance in the amount of $1,000,000 per occurrence. In addition, all dollar amounts expressed in this Section 11.1 shall be updated triennially based on then current market conditions. Section 11. 2. Coverage. The insurance policies acquired and maintained by Anker pursuant to Section 11.1 hereof shall be endorsed naming ER&L as additional insured with respect to any and all third party bodily injury and/or property damage claims arising from Anker's performance of this Agreement and shall require thirty (30) days' written notice to be given to ER&L of cancellation and material change in any of the policies. It is understood such insurance will not cover ER&L employees or agents except when the injury is incurred on property owned or controlled by Anker. It is further understood such insurance will not cover ER&L employees or agents for black lung claims, workmen's compensation claims and in the event the employee's or agent's injury is solely caused by his own negligence. Section 11.3. Evidence of Coverage. Evidence of insurance for the coverage specified herein shall be provided by Anker to ER&L prior to the In-Service Date. During the remaining term of this Agreement, Anker, upon reasonable request, shall furnish ER&L with certificates of insurance described in this Article XI. 35 Section 11.4. Liability Notwithstanding Insurance Coverage. The insurance coverages described in this Article XI shall be primary to any other coverage available to ER&L and shall not be deemed to limit Anker's liability under this Agreement. ARTICLE XII COMPLIANCE WITH LAWS Section 12. 1. Compliance with Laws. Anker represents and warrants to ER&L that directly or indirectly through affiliates or other subcontractors it has all Permits (which are accurately described in Annex E attached hereto), and during the term of this Agreement shall maintain all Permits, required under Applicable Law to be held in connection with the Mines, the Waste Disposal Sits, the mining of Coal and the disposal of Waste as contemplated by this Agreement, and as otherwise required to perform its obligations hereunder. Anker shall comply with all Applicable Laws and Permits in performing its obligations hereunder and shall operate and maintain the Waste Disposal Site in accordance with all Applicable Laws. Anker shall promptly notify ER&L of any material actual or threatened loss, amendment or breach of any such Permit or any material actual or threatened breach of any such Applicable Law. It is understood if Applicable Laws and Permit rules are changed, Anker will use its best efforts to comply with such changes, but if the changes make it impossible or unreasonably uneconomical for Anker to furnish Waste disposal service, Anker will not be required to do so. ARTICLE XIII ARBITRATION Section 13.1. Arbitration. The Parties shall negotiate in good faith and attempt to resolve any dispute which may develop under this Agreement; however, if the Parties are unable to resolve a dispute hereunder, either Party may serve upon the other a demand that such matter be arbitrated, in which case the same shall be resolved by arbitration conducted in accordance with the rules of the American Arbitration Association. In the event of such a dispute, the Parties shall endeavor to appoint an arbitrator agreeable to both of them, who shall be the sole arbitrator. In the event that the Parties are unable to agree upon an arbitrator within twenty (20) days of the filing of a demand for arbitration by the initiating Party, then either Party may request the American Arbitration Association to appoint a member in good standing of such Association as the sole arbitrator. Unless the Parties otherwise agree, the arbitration will be held in Washington, D.C. The Parties will proceed with the arbitration expeditiously and will conclude all proceedings thereunder, including any hearing, in order that a decision may be rendered within one hundred twenty (120) days from the filing of the demand for arbitration by the initiating Party. The award of the arbitrator will be final and binding on both Parties and may be enforced in any court having jurisdiction of the Party against which enforcement is sought. Each Party shall bear its own expenses, including but not limited to counsel 36 fees, except that all expenses of the arbitration shall be apportioned in the award of the arbitrator based upon the respective merit of the positions of the Parties. This Section 13.1 shall survive the termination or expiration of this Agreement. Section 13.2. Price and Payment During Arbitration. Whenever a decision has not been rendered within the 120-day period provided by Section 13.1 hereof in an arbitration which relates to a Purchase Price increase proposed by Anker or to a disputed payment withheld by ER&L, ER&L shall, upon the expiration of such 120-day period, commence paying to Anker such proposed Purchase Price or pay to Anker such withheld payment, as the case may be. Upon the rendering of the arbitral decision, all overpayments shall be refunded and all underpayments shall be paid, with interest thereon in each case at an annual rate equal to the Prime Rate plus one percent (1%) except where a different interest rate is applicable pursuant to Section 7.2 hereof. ARTICLE XIV INDEMNIFICATION Section 14.1 Indemnification (a) General. Each Party shall indemnify and hold the other Party and its successors and assigns harmless from and against all damages, losses or expenses suffered or paid as a result of any and all claims, demands, suits, penalties, causes of action, proceedings, judgments, administrative and judicial orders and liabilities (including reasonable counsel fees incurred in any litigation or otherwise) assessed, incurred or sustained by or against such other Party and its successors and assigns with respect to or arising out of any breach by the indemnifying Party or its warranties, representations, covenants or agreements hereunder. (b) Environmental. Anker shall indemnify and hold ER&L and its successors and assigns harmless from and against all damages, losses or expenses suffered or paid as a result of any and all claims, demands, suits, penalties, causes of action, proceedings, judgments, administrative and judicial orders and liabilities (including reasonable counsel and consultant fees incurred in any litigation or enforcement efforts) assessed, incurred or sustained by or against ER&L and its successors and assigns under any statute, regulation, ordinance or common law theory and arising out of any matter relating to environmental protection aspects of the transportation from Anker's rail siding to the Waste Disposal Site and disposal of the Waste by Anker and its employees, contractors and agents, unless such damages, losses or expenses arose solely because of a change in Applicable Laws or Permit rules, in which event no indemnity will be due from Anker to ER&L. Section 14.2. Notice and Legal Defense. Promptly after receipt by a Party of any claim or notice of the commencement of any action, administrative or legal proceedings, or investigation as to which the indemnity provided for in Section 14.1 hereof, or an indemnity provided elsewhere in this Agreement (including without limitation Sections 37 4.1, 4.2 (b) , 5. 1 (b) and 5.3 (f) hereof) , may apply, the indemnified Party shall notify the indemnifying Party in writing of such fact. The indemnifying Party shall assume the defense thereof with counsel designated by such Party and satisfactory to the indemnified Party; provided, however, that if the defendants in any such action include both the indemnified Party and the indemnifying Party and the Parties conclude that there may be legal defenses available to indemnified Party which are different from or additional to, or inconsistent with, those available to the indemnifying Party, the indemnified Party shall have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified Party, at the indemnifying Party's expense. Section 14.3. Failure to Defend Action. Should a Party be entitled to indemnification under Section 14.1 hereof as a result of a claim by a third party, and the indemnifying Party fails to assume the defense of such claim, the indemnified Party shall at the expense of the indemnifying Party contest (or, with the prior written consent of such indemnifying Party, settle) such claim, provided that no such contest need be made and settlement or full payment of any such claim may be made without consent of the indemnifying Party (with such indemnifying Party remaining obligated to indemnify the indemnified Party hereunder) if, in the written opinion of the indemnified Party's counsel, such claim is meritorious. Section 14.4. Indemnification Amount. In the event that a Party is obligated to indemnify the other Party hereunder, the amount owing to the indemnified Party will be the amount of such Party's actual out-of-pocket loss net of (i) any insurance or other recovery and (ii) any net reduction of taxes realized by the indemnified person as a result of such loss and any recovery (whether such recovery is the indemnity payment made under this Article XIV or insurance proceeds). ARTICLE XV NOTICE AND SERVICE Section 15.1. Notice. All notices, including communications and statements which are required or permitted under the terms of this Agreement, shall be in writing, except as otherwise specifically provided herein. Section 15.2. Service (a) Service of a notice may be accomplished by personal service, telegram, electronic facsimile transmission ("fax") or registered or certified mail. (b) (i) If a notice is sent by registered or certified mail, it shall be deemed given and received on the third day after mailing, excluding Saturdays, Sundays or federal legal holidays, except as otherwise demonstrated by a signed receipt. (ii) If a notice is served by telegram, it shall be deemed given and received eighteen (18) hours after delivery to the telegram company or, if the last nine (9) of such 38 eighteen (18) hours fall on a Saturday, Sunday or federal legal holiday, then at 9 a.m. the following business day. (iii) If a notice is served by fax, it shall be deemed given and received when it is transmitted, provided, however, that notice served by fax shall only be effective if the sending party first telephones the notified party to advise that the notice is being sent. (c) Notices shall be sent to the Parties at the following addresses: (i) ER&L: Chairman and CEO ----- ER&L Thames, Inc. 100 North Charles Street Balitmore, MD 21201 Fax No.: (301) 237-2892 (ii) Anker: President ----- Anker Energy Corporation Route 12 Box 245 Morgantown, WV 26505 Fax No.: (304) 291-3692 From time to time the Parties may designate a new address for purpose of notice by written notice to the other duly given as provided herein. ARTICLE XVI SUCCESSORS AND ASSIGNS Section 16.1 Assignment by Parties. (a) Except as specified below, the rights and obligations of the Parties to this Agreement may not be assigned by either Party except upon the express written consent of the other Party which consent shall not be unreasonably withheld. In the event such an assignment is made and consented to, the assigning Party shall be released and discharged from all obligations to the other Party hereunder thereafter arising, and such assignee shall be substituted in place of the assigning Party herein. (b) Either Party shall have the right, without the consent of the other Party, to assign all of its rights, interests and obligations under this Agreement to a corporation or other business entity which owns or controls the assigning Party or which acquires or merges with the assigning Party in a transaction in which such corporation or other business entity becomes the owner, directly or indirectly, of all or most of the assets of the assigning Party. 39 Section 16.2. Binding Effect. The terms and provisions of this Agreement and the respective rights and obligations hereunder of Anker and ER&L shall be binding upon, and inure to the benefit of, their respective permitted successors and assigns. Section 16.3. Undertaking of CSXT. In consideration for Anker's entering into this Agreement, ER&L shall arrange for CSXT, which owns indirectly all of the issued and outstanding shares of ER&L, to deliver to Anker, effective as of the date of this Agreement, an agreement to be responsible for all of the obligations of ER&L hereunder and certain other obligations, substantially in the form of Annex F hereto. ARTICLE XVII MISCELLANEOUS Section 17. 1. Independent Contractor. Each Party will at all times act as and be deemed to be an independent contractor for all purposes of this Agreement and will not act as nor be deemed to be an employee or agent of the other Party. Section 17.2. Confidentiality. Anker and ER&L shall retain in confidence the commercial terms of this Agreement and any information obtained as a result of negotiation and performance of this Agreement which either Party identifies to the other as being proprietary in nature, except that the Parties may disclose such information to any parties providing financing or to any party controlling, controlled by, or under common control with such Party. It is understood, however, that such information may be disclosed when requested by a court or government agency. Section 17.3. Amendments. No amendment or modification of the terms of this Agreement shall be binding on either ER&L or Anker unless reduced to writing and signed by both Parties. Section 17.4. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Virginia. Section 17.5. Severability and Renegotiation. Should any provision of this Agreement for any reason be declared invalid or unenforceable by final and unappealable order of any court or regulatory body having jurisdiction thereover, such decision shall not affect the validity of the remaining portions, which remaining portions shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. In the event any such provision of this Agreement is so declared invalid, the Parties shall promptly renegotiate in good faith new provisions to eliminate such invalidity and to restore this Agreement as near as possible to its original intent and effect. Section 17. 6. Other Agreements. This Agreement, together with the agreement of CSXT referred to in Section 16.3 hereof and that certain Agent and Substitution Agreement by and among Anker, CSXT and ER&L effective November 30, 1990 (the 40 "Agent and Substitution Agreement"), supersede any and all oral or written agreements and understandings heretofore made relating to the subject matters herein and therein and constitute the entire agreement and understanding of the Parties relating to the subject matters herein and therein. Without limiting the effect of the preceding sentence, it is specifically agreed that as of the date hereof, this Agreement amends in its entirety the CSXT-Anker Agreement and that, upon the execution and delivery of this Agreement, the agreement of CSXT referred to in Section 16.3 hereof, and the AES-ER&L Agreement, the CSXT-Anker Agreement shall be terminated and replaced by this Agreement, all except for the provisions of the Amendatory Agreement to the CSXT-Anker Agreement dated as of June 21, 1989, which Amendatory Agreement remains in full force and effect as a valid and subsisting Agreement between Anker and CSXT. This Agreement is the New Anker Agreement referred to in the Agent and Substitution Agreement. Section 17.7. Transitional Provisions. In furtherance of Section 17.6 hereof and of the Agent and Substitution Agreement, the following provisions shall apply to this Agreement. (a) Capacity of ER&L. ER&L has entered into this Agreement and shall perform this Agreement in its capacity as agent for CSXT while the AES-CSXT Agreement remains in effect. ER&L has entered into this Agreement and shall perform this Agreement as principal upon and after the date on which the AES-ER&L Agreement becomes effective. (b) Historical Provisions. Certain provisions of this Agreement relate to matters which transpired prior to the date of this Agreement, but which were performed pursuant to corresponding provisions of the CSXT-Anker Agreement. Such provisions are included herein for purposes of historical reference and of Section 17.7(c) hereof. (c) Ratification. The Parties hereby ratify and adopt for purposes of this Agreement all notices, approvals, consents and other actions taken by or between CSXT and Anker pursuant to corresponding provisions of the CSXT-Anker Agreement, including, without limitation, any changes of Individual Specifications as contemplated by Section 3.3 (c) hereof, any adjustments to specifications as contemplated by Section 3.4 hereof, any approvals of coal sources as contemplated by Section 3.5 hereof, any scheduling information and arrangements as contemplated by Sections 4.2 and 5.3 (f) hereof, the selection of the Lab as contemplated by Section 4.4 hereof, and any price adjustments as contemplated by Article VI hereof. Section 17. 8. Change of Carrier. This Agreement contemplates that ER&L will arrange for transportation of Coal via CSXT. Nothing in this Agreement, however, shall be construed to prevent ER&L from arranging for transportation via any other carrier, subject to the Parties' agreement on suitable terms corresponding to the provisions hereof which relate to transportation via CSXT. 41 Section 17.9. Captions. All indices, titles, subject headings, section titles and similar items are provided for the purpose of reference and convenience and are not intended to be inclusive, definitive or to affect the meaning, content or scope of this Agreement. Section 17.10. Counterparts. This Agreement may be executed in any number of counterparts, and each counterpart shall have the same force and effect as the original instrument. ANKER ENERGY CORPORATION ER&L THAMES, INC. By: /s/ John J. Faltis By: /s/ Edward Latchford --------------------------- -------------------------------- Title: : President Title: Chairman and Chief Executive Officer --------------------- ----------------------------------------
EX-21 27 LIST OF SUBSIDIARIES OF ANKER 1 EXHIBIT 21 SUBSIDIARIES OF ANKER COAL GROUP, INC. Anker Energy Corporation .............................................. Delaware Anker Group, Inc. ..................................................... Delaware Anker Power Services, Inc. ....................................... West Virginia Anker Virginia Mining Company, Inc. ................................... Virginia Anker West Virginia Mining Company, Inc. ......................... West Virginia Bronco Mining Company, Inc. ...................................... West Virginia Hawthorne Coal Company, Inc. ..................................... West Virginia Heather Glen Resources, Inc. ..................................... West Virginia Juliana Mining Company, Inc. ..................................... West Virginia King Knob Coal Co., Inc. ......................................... West Virginia Marine Coal Sales Company ............................................. Delaware Melrose Coal Company, Inc. ....................................... West Virginia New Allegheny Land Holding Company, Inc. ......................... West Virginia Patriot Mining Company, Inc. ..................................... West Virginia Simba Group, Inc. ..................................................... Delaware Upshur Property, Inc. ................................................. Delaware Vantrans, Inc. ........................................................ Delaware Vindex Energy Corporation ........................................ West Virginia EX-23.2 28 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-4 of Anker Coal Group, Inc. of our report dated March 29, 1999 relating to the financial statements of Anker Coal Group, Inc. and our report dated February 28, 1997 relating to the financial statements of Anker Group, Inc. and Subsidiaries, which appear in such Registration Statement. We also consent to the references to us under the headings "Selected Financial Data" and "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Pittsburgh, Pennsylvania December 3, 1999 EX-23.3 29 CONSENT OF MARSHALL MILLER & ASSOCIATES 1 Exhibit 23.3 MARSHALL MILLER & ASSOCIATES LOGO December 1, 1999 Mr. Bruce Sparks, President ANKER COAL GROUP, INC. 2708 Cranberry Square Morgantown, West Virginia 26505 Dear Sir: MARSHALL MILLER & ASSOCIATES (MM&A), a mining and geological consulting firm based in Bluefield, Virginia, hereby consents to the inclusion of our report, "Audit of Demonstrated Reserves Controlled by Anker Coal Group, Inc. - December 1, 1999," with regard to the coal reserves of ANKER COAL GROUP, INC. (ANKER) and all references to our firm included in or made part of Anker's Registration Statement on Form S-4 for the registration of Anker's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000). Sincerely, MARSHALL MILLER & ASSOCIATES ENERGY & MINERAL RESOURCES GROUP /s/ J. Scott Nelson J. Scott Nelson, C.P.G. Vice President EX-25 30 FORM T-1 1 EXHIBIT 25 FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) / / THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ANKER COAL GROUP, INC. (Exact name of obligor as specified in its charter) Delaware 52-1990183 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Anker Group, Inc. (Exact name of obligor as specified in its charter) Delaware 13-2961732 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Anker Energy Corporation (Exact name of obligor as specified in its charter) Delaware 51-0217205 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2 Bronco Mining Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 22-2094405 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Anker Power Services, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0700346 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Anker West Virginia Mining Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0699931 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Juliana Mining Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0568083 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) King Knob Coal Co., Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0488823 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Vantrans, Inc. (Exact name of obligor as specified in its charter) Delaware 22-2093700 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 3 Melrose Coal Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0746947 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Hawthorne Coal Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0742562 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Upshur Property, Inc. (Exact name of obligor as specified in its charter) Delaware 95-4484172 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Heather Glen Resources, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0746946 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) New Allegheny Land Holding Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 31-1568515 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Patriot Mining Company, Inc. (Exact name of obligor as specified in its charter) West Virginia 55-0550184 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 4 Vindex Energy Corporation (Exact name of obligor as specified in its charter) West Virginia 55-0753903 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Anker Virginia Mining Company, Inc. (Exact name of obligor as specified in its charter) Virginia 54-1867395 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Simba Group, Inc. (Exact name of obligor as specified in its charter) Delaware 55-0753900 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2708 Cranberry Square Morgantown, West Virginia 26508 (Address of principal executive offices) (Zip code) Marine Coal Sales Company (Exact name of obligor as specified in its charter) Delaware 13-3307813 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 645 West Carmel Drive Carmel, Indiana 46032 (Address of principal executive offices) (Zip code) 14.25% Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (Title of the indenture securities) 5 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Name Address ---- ------- Superintendent of Banks of 2 Rector Street, New York, the State of New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Washington, D.C. 20429 Corporation New York Clearing House New York, New York 10005 Association
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 6 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 1st day of December, 1999. THE BANK OF NEW YORK By: /s/ MARY LAGUMINA ------------------------------- Name: MARY LAGUMINA Title: ASSISTANT VICE PRESIDENT 7 Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business September 30, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin ...... $ 6,394,412 Interest-bearing balances ............................... 3,966,749 Securities: Held-to-maturity securities ............................. 805,227 Available-for-sale securities ........................... 4,152,260 Federal funds sold and Securities purchased under agreements to resell .................................... 1,449,439 Loans and lease financing receivables: Loans and leases, net of unearned income ......................37,900,739 LESS: Allowance for loan and lease losses ...................572,761 LESS: Allocated transfer risk reserve .........................11,754 Loans and leases, net of unearned income, allowance, and reserve ................................ 37,316,224 Trading Assets ............................................. 1,646,634 Premises and fixed assets (including capitalized leases) ................................................. 678,439 Other real estate owned .................................... 11,571 Investments in unconsolidated subsidiaries and associated companies .................................... 183,038 Customers' liability to this bank on acceptances outstanding ............................................. 349,282 Intangible assets .......................................... 790,558 Other assets ............................................... 2,498,658 ----------- Total assets ............................................... $60,242,491 ===========
EX-99.1 31 FORM OF LETTER OF TRANSMITTAL 1 Exhibit 99.1 LETTER OF TRANSMITTAL ANKER COAL GROUP, INC. Offer To Exchange Anker's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) That Have Been Registered Under the Securities Act of 1933 For Any and All of Anker's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) Pursuant to the Prospectus Dated , 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , UNLESS THE EXCHANGE OFFER IS EXTENDED. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY HAND BY OVERNIGHT COURIER BY FACSIMILE TO CONFIRM BY DELIVERY: OR REGISTERED/CERTIFIED TRANSMISSION: TELEPHONE OR FOR The Bank of New York MAIL: (212) 815-6339 INFORMATION: 101 Barclay Street The Bank of New York (212) 815-6331 New York, New York 10286 101 Barclay Street Ground Level New York, New York 10286 Corporate Trust Services Window Attn: Reorganization Unit -- 7E Attn: Reorganization Unit -- 7E
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by holders of Old Notes (as defined below) either if Old Notes are to be forwarded herewith or if tenders of Old Notes are to be made by book-entry transfer to an account maintained by The Bank of New York (the "Exchange Agent") at The Depository Trust Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. 2 Please list below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, please list the certificate numbers and aggregate principal amounts on a separately executed schedule and affix the schedule to this Letter of Transmittal. DESCRIPTION OF NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------- AGGREGATE NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), EXACTLY CERTIFICATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT AS NAME APPEAR(S) ON CERTIFICATE(S) (PLEASE FILL IN, IF NUMBER(S)* AMOUNT OF OLD NOTES OF OLD NOTES BLANK) DELIVERED TENDERED FOR EXCHANGE** - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. Such holders should check the appropriate box below and provide the requested information. ** Need not be completed if tendering for exchange all Old Notes delivered to the Exchange Agent. All Old Notes delivered shall be deemed tendered unless a lesser number is specified in this column. The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be in integral multiples of $1,000 of principal amount. 1 3 TENDER OF OLD NOTES [ ] Check here if tendered Old Notes are enclosed herewith. [ ] Check here if tendered Old Notes are being delivered by book-entry transfer made to the account maintained by the Exchange Agent at DTC and complete the following: Name of Tendering Institution:_________________________________________ DTC Account Number:____________________________________________________ Transaction Code Number:_______________________________________________ [ ] Check here if tendered Old Notes are being delivered pursuant to a Notice of Guaranteed Delivery previously delivered to the Exchange Agent. In such case, please enclose a photocopy of the Notice of Guaranteed Delivery and complete the following: Name of Registered Holder(s):__________________________________________ Window Ticket Number (if any):_________________________________________ Date of Execution of Notice of Guaranteed Delivery:____________________ Name of Eligible Institution that Guaranteed Delivery:_________________ [ ] Check here if you are a broker-dealer that acquired the Old Notes for its own account as a result of market making or other trading activities (a "Participating Broker-Dealer") and wish to receive 10 additional copies of the Prospectus and 10 copies of any amendments or supplements thereto. In such case, please complete the following: Name:__________________________________________________________________ Address:_______________________________________________________________ Area Code and Telephone Number:________________________________________ Contact Person:________________________________________________________ 2 4 LADIES AND GENTLEMEN: The undersigned hereby tenders to Anker Coal Group, Inc., a Delaware corporation (the "Company") the above described aggregate principal value of the Company's 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April l, 2000) (the "Old Notes") in exchange for a like aggregate principal value of the Company's 14.25% Series B Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "New Notes") which have been registered under the Securities Act 1933 (the "Securities Act"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), receipt of which is acknowledged, and in this Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"). Subject to and effective upon the acceptance for exchange of all or any portion of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby sells, assigns and transfers to or upon the order of the Company all right, title and interest in and to such Old Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its agent and attorney-in-fact (with full knowledge that the Exchange Agent is also acting as agent of the Company in connection with the Exchange Offer) with respect to the tendered Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), subject only to the right of withdrawal described in the Prospectus, to (i) deliver certificates for Old Notes to the Company together with all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to be issued in exchange for such Old Notes, (ii) present certificates for such Old Notes for transfer, and to transfer the Old Notes on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Old Notes, all in accordance with the terms and conditions of the Exchange Offer. THE UNDERSIGNED HEREBY REPRESENT(S) AND WARRANT(S) THAT THE UNDERSIGNED HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS AGREEMENT DATED AS OF OCTOBER 26, 1999, BY AND AMONG THE COMPANY, THE GUARANTORS LISTED ON SCHEDULE A THERETO AND THE PURCHASERS AND EXCHANGING NOTEHOLDERS LISTED ON SCHEDULE B THERETO (THE "REGISTRATION RIGHTS AGREEMENT"). THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER. The name(s) and address(es) of the registered holder(s) of the Old Notes tendered hereby should be printed on page 2, if they are not already set forth there, as they appear on the certificates (or, in the case of book-entry securities, on the relevant security position listing) representing such Old Notes. The certificate number(s) and the principal amount of Old Notes that the undersigned wishes to tender should be indicated in the appropriate boxes on page 2. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reasons, or if certificates are submitted for more Old Notes than are tendered or accepted for exchange, certificates for such nonexchanged or nontendered Old Notes will be returned (or, in the case of Old Notes tendered by book-entry transfer, such Old Notes will be credited to the appropriate account maintained at DTC), without expense to the tendering holder, promptly following the expiration or termination of the Exchange Offer. The undersigned understands that tenders of Old Notes pursuant to any one of the procedures described in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus and in the instructions hereto will, upon the Company's acceptance for exchange of such tendered Old Notes, constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus, the Company may not be required to accept for exchange any of the Old Notes tendered hereby. 3 5 Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, the undersigned hereby directs that the New Notes be issued in the name(s) of the undersigned or, in the case of a book-entry transfer of Old Notes, that such New Notes be credited to the account indicated above maintained at DTC. If applicable, substitute certificates representing Old Notes not tendered or not accepted for exchange will be issued to the undersigned or, in the case of a book-entry transfer of Old Notes, will be credited to the account indicated above maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery Instructions," the undersigned hereby directs that New Notes be delivered to the undersigned at the address shown below the undersigned's signature. BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (i) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE COMPANY WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT, (ii) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, AND (iii) THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE OFFER. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES THAT IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION (THE "STAFF") TO THIRD PARTIES, THAT (a) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (b) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER A PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY SALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT). THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) IN CONNECTION WITH RESALES OF THE NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, FOR A PERIOD ENDING 180 DAYS FROM THE DATE ON WHICH THE REGISTRATION STATEMENT UNDER WHICH THE EXCHANGE OFFER IS MADE IS DECLARED EFFECTIVE, OR, IF EARLIER, WHEN ALL SUCH NEW NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER THAT ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT THAT MAKES ANY STATEMENT CONTAINED IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR THAT CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE. Holders of Old Notes whose Old Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the New Notes. Such interest will be paid with the first interest payment on the New Notes, which interest payment will be made by issuing additional New Notes, instead of cash, as set forth in the Prospectus. Interest on the Old Notes accepted for exchange will cease to accrue upon issuance of the New Notes. Interest on the New Notes is payable semi-annually on each April 1 and October 1 of each year. All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, 4 6 executors, administrators, personal representatives, trustees in bankruptcy, legal representatives, successors and assigns of the undersigned. Please be advised that the Company is registering the New Notes in reliance on the position of the Staff enunciated in Exxon Capital Holdings Corp. (available April 13, 1989) and Morgan Stanley & Co. Incorporated (available June 5, 1991). The Company has not entered into any arrangement or understanding with any person to distribute the New Notes to be received in the Exchange Offer and, to the best of its information and belief, each person participating in the Exchange Offer is acquiring the New Notes in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the New Notes to be received in the Exchange Offer. In this regard, the undersigned is aware that if the undersigned is participating in the Exchange Offer for the purpose of distributing the New Notes to be acquired in the Exchange Offer, the undersigned (a) may not rely on the Staff position enunciated in Exxon Capital Holdings Corp. or interpretative letters to similar effect and (b) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The undersigned is aware that such a secondary resale transaction by a person participating in the Exchange Offer for the purpose of distributing the New Notes should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K. 5 7 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, AND 6) To be completed ONLY if the New Notes or any Old Notes delivered but not tendered for exchange are to be sent to someone other than the registered holder of the Old Notes whose name(s) appear(s) above, or such registered holder(s) at an address other than that shown above. Issue: [ ] New Notes and/or [ ] Old Notes delivered but not tendered for exchange Name(s):________________________________________________________________________ (Please Print) Address:________________________________________________________________________ (Please Print) ________________________________________________________________________________ ________________________________________________________________________________ (Please include ZIP code) ________________________________________________________________________________ Telephone Number with Area Code ________________________________________________________________________________ Tax ID Number SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, AND 6) To be completed ONLY if the New Notes or any Old Notes delivered but not tendered for exchange are to be issued in the name of someone other than the registered holder of the Old Notes whose name(s) appear(s) above. Issue: [ ] New Notes and/or [ ] Old Notes delivered but not tendered for exchange Name(s):________________________________________________________________________ (Please Print) Address:________________________________________________________________________ (Please Print) ________________________________________________________________________________ ________________________________________________________________________________ (Please include ZIP code) ________________________________________________________________________________ Telephone Number with Area Code ________________________________________________________________________________ Tax ID Number 6 8 HOLDER(S) SIGN HERE (SEE INSTRUCTIONS 2, 5 AND 6) (Please Complete Substitute Form W-9 Contained Herein) (Note: Signatures Must be Guaranteed if Required by Instruction 2) Must be signed by registered holder(s) exactly as name(s) appear(s) on certificates for the Old Notes tendered (or, in the case of book-entry securities, on the relevant security position listing), or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith (including such opinions of counsel, certifications and other information as may be required by the Company to comply with the restrictions on transfer applicable to the Old Notes). If signature is by an attorney-in-fact, executor, administrator, trustee, guardian, officer or a corporation or another acting in a fiduciary capacity or representative capacity, please set forth the signer's full title. See Instruction 5. X ______________________________________________________________________________ X ______________________________________________________________________________ (SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY) Date:_____________________________, 1999 Name: __________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT) Capacity:_______________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________________ (PLEASE INCLUDE ZIP CODE) Telephone No. (with area code):_________________________________________________ Tax ID No:______________________________________________________________________ GUARANTEE OF SIGNATURES (See Instructions 2 and 5 below) Certain Signatures Must be Guaranteed by an Eligible Institution ________________________________________________________________________________ (AUTHORIZED SIGNATURE) ________________________________________________________________________________ (CAPACITY (FULL TITLE)) ________________________________________________________________________________ ________________________________________________________________________________ (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURE) ________________________________________________________________________________ (ADDRESS OF FIRM -- PLEASE INCLUDE ZIP CODE) ________________________________________________________________________________ (TELEPHONE NO. (WITH AREA CODE) OF FIRM) Date: __________________________, 1999 7 9 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if (a) certificates are to be forwarded herewith or (b) tenders are to be made pursuant to the procedures for tender by book-entry transfer set forth in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. Certificates, or timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees, and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at its address set forth herein on or prior to the expiration date set forth in the Prospectus (the "Expiration Date"). Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete the procedures for delivery by book-entry transfer on a timely basis, may tender their Old Notes by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (x) such tender must be made by or through an Eligible Institution (as defined below); (y) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by the Company, must be received by the Exchange Agent on or prior to the Expiration Date; and (z) the certificates (or a book-entry confirmation (as defined in the Prospectus)) representing all tendered Old Notes, in proper form for transfer, together with a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in "The Exchange Offer -- Procedures for Tendering Old Notes" in the Prospectus. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile or mail to the Exchange Agent, and must include a guarantee by an Eligible Institution in the form set forth in such Notice. For Old Notes to be properly tendered pursuant to the guaranteed delivery procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration Date. As used herein and in the Prospectus, "Eligible Institution" means a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution," including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or government securities broker or dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association that is a participant in a Securities Transfer Association. THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. The Company will not accept any alternative, conditional or contingent tenders. Each tendering holder, by executing a Letter of Transmittal (or facsimile thereof), waives any right to receive any notice of the acceptance of such tender. 2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of Transmittal is required if: (i) this Letter of Transmittal is signed by the registered holder (which term, for purposes of this document, shall include any participant in DTC whose name appears on the relevant security position listing as the owner of the Old Notes) of Old Notes tendered herewith, unless such holder(s) has completed either the box entitled "Special Issuance Instructions" or the box entitled "Special Delivery Instructions" above, or (ii) such Old Notes are tendered for the account of a firm that is an Eligible Institution. 8 10 In all other cases, an Eligible Institution must guarantee the signature(s) on this Letter of Transmittal. See Instruction 5. 3. INADEQUATE SPACE. If the space provided in the box captioned "Description of Old Notes" is inadequate, the certificate number(s) and/or the aggregate principal amount of Old Notes and any other required information should be listed on a separate signed schedule that is attached to this Letter of Transmittal. 4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. If less than all the Old Notes evidenced by any certificate submitted are to be tendered, fill in the aggregate principal amount of Old Notes that are to be tendered in the box entitled "Aggregate Principal Amount of Old Notes Tendered for Exchange." In such case, new certificates(s) for the remainder of the Old Notes that were evidenced by your old certificate(s) will be sent to the holder of the Old Notes (or such other party as you identify in the box captioned "Special Delivery Instructions") promptly after the Expiration Date. All Old Notes represented by certificates delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time on or prior to the Expiration Date. In order for a withdrawal to be effective, a written or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at its address set forth above on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Old Notes to be withdrawn, the aggregate principal amount of Old Notes to be withdrawn and (if certificates for Old Notes have been tendered) the name of the registered holder of the Old Notes as set forth on the certificate for the Old Notes, if different from that of the person that tendered such Old Notes. If certificates for the Old Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such certificates for the Old Notes, the tendering holder must submit the serial numbers shown on the particular certificates for the Old Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Old Notes tendered for the account of an Eligible Institution. If Old Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "The Exchange Offer -- Procedures for Tendering Old Notes," the notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawal of Old Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written or facsimile transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described in the Prospectus under "The Exchange Offer -- Procedures for Tendering Old Notes." All questions as to the validity, form and eligibility (including time of receipt) of such withdrawal notices will be determined by the Company, in its sole discretion, whose determination shall be final and binding on all parties. The Company, any affiliates or assigns of the Company, the Exchange Agent or any other person shall not be under any duty to give any notification of any irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Old Notes that have been tendered but that are withdrawn will be returned to the holder thereof without cost to such holder promptly after withdrawal. 5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signatures(s) must correspond exactly with the name(s) as written on the face of the certificate(s) (or, in the case of book-entry securities, on the relevant security position listing) without alteration, enlargement or any change whatsoever. If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Old Notes are registered in different name(s) on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimiles thereof) as there are different registrations of certificates. If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such 9 11 persons should so indicate when signing and must submit proper evidence satisfactory to the Company, in its sole discretion, of such persons' authority to so act. When this Letter of Transmittal is signed by the registered owner(s) of the Old Notes listed and transmitted hereby, no endorsement(s) of certificate(s) or separate bond power(s) are required unless New Notes are to be issued in the name of a person other than the registered holder(s). Signature(s) on such certificate(s) or bond power(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the Old Notes listed, the certificates must be endorsed or accompanied by appropriate bond powers, signed exactly as the name or names of the registered owner(s) appear(s) on the certificates, and also must be accompanied by such opinions of counsel, certifications and other information as the Company may require in accordance with the restrictions on transfer applicable to the Old Notes. Signatures on such certificates or bond powers must be guaranteed by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTION. If New Notes are to be issued in the name of a person other than the signer of this Letter of Transmittal, or if New Notes are to be sent to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. Certificates for Old Notes not exchanged will be returned by mail or, if tendered by book-entry transfer, by crediting the account indicated above maintained at DTC. See Instruction 4. 7. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form of documents, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Notes, which determination shall be final and binding on all parties. The Company reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance of which, or exchange for, may, in the view of counsel to the Company, be unlawful. The Company also reserves the absolute right, subject to applicable law, to waive any of the conditions of the Exchange Offer set forth in the Prospectus under "The Exchange Offer -- Conditions; Extension; Amendments" or any conditions or irregularity in any tender of Old Notes of any particular holder whether or not similar conditions or irregularities are waived in the case of other holders. The Company's interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) will be final and binding. No tender of Old Notes will be deemed to have been validly made until all irregularities with respect to such tender have been cured or waived. The Company, any affiliates or assigns of the Company, the Exchange Agent or any other person shall not be under any duty to give notification of any irregularities in tenders or incur any liability for failure to give such notification. 8. QUESTIONS, REQUEST FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth on the front of this Letter of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the Letter of Transmittal may be obtained from the Exchange Agent or from your broker, dealer, commercial bank, trust company or other nominee. 9. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s) representing Old Notes have been lost, destroyed or stolen, the holder should promptly notify the Exchange Agent. The holder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, destroyed or stolen certificate(s) have been followed. 10. SECURITY TRANSFER TAXES. Holders that tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, New Notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Notes tendered, or if a transfer tax is imposed for any reason other than the exchange of Old Notes in connection with the Exchange Offer, then the amount of any such transfer tax (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. 10 12 IMPORTANT TAX INFORMATION Under federal income tax law, a holder whose tendered Old Notes are accepted for exchange is required by law to provide the Exchange Agent with such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 included herein or otherwise establish a basis for exemption from backup withholding. If such holder is an individual, the TIN is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the Internal Revenue Service may subject the holder or transferee to a $50.00 penalty. In addition, delivery of such holder's New Notes may be subject to backup withholding. Failure to comply truthfully with the backup withholding requirements also may result in the imposition of severe criminal and/or civil fines and penalties. Certain holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt holders should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9, and sign, date and return the Substitute Form W-9 to the Exchange Agent. A foreign person, including entities, may qualify as an exempt recipient by submitting to the Exchange Agent a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that holder's foreign status. A Form W-8 can be obtained from the Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instruction. If backup withholding applies, the Exchange Agent is required to withhold 31% of any payments made to the holder or other transferee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to Old Notes exchanged in the Exchange Offer, the holder is required to provide the Exchange Agent with either: (i) the holder's correct TIN by completing the form included herein, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder is awaiting a TIN) and that (A) the holder has not been notified by the Internal Revenue Service that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder that the holder is no longer subject to backup withholding; or (ii) an adequate basis for exemption. NUMBER TO GIVE THE EXCHANGE AGENT The holder is required to give the Exchange Agent the TIN (e.g., social security number or employer identification number) of the registered holder of the Old Notes. If the Old Notes are held in more than one name or are held not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 11 13 PAYER'S NAME: SUBSTITUTE FORM W-9 PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) Social Security Number or Part I: PLEASE PROVIDE Employer Identification Number: YOUR TIN IN THE BOX AT RIGHT AND CERTIFY ______________________________________ BY SIGNING AND DATING BELOW Part II: CERTIFICATION. Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding because (i) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or (ii) the IRS has notified me that I am no longer subject to backup withholding. ________________________________________________________________________________ Part III: Awaiting TIN: [ ] CERTIFICATE INSTRUCTIONS -- You must cross out item (2) in Part II above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you are subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). Signature:_____________________________ Date:_________________________, 1999 Name:_____________________________ (please print) NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART III OF THIS SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all payments made to me on account of the New Notes shall be retained until I provide a taxpayer identification number to the Exchange Agent and that, if I do not provide my taxpayer identification number with 60 days, such retained amounts shall be remitted to the Internal Revenue Service as backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a taxpayer identification number. Signature:________________________________ Date:_______________________, 1999 Name:_____________________________________ (please print) 12 EX-99.2 32 FORM OF NOTICE OF GUARANTEED DELIVERY 1 Exhibit 99.2 FORM OF NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 14.25 % SERIES A SECOND PRIORITY SENIOR SECURED NOTES DUE 2007 (PIK THROUGH APRIL 1, 2000) OF ANKER COAL GROUP, INC. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Exchange Offer (as defined below) if (i) certificates for the Company's (as defined below) 14.25% Series A Second Priority Senior Secured Notes due 2007 (PIK through April 1, 2000) (the "Old Notes") are not immediately available, (ii) Old Notes, the Letter of Transmittal and all other required documents cannot be delivered to The Bank of New York (the "Exchange Agent") on or prior to the expiration date (as defined in the Prospectus referred to below) or (iii) the procedures for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight courier or mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The mail, or transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" and "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY HAND DELIVERY: BY FACSIMILE TRANSMISSION: The Bank of New York 212-815-6339 101 Barclay Street New York, NY 10286 Ground Level Corporate Trust Services Window Attn: Reorganization Unit -- 7E BY OVERNIGHT COURIER OR TO CONFIRM BY TELEPHONE REGISTERED/CERTIFIED MAIL: OR FOR INFORMATION: The Bank of New York 212-815-6331 101 Barclay Street New York , NY 10286 Attn: Reorganization Unit -- 7E DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF DELIVERY VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED. 2 Ladies and Gentlemen: The undersigned hereby tenders to Anker Coal Group, Inc., a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Prospectus dated , 1999 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (which, together with the Prospectus, constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the aggregate principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." Aggregate Principal Amount Tendered: Name(s) of Registered Holders(s): _____________________________________________ ______________________________________________ Certificate No(s). (if available): _________ Address(es):__________________________________ ______________________________________________ If Old Notes will be tendered by book-entry transfer, provide the ______________________________________________ following information: Area Code and Telephone Number(s):____________ DTC Account Number:_________________________ Signatures(s):________________________________ Date:_______________________________________ ______________________________________________
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution," including (as such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities broker, municipal securities dealer, government securities broker, government securities dealer; (iii) a credit union; (iv) a national securities exchange, registered securities association or clearing agency; or (v) a savings association (each, an "Eligible Institution"), hereby guarantees to deliver to the Exchange Agent, at one of its addresses set forth above, either the Old Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Old Notes to the Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with one or more properly completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and any other required documents within three New York Stock Exchange trading days after the date of execution of this Notice of Guaranteed Delivery. The undersigned acknowledges that it must deliver the Letter(s) of Transmittal and the Old Notes tendered hereby to the Exchange Agent within the time period set forth above and that failure to do so could result in a financial loss to the undersigned. Name of Firm:_________________________________ ________________________________ (Authorized Signature) Address:______________________________________ Title:__________________________ _____________________________________________ Name:___________________________ _____________________________________________ (Please type or print) (ZIP Code) Area Code and Telephone Number:________________ Date:____________________________
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. -----END PRIVACY-ENHANCED MESSAGE-----