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STOCK PURCHASE AGREEMENT
dated as of July 10, 1998
among
COAL VENTURES, INC.,
and the
SHAREHOLDERS OF EACH OF MID-VOL LEASING, INC.,
MEGA MINERALS, INC., AND PREMIUM PROCESSING, INC.
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TABLE OF CONTENTS
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Page
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Article 1 - Definitions ................................. 2
1.1 Definitions...................................... 2
1.2 Additional Terms................................. 6
1.3 Rules of Interpretation.......................... 6
Article 2 - Purchase and Sale............................ 7
2.1 Purchase of the Shares........................... 7
2.2 Purchase Price................................... 8
(a) Initial Payment................................ 8
(b) Deferred Amounts............................... 8
(c) Net Working Capital Adjustment................. 9
(d) Interest on Deferred Payments.................. 10
(e) Prepayment..................................... 10
(f) Reduction in Deferred Payments................. 10
(i) Adjustments.................................. 10
(ii) Offsets...................................... 10
(iii) Evidence of Debt............................. 11
2.3 Preparation of Returns........................... 11
2.4 Section 338 Election............................. 11
2.5 Liabilities...................................... 11
2.6 Allocation of Purchase Price..................... 11
2.7 Transfer Taxes................................... 12
Article 3 - Representations and Warranties of the
Shareholders................................. 12
3.1 Organization..................................... 12
3.2 Capitalization................................... 12
3.3 Title to Stock................................... 13
3.4 Subsidiaries..................................... 13
3.5 Authority....................................... 13
3.6 Financial Statements............................ 14
3.7 Tangible Assets................................. 14
3.8 Absence of Material Change...................... 15
3.9 Tax Matters..................................... 16
3.10 Undisclosed Liabilities......................... 17
3.11 Compliance with Law............................. 18
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3.12 Contracts......................................... 18
3.13 Litigation and Pending Proceedings................ 19
3.14 Real Property..................................... 19
3.15 Condemnation...................................... 21
3.16 Inventory......................................... 21
3.17 Notes and Accounts Receivable..................... 21
3.18 Banks, Directors and Officers, and Life Insurance. 21
3.19 Permits and Bonds................................. 22
3.20 Intellectual Property............................. 22
3.21 Proprietary Information........................... 23
3.22 Insurance......................................... 23
3.23 Labor Relations................................... 23
3.24 Employee Benefit Plans............................ 24
3.25 Indebtedness...................................... 26
3.26 Environmental Matters............................. 26
3.27 Immigration Matters............................... 28
3.28 Permit Blocking................................... 28
3.29 Consents and Notices.............................. 29
3.30 Transactions with Affiliates...................... 29
3.31 Distributions..................................... 29
3.32 Powers of Attorney................................ 29
3.33 Completeness of Statements........................ 29
Article 4 - Representations and Warranties of Purchaser... 29
4.1 Organization...................................... 29
4.2 Authority......................................... 30
4.3 Litigation and Claims............................. 30
4.4 Investment Intent................................. 30
4.5 Financing......................................... 30
4.6 Permit Blocking................................... 30
Article 5 - Covenants of the Principal Shareholder........ 31
5.1 Record Retention.................................. 31
5.2 Resignations...................................... 31
5.3 Permits........................................... 31
5.4 Benefit Plans..................................... 31
Article 6 - Covenants of Purchaser........................ 31
6.1 Shareholder Guarantees............................ 32
6.2 Ownership and Control............................. 32
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Article 7 - Conditions to Obligations of Purchaser........ 32
7.1 Representations, Warranties and Covenants......... 32
7.2 No Material Adverse Change........................ 32
7.3 Statutory Requirements............................ 33
7.4 Ancillary Agreements.............................. 33
7.5 Deliveries........................................ 33
7.6 Financing......................................... 33
7.7 Closing........................................... 33
7.8 Third-Party Consents and Approvals................ 33
7.9 No Injunction..................................... 33
7.10 No Pending Action................................. 34
7.11 Due Diligence..................................... 34
7.12 Board Approval.................................... 34
Article 8 - Conditions to Obligations of the Shareholders. 34
8.1 Representations, Warranties and Covenants......... 34
8.2 Statutory Requirements............................ 34
8.3 Ancillary Agreements.............................. 34
8.4 Deliveries........................................ 35
8.5 Third-Party Consents and Approvals................ 35
8.6 No Injunction..................................... 35
8.7 No Pending Action................................. 35
8.8 Closing........................................... 35
Article 9 - The Closing/Termination....................... 35
9.1 Date and Place.................................... 35
9.2 Deliveries........................................ 35
Article 10 - Survival of Representations and
Warranties -- Indemnification................ 35
10.1 Survival.......................................... 35
10.2 Indemnity by the Principal Shareholder............ 35
10.3 Indemnity by Purchaser............................ 36
10.4 Remedies; Right of Offset......................... 36
10.5 Limitations on Indemnity Obligations.............. 36
10.6 Control of Indemnified Matters.................... 37
10.7 Sole and Exclusive Remedy......................... 38
10.8 No Other Representations, Rescission.............. 38
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Article 11 - Arbitration.................................. 38
11.1 Dispute Resolution................................ 38
11.2 Selection of Arbitrators.......................... 39
11.3 Temporary Injunctive Relief....................... 39
11.4 Arbitration Rules................................. 39
11.5 Arbitration Proceedings........................... 39
Article 12 - Miscellaneous................................ 39
12.1 Notices........................................... 39
12.2 Waivers........................................... 40
12.3 Expenses.......................................... 41
12.4 Headings; Interpretation.......................... 41
12.5 Annexes and Schedules............................. 41
12.6 Entire Agreement.................................. 41
12.7 Representations and Warranties, Etc............... 41
12.8 Governing Law..................................... 42
12.9 Brokers........................................... 42
12.10 Counterparts...................................... 42
12.11 Benefit and Binding Effect........................ 42
12.12 Specific Performance.............................. 42
12.13 Severability...................................... 42
12.14 No Consequential Damages.......................... 43
12.15 Post-Closing Assistance........................... 43
12.16 Cooperation....................................... 43
12.17 Representations and Warranties.................... 43
12.18 Publicity......................................... 43
12.19 Hart-Scott-Rodino................................. 43
12.20 Surety Bond....................................... 43
STOCK PURCHASE AGREEMENT
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This is a Stock Purchase Agreement, dated July 10, 1998 (this "Agreement"),
among (i) Coal Ventures, Inc. ("Purchaser"), a Delaware corporation; and (ii)
Richard G. Preservati ("Principal Shareholder"), Nancy Karen Preservati, Richard
G. Preservati, II, Nicholas Shea Preservati, Timothy Boggess and Gina Denise
Boggess, who are all of the shareholders (collectively, the "Shareholders") of
Mid-Vol Leasing, Inc. ("Mid-Vol"), a West Virginia corporation, Mega Minerals,
Inc. ("MMI"), a West Virginia corporation, and Premium Processing, Inc. ("PPI"),
a West Virginia corporation (collectively, the "Companies").
RECITALS
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A. The Companies are engaged in the business of mining coal in West
Virginia and control coal mining properties in West Virginia and Virginia.
B. The Shareholders collectively own one hundred percent (100%) of the
issued and outstanding shares of the capital stock of the Companies (the
"Shares") in the following amounts:
Company Shareholder Shares
- --------- ------------------------- ------
Mid-Vol Richard G. Preservati 81
Nancy Karen Preservati 13
Nicholas Shea Preservati 2
Gina Denise Boggess 2
Richard G. Preservati, II 2
MMI Richard G. Preservati 81
Nancy Karen Preservati 19
PPI Timothy Boggess 75
Richard G. Preservati 9
Nancy Karen Preservati 9
Richard G. Preservati, II 7
C. The Shareholders wish to sell, and Purchaser wishes to purchase, all
of the Shares pursuant to the terms and conditions of this Agreement.
This Agreement is the definitive acquisition agreement which was
contemplated by and which supersedes the Letter of Intent among the parties
dated March 25, 1998.
NOW, THEREFORE, in consideration of the mutual benefits and covenants
contained herein, and subject to the terms and conditions set forth herein, the
parties agree as follows:
Article 1
Definitions
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1.1 Definitions. As used in this Agreement, the following terms shall
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have the following meanings:
(a) "Act" shall have the meaning given in Section 3.27.
(b) "Affiliate" of any Person shall mean (i) a Person that, directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is controlled by a Person that controls, such Person; (ii) any trust or
estate in which such Person has a beneficial interest or as to which such Person
serves as a trustee or in another fiduciary capacity; and (iii) any spouse,
parent or lineal descendent of such Person. As used in this definition,
"control" shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies, whether through ownership of
securities, partnership or other ownership interests, by contract or otherwise.
(c) "Assumed Liabilities" shall have the meaning given in Section 2.5.
(d) "Bonds" shall have the meaning given in Section 3.19(b).
(e) "Business Days" shall have the meaning given in Section l.3(h).
(f) "CERCLA" shall have the meaning given in Section 3.26(a).
(g) "Change of Control" shall mean a sale of substantially all of a
Person's assets to a Person other than an Affiliate of the selling party, or the
sale of the majority of such Person's stock to a Person other than an Affiliate
of the selling party.
(h) "Charges" shall have the meaning given in Section 3.3.
(i) "Closing" shall mean the consummation of the transactions
contemplated in this Agreement in accordance with the provisions of Article 9.
(j) "Closing Agreement" shall have the meaning given in Section
3.9(h).
(k) "Closing Date" shall mean July 10, 1998, or such other date upon
which the parties may mutually agree.
(l) "Code" shall have the meaning given in Section 3.9(a).
(m) "Companies' Accounting Principles" shall mean normal income tax
basis accounting principles, consistent with past practices as applied in the
ordinary course of business by the Companies. Schedule 1.1(m) lists the known
differences between the Companies' Accounting Principles and GAAP.
(n) "Companies' Benefit Plans" shall have the meaning given in Section
3.24(b).
(o) "Companies' Intellectual Property" shall have the meaning given in
Section 3.21.
(p) "Consents" shall have the meaning given in Section 3.29.
(q) "Contract Mining Agreement" shall mean the Contract Mining
Agreement, in the form attached hereto as Annex 1.1(q), dated of even date
herewith, by and between Mid-Vol and Extra Energy, Inc. ("EEI").
(r) "Contributed Assets" shall have the meaning given in Section
2.1(b).
(s) "Contributed Permit" shall have the meaning given in Section
3.19(a).
(t) "Current Assets" shall have the meaning given in Section
2.2(c)(i).
(u) "Current Liabilities" shall have the meaning given in Section
2.2(c)(i).
(v) "Deductible" shall have the meaning given in Section 10.5(a)(ii).
(w) "Deferred Payments" shall have the meaning given in Section
2.2(b).
(x) "employee benefit plan(s)" shall have the meaning given in Section
3.24(a).
(y) "employee pension benefit plan(s) shall have the meaning given in
Section 3.24(a).
(z) "Environmental Complaint" shall have the meaning given in Section
3.26(f).
(aa) "ERISA" shall have the meaning given in Section 3.24(a).
(bb) "Excluded Assets" shall have the meaning given in Section 2.1(b).
(cc) "Financial Statements" shall mean the annual unaudited balance
sheet and statement of income for each of the Companies prepared in accordance
with the Companies' Accounting Principles for the fiscal year ended December 31,
1997, a copies of which are attached hereto as Annex 1.1(cc).
(dd) "Future Relationship Agreement" shall mean the Coal Marketing,
Non-Competition and Right of First Refusal Agreement, substantially in the form
attached hereto as Annex 1.1(dd), to be entered into and delivered at Closing by
Purchaser and Richard G. Preservati or any Affiliates of both, which are
mutually acceptable to Richard G. Preservati and Purchaser.
(ee) "GAAP" shall mean generally accepted accounting principles in
effect from time to time.
(ff) "Hazardous Discharge" shall have the meaning given in Section
3.26(e).
(gg) "Hazardous Material" shall have the meaning given in Section
3.26(a).
(hh) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the regulations and Premerger Notification and Report Form
promulgated thereunder.
(ii) "Initial Payment" shall have the meaning given in Section 2.2(a).
(jj) "Intellectual Property" shall mean trade names, trademarks or
service marks, together with the good will associated therewith, and patents
held by the Companies material to and used in the ordinary course of the
business of the Companies.
(kk) "Interim Financial Statements" shall mean each Company's most
recent unaudited balance sheet, prepared in accordance with the Companies'
Accounting Principles, available at the date of this Agreement (the "Interim
Balance Sheet"), and each Company's most recent related unaudited statement of
income, prepared in accordance with the Companies' Accounting Principles
consistent with past practices and in the ordinary course of business, available
at the date of this Agreement (the "Interim Income Statement"), copies of which
are attached hereto as Annex 1.1(kk).
(ll) "Leased Real Property" shall have the meaning given in Section
3.14(a).
(mm) "Leases" shall have the meaning given in Section 3.14(a).
(nn) "Liabilities" (whether or not capitalized) shall mean all
accounts payable, notes payable, liabilities, commitments, indebtedness or
obligations of any kind whatsoever, whether absolute, accrued, contingent,
matured or unmatured, of any Company, or to which any property or assets of any
Company are subject.
(oo) "Loss" shall have the meaning given in Section 10.2.
(pp) "Material" (whether or not capitalized) shall mean, with respect
to any Person, changes in the business, assets, financial condition or results
of operations of such Person resulting in a loss therefrom in excess of Two
Hundred Fifty Thousand Dollars ($250,000.00); provided, however, that, to the
extent Material shall relate to more than one Person, then Material shall mean,
with respect to such group of Persons, changes in business, assets, financial
condition or results of operations of such group of Persons (taken as a whole)
resulting in a loss therefrom, in the aggregate, in excess of Two Hundred Fifty
Thousand Dollars ($250,000.00).
(qq) "Mid-Vol Permits" shall have the meaning given in Section
3.19(a).
(rr) "Mining Data" shall mean all geological data, reserve data, mine
maps, core hole logs and associated data, coal measurements, coal samples,
lithologic data, coal reserve calculations or reports, washability analysis or
reports, mine plans, mining permit applications and supporting data, engineering
studies and all other information, legal documents, maps, reports and data in
the possession of the Companies with regard to the coal relating to or affecting
the coal reserves, coal ownership, the Real Property, mining conditions, mines
and mining plans of the Companies as prepared and utilized by them in the
ordinary course of their operations.
(ss) "multi-employer plan" shall have the meaning given in Section
3.24(i).
(tt) "Net Working Capital" shall have the meaning given in Section
2.2(c)(i).
(uu) "Note" shall have the meaning given in Section 2.2(f)(iii).
(vv) "Notices" shall have the meaning given in Section 12.1.
(ww) "Other Documents" shall mean the Future Relationship Agreement,
the Contract Mining Agreement, the Regal Rock Agreement and all other
agreements, certificates, opinions, instruments or documents contemplated by,
required by or referred to in, this Agreement for the consummation of the
transactions contemplated hereby.
(xx) "Owned Real Property" shall have the meaning given in Section
3.14(b).
(yy) "Owned Tangible Assets" shall have the meaning given in Section
3.7(a).
(zz) "PCBs" shall have the meaning given in Section 3.26(a).
(aaa) "Permits" shall have the meaning given in Section 3.19(a).
(bbb) "Permitted Encumbrances" shall have the meaning given in Section
3.14(c).
(ccc) "Person" shall mean any person, firm, trust, partnership,
corporation or other business entity.
(ddd) "Principal Shareholder's knowledge" shall have the meaning given
in Section 12.6.
(eee) "Production Payments" shall have the meaning given in Section
2.2(b)(ii).
(fff) "Purchase Price" shall have the meaning given in Section 2.2.
(ggg) "Real Property" shall mean the Owned Real Property and the
Leased Real Property, collectively.
(hhh) "Regal Rock" shall mean Regal Rock, Inc.
(iii) "Regal Rock Agreement" shall mean the Agreement of even date
herewith, between Mid-Vol, Regal Rock, Inc., and Liberty Land LLC.
(jjj) "Related Party Agreement" shall mean any contract, agreement or
understanding between any Company, on the one hand, and any Shareholder or
Affiliate of any Shareholder, on the other hand, other than the Contract Mining
Agreement, the Future Relationship Agreement, the Transition Services
Agreement, and the Bill of Sale of even date herewith between Mid-Vol and
Ritchie Equipment, Inc., for the coal fines owned by Ritchie Equipment, Inc.
(kkk) "Required Consents" shall have the meaning given in Section
3.29.
(lll) "Rules" shall have the meaning given in Section 11.4.
(mmm) "Shareholder Guarantees" shall have the meaning given in Section
6.1.
(nnn) "Surety Bond" shall have the meaning given in Section 12.20.
(ooo) "Tangible Contributed Assets" shall have the meaning given in
Section 3.7(a).
(ppp) "Tax" shall have the meaning given in Section 3.9(a).
(qqq) "Tax Return" shall have the meaning given in Section 3.9(a).
(rrr) "Transition Services Agreement" shall mean the Transition
Services Agreement of even date herewith among Purchaser, Richard G. Preservati,
Michael J. Quillen and Ritchie Equipment, Inc.
(sss) "Working Capital Statement" shall have the meaning given in
Section 2.2(c)(ii).
1.2 Additional Terms. Other capitalized terms used in this Agreement but
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not defined in Section 1.1 above shall have the meanings ascribed to them
wherever such terms first appear in this Agreement; or, if no meanings are so
ascribed, the meanings customarily associated with such terms in the coal mining
industry.
1.3 Rules of Interpretation.
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(a) The singular includes the plural and the plural includes the
singular.
(b) The word "or" is not exclusive.
(c) A reference to a Person includes its permitted successors and
permitted assigns.
(d) The words "include," "includes" and "including" are not limiting.
(e) A reference in a document to an Article, Section, Exhibit,
Schedule, Annex or Appendix is to the Article, Section, Exhibit, Schedule, Annex
or Appendix of such document unless otherwise indicated. Exhibits, Schedules,
Annexes or Appendices to any document shall be deemed incorporated by reference
in such document.
(f) References to any document, instrument or agreement (a) shall
include all exhibits, schedules and other attachments thereto, (b) shall include
all documents, instruments or agreements issued or executed in replacement
thereof, and (c) shall mean such document, instrument or agreement, or
replacement or predecessor thereto, as amended, modified and supplemented from
time to time and in effect at any given time.
(g) The words "hereof," "herein" and "hereunder" and words of similar
import when used in any document shall refer to such document as a whole and not
to any particular provision of such document.
(h) References to "days" shall mean calendar days, unless the term
"Business Days" shall be used. "Business Days" shall mean all days other than
any Saturday, Sunday or legal holiday in West Virginia.
(i) This Agreement and the Other Documents are the result of
negotiations among, and have been reviewed by, Purchaser and the Shareholders.
Accordingly, this Agreement and the Other Documents shall be deemed to be the
product of all parties thereto, and no ambiguity shall be construed in favor of
or against any party.
Article 2
Purchase and Sale
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2.1 Purchase of the Shares.
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(a) Subject to the terms and conditions of this Agreement, the
Shareholders hereby agree to sell, transfer and deliver to Purchaser, and
Purchaser hereby agrees to purchase, the Shares.
(b) The Shareholders or Affiliates thereof shall retain and assume, as
the case may be, pursuant to agreements and instruments (including instruments
of conveyance) reasonably acceptable to the Shareholders and Purchaser, the
assets and rights listed on Schedule 2.1(b)(i) hereof (collectively, the
"Excluded Assets"). As soon as reasonably possible after the Closing, the
Shareholders or their Affiliates shall transfer or contribute to the Companies
the Contributed Permits and railroad siding agreements as set forth on Schedule
2.1(b)(iii) hereof (collectively, and along with the items set forth on Schedule
2.1(b)(ii), the "Contributed Assets"). All costs and expenses incurred in
connection with the transfer to the Shareholders or their Affiliates, as the
case may be, of the Excluded Assets and for the transfer to the Companies of the
Contributed Assets, as contemplated by this Section 2.1, shall be for the
account of and shall be paid by the Shareholders, and the Shareholders shall pay
and discharge, and indemnify Purchaser and hold Purchaser harmless
from and against, all such costs and expenses, including all transfer or stamp
duty taxes, if any, due and payable in connection with the transfer of the
Excluded Assets.
2.2 Purchase Price. Subject to the adjustments as provided in this
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Article 2, the purchase price (the "Purchase Price") for the Shares shall be
Thirty-Five Million Dollars ($35,000,000.00), plus the Production Payments (as
defined below), which shall be paid to the Shareholders as follows:
(a) Initial Payment. At Closing, Purchaser shall wire to an account
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designated by the Shareholders Twenty Million Dollars ($20,000,000.00) in cash
or cash equivalent (the "Initial Payment") as adjusted under Section 2.2(c).
The Shareholders and Principal Shareholders shall allocate the Initial Payment
to each of the individual Shareholders other than Principal Shareholder in the
amount agreed by each such individual Shareholder to fully pay each such
individual Shareholder the full amount of the Purchase Price allocated to the
Shares of such individual Shareholder with the balance of the Initial Payment
to be paid to Principal Shareholder.
(b) Deferred Amounts.
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(i) Subject to any adjustment pursuant to Section 2.2(c),
Purchaser shall pay to Principal Shareholder the deferred amount of Fifteen
Million Dollars ($15,000,000.00) in equal annual payments of Three Million
Dollars ($3,000,000.00) for five (5) years commencing on the first (1st)
anniversary of the Closing Date and payable on the following four (4)
anniversaries of the Closing Date (the "Deferred Payments").
(ii) Purchaser shall pay to Principal Shareholder a production
payment equal to One Dollar ($1.00) per ton of clean, marketable coal mined and
sold by Purchaser or its Affiliates from the Real Property or any other
properties in McDowell County, West Virginia or Tazewell County, Virginia, now
owned or hereafter acquired by Purchaser or its Affiliates (the "Production
Payments"). Purchaser shall pay the Principal Shareholder a Production Payment
on the last day of each month for clean, marketable tons of coal mined and sold
during the previous month. Upon a Change of Control of Purchaser, or any direct
or indirect parent of Purchaser, Purchaser and Principal Shareholder shall
negotiate in good faith for a buy-out of the Production Payment or the granting
of reasonable additional security (based on amounts owed by Purchaser and the
financial condition of the purchasing party) to secure the Production Payments.
Upon a sale, assignment, lease, sublease, grant or other transfer of any
economic interest in coal on or under any Real Property in McDowell County, West
Virginia or Tazewell County, Virginia by Purchaser or its Affiliates to any
Person other than an Affiliate of Purchaser and its Affiliates, Purchaser shall
ensure that the obligation to make Production Payments to Principal Shareholder
is binding on the Person acquiring such interest, and Purchaser and Principal
Shareholder shall negotiate in good faith for a buy-out of the portion of the
Production Payment relating to the transfer of such property or the granting of
reasonable additional security (based on amounts owed by Purchaser and the
financial condition of the purchasing party) to secure the portion of the
Production Payment relating to the transfer of such property.
(c) Net Working Capital Adjustment. To the extent that the Net
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Working Capital is greater than $0.00 as of the Closing Date, subject to Section
2.2(d)(vi), Purchaser shall pay to the
individual Shareholders (as directed by the Shareholders) the amount by which
the Net Working Capital of the Companies is greater than $0.00 within five (5)
days from the final determination of the amount of Net Working Capital greater
than $0.00 with interest thereon on a per diem basis from the Closing Date to
the date of payment at the same rate of interest set forth as applicable to the
Deferred Payments in Section 2.2(d) of this Agreement. To the extent that the
Net Working Capital is less than $0.00 as of the Closing Date, the principal
amount of the first Deferred Payment (and, if necessary, any other Deferred
Payments) shall be reduced by the amount by which Net Working Capital is less
than $0.00 as of the Closing Date pursuant to the terms of this Section 2.2(c).
(i) "Net Working Capital" means the current assets listed on
Schedule 2.2(c) (the "Current Assets") minus the current liabilities listed on
Schedule 2.2(c) (the "Current Liabilities"), with Current Assets and Current
Liabilities accounts determined and calculated in accordance with the Companies'
Accounting Principles, subject to the last sentence of Section 2.2(c)(iii).
(ii) Within ten (10) Business Days after the Closing Date, the
Shareholders shall prepare and deliver to Purchaser a statement of working
capital showing the Net Working Capital as of the Closing Date which shall be
prepared (and for which working capital shall be calculated) in accordance with
Schedule 2.2(c) (the "Working Capital Statement"). The parties acknowledge that
this calculation is made solely for the purposes of computing the adjustment to
the Purchase Price based on the Net Working Capital of the Companies under this
Section 2.2(c).
(iii) For purposes of the determination of and inclusion in the
Current Assets, the Principal Shareholder shall make a physical inventory of the
coal inventory in the stockpiles of the Companies as of the close of business on
the Closing Date. The taking of the coal inventory may be observed and
monitored by Purchaser and/or its engineer representatives. Such coal inventory
shall be determined by methods consistent with the Companies' past practices or
as otherwise agreed upon by Purchaser and the Principal Shareholder. The
physical count and verification of coal inventory shall be certified by the
Principal Shareholder's engineering firm and confirmed by Purchaser's
engineering firm. The Principal Shareholder and Purchaser shall each bear the
fees, costs and expenses of their respective engineering firms. The coal
inventory of the Companies in the stockpiles shall be included in the Current
Assets of the Companies at a value per ton agreed to in writing by the Principal
Shareholder and Purchaser.
(iv) The Working Capital Statement shall become final for all
purposes on the date that is twenty-five (25) Business Days after the Closing
Date unless Purchaser has delivered to the Shareholders a statement describing
its objections thereto prior to such date. Purchaser and the Shareholders shall
use reasonable efforts to resolve any such objections. If the parties do not
achieve a final resolution of such objections within ten (10) days following the
expiration of such 25-day period, Purchaser and the Shareholders shall select a
mutually acceptable accounting firm to resolve any remaining objections. If
Purchaser and the Shareholders are unable to agree on the choice of an
accounting firm before the expiration of the foregoing 10-day period, they shall
select a nationally recognized accounting firm by lot (after excluding their
respective regular outside auditors) before the expiration of such 10-day
period. The determination of the accounting firm so selected regarding the
matters in dispute will be set forth in writing and will be
conclusive and binding upon the parties. The selected accounting firm shall be
retained jointly by the parties on the condition, among other things, that it
shall notify the parties of its determination within thirty (30) days after its
selection. The Working Capital Statement prepared by such accounting firm shall
be final and binding on the parties for purposes of this Section 2.2(c). The
parties shall each pay one-half of the fees and expenses of such accounting
firm.
(v) Purchaser shall make the books, records and financial staff
of the Companies available to the Shareholders, their accountants and other
representatives at reasonable times and upon reasonable notice during the
preparation by the Shareholders of the Working Capital Statement and the
resolution by the parties of any objections thereto.
(vi) Notwithstanding the above provisions in this Section 2.2(c),
Purchaser shall pay to the Principal Shareholder as part of the Net Working
Capital Adjustment the full amount of all amounts received by Purchaser or the
Companies as payment for all outstanding accounts receivable as of the Closing
Date for coal sales (Accounts Receivable-Trade) made by the Companies. Such
payment shall be made to the Principal Shareholder by Purchaser within five (5)
business days from receipt thereof by Purchaser or the Companies.
(d) Interest on Deferred Payments. Purchaser shall pay interest on
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the outstanding balance of the Purchase Price until the Purchase Price is paid
in full. Accrued interest shall be due and payable annually on each anniversary
of the Closing Date that any amount of the Purchase Price is outstanding. The
interest rate shall be equal to the prime rate listed in The Wall Street Journal
Money Section on the date that is five (5) Business Days preceding the date the
interest payment is due and payable, provided, however, that the interest rate
shall not be greater than nine percent (9%) or less than five percent (5%).
(e) Prepayment. Purchaser shall have the right to prepay the
----------
Deferred Payments in part or in full without penalty.
(f) Reduction in Deferred Payments.
------------------------------
(i) Adjustments. If the Deferred Payments are adjusted downward
-----------
pursuant to this Article 2, Purchaser shall be entitled to withhold and retain
any and all Deferred Payments up to the amount of such adjustment. Such
adjustment to the Deferred Payments shall be effective on the date that
Purchaser provides written notice of the adjustment to the Principal
Shareholder.
(ii) Offsets. Purchaser shall have a right to offset the
-------
Deferred Payments by all amounts due and owing by Principal Shareholder to
Purchaser under this Agreement or otherwise. Such offset right shall be
effective against the Deferred Payments in inverse order of maturity upon the
date that Purchaser provides written notice of the offset to the Principal
Shareholder; provided, however, that any right of offset shall be effective
against any and all Deferred Payments to the extent and only to the extent that
(i) the Principal Shareholder has admitted in writing that such amount is owed
to Purchaser, or (ii) such amount is owed pursuant to any final court judgment
or binding arbitration award.
(iii) Evidence of Debt. Purchaser shall execute a promissory note
----------------
(the "Note") for the benefit of Principal Shareholder evidencing the
indebtedness from Purchaser to Principal Shareholder of the Deferred Payments
payable as the Deferred Payments with interest thereon and upon terms and
conditions as set forth above in this Article 2. The Note shall be in the form
attached hereto as Annex 2.2(f) and shall be delivered at the Closing to
Principal Shareholder duly executed by Purchaser.
2.3 Preparation of Returns. Shareholders hereby reserve and shall have
----------------------
the right to prepare and file the final S Corporation returns for Mid-Vol and
MMI for the period ending on the Closing Date.
2.4 Section 338 Election. In the event Purchaser desires to make an
--------------------
election pursuant to Code Section 338(h)(10) (the discretion to make such
election being exercisable in the sole and absolute discretion of Purchaser),
the Shareholders shall cause the Companies to (i) make, consent to, and
undertake all reasonable actions necessary to give effect to such election, and
(ii) agree and consent to Purchaser's allocation of the Purchase Price of the
Shares to the Assets of the Companies after Closing and prepare all Tax Returns
in accordance with such election; provided, however, that the Shareholders'
obligations under this Section 2.4 shall arise only if Purchaser agrees in
writing to pay the Shareholders an amount agreed upon by the parties as the
amount by which the Shareholders' federal and state income Tax liability arising
from their sale of the Shares increases as a result of making such election, the
purchase price allocation and the payment of the additional amount for the
increased income Tax liability of the Shareholders. If the Purchaser and the
Principal Shareholder cannot agree on the amount of additional income Tax
liability to be paid under the previous sentence, Purchaser and Principal
Shareholder agree to resolve such dispute in accordance with the procedure set
forth in Section 2.2(c)(iv).
2.5 Liabilities. The Companies shall retain, and Purchaser shall
-----------
indemnify Shareholders for, all liabilities of the Companies which have been
disclosed by this Agreement, or have otherwise been specifically disclosed to
Purchaser, including all items listed on the Schedules and Annexes hereto,
except for the items listed on Schedule 2.5. The Principal Shareholder hereby
assumes the liabilities of the Companies set forth on Schedule 2.5 (the "Assumed
Liabilities") and all liabilities of any Company which have not been disclosed
by this Agreement or otherwise specifically disclosed to Purchaser.
2.6 Allocation of Purchase Price. The parties agree to file any and all
----------------------------
applicable Tax Returns and other required tax schedules in accordance with such
allocation and Code Section 338 and will not adopt or otherwise assert tax
positions inconsistent therewith. The parties each shall prepare and file
completed Form 8023 for the taxable year in which the Closing takes place, which
form shall be consistent with the requirements set forth in this Section 2.6.
2.7 Transfer Taxes. The Shareholders shall pay any (i) real property
--------------
transfer taxes payable in connection with the conveyances hereunder and (ii)
recording and other fees in connection therewith.
Article 3
Representations and Warranties of the Shareholders
--------------------------------------------------
The Principal Shareholder represents and warrants to Purchaser, as of the
date hereof and as of the Closing Date, as follows and the other Shareholders
join the Principal Shareholder in making the representations and warranties set
forth in Sections 3.3 and 3.5(a):
3.1 Organization.
------------
(a) Each Company is a corporation duly organized and validly existing
under the laws of the State of West Virginia, and has full corporate power and
authority to own, lease and operate its properties as such properties are now
owned, leased and operated, and to conduct its business as and where its
business is now conducted. Each Company is qualified to do business and is in
good standing in all jurisdictions in which the character of the properties
owned or leased by it, or the nature of the activities conducted by it, makes
such qualification necessary. Schedule 3.1(a) lists the jurisdictions in which
each Company is qualified to do business.
(b) True and complete copies, with all amendments, of the articles of
incorporation of each Company (certified as of a recent date by the West
Virginia Secretary of State), the bylaws of each Company (certified as of the
date hereof by the Secretary of such Company), and the minute books of each
Company have been furnished to Purchaser by the Principal Shareholder. The
corporate minute books of each Company are correct and complete in all material
respects, authorize or ratify the material corporate actions taken by the
directors and shareholders of each Company, and record all resolutions adopted
by them. None of the Companies is in violation of its articles of incorporation
or bylaws. All material corporate actions required of each Company have been
taken, and all material reports or returns required to be filed by each Company
have been filed and all material amounts due and owing thereunder have been paid
in full. No Company is a party to any agreement or instrument, is subject to any
charter or other corporate restriction or to any judgment, decree, writ,
injunction, order, award, or, other than in the ordinary course of business, any
law, rule, regulation, code or ordinance which materially adversely affects, or
might reasonably be expected to materially and adversely affect the properties
or assets, earnings, business, operation, affairs, prospects or condition
(financial or otherwise) of any of the Companies or the ability of the Companies
to consummate the transactions contemplated by this Agreement.
3.2 Capitalization.
--------------
(a) The authorized capital stock of Mid-Vol consists of one hundred
(100) shares of common stock of Ten Dollars ($10.00) par value, of which one
hundred (100) shares are issued and outstanding, and no shares of preferred
stock. The authorized capital stock of MMI consists of one hundred (100) shares
of common stock of Ten Dollars ($10.00) par value, of which one hundred (100)
shares are issued and outstanding, and no shares of preferred stock. The
authorized capital stock of PPI contains one hundred (100) shares of common
stock of Ten Dollars ($10.00) par value, of which one hundred (100) shares are
issued and outstanding, and no shares of preferred stock.
(b) All of the Shares have been duly authorized and validly issued,
and are fully paid and nonassessable. To the best of Principal Shareholder's
knowledge, no ownership interest in any of the Companies has ever been
challenged and no Person has ever threatened to challenge such interest. There
are no outstanding subscription rights, warrants, options, conversion rights, or
other rights or agreements of any kind whatsoever entitling any Person to
purchase or acquire any interest in any of the Shares. There are no agreements
between the Shareholders and any other Person with respect to the voting and
transfer of the Company's capital stock or the control of the Companies. None of
the Shares have been issued in violation of any federal, state or other law
pertaining to the issuance of securities or in violation of any rights,
preemptive or otherwise, of any Person.
3.3 Title to Stock. The Shareholders have, and at the Closing will have,
--------------
good and marketable (legal and beneficial) title to the Shares, free and clear
of all liens, pledges, proxies, voting trusts, licenses, security interests,
options, claims, charges, restrictions or encumbrances of any kind or nature
whatsoever (collectively, "Charges"), and there are no outstanding purchase
agreements, options, warrants, or other rights of any kind whatsoever entitling
any Person to purchase or acquire an interest in any of the Shares or
restricting their transfer in accordance with this Agreement. Each Shareholder
owns of record and beneficially the Shares set forth by his name in Recital B.
Upon delivery of the certificates representing the Shares, and upon receipt of
the Initial Payment, good and valid title to the Shares will pass to Purchaser,
free and clear of all Charges.
3.4 Subsidiaries. No Company owns, or has ever owned, any capital stock
------------
of any other corporation or any interest in any other Person.
3.5 Authority.
---------
(a) The Shareholders have full right, power, authority, and capacity
to execute and deliver this Agreement and the Other Documents, and to perform
their respective obligations under this Agreement and the Other Documents. This
Agreement and the Other Documents constitute valid and legally binding
obligations of the Shareholders, enforceable in accordance with their terms,
subject to any required third-party consents.
(b) The execution and delivery of this Agreement and the Other
Documents, except as set forth on Schedule 3.5(b), the consummation of the
transactions contemplated hereby and thereby, and the performance and
fulfillment of their respective obligations and undertakings hereunder and
thereunder by the Shareholders and the Companies will not: (i) violate or
conflict with any provision of, or result in the breach of or accelerate or
permit the acceleration of any performance required by the terms of, or create
in any Person the right to terminate, modify, cancel or require any notice
under: (A) the articles of incorporation or bylaws of any Company, (B) any
material contract, agreement, arrangement, license or undertaking to which any
Company or any Shareholder is a party or by which any of them may be bound, (C)
any judgment, decree, writ, injunction, order or award of any arbitration panel,
court or governmental authority, or (D) any applicable law, ordinance, rule or
regulation of any governmental body; (ii) result in the creation of any Charge
upon any of the properties or assets (whether real or personal, tangible or
intangible) of any Company; (iii) terminate or cancel, or result in the
termination or cancellation of, any material agreement or undertaking to which
any Company is a party or by which any Company is bound; or
(iv) in any way affect or violate the terms or conditions of, or result in the
cancellation, modification, revocation or suspension of any of the Mid-Vol
Permits.
(c) Except as set forth on Schedule 3.5(c), the execution and delivery
of, and the performance and consummation of the transactions contemplated by,
this Agreement and the Other Documents have been duly authorized by all
requisite corporate and personal action. All other material consents,
approvals, authorizations, releases or orders required of or for the Company and
the Shareholders for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Documents will have been obtained prior to the Closing. Except as
set forth on Schedule 3.5(c), no notices, filings or authorizations are required
to be given, filed or obtained from any Governmental Authority.
3.6 Financial Statements. The Principal Shareholder has delivered to
--------------------
Purchaser, and there are attached hereto as Annexes 1.1(cc) and 1.1(kk),
respectively, true and complete copies of the Interim Financial Statements and
the Financial Statements. The Interim Financial Statements and Financial
Statements have been prepared in accordance with the Companies' Accounting
Principles and present fairly the assets, liabilities, revenues, and expenses on
the income tax basis of accounting at the time of their preparation.
3.7 Tangible Assets.
---------------
(a) Schedule 3.7(a) sets forth a true and complete list of all the
principal items of machinery, equipment, vehicles, and other tangible personal
property now owned by each Company in its business other than owned Excluded
Assets (the "Owned Tangible Assets"). Except as set forth on Schedule 3.7(a),
as of the Closing Date and immediately following the consummation of the
transactions at Closing, each Company will have good and marketable title to its
Owned Tangible Assets, free and clear of all Charges. Except as set forth on
Schedule 3.7 (a), immediately following the transfer into a Company of the
Contributed Assets that are tangible assets (the "Tangible Contributed Assets"),
the Companies shall have good and marketable title to their Tangible Contributed
Assets, free and clear of all charges. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated by this
Agreement, will not result in the creation of any Charge on any of the Owned
Tangible Assets or the Tangible Contributed Assets. The Owned Tangible Assets
and the Tangible Contributed Assets shall be in substantially the same condition
on the Closing Date as they were at the time they were inspected by Purchaser,
except for normal wear and tear and deterioration associated with the operation
of such assets in the ordinary course of the Companies' business, and are
suitable for the purposes for which they are presently used.
(b) There are no principal items of machinery, equipment, vehicles,
and other tangible personal property now leased by each Company in its business
other than leased Excluded Assets.
3.8 Absence of Material Change.
--------------------------
(a) Except as set forth on Schedule 3.8(a), the business and affairs
of the Companies have been conducted only in the ordinary course.
(b) Except as set forth on Schedule 3.8(b), since March 25, 1998, (i)
there has been no material adverse change in the condition (financial or
otherwise), assets, liabilities, or earnings, or, to the best of Principal
Shareholder's knowledge, the business, operations or affairs of the Companies,
other than changes in the ordinary course of business, none of which either
singly or in the aggregate has been materially adverse; and (ii) there has been
no damage, destruction, loss or other occurrence or development (whether or not
insured against), which either singly or in the aggregate materially adversely
affects (and the Principal Shareholder does not know, or have any reasonable
grounds to know, of any threatened occurrence or development which could
materially adversely affect) the condition (financial or otherwise), assets,
liabilities, earnings, business, operations or affairs of the Companies.
(c) Except as set forth on Schedule 3.8(c), since March 25, 1998, no
Company has: (i) created or incurred any liability, commitment or obligation
(absolute or contingent), of Fifty Thousand Dollars ($50,000.00) or more, except
unsecured current liabilities incurred for money borrowed in the ordinary course
of business; (ii) mortgaged, pledged or subjected to any lien or otherwise
encumbered any of its assets, tangible or intangible other than the Excluded
Assets; (iii) discharged or satisfied any lien, security interest or
encumbrance, or paid any obligation or liability (absolute or contingent), other
than current liabilities due and payable in the ordinary course of business,
except as necessary to transfer the Excluded Assets or to terminate the Related
Party Agreements; (iv) made any investment in or loan to another Person totaling
more than One Hundred Thousand Dollars ($100,000.00) or outside the ordinary
course of business; (v) changed any accounting practice (including, without
limitation, any accounting practice followed or employed in preparing the
Financial Statements or the Interim Financial Statements) or any material
business practice; (vi) entered into any employment contract or collective
bargaining agreement; (vii) waived any rights of substantial value or terminated
or amended, or suffered the termination or amendment of, any contract, lease,
agreement or license involving an annual consideration of Fifty Thousand Dollars
($50,000.00) or more, except as necessary to transfer the Excluded Assets or to
terminate the Related Party Agreements; (viii) made any capital expenditures or
any capital additions or betterments which in the aggregate exceeded One Hundred
Thousand Dollars ($100,000.00); (ix) adopted, amended, modified or terminated
any bonus, profit-sharing, incentive or severance plan; (x) made any loan to, or
entered into any transaction with, any of its officers, directors, or employees
which loan or transaction shall not terminate prior to the closing; (xi) sold or
otherwise disposed of assets, tangible or intangible for an aggregate
consideration of Fifty Thousand Dollars ($50,000.00) or more, except in the
ordinary course of business or in contemplation of the performance of the terms
and conditions of this Agreement; (xii) directly or indirectly purchased,
retired, redeemed, or otherwise acquired, any shares of any Company's stock;
(xiii) paid or agreed to pay, conditionally or otherwise, any bonus, extra
compensation, pension or severance pay to any Company's present or former
stockholders, directors, officers, agents or employees, or increased the
compensation (including salaries, fees, commissions, bonuses, profit sharing,
incentive, pension, retirement or other similar payments) being paid as of March
25, 1998, to any Company's
stockholders, directors, officers or employees; (xiv) renewed, amended, become
bound by or entered into any material contract, commitment or transaction other
than in the ordinary course of business which will be binding upon any Company
after the Closing and involves consideration of Fifty Thousand Dollars
($50,000.00) or more; or (xv) committed to doing any of the foregoing.
3.9 Tax Matters.
-----------
(a) As used in this Agreement, the term "Code" means the Internal
Revenue Code of 1986, as amended. The term "Tax" means any federal, state,
local or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not. The term "Tax Return" means any return,
declaration, report, claim for refund, or information return or statement
relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.
(b) Except as described on Schedule 3.9(b), each Company has filed all
Tax Returns that it was required to file; all such Tax Returns were correct and
complete in all material respects; all Taxes owed by each Company (whether or
not shown on any Tax Return) have been paid when due; no Company currently is
the beneficiary of any extension of time within which to file any Tax Return; no
claim has ever been made by an authority in a jurisdiction where any Company
does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and there are no liens on any of the assets of any Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(c) Except as described on Schedule 3.9(c), each Company has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party, and each Company has collected and paid all taxes required to
have been collected and paid in connection with any amounts received from any
customer or other third party.
(d) Except as described on Schedule 3.9(d)(i), there is no adverse
dispute or claim concerning any Tax liability of any Company either (i) claimed
or raised by any authority in writing, or (ii) as to which any of the
Shareholders has knowledge based upon personal contact with any agent of such
authority. Schedule 3.9(d)(ii) lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Companies for taxable periods ended
on or after December 31, 1995; indicates those Tax Returns that have been
audited; and indicates those Tax Returns that currently are the subject of
audit. The Principal Shareholder has delivered to Purchaser correct and
complete copies of all federal income Tax Returns filed by the all of the
Companies since their respective dates of incorporation and all examination
reports and statements of deficiency assessed against or agreed to by any of the
Companies since their respective dates of incorporation.
(e) Except as described on Schedule 3.9(e), no Company has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(f) Except as described on Schedule 3.9(f), no Company has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Section 280G or any corresponding provision of state or
local law. Each Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. No Company has any
liability for unpaid Taxes because it once was a member of an affiliated group
during any part of any consolidated return year.
(g) Mid-Vol and MMI have made valid elections under Code Section 1362
and any corresponding state or tax provisions to be S corporations for all
taxable years since their respective dates of incorporation and such elections
have not been terminated or revoked.
(h) Except as described on Schedule 3.9(h), none of the Companies will
be required as a result of a change in method of accounting for a taxable period
ending on or prior to the Closing Date, to include any material adjustment to
taxable income for any taxable period (or portion thereof) ending after the
Closing Date. None of the Companies will be required to include any material
item of income in, or exclude any material item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of: (i) any "Closing Agreement" as described in Code Section 7121
(or any corresponding provision of state or local income tax law); (ii) any sale
occurring on or before the Closing Date that is accounted for under the
"installment method" as described in Code Section 453 (or any corresponding
provision of state or local income tax law); or (iii) any prepaid income
received on or prior to the Closing Date.
(i) In the event Purchaser voluntarily amends any income Tax Return
for the Companies filed after Closing by Purchaser other than in connection with
an examination by the Internal Revenue Service or a state taxing authority,
Purchaser shall indemnify and hold harmless the Shareholders from any and all
additional federal, state or local income Tax liability arising therefrom or
from the payment of any indemnity amount.
3.10 Undisclosed Liabilities.
-----------------------
(a) Except as set forth on Schedule 3.10(a), no Company is, and no
Company's properties or assets, other than the Excluded Assets, are subject to
any liability, commitment, indebtedness or obligation of Fifty Thousand Dollars
($50,000.00) or more of any kind whatsoever, whether absolute, accrued,
contingent, matured or unmatured, which, as of the Closing, (i) is not shown and
adequately reserved against in the Financial Statements; (ii) is not shown and
adequately reserved against in the Interim Financial Statements; (iii) is not
listed on a Schedule to this Agreement; or (iv) was incurred subsequent to the
date of the Interim Financial Statements other than in the ordinary course of
business and not in violation of any provision of this Agreement.
3.11 Compliance with Law. Except as set forth on Schedule 3.11, and
-------------------
except for matters routinely encountered in the ordinary course of business by a
Company engaged in coal mining in the jurisdictions in which the Company
conducts business that have been otherwise specifically disclosed to Purchaser,
the Shareholders and the Companies have substantially complied with, are not in
material default under, have not been charged with any material violation of,
and, have not to the best of Principal Shareholder's knowledge been threatened
or placed under any investigation with respect to any charge concerning any
violation of any provision of any federal, state, local or other law,
regulation, rule or order (whether executive, judicial, legislative or
administrative) or any order, writ, injunction or decree of any court, agency or
instrumentality, which would have an adverse effect of Fifty Thousand Dollars
($50,000.00) or more on the Companies and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice which would have an
adverse effect of Fifty Thousand Dollars ($50,000.00) or more on the Companies
has been filed or commenced.
3.12 Contracts.
---------
(a) Schedule 3.12(a) lists all of the written and oral contracts,
agreements and commitments to which any Company is a party to or bound by, or by
which any Company's business or assets are bound, involving an annual
consideration of Fifty Thousand Dollars ($50,000.00) or more including, but not
limited to, any (i) lease; (ii) contract; (iii) mining agreement; (iv) coal
supply agreement; (v) employment agreement; (vi) bonus, profit-sharing, deferred
compensation, hospitalization, retirement, insurance, pension, welfare, stock
option or stock purchase plan, arrangement or agreement or any other plan,
arrangement or agreement providing for employee benefits or for the remuneration
by any Company of its stockholders, directors, officers or employees; (vii)
agreement with any shareholder, director or officer of any Company; (ix)
agreement containing covenants by each Company not to compete in any lines of
business or commerce; (x) franchise or distributorship agreement; (xi) loan,
credit or financing agreement, including all agreements for any commitments for
future loans, credit or financing; (xii) guarantee; (xiii) mortgage or security
agreement; (xiv) agreement to purchase raw materials, packaging, supplies or
services used regularly in any Company's business; or (xv) agreement to sell the
products or services provided by any company. Schedule 3.12(a) includes a
summary of the terms of any unwritten contract or commitment to which any
Company is a party or by which any Company is bound.
(b) Except as set forth on Schedule 3.12(b), all contracts and
commitments listed on Schedule 3.12(a) are legal, valid, binding, enforceable,
and in full force and effect and will continue to be legal, valid, binding,
enforceable and in full force and effect on substantially the same or identical
terms immediately following the transactions contemplated hereby unless
modified, terminated, assigned or otherwise transferred to effect the conveyance
of the Excluded Assets or to terminate the Related Party Agreements. Except as
set forth on Schedule 3.12(b), each Company has performed all obligations
required to be performed by it to date under all contracts and commitments
listed on Schedule 3.12(a), and the Principal Shareholder has no knowledge that
any other party is in default (or would be in default on the giving of notice or
the lapse of time or both) under any such contract or commitment. No event has
occurred which would permit any Person to terminate, accelerate or modify any
such contract.
(c) True and complete copies of all written contracts and commitments
which are listed on Schedule 3.12(a) or which are otherwise referred to in this
Agreement, including any Schedule or Annex hereto, have been delivered to
Purchaser or made available for Purchaser's inspection, and there are no
amendments to or modifications of, or significant agreements of the parties
relating to, any such contract, agreement or commitment which have not been
disclosed to Purchaser, and each such contract, agreement or commitment is valid
and binding on the parties thereto in accordance with its respective terms.
(d) The prices which each Company shall receive or pay under all
outstanding contracts, agreements and commitments with its customers, suppliers
and others have been determined in the ordinary course of each Company's
business.
(e) The Principal Shareholder does not know, or have any reasonable
grounds to know, that any customer under any coal supply contract or purchase
order listed on Schedule 3.12(a) has terminated or expects to terminate, other
than in accordance with the terms of such contract or purchase order, its normal
business with any of the Companies as a result of the transactions contemplated
by this Agreement.
3.13 Litigation and Pending Proceedings. Except as set forth on Schedule
----------------------------------
3.13, there are no material claims of any kind or any material actions, suits,
proceedings, arbitrations or investigations pending or threatened in any court
or before any governmental agency or instrumentality or arbitration panel, by or
against any Company or Shareholder, which would have a material adverse effect
on any Company's business operations, condition (financial or otherwise), or any
of any Company's properties or assets, or which would prevent the performance of
this Agreement or the Other Documents or any of the transactions contemplated
hereby or thereby, or which declare or would declare the same unlawful.
3.14 Real Property.
-------------
(a) Schedule 3.14(a) lists all material interests in land, including
coal, mining and surface rights, easements, rights of way and options leased by
the Companies, other material contractual rights in and to any real property
held by the Companies, and all rights by which the Companies may be entitled to
receive income from any Person as a result of the use or occupancy of any real
property by such Person. (The leases and other agreements identified on
Schedule 3.14(a), as each may have been amended, supplemented or otherwise
modified by contemporaneous or subsequent written agreements, are hereinafter
referred to as the "Leases," and the property and property rights granted
therein are hereinafter referred to as the "Leased Real Property"). Each of the
Leases is a valid, binding and enforceable agreement in accordance with its
terms, and no Company is in default under any Lease, and, to the best of
Principal Shareholder's knowledge, no other party is in default under any Lease.
(b) Schedule 3.14(b) lists all interests in land, including coal,
mining and surface rights, easements, rights of way, options and other interests
in real property owned by the Companies (the "Owned Real Property").
(c) Except as set forth on Schedule 3.14(c), each Company holds good
and marketable fee or leasehold title (as the case may be) as generally accepted
in the Appalachian coal industry to its Owned Real Property and its Leased Real
Property, and, upon its date of transfer to the applicable Company, the
Contributed Assets that are real property, free and clear of any Charges except
for Permitted Encumbrances. The Shareholders warrant specially the title to the
Owned Real Property and the Companies' interest in the Leased Real Property. As
used herein, the term "Permitted Encumbrances" means: (i) liens for current ad
valorem taxes and other inchoate statutory liens not yet delinquent or which are
being contested in good faith and by appropriate proceedings; (ii) carriers',
warehousemen's, mechanics', materialmen's, repairmen's or other like liens
arising in the ordinary course of business which are less than One Hundred
Thousand Dollars ($100,000.00) in amount and which are being contested in good
faith and by appropriate proceedings; (iii) private, public and utility
easements, tenant leases, cemeteries, leases and subleases, reconveyance
agreements, rights-of-way and roads and highways, encroachments, restrictions,
conditions and other similar encumbrances incurred or suffered in the ordinary
course of the coal mining business, or to which other coal properties similarly
situated are commonly or ordinarily similarly subject and which do not
materially impair the Companies' business operations as presently conducted;
(iv) any matter of public record except those in derogation of the special
warranty hereinabove made; (v) any matter which is plainly visible or easily
discernible by a diligent actual view of the Real Property; (vi) those facts
which might be disclosed by an accurate survey of the Real Property; (vii)
governmental building, zoning or other laws and regulations of the jurisdictions
in which the Real Property is located; or (viii) those title matters actually
discovered by Purchaser's attorneys investigating title to the Real Property on
behalf of Purchaser.
(d) All existing surveys, title insurance policies, title insurance,
abstracts and other evidence of title (if any) in the possession of the
Companies have previously been made available to Purchaser or its agents or
consultants.
(e) Notwithstanding the contents of Schedules 3.14(a) and (b), it is
the intent of the Shareholders that the Companies be vested with title to all
lands and interests in land held by the Companies at the time of the execution
of this Agreement except for any such lands or interests in land that are an
Excluded Asset and any omission of any item from said Schedules 3.14(a) and (b)
shall not act as an exclusion of such item from the terms and conditions of this
Agreement.
(f) Except as set forth on Schedule 3.14(f), as of the Closing Date:
(i) there will be no past due payment, obligation or other material default
under any of the Leases; (ii) no Shareholder or Company has received any oral or
written notice of, or knows of, any act, omission or condition which constitutes
a material default, or, with the passage of time and/or the giving of notice,
would constitute a material default under any of the Leases; (iii) there will be
no Charges against the Leases or the rights of the Companies thereunder; (iv) no
Company has mined any coal that did not belong to it, or mined any coal in such
a reckless or imprudent fashion as to give rise to any material claims for loss
or waste by any of its lessors; (v) each of the Leases will be in good standing,
valid and enforceable against the lessor or other parties thereto in accordance
with its terms; and (vi) the lessee under each Lease has exercised within the
time prescribed in such Lease any option provided therein to extend or renew the
term thereof if the Lease has been deemed necessary by the Companies for their
future business operations. To the best of Principal
Shareholder's knowledge, the Leased Real Property is not subject to any
mortgage, deed of trust or other material lien which has priority over any
Lease, or, if it is, the holder of any such mortgage, deed of trust or other
material lien cannot be the basis for any foreclosure or other acquisition of
title by such holder which would have a material adverse effect upon the use of
Leased Real Property in the normal course of the business operations of the
Companies as such use has been made or planned by the Companies prior to the
date of this Agreement.
(g) Subject to all of the lessors listed on Schedule 3.14(g) giving
their consent to the transactions contemplated herein, the acquisition of the
Shares by Purchaser will not constitute a default under the terms of any of the
Leases.
(h) Except as set forth on Schedule 3.14(h), or as otherwise
specifically disclosed to Purchaser, the Companies are in actual and peaceful
possession of that portion of the Leased Real Property with respect to which the
Companies have obtained Permits and are actively conducting coal mining
operations.
(i) Purchaser accepts the Companies' mineral reserves in or under the
lands comprising the Real Property, as is, where is, together with all the
Mining Data, free of any warranty (express or implied) with regard to the
mineability, washability, merchantability, volume, location, quantity or quality
of any mineral reserve (including, without limitation, coal, oil and gas or any
other mineral reserve).
3.15 Condemnation. Except as set forth on Schedule 3.15, no condemnation
------------
proceeding has been instituted or, to the best of Principal Shareholder's
knowledge, is threatened that would have a material adverse effect on any of the
Real Property.
3.16 Inventory. The Companies' coal inventory consists solely of coal
---------
which has been produced in the ordinary course of business for use or sale in
the ordinary course of the Companies' respective businesses at arm's length
market prices for its quantity and quality.
3.17 Notes and Accounts Receivable. Except as set forth on Schedule 3.17,
-----------------------------
to the best of Principal Shareholder's knowledge, all notes and accounts
receivable of each Company included in the Current Assets or thereafter acquired
by any Company have been collected or are collectible in the ordinary course of
business (in the case of any such note substantially in accordance with its
terms), at the recorded amounts thereof on such Company's books. No note or
account receivable of any Company is subject to counterclaim or set off as of
the Closing.
3.18 Banks, Directors and Officers, and Life Insurance. Schedule 3.18
-------------------------------------------------
sets forth: (a) a list of all banks with which any Company has an account,
deposit, certificate of deposit, or safe deposit box along with identifying
numbers and the names of all persons authorized to draw thereon or have access
thereto; (b) the names of all incumbent directors and officers of each Company;
and (c) a description and identification of any insurance policies held or paid
for by any Company on the lives of any of its key employees, officers, directors
or shareholders.
3.19 Permits and Bonds.
-----------------
(a) Except as set forth on Schedule 3.19(a)(1), each Company has all
material permits, licenses, franchises, approvals, certificates or
authorizations (collectively, the "Permits") of any federal, state or local
governmental or regulatory body required in order to permit it to carry on its
business as presently conducted, all of which are in full force and effect. All
material Permits held by any Company are listed on Schedule 3.19(a)(2) (the
"Mid-Vol Permits"). Except as set forth on Schedule 3.19(a)(3) or otherwise
specifically disclosed to Purchaser, no misrepresentations or willful,
intentional or negligent omissions were made of any material fact in obtaining
any Mid-Vol Permits or any Permits that are Contributed Assets ("Contributed
Permit"). No action or claim is pending, or, to the best of Principal
Shareholder's knowledge, threatened or contemplated, to revoke, suspend, modify,
alter, amend or terminate any Mid-Vol Permit or Contributed Permit, or to
declare any Mid-Vol Permit or Contributed Permit invalid in any respect, and the
Principal Shareholder knows of no reason that would justify such action. Except
as set forth on Schedule 3.19(a)(4), no Company has received any notice of
noncompliance since January 1, 1997.
(b) The Companies have posted all reclamation and performance bonds
required to be posted in connection with their operations. All reclamation and
performance bonds posted by each Company in connection with its operations are
listed on Schedule 3.19(b)(1) (collectively, the "Bonds"). Except as disclosed
on Schedule 3.19(b)(2) or otherwise specifically disclosed to Purchaser: (i)
the Companies or the Permitted Party, as the case may be, are in compliance in
all material respects with all reclamation requirements of the Mid-Vol Permits
and Contributed Permits required to date by law; and (ii) the operation of the
Companies' coal mining and processing operations and the state of reclamation
with respect to the Mid-Vol Permits and the Contributed Permits are "current" or
in "deferred status" regarding reclamation obligations and otherwise are in
compliance in all material respects with all applicable mining, reclamation,
health and safety and all other applicable laws and regulations (including,
without limitation, all aspects of the Federal Coal Mine Health and Safety Act
of 1969, as amended, and the Federal Mine Safety and Health Act of 1977, as
amended, and similar state laws and regulations) and in accordance with
reclamation plans submitted with respect to the Mid-Vol Permits and the
Contributed Permits.
3.20 Intellectual Property. Schedule 3.20 sets forth a list and
---------------------
description of all Intellectual Property either owned or utilized by any Company
in its business (the "Companies' Intellectual Property"), including a
description of the nature of each Company's interest therein. Except as set
forth on Schedule 3.20: (i) all of the Companies' Intellectual Property is
owned by the Companies, is valid and enforceable, and is free and clear of all
Charges and other adverse claims; (ii) no Company is a party to any licenses,
consents, settlements or other agreements involving the Companies' Intellectual
Property; (iii) there are, and have been, no claims, actions or judicial or
adversarial proceedings involving the Companies' Intellectual Property that
would have an adverse effect of Fifty Thousand Dollars ($50,000.00) or more on
the Companies, and no such actions or proceedings are threatened or anticipated;
(iv) the Companies have the right and authority to use the Companies'
Intellectual Property in connection with the conduct of their business and such
use has not and will not infringe upon, constitute a misappropriation of, or
otherwise violate the rights of any other person in, any Intellectual Property;
(v) the Principal Shareholder knows of no past or present occurrences of any
probable infringement or misappropriation of, or violation of any Company's
rights in, any of the Companies' Intellectual Property; and (vi) no Company is
subject to any restriction on the transfer or use of the Companies' Intellectual
Property or any royalty payment or obligation with respect thereto.
3.21 Proprietary Information. Prior to or in conjunction with the
-----------------------
Closing, the Shareholders shall have fully disclosed to Purchaser all customer
lists, trade secrets, processes, formulas, methods, inventions (if any) and
other proprietary information used by each Company in the ordinary course of its
business. To the best of Principal Shareholder's knowledge, the use by the
Companies of such proprietary information does not violate any other Person's
proprietary rights.
3.22 Insurance. The tangible real and personal property and assets,
---------
whether owned or leased, of the Company are insured against the hazards and in
the amounts stated in the policies of insurance listed on Schedule 3.22(a).
Each Company carries insurance against personal injury and property damage to
third persons and in respect of its services and operations and such other
insurance as is stated in the policies of insurance listed on Schedule 3.22(a).
Except as set forth on Schedule 3.22(b): (i) all such insurance is legal,
valid, binding, enforceable and in full force and effect, and is carried with
reputable insurers; (ii) no party to any insurance policy of any Company is in
material breach or default; and (iii) no event has occurred which would
constitute a material breach or default or permit termination, modification or
acceleration of any policy. Schedule 3.22(c) sets forth a true and complete
list of all claims in excess of Twenty-Five Thousand Dollars ($25,000.00) made
by the Company during the past three (3) years under any such policy. Each
Company has been covered by insurance in an amount customary and reasonable to
its respective business during the time periods such business has been
conducted.
3.23 Labor Relations.
---------------
(a) Except as set forth on Schedule 3.23(a): (i) no Company is a
party to, or negotiating, or has any obligations under, any collective
bargaining agreement or other agreement with any labor union organization
relating to the compensation or working conditions of any of any Company's
employees; (ii) no Company is obligated under any agreement to recognize or
bargain with any labor organization or union on behalf of its employees; (iii)
the Principal Shareholder does not know, or have any reasonable grounds to know,
of any union organizational or representational activities underway among any of
any Company's employees; (iv) no Company has been charged or threatened with a
charge of any unfair labor practice, and (v) no Company has committed any
violation of the WARN Act. There are no existing or, to the best of Principal
Shareholder's knowledge, threatened labor strikes, slowdowns, disputes,
grievances or disturbances affecting or which might affect operations at, or
deliveries from or into, any facility of any Company. No work stoppage against
any Company or its business is pending or, to the best of Principal
Shareholder's knowledge, threatened, and no such work stoppage has ever
occurred, except for those that did not have a material adverse effect on the
Companies.
(b) No Company has committed any act or failed to take any required
action with respect to any of its employees which: (i) has resulted or which
may result in a material violation of ERISA (as that term is defined in Section
3.24 below), or similar legislation as it affects any employee benefit or
welfare plan of the Company, the Immigration Reform and Control Act of 1986,
the National Labor Relations Act, as amended, Title VII of the Civil Rights Act
of 1964, as amended, the Age Discrimination Employment Act, the Americans with
Disabilities Act, the Occupational Safety and Health Act, the Mine Safety and
Health Act, Executive Order 11246, the Fair Labor Standards Act, the
Rehabilitation Act of 1973, the West Virginia Wage Payment Collection Act and
all regulations under such Acts, and all other federal, state and local laws,
regulations and executive orders relating to the employment of labor, including
any provisions thereof relating to wages, hours, collective bargaining, the
payment of Social Security and similar taxes, unemployment and workers'
compensation laws, any labor relations laws, or any governmental regulations
promulgated thereunder, as the same affect relationships or obligations of any
Company with respect to any of any Company's employees; and (ii) will or
reasonably could result in any material liability, penalty, fine or the like
being imposed upon any Company. No Company is liable for any arrearage of wages
or taxes or penalties for failure to comply with any of the foregoing, and there
are no proceedings before any court, governmental agency, instrumentality or
arbitrator relating to such matters, including any unfair labor practice claims,
either pending or threatened.
(c) To the best of Principal Shareholder's knowledge, no key
management employee has any plans to terminate employment with any Company.
Except as listed on Schedule 3.23(c)(1), subject to all applicable governmental
laws and regulations, no person is employed by any Company other than at the
will of such Company for an indefinite period of time, and at the option of
either the Company or such employee, the employment of such employee may be
terminated with or without cause and with or without notice at any time. In
addition, to the best of Principal Shareholder's knowledge, none of the
Companies' employees are bound by or are subject to any non-compete,
confidentiality or similar Agreement other than for the benefit of the
Companies. No person is employed by any Company other than PPI. Schedule
3.23(c)(2) contains a true and complete list of all employees employed by PPI as
of the date hereof, and said list correctly reflects their salaries, wages,
other compensation, dates of employment, and positions and benefit plans in
which they participate or are eligible to participate and reflects any changes
in any of the foregoing since March 25, 1998. There are no discrimination or
harassment charges (relating to sex, age, religion, race, national origin,
ethnicity, disability, or veteran status) pending or, to the best of Principal
Shareholder's knowledge, threatened before any federal or state agency or
authority against any of the Companies and, to the best of Principal
Shareholder's knowledge, there is no basis therefor.
3.24 Employee Benefit Plans.
----------------------
(a) For purposes of this Section 3.24, the term "employee benefit
plan(s)" shall have the meaning ascribed to it in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations promulgated thereunder, and the term "employee pension benefit
plan(s)" shall have the meaning ascribed to it in Section 3(2) of ERISA.
(b) Schedule 3.24 sets forth a complete list of all employee benefit
plans, policies and practices with regard to wages and benefits (whether or not
subject to ERISA) of each Company, including, without limitation, plans, funds
or programs providing medical, surgical or hospital care or benefits; benefits
in the event of sickness, accident, disability, death or unemployment; vacation
benefits; apprenticeship or other training programs; day care centers;
scholarship funds; prepaid legal
services; benefits described in Section 302(c) of the Labor Management Relations
Act; retirement income; income deferral for periods extending to the termination
of covered employment or beyond; severance pay arrangements; and supplemental
retirement income payments which take into account increases in the cost of
living, ( the "Companies' Benefit Plans"). Each of the Companies' Benefit Plans
which is funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the plan on Schedule 3.24.
(c) To the extent applicable, true and complete copies of all (i)
employee benefit plans, (ii) policies and practices, (iii) summary plan
descriptions, (iv) insurance policies, and (v) communications to or from the
United States Department of Labor and other applicable governmental filings with
respect to the Companies' Benefit Plans, have been delivered by the Companies to
Purchaser.
(d) Except as specifically provided in the documents described in this
Section 3.24 and delivered to Purchaser, or as otherwise described on Schedule
3.24, there are no material amendments, modifications, extensions, changes in
benefits or benefit structures, or other material alterations which are
currently in effect or which the Principal Shareholder or any Company has
undertaken to become effective in the future, or which the Principal Shareholder
has knowledge of, with regard to any of the Companies' Benefit Plans.
(e) Each of the Companies' Benefit Plans has been executed, managed
and administered in compliance in all material respects with the applicable
provisions of ERISA, the Code, and the regulations promulgated thereunder, and
all other applicable laws. The Principal Shareholder has no knowledge of any
threatened or pending claim against any of the Companies' Benefit Plans or their
fiduciaries by any participant, beneficiary or government agency.
(f) The Companies have fully complied with the notice and coverage
requirements of Sections 601 through 609 of ERISA and Sections 701 through 784
of ERISA, if applicable, and the proposed regulations thereunder, if applicable.
All reports, statements, returns and other information required to be furnished
or filed with respect to the Companies' Benefit Plans have been timely
furnished, filed or both in accordance with Sections 101 through 105 of ERISA
and Code Sections 6057 through 6059, if applicable, and they are true, correct
and complete in all material respects. Records with respect to the employee
benefit plans have been maintained in material compliance with Section 107 of
ERISA, if applicable. No Shareholder, Company or any other fiduciary (as that
term is defined in Section 3(21) of ERISA) with respect to any of the Companies'
Benefit Plans has any material liability for any breach of any fiduciary duties
under ERISA, if applicable.
(g) The Companies have not, with respect to any of the Companies'
Benefit Plans, nor has any administrator of any of the Companies' Benefit Plans,
engaged in any prohibited transaction which would subject the Companies, any of
the Companies' Benefit Plans, or any administrator or other party involved with
any of the Companies' Benefit Plans to a tax or penalty on prohibited
transactions imposed by ERISA, Code Section 4975, or to any other liability
under ERISA, if applicable.
(h) The Companies have no, and have never had any, employee pension
benefit plans maintained by or covering employees of any Company.
(i) No Company has ever contributed to a "multi-employer plan," as
that term is defined in Section 3(37) of ERISA (as particularly amended by The
Multi-Employer Pension Plan Amendments Act of 1980).
(j) All current insurance premiums, claims for benefits or other
payments due which are payable by the Companies for all periods ending on or
before the Closing Date have been paid with respect to each of the Companies'
Benefit Plans.
(k) None of the Companies maintains or has ever maintained or
contributes to or ever has contributed to or ever has been required to
contribute to any employee benefit plan providing retirement, severance,
medical, health, disability or life insurance or other benefits for current or
future retired or terminated employees, their spouses or their dependents other
than in accordance with Code Section 4980(b), if applicable.
(l) Except as set forth on Schedule 3.24(l), none of the Companies has
any liability with respect to any employee benefit plans other than the
Companies' Benefit Plans.
3.25 Indebtedness. On the Closing Date, all indebtedness of the
------------
Shareholders of any Company to any Company reflected or which should have been
reflected in the Financial Statements or the Interim Financial Statements shall
have been paid in full or canceled, assigned, transferred or otherwise satisfied
with respect to the Companies such that such amounts are not due and owing to
the Companies after Closing.
3.26 Environmental Matters.
---------------------
(a) As used in this Section 3.26, the term "Hazardous Material" shall
mean any substance, chemical or waste (including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs") and petroleum) that is designated or defined
(either by inclusion in a list of materials or by reference to exhibited
characteristics) as hazardous, toxic or dangerous, or as a pollutant or
contaminant, in any federal, state or local law, code or ordinance, and all
rules and regulations promulgated thereunder, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. (S)(S) 9601, et seq.
-- ---
(b) Except as set forth on Schedule 3.26(b), each Company has complied
in all material respects with, and its business, operations, assets, equipment,
leaseholds and facilities, including, without limitation, the Real Property, are
in compliance in all material respects with, the provisions of all applicable
federal, state and local environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder, including,
without limitation, all laws and regulations with respect to reporting releases
of Hazardous Materials and the registration, testing and maintenance of
underground storage tanks.
(c) Except as set forth on Schedule 3.26(c)(1), each Company has been
issued, and will maintain, all material required federal, state and local
permits, licenses, certificates and approvals relating to: (i) air emissions;
(ii) discharges to surface water or ground water; (iii) noise emissions; (iv)
solid or liquid waste disposal; (v) the use, generation, storage, transportation
or disposal of Hazardous Materials; and (vi) other environmental, health or
safety matters. A list of all such material permits, licenses, certificates or
approvals is set forth on Schedule 3.26(c)(2).
(d) Except as set forth on Schedule 3.26(d), no Company or Shareholder
has received notice of, or knows of or suspects, any fact(s) which might
constitute a material violation of any federal, state or local environmental,
health or safety laws, codes or ordinances, or any rules or regulations
promulgated thereunder, which relate to the use, ownership or occupancy of any
of the Real Property.
(e) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.26(c)(2) or as set forth on
Schedule 3.26(e), no Company has caused any, and, to the best of Principal
Shareholder's knowledge, there has been no material emission, spill, release,
discharge or threatened release into or upon: (i) the air; (ii) the soils or
any improvements located thereon; (iii) the surface water or ground water; or
(iv) the sewer, septic system or waste treatment, storage or disposal system
servicing the Real Property, of any Hazardous Material at or from any of the
Real Property (any of which is hereafter referred to as a "Hazardous Discharge")
which by law has required or would require any notification thereof or a
response thereto.
(f) Except as set forth on Schedule 3.26(f), to the best of Principal
Shareholder's knowledge, there has been no complaint, order, directive, claim,
citation or notice by any governmental authority or any other Person with
respect to: (i) air emissions; (ii) spills, releases or discharges to soils or
any improvements located thereon, surface water, ground water or the sewer,
septic system or waste treatment, storage or disposal systems servicing the Real
Property; (iii) noise emissions; (iv) solid or liquid waste disposal; (v) the
use, generation, storage, transportation or disposal of Hazardous Materials; or
(vi) other environmental, health or safety matters, affecting any Company, any
of the Real Property, any improvements located thereon or the business conducted
thereon (any of which is hereafter referred to as an "Environmental Complaint").
Except as set forth on Schedule 3.26(f), there has been no Environmental
Complaint arising from any Company's actions or omissions.
(g) Except as set forth on Schedule 3.26(g), all Hazardous Materials
disposed of, treated or stored on or off-site of any real property owned or
operated at any time by any Company have been disposed of, treated and stored in
compliance in all material respects with all applicable laws, codes and
ordinances and all applicable rules and regulations promulgated thereunder. To
the best of Principal Shareholder's knowledge, there have not been and are now
no underground storage tanks "owned" or "operated" (as defined by applicable law
and regulation) by any Company.
(h) Except as listed on Schedule 3.26(h), and except for supplies that
are to be used or sold in the ordinary course of any Companies' business and in
full compliance with all applicable laws, codes and ordinances, all of the Real
Property is free of: (i) any material amount
of Hazardous Materials; (ii) underground storage tanks; and (iii) underground
pipelines. Except as set forth on Schedule 3.26(h), no Company has disposed of
any material amount of Hazardous Materials on, in or under the Real Property, or
any part thereof, or has permitted the Real Property, or any part thereof, to be
used for the storage, treatment or disposal of Hazardous Materials. To the best
of Principal Shareholder's knowledge, except as set forth on Schedule 3.26(h),
there has been no material disposal or release of Hazardous Materials on, in or
under the Real Property at any time by any Person.
(i) Except in accordance with a valid governmental permit, license,
certificate or approval listed on Schedule 3.26(i) or other valid required
incidental governmental permit, no Company has transported or accepted for
transport any Hazardous Materials. Schedule 3.26(i) identifies all of the
Persons for whom or which any Company has transported (or from whom or which any
Company has accepted for transport) any material amount of Hazardous Materials
(excluding motor fuels and lubricants used in the ordinary course of the
Companies' business) and identifies all locations to which any Company has
transported any material amount of Hazardous Materials.
(j) The Principal Shareholder has made available to Purchaser all
information in his possession or the Companies' possession pertaining to the
environmental history of all of the Real Property. The Principal Shareholder
shall also promptly cause the Companies to furnish to Purchaser true, accurate
and complete copies of all sampling and test results from all environmental
and/or health samples and tests taken at and around any of the Real Property by
or on behalf of any of the Companies between the date of this Agreement and
Closing.
3.27 Immigration Matters. Each Company has complied with all material
-------------------
applicable provisions of Section 274A of the Immigration and Nationality Act, as
amended (the "Act"). Without limiting the foregoing, except as set forth on
Schedule 3.27: (a) each "employee" (as that term is defined in the Act) of each
Company is permitted to be so employed in the United States under the Act; (b)
each Company has examined (and made copies of, if applicable) the documents
presented by said employee to establish appropriate employment eligibility under
the Act; (c) each Company has completed and required each employee hired on or
since November 11, 1986, to complete a Form I-9 verifying employment eligibility
under the Act; (d) each Company has retained each such completed Form I-9 for
the length of time required under the Act; and (e) no monetary penalties have
been assessed against any Company for violation of Section 274A of the Act.
3.28 Permit Blocking. No Company, Shareholder or any Person "owned or
---------------
controlled" by any Shareholder, any Company, or any Person which "owns or
controls" any Company has been notified by the Federal Office of Surface Mining
or the agency of any state administering the Surface Mining Control and
Reclamation Act (30 U.S.C. (S)(S) 1201 et seq.), or any comparable state
-- ---
statute, that it is: (i) ineligible to receive additional surface mining
permits; or (ii) under investigation to determine whether their eligibility to
receive such permits should be revoked, i.e., "permit blocked." As used herein,
----
the terms "owned or controlled" and "owns or controls" shall be defined as set
forth in 30 C.F.R. (S)773.5 (1991).
3.29 Consents and Notices. All consents, approvals and notices required
--------------------
to be obtained or given in connection with the sale of the Shares (the
"Consents") are set forth on Schedule 3.29(a). The material Consents that are
required to be obtained prior to Closing by any party as a condition precedent
to the Shareholders' and the Purchaser's obligation to proceed with the Closing,
(the "Required Consents"), are set forth on Schedule 3.29(b). All Consents other
than the Required Consents shall be obtained as soon as reasonably possible
after the Closing.
3.30 Transactions with Affiliates. Except as set forth in the notes to the
----------------------------
Financial Statements, Closing Financial Statements or Interim Financial
Statements, or in the Schedules to this Agreement or the Other Documents, and,
except for arrangements contemplated by this Agreement, no Shareholder or
affiliate of any Shareholder has any outstanding contract, agreement or other
arrangement with any of the Companies that will be a binding obligation upon any
of the Companies after the Closing.
3.31 Distributions. Except as listed on Schedule 3.31, since January 1,
-------------
1998, no Company has declared, set aside, or paid any dividends, whether in
cash, stock or other securities, or otherwise made any distributions to its
shareholder(s), directly or indirectly, of any of its property or assets other
than the Excluded Assets.
3.32 Powers of Attorney. Except as set forth on Schedule 3.32, there are
------------------
no outstanding powers of attorney executed on behalf of any of the Companies.
3.33 Completeness of Statements. No statement, Schedule, Annex,
--------------------------
certificate, representation or warranty of any Company or the Principal
Shareholder (or the Shareholders with respect to their Shares) contained in this
Agreement or the Other Documents, or furnished by or on behalf of any Company or
the Principal Shareholder to Purchaser or any of its agents pursuant hereto or
thereto, or in connection with the transactions contemplated hereby or thereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary in order to make a statement
contained herein or therein not misleading. All representations and warranties
of the Shareholders contained in this Agreement and in the Other Documents are
true and complete in all material respects as of the date hereof, and will be
true and complete in all material respects as of the Closing Date.
Article 4
Representations and Warranties of Purchaser
-------------------------------------------
Purchaser represents and warrants to the Shareholders as follows:
4.1 Organization. Purchaser is a corporation duly organized and validly
------------
existing under the laws of the State of Delaware, and has full corporate power
and authority to own and lease its properties as such properties are now owned
and leased, and to conduct its business as and where its business is now
conducted.
4.2 Authority.
---------
(a) Purchaser has full right, power, authority and capacity to execute
and deliver this Agreement and the Other Documents, and to perform its
obligations under this Agreement and the Other Documents. This Agreement and
the Other Documents constitute valid and legally binding obligations of
Purchaser, enforceable in accordance with their terms.
(b) The execution and delivery of this Agreement and the Other
Documents, the consummation of the transactions contemplated hereby and thereby,
and the performance and fulfillment of the obligations and undertakings
hereunder and thereunder by Purchaser will not: (i) violate any provision of, or
result in the breach of or accelerate or permit the acceleration of any
performance required by the terms of, its articles of incorporation or bylaws;
any contract, agreement, arrangement or undertaking to which Purchaser is a
party or by which it may be bound; any judgment, decree, writ, injunction, order
or award of any arbitration panel, court or governmental authority; or any
applicable law, ordinance, rule or regulation of any governmental body; or (ii)
terminate or cancel, or result in the termination or cancellation of, any
agreement or undertaking to which it is a party.
(c) The execution and delivery of, and the performance and
consummation of the transactions contemplated by, this Agreement and the Other
Documents have been duly authorized by all requisite corporate action. All
other consents, approvals, authorizations, releases or orders required of or for
Purchaser for the authorization, execution, and delivery of, and for the
performance and consummation of the transactions contemplated by, this Agreement
and the Other Documents will have been obtained by the Closing.
4.3 Litigation and Claims. There are no actions, suits, proceedings,
---------------------
hearings, investigations, litigation, charges, complaints, claims or demands,
pending or threatened, to the best knowledge of Purchaser, which would delay,
prevent or set aside the transactions contemplated by this Agreement or which
would be reasonably likely to have a material adverse effect upon or restrict
Purchaser's ability to perform its obligations under this Agreement.
4.4 Investment Intent. Purchaser is acquiring the Shares solely for its
-----------------
own account and not with a view to a sale or distribution thereof in violation
of any securities laws. Purchaser acknowledges that it has received, or has had
access to, all information which it considers necessary or advisable to enable
it to make a decision concerning its purchase of the Shares, provided that the
foregoing shall not limit or otherwise affect the rights or remedies of
Purchaser hereunder with respect to the breach of any representations,
warranties, covenants or agreements of the Shareholders or the Companies
contained in this Agreement except as expressly set forth in this Agreement.
4.5 Financing. Purchaser has, and will have at the Closing, all funds
---------
necessary to pay the Purchase Price and to perform the obligations of Purchaser
and Purchaser's Affiliates under this Agreement and the Other Documents.
4.6 Permit Blocking. Neither Purchaser, any Affiliate of Purchaser, any
---------------
Person "owned or controlled" by Purchaser nor any of its Affiliates, or any
Person which "owns or controls" Purchaser or any of its Affiliates has been
notified by the Federal Office of Surface Mining or the agency of any state
administering the Surface Mining Control and Reclamation Act (30 U.S.C.
(S)(S) 1201 et seq.), or any comparable state statute, that it is: (i)
-- ---
ineligible to receive additional surface mining permits; or (ii) under
investigation to determine whether their eligibility to receive such permits
should be revoked, i.e., "permit blocked." As used herein, the terms "owned or
----
controlled" and "owns or controls" shall be defined as set forth in 30 C.F.R.
(S)773.5 (1991
Article 5
Covenants of the Principal Shareholder
--------------------------------------
The Principal Shareholder covenants and agrees with Purchaser that:
5.1 Record Retention. With respect to the books and records of the
----------------
Companies which are not transferred to Purchaser, the Principal Shareholder
shall maintain for a period of at least five (5) years after the Closing all
such books and records. The Principal Shareholder shall, upon reasonable
notice, give Purchaser and their representatives cooperation, access (including
copies) and staff assistance, if available and as needed, during normal business
hours, and upon reasonable notice with respect to such records; provided,
however, Purchaser shall reimburse Principal Shareholder for all costs and
expenses incurred by Principal Shareholder in providing such services and
assistance to Purchaser after the Closing. The Principal Shareholder shall not
destroy or otherwise dispose of any such records during the five-year period
beginning on the Closing Date or before any applicable tax matter statute of
limitations for which such records may be necessary, whichever is later, without
the prior written consent of Purchaser.
5.2 Resignations. At the Closing, the Principal Shareholder shall cause
------------
the individuals identified on Schedule 3.18(b) to resign as officers and/or
directors of the Companies, which resignations shall be effective immediately
after the Closing.
5.3 Permits. In the event that not all of the Mid-Vol Permits, the
-------
Contributed Permits or the railroad siding agreements which are Contributed
Assets are available for use by the Companies immediately following the
transactions contemplated by this Agreement, the Shareholders, Purchaser and the
Companies shall cooperate in any reasonable arrangement designed to provide
Purchaser and the Companies the benefits under any such Mid-Vol Permits,
Contributed Permits or railroad siding agreements until such Mid-Vol Permits,
Contributed Permits or railroad siding agreements are available for use by and
transferred to the Companies.
5.4 Benefit Plans. Effective as of the Closing Date, Principal
-------------
Shareholder shall cause all participation by the Companies in the Companies'
Benefit Plans to cease.
Article 6
Covenants of Purchaser
----------------------
Purchaser covenants and agrees with the Shareholders that:
6.1 Shareholder Guarantees. As soon as reasonably possible after the
----------------------
Closing, and in any event within one hundred eighty (180) days after the
Closing, Purchaser shall: (i) replace all bonds, letters of credit, guarantees
and other similar instruments of obligation or surety executed by the
Shareholders or their Affiliates for the benefit of the Companies (the
"Shareholder Guarantees") listed on Schedule 6.1 with bonds, letters of credit,
guarantees or other similar instruments of obligation or surety executed by
Purchaser or an Affiliate of Purchaser; or (ii) satisfy all obligations required
for the Shareholders and their Affiliates to be released from the Shareholder
Guarantees. Irrespective of any limitations set forth in Article 10 of this
Agreement, Purchaser shall indemnify the Shareholders and their Affiliates for
the full amount of any and all Losses attributable to the Shareholder Guarantees
arising from or related to the ownership, operation or management of the
Companies by Purchaser after the Closing.
6.2 Ownership and Control. As soon as reasonably possible after the
---------------------
Closing, and in any event within thirty (30) Business Days after the Closing
Date, Purchaser shall take all necessary and appropriate action, pursuant to all
applicable statutes or regulations, to give notice to the West Virginia Bureau
of the Environment, Division of Environmental Protection, Office of Mining and
Reclamation, and any other appropriate federal, state and local governmental
agencies, of the change in ownership and control of the Companies resulting from
the transfer of the Shares from the Shareholders to Purchaser pursuant to this
Agreement, and the fact that the Shareholders no longer own or are affiliated
with any of the Companies. In the event that any Shareholder suffers Losses due
to Purchaser's failure to comply with the provisions of this Section 6.2,
Purchaser shall indemnify such Shareholder for the full amount of any and all
such Losses irrespective of any limitations set forth in Article 10 of this
Agreement.
Article 7
Conditions to Obligations of Purchaser
--------------------------------------
The obligations of Purchaser to consummate the transactions contemplated
herein shall be subject to the satisfaction of the following conditions at or
before the Closing:
7.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of the Principal Shareholder contained herein and, with respect to
Sections 3.3 and 3.5(a), the representations and warranties of the Shareholders
contained herein, shall be true on the Closing Date, with the same effect as
though made at such time, except to the extent of changes permitted by the terms
of this Agreement. The Shareholders shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by them prior to the Closing. In addition, the Principal
Shareholder and the President of each Company shall have delivered to Purchaser
a certificate dated the Closing Date and signed by each of them to the effect
that, except as disclosed in the certificate, they do not know, and have no
reasonable grounds to know, of any failure or breach of any representation,
warranty or covenant made by the Principal Shareholder.
7.2 No Material Adverse Change. There shall not have occurred any
--------------------------
material adverse change since the date of this Agreement in the financial
condition, business, assets or results of operations of the Companies, except
for the transfer of the Excluded Assets or the termination of the Related Party
Agreements.
7.3 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by Purchaser of the transactions contemplated in this Agreement
shall have been fulfilled, and all authorizations, consents and approvals of all
federal, state, local and foreign governmental agencies and authorities required
to be obtained in order to permit the consummation by Purchaser of the
transactions contemplated by this Agreement except as otherwise expressly and
specifically provided in this Agreement, and to permit the business presently
carried on by each Company to continue unimpaired in all material respects
immediately following the Closing, shall have been obtained except as expressly
provided in this Agreement.
7.4 Ancillary Agreements. Each party to the Future Relationship
--------------------
Agreement, the Regal Rock Agreement and all Other Documents contemplated by this
Agreement, including, without limitation, the Principal Shareholder, each
Company and all of their respective Affiliates, as applicable, shall have
executed such agreements, and all such executed agreements shall have been
delivered to Purchaser.
7.5 Deliveries. At or before the Closing, the Shareholders shall (i)
----------
deliver to Purchaser all instruments necessary or otherwise reasonably requested
by Purchaser to duly and properly transfer and convey title to the Shares as
contemplated by this Agreement, and (ii) make all other deliveries designated by
this Agreement to be made at Closing.
7.6 Financing. Purchaser shall have arranged financing with such lenders,
---------
in such amounts, at such rates, and upon such terms as Purchaser deems, in
Purchaser's sole discretion, necessary and sufficient to consummate the
transactions contemplated in this Agreement.
7.7 Closing. The Closing shall occur on or before July 10, 1998.
-------
7.8 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all Required Consents on terms and conditions reasonably acceptable to Purchaser
(including, without limitation, the mining methods that Purchaser may use on
properties governed by such consent) that are necessary for: (a) the
consummation of the transactions contemplated by this Agreement that are
required to be performed prior to or at Closing; and (b) the assignment and
transfer of the Shares to Purchaser; provided, however, that, notwithstanding
the foregoing, neither Purchaser nor any Shareholder shall be required to pay
any remuneration to third parties in exchange for such party's consent or
approval, or to file any lawsuit or other action to obtain any such consent or
approval.
7.9 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
7.10 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
7.11 Due Diligence. Purchaser shall be satisfied, in its sole discretion,
-------------
with the results of its due diligence of the Companies and their respective
assets and liabilities, including, without
limitation: (i) all rights, title, interests and Liabilities of the Companies;
(ii) the terms and conditions of all agreements to which each Company is a party
(including but not limited to the terms and conditions of all lease agreements
under which each Company has any interest, especially terms authorizing
Purchaser to conduct highwall mining under such lease agreements); (iii) the
mineability, quantity and quality of the coal reserves of each Company; (iv) the
condition of all of the Owned Tangible Assets and the Leased Tangible Assets;
(v) the leasehold and fee titles to the Leased Real Property and Owned Real
Property, respectively; and (vi) the magnitude of the reclamation obligations
(regardless of whether such obligations are "current" or in "deferred status").
7.12 Board Approval. Purchaser's board of directors shall have approved
--------------
this Agreement, the Other Documents, and the transactions contemplated hereunder
and thereunder.
Article 8
Conditions to Obligations of the Shareholders
---------------------------------------------
The obligations of the Shareholders to consummate the transactions
contemplated herein shall be subject to the satisfaction of the following
conditions at or before the Closing:
8.1 Representations, Warranties and Covenants. The representations and
-----------------------------------------
warranties of Purchaser contained herein shall be true on the Closing Date, with
the same effect as though made at such time, except to the extent of changes
permitted by the terms of this Agreement. Purchaser shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it prior to the Closing. In addition, Purchaser
shall have delivered to the Shareholders a certificate dated the Closing Date
and signed by its President and Chief Financial Officer to the effect that,
except as disclosed in the certificate, they do not know, and have no reasonable
grounds to know, of any material failure or breach of any representation,
warranty or covenant made by Purchaser.
8.2 Statutory Requirements. All statutory requirements for the valid
----------------------
consummation by the Shareholders of the transactions contemplated in this
Agreement shall have been fulfilled, and all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies and
authorities required to be obtained in order to permit the consummation by the
Shareholders of the transactions contemplated in this Agreement shall have been
obtained.
8.3 Ancillary Agreements. The Purchaser shall have executed the Future
--------------------
Relationship Agreement, any required Amendments to the Contract Mining
Agreement, the Regal Rock Agreement and all of the other Documents contemplated
by this Agreement, and all such executed agreements shall have been delivered to
Principal Shareholder.
8.4 Deliveries. At or before the Closing, Purchaser shall make all of its
----------
deliveries designated by this Agreement to be made at Closing.
8.5 Third-Party Consents and Approvals. The parties shall have obtained
----------------------------------
all third-party consents and approvals that are necessary for: (a) the
consummation of the transactions contemplated by this Agreement; and (b) the
assignment and transfer of the Shares to Purchaser;
provided, however, that, notwithstanding the foregoing, neither Purchaser nor
the Shareholders shall be required to pay any remuneration to third parties in
exchange for such party's consent or approval, or to file any lawsuit or other
action to obtain any such consent or approval.
8.6 No Injunction. No injunction or order of any court or administrative
-------------
agency or instrumentality shall be in effect, and no statute, rule or regulation
of any governmental authority or competent jurisdiction shall have been
promulgated or enacted, as of the Closing which restrains or prohibits the
transactions contemplated by this Agreement and the Other Documents.
8.7 No Pending Action. No action, suit or other proceeding by any Person
-----------------
to restrain or prohibit the transactions contemplated by this Agreement and the
Other Documents shall be pending.
8.8 Closing. The Closing shall occur on or before July 10, 1998.
-------
Article 9
The Closing/Termination
-----------------------
9.1 Date and Place. The Closing shall be held concurrently with the
--------------
execution of this Agreement on the Closing Date at 10:00 a.m. in the offices of
Brown, Todd & Heyburn PLLC, 2700 Lexington Financial Center, Lexington,
Kentucky, or at such other place or time on the Closing Date as the parties may
mutually agree.
9.2 Deliveries. At or before the Closing, the parties shall make all of
----------
the deliveries contemplated in this Agreement.
Article 10
Survival of Representations and Warranties -- Indemnification
-------------------------------------------------------------
10.1 Survival. Each of the parties' representations, warranties,
--------
covenants and agreements (including undisclosed liabilities) set forth in this
Agreement shall survive the Closing for a period of three (3) years; provided,
however, that the representations and warranties contained in Sections 3.9 and
3.24 shall in any event survive until the expiration of the applicable statute
of limitations.
10.2 Indemnity by the Principal Shareholder. The Principal Shareholder
--------------------------------------
shall indemnify and hold the Companies and Purchaser harmless from and against,
and shall pay to the Companies and Purchaser the full amount of, any loss,
claim, damage, liability or expense (including reasonable attorneys' fees but
excluding all special, exemplary, punitive and consequential damages) (each, a
"Loss") resulting to any Company or Purchaser, either directly or indirectly,
from: (a) any Assumed Liabilities or Excluded Assets; (b) any inaccuracy in any
representation or warranty, or any breach of any covenant or agreement, by any
Company or any of the Shareholders contained in this Agreement or in any of the
Other Documents; (c) the failure to contribute the Contributed Assets; and (d)
any liability for any fee or commission owed to a broker or finder pursuant to
an agreement signed by the Companies or the Shareholders with respect to the
transactions contemplated by this Agreement.
10.3 Indemnity by Purchaser. Purchaser shall indemnify and hold the
----------------------
Shareholders harmless from and against, and shall pay to the Shareholders the
full amount of, any Loss resulting to the Shareholders, either directly or
indirectly, from: (a) any liability of any Company retained by Purchaser under
this Agreement or the Other Documents; (b) any inaccuracy in any representation
or warranty, or any breach of any covenant or agreement, by Purchaser contained
in this Agreement or in any of the Other Documents; (c) any liability for any
fee or commission owed to a broker or finder pursuant to an agreement signed by
Purchaser with respect to the transactions contemplated by this Agreement; (d)
any liability of or damages to the Shareholders or their Affiliates arising from
the Shareholders or their Affiliates maintaining any rights or obligations under
the Permits or the Shareholder Guarantees until the approvals for which
Purchaser must file under Section 6.2 have been obtained and all of the
Shareholder Guarantees have been released; any liability arising from or related
to the ownership, operation or management of the Companies by Purchaser after
the Closing.
10.4 Remedies; Right of Offset. Upon the occurrence of any event for which
-------------------------
Purchaser or any Shareholder is entitled to indemnification under this
Agreement, they shall have all the rights and remedies at law and in equity
available to them. Without limiting the foregoing, the Principal Shareholder
and Purchaser each hereby agree to pay promptly upon receipt of notice from any
Company, Shareholder or Purchaser the amounts which the Principal Shareholder
may owe to any of the Companies or Purchaser or which Purchaser may owe to any
Shareholder from time to time by reason of the provisions of this Agreement or
otherwise. If the Principal Shareholder fails or refuses to pay any such
amounts promptly after the request of any Company or Purchaser, then the
Companies and Purchaser, at their election, may offset any such amounts against
the Deferred Payments pursuant to Section 2.2(f)(ii).
10.5 Limitations on Indemnity Obligations.
------------------------------------
(a) The Principal Shareholder's liability under this Article 10 shall
be limited to the following Losses incurred by Purchaser:
(i) No claim may be made for indemnification of any Loss by
Purchaser from Principal Shareholder unless such Loss exceeds Two Thousand Five
Hundred Dollars ($2,500.00); provided, however, that in the case of any Loss
attributable to Tax to the Companies for periods prior to the Closing or for
Assumed Liabilities there shall be no minimum Loss amount.
(ii) The Principal Shareholder shall, in the aggregate, be
liable for Losses pursuant to this Section 10 only to the extent that the
cumulative aggregate amount of all such Losses exceeds Two Hundred Fifty
Thousand Dollars ($250,000.00) (the "Deductible").
(iii) The aggregate amount of Losses for which the Principal
Shareholder shall be liable pursuant to this Section 10 shall not exceed the
Purchase Price; provided, however, this limitation of the maximum amount of
indemnification by Principal Shareholder shall not apply to any Loss to
Purchaser arising from the Assumed Liabilities or Excluded Assets.
(iv) The Principal Shareholder's liability for Losses shall be
net of any insurance proceeds which Purchaser is entitled to receive under any
insurance coverage applicable to the Loss.
(b) Purchaser's liability under this Article 10 shall be limited to
the following Losses incurred by the Shareholders except as provided in Sections
5.3, 6.1 and 6.2.
(i) No claim may be made for indemnification of any Loss by the
Shareholders from Purchaser unless such Loss exceeds Two Thousand Five Hundred
Dollars ($2,500.00); provided, however, that in the case of any Loss
attributable to Tax to the Companies for periods after the Closing there shall
be no minimum Loss amount, or, in the case of any Loss attributable to the
ownership, operation or management of the Companies after the Closing Date there
shall be no minimum Loss amount.
(ii) Purchaser shall be liable for Losses pursuant to this
Section 10 only to the extent that the cumulative aggregate amount of all such
Losses exceeds the Deductible; provided, however, that in the case of any Loss
attributable to the ownership, operation or management of the Companies after
the Closing Date, there shall be no minimum Deductible.
(iii) The aggregate amount of Losses for which Purchaser shall be
liable pursuant to this Section 10 shall not exceed the Purchase Price;
provided, however, this limitation of the maximum amount of indemnification by
Purchaser shall not apply to any Loss to the Shareholders arising from or
related to the ownership, operation or management of the Companies by Purchaser
after the Closing.
(iv) The Purchaser's liability for Losses shall be net of any
insurance proceeds which the Principal Shareholder or the Shareholders are
entitled to receive under any insurance coverage applicable to the Loss.
10.6 Control of Indemnified Matters. If a third-party claim is made
------------------------------
against an indemnified party that may result in a loss to the indemnified party,
the indemnifying party will be entitled to participate in the defense thereof,
and if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party and reasonably satisfactory to the indemnified party. If the
indemnifying party elects to assume the defense of such third-party claim, the
indemnifying party will not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof. If the
indemnifying party chooses to defend or prosecute any third-party claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such third-party claim, and making employees
available on a
mutually convenient and reasonable basis to provide additional information and
explanation of any material provided hereunder. Whether or not the indemnifying
party shall have assumed the defense of a third-party claim, the indemnified
party shall not admit any liability with respect to, or settle, compromise or
discharge, such third-party claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld). Notwithstanding any
provision in this Section 10.6, an indemnifying party shall have no right to
participate in or in any way assume the defense of a third-party claim if such
third-party claim seeks an order, injunction, non-monetary claim or other
equitable relief against the indemnified party.
10.7 Sole and Exclusive Remedy. The indemnification provided under this
-------------------------
Article 10 and the right to seek injunctive relief and specific performance
(subject to Article 11) shall constitute the sole and exclusive remedies of the
parties to this Agreement subsequent to the Closing for any Loss sustained by
Shareholders and their Affiliates and Purchaser as a result of any breach of
this Agreement other than Losses based upon fraud or fraudulent
misrepresentation.
10.8 No Other Representations, Rescission. Except as set forth in this
------------------------------------
Agreement, no party makes any representation, warranty, covenant or agreement
with respect to the matters contained herein. In particular, Principal
Shareholder and the other Shareholders make no representation or warranty with
respect to any financial projection or forecast relating to the Companies or to
the amount, mineability and merchantability of coal on the Real Property.
Notwithstanding anything herein to the contrary, no breach of any
representation, warranty, covenant or agreement contained herein or in the Other
Documents shall give rise to any right on the part of any other party, after the
consummation of the purchase and sale of the Shares contemplated hereby, to
rescind this Agreement, the Other Documents or any transactions contemplated
thereby.
Article 11
Arbitration
-----------
11.1 Dispute Resolution. All controversies, disputes or claims arising
------------------
among the parties in connection with, or with respect to, any provision of this
Agreement or any of the Other Documents, which has not been resolved within
twenty (20) days after either Purchaser or the Shareholders have notified the
other in writing of such controversy, dispute or claim, shall be submitted for
arbitration in accordance with the rules of the American Arbitration Association
or any successor thereof. Arbitration shall take place at an appointed time at
a location that is mutually agreeable to the parties.
11.2 Selection of Arbitrators. Purchaser and the Shareholders each shall
------------------------
select one (1) arbitrator (who shall not be counsel for such party), and the two
(2) so designated shall select a third arbitrator. If either party shall fail
to designate an arbitrator within seven (7) calendar days after arbitration is
requested, or if the two (2) arbitrators shall fail to select a third arbitrator
within fourteen (14) calendar days after arbitration is requested, then such
arbitrator shall be selected by the American Arbitration Association or any
successor thereto upon application of either party. Judgment upon any award of
the majority of arbitrators shall be binding and shall be entered in a court of
competent jurisdiction. Subject to the provisions of this Agreement, including
but not limited to Section 12.14, the award of the arbitrators may grant any
relief that a court of general
jurisdiction has authority to grant, including, without limitation, an award of
damages and/or injunctive relief, and shall assess, in addition, the cost of the
arbitration, including the reasonable fees of the arbitrator, reasonable
attorneys' fees and costs of all prevailing parties, against all non-prevailing
parties.
11.3 Temporary Injunctive Relief. Nothing herein contained shall bar the
---------------------------
right of any of the parties to seek and obtain temporary injunctive relief from
a court of competent jurisdiction in accordance with applicable law against
threatened conduct that will cause loss or damage, pending completion of the
arbitration, and the prevailing party therein shall be entitled to an award of
its reasonable attorneys' fees and costs.
11.4 Arbitration Rules. All disputes and claims shall be determined by
-----------------
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules") in effect on the date hereof, except as
such Rules shall be modified by this Agreement.
11.5 Arbitration Proceedings. All arbitration proceedings arising under,
-----------------------
or in connection with, this Agreement shall be governed by the Federal Rules of
Civil Procedure. Notwithstanding the previous sentence, the arbitrators' award
shall be made no later than ninety (90) days after their appointment. Subject
to the parties' right to be treated fairly, the arbitrators may shorten the
periods of time otherwise applicable to the arbitration proceedings under the
Rules or the Federal Rules of Civil Procedure to permit the award to be made
within the time limitation set forth in the previous sentence.
Article 12
Miscellaneous
-------------
12.1 Notices. All notices under this Agreement ("Notices") shall be given:
-------
(i) by personal delivery; (ii) by facsimile transmission; (iii) by registered or
certified mail, postage prepaid, return receipt requested; or (iv) by nationally
recognized overnight or other express courier services, as follows:
(a) If to Purchaser:
Coal Ventures, Inc.
1500 North Big Run Road
Ashland, Kentucky 41102
Attention: Donald P. Brown, President
Telephone No.: (606) 928-3433
Telecopy No.: (606) 928-0450
With a copy to:
Paul E. Sullivan, Esq.
Brown, Todd & Heyburn PLLC
2700 Lexington Financial Center
Lexington, Kentucky 40507
Telephone No.: (606) 231-0000
Telecopy No.: (606) 231-0011
(b) If to the Shareholders:
Mr. Richard G. Preservati
P.O. Box 1112
Princeton, West Virginia 24740
Telephone No.: (304) 425-8373
Telecopy No.: (304) 487-3313
With a copy to:
E. Forrest Jones, Jr., Esq.
Albertson & Jones
P.O. Box 1989
Charleston, West Virginia 25327
Telephone No.: (304) 343-9466
Telecopy No.: (304) 345-2456
All Notices shall be effective and shall be deemed delivered: (i) if by
personal delivery, on the date of delivery if delivered during normal business
hours of the recipient, and if not delivered during such normal business hours,
on the next Business Day following delivery; (ii) if by facsimile transmission
or overnight courier service, on the next Business Day following dispatch of
such facsimile or overnight courier package; and (iii) if by mail, on the third
(3rd) Business Day after dispatch thereof. Either party may change its address
by Notice to the other party.
12.2 Waivers. No waiver or failure to insist upon strict compliance with
-------
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
12.3 Expenses. Each party shall assume its respective expenses incurred in
--------
connection with the transactions contemplated by this Agreement except as
expressly provided in Section 5.6 and Article 11 of this Agreement. The
Shareholders agree that after the Closing none of the Companies will bear any
costs or expenses related to this Agreement.
12.4 Headings; Interpretation. The headings in this Agreement have been
------------------------
included solely for ease of reference and shall not be considered in the
interpretation or construction of this
Agreement. All references herein to the masculine, neuter or singular shall be
construed to include the masculine, feminine, neuter or plural, as applicable.
12.5 Annexes and Schedules. The Annexes and Schedules to this Agreement
---------------------
are incorporated herein by reference and expressly made a part hereof.
Shareholders shall have the right to and shall amend the Schedules hereto at the
time of Closing such that all disclosures, covenants, representations and
warranties are true and complete at the time of the Closing. Such amendments may
be the basis for the termination of this Agreement if such amendments which have
not been otherwise disclosed to Purchaser are, in the aggregate, material unless
the Purchase Price or the other terms and conditions of this Agreement are
amended in response to such changed schedule or annex if requested by Purchaser.
Except with respect to the Financial Statements and the Interim Financial
Statements, the specification of any dollar amount for any item in any Schedule
or Annex hereto is intended only as an estimate at the time of the preparation
of such Schedule or Annex, and no party shall use the fact of the setting forth
of any such amount as proof of or determinitive of the amount of any scheduled
or annexed item. Unless this Agreement specifically provides otherwise, neither
the specification of any item or matter in any representation or warranty
contained in this Agreement nor the inclusion of any specific item in any
Schedule hereto is intended to imply that such item or matter, or other items or
matters, are or are not in the ordinary course of business, and no party shall
use the fact of the setting forth or the inclusion of any such item or matter in
any dispute or controversy between the parties as to whether any obligation,
item or matter not described herein or included in any schedule is or is not in
the ordinary course of business for purposes of this Agreement. Disclosure of
any fact or item in any Schedule hereto shall, should the existence of the fact
or item or its contents be relevant to any other Schedule, be deemed to be
disclosed with respect to that other Schedule whether or not an explicit
reference appears, provided that such disclosure would give a diligent purchaser
reasonable notice of the relevance of such fact or item or its contents to such
other Schedule. No representation or warranty hereunder shall be deemed to be
inaccurate if the actual situation is disclosed (or deemed disclosed pursuant to
this Section 12.5) in any Schedule.
12.6 Entire Agreement. All prior negotiations and agreements by and among
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the parties hereto with respect to the subject matter hereof are superseded by
this Agreement and the Other Documents, and there are no representations,
warranties, understandings or agreements with respect to the subject matter
hereof other than those expressly set forth herein or in an Annex or Schedule
delivered in connection herewith or therewith. No change shall be enforceable
unless in writing and signed by the party against whom enforcement is sought.
12.7 Representations and Warranties, Etc. The representations and
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warranties of each party contained herein shall not be deemed to be waived or
otherwise affected by any investigation made by any other party hereto. As used
in this Agreement, the term "Principal Shareholder's knowledge," and all other
references to material matters which are known by or to the Principal
Shareholder, shall refer to material matters which are known, or which with the
exercise of reasonable care should have been known, by the Principal Shareholder
after consultation with the Companies' current corporate officers, directors and
general manager, and after his due investigation of corporate records (except
that if the Principal Shareholder is required to make "due inquiry" with
respect to any matter, he shall make such additional inquiry as a reasonable
person would make under the circumstances).
12.8 Governing Law. This Agreement shall be governed by, and construed and
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interpreted in accordance with, the laws of the State of West Virginia. Each
party agrees that any action brought in connection with this Agreement (as
permitted under Article 11) against another shall be filed and heard in a court
of competent jurisdiction in West Virginia.
12.9 Brokers. The parties covenant and agree with one another that they
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have not dealt with any broker or finder in connection with any of the
transactions contemplated in this Agreement and, insofar as they know, no broker
or other Person is entitled to a commission or finders' fee in connection with
these transactions. Each party shall indemnify and hold the other parties
harmless from and against any claim by any agent or broker claiming by or
through it for any fee or other compensation due or allegedly due that broker or
agent.
12.10 Counterparts. This Agreement may be executed in any number of
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counterparts, including by means of facsimile, each of which shall be an
original, but all of which together shall constitute one and the same
instrument.
12.11 Benefit and Binding Effect. This Agreement shall be binding upon, and
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shall inure to the benefit of, the Shareholders and their heirs, personal
representatives, successors and assigns, and Purchaser and each of its
successors and assigns; provided, however, that no party to this Agreement shall
assign his or its rights or obligations hereunder without the express written
consent of the other parties, which consent shall not be unreasonably withheld,
and no party shall be released of its obligations under this Agreement as a
result of such assignment. However, notwithstanding anything to the contrary in
this Section 12.11, Purchaser may (i) assign its rights under this Agreement to
an Affiliate of Purchaser, or (ii) collaterally assign its rights under this
Agreement to any lender of Purchaser.
12.12 Specific Performance. Subject to Article 11, the parties shall be
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entitled to specific performance, injunctive relief and other equitable relief
for breaches of the other parties' covenants and agreements, and such relief may
be awarded by the arbitrators pursuant to Article 11. Therefore, it is agreed
the parties will not, in any action to enforce this Agreement, assert that there
is an adequate remedy at law for the default under which such action or
proceeding is based.
12.13 Severability. If any provision of this Agreement or its application
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will be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of all other applications of that provision, and of all other
provisions and applications hereof, will not in any way be affected or impaired.
If any court shall determine that any provision of this Agreement is in any way
unenforceable, such provision shall be reduced to whatever extent is necessary
to make such provision enforceable.
12.14 No Consequential Damages. Except as prohibited by law, each party
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waives any right it may have to claim or recover any special, exemplary,
punitive or consequential damages, or any damages other than, or in addition to,
actual damages.
12.15 Post-Closing Assistance. In case at any time after the Closing any
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further action is reasonably necessary or desirable to consummate the
transactions contemplated by this Agreement and the Other Documents, the
Principal Shareholder and Purchaser will promptly take or cause to be taken such
further action (including the execution and delivery of such further instruments
and documents) as Principal Shareholder or Purchaser may reasonably request.
12.16 Cooperation. The Principal Shareholder and Purchaser shall cooperate
-----------
fully, completely and promptly with each other as much as reasonably possible in
connection with satisfying all conditions to, and effecting the transactions
contemplated by, this Agreement as soon as reasonably possible.
12.17 Representations and Warranties. The Principal Shareholder and
------------------------------
Purchaser shall not cause or permit any of their respective representations and
warranties made in this Agreement to be intentionally or materially untrue or
incomplete on the Closing Date or at any time prior thereto.
12.18 Publicity. Except as required by applicable law or in contemplation
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or the performance of this Agreement, without the prior written consent of the
other, Principal Shareholder and Purchaser shall not disclose or publish, or
permit the disclosure or publication of, any information concerning the
execution and delivery of this Agreement, or the transactions contemplated by
this Agreement, to any Person.
12.19 Hart-Scott-Rodino. The parties agree that the transactions
-----------------
contemplated hereby do not require any filings or notifications with respect to
the HSR Act.
12.20 Surety Bond.
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(a) At the Closing, Purchaser shall deliver or cause to be delivered
to the Principal Shareholder a surety bond, actionable by Principal Shareholder
upon terms and conditions acceptable to the Principal Shareholder, substantially
in the form of Annex 12.20 hereto and from a surety or financial institution
reasonably acceptable to Principal Shareholder, as collateral security for
Purchaser's obligations for the Deferred Payments and Production Payments owed
under this Agreement and the Other Documents (the "Surety Bond"). The Surety
Bond shall be issued in the face amount of Fifteen Million Dollars ($15,000,000)
and, beginning on the second (2nd) anniversary of the Closing Date, and on each
of the following four (4) anniversaries of the Closing Date, Purchaser or its
Affiliates may decrease the face amount of the Surety Bond by Three Million
Dollars ($3,000,000.00) provided that Purchaser and its Affiliates are not in
default of their respective obligations to pay the Deferred Payments and the
Production Payments at such time. The Surety Bond shall terminate on the sixth
(6th) anniversary of the Closing Date.
(b) If Principal Shareholder believes that Purchaser or its
Affiliates have failed to pay any Deferred Payment or Production Payment when
due, Principal Shareholder may notify Purchaser of such alleged failure. If
Purchaser shall fail to cure such default or if Purchaser disputes such default
but Purchaser and Principal Shareholder shall fail to resolve such dispute
within thirty (30) days after Principal Shareholder has provided notice of the
alleged default, Principal Shareholder may file all required documentation and
collect the amount at issue plus interest thereon as provided
in Section 2.2 (d) under the Surety Bond. If the parties subsequently agree
that Purchaser or its Affiliate was not in default as set forth in Principal
Shareholder's notice or if a court or arbitration panel determines that
Purchaser or its Affiliate was not in default as set forth in Principal
Shareholder's notice, Principal Shareholder shall immediately reimburse such
amount to Purchaser and shall pay Purchaser interest at the rate set forth in
Section 2.2(d) for the period of time from the date that Principal Shareholder
collected such amount under the Surety Bond until the date that such amount has
been repaid to Purchaser.
12.21 Releases. At the Closing, Principal Shareholder shall provide
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written evidence that all indebtedness for borrowed money of the Companies
which constitutes an Assumed Liability has been paid.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date set forth in the preamble hereto.
PURCHASER: COAL VENTURES, INC.
By: /s/ MARC MURRETT
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Title: SENIOR VICE PRESIDENT
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SHAREHOLDERS: /s/ RICHARD G. PRESERVATI
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RICHARD G. PRESERVATI
/s/ NANCY KAREN PRESERVATI
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NANCY KAREN PRESERVATI
/s/ RICHARD G. PRESERVATI, II
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RICHARD G. PRESERVATI, II
/s/ NICHOLAS SHEA PRESERVATI
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NICHOLAS SHEA PRESERVATI
/s/ TIMOTHY BOGGESS
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TIMOTHY BOGGESS
/s/ GINA DENISE BOGGESS
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GINA DENISE BOGGESS
SCHEDULES AND ANNEXES
ANNEXES
1.1(q) Form of Contract Mining Agreement
1.1(cc) Financial Statements
1.1(dd) Form of Future Relationship Agreement
1.1(kk) Interim Financial Statements
2.2(f) Form of Note
12.20 Form of Surety Bond
SCHEDULES
1.1(m) Accounting Principles
2.1(b)(i) Excluded Assets
2.1(b)(ii) Contributed Assets
2.1(b)(iii) Contributed Permits
2.2(c) Current Assets and Liabilities
2.5 Assumed Liabilities
3.1(a) Organization
3.5(b) Authority
3.5(c) Regulatory Notices
3.7(a) Tangible Assets
3.8(a) Material Change
3.8(b) Adverse Change
3.8(c) Commitments, Obligations
3.9(b) Tax Returns
3.9(c) Tax Payments
3.9(d)(i) Tax Disputes
3.9(d)(ii) List of Tax Returns
3.9(e) Statute of Limitations
3.9(f) Tax Liability
3.9(h) Tax Adjustment
3.10(a) Undisclosed Liabilities
3.11 Compliance with Law
3.12(a) Contracts
3.12(b) Non-Continuing Contracts
3.13 Litigation and Proceedings
3.14(a) Leased Real Property
3.14(b) Owned Real Property
3.14(c) Title
3.14(f) Material Default
3.14(g) Lessors
3.14(h) Possession
3.15 Condemnation
3.17 Collectibles
3.18 Banks, Directors and Officers, Insurance
3.19(a)(1) Permits and Approvals
3.19(a)(2) Mid-Vol Permits
3.19(a)(3) Misrepresentations
3.19(a)(4) Notices of Noncompliance
3.19(b)(1) Bonds
3.19(b)(2) Permit Compliance
3.20 Intellectual Property
3.22(a) List of Insurance Policies
3.22(b) Breach of Coverage
3.22(c) Claims
3.23(a) Collective Bargaining
3.23(c)(1) Key Employees
3.23(c)(2) Employees
3.24 Benefit Plans
3.24(l) Employer Liability
3.26(b) Compliance with Law
3.26(c)(1) Permit Maintenance
3.26(c)(2) Permit List
3.26(d) Legal Notice
3.26(e) Environmental Spill
3.26(f) Environmental Orders and Complaints
3.26(g) Disposal
3.26(h) Hazardous Material
3.26(i) Hazardous Material Transport
3.27 Immigration Matters
3.29(a) Consents and Notices
3.29(b) Required Consents
3.31 Distributions
3.32 Powers of Attorney
6.1 Shareholder Guarantees